Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test, that includes an assessment of qualitative factors including, but not limited to, macroeconomic conditions, industry and market conditions, and entity specific factors such as strategies and financial performance. We test for goodwill impairment at the reporting unit level. Cintas has identified four reporting units for purposes of evaluating goodwill impairment: Uniform Rental and Facility Services, First Aid and Safety Services and two reporting units within All Other. Based on the results of the annual impairment tests, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2019, 20182021, 2020 or 2017.2019. Cintas will continue to perform impairment tests as of March 1 in future years and when indicators of impairment exist.
Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. While a significant change in assumptions and judgments could have a material impact on the amounts recorded for contingent liabilities, Cintas does not believe that they will result in a material adverse effect on the consolidated financial statements.
Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas' evaluation of current tax positions, Cintas believes its tax related accruals are appropriate.
Earnings may be affected by changes in short-term interest rates due to investments, if any, in marketable securities and money market accounts and periodic issuances of commercial paper. If short-term rates changed by one-half percent (or 50 basis points), Cintas' income before income taxes would change by approximately $1.1$0.5 million. This estimated exposure considers the effects on investments. This analysis does not consider the effects of a change in economic activity or a change in Cintas' capital structure.
Through its foreign operations, Cintas is exposed to foreign currency risk. Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenue and profit translated into U.S. dollars. Foreign denominated revenue and profit represents less than 10% of Cintas' consolidated revenue and profit. Cintas periodically uses foreign currency hedges such as average rate options and forward contracts to mitigate the risk of foreign currency exchange rate movements resulting from foreign currency revenue and from international cash flows. The primary foreign currency to which Cintas is exposed is the Canadian dollar.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2019,2021, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.
We reviewed the results of management's assessment with the Audit Committee of our Board of Directors. Additionally, our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of Cintas Corporation's internal control over financial reporting. Ernst & Young LLP has issued an attestation report, which is included in this Annual Report on Form 10-K.
We have audited Cintas Corporation’s internal control over financial reporting as of May 31, 2019,2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cintas Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of May 31, 2019,2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 20192021 and 2018, and2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended May 31, 2019,2021, and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated July 26, 2019,28, 2021, expressed an unqualified opinion thereon.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Report of Management”“Management's Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
To the Shareholders and the Board of Directors of Cintas Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cintas Corporation (the Company) as of May 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended May 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated July 26, 2019, expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers and recognizing costs related to obtaining customer contracts in the period ended May 31, 2019.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| | | | | | | | | | | | | | | | | |
Consolidated Statements of Income | Fiscal Years Ended May 31, |
(In thousands except per share data) | 2021 | | 2020 | | 2019 |
| | | | | |
Revenue: | | | | | |
Uniform rental and facility services | $ | 5,689,632 | | | $ | 5,643,494 | | | $ | 5,552,430 | |
Other | 1,426,708 | | | 1,441,626 | | | 1,339,873 | |
Total revenue | 7,116,340 | | | 7,085,120 | | | 6,892,303 | |
| | | | | |
Costs and expenses: | | | | | |
Cost of uniform rental and facility services | 2,983,514 | | | 3,055,145 | | | 3,027,599 | |
Cost of other | 818,175 | | | 796,227 | | | 736,116 | |
Selling and administrative expenses | 1,929,159 | | | 2,071,052 | | | 1,980,644 | |
G&K Services, Inc. integration expenses | 0 | | | 0 | | | 14,410 | |
Operating income | 1,385,492 | | | 1,162,696 | | | 1,133,534 | |
| | | | | |
Gain on sale of a cost method investment | 0 | | | 0 | | | 69,373 | |
| | | | | |
Interest income | (467) | | | (988) | | | (1,228) | |
Interest expense | 98,210 | | | 105,393 | | | 101,736 | |
| | | | | |
Income before income taxes | 1,287,749 | | | 1,058,291 | | | 1,102,399 | |
Income taxes | 176,781 | | | 181,931 | | | 219,764 | |
Income from continuing operations | 1,110,968 | | | 876,360 | | | 882,635 | |
(Loss) income from discontinued operations, net of tax (benefit) expense of $0, $(107) and $757, respectively | 0 | | | (323) | | | 2,346 | |
Net income | $ | 1,110,968 | | | $ | 876,037 | | | $ | 884,981 | |
| | | | | |
Basic earnings per share: | | | | | |
Continuing operations | $ | 10.52 | | | $ | 8.36 | | | $ | 8.23 | |
Discontinued operations | 0.00 | | | 0.00 | | | 0.02 | |
Basic earnings per share | $ | 10.52 | | | $ | 8.36 | | | $ | 8.25 | |
| | | | | |
Diluted earnings per share: | | | | | |
Continuing operations | $ | 10.24 | | | $ | 8.11 | | | $ | 7.97 | |
Discontinued operations | 0.00 | | | 0.00 | | | 0.02 | |
Diluted earnings per share | $ | 10.24 | | | $ | 8.11 | | | $ | 7.99 | |
| | | | | |
Dividends declared and paid per share | $ | 5.01 | | | $ | 2.55 | | | $ | 2.05 | |
We have served as the Company’s auditor since 1968
Cincinnati, Ohio
July 26, 2019
|
| | | | | | | | | | | |
Consolidated Statements of Income | | | | | |
| Fiscal Years Ended May 31, |
(In thousands except per share data) | 2019 | | 2018 | | 2017 |
| | | | | |
Revenue: | | | | | |
Uniform rental and facility services | $ | 5,552,430 |
| | $ | 5,247,124 |
| | $ | 4,202,490 |
|
Other | 1,339,873 |
| | 1,229,508 |
| | 1,120,891 |
|
Total revenue | 6,892,303 |
| | 6,476,632 |
| | 5,323,381 |
|
| | | | | |
Costs and expenses: | | | | | |
Cost of uniform rental and facility services | 3,027,599 |
| | 2,886,959 |
| | 2,307,774 |
|
Cost of other | 736,116 |
| | 681,150 |
| | 635,312 |
|
Selling and administrative expenses | 1,980,644 |
| | 1,916,792 |
| | 1,527,380 |
|
G&K Services, Inc. transaction and integration expenses | 14,410 |
| | 41,897 |
| | 79,224 |
|
Operating income | 1,133,534 |
| | 949,834 |
| | 773,691 |
|
| | | | | |
Gain on sale of a cost method investment | 69,373 |
| | — |
| | — |
|
| | | | | |
Interest income | (1,228 | ) | | (1,342 | ) | | (237 | ) |
Interest expense | 101,736 |
| | 110,175 |
| | 86,524 |
|
| | | | | |
Income before income taxes | 1,102,399 |
| | 841,001 |
| | 687,404 |
|
Income taxes | 219,764 |
| | 57,069 |
| | 230,118 |
|
Income from continuing operations | 882,635 |
| | 783,932 |
| | 457,286 |
|
Income from discontinued operations, net of tax of $757, $35,313 and $15,057, respectively | 2,346 |
| | 58,654 |
| | 23,422 |
|
Net income | $ | 884,981 |
| | $ | 842,586 |
| | $ | 480,708 |
|
| | | | | |
Basic earnings per share: | | | | | |
Continuing operations | $ | 8.23 |
| | $ | 7.24 |
| | $ | 4.27 |
|
Discontinued operations | 0.02 |
| | 0.54 |
| | 0.22 |
|
Basic earnings per share | $ | 8.25 |
| | $ | 7.78 |
| | $ | 4.49 |
|
| | | | | |
Diluted earnings per share: | | | | | |
Continuing operations | $ | 7.97 |
| | $ | 7.03 |
| | $ | 4.17 |
|
Discontinued operations | 0.02 |
| | 0.53 |
| | 0.21 |
|
Diluted earnings per share | $ | 7.99 |
| | $ | 7.56 |
| | $ | 4.38 |
|
| | | | | |
Dividends declared and paid per share | $ | 2.05 |
| | $ | 1.62 |
| | $ | 1.33 |
|
See accompanying notes.
|
| | | | | | | | | | | |
Consolidated Statements of Comprehensive Income | | | | | |
| Fiscal Years Ended May 31, |
(In thousands) | 2019 | | 2018 | | 2017 |
| | | | | |
Net income | $ | 884,981 |
| | $ | 842,586 |
| | $ | 480,708 |
|
| | | | | |
Other comprehensive (loss) income, net of tax: | | | | | |
Foreign currency translation adjustments | (21,572 | ) | | 19,276 |
| | (10,252 | ) |
Change in fair value of interest rate lock agreements | (27,659 | ) | | — |
| | 31,136 |
|
Amortization of interest rate lock agreements | (1,179 | ) | | (933 | ) | | 1,076 |
|
Other | (5,085 | ) | | 1,029 |
| | (115 | ) |
| | | | | |
Other comprehensive (loss) income, net of tax (benefit) expense of ($9,635), $690 and $19,118, respectively | (55,495 | ) | | 19,372 |
| | 21,845 |
|
| | | | | |
Comprehensive income | $ | 829,486 |
| | $ | 861,958 |
| | $ | 502,553 |
|
| | | | | | | | | | | | | | | | | |
Consolidated Statements of Comprehensive Income | Fiscal Years Ended May 31, |
(In thousands) | 2021 | | 2020 | | 2019 |
| | | | | |
Net income | $ | 1,110,968 | | | $ | 876,037 | | | $ | 884,981 | |
| | | | | |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | 68,182 | | | (11,321) | | | (21,572) | |
Change in fair value of interest rate lock agreements, net of tax expense (benefit) of $36,172, $(32,793) and $(8,734), respectively | 106,843 | | | (94,954) | | | (27,659) | |
Amortization of interest rate lock agreement, net of tax benefit of $463, $463 and $717, respectively | (1,433) | | | (1,433) | | | (1,179) | |
Other, net of tax expense (benefit) of $3,578, $(2,802) and $(1,618), respectively | 10,676 | | | (8,495) | | | (5,085) | |
| | | | | |
Other comprehensive income (loss), net of tax expense (benefit) of $40,213, $(35,132) and $(9,635), respectively | 184,268 | | | (116,203) | | | (55,495) | |
| | | | | |
Comprehensive income | $ | 1,295,236 | | | $ | 759,834 | | | $ | 829,486 | |
See accompanying notes.
|
| | | | | | | |
Consolidated Balance Sheets | | | |
| As of May 31, |
(In thousands except share data) | 2019 | | 2018 |
| | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 96,645 |
| | $ | 138,724 |
|
Accounts receivable, principally trade, less allowance of $37,809 and $33,510, respectively | 910,120 |
| | 804,583 |
|
Inventories, net | 334,589 |
| | 280,347 |
|
Uniforms and other rental items in service | 784,133 |
| | 702,261 |
|
Income taxes, current | 7,475 |
| | 19,634 |
|
Prepaid expenses and other current assets | 103,318 |
| | 32,383 |
|
Total current assets | 2,236,280 |
| | 1,977,932 |
|
| | | |
Property and equipment, net | 1,430,685 |
| | 1,382,730 |
|
| | | |
Investments | 192,346 |
| | 175,581 |
|
Goodwill | 2,842,441 |
| | 2,846,888 |
|
Service contracts, net | 494,595 |
| | 545,768 |
|
Other assets, net | 240,315 |
| | 29,315 |
|
| $ | 7,436,662 |
| | $ | 6,958,214 |
|
Liabilities and Shareholders' Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 226,020 |
| | $ | 215,074 |
|
Accrued compensation and related liabilities | 155,509 |
| | 140,654 |
|
Accrued liabilities | 433,940 |
| | 420,129 |
|
Debt due within one year | 312,264 |
| | — |
|
Total current liabilities | 1,127,733 |
| | 775,857 |
|
| | | |
Long-term liabilities: | | | |
Debt due after one year | 2,537,507 |
| | 2,535,309 |
|
Deferred income taxes | 438,179 |
| | 352,581 |
|
Accrued liabilities | 330,522 |
| | 277,941 |
|
Total long-term liabilities | 3,306,208 |
| | 3,165,831 |
|
| | | |
Shareholders' equity: | | | |
Preferred stock, no par value: | | | |
100,000 shares authorized, none outstanding | — |
| | — |
|
Common stock, no par value: | | | |
425,000,000 shares authorized | | | |
2019: 184,790,626 shares issued and 103,284,401 shares outstanding | |
| | |
|
2018: 182,723,471 shares issued and 106,326,383 shares outstanding | 840,328 |
| | 618,464 |
|
Paid-in capital | 227,928 |
| | 245,211 |
|
Retained earnings | 6,691,236 |
| | 5,837,827 |
|
Treasury stock: | |
| | |
|
2019: 81,506,225 shares | | | |
2018: 76,397,088 shares | (4,717,619 | ) | | (3,701,319 | ) |
Accumulated other comprehensive (loss) income | (39,152 | ) | | 16,343 |
|
Total shareholders' equity | 3,002,721 |
| | 3,016,526 |
|
| $ | 7,436,662 |
| | $ | 6,958,214 |
|
| | | | | | | | | | | |
Consolidated Balance Sheets | As of May 31, |
(In thousands except share data) | 2021 | | 2020 |
| | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 493,640 | | | $ | 145,402 | |
| | | |
Accounts receivable, principally trade, less allowance of $12,097 and $35,433, respectively | 901,710 | | | 870,369 | |
Inventories, net | 481,797 | | | 408,898 | |
Uniforms and other rental items in service | 810,104 | | | 770,411 | |
Income taxes, current | 22,282 | | | 0 | |
Prepaid expenses and other current assets | 133,776 | | | 114,619 | |
Total current assets | 2,843,309 | | | 2,309,699 | |
| | | |
Property and equipment, net | 1,318,438 | | | 1,403,065 | |
| | | |
Investments | 274,616 | | | 214,847 | |
Goodwill | 2,913,069 | | | 2,870,020 | |
Service contracts, net | 408,445 | | | 451,529 | |
Operating lease right-of-use assets, net | 168,532 | | | 159,967 | |
Other assets, net | 310,414 | | | 260,758 | |
| | | |
| $ | 8,236,823 | | | $ | 7,669,885 | |
Liabilities and Shareholders' Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 230,786 | | | $ | 230,995 | |
Accrued compensation and related liabilities | 241,469 | | | 127,417 | |
Accrued liabilities | 518,910 | | | 456,653 | |
Income taxes, current | 0 | | | 27,099 | |
Operating lease liabilities, current | 43,850 | | | 43,031 | |
Debt due within one year | 899,070 | | | 0 | |
Total current liabilities | 1,934,085 | | | 885,195 | |
| | | |
Long-term liabilities: | | | |
Debt due after one year | 1,642,833 | | | 2,539,705 | |
Deferred income taxes | 386,647 | | | 388,579 | |
Operating lease liabilities | 130,774 | | | 122,695 | |
Accrued liabilities | 454,637 | | | 498,509 | |
Total long-term liabilities | 2,614,891 | | | 3,549,488 | |
| | | |
Shareholders' equity: | | | |
Preferred stock, no par value: 100,000 shares authorized, NaN outstanding | 0 | | | 0 | |
Common stock, no par value: 425,000,000 shares authorized 2021: 189,071,185 shares issued and 104,061,391 shares outstanding 2020: 186,793,207 shares issued and 103,415,368 shares outstanding | 1,417,343 | | | 1,102,689 | |
Paid-in capital | 98,859 | | | 171,521 | |
Retained earnings | 7,877,015 | | | 7,296,509 | |
Treasury stock: 2021: 85,009,794 shares 2020: 83,377,839 shares | (5,736,258) | | | (5,182,137) | |
Accumulated other comprehensive income (loss) | 30,888 | | | (153,380) | |
Total shareholders' equity | 3,687,847 | | | 3,235,202 | |
| $ | 8,236,823 | | | $ | 7,669,885 | |
See accompanying notes.
Consolidated
Statements of Shareholders' Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-In Capital | | Retained Earnings | | Other Accumulated Comprehensive Income (Loss) | | Treasury Stock | | Total Shareholders' Equity |
(In thousands) | Shares | | Amount | | | | | Shares | | Amount | |
| | | | | | | | | | | | | | | |
Balance at June 1, 2018 | 182,723 | | | $ | 618,464 | | | $ | 245,211 | | | $ | 5,837,827 | | | $ | 16,343 | | | (76,397) | | | $ | (3,701,319) | | | $ | 3,016,526 | |
Net income | — | | | — | | | — | | | 884,981 | | | — | | | — | | | — | | | 884,981 | |
Comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (55,495) | | | — | | | — | | | (55,495) | |
Dividends | — | | | — | | | — | | | (220,764) | | | — | | | — | | | — | | | (220,764) | |
Stock-based compensation | — | | | — | | | 139,210 | | | — | | | — | | | — | | | — | | | 139,210 | |
Vesting of stock-based compensation awards | 766 | | | 156,493 | | | (156,493) | | | — | | | — | | | — | | | — | | | 0 | |
Stock options exercised, net of shares surrendered | 1,302 | | | 65,371 | | | — | | | — | | | — | | | — | | | — | | | 65,371 | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (5,109) | | | (1,016,300) | | | (1,016,300) | |
Cumulative effect of change in accounting principle | — | | | — | | | — | | | 189,192 | | | — | | | — | | | — | | | 189,192 | |
Balance at May 31, 2019 | 184,791 | | | 840,328 | | | 227,928 | | | 6,691,236 | | | (39,152) | | | (81,506) | | | (4,717,619) | | | 3,002,721 | |
Net income | — | | | — | | | — | | | 876,037 | | | — | | | — | | | — | | | 876,037 | |
Comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (116,203) | | | — | | | — | | | (116,203) | |
Dividends | — | | | — | | | — | | | (267,956) | | | — | | | — | | | — | | | (267,956) | |
Stock-based compensation | — | | | — | | | 115,435 | | | — | | | — | | | — | | | — | | | 115,435 | |
Vesting of stock-based compensation awards | 641 | | | 171,842 | | | (171,842) | | | — | | | — | | | — | | | — | | | 0 | |
Stock options exercised, net of shares surrendered | 1,361 | | | 90,519 | | | — | | | — | | | — | | | — | | | — | | | 90,519 | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (1,872) | | | (464,518) | | | (464,518) | |
Cumulative effect of change in accounting principle | — | | | — | | | — | | | (2,808) | | | 1,975 | | | — | | | — | | | (833) | |
Balance at May 31, 2020 | 186,793 | | | 1,102,689 | | | 171,521 | | | 7,296,509 | | | (153,380) | | | (83,378) | | | (5,182,137) | | | 3,235,202 | |
Net income | — | | | — | | | — | | | 1,110,968 | | | — | | | — | | | — | | | 1,110,968 | |
Comprehensive income, net of tax | — | | | — | | | — | | | — | | | 184,268 | | | — | | | — | | | 184,268 | |
Dividends | — | | | — | | | — | | | (530,462) | | | — | | | — | | | — | | | (530,462) | |
Stock-based compensation | — | | | — | | | 112,035 | | | — | | | — | | | — | | | — | | | 112,035 | |
Vesting of stock-based compensation awards | 610 | | | 184,697 | | | (184,697) | | | — | | | — | | | — | | | — | | | 0 | |
Stock options exercised, net of shares surrendered | 1,668 | | | 129,957 | | | — | | | — | | | — | | | — | | | — | | | 129,957 | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (1,632) | | | (554,121) | | | (554,121) | |
| | | | | | | | | | | | | | | |
Balance at May 31, 2021 | 189,071 | | | $ | 1,417,343 | | | $ | 98,859 | | | $ | 7,877,015 | | | $ | 30,888 | | | (85,010) | | | $ | (5,736,258) | | | $ | 3,687,847 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-In Capital | | Retained Earnings | | Other Accumulated Comprehensive Income (Loss) | | Treasury Stock | | Total Shareholders' Equity |
(In thousands) | Shares | | Amount | | | | | Shares | | Amount | |
| | | | | | | | | | | | | | | |
Balance at June 1, 2016 | 179,598 |
| | $ | 409,682 |
| | $ | 205,260 |
| | $ | 4,805,867 |
| | $ | (24,874 | ) | | (75,385 | ) | | $ | (3,553,276 | ) | | $ | 1,842,659 |
|
Net income | — |
| | — |
| | — |
| | 480,708 |
| | — |
| | — |
| | — |
| | 480,708 |
|
Comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 21,845 |
| | — |
| | — |
| | 21,845 |
|
Dividends | — |
| | — |
| | — |
| | (142,433 | ) | | — |
| | — |
| | — |
| | (142,433 | ) |
Stock-based compensation | — |
| | — |
| | 88,868 |
| | — |
| | — |
| | — |
| | — |
| | 88,868 |
|
Vesting of stock-based compensation awards | 429 |
| | 43,516 |
| | (43,516 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Stock options exercised, net of shares surrendered | 966 |
| | 31,870 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 31,870 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | (207 | ) | | (20,724 | ) | | (20,724 | ) |
Adoption of new accounting guidance | — |
| | — |
| | (26,688 | ) | | 26,688 |
| | — |
| | — |
| | — |
| | — |
|
Balance at May 31, 2017 | 180,993 |
| | 485,068 |
| | 223,924 |
| | 5,170,830 |
| | (3,029 | ) | | (75,592 | ) | | (3,574,000 | ) | | 2,302,793 |
|
Net income | — |
| | — |
| | — |
| | 842,586 |
| | — |
| | — |
| | — |
| | 842,586 |
|
Comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 19,372 |
| | — |
| | — |
| | 19,372 |
|
Dividends | — |
| | — |
| | — |
| | (175,589 | ) | | — |
| | — |
| | — |
| | (175,589 | ) |
Stock-based compensation | — |
| | — |
| | 112,835 |
| | — |
| | — |
| | — |
| | — |
| | 112,835 |
|
Vesting of stock-based compensation awards | 701 |
| | 91,548 |
| | (91,548 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Stock options exercised, net of shares surrendered | 1,029 |
| | 41,848 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41,848 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | (805 | ) | | (127,319 | ) | | (127,319 | ) |
Balance at May 31, 2018 | 182,723 |
| | 618,464 |
| | 245,211 |
| | 5,837,827 |
| | 16,343 |
| | (76,397 | ) | | (3,701,319 | ) | | 3,016,526 |
|
Net income | — |
| | — |
| | — |
| | 884,981 |
| | — |
| | — |
| | — |
| | 884,981 |
|
Comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (55,495 | ) | | — |
| | — |
| | (55,495 | ) |
Dividends | — |
| | — |
| | — |
| | (220,764 | ) | | — |
| | — |
| | — |
| | (220,764 | ) |
Stock-based compensation | — |
| | — |
| | 139,210 |
| | — |
| | — |
| | — |
| | — |
| | 139,210 |
|
Vesting of stock-based compensation awards | 766 |
| | 156,493 |
| | (156,493 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Stock options exercised, net of shares surrendered | 1,302 |
| | 65,371 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 65,371 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | (5,109 | ) | | (1,016,300 | ) | | (1,016,300 | ) |
Cumulative effect of change in accounting principle | — |
| | — |
| | — |
| | 189,192 |
| | — |
| | — |
| | — |
| | 189,192 |
|
Balance at May 31, 2019 | 184,791 |
| | $ | 840,328 |
| | $ | 227,928 |
| | $ | 6,691,236 |
| | $ | (39,152 | ) | | (81,506 | ) | | $ | (4,717,619 | ) | | $ | 3,002,721 |
|
See accompanying notes.
|
| | | | | | | | | | | |
Consolidated Statements of Cash Flows | | | | | |
| Fiscal Years Ended May 31, |
(In thousands) | 2019 | | 2018 | | 2017 |
Cash flows from operating activities: | | | | | |
Net income | $ | 884,981 |
| | $ | 842,586 |
| | $ | 480,708 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation | 223,631 |
| | 215,476 |
| | 171,565 |
|
Amortization of intangible assets and capitalized contract costs | 136,462 |
| | 63,940 |
| | 25,030 |
|
Stock-based compensation | 139,210 |
| | 112,835 |
| | 88,868 |
|
Gain on sale of a cost method investment | (69,373 | ) | | — |
| | — |
|
Gain on sale of business | (3,200 | ) | | (96,400 | ) | | (26,917 | ) |
Asset impairment charge | — |
| | — |
| | 23,331 |
|
G&K Services, Inc. transaction and integration costs | — |
| | — |
| | 31,445 |
|
Short-term debt financing fees included in net income | — |
| | — |
| | 17,062 |
|
Settlement of cash flow hedges | — |
| | — |
| | 30,194 |
|
Deferred income taxes | 31,708 |
| | (119,295 | ) | | 3,902 |
|
Change in current assets and liabilities, net of acquisitions of businesses: | |
| | |
| | |
|
Accounts receivable, net | (94,918 | ) | | (66,267 | ) | | (93,557 | ) |
Inventories, net | (60,039 | ) | | (3,323 | ) | | (668 | ) |
Uniforms and other rental items in service | (90,228 | ) | | (64,299 | ) | | (8,732 | ) |
Prepaid expenses and other current assets and capitalized contract costs | (100,765 | ) | | (15,526 | ) | | 24,201 |
|
Accounts payable | 12,276 |
| | 35,275 |
| | 13,726 |
|
Accrued compensation and related liabilities | 15,321 |
| | (9,392 | ) | | 13,654 |
|
Accrued liabilities and other | 30,910 |
| | 42,468 |
| | (501 | ) |
Income taxes, current | 11,886 |
| | 26,082 |
| | (29,424 | ) |
Net cash provided by operating activities | 1,067,862 |
| | 964,160 |
| | 763,887 |
|
| | | | | |
Cash flows from investing activities: | | | | | |
Capital expenditures | (276,719 | ) | | (271,699 | ) | | (273,317 | ) |
Proceeds from redemption of marketable securities and investments | — |
| | 179,857 |
| | 218,324 |
|
Purchase of marketable securities and investments | (17,841 | ) | | (153,708 | ) | | (181,065 | ) |
Proceeds from sale of a cost method investment | 73,342 |
| | — |
| | — |
|
Proceeds from sale of business | 3,200 |
| | 127,835 |
| | 28,276 |
|
Acquisitions of businesses, net of cash acquired | (9,813 | ) | | (19,346 | ) | | (2,102,371 | ) |
Other, net | (7,807 | ) | | 1,363 |
| | (196 | ) |
Net cash used in investing activities | (235,638 | ) | | (135,698 | ) | | (2,310,349 | ) |
| | | | | |
Cash flows from financing activities: | | | | | |
Issuance (payments) of commercial paper, net | 112,500 |
| | (50,500 | ) | | 50,500 |
|
Proceeds from issuance of debt, net | 200,000 |
| | — |
| | 1,932,229 |
|
Repayment of debt | — |
| | (550,000 | ) | | (250,000 | ) |
Payment of short-term debt financing fees | — |
| | — |
| | (17,062 | ) |
Proceeds from exercise of stock-based compensation awards | 65,371 |
| | 41,848 |
| | 31,870 |
|
Dividends paid | (220,764 | ) | | (175,589 | ) | | (142,433 | ) |
Repurchase of common stock | (1,016,300 | ) | | (127,319 | ) | | (20,724 | ) |
Other, net | (14,112 | ) | | (2,580 | ) | | (5,878 | ) |
Net cash (used in) provided by financing activities | (873,305 | ) | | (864,140 | ) | | 1,578,502 |
|
Effect of exchange rate changes on cash and cash equivalents | (998 | ) | | 5,136 |
| | (2,131 | ) |
Net (decrease) increase in cash and cash equivalents | (42,079 | ) | | (30,542 | ) | | 29,909 |
|
Cash and cash equivalents at beginning of year | 138,724 |
| | 169,266 |
| | 139,357 |
|
Cash and cash equivalents at end of year | $ | 96,645 |
| | $ | 138,724 |
| | $ | 169,266 |
|
| | | | | | | | | | | | | | | | | |
Consolidated Statements of Cash Flows | Fiscal Years Ended May 31, |
(In thousands) | 2021 | | 2020 | | 2019 |
Cash flows from operating activities: | | | | | |
Net income | $ | 1,110,968 | | | $ | 876,037 | | | $ | 884,981 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation | 243,836 | | | 235,905 | | | 223,631 | |
Amortization of intangible assets and capitalized contract costs | 144,115 | | | 143,148 | | | 136,462 | |
Stock-based compensation | 112,035 | | | 115,435 | | | 139,210 | |
Net gain on sale of operating assets | (22,030) | | | 0 | | | (3,200) | |
Long-lived asset impairment | 5,114 | | | 9,220 | | | 0 | |
Gain on sale of a cost method investment | 0 | | | 0 | | | (69,373) | |
| | | | | |
Deferred income taxes | (42,242) | | | (16,252) | | | 31,708 | |
Change in current assets and liabilities, net of acquisitions of businesses: | | | | | |
Accounts receivable, net | (32,576) | | | 39,681 | | | (94,918) | |
Inventories, net | (75,501) | | | (74,773) | | | (60,039) | |
Uniforms and other rental items in service | (35,659) | | | 12,773 | | | (90,228) | |
Prepaid expenses and other current assets and capitalized contract costs | (102,600) | | | (110,248) | | | (100,765) | |
Accounts payable | (2,604) | | | 2,629 | | | 12,276 | |
Accrued compensation and related liabilities | 113,769 | | | (26,476) | | | 15,321 | |
Accrued liabilities and other | (6,735) | | | 49,906 | | | 30,910 | |
Income taxes, current | (49,150) | | | 34,498 | | | 11,886 | |
Net cash provided by operating activities | 1,360,740 | | | 1,291,483 | | | 1,067,862 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Capital expenditures | (143,470) | | | (230,289) | | | (276,719) | |
| | | | | |
Purchase of marketable securities and investments | (4,299) | | | (10,031) | | | (17,841) | |
Proceeds from sale of operating assets, net of cash disposed | 31,705 | | | 13,300 | | | 3,200 | |
Proceeds from sale of a cost method investment | 0 | | | 0 | | | 73,342 | |
| | | | | |
Acquisitions of businesses, net of cash acquired | (10,038) | | | (53,720) | | | (9,813) | |
Other, net | (11,113) | | | (4,658) | | | (7,807) | |
Net cash used in investing activities | (137,215) | | | (285,398) | | | (235,638) | |
| | | | | |
Cash flows from financing activities: | | | | | |
(Payments) issuance of commercial paper, net | 0 | | | (112,500) | | | 112,500 | |
Proceeds from issuance of debt | 0 | | | 0 | | | 200,000 | |
Repayment of debt | 0 | | | (200,000) | | | 0 | |
Proceeds from exercise of stock-based compensation awards | 129,957 | | | 90,519 | | | 65,371 | |
Dividends paid | (451,327) | | | (267,956) | | | (220,764) | |
Repurchase of common stock | (554,121) | | | (464,518) | | | (1,016,300) | |
Other, net | (4,377) | | | (752) | | | (14,112) | |
Net cash used in financing activities | (879,868) | | | (955,207) | | | (873,305) | |
Effect of exchange rate changes on cash and cash equivalents | 4,581 | | | (2,121) | | | (998) | |
Net increase (decrease) in cash and cash equivalents | 348,238 | | | 48,757 | | | (42,079) | |
Cash and cash equivalents at beginning of year | 145,402 | | | 96,645 | | | 138,724 | |
Cash and cash equivalents at end of year | $ | 493,640 | | | $ | 145,402 | | | $ | 96,645 | |
See accompanying notes.
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies
Business description. Cintas Corporation (collectively with its majority-owned subsidiaries and any entities over which it has control, Cintas, Company, we, us or our) helps more than one million1000000 businesses of all types and sizes, primarily in North America,the United States (U.S.), as well as Canada and Latin America, Europe and Asia, get Ready™READY™ to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care,mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety and compliance training, Cintas helps customers get Ready for the Workday™Workday®. Cintas is also the creator of the Total Clean Program™ — a first-of-its-kind service that includes scheduled delivery of essential cleaning supplies, hygienically clean laundering, and sanitizing and disinfecting projects and services.
Cintas’ reportable operating segments are the Uniform Rental and Facility Services operating segment and the First Aid and Safety Services.Services operating segment. 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 carpet and tile cleaning services 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’ business,operating segments, which consists of the Fire Protection Services operating segment and itsthe Uniform Direct Sale business, isoperating segment, are included in All Other. Cintas evaluates operating segment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these reportable operating segments for the years ended May 31, 2019, 20182021, 2020 and 20172019 are presented in Note 1514 entitled Operating Segment Information. The Company regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker (CODM) regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.
OnIn December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and has since spread globally. In March 21, 2017, Cintas completed2020, the acquisitionWorld Health Organization characterized COVID-19 as a pandemic. Efforts to contain the spread of G&K Services, Inc. (G&K). G&K is a wholly-owned subsidiary of Cintas that operatesCOVID-19 intensified during our fiscal 2020 fourth quarter and have remained in effect throughout our fiscal 2021. Most states and municipalities within the Uniform RentalU.S., as well as Canada, enacted temporary closures of businesses, issued quarantine orders and Facility Services operating segment. In fiscal 2018, Cintas sold a significant business referred to as "Discontinued Services." Priortook other restrictive measures in response to the saleCOVID-19 pandemic. Many of Discontinued Services, the operations were primarily includedbusiness closures, quarantine orders and other restrictive measures remained in All Otherplace through fiscal 2021. Within the U.S., our business was designated an essential business, which allowed us to continue to serve customers that remained open. In these consolidated financial statements and classified as held for sale. In accordance withrelated disclosures, we have assessed the applicable accounting guidance for the disposalcurrent impact of long-lived assets and discontinued operations, theCOVID-19 on our consolidated financial condition, results of Discontinued Services have been excluded from both continuing operations, and operating segmentcash flows, as well as our estimates and accounting policies. We have made additional disclosures of these assessments, as necessary. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, consolidated results for all periods presented. See Note 17 entitled Discontinued Operations for additional information.of operations, consolidated financial condition or liquidity will ultimately be impacted.
Principles of consolidation. The consolidated financial statements include the accounts of Cintas controlled majority-owned subsidiaries and any entities over which Cintas has control. Intercompany balances and transactions have been eliminated as appropriate.
Use of estimates. The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principlesgenerally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, government policies surrounding the containment of COVID-19 and changes in the prices of raw materials, can have a significant effect on operations. These factors and other events couldmay cause actual results to differ from management's estimates.
Revenue recognition. Rental revenue, which is recorded in the Uniform Rental and Facility Services reportable operating segment, is recognized when services are performed.performed or the performance obligation 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 segment and All Other, is recognized when either services are performed or the performance obligation under the terms of a contract with a customer are satisfied. Revenue is measured as the amount of consideration we expect to receive in exchange for the performance of the service or transfer of the inventory. See Note 2 entitled Revenue Recognition.
Cost of uniform rental and facility services. 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 Uniform Rental and Facility Services reportable operating segment inbound
freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution are included in the cost of uniform rental and facility services.
Cost of other. Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, 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 includes inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution.
Selling and administrative expenses. Selling and administrative expenses consist primarily of sales labor and commissions, management and administrative labor, payroll taxes, medical expense, insurance expense, legal and professional costs and amortization of finite-lived intangible assets and capitalized contract costs. As a result of the adverse impact that the COVID-19 pandemic has had on the economic environment in North America and the ongoing uncertainty regarding the severity and duration of the pandemic, Cintas initiated certain activities to reduce operating costs and better align its workforce with the needs of its ongoing business. During the fourth quarter of fiscal 2020, Cintas recorded a total of $24.5 million in employee termination costs, of which $20.2 million was recorded in the Uniform Rental and Facility Services reportable operating segment. The amount of employee termination benefits paid during the fiscal year ended May 31, 2021 and 2020 was $10.2 million and $14.3 million, respectively. The related liability balance was $0.0 million at May 31, 2021 and was $10.2 million at May 31, 2020. The May 31, 2020 liability balance was recorded in accrued compensation and related liabilities on the consolidated balance sheets. Cintas did 0t record employee termination costs during fiscal 2021.
G&K transaction andServices, Inc. integration expenses. As a result of the acquisition of G&K Services, Inc. (G&K) in fiscal 2017, the Company incurred various transaction and integration expenses in fiscal 2019, 2018 and 2017, which related primarily to facility closure expenses. No such costs were incurred in fiscal 2021 or 2020. The integration expenses asset impairment charges, legalfor fiscal 2019 are included in a single line in the consolidated statements of income and professional fees, employee termination expenses, the write-off of excess inventory and other miscellaneous expenses. See are reported by operating segment in Note 1814 entitled G&K Services, Inc. Transaction and Integration Expenses.Operating Segment Information.
Cash and cash equivalents. Cintas considers all highly liquid domestic investments with a maturity of three months or less, at date of purchase, to be cash equivalents. At both May 31, 20192021 and 2018,2020, cash and cash equivalents includes $31.4$31.8 million and $30.9 million, respectively, of restricted cash used as collateral associated with the generalour insurance program.reserve.
Marketable securities. Marketable securities are typically comprised of fixed income securities and are classified as available-for-sale.
Accounts receivable.Accounts receivable is comprised of amounts owed through product shipments and services provided and is presented net of an allowance for doubtful accounts. The allowance isincludes both an estimate, based on historical rates of collections, and allowancesreserves for specific accounts identified as uncollectible. The portion of the allowance that is an estimate based on Cintas' historical rates of collections is recorded for overdue amounts, beginning with a nominal percentage when the account is current and increasing substantially as the account ages. The amount provided as the account ages will differ slightly between the Uniform Rental and Facility Services reportable operating segment, the First Aid and Safety Services reportable operating segment and All Other because of differences in customers served and the nature of each business. As of May 31, 2020, in response to the economic disruption created by the COVID-19 pandemic, Cintas performed an additional evaluation of amounts due from customers in every operating segment that were deemed to be higher collection risk. This evaluation, which occurred in the fourth quarter of fiscal 2020, resulted in an allowance for doubtful accounts in excess of historical rates. The judgment applied to increase the allowance for doubtful accounts beyond our historical policy was deemed to be reasonable and supportable based on the data available as of the consolidated balance sheet date. Certain of the corresponding trade receivables were collected during fiscal 2021, and $14.2 million of incremental allowance for doubtful accounts recorded as of May 31, 2020 was reversed through selling and administrative expenses as the Company's estimates and assumptions related to the impact of COVID-19 changed
during fiscal 2021. As of May 31, 2021, no incremental allowance for doubtful accounts was deemed necessary. When an account is considered uncollectible, it is written off against the allowance for doubtful accounts.
Inventories, net. Inventories are valued at the lower of cost (first-in, first-out) or net realizable value. Cintas applies a commonly accepted practice of using inventory turns to apply variances between actual and standard costs to the inventory balances. The judgments and estimates used to calculate inventory turns will have an impact on the valuation of inventories at the lower of cost or net realizable value. Inventory is comprised of the following amounts at May 31:
| | (In thousands) | 2019 | | 2018 | (In thousands) | 2021 | | 2020 |
| | | | |
Raw materials | $ | 17,812 |
| | $ | 17,042 |
| Raw materials | $ | 15,109 | | | $ | 18,661 | |
Work in process | 28,820 |
| | 27,350 |
| Work in process | 37,664 | | | 29,497 | |
Finished goods | 287,957 |
| | 235,955 |
| Finished goods | 429,024 | | | 360,740 | |
| $ | 334,589 |
| | $ | 280,347 |
| | $ | 481,797 | | | $ | 408,898 | |
Inventories are recorded net of reserves for obsolete inventory (excess and slow-moving) of $32.7$111.0 million and $37.0$45.5 million at May 31, 20192021 and 2018,2020, respectively. The inventory obsolescence reserve is determined by specific identification, as well as an estimate based on Cintas' historical rates of obsolescence. The disruption created by the COVID-19 pandemic beginning in the fourth quarter of fiscal 2020 resulted in larger quantities of inventory on hand as of May 31, 2021 and 2020. As of May 31, 2021, our Uniform Rental and Facility Services and First Aid and Safety reportable operating segments held an excess amount of personal protective equipment inventory on hand. The excess inventory, determined through specific identification, resulted in an increase to the obsolescence reserve of $43.6 million as of May 31, 2021, in comparison to May 31, 2020. As of May 31, 2020, an incremental obsolescence reserve was recorded within our Uniform Direct Sales operating segment due to larger quantities of inventory remaining on hand, at the consolidated balance sheet date, as a result of disruption created by the onset of the COVID-19 pandemic. Obsolete inventory reserves are recorded in selling and administrative expenses on the consolidated statements of income. The judgment applied to increase the obsolete inventory reserve as of May 31, 2021 and 2020, beyond our historical policy was deemed to be reasonable and supportable based on the data available as of the consolidated balance sheet dates. 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.
Uniforms and other rental items in service. These items are valued at cost less amortization, calculated using the straight-line method. Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months. Other rental items, including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their useful lives, which range from 8 to 60 months. 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 facility services that are presented in the consolidated financial statements.
Property and equipment. Property and equipment is stated at cost, less accumulated depreciation or at fair value upon acquisition. Depreciation is calculated using the straight-line method primarily over the following estimated useful lives of the assets based on industry and Cintas specific experience, in years:
| | | | | |
| Years |
| |
Buildings | 30 to 40 |
Building improvements | 5 to 20 |
Equipment | 3 to 10 |
Leasehold improvements | 2 to 15 |
When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows, prices of similar assets or third-party real estate valuations, as appropriate. As a result of certain activities to eliminate excess capacity and reduce our cost structure in response to COVID-19, an indicator of impairment was identified. Cintas recognized an impairment loss of $9.2 million in the Uniform Rental and Facility Services reportable operating segment during the year ended May 31, 2020. Cintas recognized a long-lived asset impairment loss of $5.1 million in the Uniform Direct Sale operating segment during the year ended May 31, 2021. The long-lived asset impairments in both fiscal years were based on the excess of the carrying amount of
asset over their respective fair values. The long-lived asset impairment charge was recorded within selling and administrative expenses on the consolidated statements of income. The undiscounted cash flows were estimated, using Level 2 inputs based on both the cost and market approaches, at the lowest discernible level of cash flows, which is at the location level. Cintas did not identify any indicators of impairment for the fiscal year ended May 31, 2019.
Investments. Investments consists primarily of the cash surrender value of life insurance policies and equity method investments. The equity method is used to account for an investment if our investment gives us the ability to exercise significant influence over the operating and financial policies of the investee. In general, equity method investments are initially measured at cost. Cintas recognizes its share of the investee’s earnings or losses in income. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.
Long-lived assets. When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows, prices of similar assets or third-party real estate valuations, as appropriate. Cintas did not identify any indicators of impairment for the fiscal years ended May 31, 2019 and 2018.
Goodwill. Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test, that includes an assessment of qualitative factors including, but not limited to, macroeconomic conditions, industry and market conditions, and entity specific factors such as strategies and financial performance. We test for goodwill impairment at the reporting unit level. Cintas has identified four4 reporting units for purposes of evaluating goodwill impairment: Uniform Rental and Facility Services, First Aid and Safety Services and two reporting units within All Other. The Company evaluated impairment indicators for all reporting units and noted none. Based on the results of the annual impairment tests, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2019, 20182021, 2020 or 2017.2019. Cintas will continue to perform impairment tests as of March 1 in future years and when indicators of impairment exist.
Service contracts and other assets. Service contracts and other assets, which consist primarily of capitalized contract costs and noncompete and consulting agreements obtained through acquisitions of businesses, are generally amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years. The G&K service contract asset is being amortized over a period of 15 years, which represents the estimated life of the economic benefit. The G&K service contract asset amortization is based on the annual economic value of the underlying asset which generally decreases over the 15-year term. Certain noncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contracts and other assets is accomplished through specific identification. NoNaN impairment has been recognized by Cintas for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017.2019.
Business Combinations. Accounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income.
Debt Issuance Costs. issuance costs. Debt issuance costs for the revolving credit facility are included in other assets, net and all other debt issuance costs reduce the carrying amount of debt.
Accrued liabilities. Current accrued liabilities are recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Current accrued liabilities consist of the following at May 31:
| | | | | | | | | | | |
(In thousands) | 2021 | | 2020 |
| | | |
Insurance reserve | $ | 156,447 | | | $ | 165,427 | |
Employee benefit related liabilities | 129,348 | | | 134,846 | |
Dividends | 79,135 | | | 0 | |
Accrued interest | 24,420 | | | 24,538 | |
Other | 129,560 | | | 131,842 | |
| $ | 518,910 | | | $ | 456,653 | |
Long-term accrued liabilities consist primarily of retirement obligations, which are described in more detail in Note 10 entitled Employee Benefit Plans, interest rate lock agreements, which are described in more detail in Note 7 entitled Debt and Derivatives, reserves associated with unrecognized tax benefits, which are described in more detail in Note 9 entitled Income Taxes and environmental obligations, which are further described below.
|
| | | | | | | |
(In thousands) | 2019 | | 2018 |
| | | |
General insurance liabilities | $ | 165,667 |
| | $ | 163,400 |
|
Employee benefit related liabilities | 123,794 |
| | 112,801 |
|
Taxes and related liabilities | 7,716 |
| | 8,148 |
|
Accrued interest | 24,687 |
| | 24,763 |
|
Other | 112,076 |
| | 111,017 |
|
| $ | 433,940 |
| | $ | 420,129 |
|
GeneralInsurance reserve. The insurance liabilities representreserve represents the estimated ultimate cost of all asserted and unasserted claims incurred, primarily related to workers' compensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves areincurred but not reported reserve is 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. Cintas records an increase or decrease in selling and administrative expenses related to development of prior claims, higher claims activity and other environmental factors in the period in which it becomes known. These changes in estimates may be material to the consolidated financial statements.
Long-term accrued liabilities consist primarily of retirement obligations, which are described in more detail in Note 11 entitled Employee Benefit Plans, reserves associated with unrecognized tax benefits, which are described in more detail in Note 9 entitled Income Taxes and environmental obligations acquired primarily through the G&K acquisition, which are further described below.
Environmental Obligations.obligations. Environmental obligations, including obligations obtained through past business acquisitions, are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated. Cintas’ environmental obligations are estimated based on an evaluation of various factors, including currently available facts, existing technology, presently enacted laws and regulations, and remediation experience. Where the available information is sufficient to estimate the amount of the obligation, that estimate has been recorded. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. Management actively monitors all locations for compliance and changes in facts and circumstances. No one location or site is deemed to be material or in violation of the applicable laws and regulations, even though costs are being incurred. Costs estimated for environmental obligations are not discounted to their present value.
Pension Plans.plans. The Company assumed G&K's noncontributory, defined benefit pension plan (the Pension Plan) covering substantially all employees who were employed as of July 1, 2005, except certain employees who are covered by union-administered plans. Benefits are based on the number of years of service and each employee's compensation near retirement. G&K froze the Pension Plan effective December 31, 2006. Future growth in benefits will not occur after this date. The Company's funding policy provides for contributions of an amount between the minimum required and maximum amount that can be deducted for federal income tax purposes. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at May 31, the measurement date. The benefit obligation is the projected benefit obligation (PBO). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. The measurement of the PBO is based on the Company’s estimates and actuarial valuations. The fair value of plan assets represents the current market value of assets held by an irrevocable trust fund for the sole benefit of participants. These valuations reflect the terms of the Pension Plan and use participant-specific information such as compensation, age and years of service, as well as certain assumptions that require significant judgment, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates. We recognize, as of a measurement date, any unrecognized actuarial net gains or losses that exceed ten percent of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts outside the corridor are amortized over the plan participants' life expectancy. We determine the expected return on assets using the fair value of plan assets. See Note 10 entitled Employee Benefit Plans.
Stock-based compensation. Compensation expense is recognized for all share-based payments to employees, including stock options and restricted stock awards, in the consolidated statements of income based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes
option-pricing model. Generally, measured compensation cost, net of actual forfeitures, is recognized on a straight-line basis over the vesting period of the related share-based compensation award.
See Note 12 entitled Stock-Based Compensation.
Derivatives and hedging activities. Cintas formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Derivatives are recorded at fair value on the consolidated balance sheet, and gains and losses are recorded as adjustments to income or other comprehensive income, as appropriate. For derivative financial instruments that are designated as a hedge, unrealized gains and losses related to the effective portion are either recognized in income immediately to offset the realized gain or loss on the hedged item, or are deferred and reported as a component of other comprehensive income (loss) in stockholders'shareholders' equity and subsequently recognized in net income when the hedged item affects net income.
Income taxes. The provision for income taxes includes taxes paid, currently payable or receivable and those deferred. 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. Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in future periods. Cintas accounts for Global Intangible
Low-Taxed Income (GILTI) as a current-period expense when incurred. See Note 9 entitled Income Taxes 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.
Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas' evaluation of current tax positions, Cintas believes its tax related accruals are appropriate.
Litigation and other contingencies. Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. 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 or consolidated results of operations of Cintas.
Fair value measurements. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
| | | | |
| Level 1 — | Quoted prices in active markets for identical assets or liabilities. |
| | |
| Level 2 — | Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| | |
| Level 3 — | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Cintas' assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers between levels for the years ended May 31, 20192021 or 2018.2020. The carrying value of accounts receivable and accounts payable, and other current assets and liabilities, approximate fair value because of the short-term maturity of those instruments.
In order to meet the requirements of ASC 820, Cintas utilizes two basic valuation approaches to determine the fair value of its assets and liabilities required to be recorded on a recurring basis at fair value. The first approach is the cost approach. The cost approach is generally the value a market participant would expect to replace the respective
asset or liability. The second approach is the market approach. The market approach looks at what a market participant would consider valuing an exact or similar asset or liability to that of Cintas, including those traded on exchanges.
Cintas' non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis primarily relate to assets revalued in an impairment analysis and to assets and liabilities acquired in a business acquisition unless otherwise noted in Note 3 entitled Fair Value Disclosures. Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a non-recurring basis (including business acquisitions). Based on the nature of Cintas' business acquisitions, which occur regularly throughout the fiscal year, the majority of the assets acquired and liabilities assumed consist of working capital, primarily valued using Level 2 inputs, property and equipment, also primarily valued using Level 2 inputs and goodwill and other identified intangible assets valued using Level 3 inputs. In general, non-recurring fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability, such as internal estimates of future cash flows and company specific discount rates.
New accounting pronouncements. In May 2014,April 2019, the FASB issued Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers (Topic 606)," to clarify revenue recognition principles. This guidance is intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that is recognized from contracts with customers. We adopted ASU 2014-09, and all the related amendments, effective June 1, 2018 using the modified retrospective method. ASU 2014-09 requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon adoption of ASU 2014-09, we recorded an adjustment to the opening balance of retained earnings as of June 1, 2018. The adjustment to retained earnings primarily relates to the capitalization of certain direct and incremental contract costs required by the new guidance. Capitalized costs are amortized ratably over the anticipated period of benefit. We applied ASU 2014-09 only to contracts that were not completed prior to fiscal 2019. Results for reporting periods beginning after May 31, 2018 are presented under ASU 2014-09, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect in those periods.
There were two implementation adjustments upon adoption of ASU 2014-09: (1) capitalization of certain direct and incremental contract costs and (2) the timing of revenue recognition for certain contracts with customers that create an asset with no alternative use to the Company and an enforceable right of payment from the customer upon termination. Adoption of ASU 2014-09 impacted the Company's previously reported results as of May 31, 2018 as follows:
Capitalization of Contract Costs. The Company has elected to apply the guidance, as a practical expedient, to a portfolio of contracts (or performance obligations) with similar characteristics because the Company reasonably expects that the effects on the consolidated financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within the portfolio. The Company also continues to expense certain costs to obtain a contract if those costs do not meet the criteria of the new standard or the amortization period of the asset would have been one year or less.
Assets With No Alternative Use.For our Uniform Direct Sale business, our revenue, prior to the adoption of ASU 2014-09, was primarily generated from the sale of finished products to customers as products are shipped and title passes to the customers. For certain contracts with customers, the Company creates an asset with no alternative use to the Company, and the Company has an enforceable right to payment for performance completed to date. For these contracts, we have moved from a point-in-time model to an over-time model in which our measure of progress is finished goods with no alternative use in accordance with the provisions of ASU 2014-09. We expect ASU 2014-09 will have no cash impact and will not affect the economics of our underlying customer contracts.
|
| | | | | | | | | | | | | | | |
| | | Impacts of Adopting ASU 2014-09 | | |
(In thousands) | May 31, 2018 | | Capitalization of Contract Costs | | Assets With No Alternative Use | | June 1, 2018 |
| | | | | | | |
Assets | | | | | | | |
Accounts receivable, net | $ | 804,583 |
| | $ | — |
| | $ | 13,426 |
| | $ | 818,009 |
|
Inventories, net | 280,347 |
| | — |
| | (11,265 | ) | | 269,082 |
|
Prepaid expenses and other current assets | 32,383 |
| | 63,463 |
| | — |
| | 95,846 |
|
Total current assets | 1,977,932 |
| | 63,463 |
| | 2,161 |
| | 2,043,556 |
|
| | | | | | | |
Other assets, net | 29,315 |
| | 187,503 |
| | — |
| | 216,818 |
|
| | | | | | | |
Total assets | $ | 6,958,214 |
| | $ | 250,966 |
| | $ | 2,161 |
| | $ | 7,211,341 |
|
| | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | |
Deferred income taxes | $ | 352,581 |
| | $ | 63,389 |
| | $ | 546 |
| | $ | 416,516 |
|
Total long-term liabilities | 3,165,831 |
| | 63,389 |
| | 546 |
| | 3,229,766 |
|
| | | | | | | |
Retained earnings | 5,837,827 |
| | 187,577 |
| | 1,615 |
| | 6,027,019 |
|
Total shareholders' equity | 3,016,526 |
| | 187,577 |
| | 1,615 |
| | 3,205,718 |
|
| | | | | | | |
Total liabilities and shareholders' equity | $ | 6,958,214 |
| | $ | 250,966 |
| | $ | 2,161 |
| | $ | 7,211,341 |
|
The impacts of adopting ASU 2014-09 on our fiscal 2019 consolidated financial statements are presented in the following tables:
|
| | | | | | | | | | | |
| Fiscal year ended May 31, 2019 |
Consolidated Statement of Income (In thousands) | As Reported | | Under Historical Guidance | | Impact of Adopting ASU 2014-09 |
| | | | | |
Revenue: | | | | | |
Uniform rental and facility services | $ | 5,552,430 |
| | $ | 5,557,056 |
| | $ | (4,626 | ) |
Other | 1,339,873 |
| | 1,337,954 |
| | 1,919 |
|
Total revenue | 6,892,303 |
| | 6,895,010 |
| | (2,707 | ) |
| | | | | |
Costs and expenses: | | | | | |
Cost of other | 736,116 |
| | 735,703 |
| | 413 |
|
Selling and administrative expenses | 1,980,644 |
| | 2,006,134 |
| | (25,490 | ) |
Operating income | 1,133,534 |
| | 1,111,164 |
| | 22,370 |
|
| | | | | |
Income before income taxes | 1,102,399 |
| | 1,080,029 |
| | 22,370 |
|
Income taxes | 219,764 |
| | 214,306 |
| | 5,458 |
|
Income from continuing operations | 882,635 |
| | 865,723 |
| | 16,912 |
|
Net income | $ | 884,981 |
| | $ | 868,069 |
| | $ | 16,912 |
|
| | | | | |
Diluted earnings per share | $ | 7.99 |
| | $ | 7.84 |
| | $ | 0.15 |
|
|
| | | | | | | | | | | |
| As of May 31, 2019 |
Consolidated Balance Sheet (In thousands) | As Reported | | Under Historical Guidance | | Impact of Adopting ASU 2014-09 |
| | | | | |
Assets | | | | | |
Accounts receivable, net | $ | 910,120 |
| | $ | 894,301 |
| | $ | 15,819 |
|
Inventories, net | 334,589 |
| | 346,267 |
| | (11,678 | ) |
Income taxes, current | 7,475 |
| | 7,904 |
| | (429 | ) |
Prepaid expenses and other current assets | 103,318 |
| | 33,759 |
| | 69,559 |
|
Total current assets | 2,236,280 |
| | 2,163,009 |
| | 73,271 |
|
| | | | | |
Other assets, net | 240,315 |
| | 38,518 |
| | 201,797 |
|
| | | | | |
Total assets | $ | 7,436,662 |
| | $ | 7,161,594 |
| | $ | 275,068 |
|
| | | | | |
Liabilities and Shareholders' Equity | | | | | |
Long-term liabilities: | | | | | |
Deferred income taxes | $ | 438,179 |
| | $ | 369,215 |
| | $ | 68,964 |
|
Total long-term liabilities | 3,306,208 |
| | 3,237,244 |
| | 68,964 |
|
| | | | | |
Retained earnings | 6,691,236 |
| | 6,485,132 |
| | 206,104 |
|
Total shareholders' equity | 3,002,721 |
| | 2,796,617 |
| | 206,104 |
|
| | | | | |
Total liabilities and shareholders' equity | $ | 7,436,662 |
| | $ | 7,161,594 |
| | $ | 275,068 |
|
The adoption of ASU 2014-09 had no impact to the Company's fiscal 2019 operating cash flow, and the only impact of the adoption on our fiscal 2019 consolidated statement of comprehensive income was the impact to net income as presented in the table above.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” as amended. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Topic 842 provides a number of optional practical expedients in transition, and we have determined to use certain of these practical expedients. The Company plans to elect the package of practical expedients permitted under Topic 842, which allows a lessee to carryforward their population of existing leases, the classification of each lease, as well as the treatment of initial direct costs as of the period of adoption. The Company also plans to elect the practical expedient related to lease and non-lease components, as an accounting policy election for all asset classes, which allows a lessee to not separate non-lease from lease components and instead account for consideration paid in a contract as a single lease component. In addition, the Company plans to elect the short-term lease recognition exemption for all leases with a term of 12 months or less, which means it will not recognize right-of-use assets or lease liabilities for these leases. The Company does not expect to elect the use-of-hindsight practical expedient. This guidance will be adopted by the Company on June 1, 2019. In accordance with Topic 842, a registrant can elect not to present comparative financial information under Topic 842 if it recognizes a cumulative-effect adjustment to retained earnings upon adoption. The Company intends to make this transition election. The Company has implemented a new lease system in connection with the adoption of Topic 842. The majority of our lease spend relates to certain real estate with the remaining lease spend primarily related to vehicles and equipment. Based on the Company's portfolio of leases at May 31, 2019, approximately $160.0 million to $185.0 million of lease assets and liabilities will be recognized on the balance sheet upon adoption. We do not expect a material impact on the consolidated statements of income or consolidated statements of cash flows. The Company is substantially complete with its implementation efforts.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 makes eight targeted changes to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company’s adoption of this standard on June 1, 2018 did not have a material impact on its consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs.” ASU 2017-07 continues to require the service component of pension and other postretirement benefit costs to be presented in the same line item as other employee compensation costs on the consolidated statement of income and changes the presentation of other components of net benefit cost so that these items will be presented outside of operating income within the consolidated statements of income. Cintas retrospectively adopted ASU 2017-07 on June 1, 2017. The adoption of this standard did not have a material effect on the consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Among other amendments, the update allows entities to designate the variability in cash flows attributable to changes in a contractually specified component stated in the contract as the hedged risk in a cash flow hedge of a forecasted purchase or sale of a nonfinancial asset. This standard is effective for annual periods beginning after December 15, 2018. We adopted the standard effective as of June 1, 2018, and the effect of adoption of this standard did not have a material impact to our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows entities to elect to reclassify the income tax effects of the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings and requires additional related disclosures. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Cintas is currently evaluating the impact that ASU 2018-02 will have on its consolidated financial statements.
In April 2019, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 will replacereplaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In connection with recognizing credit losses on receivablesaccounts receivable and other financial instruments, Cintas will be required to usenow uses a forward-looking expected loss model rather than the incurred loss model. This standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The adoptionAdoption of this standard will beASU 2016-13 requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date.date to align existing credit loss methodology with the new standard. This standard was adopted by Cintas is currently evaluatingon June 1, 2020 and did not have a material impact on the impact that ASU 2016-13 will have on itsCompany's consolidated financial statements.
No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the consolidated financial statements.
Note 2. Revenue Recognition
The following table presents Cintas' total revenue disaggregated by service typeoperating segment for the fiscal years ended May 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | 2021 | | | 2020 | | | 2019 |
| | | | | | | | | | |
| | | | | | | | | | |
Uniform Rental and Facility Services | $ | 5,689,632 | | 80.0 | % | | | $ | 5,643,494 | | 79.6 | % | | | $ | 5,552,430 | | 80.6 | % |
First Aid and Safety Services | 784,291 | | 11.0 | % | | | 708,569 | | 10.0 | % | | | 619,470 | | 9.0 | % |
Fire Protection Services | 446,441 | | 6.3 | % | | | 422,688 | | 6.0 | % | | | 405,467 | | 5.9 | % |
Uniform Direct Sales | 195,976 | | 2.7 | % | | | 310,369 | | 4.4 | % | | | 314,936 | | 4.5 | % |
Total revenue | $ | 7,116,340 | | 100.0 | % | | | $ | 7,085,120 | | 100.0 | % | | | $ | 6,892,303 | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
(In thousands) | Revenue | % | | Revenue | % | | Revenue | % |
| | | | | | | | |
Uniform Rental and Facility Services | $ | 5,552,430 |
| 80.6 | % | | $ | 5,247,124 |
| 81.0 | % | | $ | 4,202,490 |
| 78.9 | % |
First Aid and Safety Services | 619,470 |
| 9.0 | % | | 564,706 |
| 8.7 | % | | 508,233 |
| 9.5 | % |
Fire Protection Services | 405,467 |
| 5.9 | % | | 349,968 |
| 5.4 | % | | 311,445 |
| 5.9 | % |
Uniform Direct Sales | 314,936 |
| 4.5 | % | | 314,834 |
| 4.9 | % | | 301,213 |
| 5.7 | % |
Total revenue | $ | 6,892,303 |
| 100.0 | % | | $ | 6,476,632 |
| 100.0 | % | | $ | 5,323,381 |
| 100.0 | % |
For the fiscal years ended May 31, 2019, 2018 and 2017, the percentage of revenue recognized over time as the services are performed was 95.6%, 95.4% and 94.9% respectively, of Uniform Rental and Facility Services revenue, 90.5%, 90.5% and 90.6%, respectively, of First Aid and Safety Services revenue and 100.0% for all fiscal years, of Fire Protection Services revenue. During the same periods, the Uniform Direct Sales business unit recognized 96.5%, 96.9% and 96.9%, respectively, of revenue at a point in time, which generally occurs when the goods are transferred to the customer. Fire Protection Services and Uniform Direct Sales operating segments are recordedincluded within the All Other reportable segmentas disclosed in Note 1514 entitled Operating Segment Information.
Revenue Recognition Policy
More thanApproximately 95% of the Company's revenues are derived from fees for route servicing of Uniform Rental and Facility Services, First Aid and Safety Services and Fire Protection Services, performed by a Cintas employee-partner, at the customer's location of business. RevenuesRevenue from our route servicing customer contracts represent a single-performance obligation. The Company recognizes these revenuesrevenue over time as services are performed based on the nature of services provided and contractual rates (input(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 revenues,revenue, primarily within the Uniform Direct Sales operating segment, and representing less thanapproximately 5% of the Company's total revenues, arerevenue, 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 primarily within our Uniform Direct Sales business, 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. Specifically, some contracts contain discounts or rebates that the customer can earn through the achievement of specified volume levels. Each component of variable consideration is earned based on the Company's actual performance during the measurement period specified within the contract. To determine the transaction price, the Company estimates the variable consideration using the most likely amount method, based on the specific contract provisions and known performance results during the relevant measurement period. 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 yearfiscal years ended May 31, 2021, 2020 or 2019. The Company reassesses these estimates during each reporting period. Cintas maintains a liability for these discounts and rebates within accrued liabilities on the consolidated balance sheet.sheets. Variable consideration also includes consideration paid to a customer at the beginning of a contract. Cintas capitalizes this consideration and amortizes it over the life of the contract as a reduction to revenue in accordance with ASC 606.ASU 2014-08, "Revenue from Contracts with Customers (Topic 606)." These assets are included in other assets, net on the consolidated balance sheet.sheets.
Additionally, in accordance with ASCTopic 606, certain Uniform Direct Sales operating segment customer contracts contain a provision with an enforceable right of payment and the underlying product has no alternative use to Cintas. Consequently, when both aforementioned provisions are prevalent in a customer contract, the revenue is recorded for finished goods that the customer is obligated to purchase under the termination terms of the contract.
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 Topic 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 financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within the portfolio. The Company also continues to expense certain costs to obtain a contract if those costs do not meet the criteria of the new standard or the amortization period of the asset would have been one year or less. The deferred commissions are amortized on a straight-line basis over the expected period of benefit. We review the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when we expect to recognize the expense. The current portion is included in prepaid expenses and other current assets and the noncurrent portion is included in other assets, net on the Company's consolidated balance sheets. As of May 31, 2019,2021 the current and noncurrent assets related to deferred commissions totaled $69.6$79.4 million and $206.0$227.1 million, respectively. As of May 31, 2020 the current and noncurrent assets related to deferred commissions totaled $76.2 million and $227.1 million, respectively. We recorded amortization expense related to deferred commissions of $83.1 million, $77.8 million and $71.1 million during the fiscal yearyears ended May 31, 2019.2021, 2020 and 2019, respectively. These expenses are classified in selling and administrative expenseexpenses on the consolidated statements of income.
Note 3. Fair Value Disclosures
All financial instruments that are measured at fair value on a recurring basis (at least annually) have been classified intowithin the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated balance sheet date. These financial instruments measured at fair value on a recurring basis are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of May 31, 2021 |
(In thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value |
| | | | | | | |
Cash and cash equivalents | $ | 493,640 | | | $ | 0 | | | $ | 0 | | | $ | 493,640 | |
Other assets, net: | | | | | | | |
Interest rate lock agreements | 0 | | | 40,400 | | | 0 | | | 40,400 | |
| | | | | | | |
Total assets at fair value | $ | 493,640 | | | $ | 40,400 | | | $ | 0 | | | $ | 534,040 | |
| | | | | | | |
Long-term accrued liabilities: | | | | | | | |
Interest rate lock agreements | $ | 0 | | | $ | 61,567 | | | $ | 0 | | | $ | 61,567 | |
Total liabilities at fair value | $ | 0 | | | $ | 61,567 | | | $ | 0 | | | $ | 61,567 | |
|
| | | | | | | | | | | | | | | |
| As of May 31, 2019 |
(In thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value |
| | | | | | | |
Cash and cash equivalents | $ | 96,645 |
| | $ | — |
| | $ | — |
| | $ | 96,645 |
|
Total assets at fair value | $ | 96,645 |
| | $ | — |
| | $ | — |
| | $ | 96,645 |
|
| | | | | | | |
Long-term accrued liabilities: | | | | | | | |
Interest rate lock agreements | $ | — |
| | $ | 36,393 |
| | $ | — |
| | $ | 36,393 |
|
Total liabilities at fair value | $ | — |
| | $ | 36,393 |
| | $ | — |
| | $ | 36,393 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of May 31, 2020 |
(In thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value |
| | | | | | | |
Cash and cash equivalents | $ | 145,402 | | | $ | 0 | | | $ | 0 | | | $ | 145,402 | |
Other assets, net: | | | | | | | |
Interest rate lock agreements | 0 | | | 1,546 | | | 0 | | | 1,546 | |
| | | | | | | |
| | | | | | | |
Total assets at fair value | $ | 145,402 | | | $ | 1,546 | | | $ | 0 | | | $ | 146,948 | |
| | | | | | | |
Long-term accrued liabilities: | | | | | | | |
Interest rate lock agreements | $ | 0 | | | $ | 165,686 | | | $ | 0 | | | $ | 165,686 | |
Total liabilities at fair value | $ | 0 | | | $ | 165,686 | | | $ | 0 | | | $ | 165,686 | |
|
| | | | | | | | | | | | | | | |
| As of May 31, 2018 |
(In thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value |
| | | | | | | |
Cash and cash equivalents | $ | 138,724 |
| | $ | — |
| | $ | — |
| | $ | 138,724 |
|
Total assets at fair value | $ | 138,724 |
| | $ | — |
| | $ | — |
| | $ | 138,724 |
|
Cintas' cash and cash equivalents and marketable securities 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.
Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of the securities sold is based on the specific identification method. There were no outstanding marketable securities as of May 31, 2019 or 2018. There were no purchases of marketable securities for the fiscal year ended May 31, 2019. For the fiscal years ended May 31, 2018 and 2017, purchases of marketable securities were $143.9 million and $171.3 million, respectively.
As of May 31, 2019, long-term accrued liabilities included the fair valuevalues of outstanding interest rate lock agreements.agreements are included in other assets, net and long-term accrued liabilities at both May 31, 2021 and 2020. 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. AllNo other amounts included in other asset, net or long-term accrued liabilities are not recorded at fair value.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 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 revalued in an impairment analysis and assets and liabilities acquired in a business acquisition.
Note 4. Property and Equipment
Cintas' property and equipment is summarized as follows at May 31:
| | | | | | | | | | | |
(In thousands) | 2021 | | 2020 |
| | | |
Land | $ | 190,711 | | | $ | 188,720 | |
Buildings and improvements | 698,094 | | | 682,768 | |
Equipment | 2,409,785 | | | 2,347,636 | |
Leasehold improvements | 38,320 | | | 40,188 | |
Construction in progress | 36,749 | | | 54,548 | |
| 3,373,659 | | | 3,313,860 | |
Accumulated depreciation | (2,055,221) | | | (1,910,795) | |
Property and equipment, net | $ | 1,318,438 | | | $ | 1,403,065 | |
|
| | | | | | | |
(In thousands) | 2019 | | 2018 |
| | | |
Land | $ | 189,828 |
| | $ | 177,281 |
|
Buildings and improvements | 684,699 |
| | 644,322 |
|
Equipment | 2,207,481 |
| | 2,070,009 |
|
Leasehold improvements | 43,227 |
| | 34,891 |
|
Construction in progress | 67,129 |
| | 119,937 |
|
| 3,192,364 |
| | 3,046,440 |
|
Less: accumulated depreciation | 1,761,679 |
| | 1,663,710 |
|
| | | |
Property and equipment, net | $ | 1,430,685 |
| | $ | 1,382,730 |
|
Interest expense is net of capitalized interest of $0.7 million, $1.0 million and $2.1 million for the fiscal years ended May 31, 2019, 2018 and 2017, respectively. Cintas capitalizes certain expenditures for software that are purchased or internally developed for use in business. Included in equipment at May 31, 20192021 and 20182020, were $259.5$283.8 million and $253.8$273.0 million, respectively, of internal use software. DepreciationAmortization of internal use software begins when the software is ready for service and continues on the straight-line method over the estimated useful life, generally 10 years. Accumulated depreciationamortization related to internal use software was $110.2$154.1 million and $88.8$131.7 million at May 31, 2021 and 2020, respectively. We recorded amortization expense related to internal use software of $22.3 million, $21.5 million and $21.6 million for the fiscal years ended May 31, 2021, 2020 and 2019, respectively. These expenses are classified in selling and 2018, respectively.administrative expenses on the consolidated statements of income.
Note 5. Investments
Investments atAt May 31, 2019 of $192.32021, investments were $274.6 million and include the cash surrender value of insurance policies of $170.5$252.1 million, equity method investments of $18.6$19.4 million and cost method investments of $3.2$3.1 million. Investments atAt May 31, 2018 of $175.62020, investments were $214.8 million and include the cash surrender value of insurance policies of $154.0$192.7 million, equity method investments of $16.4$19.0 million and cost method investments of $5.2$3.1 million. Investments are evaluated for impairment on an annual basis or when indicators of impairment exist. For fiscal years 2021, 2020 and 2019, 2018 and 2017, no0 impairment losses due to impairment were recorded.
During fiscal 2019, Cintas sold a cost method investment to a third party. Proceeds from the sale were $73.3 million, which resulted in a pre-tax gain of $69.4 million.
Note 6. Goodwill, Service Contracts and Other Assets
Changes in the carrying amount of goodwill and service contracts by reportable operating segment and All Other, are presented in the following tables:
| | | | | | | | | | | | | | | | | | | | | | | |
Goodwill (In thousands) | Uniform Rental and Facility Services | | First Aid and Safety Services | | All Other | | Total |
| | | | | | | |
Balance at June 1, 2019 | $ | 2,496,402 | | | $ | 243,459 | | | $ | 102,580 | | | $ | 2,842,441 | |
Goodwill acquired | 21,081 | | | 164 | | | 11,137 | | | 32,382 | |
Foreign currency translation | (4,442) | | | (357) | | | (4) | | | (4,803) | |
Balance at May 31, 2020 | 2,513,041 | | | 243,266 | | | 113,713 | | | 2,870,020 | |
Goodwill acquired | 1,568 | | | 2,545 | | | 3,161 | | | 7,274 | |
| | | | | | | |
Foreign currency translation | 32,901 | | | 2,760 | | | 114 | | | 35,775 | |
Balance at May 31, 2021 | $ | 2,547,510 | | | $ | 248,571 | | | $ | 116,988 | | | $ | 2,913,069 | |
|
| | | | | | | | | | | | | | | |
Goodwill (in thousands) | Uniform Rental and Facility Services | | First Aid and Safety Services | | All Other | | Total |
| | | | | | | |
Balance at June 1, 2017 | $ | 2,448,070 |
| | $ | 243,112 |
| | $ | 91,153 |
| | $ | 2,782,335 |
|
Goodwill acquired (1) | 55,152 |
| | 370 |
| | 5,939 |
| | 61,461 |
|
Foreign currency translation | 2,254 |
| | 797 |
| | 41 |
| | 3,092 |
|
Balance at May 31, 2018 | 2,505,476 |
| | 244,279 |
| | 97,133 |
| | 2,846,888 |
|
Goodwill acquired | 1,153 |
| | — |
| | 5,484 |
| | 6,637 |
|
Foreign currency translation | (10,227 | ) | | (820 | ) | | (37 | ) | | (11,084 | ) |
Balance at May 31, 2019 | $ | 2,496,402 |
| | $ | 243,459 |
| | $ | 102,580 |
| | $ | 2,842,441 |
|
| |
(1)
| Adjustments to the G&K preliminary purchase price allocation represents $52.7 million of the acquired goodwill in fiscal 2018 in the Uniform Rental and Facility Services reportable operating segment. |
| | | | | | | | | | | | | | | | | | | | | | | |
Service Contracts (In thousands) | Uniform Rental and Facility Services | | First Aid and Safety Services | | All Other | | Total |
| | | | | | | |
Balance at June 1, 2019 | $ | 445,016 | | | $ | 23,380 | | | $ | 26,199 | | | $ | 494,595 | |
Service contracts acquired | 11,058 | | | 325 | | | 3,288 | | | 14,671 | |
Service contracts amortization | (47,070) | | | (3,877) | | | (5,374) | | | (56,321) | |
Foreign currency translation | (1,393) | | | (23) | | | 0 | | | (1,416) | |
Balance at May 31, 2020 | 407,611 | | | 19,805 | | | 24,113 | | | 451,529 | |
Service contracts acquired | 2,369 | | | 2,132 | | | 1,736 | | | 6,237 | |
Service contracts amortization | (49,016) | | | (3,912) | | | (4,839) | | | (57,767) | |
Foreign currency translation | 8,177 | | | 269 | | | 0 | | | 8,446 | |
Balance at May 31, 2021 | $ | 369,141 | | | $ | 18,294 | | | $ | 21,010 | | | $ | 408,445 | |
|
| | | | | | | | | | | | | | | |
Service Contracts (in thousands) | Uniform Rental and Facility Services | | First Aid and Safety Services | | All Other | | Total |
| | | | | | | |
Balance at June 1, 2017 | $ | 529,923 |
| | $ | 30,062 |
| | $ | 27,003 |
| | $ | 586,988 |
|
Service contracts acquired | 4,098 |
| | 985 |
| | 4,310 |
| | 9,393 |
|
Service contracts amortization | (45,296 | ) | | (3,842 | ) | | (4,906 | ) | | (54,044 | ) |
Foreign currency translation | 3,342 |
| | 89 |
| | — |
| | 3,431 |
|
Balance at May 31, 2018 | 492,067 |
| | 27,294 |
| | 26,407 |
| | 545,768 |
|
Service contracts acquired | 2,864 |
| | 14 |
| | 5,186 |
| | 8,064 |
|
Service contracts amortization | (46,943 | ) | | (3,853 | ) | | (5,394 | ) | | (56,190 | ) |
Foreign currency translation | (2,972 | ) | | (75 | ) | | — |
| | (3,047 | ) |
Balance at May 31, 2019 | $ | 445,016 |
| | $ | 23,380 |
| | $ | 26,199 |
| | $ | 494,595 |
|
Information regarding Cintas' service contracts and other assets is as follows:follows as of May 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | | 2020 |
(In thousands) | Carrying Amount | | Accumulated Amortization | | Net | | | Carrying Amount | | Accumulated Amortization | | Net |
| | | | | | | | | | | | |
Service contracts | $ | 961,942 | | | $ | 553,497 | | | $ | 408,445 | | | | $ | 941,383 | | | $ | 489,854 | | | $ | 451,529 | |
| | | | | | | | | | | | |
Capitalized contract costs (1) | $ | 459,079 | | | $ | 231,940 | | | $ | 227,139 | | | | $ | 375,912 | | | $ | 148,853 | | | $ | 227,059 | |
Noncompete and consulting agreements | 44,683 | | | 42,408 | | | 2,275 | | | | 43,890 | | | 41,317 | | | 2,573 | |
Other | 105,371 | | | 24,371 | | | 81,000 | | | | 54,239 | | | 23,113 | | | 31,126 | |
Other assets | $ | 609,133 | | | $ | 298,719 | | | $ | 310,414 | | | | $ | 474,041 | | | $ | 213,283 | | | $ | 260,758 | |
|
| | | | | | | | | | | |
| As of May 31, 2019 |
(In thousands) | Carrying Amount | | Accumulated Amortization | | Net |
| | | | | |
Service contracts | $ | 928,635 |
| | $ | 434,040 |
| | $ | 494,595 |
|
| | | | | |
Capitalized contract costs (1) | $ | 277,016 |
| | $ | 71,062 |
| | $ | 205,954 |
|
Noncompete and consulting agreements | 42,308 |
| | 40,524 |
| | 1,784 |
|
Other | 50,306 |
| | 17,729 |
| | 32,577 |
|
Other assets | $ | 369,630 |
| | $ | 129,315 |
| | $ | 240,315 |
|
| |
(1)
| The current portion of capitalized contract costs included in prepaid expenses and other current assets on the consolidated balance sheet as of May 31, 2019, is $69.6 million. |
|
| | | | | | | | | | | |
| As of May 31, 2018 |
(In thousands) | Carrying Amount | | Accumulated Amortization | | Net |
| | | | | |
Service contracts | $ | 924,978 |
| | $ | 379,210 |
| | $ | 545,768 |
|
| | | | | |
Noncompete and consulting agreements | $ | 41,710 |
| | $ | 39,877 |
| | $ | 1,833 |
|
Other | 38,787 |
| | 11,305 |
| | 27,482 |
|
Other assets | $ | 80,497 |
| | $ | 51,182 |
| | $ | 29,315 |
|
(1) The current portion of capitalized contract costs, included in prepaid expenses and other current assets on the consolidated balance sheets as of May 31, 2021 and 2020, is $79.4 million and $76.2 million, respectively.
Amortization expense for service contracts and other assets for continuing operations was $134.0$141.9 million, $61.2$140.8 million and $22.8$134.0 million for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017, respectively. Estimated amortization expense for service contracts and other assets for continuing operations, excluding any future acquisitions and commissions to be earned, for each of the next five full fiscal years and thereafter is $131.9 million, $116.9 million, $104.7 million, $86.3 million, $74.6 million and $264.5 million,2019, respectively. At May 31, 2019,2021, the weighted average amortization period for service contracts, capitalized contract costs, noncompete and consulting agreements and other was 14 years, 7 years, 5 years and 310 years, respectively. As of May 31, 2021, the estimated future amortization expense for service contracts and other assets for continuing operations, excluding any future acquisitions and commissions to be earned, is as follows:
| | | | | | | | |
Fiscal Year (In thousands) | | |
2022 | | $ | 137,142 | |
2023 | | 117,803 | |
2024 | | 105,362 | |
2025 | | 91,948 | |
2026 | | 74,815 | |
Thereafter | | 192,794 | |
Total future amortization expense | | $ | 719,864 | |
Note 7. Debt and Derivatives
Cintas' outstanding debt is summarized as follows at May 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Interest Rate | | Fiscal Year Issued | | Fiscal Year Maturity | | 2021 | | 2020 |
| | | | | | | | | |
Debt due within one year | | | | | | | | | |
Senior notes | 4.30% | | 2012 | | 2022 | | $ | 250,000 | | | $ | 0 | |
Senior notes | 2.90% | | 2017 | | 2022 | | 650,000 | | | 0 | |
| | | | | | | | | |
| | | | | | | | | |
Debt issuance costs | | | | | | | (930) | | | 0 | |
Total debt due within one year | | | | | | | $ | 899,070 | | | $ | 0 | |
| | | | | | | | | |
Debt due after one year | | | | | | | | | |
Senior notes | 4.30% | | 2012 | | 2022 | | $ | 0 | | | $ | 250,000 | |
Senior notes | 2.90% | | 2017 | | 2022 | | 0 | | | 650,000 | |
Senior notes | 3.25% | | 2013 | | 2023 | | 300,000 | | | 300,000 | |
Senior notes (1) | 2.78% | | 2013 | | 2023 | | 50,815 | | | 51,250 | |
Senior notes (2) | 3.11% | | 2015 | | 2025 | | 51,301 | | | 51,637 | |
Senior notes | 3.70% | | 2017 | | 2027 | | 1,000,000 | | | 1,000,000 | |
Senior notes | 6.15% | | 2007 | | 2037 | | 250,000 | | | 250,000 | |
| | | | | | | | | |
Debt issuance costs | | | | | | | (9,283) | | | (13,182) | |
Total debt due after one year | | | | | | | $ | 1,642,833 | | | $ | 2,539,705 | |
|
| | | | | | | | | | | | | | |
(In thousands) | Interest Rate | | Fiscal Year Issued | | Fiscal Year Maturity | | 2019 | | 2018 |
| | | | | | | | | |
Debt due within one year | | | | | | | | | |
Commercial paper | 2.68 | % | (1) | 2019 | | 2020 | | $ | 112,500 |
| | $ | — |
|
Term loan | 3.06 | % | (1) | 2019 | | 2020 | | 200,000 |
| | — |
|
Debt issuance costs | | | | | | | (236 | ) | | — |
|
Total debt due within one year | | | | | | | $ | 312,264 |
| | $ | — |
|
| | | | | | | | | |
Debt due after one year | | | | | | | | | |
Senior notes | 4.30 | % | | 2012 | | 2022 | | $ | 250,000 |
| | $ | 250,000 |
|
Senior notes | 2.90 | % | | 2017 | | 2022 | | 650,000 |
| | 650,000 |
|
Senior notes | 3.25 | % | | 2013 | | 2023 | | 300,000 |
| | 300,000 |
|
Senior notes (2) | 2.78 | % | | 2013 | | 2023 | | 51,684 |
| | 52,119 |
|
Senior notes (3) | 3.11 | % | | 2015 | | 2025 | | 51,973 |
| | 52,309 |
|
Senior notes | 3.70 | % | | 2017 | | 2027 | | 1,000,000 |
| | 1,000,000 |
|
Senior notes | 6.15 | % | | 2007 | | 2037 | | 250,000 |
| | 250,000 |
|
Debt issuance costs | | | | | | | (16,150 | ) | | (19,119 | ) |
Total debt due after one year | | | | | | | $ | 2,537,507 |
| | $ | 2,535,309 |
|
(1) 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 3.73%. | |
(1)
| Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2019. |
| |
(2)
| 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 3.73%. |
| |
(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%. |
(2) 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 average interest rate for all Cintas debt at May 31, 20192021 was 3.7%3.8%, with maturity dates through fiscal year 2037. Cintas' senior notes, excluding the G&K senior notes assumed with the acquisition of G&K in fiscal 2017, and term loan are recorded at cost, net of debt issuance costs. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' debt as of May 31, 20192021 were $2,866.2$2,550.0 million and $2,998.7$2,788.8 million, respectively, and as of May 31, 20182020 were $2,550.0 million and $2,582.0$2,804.2 million, respectively. During the twelve monthsfiscal year ended May 31, 2019,2020, Cintas issuedpaid a net total of $112.5 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 of its 4.30%, 10-year senior notes that matured on that date with cash on hand. There was 0 commercial paper outstanding during fiscal 2021.
Letters of credit outstanding were $120.6 million and $143.0 million at both May 31, 20192021 and 2018, respectively.2020. Maturities of debt during each of the next five years are $312.5$900.0 million, $350.0 million, $0.0 million, $900.0 million, $350.0$50.0 million and $0.0 million, respectively.
Interest paid was $101.8$98.3 million, $122.1$105.5 million and $76.6$101.8 million for the fiscal years ended May 31, 2021, 2020 and 2019, 2018 and 2017, respectively. Interest paid in fiscal 2017 included the payment of $17.1 million in short-term debt financing fees, which were related to the acquisition of G&K and are not reoccurring.
The credit agreement that supports our commercial paper program was amended and restated on May 24, 2019. The amendment increased the capacity of the revolving credit facility from $600.0 million to $1.0 billion and created a new term loan of $200.0 million. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under either the revolving credit facility or the term loan of up to $250.0 million in the aggregate, subject to customary conditions. The maturity date of the revolving credit facility is May 22, 2024, and the maturity date of the term loan is May 22, 2020, which can be extended 12 months, annually, for up to four years.23, 2024. As of May 31, 2019,2021 and 2020, there was $112.5 million of0 commercial paper outstanding with a weighted average interest rate of 2.7% and maturity dates less than 30 days and no0 borrowings on our revolving credit facility. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2018. The fair value of the commercial paper, which approximates the carrying value, is estimated using Level 2 inputs based on general market prices.
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 lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2012, fiscal 2013 and fiscal 2017. The amortization of the cash flow hedges resulted in a decrease to other comprehensive income (loss) of $1.2$1.4 million, $1.4 million and $0.9$1.2 million in the fiscal years ended May 31, 2021, 2020 and 2019, and 2018, respectively and an increase to other comprehensive income of $1.1 million in the fiscal year ended May 31, 2017.respectively. During fiscal 2020 and 2019, Cintas entered into interest rate lock agreements with a total notional value of $950.0 million and $500.0 million, respectively, for a forecasted debt issuance. Asissuances in connection with upcoming debt maturities.
The fair values of the outstanding interest rate lock agreements is summarized as follows at May 31, 2019, the fair value of these31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
Fiscal Year of Issuance (in thousands) | Notional Value | | Other assets, net | | Long-term accrued liabilities | | Other assets, net | | Long-term accrued liabilities |
| | | | | | | | | |
2020 | $ | 950,000 | | | $ | 40,400 | | | $ | 0 | | | $ | 1,546 | | | $ | 53,817 | |
2019 | $ | 500,000 | | | $ | 0 | | | $ | 61,657 | | | $ | 0 | | | $ | 111,869 | |
The interest rate locks was a liability of $36.4 million that wasare also recorded in long-term accrued liabilities and in other comprehensive income (loss), net of tax. These interest rate locks had no impact on net income or cash flows from continuing operations for the fiscal years ended May 31, 2021, 2020 or 2019.
To hedge the exposure of movements in the foreign currency rates, Cintas may use foreign currency hedges. These hedges reduce the impact on cash flows from movements in the foreign currency exchange rates. Examples of foreign currency hedge instruments that Cintas may use are average rate options and forward contracts. There were no foreign currency hedge instruments outstanding during fiscal 2019, 2018 or 2017. Cintas had no foreign currency forward contracts as of May 31, 2019 or 2018.
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)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.
As of May 31, 2020, the Company had unrecognized inventory purchase commitments with various suppliers totaling $117.6 million, respectively. All unrecognized inventory purchase commitments outstanding at May 31, 2020 were satisfied during fiscal 2021.
Note 8. Leases
Cintas conductshas operating leases for certain operations from leasedoperating facilities, and leases certain vehicles and equipment. Mostequipment, 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 contain renewal optionsare recorded on the consolidated balance sheet with a corresponding operating lease right-of-use asset, net, representing the right to use the underlying asset for periodsthe lease term and the operating lease liabilities representing the obligation to make lease payments arising from 1 to 10 years. Thethe lease. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the consolidated balance sheet.
Operating lease agreements provide for increases in rent expense ifright-of-use assets, net and operating lease liabilities are recognized at the options are exercisedcommencement date of the lease based on increases in certain price level factors or other prearranged factors. Step rent provisions, escalation clauses, capital improvements funding and other lease concessions are taken into account in computing minimum lease payments. Minimumthe present value of lease payments over the lease term and include options to extend or terminate the lease when they are recognizedreasonably 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 minimum lease term. Cintas has noterm and variable lease payments dependentcosts 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 an existing indexthe Company's consolidated statements of income. The Company's lease agreements do not contain any material residual value guarantees or rate,material restrictive covenants.
Operating lease costs, including short-term lease expense and as such, are not includedvariable lease costs, which were immaterial in minimum lease payments. It is anticipated that expiring leases will be renewed or replaced.
The minimum rental payments under noncancelable lease arrangements for each of the next five years and thereafter are $54.0period, were $71.0 million, $46.2 million, $36.1 million, $28.3 million, $18.6$70.4 million and $40.0$69.7 million respectively.
Rent expense for continuing operations under operating leases during the fiscal years ended May 31, 2019, 20182021, 2020 and 2017, was $69.7 million, $70.0 million and $49.6 million,2019, respectively.
The following table provides supplemental information related to the Company's consolidated statements of cash flows for the fiscal years ended May 31:
| | | | | | | | | | | |
(In thousands) | 2021 | | 2020 |
| | | |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 49,345 | | | $ | 50,816 | |
Operating lease right-of-use assets obtained in exchange for new and renewed operating lease liabilities | $ | 51,850 | | | $ | 40,728 | |
| | | |
| | | |
| | | |
Other information related to the operating lease right-of-use assets, net and operating lease liabilities was as follows at May 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| | | |
Weighted-average remaining lease term - operating leases | 5.33 years | | 5.19 years |
Weighted-average discount rate - operating leases | 2.32% | | 2.66% |
The contractual future minimum lease payments of Cintas' operating lease liabilities by fiscal year are as follows as of May 31, 2021:
| | | | | | | | |
(In thousands) | | |
| | |
2022 | | $ | 47,564 | |
2023 | | 39,585 | |
2024 | | 29,553 | |
2025 | | 22,310 | |
2026 | | 16,779�� | |
Thereafter | | 30,010 | |
Total payments | | 185,801 | |
Less interest | | (11,177) | |
Total present value of lease payments | | $ | 174,624 | |
Note 9. Income Taxes
Income before income taxes for continuing operations consists of the following components for the fiscal years ended May 31:
| | | | | | | | | | | | | | | | | |
(In thousands) | 2021 | | 2020 | | 2019 |
| | | | | |
U.S. operations | $ | 1,221,690 | | | $ | 1,035,902 | | | $ | 1,061,505 | |
Foreign operations | 66,059 | | | 22,389 | | | 40,894 | |
| $ | 1,287,749 | | | $ | 1,058,291 | | | $ | 1,102,399 | |
|
| | | | | | | | | | | |
(In thousands) | 2019 | | 2018 | | 2017 |
| | | | | |
U.S. operations | $ | 1,061,505 |
| | $ | 798,215 |
| | $ | 673,055 |
|
Foreign operations | 40,894 |
| | 42,786 |
| | 14,349 |
|
| $ | 1,102,399 |
| | $ | 841,001 |
| | $ | 687,404 |
|
Income tax expense (benefit) for continuing operations consists of the following components for the fiscal years ended May 31:
| | | | | | | | | | | | | | | | | |
(In thousands) | 2021 | | 2020 | | 2019 |
| | | | | |
Current: | | | | | |
Federal | $ | 164,104 | | | $ | 153,736 | | | $ | 134,174 | |
State and local | 42,340 | | | 34,502 | | | 40,949 | |
Foreign | 12,417 | | | 6,985 | | | 9,882 | |
| 218,861 | | | 195,223 | | | 185,005 | |
Deferred | (42,080) | | | (13,292) | | | 34,759 | |
| $ | 176,781 | | | $ | 181,931 | | | $ | 219,764 | |
|
| | | | | | | | | | | |
(In thousands) | 2019 | | 2018 | | 2017 |
| | | | | |
Current: | | | | | |
Federal | $ | 134,174 |
| | $ | 124,861 |
| | $ | 184,130 |
|
State and local | 40,949 |
| | 32,322 |
| | 30,201 |
|
Foreign | 9,882 |
| | 15,103 |
| �� | 6,996 |
|
| 185,005 |
| | 172,286 |
| | 221,327 |
|
Deferred | 34,759 |
| | (115,217 | ) | | 8,791 |
|
| $ | 219,764 |
| | $ | 57,069 |
| | $ | 230,118 |
|
Reconciliation of income tax expense (benefit) for continuing operations using the statutory rate and actual income tax expense is as follows for the fiscal years ended May 31:
| | | | | | | | | | | | | | | | | |
(In thousands) | 2021 | | 2020 | | 2019 |
| | | | | |
Income taxes at the U.S. federal statutory rate | $ | 270,427 | | | $ | 222,258 | | | $ | 231,503 | |
Permanent differences (1) | (101,870) | | | (67,075) | | | (51,201) | |
State and local income taxes, net of federal benefit | 27,304 | | | 25,294 | | | 31,687 | |
Capital loss carryback | (14,072) | | | 0 | | | 0 | |
Other (2) | (5,008) | | | 1,454 | | | 6,506 | |
Impact of the Tax Cuts and Jobs Act (the Tax Act): | | | | | |
Deemed repatriation of non-U.S. earnings, net of foreign tax credits and other (collectively, transition tax) | 0 | | | 0 | | | 153 | |
Non-U.S. withholding taxes related to certain non-U.S. earnings subject to repatriation | 0 | | | 0 | | | 690 | |
Remeasurement of U.S. net deferred tax liabilities from 35% to 21% | 0 | | | 0 | | | 426 | |
| $ | 176,781 | | | $ | 181,931 | | | $ | 219,764 | |
(1) Primarily consists of the excess tax benefits related to stock-based compensation.
(2) Primarily consists of adjustments for uncertain tax positions and tax credits.
|
| | | | | | | | | | | |
(In thousands) | 2019 | | 2018 | | 2017 |
| | | | | |
Income taxes at the U.S. federal statutory rate | $ | 231,503 |
| | $ | 245,322 |
| | $ | 240,677 |
|
Permanent differences (1) | (51,201 | ) | | (47,137 | ) | | (29,414 | ) |
State and local income taxes, net of federal benefit | 31,687 |
| | 24,783 |
| | 19,210 |
|
Other (2) | 6,506 |
| | (4,451 | ) | | (355 | ) |
Impact of the Tax Act: | | | | | |
Deemed repatriation of non-U.S. earnings, net of foreign tax credits and other (collectively, transition tax) | 153 |
| | 9,768 |
| | — |
|
Non-U.S. withholding taxes related to certain non-U.S. earnings subject to repatriation | 690 |
| | 4,363 |
| | — |
|
Remeasurement of U.S. net deferred tax liabilities from 35% to 21% | 426 |
| | (175,579 | ) | | — |
|
| $ | 219,764 |
| | $ | 57,069 |
| | $ | 230,118 |
|
| |
(1)
| Includes the excess tax benefits related to share based compensation. |
| |
(2)
| Primarily consists of adjustments for uncertain tax positions, tax credits and return to provision adjustments. |
The components of deferred income taxes included on the consolidated balance sheets are as follows at May 31:
| | | | | | | | | | | |
(In thousands) | 2021 | | 2020 |
| | | |
Deferred tax assets: | | | |
Reserves related to accounts receivable | $ | 10,292 | | | $ | 14,718 | |
Inventory obsolescence | 30,617 | | | 13,744 | |
Insurance reserves | 45,802 | | | 45,197 | |
Stock-based compensation | 74,898 | | | 78,802 | |
Net operating loss and foreign related carry-forwards | 3,885 | | | 7,657 | |
Treasury locks | 3,140 | | | 39,046 | |
Operating lease liabilities | 44,530 | | | 42,191 | |
Deferred compensation and other | 107,528 | | | 73,562 | |
| 320,692 | | | 314,917 | |
Valuation allowance | (2,037) | | | (6,411) | |
| 318,655 | | | 308,506 | |
Deferred tax liabilities: | | | |
Uniform and other rental items in service | 202,846 | | | 189,787 | |
Property and equipment | 167,622 | | | 177,664 | |
Service contracts and other intangible assets | 207,834 | | | 207,610 | |
| | | |
Capitalized contract costs | 79,356 | | | 77,741 | |
Operating lease right-of-use assets | 44,530 | | | 42,191 | |
State taxes and other | 3,114 | | | 2,092 | |
| 705,302 | | | 697,085 | |
Net deferred tax liability | $ | 386,647 | | | $ | 388,579 | |
|
| | | | | | | |
(In thousands) | 2019 | | 2018 |
| | | |
Deferred tax assets: | | | |
Allowance for doubtful accounts | $ | 9,495 |
| | $ | 8,209 |
|
Inventory obsolescence | 9,257 |
| | 10,425 |
|
Insurance and contingencies | 45,339 |
| | 43,482 |
|
Stock-based compensation | 77,697 |
| | 64,376 |
|
Net operating loss and foreign related carry-forwards (1) | 9,109 |
| | 12,882 |
|
Treasury locks | 5,806 |
| | — |
|
Deferred compensation and other | 48,922 |
| | 37,319 |
|
| 205,625 |
| | 176,693 |
|
Valuation allowance | (7,308 | ) | | (11,302 | ) |
| 198,317 |
| | 165,391 |
|
Deferred tax liabilities: | | | |
Uniform and other rental items in service | 194,939 |
| | 170,157 |
|
Property and equipment | 159,186 |
| | 126,273 |
|
Service contracts and other intangible assets | 210,531 |
| | 215,455 |
|
Treasury locks | — |
| | 4,185 |
|
Capitalized contract costs | 70,228 |
| | — |
|
State taxes and other | 1,612 |
| | 1,902 |
|
| 636,496 |
| | 517,972 |
|
Net deferred tax liability | $ | 438,179 |
| | $ | 352,581 |
|
| |
(1)
| The majority of these net operating losses and carryforwards have a five-year expiration period and generally expire in fiscal year 2020 to 2025. |
Although realization is not assured, management has evaluated its deferred tax assets to determine whether a valuation allowance is required or should be adjusted. This evaluation considers, among other items, the nature, frequency and amount of recent losses, reversal periods of taxable temporary differences, duration of statutory periods and tax planning strategies. As a result of this analysis, Managementmanagement believes it is more likely than not that the recorded deferred tax assets, net of valuation allowances, will be realized.
The progression of the valuation allowance is as follows at May 31:
| | | | | | | | | | | |
(In thousands) | 2021 | | 2020 |
| | | |
Balance at beginning of year | $ | (6,411) | | | $ | (7,308) | |
| | | |
Subtractions | 4,374 | | | 897 | |
Balance at end of year | $ | (2,037) | | | $ | (6,411) | |
|
| | | | | | | |
(In thousands) | 2019 | | 2018 |
| | | |
Balance at beginning of year | $ | (11,302 | ) | | $ | (18,088 | ) |
Additions | — |
| | (3,268 | ) |
Subtractions (1) | 3,994 |
| | 10,054 |
|
Balance at end of year | $ | (7,308 | ) |
| $ | (11,302 | ) |
| |
(1)
| Primarily related to expiration of net operating loss carryforwards. |
Income taxes paid were $173.2$245.5 million, $175.3$160.3 million and $269.6$173.2 million for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017,2019, respectively.
As of May 31, 20192021 and 2018,2020, there was $37.3$34.2 million and $26.9$35.9 million, respectively, in total unrecognized tax benefits, which, if recognized, would favorably impact Cintas' effective tax rate. Cintas recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods. The total amount accrued for interest and penalties as of May 31, 20192021 and 2018,2020, was $2.8$4.2 million and $1.8$3.7 million, respectively. Cintas records this tax liability in long-term accrued liabilities on the consolidated balance sheets, as appropriate.sheets.
A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits (exclusive of interest and penalties) is as follows:
|
| | | |
(In thousands) | |
| |
Balance at June 1, 2017 | $ | 17,357 |
|
Additions for tax positions of the current year | 10,164 |
|
Additions from G&K acquisition (1) | 6,394 |
|
Additions for tax positions of prior years | 5,675 |
|
Statute expirations | (2,943 | ) |
Balance at May 31, 2018 | $ | 36,647 |
|
Additions for tax positions of the current year | 3,641 |
|
Additions for tax positions of prior years | 10,239 |
|
Statute expirations | (1,812 | ) |
Balance at May 31, 2019 | $ | 48,715 |
|
| | | | | |
(In thousands) | |
| |
(1) Balance at June 1, 2019 | Increase in unrecognized$ | 48,715 | |
Additions for tax benefit associated with unrecognized benefits assumed inpositions of the G&K acquisition.current year | 3,976 | |
Additions for tax positions of prior years | 4,325 | |
Settlements | (5,473) | |
Statute expirations | (6,873) | |
Balance at May 31, 2020 | 44,670 | |
Additions for tax positions of the current year | 4,728 | |
Additions for tax positions of prior years | 2,726 | |
Settlements | (5,593) | |
Statute expirations | (4,074) | |
Balance at May 31, 2021 | $ | 42,457 | |
The majority of Cintas' operations are in North America. Cintas is required to file 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 operation in any given period.
All U.S. federal income tax returns are closed to audit through fiscal 2015.2017. Cintas is currently in various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2014. Based on the 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, 2020.2022.
The Tax Act
In fiscal year 2018, the Company’s tax expense and effective tax rate was impacted by the enactment of the Tax Act in the United States on December 22, 2017, which provided for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018 and required companies to pay a one-time transition tax on earnings of foreign subsidiaries. The Tax Act also included provisions that were expected to offset some of the benefit of the U.S. corporate tax rate reduction, including the repeal of the deduction for domestic production activities and the expansion of the limitation on the deduction of certain executive compensation. In addition, the Tax Act altered the landscape of taxation of non-U.S. operations and provided immediate deductions for certain new investments, among other provisions.
As a result of the statutory rate reduction to 21% during fiscal year 2018, the Company recorded an income tax benefit of $175.6 million related to the remeasurement of its deferred taxes and additional tax expense of $9.8 million relating to the Tax Act’s transition tax liability. The Company considered the effects of the Tax Act to be provisional pursuant to the guidance in SEC Staff Accounting Bulletin No. 118, primarily due to lack of implementation guidance at the balance sheet date related to among other items the state tax impacts of federal tax reform, which resulted in the use of estimates to compute the future blended tax rate. During the third quarter of fiscal 2019, Cintas finalized the accounting for the tax effects of the Tax Act. The Company recorded $0.4 million and $0.2 million to income tax expense as an adjustment to the provisional amounts recorded as of fiscal 2018 relating to the deferred tax remeasurement and transition tax liability, respectively.
Cintas also analyzed and recorded the impact of the Tax Act on executive compensation, the foreign derived intangible income deduction and global intangible low-taxed income and determined that the impact was immaterial for the year ended May 31, 2019. Cintas has elected to account for Global Intangible Low-Taxed Income (GILTI) as a current-period expense when incurred. Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in future periods.
Foreign Withholding Tax
In fiscal 2018, Cintas revised its position regarding unrepatriated foreign earnings to a partially reinvested assertion. The Company asserts that all foreign earnings will be indefinitely reinvested, with the exception of certain foreign investments in which earnings and cash generation are in excess of local needs. With the passage of the Tax Act in the U.S., dividends of earnings from non-U.S. operations are generally no longer subject to U.S. income tax. Cintas continues to analyze and adjust the estimated impact of the non-U.S. income and withholding tax liabilities based on the source of these earnings, as well as the expected means through which those earnings may be taxed. Cintas has accrued a withholdingtaxed; however, the unrecorded tax estimate of $0.7 million related to fiscal 2019 earnings that areis not deemed to be permanently reinvested. The unrecognized tax liability associated with the operations in which Cintas asserts permanent reinvestment is $5.4 million as of May 31, 2019. We will continue to monitor all foreign earnings and profits we believe to be permanently reinvested in foreign operations.material.
10. Acquisitions
The purchase price paid for each acquisition has been allocated to the fair value of the assets acquired and liabilities assumed. During fiscal 2019, Cintas acquired five businesses included in the Uniform Rental and Facility Services reportable operating segment, one business included in the First Aid and Safety Services reportable operating segment and seven businesses included in All Other. During fiscal 2018, Cintas acquired five businesses included in the Uniform Rental and Facility Services reportable operating segment,three businesses included in the First Aid and Safety Services reportable operating segment and six businesses included in All Other.
The following summarizes the aggregate purchase price and fair value allocations for all businesses acquired during the fiscal years ended May 31:
|
| | | | | | | |
(In thousands) | 2019 | | 2018 |
| | | |
Fair value of tangible assets acquired | $ | 840 |
| | $ | 421 |
|
Fair value of service contracts acquired | 8,064 |
| | 9,271 |
|
Fair value of other intangibles acquired | 1,035 |
| | 892 |
|
Net goodwill recognized | 6,637 |
| | 12,094 |
|
Total fair value of assets acquired | 16,576 |
| | 22,678 |
|
Fair value of liabilities assumed | 6,763 |
| | 3,332 |
|
Total cash paid for acquisitions, net of cash acquired | $ | 9,813 |
| | $ | 19,346 |
|
Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). 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, service contracts and other intangibles were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flow using a discount rate of 9.5% (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement. As necessary, Management utilizes third-party valuation firms to assist in the determination of purchase accounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firms to ensure that the transaction-specific assumptions are appropriate for Cintas.
11.Note 10. Employee Benefit Plans
Pension Plans
In conjunction with the acquisition of G&K in fiscal 2017, Cintas assumed G&K's noncontributory defined benefit pension plan (thethe Pension Plan)Plan that covers substantially all legacy G&K employees who were employed as of July 1, 2005, except certain employees who were covered by union-administered plans. Benefits are based on the number of years of service and each employee’s compensation near retirement. We will make annual contributions to the Pension Plan consistent with federal funding requirements. The Pension Plan was frozen by G&K effective December 31, 2006. Future growth in benefits will not occur beyond this date. Applicable accounting standards require that the consolidated balance sheetsheets reflect the funded status of the pension plan.Pension Plan. The funded status of the Pension Plan is measured as the difference between the plan assets at fair value and the projected benefit obligation.PBO. The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. The measurement of the PBO is based on the Company’s estimates and actuarial valuations. The net pension liability at May 31, 20192021 and 20182020 is included in the long-term accrued liabilities on the consolidated balance sheet.sheets. Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in accumulated other comprehensive income in(loss) on our consolidated balance sheet.sheets. The difference between actual amounts and estimates based on actuarial assumptions are recognized in other comprehensive income (loss), net of tax, in the period in which they occur. The estimated amortization from accumulated other comprehensive income (loss) into net periodic benefit cost during fiscal year 20202022 is immaterial.
| | | | | | | | | | | |
Obligations and Funded Status at May 31: (In thousands) | 2021 | | 2020 |
| | | |
Change in benefit obligation: | | | |
Projected benefit obligation, beginning of year | $ | 105,357 | | | $ | 91,935 | |
Interest cost | 2,050 | | | 2,881 | |
Actuarial (gain) loss | (4,460) | | | 13,662 | |
Benefits paid | (3,219) | | | (3,121) | |
Projected benefit obligation, end of year | $ | 99,728 | | | $ | 105,357 | |
| | | |
Change in plan assets: | | | |
Fair value of plan assets, beginning of year | $ | 68,341 | | | $ | 62,267 | |
Actual return on plan assets | 9,509 | | | 7,097 | |
Employer contributions | 3,613 | | | 2,098 | |
Benefits paid | (3,219) | | | (3,121) | |
Fair value of plan assets, end of year | $ | 78,244 | | | $ | 68,341 | |
| | | |
Funded status-net amount recognized | $ | (21,484) | | | $ | (37,016) | |
|
| | | | | | | |
Obligations and Funded Status at May 31: | | | |
(in thousands) | 2019 | | 2018 |
| | | |
Change in benefit obligation: | | | |
Projected benefit obligation, beginning of year | $ | 86,341 |
| | $ | 87,387 |
|
Interest cost | 3,124 |
| | 2,818 |
|
Actuarial loss (gain) | 5,455 |
| | (940 | ) |
Benefits paid | (2,985 | ) | | (2,924 | ) |
Projected benefit obligation, end of year | $ | 91,935 |
| | $ | 86,341 |
|
| | | |
Change in plan assets: | |
| | |
|
Fair value of plan assets, beginning of year | $ | 58,781 |
| | $ | 59,396 |
|
Actual return on plan assets | 2,437 |
| | 2,309 |
|
Employer contributions | 4,034 |
| | — |
|
Benefits paid | (2,985 | ) | | (2,924 | ) |
Fair value of plan assets, end of year | $ | 62,267 |
| | $ | 58,781 |
|
| | | |
Funded status-net amount recognized | $ | (29,668 | ) | | $ | (27,560 | ) |
The accrued benefitnet pension liability of $29.7$21.5 million and $27.6$37.0 million was included in long-term accrued liabilities on the consolidated balance sheetsheets as of May 31, 20192021 and 2018,2020, respectively. An unrecognized net actuarial loss of $6.7$5.0 million and $0.8$16.2 million related to the Pension Plan was included in "other" within in the accumulated other comprehensive income (loss) on the consolidated balance sheetsheets at May 31, 20192021 and 2018,2020, respectively.
The components of net periodic pension benefit are summarized as follows for the fiscal years ended May 31:
| | | | | | | | | | | |
(In thousands) | 2021 | | 2020 |
| | | |
Interest cost | $ | 2,050 | | | $ | 2,881 | |
Expected return on assets | (2,924) | | | (2,961) | |
Amortization of net loss | 222 | | | 0 | |
Net periodic pension benefit | $ | (652) | | | $ | (80) | |
|
| | | | | | | |
Components of Net Periodic Benefit Cost | | | |
(in thousands) | 2019 | | 2018 |
| | | |
Interest cost | $ | 3,124 |
| | $ | 2,818 |
|
Expected return on assets | (2,882 | ) | | (2,832 | ) |
Net periodic benefit cost | $ | 242 |
| | $ | (14 | ) |
Assumptions
The following weighted average assumptions were used to determine benefit obligations for the Pension Plan for the fiscal years ended May 31 :
| | | | | | | | | | | |
| 2021 | | 2020 |
Discount rate | 2.83 | % | | 2.54 | % |
Rate of compensation increase | N/A | | N/A |
|
| | | | | |
| 2019 | | 2018 |
Discount rate | 3.54 | % | | 3.95 | % |
Rate of compensation increase | N/A |
| | N/A |
|
The following weighted average assumptions were used to determine net periodic pension benefit cost for the Pension Plan for the fiscal years ended May 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
Discount rate | 2.54 | % | | 3.54 | % |
Expected return on plan assets | 4.25 | % | | 4.80 | % |
Rate of compensation increase | N/A | | N/A |
|
| | | | | |
| 2019 | | 2018 |
Discount rate | 3.95 | % | | 3.79 | % |
Expected return on plan assets | 4.90 | % | | 4.90 | % |
Rate of compensation increase | N/A |
| | N/A |
|
Plan Assets
The asset allocations in the Pension Plan at May 31, 20192021 and 20182020 are as follows:
| | | 2019 | | 2019 | | 2018 | | 2021 | | 2021 | | 2020 |
| Target Asset Allocation | | Actual Asset Allocation | | Actual Asset Allocation | | Target Asset Allocation | | Actual Asset Allocation | | Actual Asset Allocation |
| | | | | | |
Large cap equity | 26.0 | % | | 26.4 | % | | 26.5 | % | Large cap equity | 26.0 | % | | 29.8 | % | | 25.0 | % |
Small cap equity | 5.0 | % | | 5.3 | % | | 5.6 | % | Small cap equity | 5.0 | % | | 6.0 | % | | 4.4 | % |
International equity | 8.0 | % | | 7.8 | % | | 7.9 | % | International equity | 8.0 | % | | 8.3 | % | | 6.7 | % |
Fixed income | 45.0 | % | | 45.0 | % | | 44.2 | % | Fixed income | 45.0 | % | | 44.1 | % | | 51.5 | % |
Absolute return strategy funds | 16.0 | % | | 13.3 | % | | 15.8 | % | Absolute return strategy funds | 16.0 | % | | 11.3 | % | | 11.9 | % |
Cash | — | % | | 2.2 | % | | — | % | Cash | 0 | % | | 0.5 | % | | 0.5 | % |
Total | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | 100.0 | % | | 100.0 | % | | 100.0 | % |
Our investment committee, assisted by outside consultants, evaluates the objectives and investment policies concerning our long-term investment goals and asset allocation strategies. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. To develop the expected long-term rate of return on asset assumptions, we consider the historical returns and future expectations of returns for each asset class, as well as the target asset allocation, changes in investments expenses and investment goals of the pension portfolio. This resulted in the selection of 4.90%4.25% expected return on plan assets for fiscal year 20192021 and 4.90%4.80% expected return on plan assets for fiscal year 2018.2020. The investment goals are (1) to meet or exceed the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet future obligations. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Pension plan assets for our qualified pension plans are held in a trust for the benefit of the plan participants and are invested in a diversified portfolio of equity investments, fixed income investments and cash. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established defining permitted investments within each asset class.
The implementation of the investment strategy discussed above is executed through a variety of investment types, including U.S. government securities, corporate debt and mutual funds. TheseThe mutual fund investments are valued at the closing price reported on the active market on which the individual securities are traded.traded and are not adjusted from the quoted active market price at the consolidated balance sheet date. The remaining investments, primarily corporate debt, are valued using unadjusted observable inputs such as third-party quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for the assets or liabilities.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our 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 fair value measurement at the reportingconsolidated balance sheet date.
Information on the Pension Plan investments, as of May 31, 2019 and 2018, using the fair value hierarchy discussed in Note 1 entitled Significant Accounting Polices, is as follows: follows as of May 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | | 2020 |
(In thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | |
Cash equivalents | $ | 556 | | | $ | 0 | | | $ | 0 | | | $ | 556 | | | | $ | 585 | | | $ | 0 | | | $ | 0 | | | $ | 585 | |
U.S. government securities | 3,066 | | | 4,500 | | | 0 | | | 7,566 | | | | 2,733 | | | 4,327 | | | 0 | | | 7,060 | |
Corporate debt | 0 | | | 26,762 | | | 0 | | | 26,762 | | | | 0 | | | 27,666 | | | 0 | | | 27,666 | |
Mutual funds: | | | | | | | | | | | | | | | | |
U.S. securities | 36,909 | | | 0 | | | 0 | | | 36,909 | | | | 28,455 | | | 0 | | | 0 | | | 28,455 | |
International securities | 6,451 | | | 0 | | | 0 | | | 6,451 | | | | 4,575 | | | 0 | | | 0 | | | 4,575 | |
Total | $ | 46,982 | | | $ | 31,262 | | | $ | 0 | | | $ | 78,244 | | | | $ | 36,348 | | | $ | 31,993 | | | $ | 0 | | | $ | 68,341 | |
|
| | | | | | | | | | | | | | | |
| May 31, 2019 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Cash equivalents | $ | 1,379 |
| | $ | — |
| | $ | — |
| | $ | 1,379 |
|
U.S. government securities | 2,113 |
| | 3,974 |
| | — |
| | 6,087 |
|
Corporate debt | — |
| | 21,970 |
| | — |
| | 21,970 |
|
Mutual funds: |
|
| |
|
| |
|
| |
|
|
U.S. securities | 27,984 |
| | — |
| | — |
| | 27,984 |
|
International securities | 4,847 |
| | — |
| | — |
| | 4,847 |
|
Total | $ | 36,323 |
| | $ | 25,944 |
| | $ | — |
| | $ | 62,267 |
|
|
| | | | | | | | | | | | | | | |
| May 31, 2018 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Cash equivalents | $ | 487 |
| | $ | — |
| | $ | — |
| | $ | 487 |
|
U.S. government securities | 2,426 |
| | 3,458 |
| | — |
| | 5,884 |
|
Corporate debt | — |
| | 19,826 |
| | — |
| | 19,826 |
|
Mutual funds: | | | | | | | |
U.S. securities | 27,901 |
| | — |
| | — |
| | 27,901 |
|
International securities | 4,683 |
| | — |
| | — |
| | 4,683 |
|
Total | $ | 35,497 |
| | $ | 23,284 |
| | $ | — |
| | $ | 58,781 |
|
We expect to make contributions of approximately $3.1$0.3 million to the Pension Plan during the next 12 months. The Pension Plan benefit payments expected to be paid for each of the next five years and thereafter are $3.7 million, $3.9 million, $4.0$4.1 million, $4.2 million, $4.3$4.4 million, $4.5 million, $4.7 million and $23.5$25.0 million, respectively.
Future changes in plan asset returns, assumed discount rates and various other factors related to the Pension Plan will impact future net periodic pension expensebenefit (cost) and liabilities. We cannot predict the impact of these changes in the future, and any changes may have a material impact on our consolidated results of operations and consolidated financial position.
Cintas also administers a pension plan that was assumed in a previous acquisition and has historically been deemed immaterial for disclosure purposes. As of May 31, 20192021 and 2018,2020, the fair value of this pension plan's total assets was $7.3$9.2 million and $7.5$7.3 million, respectively, and the projected benefit obligationPBO was $7.9$8.9 million and $7.4 million, respectively. For the years ended May 31, 2019 and 2018, the net periodic benefit cost recorded for this plan was expense of $0.6 million and income of $0.1$9.4 million, respectively.
Non-Contributory Retirement Plans
Cintas' Partners' Plan (the Plan) is a non-contributory profit sharing plan and Employee Stock Ownership Plan (ESOP) for the benefit of substantially all U.S. Cintas employee-partners who have completed one year of service. The Plan also includes a 401(k) savings feature covering substantially all U.S. employee-partners. The amounts of contributions to the Plan and ESOP, as well as the matching contribution to the 401(k), are made at the discretion of the Board of Directors. During fiscal 2018, the G&K 401(k) plan was merged into the Plan. There were no changes to the Plan as a result of the merger. Total contributions, including Cintas' matching contributions, which approximate cost, were $67.6$75.6 million, $56.7$74.3 million and $47.5$67.6 million for the fiscal years ended May 31, 2021, 2020 and 2019, 2018respectively. The expense associated with these contributions was recorded in selling and 2017, respectively.administrative expenses on the consolidated statements of income.
Cintas has a non-contributory deferred profit sharing plan (DPSP), which covers substantially all Canadian employee-partners. In addition, a registered retirement savings plan (RRSP) is offered to those employees. The amounts of contributions to the DPSP, as well as the matching contribution to the RRSP, are made at the discretion of the Board of Directors. Total contributions, which approximate cost, were $2.5$3.1 million, $2.8$2.6 million and $1.8$2.5 million for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017,2019, respectively.
Cintas has a supplemental executive retirement plan (SERP) subject to Section 409A of the Internal Revenue Code for the benefit of certain highly compensated Cintas employee-partners. The SERP allows participants to defer the receipt of compensation which would otherwise become payable to them. Matching contributions are made at the discretion of the Board of Directors. Total matching contributions, which approximates cost, were $8.6$9.1 million, $8.2$8.4 million and $6.9$8.6 million for the fiscal years ended May 31, 2021, 2020 and 2019, 2018respectively. The expense associated with these contributions was recorded in selling and 2017, respectively.administrative expenses on the consolidated statements of income.
12.Note 11. 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. See Note 12 entitled Stock-Based Compensation for additional information on restricted stock awards. The following table setstables set forth the computation of basic and diluted earnings per share from continuing operations using the two-class method for amounts attributable to Cintas' common shares for the fiscal years ended May 31: | | Basic Earnings per Share from Continuing Operations (In thousands except per share data) | 2019 | | 2018 | | 2017 | Basic Earnings per Share from Continuing Operations (In thousands except per share data) | 2021 | | 2020 | | 2019 |
| | | | | | |
Income from continuing operations | $ | 882,635 |
| | $ | 783,932 |
| | $ | 457,286 |
| Income from continuing operations | $ | 1,110,968 | | | $ | 876,360 | | | $ | 882,635 | |
Less: income from continuing operations allocated to participating securities | 9,568 |
| | 11,794 |
| | 8,168 |
| Less: income from continuing operations allocated to participating securities | 7,623 | | | 8,158 | | | 9,568 | |
Income from continuing operations available to common shareholders | $ | 873,067 |
| | $ | 772,138 |
| | $ | 449,118 |
| Income from continuing operations available to common shareholders | $ | 1,103,345 | | | $ | 868,202 | | | $ | 873,067 | |
Basic weighted average common shares outstanding | 106,080 |
| | 106,593 |
| | 104,964 |
| Basic weighted average common shares outstanding | 104,874 | | | 103,816 | | | 106,080 | |
| | | | | | | |
Basic earnings per share from continuing operations | $ | 8.23 |
| | $ | 7.24 |
| | $ | 4.27 |
| Basic earnings per share from continuing operations | $ | 10.52 | | | $ | 8.36 | | | $ | 8.23 | |
| | | | | | | | | | | | | | | | | |
Diluted Earnings per Share from Continuing Operations (In thousands except per share data) | 2021 | | 2020 | | 2019 |
| | | | | |
Income from continuing operations | $ | 1,110,968 | | | $ | 876,360 | | | $ | 882,635 | |
Less: income from continuing operations allocated to participating securities | 7,623 | | | 8,158 | | | 9,568 | |
Income from continuing operations available to common shareholders | $ | 1,103,345 | | | $ | 868,202 | | | $ | 873,067 | |
Basic weighted average common shares outstanding | 104,874 | | | 103,816 | | | 106,080 | |
Effect of dilutive securities – employee stock options | 2,833 | | | 3,196 | | | 3,415 | |
Diluted weighted average common shares outstanding | 107,707 | | | 107,012 | | | 109,495 | |
| | | | | |
Diluted earnings per share from continuing operations | $ | 10.24 | | | $ | 8.11 | | | $ | 7.97 | |
|
| | | | | | | | | | | |
Diluted Earnings per Share from Continuing Operations (In thousands except per share data) | 2019 | | 2018 | | 2017 |
| | | | | |
Income from continuing operations | $ | 882,635 |
| | $ | 783,932 |
| | $ | 457,286 |
|
Less: income from continuing operations allocated to participating securities | 9,568 |
| | 11,794 |
| | 8,168 |
|
Income from continuing operations available to common shareholders | $ | 873,067 |
| | $ | 772,138 |
| | $ | 449,118 |
|
Basic weighted average common shares outstanding | 106,080 |
| | 106,593 |
| | 104,964 |
|
Effect of dilutive securities – employee stock options | 3,415 |
| | 3,217 |
| | 2,819 |
|
Diluted weighted average common shares outstanding | 109,495 |
| | 109,810 |
| | 107,783 |
|
| | | | | |
Diluted earnings per share from continuing operations | $ | 7.97 |
| | $ | 7.03 |
| | $ | 4.17 |
|
Basic and diluted earnings per share from discontinued operations were calculated using the two-class method. There were no discontinued operations for the fiscal year ended May 31, 2021. Basic earnings per share from discontinued operations wererounded to $0.00 and $0.02 $0.54 and $0.22 for the fiscal years ended May 31, 2019, 20182020 and 2017,2019, respectively. Diluted earnings per share from discontinued operations wererounded to $0.00 and $0.02 $0.53 and $0.21 for the fiscal years ended May 31, 2019, 20182020 and 2017,2019, respectively.
For the fiscal years ended May 31, 2019, 20182021, 2020 and 2017,2019, options granted to purchase 0.50.2 million, 0.80.2 million and 0.60.5 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 shares (anti-dilutive).
On August 4, 2015, we announced that the Board of Directors authorized a $500.0 million share buyback program. This program was completed in June 2016. On August 2, 2016, we announced that the Board of Directors authorized a $500.0 million share buyback program. This program was completed in November 2018. On October 30, 2018, we announced that the Board of Directors authorized a $1.0 billion share buyback program. This program was completed in January 2021. On October 29, 2019, we announced 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Buyback Program (In thousands except per share data) | Shares | | Average Price per Share | | Purchase Price | | Shares | | Average Price per Share | | Purchase Price | | Shares | | Average Price per Share | | Purchase Price |
| | | | | | | | | | | | | | | | | |
August 2, 2016 | 0 | | | $ | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | $ | 0 | | | 2,130 | | | $ | 192.55 | | | $ | 410,003 | |
October 30, 2018 | 190 | | | $ | 319.88 | | | $ | 60,877 | | | 1,607 | | | $ | 246.19 | | | $ | 395,681 | | | 2,673 | | | $ | 203.30 | | | $ | 543,442 | |
October 29, 2019 | 1,196 | | | $ | 350.31 | | | $ | 418,779 | | | 0 | | | $ | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | $ | 0 | |
| 1,386 | | | $ | 346.13 | | | $ | 479,656 | | | 1,607 | | | $ | 246.19 | | | $ | 395,681 | | | 4,803 | | | $ | 198.53 | | | $ | 953,445 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands except per share data) | 2019 | | 2018 | | 2017 |
Buyback Program | Shares | | Avg. Price per Share | | Purchase Price | | Shares | | Avg. Price per Share | | Purchase Price | | Shares | | Avg. Price per Share | | Purchase Price |
| | | | | | | | | | | | | | | | | |
August 4, 2015 | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | 39 |
| | $ | 94.09 |
| | $ | 3,691 |
|
August 2, 2016 | 2,130 |
| | $ | 192.55 |
| | $ | 410,003 |
| | 518 |
| | $ | 173.51 |
| | $ | 89,997 |
| | — |
| | $ | — |
| | $ | — |
|
October 30, 2018 | 2,673 |
| | $ | 203.30 |
| | $ | 543,442 |
| | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
| 4,803 |
| | $ | 198.53 |
| | $ | 953,445 |
| | 518 |
|
| $ | 173.51 |
|
| $ | 89,997 |
|
| 39 |
|
| $ | 94.09 |
|
| $ | 3,691 |
|
SubsequentIn the period subsequent to May 31, 20192021, through July 26, 2019, Cintas purchased 0.8 million shares at an average price of $230.66 per share for a total purchase price of $193.1 million. Under28, 2021, we completed the October 30, 201829, 2019 program through July 26, 2019, Cintas has purchased a total of 3.5by purchasing 1.6 million shares of Cintas common stock at an average price of $209.82$365.41 for a total purchase price of $581.2 million. From the inception of the October 29, 2019 program through July 28, 2021, Cintas has purchased a total of 2.8 million shares of Cintas common stock at an average price of $358.93 per share for a total purchase price of $736.5 million.$1.0 billion.
In addition to the buyback program,programs, Cintas acquired shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. For the fiscal year ended May 31, 2021, Cintas acquired 0.2 million shares at an average price of $302.52 per share for a total purchase price of $74.4 million. For the fiscal year ended May 31, 2020, Cintas acquired 0.3 million shares at an average price of $260.89 per share for a total purchase price of $68.8 million. For the fiscal year ended May 31, 2019, Cintas acquired 0.3 million shares at an average price of $204.50 per share for a total purchase price of $62.9 million. For the fiscal year ended May 31, 2018, Cintas acquired 0.3 million shares at an average price of $130.30 per share for a total purchase price of $37.3 million. For the fiscal year ended May 31, 2017, Cintas acquired 0.2 million shares at an average price of $101.37 per share for a total purchase price of $17.0 million.
13.Note 12. Stock-Based Compensation
On August 2, 2016, the Board of Directors approved and adopted the Cintas Corporation 2016 Equity and Incentive Compensation Plan (the 2016 Plan) to replace the Cintas' 2005 Equity Compensation Plan, as amended (the 2005 Plan). The 2016 Plan was approved by Cintas shareholders at its Annual Meeting on October 18, 2016, at which time the 2016 Plan became effective. Under the 2016 Plan, Cintas may grant officers and key employee-partners equity compensation in the form of stock options, stock appreciation rights, restricted and unrestricted stock awards, performance awards and other stock unit awards representing up to an aggregate of 12,500,000 shares of Cintas' common stock. Any shares of common stock that remained available under the 2005 Plan became part of the total available share balance of 12,500,000 shares under the 2016 Plan. At May 31, 2019, 8,230,4322021, 6,358,437 shares of common stock were reserved for future issuance under the 2016 Plan. Total compensation cost for stock-based awards for continuing operations was $139.2$112.0 million,, $110.7 $115.4 million and $87.5$139.2 million for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017,2019, respectively. Cintas accounts for forfeitures of stock-based awards as they occur. The total income tax benefit recognized in the consolidated statements of income statement for share-based compensation arrangements for continuing operations was $34.0$28.6 million,, $32.3 $29.2 million and $32.5$34.0 million for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017,2019, respectively.
Stock Options
Stock options are granted at the fair market value of the underlying common stock on the date of grant. The option terms are determined by the Compensation Committee of the Board of Directors, but no stock option may be exercised later than 10 years after the date of the grant. The option awards generally have 10-year10-year terms with graded vesting in years 3 through 5 based on continuous service during that period. Cintas recognizes compensation expense for these options using the straight-line recognition method over the vesting period.
The fair value of options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions for the fiscal years ended May 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| | | | | |
Risk-free interest rate | 0.4 | % | | 1.9 | % | | 2.7 | % |
Dividend yield | 1.1 | % | | 1.1 | % | | 1.2 | % |
Expected volatility of Cintas' common stock | 23.5 | % | | 19.0 | % | | 17.9 | % |
Expected life of the option in years | 5.5 | | 6.0 | | 6.0 |
|
| | | | | | | | |
| 2019 | | 2018 | | 2017 |
| | | | | |
Risk-free interest rate | 2.7 | % | | 1.8 | % | | 1.2 | % |
Dividend yield | 1.2 | % | | 1.2 | % | | 1.3 | % |
Expected volatility of Cintas' common stock | 17.9 | % | | 17.2 | % | | 21.6 | % |
Expected life of the option in years | 6.0 |
| | 6.5 |
| | 7.5 |
|
The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the stock options. The determination of expected volatility is based on historical volatility of Cintas' common stock over the period commensurate with the expected term of stock options, as well as other relevant factors. The weighted average expected term was determined based on the historical employee exercise behavior of the options. The weighted-average fair value of stock options granted during fiscal 2021, 2020 and 2019 2018was $66.52, $48.20 and 2017 was $43.71, $37.62 and $23.34,$47.68, respectively.
The information presented in the following table relates primarily to stock options granted and outstanding under either the 2016 Plan or under previously adopted plans:
| | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price |
| | | |
Outstanding, June 1, 2018 (2,006,922 shares exercisable) | 8,930,186 | | | $ | 96.71 | |
Granted | 1,013,005 | | | 219.37 | |
Canceled | (3,045) | | | 58.03 | |
Forfeited | (397,304) | | | 155.39 | |
Exercised | (1,333,908) | | | 54.14 | |
Outstanding, May 31, 2019 (1,919,976 shares exercisable) | 8,208,934 | | | 123.80 | |
Granted | 575,813 | | | 250.50 | |
Canceled | (5,432) | | | 72.17 | |
Forfeited | (312,391) | | | 185.08 | |
Exercised | (1,361,525) | | | 70.03 | |
Outstanding, May 31, 2020 (1,913,374 shares exercisable) | 7,105,399 | | | 145.54 | |
Granted | 747,550 | | | 348.24 | |
Canceled | (1,452) | | | 59.51 | |
Forfeited | (91,722) | | | 193.94 | |
Exercised | (1,704,251) | | | 83.31 | |
Outstanding, May 31, 2021 (1,548,867 shares exercisable) | 6,055,524 | | | $ | 191.11 | |
|
| | | | | | |
| Shares | | Weighted Average Exercise Price |
| | | |
Outstanding, June 1, 2016 (1,649,236 shares exercisable) | 8,419,907 |
| | $ | 61.83 |
|
Granted | 1,343,180 |
| | 126.51 |
|
Canceled | (5,368 | ) | | 32.45 |
|
Forfeited | (165,452 | ) | | 73.43 |
|
Exercised | (1,004,217 | ) | | 35.95 |
|
Outstanding, May 31, 2017 (1,795,898 shares exercisable) | 8,588,050 |
| | 74.77 |
|
Granted | 1,664,867 |
| | 175.86 |
|
Canceled | (7,809 | ) | | 45.10 |
|
Forfeited | (255,627 | ) | | 94.73 |
|
Exercised | (1,059,295 | ) | | 44.06 |
|
Outstanding, May 31, 2018 (2,006,922 shares exercisable) | 8,930,186 |
| | 96.71 |
|
Granted | 1,013,005 |
| | 219.37 |
|
Canceled | (3,045 | ) | | 58.03 |
|
Forfeited | (397,304 | ) | | 155.39 |
|
Exercised | (1,333,908 | ) | | 54.14 |
|
Outstanding, May 31, 2019 (1,919,976 shares exercisable) | 8,208,934 |
| | $ | 123.80 |
|
The intrinsic value of stock options exercised was $193.6$402.3 million,, $110.9 $262.1 million and $76.5$193.6 million for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017,2019, respectively. The total cash received from employees as a result of employee stock option exercises for the fiscal years ended May 31, 2021, 2020 and 2019 2018was $130.0 million, $90.5 million and 2017 was $65.4 million, $41.8 million and $31.9 million, respectively.
The fair value of stock options vested was $22.4$30.5 million, $17.9$27.8 million and $12.7$22.4 million for the fiscal years ended May 31, 2019, 20182021, 2020 and 2017,2019, respectively.
The following table summarizes the information related to stock options outstanding at May 31, 2019:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding Options | | Exercisable Options |
Range of Exercise Prices | Number Outstanding | | Average Remaining Option Life | | Weighted Average Exercise Price | | Number Exercisable | | Weighted Average Exercise Price |
$28.14 - $108.39 | 1,621,375 | | 3.93 | | $ | 83.28 | | | 1,248,866 | | | $ | 75.94 | |
$108.40 - $204.48 | 1,329,236 | | 6.30 | | 143.30 | | | 280,610 | | | 137.55 | |
$204.49 - $260.79 | 1,865,666 | | 7.58 | | 228.36 | | | 6,752 | | | 230.79 | |
$260.80 - $361.09 | 1,239,247 | | 9.61 | | 327.37 | | | 12,639 | | | 277.33 | |
$28.14 - $361.09 | 6,055,524 | | 6.74 | | $ | 191.11 | | | 1,548,867 | | | $ | 89.42 | |
|
| | | | | | | | | | | | | | |
| | | Outstanding Options | | Exercisable Options |
Range of Exercise Prices | Number Outstanding | | Average Remaining Option Life | | Weighted Average Exercise Price | | Number Exercisable | | Weighted Average Exercise Price |
$22.61 - $63.45 | 1,938,231 | | 3.96 | | $ | 49.30 |
| | 1,549,449 |
| | $ | 45.75 |
|
$63.46 - $108.39 | 2,516,838 | | 6.61 | | 96.18 |
| | 335,335 |
| | 84.71 |
|
$108.40 - $204.48 | 1,696,559 | | 8.23 | | 141.26 |
| | 35,192 |
| | 128.42 |
|
$204.49 - $221.83 | 2,057,306 | | 9.52 | | 213.39 |
| | — |
| | — |
|
$22.61 - $221.83 | 8,208,934 | | 7.05 | | $ | 123.80 |
| | 1,919,976 |
| | $ | 54.07 |
|
At May 31, 2019,2021, the aggregate intrinsic value of stock options outstanding and exercisable was $804.7$983.6 million and $322.1$409.1 million, respectively. The weighted-average remaining contractual term of stock options exercisable is 4.24.1 years.
Restricted Stock Awards
Restricted stock awards consist of Cintas' common stock that is subject to such conditions, restrictions and limitations as the Compensation Committee of the Board of Directors determines to be appropriate. The vesting period is generally three years after the grant date. The recipient of restricted stock awards will have all rights of a shareholder of Cintas, including the right to vote and the right to receive cash dividends during the vesting period. Cintas recognizes compensation expense for these restricted stock awards using the straight-line recognition method over the vesting period.
The information presented in the following table relates to restricted stock awards granted and outstanding under either the 2016 Plan or under previously adopted plans:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Price |
| | | |
Outstanding, unvested grants at June 1, 2018 | 2,641,114 | | | $ | 122.18 | |
Granted | 425,614 | | | 221.27 | |
Forfeited | (109,393) | | | 169.48 | |
Vested | (765,647) | | | 93.37 | |
Outstanding, unvested grants at May 31, 2019 | 2,191,688 | | | 149.12 | |
Granted | 228,292 | | | 248.39 | |
Forfeited | (135,934) | | | 208.37 | |
Vested | (658,831) | | | 113.93 | |
Outstanding, unvested grants at May 31, 2020 | 1,625,215 | | | 199.73 | |
Granted | 274,843 | | | 352.68 | |
Forfeited | (48,586) | | | 241.95 | |
Vested | (610,249) | | | 147.32 | |
Outstanding, unvested grants at May 31, 2021 | 1,241,223 | | | $ | 264.63 | |
|
| | | | | | |
| Shares | | Weighted Average Grant Price |
| | | |
Outstanding, unvested grants at June 1, 2016 | 2,603,436 |
| | $ | 75.94 |
|
Granted | 614,076 |
| | 128.63 |
|
Forfeited | (46,766 | ) | | 81.23 |
|
Vested | (428,672 | ) | | 48.67 |
|
Outstanding, unvested grants at May 31, 2017 | 2,742,074 |
| | 91.91 |
|
Granted | 669,932 |
| | 183.83 |
|
Forfeited | (69,416 | ) | | 102.96 |
|
Vested | (701,476 | ) | | 64.64 |
|
Outstanding, unvested grants at May 31, 2018 | 2,641,114 |
| | 122.18 |
|
Granted | 425,614 |
| | 221.27 |
|
Forfeited | (109,393 | ) | | 169.48 |
|
Vested | (765,647 | ) | | 93.37 |
|
Outstanding, unvested grants at May 31, 2019 | 2,191,688 |
| | $ | 149.12 |
|
The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 20192021 was $253.8 million.$224.0 million. The weighted-average period of time over which this cost will be recognized is 1.91.98 years.
14.
Note 13. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss), net of tax:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Foreign Currency | | Unrealized Loss on Interest Rate Hedges | | Other | | Total |
| | | | | | | |
Balance at June 1, 2019 | $ | (15,022) | | | $ | (18,389) | | | $ | (5,741) | | | $ | (39,152) | |
Cumulative effect of change in accounting principle (1) | 0 | | | 2,058 | | | (83) | | | 1,975 | |
Other comprehensive loss before reclassifications | (11,321) | | | (94,954) | | | (8,495) | | | (114,770) | |
Amounts reclassified from accumulated other comprehensive income (loss) | 0 | | | (1,433) | | | 0 | | | (1,433) | |
Net current period other comprehensive loss | (11,321) | | | (96,387) | | | (8,495) | | | (116,203) | |
Balance at May 31, 2020 | (26,343) | | | (112,718) | | | (14,319) | | | (153,380) | |
Other comprehensive income before reclassifications | 68,182 | | | 106,843 | | | 10,676 | | | 185,701 | |
Amounts reclassified from accumulated other comprehensive income (loss) | 0 | | | (1,433) | | | 0 | | | (1,433) | |
Net current period other comprehensive income | 68,182 | | | 105,410 | | | 10,676 | | | 184,268 | |
Balance at May 31, 2021 | $ | 41,839 | | | $ | (7,308) | | | $ | (3,643) | | | $ | 30,888 | |
|
| | | | | | | | | | | | | | | |
(In thousands) | Foreign Currency | | Unrealized Income (Loss) on Interest Rate Hedges | | Other | | Total |
| | | | | | | |
Balance at June 1, 2017 | $ | (12,726 | ) | | $ | 11,382 |
| | $ | (1,685 | ) | | $ | (3,029 | ) |
Other comprehensive income before reclassifications | 19,276 |
| | — |
| | 1,029 |
| | 20,305 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | (933 | ) | | — |
| | (933 | ) |
Net current period other comprehensive income (loss) | 19,276 |
| | (933 | ) | | 1,029 |
| | 19,372 |
|
Balance at May 31, 2018 | 6,550 |
| | 10,449 |
| | (656 | ) | | 16,343 |
|
Other comprehensive loss before reclassifications | (21,572 | ) | | (27,659 | ) | | (5,085 | ) | | (54,316 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | (1,179 | ) | | — |
| | (1,179 | ) |
Net current period other comprehensive loss | (21,572 | ) | | (28,838 | ) | | (5,085 | ) | | (55,495 | ) |
Balance at May 31, 2019 | $ | (15,022 | ) | | $ | (18,389 | ) | | $ | (5,741 | ) | | $ | (39,152 | ) |
(1) Effective June 1, 2019, Cintas adopted ASU 2018-02, on a prospective basis, which resulted in this reclassification adjustment of the stranded tax effects from retained earnings to accumulated other comprehensive income that was determined using a specific identification method.
The following table summarizes the reclassifications out of accumulated other comprehensive income (loss) during the fiscal years ended May 31:
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line in the Consolidated Statements of Income |
| | | | | | |
(In thousands) | | 2021 | | 2020 | | |
| | | | | | |
Amortization of interest rate locks | | $ | 1,896 | | | $ | 1,896 | | | Interest expense |
Tax expense | | (463) | | | (463) | | | Income taxes |
Amortization of interest rate locks, net of tax | | $ | 1,433 | | | $ | 1,433 | | | |
|
| | | | | | | | | | |
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 Statements of Income |
| | | | | | |
(in thousands) | | 2019 | | 2018 | | |
| | | | | | |
Amortization of interest rate locks | | $ | 1,896 |
| | $ | 1,504 |
| | Interest expense |
Tax expense | | (717 | ) | | (571 | ) | | Income taxes |
Amortization of interest rate locks, net of tax | | $ | 1,179 |
| | $ | 933 |
| | Net of tax |
15.Note 14. Operating 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, carpet and tile cleaning services 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’ business,operating segments, which consists of the Fire Protection Services operating segment and itsthe Uniform Direct Sale business,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 Significant Accounting Policies. 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 |
May 31, 2021 | | | | | | | | | |
Revenue | $ | 5,689,632 | | | $ | 784,291 | | | $ | 642,417 | | | $ | 0 | | | $ | 7,116,340 | |
Gross margin | $ | 2,706,118 | | | $ | 332,336 | | | $ | 276,197 | | | $ | 0 | | | $ | 3,314,651 | |
Selling and administrative expenses | 1,480,278 | | | 251,153 | | | 197,728 | | | 0 | | | 1,929,159 | |
Interest expense, net | 0 | | | 0 | | | 0 | | | 97,743 | | | 97,743 | |
Income before income taxes | $ | 1,225,840 | | | $ | 81,183 | | | $ | 78,469 | | | $ | (97,743) | | | $ | 1,287,749 | |
Depreciation and amortization | $ | 323,596 | | | $ | 43,314 | | | $ | 21,041 | | | $ | 0 | | | $ | 387,951 | |
Capital expenditures | $ | 104,020 | | | $ | 34,384 | | | $ | 5,066 | | | $ | 0 | | | $ | 143,470 | |
Total assets | $ | 6,743,272 | | | $ | 637,663 | | | $ | 362,248 | | | $ | 493,640 | | | $ | 8,236,823 | |
| | | | | | | | | |
May 31, 2020 | | | | | | | | | |
Revenue | $ | 5,643,494 | | | $ | 708,569 | | | $ | 733,057 | | | $ | 0 | | | $ | 7,085,120 | |
Gross margin | $ | 2,588,349 | | | $ | 338,661 | | | $ | 306,738 | | | $ | 0 | | | $ | 3,233,748 | |
Selling and administrative expenses | 1,583,791 | | | 231,769 | | | 255,492 | | | 0 | | | 2,071,052 | |
| | | | | | | | | |
Interest expense, net | 0 | | | 0 | | | 0 | | | 104,405 | | | 104,405 | |
Income before income taxes | $ | 1,004,558 | | | $ | 106,892 | | | $ | 51,246 | | | $ | (104,405) | | | $ | 1,058,291 | |
Depreciation and amortization | $ | 317,699 | | | $ | 38,516 | | | $ | 22,838 | | | $ | 0 | | | $ | 379,053 | |
Capital expenditures | $ | 183,364 | | | $ | 35,678 | | | $ | 11,247 | | | $ | 0 | | | $ | 230,289 | |
Total assets | $ | 6,531,673 | | | $ | 611,205 | | | $ | 381,605 | | | $ | 145,402 | | | $ | 7,669,885 | |
| | | | | | | | | |
May 31, 2019 | | | | | | | | | |
Revenue | $ | 5,552,430 | | | $ | 619,470 | | | $ | 720,403 | | | $ | 0 | | | $ | 6,892,303 | |
Gross margin | $ | 2,524,831 | | | $ | 297,074 | | | $ | 306,683 | | | $ | 0 | | | $ | 3,128,588 | |
Selling and administrative expenses | 1,533,711 | | | 206,990 | | | 239,943 | | | 0 | | | 1,980,644 | |
G&K Services, Inc. integration expenses | 14,410 | | | 0 | | | 0 | | | 0 | | | 14,410 | |
Gain on sale of a cost method investment | 0 | | | 0 | | | 0 | | | 69,373 | | | 69,373 | |
Interest expense, net | 0 | | | 0 | | | 0 | | | 100,508 | | | 100,508 | |
Income before income taxes | $ | 976,710 | | | $ | 90,084 | | | $ | 66,740 | | | $ | (31,135) | | | $ | 1,102,399 | |
Depreciation and amortization | $ | 301,328 | | | $ | 36,824 | | | $ | 21,941 | | | $ | 0 | | | $ | 360,093 | |
Capital expenditures | $ | 220,373 | | | $ | 36,783 | | | $ | 19,563 | | | $ | 0 | | | $ | 276,719 | |
Total assets | $ | 6,442,461 | | | $ | 504,920 | | | $ | 392,636 | | | $ | 96,645 | | | $ | 7,436,662 | |
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Uniform Rental and Facility Services | | First Aid and Safety Services | | All Other | | Corporate (1) | | Total |
May 31, 2019 | | | | | | | | | |
Revenue | $ | 5,552,430 |
| | $ | 619,470 |
| | $ | 720,403 |
| | $ | — |
| | $ | 6,892,303 |
|
Gross margin | $ | 2,524,831 |
| | $ | 297,074 |
| | $ | 306,683 |
| | $ | — |
| | $ | 3,128,588 |
|
Selling and administrative expenses | 1,533,711 |
| | 206,990 |
| | 239,943 |
| | — |
| | 1,980,644 |
|
G&K Services, Inc. integration expenses | 14,410 |
| | — |
| | — |
| | — |
| | 14,410 |
|
Gain on sale of a cost method investment | — |
| | — |
| | — |
| | 69,373 |
| | 69,373 |
|
Interest expense, net | — |
| | — |
| | — |
| | 100,508 |
| | 100,508 |
|
Income before income taxes | $ | 976,710 |
| | $ | 90,084 |
| | $ | 66,740 |
| | $ | (31,135 | ) | | $ | 1,102,399 |
|
Depreciation and amortization | $ | 301,328 |
| | $ | 36,824 |
| | $ | 21,941 |
| | $ | — |
| | $ | 360,093 |
|
Capital expenditures | $ | 220,373 |
| | $ | 36,783 |
| | $ | 19,563 |
| | $ | — |
| | $ | 276,719 |
|
Total assets | $ | 6,442,461 |
| | $ | 504,920 |
| | $ | 392,636 |
| | $ | 96,645 |
| | $ | 7,436,662 |
|
| | | | | | | | | |
May 31, 2018 | | | | | | | | | |
Revenue | $ | 5,247,124 |
| | $ | 564,706 |
| | $ | 664,802 |
| | $ | — |
| | $ | 6,476,632 |
|
Gross margin | $ | 2,360,165 |
| | $ | 265,785 |
| | $ | 282,573 |
| | $ | — |
| | $ | 2,908,523 |
|
Selling and administrative expenses | 1,500,644 |
| | 190,567 |
| | 225,581 |
| | — |
| | 1,916,792 |
|
G&K Services, Inc. transaction and integration expenses | 41,897 |
| | — |
| | — |
| | — |
| | 41,897 |
|
Interest expense, net | — |
| | — |
| | — |
| | $ | 108,833 |
| | 108,833 |
|
Income before income taxes | $ | 817,624 |
| | $ | 75,218 |
| | $ | 56,992 |
| | $ | (108,833 | ) | | $ | 841,001 |
|
Depreciation and amortization | $ | 236,773 |
| | $ | 21,898 |
| | $ | 20,745 |
| | $ | — |
| | $ | 279,416 |
|
Capital expenditures | $ | 225,694 |
| | $ | 27,932 |
| | $ | 18,073 |
| | $ | — |
| | $ | 271,699 |
|
Total assets | $ | 5,977,314 |
| | $ | 471,165 |
| | $ | 371,011 |
| | $ | 138,724 |
| | $ | 6,958,214 |
|
| | | | | | | | | |
May 31, 2017 | | | | | | | | | |
Revenue | $ | 4,202,490 |
| | $ | 508,233 |
| | $ | 612,658 |
| | $ | — |
| | $ | 5,323,381 |
|
Gross margin | $ | 1,894,716 |
| | $ | 230,166 |
| | $ | 255,413 |
| | $ | — |
| | $ | 2,380,295 |
|
Selling and administrative expenses | 1,138,345 |
| | 177,378 |
| | 211,657 |
| | — |
| | 1,527,380 |
|
G&K Services, Inc. transaction and integration expenses | 79,224 |
| | — |
| | — |
| | — |
| | 79,224 |
|
Interest expense, net | — |
| | — |
| | — |
| | 86,287 |
| | 86,287 |
|
Income before income taxes | $ | 677,147 |
| | $ | 52,788 |
| | $ | 43,756 |
|
| $ | (86,287 | ) |
| $ | 687,404 |
|
Depreciation and amortization | $ | 156,998 |
| | $ | 19,962 |
| | $ | 17,905 |
| | $ | 1,730 |
| | $ | 196,595 |
|
Capital expenditures | $ | 232,832 |
| | $ | 26,863 |
| | $ | 12,645 |
| | $ | 977 |
| | $ | 273,317 |
|
Total assets | $ | 5,801,680 |
| | $ | 444,717 |
| | $ | 367,562 |
| | $ | 230,098 |
| | $ | 6,844,057 |
|
| |
(1)
| Corporate assets include cash and marketable securities(1) Corporate assets represent the consolidated cash balance in all periods presented. Corporate assets as of May 31, 2017 also include the assets of Discontinued Services. Corporate depreciation, amortization and capital expenditures includes depreciation and amortization of Discontinued Services. |
16. Quarterly Financial Data (Unaudited)
The following is a summary of the results of operation for each of the quarters within the fiscal years ended May 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | |
May 31, 2019 (in thousands) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | | | | | |
Revenue | $ | 1,697,975 |
| | $ | 1,718,268 |
| | $ | 1,682,330 |
| | $ | 1,793,730 |
|
Gross margin | $ | 774,712 |
| | $ | 775,158 |
| | $ | 755,153 |
| | $ | 823,565 |
|
Net income, continuing operations | $ | 212,547 |
| | $ | 242,994 |
| | $ | 200,923 |
| | $ | 226,171 |
|
Basic earnings per share, continuing operations | $ | 1.96 |
| | $ | 2.25 |
| | $ | 1.89 |
| | $ | 2.13 |
|
Diluted earnings per share, continuing operations | $ | 1.89 |
| | $ | 2.18 |
| | $ | 1.83 |
| | $ | 2.06 |
|
Weighted average number of shares outstanding | 106,835 |
| | 106,475 |
| | 105,080 |
| | 105,018 |
|
|
| | | | | | | | | | | | | | | |
May 31, 2018 (in thousands) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | | | | | |
Revenue | $ | 1,611,503 |
| | $ | 1,606,441 |
| | $ | 1,589,138 |
| | $ | 1,669,550 |
|
Gross margin | $ | 739,353 |
| | $ | 716,369 |
| | $ | 700,463 |
| | $ | 752,338 |
|
Net income, continuing operations | $ | 161,108 |
| | $ | 137,737 |
| | $ | 295,789 |
| | $ | 189,298 |
|
Basic earnings per share, continuing operations | $ | 1.50 |
| | $ | 1.27 |
| | $ | 2.73 |
| | $ | 1.74 |
|
Diluted earnings per share, continuing operations | $ | 1.45 |
| | $ | 1.24 |
| | $ | 2.66 |
| | $ | 1.68 |
|
Weighted average number of shares outstanding | 105,740 |
| | 106,340 |
| | 106,558 |
| | 106,593 |
|
17. Discontinued Operations
In fiscal 2018, Cintas sold a significant business referred to as Discontinued Services and received $127.8 million of proceeds from the sale. Prior to the sale, Discontinued Services was primarily included in All Other and was classified as held for sale. In fiscal 2015 and 2016, Cintas sold the storage business (Storage) and the investment in the Shred-it Partnership (Shred-it), respectively. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of Discontinued Services, Storage and Shred-it have been excluded from both continuing operations and operating segment results for all periods presented.
In fiscal 2017, we received additional proceeds related to the sale of Storage and Shred-it and realized a pre-tax gain of $2.4 million and $25.5 million, respectively, as a result of the additional consideration received. During fiscal 2019, we received the final proceeds related to contingent consideration on the sale of Shred-it and realized a pre-tax gain of $3.2 million.
Following is selected financial information included in net income from discontinued operations for Discontinued Services, Storage and Shred-it for the fiscal years ended May 31:
|
| | | | | | | | | | | |
(In thousands) | 2019 | | 2018 | | 2017 |
| | | | | |
Revenue | $ | — |
| | $ | 10,773 |
| | $ | 105,559 |
|
| | | | | |
(Loss) income before income taxes, excluding gains from sale transactions and investments | (97 | ) | | (2,433 | ) | | 10,622 |
|
Income tax benefit (expense) | 24 |
| | 706 |
| | (3,930 | ) |
Gain on sale of business | 3,200 |
| | 96,400 |
| | 27,857 |
|
Income tax expense on net gain | (781 | ) | | (36,019 | ) | | (11,127 | ) |
Net income from discontinued operations | $ | 2,346 |
| | $ | 58,654 |
| | $ | 23,422 |
|
18. G&K Services, Inc. Transaction and Integration Expenses
As a result of the acquisition of G&K in fiscal 2017, the Company incurred $14.4 million, $41.9 million and $79.2 million, in transaction and integration expenses in fiscal 2019, 2018 and 2017, respectively. In fiscal 2019, the Company incurred integration expenses directly related to the acquisition of $16.9 million, which primarily consisted of facility closure expenses, partially offset by a $2.5 million adjustment to the accrual for employee termination expenses previously recognized under ASC Topic 712, "Compensation - Nonretirement Postemployment Benefits" (Topic 712). The $41.9 million of costs incurred in fiscal 2018 related to lease cancellation costs, facility closure expenses and other integration expenses directly related to the acquisition. In fiscal 2017, the expenses related to asset impairment charges of $23.3 million and other transaction and integration expenses of $55.9 million, which consisted of the following: $17.4 million of legal and professional fees directly related to the acquisition, $31.0 million of employee termination expenses recognized under Topic 712, $5.5 million write-off of excess inventory and $2.0 million of other miscellaneous integration expenses.
The transaction and integration expenses for all fiscal years are included in a single line in the consolidated statements of income and are reported by operating segment in Note 15 entitled Operating Segment Information. Our accounting policy for long-lived assets is described in Note 1 entitled Significant Accounting Policies. The asset impairment charges in fiscal 2017 of $23.3 million relate to the write-down of machinery and equipment and other fixed assets to their fair value in G&K plants and branches that were identified by the Company on April 30, 2017 for future closure. The Company determined that these assets cannot be used for other purposes, and the undiscounted projected future cash flows associated with these assets are less than their carrying value at April 30, 2017. The fair value utilized for purposes of the asset impairment analysis was determined by using Level 2 inputs based on both the cost and market approaches.
The amount of employee termination benefits paid during the fiscal year ended May 31, 2019, 2018 and 2017 was $3.8 million, $15.2 million and $6.7 million, respectively, which resulted in a related liability balance of $2.8 million, $9.1 million and $24.3 million, respectively. We anticipate the remaining accrued employee termination benefits to be paid by the end of the next fiscal year.
19. Supplemental Guarantor Information
Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $112.5 million aggregate principal amount of commercial paper, term loan of $200.0 million and the $2,550.0 million aggregate principal amount of senior notes outstanding as of May 31, 2019, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.
As allowed by Securities and Exchange Commission rules, the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the following condensed consolidating financial statements has been fully consolidated in Cintas' consolidated financial statements. The following condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of Cintas and notes thereto of which this note is an integral part.
Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages:
Condensed Consolidating Income Statement
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2019 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Revenue: | | | | | | | | | | | |
Uniform rental and facility services | $ | — |
| | $ | 4,506,235 |
| | $ | 728,463 |
| | $ | 404,226 |
| | $ | (86,494 | ) | | $ | 5,552,430 |
|
Other | — |
| | 2,125,827 |
| | 190 |
| | 96,545 |
| | (882,689 | ) | | 1,339,873 |
|
Equity in net income of affiliates | 882,635 |
| | — |
| | — |
| | — |
| | (882,635 | ) | | — |
|
Total revenue | 882,635 |
| | 6,632,062 |
| | 728,653 |
| | 500,771 |
| | (1,851,818 | ) | | 6,892,303 |
|
| | | | | | | | | | | |
Costs and expenses (income): | | | | | | | | | | | |
Cost of uniform rental and facility services | — |
| | 2,518,588 |
| | 445,116 |
| | 260,366 |
| | (196,471 | ) | | 3,027,599 |
|
Cost of other | — |
| | 1,479,797 |
| | (66,349 | ) | | 72,066 |
| | (749,398 | ) | | 736,116 |
|
Selling and administrative expenses | — |
| | 2,233,197 |
| | (343,532 | ) | | 125,864 |
| | (34,885 | ) | | 1,980,644 |
|
G&K Services, Inc. integration expenses | — |
| | 8,709 |
| | 3,559 |
| | 2,142 |
| | — |
| | 14,410 |
|
Operating income | 882,635 |
| | 391,771 |
| | 689,859 |
| | 40,333 |
| | (871,064 | ) | | 1,133,534 |
|
| | | | | | | | | | | |
Gain on sale of a cost method investment | — |
| | — |
| | 69,373 |
| | — |
| | — |
| | 69,373 |
|
| | | | | | | | | | | |
Interest income | — |
| | (812 | ) | | (371 | ) | | (52 | ) | | 7 |
| | (1,228 | ) |
Interest expense (income) | — |
| | 102,466 |
| | (745 | ) | | 15 |
| | — |
| | 101,736 |
|
| | | | | | | | | | | |
Income before income taxes | 882,635 |
| | 290,117 |
| | 760,348 |
| | 40,370 |
| | (871,071 | ) | | 1,102,399 |
|
Income tax expense | — |
| | 58,378 |
| | 151,861 |
| | 9,630 |
| | (105 | ) | | 219,764 |
|
Income from continuing operations | 882,635 |
| | 231,739 |
| | 608,487 |
| | 30,740 |
| | (870,966 | ) | | 882,635 |
|
Income from discontinued operations, net of tax | 2,346 |
| | 2,346 |
| | — |
| | — |
| | (2,346 | ) | | 2,346 |
|
Net income | $ | 884,981 |
| | $ | 234,085 |
| | $ | 608,487 |
| | $ | 30,740 |
| | $ | (873,312 | ) | | $ | 884,981 |
|
Condensed Consolidating Income Statement
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2018 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Revenue: | | | | | | | | | | | |
Uniform rental and facility services | $ | — |
| | $ | 4,361,716 |
| | $ | 681,846 |
| | $ | 400,792 |
| | $ | (197,230 | ) | | $ | 5,247,124 |
|
Other | — |
| | 1,778,845 |
| | 112 |
| | 88,092 |
| | (637,541 | ) | | 1,229,508 |
|
Equity in net income of affiliates | 783,932 |
| | — |
| | — |
| | — |
| | (783,932 | ) | | — |
|
Total revenue | 783,932 |
| | 6,140,561 |
| | 681,958 |
| | 488,884 |
| | (1,618,703 | ) | | 6,476,632 |
|
| | | | | | | | | | | |
Costs and expenses (income): | | | | | | | | | | | |
Cost of uniform rental and facility services | — |
| | 2,511,854 |
| | 418,722 |
| | 254,718 |
| | (298,335 | ) | | 2,886,959 |
|
Cost of other | — |
| | 1,183,036 |
| | (57,220 | ) | | 62,368 |
| | (507,034 | ) | | 681,150 |
|
Selling and administrative expenses | — |
| | 2,093,655 |
| | (271,222 | ) | | 125,545 |
| | (31,186 | ) | | 1,916,792 |
|
G&K Services, Inc. transaction and integration expenses | — |
| | 15,383 |
| | 22,148 |
| | 4,366 |
| | — |
| | 41,897 |
|
Operating income | 783,932 |
| | 336,633 |
| | 569,530 |
| | 41,887 |
| | (782,148 | ) | | 949,834 |
|
| | | | | | | | | | | |
Interest income | — |
| | (310 | ) | | (242 | ) | | (793 | ) | | 3 |
| | (1,342 | ) |
Interest expense (income) | — |
| | 111,292 |
| | (1,017 | ) | | (100 | ) | | — |
| | 110,175 |
|
| | | | | | | | | | | |
Income before income taxes | 783,932 |
| | 225,651 |
| | 570,789 |
| | 42,780 |
| | (782,151 | ) | | 841,001 |
|
Income tax (benefit) expense | — |
| | (48,907 | ) | | 90,886 |
| | 15,212 |
| | (122 | ) | | 57,069 |
|
Income from continuing operations | 783,932 |
| | 274,558 |
| | 479,903 |
| | 27,568 |
| | (782,029 | ) | | 783,932 |
|
Income (loss) from discontinued operations, net of tax | 58,654 |
| | 68,293 |
| | (9,688 | ) | | — |
| | (58,605 | ) | | 58,654 |
|
Net income | $ | 842,586 |
| | $ | 342,851 |
| | $ | 470,215 |
| | $ | 27,568 |
| | $ | (840,634 | ) | | $ | 842,586 |
|
Condensed Consolidating Income Statement
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2017 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Revenue: | | | | | | | | | | | |
Uniform rental and facility services | $ | — |
| | $ | 3,511,483 |
| | $ | 604,679 |
| | $ | 257,288 |
| | $ | (170,960 | ) | | $ | 4,202,490 |
|
Other | — |
| | 1,604,877 |
| | 1,810 |
| | 73,006 |
| | (558,802 | ) | | 1,120,891 |
|
Equity in net income of affiliates | 457,286 |
| | — |
| | — |
| | — |
| | (457,286 | ) | | — |
|
Total revenue | 457,286 |
| | 5,116,360 |
| | 606,489 |
| | 330,294 |
| | (1,187,048 | ) | | 5,323,381 |
|
| | | | | | | | | | | |
Costs and expenses (income): | | | | | | | | | | | |
Cost of uniform rental and facility services | — |
| | 2,021,365 |
| | 378,404 |
| | 164,969 |
| | (256,964 | ) | | 2,307,774 |
|
Cost of other | — |
| | 1,070,780 |
| | (41,509 | ) | | 56,210 |
| | (450,169 | ) | | 635,312 |
|
Selling and administrative expenses | — |
| | 1,686,209 |
| | (220,887 | ) | | 87,672 |
| | (25,614 | ) | | 1,527,380 |
|
G&K Services, Inc. transaction and integration expenses | — |
| | 51,868 |
| | 19,060 |
| | 8,296 |
| | — |
| | 79,224 |
|
Operating income | 457,286 |
| | 286,138 |
| | 471,421 |
| | 13,147 |
| | (454,301 | ) | | 773,691 |
|
| | | | | | | | | | | |
Interest income | — |
| | (26 | ) | | (191 | ) | | (22 | ) | | 2 |
| | (237 | ) |
Interest expense (income) | — |
| | 89,706 |
| | (2,978 | ) | | (204 | ) | | — |
| | 86,524 |
|
| | | | | | | | | | | |
Income before income taxes | 457,286 |
| | 196,458 |
| | 474,590 |
| | 13,373 |
| | (454,303 | ) | | 687,404 |
|
Income tax expense | — |
| | 65,829 |
| | 159,025 |
| | 5,365 |
| | (101 | ) | | 230,118 |
|
Income from continuing operations | 457,286 |
| | 130,629 |
| | 315,565 |
| | 8,008 |
| | (454,202 | ) | | 457,286 |
|
Income from discontinued operations, net of tax | 23,422 |
| | 22,287 |
| | — |
| | 1,135 |
| | (23,422 | ) | | 23,422 |
|
Net income | $ | 480,708 |
| | $ | 152,916 |
| | $ | 315,565 |
| | $ | 9,143 |
| | $ | (477,624 | ) | | $ | 480,708 |
|
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2019 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Net income | $ | 884,981 |
| | $ | 234,085 |
| | $ | 608,487 |
| | $ | 30,740 |
| | $ | (873,312 | ) | | $ | 884,981 |
|
| | | | | | | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | | | | | |
|
Foreign currency translation adjustments | (21,572 | ) | | — |
| | — |
| | (21,572 | ) | | 21,572 |
| | (21,572 | ) |
Change in fair value of interest rate lock agreements | (27,659 | ) | | (27,659 | ) | | — |
| | — |
| | 27,659 |
| | (27,659 | ) |
Amortization of interest rate lock agreements | (1,179 | ) | | (1,179 | ) | | — |
| | — |
| | 1,179 |
| | (1,179 | ) |
Other | (5,085 | ) | | (4,489 | ) | | (596 | ) | | — |
| | 5,085 |
| | (5,085 | ) |
| | | | | | | | | | | |
Other comprehensive loss | (55,495 | ) | | (33,327 | ) | | (596 | ) | | (21,572 | ) | | 55,495 |
| | (55,495 | ) |
| | | | | | | | | | | |
Comprehensive income | $ | 829,486 |
| | $ | 200,758 |
| | $ | 607,891 |
| | $ | 9,168 |
| | $ | (817,817 | ) | | $ | 829,486 |
|
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2018 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Net income | $ | 842,586 |
| | $ | 342,851 |
| | $ | 470,215 |
| | $ | 27,568 |
| | $ | (840,634 | ) | | $ | 842,586 |
|
| | | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | |
Foreign currency translation adjustments | 19,276 |
| | — |
| | — |
| | 19,276 |
| | (19,276 | ) | | 19,276 |
|
Amortization of interest rate lock agreements | (933 | ) | | (933 | ) | | — |
| | — |
| | 933 |
| | (933 | ) |
Other | 1,029 |
| | 267 |
| | 762 |
| | — |
| | (1,029 | ) | | 1,029 |
|
| | | | | | | | | | | |
Other comprehensive income (loss) | 19,372 |
| | (666 | ) | | 762 |
| | 19,276 |
| | (19,372 | ) | | 19,372 |
|
| | | | | | | | | | | |
Comprehensive income | $ | 861,958 |
| | $ | 342,185 |
| | $ | 470,977 |
| | $ | 46,844 |
| | $ | (860,006 | ) | | $ | 861,958 |
|
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2017 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Net income | $ | 480,708 |
| | $ | 152,916 |
| | $ | 315,565 |
| | $ | 9,143 |
| | $ | (477,624 | ) | | $ | 480,708 |
|
| | | | | | | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | | | | | | |
Foreign currency translation adjustments | (10,252 | ) | | — |
| | — |
| | (10,252 | ) | | 10,252 |
| | (10,252 | ) |
Change in fair value of cash flow hedges | 31,136 |
| | 31,136 |
| | — |
| | — |
| | (31,136 | ) | | 31,136 |
|
Amortization of interest rate lock agreements | 1,076 |
| | 1,076 |
| | — |
| | — |
| | (1,076 | ) | | 1,076 |
|
Other | (115 | ) | | — |
| | (115 | ) | | — |
| | 115 |
| | (115 | ) |
| | | | | | | | | | | |
Other comprehensive income (loss) | 21,845 |
| | 32,212 |
| | (115 | ) | | (10,252 | ) | | (21,845 | ) | | 21,845 |
|
| | | | | | | | | | | |
Comprehensive income (loss) | $ | 502,553 |
| | $ | 185,128 |
| | $ | 315,450 |
| | $ | (1,109 | ) | | $ | (499,469 | ) | | $ | 502,553 |
|
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
As of May 31, 2019 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Assets | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 54,963 |
| | $ | 13,151 |
| | $ | 28,531 |
| | $ | — |
| | $ | 96,645 |
|
Accounts receivable, net | — |
| | 719,914 |
| | 121,803 |
| | 68,403 |
| | — |
| | 910,120 |
|
Inventories, net | — |
| | 278,666 |
| | 35,081 |
| | 20,842 |
| | — |
| | 334,589 |
|
Uniforms and other rental items in service | — |
| | 645,862 |
| | 90,458 |
| | 60,061 |
| | (12,248 | ) | | 784,133 |
|
Income taxes, current | — |
| | (9,728 | ) | | 11,722 |
| | 5,481 |
| | — |
| | 7,475 |
|
Prepaid expenses and other current assets | — |
| | 81,117 |
| | 20,334 |
| | 1,867 |
| | — |
| | 103,318 |
|
Total current assets | — |
| | 1,770,794 |
| | 292,549 |
| | 185,185 |
| | (12,248 | ) | | 2,236,280 |
|
| | | | | | | | | | | |
Property and equipment, net | — |
| | 948,830 |
| | 369,006 |
| | 112,849 |
| | — |
| | 1,430,685 |
|
| | | | | | | | | | | |
Investments (1) | 321,083 |
| | 3,589,234 |
| | 964,802 |
| | 1,716,870 |
| | (6,399,643 | ) | | 192,346 |
|
Goodwill | — |
| | — |
| | 2,586,406 |
| | 256,147 |
| | (112 | ) | | 2,842,441 |
|
Service contracts, net | — |
| | 427,437 |
| | — |
| | 67,158 |
| | — |
| | 494,595 |
|
Other assets, net | 2,216,391 |
| | 211,102 |
| | 5,424,413 |
| | 1,716 |
| | (7,613,307 | ) | | 240,315 |
|
| $ | 2,537,474 |
| | $ | 6,947,397 |
| | $ | 9,637,176 |
| | $ | 2,339,925 |
| | $ | (14,025,310 | ) | | $ | 7,436,662 |
|
| | | | | | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | |
Accounts payable | $ | (465,247 | ) | | $ | (2,090,954 | ) | | $ | 2,793,558 |
| | $ | (48,769 | ) | | $ | 37,432 |
| | $ | 226,020 |
|
Accrued compensation and related liabilities | — |
| | 117,404 |
| | 26,870 |
| | 11,235 |
| | — |
| | 155,509 |
|
Accrued liabilities | — |
| | 84,296 |
| | 328,267 |
| | 21,377 |
| | — |
| | 433,940 |
|
Debt due within one year | — |
| | 312,264 |
| | — |
| | — |
| | — |
| | 312,264 |
|
Total current liabilities | (465,247 | ) | | (1,576,990 | ) | | 3,148,695 |
| | (16,157 | ) | | 37,432 |
| | 1,127,733 |
|
| | | | | | | | | | | |
Long-term liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Debt due after one year | — |
| | 2,537,507 |
| | — |
| | — |
| | — |
| | 2,537,507 |
|
Deferred income taxes | — |
| | 307,334 |
| | 100,162 |
| | 30,683 |
| | — |
| | 438,179 |
|
Accrued liabilities | — |
| | 116,469 |
| | 197,934 |
| | 16,119 |
| | — |
| | 330,522 |
|
Total long-term liabilities | — |
| | 2,961,310 |
| | 298,096 |
| | 46,802 |
| | — |
| | 3,306,208 |
|
Total shareholders' equity | 3,002,721 |
| | 5,563,077 |
| | 6,190,385 |
| | 2,309,280 |
| | (14,062,742 | ) | | 3,002,721 |
|
| $ | 2,537,474 |
| | $ | 6,947,397 |
| | $ | 9,637,176 |
| | $ | 2,339,925 |
| | $ | (14,025,310 | ) | | $ | 7,436,662 |
|
(1) Investments include inter company investment activity. Corp 2 and Subsidiary Guarantors hold $19.8 million and $172.5 million, respectively, of the $192.3 million consolidated net investments.
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
As of May 31, 2018 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Assets | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 44,499 |
| | $ | 60,310 |
| | $ | 33,915 |
| | $ | — |
| | $ | 138,724 |
|
Accounts receivable, net | — |
| | 620,920 |
| | 120,767 |
| | 62,896 |
| | — |
| | 804,583 |
|
Inventories, net | — |
| | 225,581 |
| | 38,844 |
| | 15,922 |
| | — |
| | 280,347 |
|
Uniforms and other rental items in service | — |
| | 585,108 |
| | 81,494 |
| | 54,248 |
| | (18,589 | ) | | 702,261 |
|
Income taxes, current | — |
| | 5,546 |
| | 9,258 |
| | 4,830 |
| | — |
| | 19,634 |
|
Prepaid expenses and other current assets | — |
| | 9,453 |
| | 21,688 |
| | 1,242 |
| | — |
| | 32,383 |
|
Total current assets | — |
| | 1,491,107 |
| | 332,361 |
| | 173,053 |
| | (18,589 | ) | | 1,977,932 |
|
| | | | | | | | | | | |
Property and equipment, net | — |
| | 900,014 |
| | 370,186 |
| | 112,530 |
| | — |
| | 1,382,730 |
|
| | | | | | | | | | | |
Investments (1) | 321,083 |
| | 3,595,668 |
| | 950,239 |
| | 1,716,070 |
| | (6,407,479 | ) | | 175,581 |
|
Goodwill | — |
| | — |
| | 2,579,769 |
| | 267,231 |
| | (112 | ) | | 2,846,888 |
|
Service contracts, net | — |
| | 468,283 |
| | — |
| | 77,485 |
| | — |
| | 545,768 |
|
Other assets, net | 2,230,196 |
| | 593 |
| | 4,381,476 |
| | 8,656 |
| | (6,591,606 | ) | | 29,315 |
|
| $ | 2,551,279 |
| | $ | 6,455,665 |
| | $ | 8,614,031 |
| | $ | 2,355,025 |
| | $ | (13,017,786 | ) | | $ | 6,958,214 |
|
| | | | | | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | |
Accounts payable | $ | (465,247 | ) | | $ | (1,724,844 | ) | | $ | 2,395,434 |
| | $ | (28,216 | ) | | $ | 37,947 |
| | $ | 215,074 |
|
Accrued compensation and related liabilities | — |
| | 104,560 |
| | 24,878 |
| | 11,216 |
| | — |
| | 140,654 |
|
Accrued liabilities | — |
| | 88,949 |
| | 308,485 |
| | 22,695 |
| | — |
| | 420,129 |
|
Total current liabilities | (465,247 | ) | | (1,531,335 | ) | | 2,728,797 |
| | 5,695 |
| | 37,947 |
| | 775,857 |
|
| | | | | | | | | | | |
Long-term liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Debt due after one year | — |
| | 2,534,919 |
| | — |
| | 390 |
| | — |
| | 2,535,309 |
|
Deferred income taxes | — |
| | 215,881 |
| | 104,559 |
| | 32,141 |
| | — |
| | 352,581 |
|
Accrued liabilities | — |
| | 63,073 |
| | 198,181 |
| | 16,687 |
| | — |
| | 277,941 |
|
Total long-term liabilities | — |
| | 2,813,873 |
| | 302,740 |
| | 49,218 |
| | — |
| | 3,165,831 |
|
Total shareholders' equity | 3,016,526 |
| | 5,173,127 |
| | 5,582,494 |
| | 2,300,112 |
| | (13,055,733 | ) | | 3,016,526 |
|
| $ | 2,551,279 |
| | $ | 6,455,665 |
| | $ | 8,614,031 |
| | $ | 2,355,025 |
| | $ | (13,017,786 | ) | | $ | 6,958,214 |
|
(1) Investments include inter company investment activity. Corp 2 and Subsidiary Guarantors hold $17.6 million and $158.0 million, respectively, of the $175.6 million consolidated net investments.
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2019 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | |
Net income | $ | 884,981 |
| | $ | 234,085 |
| | $ | 608,487 |
| | $ | 30,740 |
| | $ | (873,312 | ) | | $ | 884,981 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | |
Depreciation | — |
| | 155,778 |
| | 53,519 |
| | 14,334 |
| | — |
| | 223,631 |
|
Amortization of intangible assets and capitalized contract costs | — |
| | 123,133 |
| | 5,118 |
| | 8,211 |
| | — |
| | 136,462 |
|
Stock-based compensation | 139,210 |
| | — |
| | — |
| | — |
| | — |
| | 139,210 |
|
Gain on sale of a cost method investment | — |
| | — |
| | (69,373 | ) | | — |
| | — |
| | (69,373 | ) |
Gain on sale of business | — |
| | (3,200 | ) | | — |
| | — |
| | — |
| | (3,200 | ) |
Deferred income taxes | — |
| | 36,254 |
| | (4,416 | ) | | (130 | ) | | — |
| | 31,708 |
|
Changes in current assets and liabilities, net of acquisitions of businesses: | | | | | | | | | | | |
Accounts receivable, net | — |
| | (85,568 | ) | | (1,037 | ) | | (8,313 | ) | | — |
| | (94,918 | ) |
Inventories, net | — |
| | (64,149 | ) | | 8,314 |
| | (4,204 | ) | | — |
| | (60,039 | ) |
Uniforms and other rental items in service | — |
| | (60,745 | ) | | (13,514 | ) | | (9,628 | ) | | (6,341 | ) | | (90,228 | ) |
Prepaid expenses and other current assets and capitalized contract costs | — |
| | (98,528 | ) | | (1,538 | ) | | (699 | ) | | — |
| | (100,765 | ) |
Accounts payable | — |
| | (359,733 | ) | | 368,519 |
| | 4,005 |
| | (515 | ) | | 12,276 |
|
Accrued compensation and related liabilities | — |
| | 12,844 |
| | 1,992 |
| | 485 |
| | — |
| | 15,321 |
|
Accrued liabilities and other | — |
| | 15,624 |
| | 15,521 |
| | (235 | ) | | — |
| | 30,910 |
|
Income taxes, current | — |
| | 15,274 |
| | (2,472 | ) | | (916 | ) | | — |
| | 11,886 |
|
Net cash provided by (used in) operating activities | 1,024,191 |
| | (78,931 | ) | | 969,120 |
| | 33,650 |
| | (880,168 | ) | | 1,067,862 |
|
| | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | |
Capital expenditures | — |
| | (204,601 | ) | | (52,622 | ) | | (19,496 | ) | | — |
| | (276,719 | ) |
Purchase of marketable securities and investments | — |
| | 6,434 |
| | (14,439 | ) | | — |
| | (9,836 | ) | | (17,841 | ) |
Proceeds from sale of a cost method investment | — |
| | — |
| | 73,342 |
| | — |
| | — |
| | 73,342 |
|
Proceeds from sale of business | — |
| | 3,200 |
| | — |
| | — |
| | — |
| | 3,200 |
|
Acquisitions of businesses, net of cash acquired | — |
| | (9,813 | ) | | — |
| | — |
| | — |
| | (9,813 | ) |
Other, net | 147,409 |
| | (4,213 | ) | | (1,025,822 | ) | | (15,185 | ) | | 890,004 |
| | (7,807 | ) |
Net cash provided by (used in) investing activities | 147,409 |
| | (208,993 | ) | | (1,019,541 | ) | | (34,681 | ) | | 880,168 |
| | (235,638 | ) |
| | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | |
Issuance of commercial paper, net | — |
| | 112,500 |
| | — |
| | — |
| | — |
| | 112,500 |
|
Proceeds from issuance of debt, net | — |
| | 200,000 |
| | 3,262 |
| | (3,262 | ) | | — |
| | 200,000 |
|
Proceeds from exercise of stock-based compensation awards | 65,371 |
| | — |
| | — |
| | — |
| | — |
| | 65,371 |
|
Dividends paid | (220,671 | ) | | — |
| | — |
| | (93 | ) | | — |
| | (220,764 | ) |
Repurchase of common stock | (1,016,300 | ) | | — |
| | — |
| | — |
| | — |
| | (1,016,300 | ) |
Other, net | — |
| | (14,112 | ) | | — |
| | — |
| | — |
| | (14,112 | ) |
Net cash (used in) provided by financing activities | (1,171,600 | ) | | 298,388 |
| | 3,262 |
| | (3,355 | ) | | — |
| | (873,305 | ) |
| | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (998 | ) | | — |
| | (998 | ) |
Net increase (decrease) in cash and cash equivalents | — |
| | 10,464 |
| | (47,159 | ) | | (5,384 | ) | | — |
| | (42,079 | ) |
Cash and cash equivalents at beginning of year | — |
| | 44,499 |
| | 60,310 |
| | 33,915 |
| | — |
| | 138,724 |
|
Cash and cash equivalents at end of year | $ | — |
| | $ | 54,963 |
| | $ | 13,151 |
| | $ | 28,531 |
| | $ | — |
| | $ | 96,645 |
|
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2018 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | |
Net income | $ | 842,586 |
| | $ | 342,851 |
| | $ | 470,215 |
| | $ | 27,568 |
| | $ | (840,634 | ) | | $ | 842,586 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | |
Depreciation | — |
| | 143,301 |
| | 58,206 |
| | 13,969 |
| | — |
| | 215,476 |
|
Amortization of intangible assets | — |
| | 50,231 |
| | 5,102 |
| | 8,607 |
| | — |
| | 63,940 |
|
Stock-based compensation | 112,835 |
| | — |
| | — |
| | — |
| | — |
| | 112,835 |
|
(Gain) loss on sale of business | — |
| | (111,921 | ) | | 15,521 |
| | — |
| |
|
| | (96,400 | ) |
Deferred income taxes | — |
| | (80,328 | ) | | (38,906 | ) | | (61 | ) | | — |
| | (119,295 | ) |
Changes in current assets and liabilities, net of acquisitions of businesses: | | | | | | | | | | | |
Accounts receivable, net | — |
| | (76,945 | ) | | 17,129 |
| | (6,451 | ) | | — |
| | (66,267 | ) |
Inventories, net | — |
| | 15,080 |
| | (17,377 | ) | | 360 |
| | (1,386 | ) | | (3,323 | ) |
Uniforms and other rental items in service | — |
| | (51,682 | ) | | (3,483 | ) | | (8,730 | ) | | (404 | ) | | (64,299 | ) |
Prepaid expenses and other current assets | — |
| | 3,676 |
| | (19,421 | ) | | 219 |
| | — |
| | (15,526 | ) |
Accounts payable | — |
| | (60,978 | ) | | 108,724 |
| | (12,310 | ) | | (161 | ) | | 35,275 |
|
Accrued compensation and related liabilities | — |
| | 9,522 |
| | (18,595 | ) | | (319 | ) | | — |
| | (9,392 | ) |
Accrued liabilities and other | — |
| | (133,671 | ) | | 173,905 |
| | 2,234 |
| | — |
| | 42,468 |
|
Income taxes, current | — |
| | 11,874 |
| | 15,898 |
| | (1,690 | ) | | — |
| | 26,082 |
|
Net cash provided by operating activities | 955,421 |
| | 61,010 |
| | 766,918 |
| | 23,396 |
| | (842,585 | ) | | 964,160 |
|
| | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | |
Capital expenditures | — |
| | (192,668 | ) | | (65,211 | ) | | (13,820 | ) | | — |
| | (271,699 | ) |
Proceeds from redemption of marketable securities | — |
| | 13,589 |
| | (1,189 | ) | | 167,457 |
| | — |
| | 179,857 |
|
Purchase of marketable securities and investments | — |
| | 9,789 |
| | (24,636 | ) | | (143,861 | ) | | 5,000 |
| | (153,708 | ) |
Proceeds from sale of business | — |
| | 127,835 |
| | — |
| | — |
| | — |
| | 127,835 |
|
Acquisitions of businesses, net of cash acquired | — |
| | (19,346 | ) | | — |
| | — |
| | — |
| | (19,346 | ) |
Other, net | (694,429 | ) | | 599,192 |
| | (633,629 | ) | | (107,356 | ) | | 837,585 |
| | 1,363 |
|
Net cash (used in) provided by investing activities | (694,429 | ) | | 538,391 |
| | (724,665 | ) | | (97,580 | ) | | 842,585 |
| | (135,698 | ) |
| | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | |
Payments of commercial paper, net | — |
| | (50,500 | ) | | — |
| | — |
| | — |
| | (50,500 | ) |
Repayment of debt | — |
| | (550,000 | ) | | — |
| | — |
| | — |
| | (550,000 | ) |
Proceeds from exercise of stock-based compensation awards | 41,848 |
| | — |
| | — |
| | — |
| | — |
| | 41,848 |
|
Dividends paid | (175,521 | ) | | — |
| | — |
| | (68 | ) | | — |
| | (175,589 | ) |
Repurchase of common stock | (127,319 | ) | | — |
| | — |
| | — |
| | — |
| | (127,319 | ) |
Other, net | — |
| | (3,060 | ) | | 755 |
| | (275 | ) | | — |
| | (2,580 | ) |
Net cash (used in) provided by financing activities | (260,992 | ) | | (603,560 | ) | | 755 |
| | (343 | ) | | — |
| | (864,140 | ) |
| | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | 5,136 |
| | — |
| | 5,136 |
|
Net (decrease) increase in cash and cash equivalents | — |
| | (4,159 | ) | | 43,008 |
| | (69,391 | ) | | — |
| | (30,542 | ) |
Cash and cash equivalents at beginning of year | — |
| | 48,658 |
| | 17,302 |
| | 103,306 |
| | — |
| | 169,266 |
|
Cash and cash equivalents at end of year | $ | — |
| | $ | 44,499 |
| | $ | 60,310 |
| | $ | 33,915 |
| | $ | — |
| | $ | 138,724 |
|
Condensed Consolidating Statement of Cash Flow |
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended May 31, 2017 (in thousands) | Cintas Corporation | | Corp. 2 | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Cintas Corporation Consolidated |
| | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | |
Net income | $ | 480,708 |
| | $ | 152,916 |
| | $ | 315,565 |
| | $ | 9,143 |
| | $ | (477,624 | ) | | $ | 480,708 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | |
Depreciation | — |
| | 117,578 |
| | 43,660 |
| | 10,327 |
| | — |
| | 171,565 |
|
Amortization of intangible assets | — |
| | 21,496 |
| | 1,178 |
| | 2,356 |
| | — |
| | 25,030 |
|
Stock-based compensation | 88,868 |
| | — |
| | — |
| | — |
| | — |
| | 88,868 |
|
Gain on sale of business | — |
| | (24,976 | ) | | — |
| | (1,941 | ) | | — |
| | (26,917 | ) |
Asset impairment charge | — |
| | 20,966 |
| | — |
| | 2,365 |
| | — |
| | 23,331 |
|
G&K Services, Inc. transaction and integration costs | — |
| | 26,453 |
| | — |
| | 4,992 |
| | — |
| | 31,445 |
|
Short-term debt financing fees included in net income | — |
| | 17,062 |
| | — |
| | — |
| | — |
| | 17,062 |
|
Settlement of cash flow hedges | — |
| | 30,194 |
| | — |
| | — |
| | — |
| | 30,194 |
|
Deferred income taxes | — |
| | (26,289 | ) | | 26,058 |
| | 4,133 |
| | — |
| | 3,902 |
|
Changes in current assets and liabilities, net of acquisitions of businesses: |
| | | | | | | | | | |
Accounts receivable, net | — |
| | (50,012 | ) | | (40,380 | ) | | (3,165 | ) | | — |
| | (93,557 | ) |
Inventories, net | — |
| | 7,787 |
| | (2,317 | ) | | (3,679 | ) | | (2,459 | ) | | (668 | ) |
Uniforms and other rental items in service | — |
| | (4,951 | ) | | (5,011 | ) | | 1,959 |
| | (729 | ) | | (8,732 | ) |
Prepaid expenses and other current assets | — |
| | 21,119 |
| | 2,775 |
| | 307 |
| | — |
| | 24,201 |
|
Accounts payable | — |
| | 1,765,713 |
| | (1,509,215 | ) | | (242,875 | ) | | 103 |
| | 13,726 |
|
Accrued compensation and related liabilities | — |
| | (7,498 | ) | | 19,815 |
| | 1,337 |
| | — |
| | 13,654 |
|
Accrued liabilities and other | — |
| | 2,813 |
| | (5,675 | ) | | 2,361 |
| | — |
| | (501 | ) |
Income taxes, current | — |
| | (5,205 | ) | | (22,445 | ) | | (1,774 | ) | | — |
| | (29,424 | ) |
Net cash provided by (used in) operating activities | 569,576 |
| | 2,065,166 |
| | (1,175,992 | ) | | (214,154 | ) | | (480,709 | ) | | 763,887 |
|
| | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | |
Capital expenditures | — |
| | (153,963 | ) | | (102,682 | ) | | (16,672 | ) | | — |
| | (273,317 | ) |
Proceeds from redemption of marketable securities | — |
| | — |
| | — |
| | 218,324 |
| | — |
| | 218,324 |
|
Purchase of marketable securities and investments | — |
| | 18,150 |
| | (797,559 | ) | | 598,344 |
| | — |
| | (181,065 | ) |
Proceeds from sale of business | — |
| | 26,335 |
| | — |
| | 1,941 |
| | — |
| | 28,276 |
|
Acquisitions of businesses, net of cash acquired | — |
| | (2,112,015 | ) | | — |
| | 9,644 |
| | — |
| | (2,102,371 | ) |
Other, net | (438,344 | ) | | (1,562,294 | ) | | 2,039,740 |
| | (520,007 | ) | | 480,709 |
| | (196 | ) |
Net cash (used in) provided by investing activities | (438,344 | ) | | (3,783,787 | ) | | 1,139,499 |
| | 291,574 |
| | 480,709 |
| | (2,310,349 | ) |
| | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | |
Proceeds from issuance of commercial paper, net | — |
| | 50,500 |
| | — |
| | — |
| | — |
| | 50,500 |
|
Proceeds from the issuance of debt, net | — |
| | 1,932,229 |
| | (2,000 | ) | | 2,000 |
| | — |
| | 1,932,229 |
|
Repayment of debt | — |
| | (250,000 | ) | | — |
| | — |
| | — |
| | (250,000 | ) |
Payment of short-term debt financing fees | — |
| | (17,062 | ) | | — |
| | — |
| | — |
| | (17,062 | ) |
Proceeds from exercise of stock-based compensation awards | 31,870 |
| | — |
| | — |
| | — |
| | — |
| | 31,870 |
|
Dividends paid | (142,378 | ) | | — |
| | — |
| | (55 | ) | | — |
| | (142,433 | ) |
Repurchase of common stock | (20,724 | ) | | — |
| | — |
| | — |
| | — |
| | (20,724 | ) |
Other, net | — |
| | (6,282 | ) | | 404 |
| | — |
| | — |
| | (5,878 | ) |
Net cash (used in) provided by financing activities | (131,232 | ) | | 1,709,385 |
| | (1,596 | ) | | 1,945 |
| | — |
| | 1,578,502 |
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| | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (2,131 | ) | | — |
| | (2,131 | ) |
Net (decrease) increase in cash and cash equivalents | — |
| | (9,236 | ) | | (38,089 | ) | | 77,234 |
| | — |
| | 29,909 |
|
Cash and cash equivalents at beginning of year | — |
| | 57,894 |
| | 55,391 |
| | 26,072 |
| | — |
| | 139,357 |
|
Cash and cash equivalents at end of year | $ | — |
| | $ | 48,658 |
| | $ | 17,302 |
| | $ | 103,306 |
| | $ | — |
| | $ | 169,266 |
|
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
With the participation of Cintas' management, including Cintas' ChairmanPresident and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) as of May 31, 2019.2021. Based on such evaluation, Cintas' management, including Cintas' ChairmanPresident and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas' disclosure controls and procedures were effective as of May 31, 2019,2021, in ensuring (i) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is accumulated and communicated to Cintas' management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management's Report on Internal Control over Financial Reporting and the Report of Ernst & Young LLP, Independent Registered Public Accounting Firm thereon are set forth in Part II, Item 8 of this Annual Report on Form 10-K and are incorporated by reference herein. There were no changes in Cintas' internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended May 31, 2019,2021, that have materially affected, or are reasonably likely to materially affect, Cintas' internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding
Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference to the material contained in Cintas' definitive proxy statement for the 20192021 annual meeting of shareholders to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the close of the fiscal year (the Proxy Statement).
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement, except that the information required by Item 201(d) of Regulation S-K can be found below.
The following table provides information about Cintas' common stock that may be issued under Cintas' equity compensation plans as of May 31, 2019.2021.
| | | | | | | | | | | | | | | | | |
Equity Compensation Plan Information
Plan category | Number of shares to be issued upon exercise of outstanding options (1) | | Weighted average exercise price of outstanding options (1) | | Number of shares remaining available for future issuance under equity compensation plans |
| | | | | |
Equity compensation plans approved by shareholders | 6,055,524 | | | $ | 191.11 | | | 6,358,437 | |
Equity compensation plans not approved by shareholders | — | | | — | | | — | |
Total | 6,055,524 | | | $ | 191.11 | | | 6,358,437 | |
|
| | | | | | | | | |
Equity Compensation Plan Information
Plan category | Number of shares to be issued upon exercise of outstanding options (1) | | Weighted average exercise price of outstanding options (1) | | Number of shares remaining available for future issuance under equity compensation plans |
| | | | | |
Equity compensation plans approved by shareholders | 8,208,934 |
| | $ | 123.80 |
| | 8,230,432 |
|
Equity compensation plans not approved by shareholders | — |
| | — |
| | — |
|
Total | 8,208,934 |
| | $ | 123.80 |
| | 8,230,432 |
|
| |
(1)
| Excludes 2,191,688 unvested restricted stock units.
|
(1) Excludes 1,241,223 unvested restricted stock units.
Item 13. Certain Relationships and
Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.
Part IV
Item 15. Exhibits and Financial Statement Schedules
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(a) (1) | | Financial Statements. All financial statements required to be filed by Item 8 of Form 10-K and included in this Annual Report are listed in Item 8. No additional financial statements are filed because the requirements of paragraph (c) under Item 15 are not applicable to Cintas. |
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(a) (2) | | Financial Statement Schedule: |
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| | For each of the three years in the period ended May 31, 2019.2021. |
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(a) (3) | | Exhibits. |
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| | All documents referenced below were filed pursuant to the Exchange Act by Cintas Corporation, file number 000-11399, unless otherwise noted. |
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Exhibit Number | | Description of Exhibit |
Exhibit
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10.3 |
| * | Partners' Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 1993). |
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101.INS |
| ** | XBRL Instance Document. |
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101.SCH |
| ** | XBRL Taxonomy Extension Schema Document. |
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101.CAL |
| ** | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
| ** | XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
| ** | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
| ** | XBRL Taxonomy Extension Presentation Linkbase Document. |
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*101 | Management compensatory contracts | | The following financial statements from Cintas' Annual Report on Form 10-K for the fiscal year ended May 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
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*** | Certain exhibits and schedules have been omitted and Cintas agrees to furnish supplementally toThe cover page from Cintas' Annual Report on Form 10-K for the Securities and Exchange Commission a copy of any omitted exhibits upon request.fiscal year ended May 31, 2021, formatted in Inline XBRL (included as Exhibit 101). |
* Management compensatory contracts
** Filed herewith
*** Pursuant to Item 601(a)(5), certain exhibits and schedules have been omitted and Cintas agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits upon request.
Item 16. Form 10-K Summary
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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CINTAS CORPORATION |
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By: | /s/ | Scott D. FarmerTodd M. Schneider |
| | Scott D. FarmerTodd M. Schneider |
| | ChairmanPresident and Chief Executive Officer |
DATE SIGNED: July 26, 201928, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signature | | Capacity | | Date |
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/s/ | Todd M. Schneider Todd M. Schneider | | President, Chief Executive Officer and Director (Principal Executive Officer) | | July 28, 2021 |
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/s/ | Scott D. Farmer Scott D. Farmer | | Executive Chairman of the Board of Directors | | July 28, 2021 |
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/s/ | Ronald W. Tysoe Ronald W. Tysoe | | Director | | July 28, 2021 |
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/s/ | John F. Barrett John F. Barrett | | Director | | July 28, 2021 |
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/s/ | Karen L. Carnahan Karen L. Carnahan | | Director | | July 28, 2021 |
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Signature | | Capacity | | Date | |
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/s/ | Scott D. Farmer
Scott D. Farmer
| | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | | July 26, 2019 |
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/s/ | Ronald W. Tysoe
Ronald W. Tysoe
| | Director | | July 26, 2019 |
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/s/ | John F. Barrett
John F. Barrett
| | Director | | July 26, 2019 |
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/s/ | James J. Johnson
James J. Johnson
| | Director | | July 26, 2019 |
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/s/ | Robert E. Coletti
Robert E. Coletti
| | Director | | July 26, 2019 |
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/s/ | J. Michael Hansen J. Michael Hansen | | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
| | July 26, 201928, 2021 |
Cintas Corporation
Schedule II — Valuation and Qualifying Accounts and Reserves
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(In thousands) | Balance at Beginning of Year | |
Additions (1) | |
Deductions (2)(4) | | Balance at End of Year |
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Allowance for Doubtful Accounts | | | | | | | |
May 31, 2019 (3) | $ | 10,053 | | | $ | 7,752 | | | $ | 6,462 | | | $ | 11,343 | |
May 31, 2020 (3) | $ | 11,343 | | | $ | 40,521 | | | $ | 16,431 | | | $ | 35,433 | |
May 31, 2021 | $ | 35,433 | | | $ | 27,517 | | | $ | 50,853 | | | $ | 12,097 | |
(1)Represents amounts charged to expense to increase reserve for estimated future bad debts.
(2)Represents reductions in the consolidated balance sheet reserve due to the actual write-off of non-collectible accounts receivable. These amounts do not impact Cintas' consolidated statements of income.
(3) Fiscal 2020 and fiscal 2019 have been recast to align with the allowance for doubtful account methodology and presentation upon adoption of Topic 326 on June 1, 2020.
(4) The deductions in fiscal 2021 include $14.2 million of incremental allowance for doubtful accounts recorded as of May 31, 2020 in response to uncertainties related to customer collections impacted by the COVID-19 pandemic. Certain of the corresponding trade receivables were collected during fiscal 2021, and the incremental reserve was reversed as the Company's estimates and assumptions related to the impact of COVID-19 changed during fiscal 2021.
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(In thousands) | Balance at Beginning of Year | |
Additions (1) | |
Deductions (2) | | Balance at End of Year |
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Allowance for Doubtful Accounts | | | | | | | |
May 31, 2017 | $ | 19,103 |
| | $ | 6,446 |
| | $ | 5,024 |
| | $ | 20,525 |
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May 31, 2018 | $ | 20,525 |
| | $ | 13,358 |
| | $ | 373 |
| | $ | 33,510 |
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May 31, 2019 | $ | 33,510 |
| | $ | 10,761 |
| | $ | 6,462 |
| | $ | 37,809 |
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Reserve for Obsolete Inventory | | | | | | | |
May 31, 2017 | $ | 32,716 |
| | $ | 10,049 |
| | $ | 4,460 |
| | $ | 38,305 |
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May 31, 2018 | $ | 38,305 |
| | $ | 1,335 |
| | $ | 2,597 |
| | $ | 37,043 |
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May 31, 2019 | $ | 37,043 |
| | $ | 2,346 |
| | $ | 6,711 |
| | $ | 32,678 |
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(1)
| Represents amounts charged to expense to increase reserve for estimated future bad debts or to increase reserve for obsolete inventory. Amounts related to inventory are computed by performing a thorough analysis of future marketability by specific inventory item as well as an estimate based on Cintas' historical rates of obsolescence. |
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(2)
| Represents reductions in the balance sheet reserve due to the actual write-off of non-collectible accounts receivable or the physical disposal of obsolete inventory items. These amounts do not impact Cintas' consolidated income statement. |