UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
August 31, 20192020
 OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                        to                                        
Commission file number 0-11399
cintasreadyfortheworkday.jpgctas-20200831_g1.jpg
Cintas CorporationCorporation
(Exact name of registrant as specified in its charter)
Washington31-1188630
(State or Other Jurisdiction of Incorporation)(IRS Employer Identification Number)

6800 Cintas Boulevard
P.O. Box 625737
Cincinnati,Ohio45262-5737
(Address of Principal Executive Offices)(Zip Code)
 
Registrant's Telephone Number, Including Area Code: (513) (513) 459-1200
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, no par valueCTASThe NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Indicate by checkmark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐
Indicate by checkmark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☑ No ☐
Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  ☑               Accelerated Filer ☐                                               Non-Accelerated Filer ☐ 
Smaller Reporting Company ☐           Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding September 30, 20192020
Common Stock, no par value103,499,651104,625,384





CINTAS CORPORATION
TABLE OF CONTENTS

Page
Part I. Financial Information
Page No.
Part I.Financial Information
Financial Statements
Consolidated Condensed Statements of Income –
Three Months Ended August 31, 20192020 and 20182019
3
Three Months Ended August 31, 20192020 and 20182019
4
August 31, 20192020 and May 31, 20192020
5
6
Three Months Ended August 31, 20192020 and 20182019
7
8
2819
3427
3427
Part II.Other Information
28
28
3529
3530
SignaturesSignatures
3631


2

Part I. Financial Information

ITEM 1.                              FINANCIAL STATEMENTS
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)

 Three Months Ended
 August 31,
2019		 August 31,
2018
Revenue: 
  
Uniform rental and facility services$1,454,527
 $1,374,938
Other356,612
 323,037
Total revenue1,811,139
 1,697,975
    
Costs and expenses: 
  
Cost of uniform rental and facility services768,676
 746,453
Cost of other193,321
 176,810
Selling and administrative expenses542,996
 504,634
G&K Services, Inc. integration expenses—
 4,850
    
Operating income306,146
 265,228
    
Interest income(162) (496)
Interest expense27,321
 24,304
    
Income before income taxes278,987

241,420
Income taxes28,175
 28,873
Income from continuing operations250,812
 212,547
Loss from discontinued operations, net of tax benefit of $10—
 (32)
Net income$250,812
 $212,515
    
Basic earnings per share:   
Continuing operations$2.40
 $1.96
Discontinued operations0.00
 0.00
Basic earnings per share$2.40
 $1.96
    
Diluted earnings per share:   
Continuing operations$2.32
 $1.89
Discontinued operations0.00
 0.00
Diluted earnings per share$2.32

$1.89

 Three Months Ended
 August 31,
2020		August 31,
2019
Revenue:  
Uniform rental and facility services$1,394,411 $1,454,527 
Other352,164 356,612 
Total revenue1,746,575 1,811,139 
Costs and expenses:  
Cost of uniform rental and facility services715,412 768,676 
Cost of other204,962 193,321 
Selling and administrative expenses476,495 542,996 
Operating income349,706 306,146 
Interest income(64)(162)
Interest expense24,550 27,321 
Income before income taxes325,220 278,987 
Income taxes25,215 28,175 
Net income$300,005 $250,812 
Basic earnings per share$2.86 $2.40 
Diluted earnings per share$2.78 $2.32 
See accompanying notes.

3

CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)

 Three Months Ended
 August 31, 2019 August 31, 2018
    
Net income$250,812
 $212,515
    
Other comprehensive income (loss), net of tax:   
Foreign currency translation adjustments6,724
 (3,019)
Change in fair value of interest rate lock agreements(29,903) (3,168)
Amortization of interest rate lock agreements(295) (295)
    
Other comprehensive loss(23,474) (6,482)
    
Comprehensive income$227,338
 $206,033

Three Months Ended
August 31,
2020		August 31,
2019
Net income$300,005 $250,812 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments26,946 6,724 
Change in fair value of interest rate lock agreements, net of tax
   expense (benefit) of $3,672 and $(9,844), respectively
10,842 (29,903)
Amortization of interest rate lock agreements, net of tax benefit
   of $116 and $179, respectively
(358)(295)
Other comprehensive income (loss), net of tax expense (benefit) of
    $3,788 and $(9,665), respectively
37,430 (23,474)
Comprehensive income$337,435 $227,338 

See accompanying notes.







4

CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
 August 31,
2019		 May 31,
2019
 (Unaudited)  
ASSETS 
  
Current assets: 
  
Cash and cash equivalents$102,131
 $96,645
Accounts receivable, net917,535
 910,120
Inventories, net336,290
 334,589
Uniforms and other rental items in service796,187
 784,133
Income taxes, current—
 7,475
Prepaid expenses and other current assets137,675
 103,318
Total current assets2,289,818
 2,236,280
    
Property and equipment, net1,422,351
 1,430,685
    
Investments208,987
 192,346
Goodwill2,849,613
 2,842,441
Service contracts, net482,977
 494,595
Operating lease right-of-use assets, net163,089
 —
Other assets, net245,065
 240,315
 $7,661,900
 $7,436,662
    
LIABILITIES AND SHAREHOLDERS’ EQUITY 
  
Current liabilities: 
  
Accounts payable$237,242
 $226,020
Accrued compensation and related liabilities99,200
 155,509
Accrued liabilities395,416
 433,940
Income taxes, current9,238
 —
Operating lease liabilities, current43,010
 —
Debt due within one year338,776
 312,264
Total current liabilities1,122,882
 1,127,733
    
Long-term liabilities: 
  
Debt due after one year2,538,057
 2,537,507
Deferred income taxes436,755
 438,179
Operating lease liabilities125,684
 —
Accrued liabilities387,816
 330,522
Total long-term liabilities3,488,312
 3,306,208
    
Shareholders’ equity: 
  
Preferred stock, no par value:—
 —
100,000 shares authorized, none outstanding

 

Common stock, no par value:1,036,125
 840,328
425,000,000 shares authorized 
  
FY 2020: 185,952,964 shares issued and 103,364,545 shares outstanding 
  
FY 2019: 184,790,626 shares issued and 103,284,401 shares outstanding   
Paid-in capital110,441
 227,928
Retained earnings6,939,240
 6,691,236
Treasury stock:(4,974,449) (4,717,619)
FY 2020: 82,588,419 shares 
  
FY 2019: 81,506,225 shares   
Accumulated other comprehensive loss(60,651) (39,152)
Total shareholders’ equity3,050,706
 3,002,721
 $7,661,900
 $7,436,662

 August 31,
2020		May 31,
2020
 (Unaudited) 
ASSETS  
Current assets:  
Cash and cash equivalents$421,542 $145,402 
Accounts receivable, net866,414 870,369 
Inventories, net488,165 408,898 
Uniforms and other rental items in service756,364 770,411 
Prepaid expenses and other current assets133,692 114,619 
Total current assets2,666,177 2,309,699 
Property and equipment, net1,378,385 1,403,065 
Investments240,431 214,847 
Goodwill2,886,048 2,870,020 
Service contracts, net441,641 451,529 
Operating lease right-of-use assets, net159,120 159,967 
Other assets, net271,579 260,758 
 $8,043,381 $7,669,885 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$252,513 $230,995 
Accrued compensation and related liabilities117,577 127,417 
Accrued liabilities406,787 456,653 
Income taxes, current23,251 27,099 
Operating lease liabilities, current43,414 43,031 
Debt due within one year249,808 0 
Total current liabilities1,093,350 885,195 
Long-term liabilities:  
Debt due after one year2,290,447 2,539,705 
Deferred income taxes385,149 388,579 
Operating lease liabilities121,727 122,695 
Accrued liabilities547,904 498,509 
Total long-term liabilities3,345,227 3,549,488 
Shareholders’ equity:  
Preferred stock, no par value:0 0 
100,000 shares authorized, NaN outstanding
Common stock, no par value:1,345,233 1,102,689 
425,000,000 shares authorized  
FY 2021: 188,155,836 shares issued and 104,548,040 shares outstanding  
FY 2020: 186,793,207 shares issued and 103,415,368 shares outstanding
Paid-in capital30,155 171,521 
Retained earnings7,596,514 7,296,509 
Treasury stock:(5,251,148)(5,182,137)
FY 2021: 83,607,796 shares  
FY 2020: 83,377,839 shares
Accumulated other comprehensive loss(115,950)(153,380)
Total shareholders’ equity3,604,804 3,235,202 
 $8,043,381 $7,669,885 

See accompanying notes.

5

CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
Common Stock  Paid-In
Capital		Retained
Earnings		Other
Accumulated
Comprehensive
Loss		Treasury Stock  Total
Shareholders'
Equity
SharesAmountSharesAmount
Balance at June 1, 2020186,793 $1,102,689 $171,521 $7,296,509 $(153,380)(83,378)$(5,182,137)$3,235,202 
Net income— — — 300,005 — — — 300,005 
Comprehensive income, net of tax— — — — 37,430 — — 37,430 
Stock-based compensation— — 29,055 — — — — 29,055 
Vesting of stock-based compensation awards568 170,421 (170,421)— — — — 0 
Stock options exercised, net of shares
surrendered		795 72,123 — — — — — 72,123 
Repurchase of common stock— — — — — (230)(69,011)(69,011)
Balance at August 31, 2020188,156 $1,345,233 $30,155 $7,596,514 $(115,950)(83,608)$(5,251,148)$3,604,804 
 Common Stock   
Paid-In
Capital
 
Retained
Earnings
 
Other
Accumulated
Comprehensive
Loss
 Treasury Stock   
Total
Shareholders'
Equity
 Shares Amount    Shares Amount 
                
Balance at June 1, 2019184,791
 $840,328
 $227,928
 $6,691,236
 $(39,152) (81,506) $(4,717,619) $3,002,721
Net income—
 —
 —
 250,812
 —
 —
 —
 250,812
Comprehensive loss, net of tax—
 —
 —
 —
 (23,474) —
 —
 (23,474)
Stock-based compensation—
 —
 40,395
 —
 —
 —
 —
 40,395
Vesting of stock-based compensation
   awards
605
 157,882
 (157,882) —
 —
 —
 —
 —
Stock options exercised, net of shares
   surrendered
557
 37,915
 —
 —
 —
 —
 —
 37,915
Repurchase of common stock—
 —
 —
 —
 —
 (1,082) (256,830) (256,830)
Cumulative effect of change in accounting
   principle
—
 —
 —
 (2,808) 1,975
 —
 —
 (833)
Balance at August 31, 2019185,953
 $1,036,125
 $110,441
 $6,939,240
 $(60,651) (82,588) $(4,974,449) $3,050,706

Common Stock  Paid-In
Capital		Retained
Earnings		Other
Accumulated
Comprehensive
Loss		Treasury Stock  Total
Shareholders'
Equity
SharesAmountSharesAmount
Balance at June 1, 2019184,791 $840,328 $227,928 $6,691,236 $(39,152)(81,506)$(4,717,619)$3,002,721 
Net income— — — 250,812 — — — 250,812 
Comprehensive loss, net of tax— — — — (23,474)— — (23,474)
Stock-based compensation— — 40,395 — — — — 40,395 
Vesting of stock-based compensation awards605 157,882 (157,882)— — — — 0 
Stock options exercised, net of shares
surrendered		557 37,915 — — — — — 37,915 
Repurchase of common stock— — — — — (1,082)(256,830)(256,830)
Cumulative effect of change in accounting
principle		— — — (2,808)1,975 — — (833)
Balance at August 31, 2019185,953 $1,036,125 $110,441 $6,939,240 $(60,651)(82,588)$(4,974,449)$3,050,706 
 Common Stock   
Paid-In
Capital
 
Retained
Earnings
 
Other
Accumulated
Comprehensive
Income
 Treasury Stock   
Total
Shareholders'
Equity
 Shares Amount    Shares Amount 
                
Balance at June 1, 2018182,723
 $618,464
 $245,211
 $5,837,827
 $16,343
 (76,397) $(3,701,319) 3,016,526
Cumulative effect of change in accounting
   principle
—
 —
 —
 189,192
 —
 —
 —
 189,192
Net income—
 —
 —
 212,515
 —
 —
 —
 212,515
Comprehensive loss, net of tax—
 —
 —
 —
 (6,482) —
 —
 (6,482)
Dividends—
 —
 —
 1
 —
 —
 —
 1
Stock-based compensation—
 —
 46,172
 —
 —
 —
 —
 46,172
Vesting of stock-based compensation
   awards
739
 151,012
 (151,012) —
 —
 —
 —
 —
Stock options exercised, net of shares
   surrendered
594
 27,512
 —
 —
 —
 —
 —
 27,512
Repurchase of common stock—
 —
 —
 —
 —
 (689) (139,468) (139,468)
Balance at August 31, 2018184,056
 $796,988
 $140,371
 $6,239,535
 $9,861
 (77,086) $(3,840,787) $3,345,968

See accompanying notes.

6

CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) 
 Three Months Ended
 August 31,
2020		August 31,
2019
Cash flows from operating activities:  
Net income$300,005 $250,812 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation60,574 56,726 
Amortization of intangible assets and capitalized contract costs35,605 35,268 
Stock-based compensation29,055 40,395 
Deferred income taxes(8,716)7,910 
Change in current assets and liabilities, net of acquisitions of businesses:  
Accounts receivable, net7,118 (6,636)
Inventories, net(77,944)(1,726)
Uniforms and other rental items in service16,552 (11,305)
Prepaid expenses and other current assets and capitalized contract costs(42,277)(41,928)
Accounts payable20,358 13,357 
Accrued compensation and related liabilities(10,067)(58,718)
Accrued liabilities and other(14,297)(24,082)
Income taxes, current(3,674)16,828 
Net cash provided by operating activities312,292 276,901 
Cash flows from investing activities:  
Capital expenditures(30,876)(64,743)
Purchases of investments(4,940)(9,391)
Acquisitions of businesses, net of cash acquired(1,984)(3,896)
Other, net(2,142)(109)
Net cash used in investing activities(39,942)(78,139)
Cash flows from financing activities:  
Issuance of commercial paper, net0 26,500 
Proceeds from exercise of stock-based compensation awards72,123 37,915 
Repurchase of common stock(69,011)(256,830)
Other, net(869)(1,192)
Net cash provided by (used in) financing activities2,243 (193,607)
Effect of exchange rate changes on cash and cash equivalents1,547 331 
Net increase in cash and cash equivalents276,140 5,486 
Cash and cash equivalents at beginning of period145,402 96,645 
Cash and cash equivalents at end of period$421,542 $102,131 
 Three Months Ended
 August 31,
2019		 August 31,
2018
Cash flows from operating activities: 
  
Net income$250,812
 $212,515
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation56,726
 52,745
Amortization of intangible assets and capitalized contract costs35,268
 33,550
Stock-based compensation40,395
 46,172
Deferred income taxes7,910
 9,022
Change in current assets and liabilities, net of acquisitions of businesses: 
  
Accounts receivable, net(6,636) (15,051)
Inventories, net(1,726) (34,629)
Uniforms and other rental items in service(11,305) (23,019)
Prepaid expenses and other current assets and capitalized
   contract costs
(41,928) (46,930)
Accounts payable13,357
 (329)
Accrued compensation and related liabilities(58,718) (56,186)
Accrued liabilities and other(24,082) (27,556)
Income taxes, current16,828
 12,681
Net cash provided by operating activities276,901
 162,985
    
Cash flows from investing activities: 
  
Capital expenditures(64,743) (64,528)
Proceeds from redemption of marketable securities—
 1,558
Purchase of investments(9,391) —
Acquisitions of businesses, net of cash acquired(3,896) (7,613)
Other, net(109) (202)
Net cash used in investing activities(78,139) (70,785)
    
Cash flows from financing activities: 
  
Issuance of commercial paper, net26,500
 —
Proceeds from exercise of stock-based compensation awards37,915
 27,512
Repurchase of common stock(256,830) (139,468)
Other, net(1,192) (552)
Net cash used in financing activities(193,607) (112,508)
    
Effect of exchange rate changes on cash and cash equivalents331
 (60)
    
Net increase (decrease) in cash and cash equivalents5,486
 (20,368)
    
Cash and cash equivalents at beginning of period96,645
 138,724
    
Cash and cash equivalents at end of period$102,131
 $118,356

See accompanying notes.

7

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited) 

Note 1 - Basis of Presentation
The consolidated condensed financial statements of Cintas Corporation (Cintas, the Company, we, us or our) included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S.United States generally accepted accounting principles (GAAP)(U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. While we believe that the disclosures are adequately presented, we suggest that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019.2020. A summary of our significant accounting policies is presented beginning on page 4140 of that report. There have been no material changes in the accounting policies followed by Cintas during the current fiscal year other than the adoption of new accounting pronouncements discussed below. 

Interim results are subject to variations and are not necessarily indicative of the results of operations for a full fiscal year. In the opinion of management, adjustments (which include only normal recurring adjustments) necessary for a fair statement of the consolidated results of the interim periods shown have been made.

Inventories, net are measuredvalued at the lower of cost (first-in, first-out) or net realizable value. Inventory is comprised of the following: 
(In thousands)August 31,
2019		 May 31,
2019
    
Raw materials$16,541
 $17,812
Work in process25,618
 28,820
Finished goods294,131
 287,957
 $336,290
 $334,589

(In thousands)August 31,
2020		May 31,
2020
Raw materials$18,560 $18,661 
Work in process26,747 29,497 
Finished goods442,858 360,740 
 $488,165 $408,898 
Inventories are recorded net of reserves for obsolete inventory of $33.4$48.2 million and $32.7$45.5 million at August 31, 20192020 and May 31, 2019,2020, respectively. The inventory obsolescence reserve is determined by specific identification, as well as an estimate based on Cintas' historical rates of obsolescence. Once a specific inventory item is written down to the lower of cost or net realizable value, a new cost basis has been established, and that inventory item cannot subsequently be marked up.
New Accounting Pronouncements
Effective June 1, 2019,2020, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)” using a modified retrospective transition approach. Topic 842 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. 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 provided a number of optional practical expedients in transition, and we have determined to use certain of these practical expedients upon our adoption of Topic 842. Specifically, the Company elected 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 lease costs as of the period of adoption. The Company also elected the practical expedient related to lease and non-lease components, as an accounting policy election for the fleet and vehicle 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 elected 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 adoption of Topic 842, on June 1, 2019, resulted in the Company recognizing right-of-use assets, net of $168.0 million and corresponding lease liabilities of $173.4 million. The adoption of Topic 842 did not have a material impact on the Company's consolidated condensed statements of income or consolidated condensed statements of cash flows.



Effective June 1, 2019, Cintas adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows companies to elect to reclassify the disproportionate income tax effects resulting from the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings. The adoption of ASU 2018-02, on a prospective basis, resulted in a $2.0 million reclassification adjustment of the stranded tax effects from retained earnings to accumulated other comprehensive loss that was determined using a specific identification method.

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. Cintas is currently evaluatingdate to align existing credit loss methodology with the impact thatnew standard. The adoption of ASU 2016-13 willdid not have a material impact on itsthe Company's consolidated condensed financial statements.

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 an impact on the consolidated condensed financial statements.

No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on Cintas' consolidated condensed financial statements.

8

Note 2 - Revenue Recognition
The following table presents Cintas' total revenue disaggregated by service type:operating segment for the three months ended August 31:
20202019
(In thousands)Revenue%Revenue%
Uniform Rental and Facility Services$1,394,411 79.8 %$1,454,527 80.3 %
First Aid and Safety Services204,481 11.7 %172,090 9.5 %
Fire Protection Services108,065 6.2 %110,126 6.1 %
Uniform Direct Sales39,618 2.3 %74,396 4.1 %
Total revenue$1,746,575 100.0 %$1,811,139 100.0 %
 Three Months Ended
 August 31,
2019		 August 31,
2018
(In thousands)Revenue% Revenue%
      
Uniform Rental and Facility Services$1,454,527
80.3% $1,374,938
81.0%
First Aid and Safety Services172,090
9.5% 153,417
9.0%
Fire Protection Services110,126
6.1% 98,109
5.8%
Uniform Direct Sales74,396
4.1% 71,511
4.2%
Total revenue$1,811,139
100.0% $1,697,975
100.0%

Fire Protection Services and Uniform Direct Sales are recordedincluded within the All Other segmentas disclosed in Note 12 entitled Segment Information.

Revenue Recognition Policy
More than 95% of the Company's revenues arerevenue is 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. Revenues from our route servicing customer contracts represent a single-performance obligation. The Company recognizes these revenues over time as services are performed based on the nature of services provided and contractual rates (input(output method). The Company's remaining revenues, primarily within the Uniform Direct Sales operating segment, and representing less than 5% of the Company's total revenues, are 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,operating segment, 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 three months ended August 31, 20192020 or 2018.2019. The Company reassesses these estimates during each reporting period. Cintas maintains a liability for these discounts and rebates within accrued liabilities on the consolidated condensed balance 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 Accounting Standards Codification (ASC) Topic 606, Revenue (ASC"Revenue" (Topic 606). These assets are included in other assets, net on the consolidated condensed balance sheet.

Additionally, in accordance with ASCTopic 606, certain Uniform Direct Sales 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.


9

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. The deferred commissions are amortized on a straight-line basis over the expected period of benefit. We review the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when we expect to recognize the expense. The current portion is included in prepaid expenses and other current assets and the noncurrent portion is included in other assets, net on the Company's consolidated condensed balance sheets. As of August 31, 2019,2020, the current and noncurrent assets related to deferred commissions totaled $71.3$77.5 million and $212.0$230.0 million, respectively. As of May 31, 2019,2020, the current and noncurrent assets related to deferred commissions totaled $69.6$76.2 million and $206.0$227.1 million, respectively. We recorded amortization expense related to deferred commissions of $18.8$20.4 million and $17.1$18.8 million during the three months ended August 31, 20192020 and 2018,2019, respectively. These expenses are classified in selling and administrative expenseexpenses on the consolidated condensed statements of income.



Note 3 - Leases
Cintas has operating leases for certain operating facilities, vehicles and equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. Each new contract is evaluated to determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated condensed balance sheet with a corresponding operating lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the consolidated condensed balance sheet.

Operating lease right-of-use assets, net and operating lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate (discount rate) based on the information available at lease commencement date. Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. Both lease expense and variable lease costs are primarily recorded in Costcost of uniform rental and facility services and other on the Company's consolidated condensed statements of income. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease costs, including short-term lease expense and variable lease costs which were immaterial in each period, were $17.1 million and $17.2 million for the three months ended August 31, 2020 and 2019, respectively.

The following table presentsprovides supplemental information related to the operating lease cost andCompany's consolidated condensed statements of cash flows for the three months ended August 31:
(In thousands)20202019
Cash paid for amounts included in the measurement of operating lease liabilities$12,254 $12,342 
Operating lease right-of-use assets obtained in exchange for new and renewed
operating lease liabilities		$9,317 $6,828 

Other information related to the operating lease right-of-use assets, net and operating lease liabilities for the three months ended August 31, 2019:was as follows:
August 31, 2020May 31,
2020
Weighted-average remaining lease term - operating leases5.10 years5.19 years
Weighted-average discount rate - operating leases2.62%2.66%
(In thousands, except lease term and discount rate)  
   
Lease cost  
Operating lease costs including short-term lease expense and variable lease costs, which
   were immaterial in the quarter
 $17,200
   
Operating cash flow impacts  
Cash paid for amounts included in the measurement of operating lease liabilities $12,342
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $6,828
Weighted-average remaining lease term - operating leases 5.36 years
Weighted-average discount rate - operating leases 2.68%


10

The contractual future minimum lease payments of Cintas' operating lease liabilities by fiscal year are as follows as of August 31, 2019:2020:
(In thousands)
2021 (remaining nine months)
$36,380 
202240,728 
202332,079 
202422,423 
202515,766 
Thereafter29,643 
Total payments177,019 
Less interest(11,878)
Total present value of lease payments$165,141 
(In thousands)  
   
2020 (remaining nine months)
 $35,753
2021 40,981
2022 31,877
2023 24,487
2024 15,691
Thereafter 33,065
Total payments 181,854
Less interest (13,160)
Total present value of lease payments $168,694




Note 4 - Fair Value Measurements
All financial instruments that are measured at fair value on a recurring basis (at least annually) have been classified within the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated condensed balance sheet date. These financial instruments measured at fair value on a recurring basis are summarized below: 
As of August 31, 2020
(In thousands)Level 1Level 2Level 3Fair Value
Cash and cash equivalents$421,542 $0 $0 $421,542 
Other assets, net:
  Interest rate lock agreements0 6,425 0 6,425 
Total assets at fair value$421,542 $6,425 $0 $427,967 
Long-term accrued liabilities:
  Interest rate lock agreements$0 $156,051 $0 $156,051 
Total liabilities at fair value$0 $156,051 $0 $156,051 
 As of August 31, 2019
(In thousands)Level 1 Level 2 Level 3 Fair Value
        
Cash and cash equivalents$102,131
 $—
 $—
 $102,131
Total assets at fair value$102,131
 $—
 $—
 $102,131
        
Long-term accrued liabilities:       
  Interest rate lock agreements$—
 $76,141
 $—
 $76,141
Total liabilities at fair value$—
 $76,141
 $—
 $76,141

As of May 31, 2020
(In thousands)Level 1Level 2Level 3Fair Value
Cash and cash equivalents$145,402 $0 $0 $145,402 
Other assets, net
Interest rate lock agreements0 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, 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

Cintas’ cash and cash equivalents are generally classified within Level 1 or Level 2 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets.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.
11

The cost of the securities sold is based on the specific identification method. There were 0 outstanding marketable securities as of August 31, 2019 or May 31, 2019.

As of August 31, 2019 and 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 August 31, 2020 and May 31, 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 assets, 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 condensed balance sheet dates.

In addition to assets and liabilities that are recorded at fair value on a recurring basis, Cintas records assets and liabilities at fair value on a nonrecurring basis as required under U.S. GAAP. The assets and liabilities measured at fair value on a nonrecurring basis primarily relate to assets and liabilities acquired in a business acquisition.



Note 5 - Investments
Investments atAt August 31, 2019 of $209.02020, investments were $240.4 million and include the cash surrender value of insurance policies of $187.4$217.2 million, equity method investments of $18.4$20.1 million and cost method investments of $3.2$3.1 million. Investments atAt May 31, 2019 of $192.32020, investments were $214.8 million and include the cash surrender value of insurance policies of $170.5$192.7 million, equity method investments of $18.6$19.0 million and cost method investments of $3.2$3.1 million. Investments are generally evaluated for impairment on an annual basis or when indicators of impairment exist. For the three months ended August 31, 20192020 and 2018,2019, 0 impairment losses were recorded.

Note 6 - Earnings Per Share 
Cintas uses the two-class method to calculate basic and diluted earnings per share as a result of outstanding participating securities in the form of restricted stock awards. The following tables set forth the computation of basic and diluted earnings per share from continuing operations using the two-class method for amounts attributable to Cintas’ common shares: shares.
Three Months Ended
Basic Earnings per Share
(in thousands except per share data)
August 31,
2020		August 31,
2019
Net income$300,005 $250,812 
Less: income allocated to participating securities2,173 2,016 
Income available to common shareholders$297,832 $248,796 
Basic weighted average common shares outstanding104,110 103,543 
Basic earnings per share$2.86 $2.40 
 Three Months Ended
Basic Earnings per Share from Continuing Operations
(in thousands except per share data)
August 31,
2019		 August 31,
2018
    
Income from continuing operations$250,812
 $212,547
Less: income from continuing operations allocated to participating securities2,016
 2,945
Income from continuing operations available to common shareholders$248,796
 $209,602
Basic weighted average common shares outstanding103,543
 106,835
    
Basic earnings per share from continuing operations$2.40
 $1.96

Three Months Ended
Diluted Earnings per Share
(in thousands except per share data)
August 31,
2020		August 31,
2019
Net income$300,005 $250,812 
Less: income allocated to participating securities2,173 2,016 
Income available to common shareholders$297,832 $248,796 
Basic weighted average common shares outstanding104,110 103,543 
Effect of dilutive securities – employee stock options3,019 3,540 
Diluted weighted average common shares outstanding107,129 107,083 
Diluted earnings per share$2.78 $2.32 

 Three Months Ended
Diluted Earnings per Share from Continuing Operations
(in thousands except per share data)
August 31,
2019		 August 31,
2018
    
Income from continuing operations$250,812
 $212,547
Less: income from continuing operations allocated to participating securities2,016
 2,945
Income from continuing operations available to common shareholders$248,796
 $209,602
Basic weighted average common shares outstanding103,543
 106,835
Effect of dilutive securities – employee stock options3,540
 3,813
Diluted weighted average common shares outstanding107,083
 110,648
    
Diluted earnings per share from continuing operations$2.32
 $1.89
12


There were no amounts recorded in discontinued operations forFor both the three months ended August 31, 2019. For the three months ended August 31, 2018, both basic2020 and diluted earnings per share from discontinued operations rounded to 0.
For the three months ended August 31, 2019, and 2018, options granted to purchase 0.2 million and 0.3 million shares of Cintas common stock respectively, were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common stock (anti-dilutive).

On October 30, 2018, Cintas announced that the Board of Directors authorized a $1.0 billion share buyback program, which does not have an expiration date. ForOn October 29, 2019, we announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. The following table summarizes the buyback activity by program and for the three months ended August 31:
20202019
Buyback Program
(In thousands except per share data)
SharesAvg. Price
per Share		Purchase
Price		SharesAvg. Price
per Share		Purchase
Price
October 30, 20180 $0 $0 837 $230.66 $193,109 
October 29, 20190 $0 $0 0 $0 $0 
0 $0 $0 837 $230.66 $193,109 

There were 0 share buybacks in the period subsequent to August 31, 2019, we2020, through October 9, 2020, under any share buyback program. From the inception of the October 30, 2018 program through October 9, 2020, Cintas has purchased 0.8a total of 4.3 million shares of Cintas common stock at an average price of $230.66$219.42 per share for a total purchase price of $193.1$939.1 million. There were no share buybacks in

For the period subsequent tothree months ended August 31, 2019 through October 8, 2019. From the inception of the October 30, 2018 share buyback program through October 8, 2019,2020, Cintas has purchased a total of 3.5acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the three months ended August 31, 2020. These shares were acquired at an average price of $209.82$300.01 per share for a total purchase price of $736.5 million.

$69.0 million. For the three months ended August 31, 2019, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes dues on restricted stock awards that vested during the three months ended August 31, 2019. These shares were acquired at an average price of $260.83 per share for a total purchase price of $63.7 million.



Note 7 - Goodwill, Service Contracts and Other Assets
Changes in the carrying amount of goodwill and service contracts for the three months ended August 31, 2019,2020, by reportable operating segment and All Other, are as follows:
Goodwill
(in thousands)
Uniform Rental
and Facility Services		First Aid
and Safety Services		All
Other		Total
Balance as of June 1, 2020$2,513,041 $243,266 $113,713 $2,870,020 
Goodwill acquired2,001 0 0 2,001 
Foreign currency translation12,942 1,041 44 14,027 
Balance as of August 31, 2020$2,527,984 $244,307 $113,757 $2,886,048 
Goodwill (in thousands)
Uniform Rental
 and Facility Services
 
First Aid
 and Safety Services
 
All
Other
 Total
        
Balance as of June 1, 2019$2,496,402
 $243,459
 $102,580
 $2,842,441
Goodwill acquired—
 164
 3,022
 3,186
Foreign currency translation3,675
 296
 15
 3,986
Balance as of August 31, 2019$2,500,077
 $243,919
 $105,617
 $2,849,613

Service Contracts
(in thousands)
Uniform Rental
and Facility Services		First Aid
and Safety Services		All
Other		Total
Balance as of June 1, 2020$407,611 $19,805 $24,113 $451,529 
Service contracts acquired1,138 0 0 1,138 
Service contracts amortization(12,031)(947)(1,290)(14,268)
Foreign currency translation3,169 73 0 3,242 
Balance as of August 31, 2020$399,887 $18,931 $22,823 $441,641 


Service Contracts (in thousands)
Uniform Rental
 and Facility Services
 
First Aid
 and Safety Services
 
All
Other
 Total
  
  
  
  
Balance as of June 1, 2019$445,016
 $23,380
 $26,199
 $494,595
Service contracts acquired—
 325
 1,133
 1,458
Service contracts amortization(11,783) (970) (1,378) (14,131)
Foreign currency translation1,030
 25
 —
 1,055
Balance as of August 31, 2019$434,263
 $22,760
 $25,954
 $482,977
13


Information regarding Cintas’ service contracts and other assets is as follows:
 As of August 31, 2020
(In thousands)Carrying
Amount		Accumulated
Amortization		Net
Service contracts$948,118 $506,477 $441,641 
Capitalized contract costs (1)
$399,204 $169,248 $229,956 
Noncompete and consulting agreements44,174 41,621 2,553 
Other62,566 23,496 39,070 
Total other assets$505,944 $234,365 $271,579 
 As of August 31, 2019
(In thousands)
Carrying
Amount
 
Accumulated
Amortization
 Net
      
Service contracts$931,682
 $448,705
 $482,977
      
Capitalized contract costs (1)
$301,854
 $89,840
 $212,014
Noncompete and consulting agreements42,494
 40,740
 1,754
Other50,684
 19,387
 31,297
Total other assets$395,032
 $149,967
 $245,065
 As of May 31, 2019
(In thousands)
Carrying
Amount
 
Accumulated
Amortization
 Net
      
Service contracts$928,635
 $434,040
 $494,595
      
Capitalized contract costs (2)
$277,016
 $71,062
 $205,954
Noncompete and consulting agreements42,308
 40,524
 1,784
Other50,306
 17,729
 32,577
Total 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 condensed balance sheet as of August 31, 2019, is $71.3 million.
(2)
The current portion of capitalized contract costs, included in prepaid expenses and other current assets on the consolidated condensed balance sheet as of May 31, 2019, is $69.6 million.

 As of May 31, 2020
(In thousands)Carrying
Amount		Accumulated
Amortization		Net
Service contracts$941,383 $489,854 $451,529 
Capitalized contract costs (1)
$375,912 $148,853 $227,059 
Noncompete and consulting agreements43,890 41,317 2,573 
Other54,239 23,113 31,126 
Total other assets$474,041 $213,283 $260,758 

(1)    The current portion of capitalized contract costs, included in prepaid expenses and other current assets on the consolidated condensed balance sheet as of August 31, 2020 and May 31, 2020, is $77.5 million and $76.2 million, respectively.

Amortization expense for service contracts and other assets for continuing operations was $34.6$35.1 million and $33.0$34.6 million for the three months ended August 31, 20192020 and 2018,2019, respectively. The estimated future amortization expense for service contracts and other assets, excluding any future acquisitions and commissions to be earned, as of August 31, 20192020 is as follows:
Fiscal Year (In thousands)
2021 (remaining nine months)
$102,745 
2022126,441 
2023107,211 
202495,316 
202582,492 
Thereafter240,600 
Total future amortization expense$754,805 
Fiscal Year (In thousands)
  
   
2020 (remaining nine months)
 $100,846
2021 120,954
2022 109,078
2023 90,379
2024 79,144
Thereafter 274,800
Total future amortization expense $775,201


14

Note 8 - Debt, Derivatives and Hedging Activities
Cintas' outstanding debt is summarized as follows:

(In thousands)
Interest
 Rate
 
Fiscal Year
Issued
 
Fiscal Year
Maturity
 
August 31,
2019
 
May 31,
2019
(In thousands)Interest
Rate		Fiscal Year
Issued		Fiscal Year
Maturity		August 31,
2020		May 31,
2020
     
Debt due within one year     Debt due within one year
Commercial paper2.36%
(1) 
2020 2020 $139,000
 $112,500
Term loan2.88%
(1) 
2019 2020 200,000
 200,000
Senior notesSenior notes4.30 %20122022$250,000 $0 
Debt issuance costs  (224) (236)Debt issuance costs(192)0 
Total debt due within one year  $338,776
 $312,264
Total debt due within one year$249,808 $0 
     
Debt due after one year     Debt due after one year
Senior notes4.30% 2012 2022 $250,000
 $250,000
Senior notes4.30 %20122022$0 $250,000 
Senior notes2.90% 2017 2022 650,000
 650,000
Senior notes2.90 %20172022650,000 650,000 
Senior notes3.25% 2013 2023 300,000
 300,000
Senior notes3.25 %20132023300,000 300,000 
Senior notes (2)(1)
2.78% 2013 2023 51,576
 51,684
2.78 %2013202351,141 51,250 
Senior notes (3)(2)
3.11% 2015 2025 51,889
 51,973
3.11 %2015202551,553 51,637 
Senior notes3.70% 2017 2027 1,000,000
 1,000,000
Senior notes3.70 %201720271,000,000 1,000,000 
Senior notes6.15% 2007 2037 250,000
 250,000
Senior notes6.15 %20072037250,000 250,000 
Debt issuance costs  (15,408) (16,150)Debt issuance costs(12,247)(13,182)
Total debt due after one year  $2,538,057
 $2,537,507
 Total debt due after one year$2,290,447 $2,539,705 
(1)  Cintas assumed these senior notes with the acquisition of G&K Services, Inc. (G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%.
(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%.

Variable rate debt instrument. The rate presented is the variable borrowing rate at August 31, 2019.
(2)
Cintas assumed these senior notes with the acquisition of G&K Services, Inc. (G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%.
(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%.

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 August 31, 20192020 were $2,889.0$2,550.0 million and $3,115.0$2,840.2 million, respectively, and as of May 31, 20192020 were $2,866.2$2,550.0 million and $2,998.7$2,804.2 million, respectively. During the three months ended August 31, 2019, Cintas issued $26.5 million, net of commercial paper.

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 23, 2024 and the maturity date of the term loan in May 23, 2020, which can be extended 12 months, annually, for up to four years. . As of August 31, 20192020 and May 31, 2019 there2020, there was $139.0 million and $112.5 million of0 commercial paper outstanding with maturity dates less than 30 days and with a weighted average interest rates of 2.36% and 2.68%, respectively. There were 0 borrowings on our revolving credit facility as of August 31, 2019 and May 31, 2019.facility.

Cintas uses interest rate locks to manage our 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 decreasean increase to other comprehensive incomeloss of $0.3$0.4 millionand$0.3 million for both the three months ended August 31, 2020 and 2019, respectively. During fiscal 2020, Cintas entered into interest rate lock agreements with a notional value of $950.0 million for a forecasted debt issuance in connection with the upcoming debt maturities. As of August 31, 2020, the fair values of these interest rate locks were an asset of $6.4 million and 2018. a liability of $48.2 million, recorded in other assets and long-term accrued liabilities, respectively, and in other comprehensive loss, net of tax. As of May 31, 2020, the fair values of these interest rate locks were an asset of $1.5 million and a liability of $53.8 million, recorded in other assets and long-term accrued liabilities, respectively, and in other comprehensive loss, net of tax.
15

During fiscal 2019, Cintas entered into interest rate lock agreements with a notional value of $500.0 million for a forecasted debt issuance.issuance in connection with the upcoming debt maturities. As of August 31, 20192020 and May 31, 2019,2020, the fair valuevalues of these interest rate locks waswere a liability of $76.1$107.8 million and $36.4$111.9 million, respectively, and were 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 three months ended August 31, 20192020 or 2018.2019.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas’Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas’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. As of August 31, 2019, Cintas was in compliance with all of the debt covenants.covenants for all periods presented.

As of August 31, 2020 and May 31, 2020, the Company had unrecognized inventory purchase commitments with various suppliers totaling $64.4 million and $117.6 million, respectively. In fiscal 2021, we entered into $9.8 million of new unrecognized inventory purchase commitments and made $62.5 million of inventory purchases related to the unrecognized commitments outstanding at May 31, 2020. The Company expects to purchase all remaining commitments within the next twelve months.

Note 9 - Income Taxes
In the normal course of business, Cintas provides for uncertain tax positions and the related interest and adjusts its unrecognized tax benefits and accrued interest accordingly. As of August 31, 20192020 and May 31, 2019,2020, recorded unrecognized tax benefits were $38.6$36.5 million and $37.3$35.9 million, respectively, and are included in long-term accrued liabilities on the consolidated condensed balance sheet.

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 operations in any given period.

All U.S.United States federal income tax returns are closed to audit through fiscal 2015.2016. 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 2013. Based on the resolution of the various audits and other potential regulatory developments, it is reasonably possible that the balance of unrecognized tax benefits would not change for the fiscal year ending May 31, 2020.2021.

Cintas’ effective tax rate for continuing operations was 10.1%7.8% and 12.0%10.1% for the three months ended August 31, 2020 and 2019, and 2018, respectively. BothThe effective tax rate for both periods were impacted by certain discrete items (primarily the tax accounting for stock-based compensation).

16

Note 10 - Pension Plans
In conjunction with the acquisition of G&K in fiscal 2017, Cintas assumed G&K's noncontributory frozen defined benefit pension plan (the Pension 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 condensed balance sheet reflect the funded status of the 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.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 is included in long-term accrued liabilities on the consolidated condensed balance sheets. Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in accumulated other comprehensive incomeloss in our consolidated condensed balance sheets. The difference between actual amounts and estimates based on actuarial assumptions are recognized in other comprehensive income (loss) in the period in which they occur. The Pension Plan assumptions are evaluated annually and are updated as deemed necessary.

The components of net periodic pension benefit cost are summarized as follows:follows for the three months ended August 31:
(In thousands)20202019
Interest cost$512 $720 
Expected return on assets(731)(740)
Amortization of net loss56 0 
Net periodic pension benefit$(163)$(20)
 Three Months Ended
(In thousands)August 31, 2019 August 31, 2018
    
Interest cost$720
 $781
Expected return on assets(740) (721)
Net periodic benefit cost$(20) $60


Note 11 - Accumulated Other Comprehensive Income (Loss)
The following table summarizestables summarize 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		OtherTotal
Balance at June 1, 2020$(26,343)$(112,718)$(14,319)$(153,380)
Other comprehensive income before reclassifications26,946 10,842 0 37,788 
Amounts reclassified from accumulated other
   comprehensive income (loss)
0 (358)0 (358)
Net current period other comprehensive income26,946 10,484 0 37,430 
Balance at August 31, 2020$603 $(102,234)$(14,319)$(115,950)
(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)
Other comprehensive income (loss) before
   reclassifications
6,724
 (29,903) —
 (23,179)
Amounts reclassified from accumulated other comprehensive income (loss)—
 (295) —
 (295)
Net current period other comprehensive income (loss)6,724

(30,198)
—

(23,474)
Cumulative effect of change in accounting
   principle (1)
—
 2,058
 (83) 1,975
Balance at August 31, 2019$(8,298)
$(46,529)
$(5,824)
$(60,651)
(1)
See new accounting pronouncements in Note 1 entitled Basis of Presentation for more information.
(In thousands)
Foreign
Currency
 
Unrealized Income on
Interest Rate Hedges
 Other Total
        
Balance at June 1, 2018$6,550
 $10,449
 $(656) $16,343
Other comprehensive loss before reclassifications(3,019) (3,168) —
 (6,187)
Amounts reclassified from accumulated other comprehensive income (loss)—
 (295) —
 (295)
Net current period other comprehensive loss(3,019)
(3,463)
—

(6,482)
Balance at August 31, 2018$3,531
 $6,986
 $(656) $9,861

(In thousands)Foreign
Currency		Unrealized Loss on
Interest Rate Hedges		OtherTotal
Balance at June 1, 2019$(15,022)$(18,389)$(5,741)$(39,152)
Other comprehensive income (loss) before reclassifications6,724 (29,903)0 (23,179)
Amounts reclassified from accumulated other
   comprehensive income (loss)
0 (295)0 (295)
Net current period other comprehensive income (loss)6,724 (30,198)0 (23,474)
   Cumulative effect of change in accounting principle0 2,058 (83)1,975 
Balance at August 31, 2019$(8,298)$(46,529)$(5,824)$(60,651)

17

The following table summarizes the reclassifications out of accumulated other comprehensive income (loss):
Details about Accumulated
Other Comprehensive
Income (Loss) Components
Amount Reclassified from Accumulated Other
 Comprehensive Income (Loss)
Affected Line in the
Consolidated Condensed
Statements of Income
 Three Months Ended 
(In thousands)August 31, 2019 August 31, 2018 
     
Amortization of interest rate locks$474
 $474
Interest expense
Tax expense(179) (179)Income taxes
Amortization of interest rate locks,
   net of tax
$295
 $295
Net income


Details about Accumulated
Other Comprehensive
Income (Loss) Components		Amount Reclassified from
Accumulated Other
Comprehensive Income (Loss)		Affected Line in the
Consolidated Condensed
Statements of Income
Three Months Ended
(In thousands)August 31,
2020		August 31,
2019
Amortization of interest rate locks$474 $474 Interest expense
Tax expense(116)(179)Income taxes
Amortization of interest rate locks,
   net of tax
$358 $295 Net income

Note 12 - Segment Information
Cintas classifies its business into 2 reportable operating segments and places the remainder of its operating segments in an All Other category. Cintas’ 2 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 Basis of Presentation. Information related to the operations of Cintas’ reportable operating segments and All Other is set forth below: 
(In thousands)
Uniform Rental
and Facility Services
 
First Aid
and Safety Services
 
All
Other
 
Corporate (1)
 Total
          
As of and for the three months
ended August 31, 2019		     
  
  
Revenue$1,454,527
 $172,090
 $184,522
 $—
 $1,811,139
Income (loss) before income taxes$269,011
 $24,769
 $12,366
 $(27,159) $278,987
Total assets$6,607,453
 $536,652
 $416,282
 $101,513
 $7,661,900
          
As of and for the three months
ended August 31, 2018		         
Revenue$1,374,938
 $153,417
 $169,620
 $—
 $1,697,975
Income (loss) before income taxes$231,534
 $21,983
 $11,711
 $(23,808) $241,420
Total assets$6,298,849
 $486,965
 $383,034
 $118,356
 $7,287,204

(In thousands)Uniform Rental
and Facility Services		First Aid
and Safety Services		All
Other
Corporate (1)
Total
As of and for the three months ended August 31, 2020   
Revenue$1,394,411 $204,481 $147,683 $0 $1,746,575 
Income (loss) before income taxes$315,028 $18,527 $16,151 $(24,486)$325,220 
Total assets$6,628,127 $620,169 $373,543 $421,542 $8,043,381 
As of and for the three months ended August 31, 2019
Revenue$1,454,527 $172,090 $184,522 $0 $1,811,139 
Income (loss) before income taxes$269,011 $24,769 $12,366 $(27,159)$278,987 
Total assets$6,607,453 $536,652 $416,282 $101,513 $7,661,900 
(1) Corporate assets include cash and marketable securities in all periods.

18

Note 13 - G&K Services, Inc. Integration Expenses
As a result of the acquisition of G&K in fiscal 2017, the Company incurred $4.9 million in expenses during the three months ended August 31, 2018, which represented integration expenses directly related to the acquisition, primarily facility closure expenses. NaN such costs were incurred during the three months ended August 31, 2019.

As of August 31, 2019 and May 31, 2019, employee termination benefits included in accrued compensation and related liabilities on the consolidated condensed balance sheet was $2.7 million and $2.8 million, respectively. The amount of employee termination benefits paid during the three months ended August 31, 2019 and 2018 was $0.1 million and $2.4 million, respectively. We anticipate the remaining accrued employee termination benefits will be paid by the end of this fiscal year.
Note 14 - 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 $139.0 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 August 31, 2019, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and certain wholly-owned, direct and indirect domestic subsidiaries.

As allowed by SEC rules, the following consolidating condensed financial statements are provided as an alternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the following consolidating condensed financial statements has been fully consolidated in Cintas’ consolidated condensed financial statements. The following consolidating condensed financial statements should be read in conjunction with the consolidated condensed financial statements of Cintas and notes thereto of which this note is an integral part. Consolidating condensed financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages: 


Consolidating Condensed Income Statement
Three Months Ended August 31, 2019
(In thousands)

 Cintas
Corporation		 Corp. 2 Subsidiary
Guarantors		 Non-
Guarantors		 Eliminations 
Cintas
Corporation
Consolidated
            
Revenue: 
  
  
  
  
  
Uniform rental and facility services$—
 $1,158,891
 $190,735
 $105,394
 $(493) $1,454,527
Other—
 582,976
 97
 23,246
 (249,707) 356,612
Equity in net income of affiliates250,812
 —
 —
 —
 (250,812) —
Total revenue250,812
 1,741,867
 190,832
 128,640
 (501,012) 1,811,139
            
Costs and expenses (income): 
  
  
  
  
  
Cost of uniform rental and facility services—
 621,881
 111,734
 65,595
 (30,534) 768,676
Cost of other—
 403,484
 (22,677) 17,699
 (205,185) 193,321
Selling and administrative expenses—
 599,403
 (84,257) 34,454
 (6,604) 542,996
Operating income250,812
 117,099
 186,032
 10,892
 (258,689) 306,146
            
Interest (income) expense—
 (150) 1
 (14) 1
 (162)
Interest expense (income)—
 27,360
 (53) 14
 —
 27,321
            
Income before income taxes250,812
 89,889
 186,084
 10,892
 (258,690) 278,987
Income taxes—
 8,201
 16,978
 3,021
 (25) 28,175
Net income$250,812
 $81,688
 $169,106
 $7,871
 $(258,665) $250,812




















Consolidating Condensed Income Statement
Three Months Ended August 31, 2018
(In thousands)

 Cintas
Corporation		 Corp. 2 Subsidiary
Guarantors		 Non-
Guarantors		 Eliminations 
Cintas
Corporation
Consolidated
            
Revenue: 
  
  
  
  
  
Uniform rental and facility services$—
 $1,139,129
 $183,163
 $99,683
 $(47,037) $1,374,938
Other—
 491,290
 43
 24,332
 (192,628) 323,037
Equity in net income of affiliates212,547
 —
 —
 —
 (212,547) —
Total revenue212,547
 1,630,419
 183,206
 124,015
 (452,212) 1,697,975
            
Costs and expenses (income): 
  
  
  
  
  
Cost of uniform rental and facility
   services
—
 643,741
 109,550
 64,013
 (70,851) 746,453
Cost of other—
 341,333
 (22,029) 18,142
 (160,636) 176,810
Selling and administrative expenses—
 544,910
 (64,621) 34,363
 (10,018) 504,634
G&K Services, Inc. integration
   expenses
—
 2,676
 1,863
 311
 —
 4,850
Operating income212,547
 97,759
 158,443
 7,186
 (210,707) 265,228
            
Interest income—
 (209) (272) (16) 1
 (496)
Interest expense (income)—
 24,661
 (362) 5
 —
 24,304
            
Income before income taxes212,547
 73,307
 159,077
 7,197
 (210,708) 241,420
Income taxes—
 10,663
 16,044
 2,187
 (21) 28,873
Income from continuing operations212,547

62,644

143,033

5,010

(210,687)
212,547
           

Loss from discontinued operations,
   net of tax
(32) (32) —
 —
 32
 (32)
            
Net income$212,515

$62,612

$143,033

$5,010

$(210,655)
$212,515
























Consolidating Condensed Statement of Comprehensive Income
Three Months Ended August 31, 2019
(In thousands)

 Cintas
Corporation		 Corp. 2 Subsidiary
Guarantors		 Non-
Guarantors		 Eliminations 
Cintas
Corporation
Consolidated
            
Net income$250,812
 $81,688
 $169,106
 $7,871
 $(258,665) $250,812
            
Other comprehensive income
   (loss), net of tax:
           
Foreign currency translation adjustments6,724
 —
 —
 6,724
 (6,724) 6,724
Change in fair value of interest rate lock agreements(29,903) (29,903) —
 —
 29,903
 (29,903)
Amortization of interest rate
   lock agreements
(295) (295) —
 —
 295
 (295)
            
Other comprehensive (loss)
     income
(23,474) (30,198) —
 6,724
 23,474
 (23,474)
            
Comprehensive income$227,338
 $51,490
 $169,106
 $14,595
 $(235,191) $227,338



Consolidating Condensed Statement of Comprehensive Income
Three Months Ended August 31, 2018
(In thousands)

 Cintas
Corporation		 Corp. 2 Subsidiary
Guarantors		 Non-
Guarantors		 Eliminations 
Cintas
Corporation
Consolidated
            
Net income$212,515
 $62,612
 $143,033
 $5,010
 $(210,655) $212,515
            
Other comprehensive (loss)
   income, net of tax:
           
Foreign currency translation adjustments(3,019) —
 —
 (3,019) 3,019
 (3,019)
Change in fair value of interest
   rate lock agreements
(3,168) (3,168) —
 —
 3,168
 (3,168)
Amortization of interest rate lock agreements(295) (295) —
 —
 295
 (295)
            
Other comprehensive loss(6,482) (3,463) —
 (3,019) 6,482
 (6,482)
            
Comprehensive income$206,033
 $59,149
 $143,033
 $1,991
 $(204,173) $206,033




































Consolidating Condensed Balance Sheet
As of August 31, 2019
(In thousands)

 
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
ASSETS 
  
  
  
  
  
Current assets: 
  
  
  
  
  
Cash and cash equivalents$—
 $61,965
 $14,788
 $25,378
 $—
 $102,131
Accounts receivable, net—
 734,268
 113,838
 69,429
 —
 917,535
Inventories, net—
 287,373
 28,178
 20,739
 —
 336,290
Uniforms and other rental
    items in service
—
 657,277
 91,592
 61,534
 (14,216) 796,187
Prepaid expenses and
   other current assets
—
 82,635
 35,907
 19,133
 —
 137,675
Total current assets—
 1,823,518
 284,303
 196,213
 (14,216) 2,289,818
            
Property and equipment, net—
 958,285
 367,853
 96,213
 —
 1,422,351
            
Investments (1)
321,083
 3,588,963
 981,713
 1,718,870
 (6,401,642) 208,987
Goodwill—
 —
 2,589,592
 260,133
 (112) 2,849,613
Service contracts, net—
 416,583
 —
 66,394
 —
 482,977
Operating lease right-of-use
   assets, net
—
 133,401
 13,904
 15,784
 —
 163,089
Other assets, net2,264,376
 216,985
 5,606,035
 1,507
 (7,843,838) 245,065
 $2,585,459
 $7,137,735
 $9,843,400
 $2,355,114
 $(14,259,808) $7,661,900
            
LIABILITIES AND SHAREHOLDERS’ EQUITY  
  
  
  
Current liabilities: 
  
  
  
  
  
Accounts payable$(465,247) $(2,099,057) $2,818,307
 $(54,052) $37,291
 $237,242
Accrued compensation
  and related liabilities
—
 59,152
 31,311
 8,737
 —
 99,200
Accrued liabilities—
 86,128
 290,891
 18,397
 —
 395,416
Income taxes, current—
 235
 14,236
 (5,233) —
 9,238
Operating lease liabilities,
   current
—
 34,255
 4,320
 4,435
 —
 43,010
Debt due within one year—
 338,776
 —
 —
 —
 338,776
Total current liabilities(465,247) (1,580,511) 3,159,065
 (27,716) 37,291
 1,122,882
            
Long-term liabilities: 
  
  
  
  
  
Debt due after one year—
 2,538,057
 —
 —
 —
 2,538,057
Deferred income taxes—
 306,142
 99,774
 30,839
 —
 436,755
Operating lease liabilities—
 103,847
 10,093
 11,744
 —
 125,684
Accrued liabilities—
 156,466
 214,977
 16,373
 —
 387,816
Total long-term liabilities—
 3,104,512
 324,844
 58,956
 —
 3,488,312
            
Total shareholders’ equity3,050,706
 5,613,734
 6,359,491
 2,323,874
 (14,297,099) 3,050,706
 $2,585,459
 $7,137,735
 $9,843,400
 $2,355,114
 $(14,259,808) $7,661,900

(1)
Investments include inter-company investment activity. Corp 2 and Subsidiary Guarantors hold $19.6 million and $189.4 million, respectively, of the $209.0 millionconsolidated net investments.


Consolidating Condensed 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, net2,216,391
 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’ equity3,002,721
 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.




Consolidating Condensed Statement of Cash Flows
Three Months Ended August 31, 2019
(In thousands)

 
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
Cash flows from operating activities: 
  
  
  
  
  
Net income$250,812
 $81,688
 $169,106
 $7,871
 $(258,665) $250,812
Adjustments to reconcile net income to net cash
   provided by (used in) operating activities
 
  
  
  
  
  
Depreciation—
 37,056
 16,032
 3,638
 —
 56,726
Amortization of intangible assets and
    capitalized contract costs
—
 31,949
 1,279
 2,040
 —
 35,268
Stock-based compensation40,395
 —
 —
 —
 —
 40,395
Deferred income taxes—
 8,652
 (382) (360) —
 7,910
Changes in current assets and liabilities, net
  of acquisitions of businesses:
 
  
  
  
  
  
Accounts receivable, net—
 (14,317) 7,965
 (284) —
 (6,636)
Inventories, net—
 (8,686) 7,359
 (399) —
 (1,726)
Uniforms and other rental items
   in service
—
 (11,416) (1,135) (722) 1,968
 (11,305)
Prepaid expenses and other current
   assets and capitalized contract costs
—
 (26,355) (15,462) (111) —
 (41,928)
Accounts payable—
 (8,103) 28,923
 (7,322) (141) 13,357
Accrued compensation and related liabilities—
 (58,252) 2,120
 (2,586) —
 (58,718)
Accrued liabilities and other—
 5,833
 (27,074) (2,841) —
 (24,082)
Income taxes, current—
 (9,493) 25,974
 347
 —
 16,828
Net cash provided by (used in) operating activities291,207
 28,556
 214,705
 (729) (256,838) 276,901
            
Cash flows from investing activities: 
  
  
  
  
  
Capital expenditures—
 (46,605) (14,916) (3,222) —
 (64,743)
Redemptions (purchases) of investments—
 271
 (9,662) —
 —
 (9,391)
Acquisitions of businesses, net of cash acquired—
 (3,896) —
 —
 —
 (3,896)
Other, net(72,292) 3,368
 (188,490) 467
 256,838
 (109)
Net cash used in investing activities(72,292) (46,862) (213,068) (2,755) 256,838
 (78,139)
            
Cash flows from financing activities: 
  
  
  
  
  
Issuance of commercial paper, net—
 26,500
 —
 —
 —
 26,500
Proceeds from exercise of stock-based compensation awards37,915
 —
 —
 —
 —
 37,915
Repurchase of common stock(256,830) —
 —
 —
 —
 (256,830)
Other, net—
 (1,192) —
 —
 —
 (1,192)
Net cash (used in) provided by financing activities(218,915) 25,308
 —
 —
 —
 (193,607)
            
Effect of exchange rate changes on cash
    and cash equivalents
—
 —
 —
 331
 —
 331
            
Net increase (decrease) in cash and cash
   equivalents
—
 7,002
 1,637
 (3,153) —
 5,486
Cash and cash equivalents at beginning of period—
 54,963
 13,151
 28,531
 —
 96,645
Cash and cash equivalents at end of period$—
 $61,965
 $14,788
 $25,378
 $—
 $102,131


Consolidating Condensed Statement of Cash Flows
Three Months Ended August 31, 2018
(In thousands)

 
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Cash flows from operating activities: 
  
  
  
  
  
Net income$212,515
 $62,612
 $143,033
 $5,010
 $(210,655) $212,515
Adjustments to reconcile net income to net cash
   provided by (used in) operating activities
 
  
  
  
  
  
Depreciation—
 33,866
 15,427
 3,452
 —
 52,745
Amortization of intangible assets and
   capitalized contract costs
—
 30,156
 1,278
 2,116
 —
 33,550
Stock-based compensation46,172
 —
 —
 —
 —
 46,172
Deferred income taxes—
 5,388
 2,122
 1,512
 —
 9,022
Changes in current assets and liabilities, net
  of acquisitions of businesses:
 
  
  
  
  
  
Accounts receivable, net—
 (12,891) 3,381
 (5,541) —
 (15,051)
Inventories, net—
 (37,207) 2,700
 660
 (782) (34,629)
Uniforms and other rental items in service—
 (10,800) (7,904) (2,936) (1,379) (23,019)
Prepaid expenses and other current
   assets and capitalized contract costs
—
 (25,060) (21,838) (32) —
 (46,930)
Accounts payable—
 41,784
 (37,657) (4,758) 302
 (329)
Accrued compensation and related
   liabilities
—
 (41,910) (10,982) (3,294) —
 (56,186)
Accrued liabilities and other—
 2,305
 (26,295) (3,566) —
 (27,556)
Income taxes, current—
 5,022
 8,474
 (815) —
 12,681
Net cash provided by (used in) operating
   activities
258,687
 53,265
 71,739
 (8,192) (212,514) 162,985
            
Cash flows from investing activities: 
  
  
  
  
  
Capital expenditures—
 (43,966) (17,979) (2,583) —
 (64,528)
Proceeds from redemption of marketable securities—
 1,554
 4
 —
 —
 1,558
Acquisitions of businesses, net of cash acquired—
 (7,613) —
 —
 —
 (7,613)
Other, net(146,731) (4,048) (65,509) 2,582
 213,504
 (202)
Net cash used in investing activities(146,731) (54,073) (83,484) (1) 213,504
 (70,785)
            
Cash flows from financing activities: 
  
  
  
  
  
Proceeds from exercise of stock-based compensation awards27,512
 —
 —
 —
 —
 27,512
Repurchase of common stock(139,468) —
 —
 —
 —
 (139,468)
Other, net—
 2,909
 —
 (2,471) (990) (552)
Net cash (used in) provided by financing activities(111,956) 2,909
 —
 (2,471) (990) (112,508)
            
Effect of exchange rate changes on cash and
   cash equivalents
—
 —
 —
 (60) —
 (60)
            
Net increase (decrease) in cash and cash
   equivalents
—
 2,101
 (11,745) (10,724) —
 (20,368)
Cash and cash equivalents at beginning of period—
 44,499
 60,310
 33,915
 —
 138,724
Cash and cash equivalents at end of period$—
 $46,600
 $48,565
 $23,191
 $—
 $118,356



ITEM 2.                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 

Business Strategy
Cintas helps more than one million businesses of all types and sizes, primarily in North America,the United States (U.S.), as well as Canada, 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 safetytraining and compliance training,courses, Cintas helps customers get Ready for the Workday™Workday®.

We are North America’s leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, first aid and safety services and fire protection products and services.
Cintas’ principal objective is “to exceed customers’ expectations in order to maximize the long-term value of Cintas for shareholders and working partners,” and it provides the framework and focus for Cintas’ business strategy. This strategy is to achieve revenue growth for all our products and services by increasing our penetration at existing customers and by broadening our customer base to include business segments to which we have not historically served. We will also continue to identify additional product and service opportunities for our current and future customers.
To pursue the strategy of increasing penetration, we have a highly talented and diverse team of service professionals visiting our customers on a regular basis. This frequent contact with our customers enables us to develop close personal relationships. The combination of our distribution system and these strong customer relationships provides a platform from which we launch additional products and services.
We pursue the strategy of broadening our customer base in several ways. Cintas has a national sales organization introducing all its products and services to prospects in all business segments. Our broad range of products and services allows our sales organization to consider any type of business a prospect. We also broaden our customer base through geographic expansion, especially in our fire protection businesses.operating segment. Finally, we evaluate strategic acquisitions as opportunities arise.
  
Results of Operations
Cintas classifies its business into two reportable operating segments and places the remainder of its operating segments in an All Other category. Cintas’ two 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, which consists of the Fire Protection Services operating segment and itsthe Uniform Direct Sale business,operating segment, is included in All Other. These operating segments consist of fire protection products and services and the direct sale of uniforms and related items. Revenue and income before income taxes for the three months ended August 31, 20192020 and 20182019, for the two reportable operating segments and All Other is presented in Note 12 entitled Segment Information of “Notes to Consolidated Condensed Financial Statements.”

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and has since spread globally. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Efforts to contain the spread of COVID-19 intensified during our fiscal 2017,2020 fourth quarter and remained in effect throughout our fiscal 2021 first quarter. Most states and municipalities within the U.S. enacted temporary closures of businesses, issued quarantine orders and took other restrictive measures in response to the COVID-19 pandemic. Within the U.S., our business has been designated an essential business, which allows us to continue to serve customers that remain open.
We have operations throughout the U.S. and participate in a global supply chain. During the first quarter of fiscal 2021, the existence of the COVID-19 pandemic, the fear associated with the COVID-19 pandemic and the reactions
19

of governments around the world in response to the COVID-19 pandemic to regulate the flow of labor and products and impede the business of our customers, continued to impact our ability to conduct normal business operations, which had an adverse effect on our business. If we need to close a significant number of our facilities or a critical number of our employees become too ill to work, our business operations could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to the COVID-19 pandemic, including being required to shut down their operations, demand for our services and products could also be materially adversely affected in a rapid manner. In response to the impact of COVID-19, Cintas completedput in place health and safety measures to keep Cintas employees, contractors and customers safe. These health and safety measures have not materially impacted our ability to service our customers. Many of Cintas' customers were also impacted by COVID-19 and we did see an impact on some customer's ability to pay. While there was minimal disruption to our supply chain, Cintas did experience an increase in inventory, primarily personal protective equipment and facility services inventory, caused by the acquisitionimpact of G&K Services, Inc. (G&K).COVID-19. 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 of operations, acquired in the acquisition have been integrated into the Uniform Rental and Facility Services operating segment.consolidated financial condition or liquidity will ultimately be impacted.

Consolidated Results
Three Months Ended August 31, 20192020 Compared to Three Months Ended August 31, 20182019
 
Total revenue increased 6.7%decreased 3.6% for the three months ended August 31, 20192020, over the same period in the prior fiscal year, from $1,698.0$1,811.1 million to $1,811.1$1,746.6 million. Revenue increasedalso declined organically by 8.3%5.0% as a result of increaseddecreased sales volume.volume from the COVID-19 pandemic business closures. Organic growth adjusts for the impact of acquisitions, foreign currency exchange rate fluctuations and workday


differences. Total revenue was positively impacted by 0.1% due to acquisitions and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and 1.6% due to one less workday in the three months ended August 31, 2019, compared to the three months ended August 31, 2018.

Uniform Rental and Facility Services reportable operating segment revenue increased 5.8% for the three months ended August 31, 2019 over the same period in the prior fiscal year, from $1,374.9 million to $1,454.5 million. Revenue increased organically by 7.5%. Revenue growth was negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and 1.6%positively impacted by 0.1% due to growth derived through acquisitions and 1.4% due to one lessmore workday in the three months ended August 31, 2019,2020 compared to the three months ended August 31, 2018.2019.
As previously discussed, the government enactment of temporary closures of certain businesses in response to the COVID-19 pandemic continued to impact our ability to service some of our customers during the first quarter of fiscal 2021. Due to the constantly changing impact of the COVID-19 pandemic, uncertainty remains about the pace of the economic recovery and about its impact on future Cintas consolidated financial results. Uniform Rental and Facility Services reportable operating segment revenue decreased 4.1% for the three months ended August 31, 2020, over the same period in the prior fiscal year, from $1,454.5 million to $1,394.4 million. Revenue declined organically by 5.4%. Revenue growth was a result of new business, the penetration of additional productsnegatively impacted by 0.2% due to foreign currency exchange rate fluctuations and services into existing customers and price increases, partially offsetpositively impacted by lost business. New business growth resulted from an increase1.5% due to one more workday in the number and productivity of sales representatives. Generally, sales productivity improvements are duethree months ended August 31, 2020, compared to increased tenure and improved training, which produce a higher number of products and services sold.
the three months ended August 31, 2019.
Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 10.4%decreased 1.2% for the three months ended August 31, 20192020, compared to the same period in the prior fiscal year, from $323.0$356.6 million to $356.6$352.2 million. Revenue increaseddeclined organically by 11.7%3.3%. Revenue growth was positively impacted by 0.5%0.6% due to growth derived through acquisitions primarily in our Fire Protection business,operating segment, which is included in All Other and our First Aid and Safety Services reportable operating segment. TotalOther. In addition, revenue growth was negativelypositively impacted by 0.1% due to foreign currency exchange rate fluctuations and 1.7%1.5% due to one lessmore workday in the three months ended August 31, 2019,2020, compared to the three months ended August 31, 2018.

2019.
Cost of uniform rental and facility services consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. Cost of uniform rental and facility services increased $22.2decreased $53.3 million, or 3.0%6.9%, for the three months ended August 31, 2019,2020, compared to the three months ended August 31, 2018.2019. This increasedecrease was due to higherlower Uniform Rental and Facility Services reportable operating segment sales volume.
volume as well as certain cost control measures such as reduced supplies, labor and energy costs that were partially offset by increases in material cost.
Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, personal protective equipment, uniforms, and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other increased $16.5$11.6 million, or 9.3%6.0%, for the three months ended August 31, 2019,2020, compared to the three months ended August 31, 2018.2019. The increase was primarily due to higheran increase in the proportion of sales volumefrom personal protective equipment in the First Aid and Safety Services reportable operating segment and All Other.

Selling and administrative expenses increased $38.4decreased $66.5 million, or 7.6%,to 27.3% as a percent of revenue for the three months ended August 31, 2019,2020, compared to 30.0% for the same period in the prior fiscal year. The majority decrease as a percent
20

of the increaserevenue was primarily due to higherdecreases in labor and employee-partner related expenses particularly medical expense.

as well as lower discretionary spending.
Operating income was $306.1$349.7 million for the three months ended August 31, 2019,2020, compared to $265.2$306.1 million for the three months ended August 31, 2018. Operating income was positively impacted by higher sales and lower cost of sales as a percent to revenue for the three months ended August 31, 2019. Operating income was positively impacted by lower cost of sales as a percent of revenue and the decrease in selling and administrative expenses for the three months ended August 31, 2018 was negatively impacted by $4.9 million of integration expenses incurred in connection with the G&K acquisition. The after-tax effect of these integration expenses was a negative impact of $0.04 per share on diluted earnings per share.

2020.
Net interest expense (interest expense less interest income) was $24.5 million for the three months ended August 31, 2020, compared to $27.2 million for the three months ended August 31, 2019, compared2019. The decrease was primarily due to $23.8 millionthe decrease in total debt outstanding during the quarter.
Cintas’ effective tax rate was 7.8% and 10.1% for the three months ended August 31, 2018. The increase was primarily due to interest paid on commercial paper borrowings during the three months ended August 31, 2019.

Cintas’ effective tax rate for continuing operations was 10.1%2020 and 12.0% for the three months ended August 31, 2019, and 2018, respectively. The effective tax rate in both periods was impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation.

Net income from continuing operations for the three months ended August 31, 20192020 increased $38.3$49.2 million, or 18.0%19.6%, compared to the three months ended August 31, 2018.2019. Diluted earnings per share from continuing operations was $2.32were $2.78 for the three months ended August 31, 2019,2020, which was an increase of 22.8%19.8% compared to the same period in the prior fiscal year. Diluted earnings per share from continuing operations increased due to the increase in earnings from continuing operations.earnings.



Uniform Rental and Facility Services Reportable Operating Segment
Three Months Ended August 31, 20192020 Compared to Three Months Ended August 31, 20182019
 
Uniform Rental and Facility Services reportable operating segment revenue increaseddecreased from $1,374.9$1,454.5 million to $1,454.5$1,394.4 million, or 5.8%4.1%, for the three months ended August 31, 2019,2020, over the same period in the prior fiscal year, and the cost of uniform rental and facility services increased $22.2decreased $53.3 million, or 3.0%6.9%. Revenue increaseddeclined organically by 7.5%5.4%. The reportable operating segment’s gross margin was $685.9$679.0 million, or 47.2%48.7% of revenue. The gross margin was 150 basis points higher than the prior fiscal year’s first quarter gross margin of 45.7%47.2%. The increase in gross margin as a percent to revenue was driven by the increasecertain cost control measures such as reduced supplies, labor and energy costs that were partially offset by increases in revenue and continuous improvements in process efficiency.
material cost.
Selling and administrative expenses increased $24.7decreased $52.9 million and increaseddecreased as a percent of revenue to 28.7%26.1%, compared to 28.5%28.7% in the first quarter of the prior fiscal year. The increasedecrease as a percent of revenue was primarily due to higherdecreases in labor and employee-partner related expenses particularly medical expense, as a percent of revenue.
well as lower discretionary spending.
Income before income taxes increased $37.5$46.0 million, or 16.2%17.1%, for the Uniform Rental and Facility Services reportable operating segment for the three months ended August 31, 20192020, compared to the same period in the prior fiscal year. Income before income taxes was 18.5%22.6% of the reportable operating segment’s revenue, which was a 170410 basis point increase compared to the first quarter of the prior fiscal year of 16.8%18.5%. This increase was primarily due to the previously discussed increase in sales and gross margin and the elimination of G&K integrationdecrease in selling and administrative expenses.

First Aid and Safety Services Reportable Operating Segment
Three Months Ended August 31, 20192020 Compared to Three Months Ended August 31, 20182019

First Aid and Safety Services reportable operating segment revenue increased from $153.4$172.1 million to $172.1$204.5 million, or 12.2%18.8%, for the three months ended August 31, 20192020, over the same period in the prior fiscal year. Revenue also increased organically by 13.8% as a result of increased sales volume. Revenue growth17.1%. Total revenue was positively impacted by 0.1% due primarily to growth derived through acquisitions and was negatively impacted by 1.7%1.8% due to one lessmore workday in the three months ended August 31, 2019,2020 compared to the three months ended August 31, 2018.2019 and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations. Growth was driven by many factors including new business sold by sales representatives, penetration of additional products and services into existing customers and strong customer retention.

sales of personal protective equipment in response to the COVID-19 pandemic.
Cost of first aid and safety services increased $7.9$34.6 million, or 9.8%39.4%, for the three months ended August 31, 2019,2020, over the three months ended August 31, 2018,2019, due to higher sales volume. The gross margin as a percent of revenue was 49.0%40.2% for the quarter ended August 31, 2019, which was an increase of 110 basis points2020 compared to the gross margin as a percent of revenue of 47.9%49.0% in the same period of the prior fiscal year. The decrease was primarily driven by an increase was driven primarily by improved sourcing, leveragingin the proportion of existing warehouses and optimizationsales of delivery routes.personal protective equipment, which have lower margins, as a result of the impact of the COVID-19 pandemic.
21

Selling and administrative expenses increased $8.0$4.1 million, and increasedbut decreased as a percent of revenue to 34.6%31.1%, compared to 33.6%34.6% in the first quarter of the prior fiscal year. The increasedecrease in selling and administrative expenses as a percent of revenue was primarily due to higherrevenue growing at a faster pace than labor and employee-partner related expenses particularly medical expense, as a percent of revenue.

and discretionary spending.
Income before income taxes for the First Aid and Safety Services reportable operating segment increased $2.8decreased $6.2 million to $24.8$18.5 million for the three months ended August 31, 2019,2020, compared to the same period in the prior fiscal year, due to the previously discussed growth in revenue and improvement in the gross margin percentage.year. Income before income taxes at 14.4%was 9.1% of the reportable operating segment’s revenue was a 10 basis point increase compared to the samefirst quarter of the prior fiscal year of 14.4%. This decrease was primarily due to the reasons previously mentioned.discussed decrease in gross margin.



Liquidity and Capital Resources
The following is a summary of our cash flows and cash and cash equivalents as of and for the three months ended August 31, 2019 and 2018:31:
(In thousands)2019 2018
    
Net cash provided by operating activities$276,901
 $162,985
Net cash used in investing activities$(78,139) $(70,785)
Net cash used in financing activities$(193,607) $(112,508)
    
Cash and cash equivalents at the end of the period$102,131
 $118,356

(In thousands)20202019
Net cash provided by operating activities$312,292 $276,901 
Net cash used in investing activities$(39,942)$(78,139)
Net cash provided by (used in) financing activities$2,243 $(193,607)
Cash and cash equivalents at the end of the period$421,542 $102,131 

Cash and cash equivalents as of August 31, 20192020 and 20182019 include $25.4$36.3 million and $23.2$25.4 million, respectively, that is located outside of the United States.
Cash flows provided by operating activities have historically supplied us with a significant source of liquidity. We generally use these cash flows to fund most, if not all, of our operations and expansion activities and dividends on our common stock. We may also use cash flows provided by operating activities, as well as proceeds from long-term debt and short-term borrowings, to fund growth and expansion opportunities, as well as other cash requirements such as the repurchase of our common stock and payment of long-term debt.

The disruption from the COVID-19 pandemic continued to have a negative impact on Cintas' fiscal 2021 first quarter financial results, however, net cash flow provided by operating activities in the first quarter was not significantly impacted. At August 31, 2020, our short-term liquidity position remained solid, as our cash flows from operating activities are expected to remain sufficient to provide us with adequate levels of short-term liquidity. In addition, we have access to $1.0 billion of short-term debt from our revolving credit facility. However, our long-term liquidity position remains unclear due to the constantly changing scope and nature of the impacts of the COVID-19 pandemic. Accordingly, we have taken proactive measures to maintain financial flexibility within the landscape of the COVID-19 pandemic. We believe we have sufficient liquidity to operate in the current business environment as a result of these actions.
Net cash provided by operating activities was $276.9$312.3 million for the three months ended August 31, 2019,2020, an increase of $113.9$35.4 million compared to the three months ended August 31, 2018.2019. The increase was primarily the result of increased net income and favorable changes in working capital.income.

Net cash used in investing activities includes capital expenditures, purchases of marketable securities and investments and cash paid for acquisitions of businesses. Capital expenditures were $64.7$30.9 million and $64.5$64.7 million for the three months ended August 31, 20192020 and 2018,2019, respectively. Capital expenditures in fiscal 2020 primarily relate to expansion efforts in2021 included $20.9 million for the Uniform Rental and Facility Services reportable operating segment representing $53.0and $9.0 million offor the current fiscal year amount.First Aid and Safety Services reportable operating segment. Cash paid for acquisitions of businesses was $3.9$2.0 million and $7.6$3.9 million for the three months ended August 31, 2020 and 2019, respectively. The acquisitions during the three months ended August 31, 2020 occurred in our Uniform Rental and 2018, respectively.Facility Services reportable operating segment. The acquisitions during the three months ended August 31, 2019 occurred in our First Aid and Safety Services reportable operating segment and our Fire Protection business, which is included in All Other. Net cash used in investing activities also includes $9.4$4.9 million of investment purchases during the three months ended August 31, 2019 and net proceeds of $1.6$9.4 million from purchases and redemptions of marketable securities and investments during the three months ended August 31, 2018.2020 and 2019, respectively.
22

Net cash provided by financing activities was $2.2 million for the three months ended August 31, 2020, and net cash used in financing activities was $193.6 million and $112.5 million for the three months ended August 31, 2019 and2019. On October 30, 2018, respectively. On August 2, 2016, we announced that the Board of Directors authorized a $500.0 million$1.0 billion share buyback program, which does not have an expiration date. During the three months ended August 31, 2018, under the August 2, 2016 plan, we purchased a total of 0.4 million shares of Cintas common stock at an average price of $200.97 for a total purchase price of $78.5 million. We completed the August 2, 2016 buyback program in the second quarter of fiscal 2019. On October 30, 2018,29, 2019, we announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. DuringThe following table summarizes the buyback activity by program and for the three months ended August 31, 2019, under this new program, we purchased 0.8 million shares of Cintas common stock at an average price of $230.66 for a total purchase price of $193.1 million. 31:
20202019
Buyback Program
(In thousands except per share data)
SharesAvg. Price
per Share		Purchase
Price		SharesAvg. Price
per Share		Purchase
Price
October 30, 2018— $— $— 837 $230.66 $193,109 
October 29, 2019— $— $— — $— $— 
— $— $— 837 $230.66 $193,109 

There were no share buybacks in the period subsequent to August 31, 20192020, through October 8, 2019,9, 2020, under the October 30, 2018any share buyback program. From the inception of the October 30, 2018 share buyback planprogram through October 8, 2019,9, 2020, Cintas has purchased a total of 3.54.3 million shares of Cintas common stock at an average price of $209.82$219.42 for a total purchase price of $736.5$939.1 million. In addition, for the three months ended August 31, 2020, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the three months ended August 31, 2020. These shares were acquired at an average price of $300.01 per share for a total purchase price of $69.0 million. For the three months ended August 31, 2019, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes duedues on restricted stock awards that vested during the three months ended August 31, 2019. These shares were acquired at an average price of $260.83 per share for a total purchase price of $63.7 million.

During the three months ended August 31, 2019, Cintas issued $26.5 million, net of commercial paper borrowings.



The following table summarizes Cintas' outstanding debt:
(In thousands)
Interest
 Rate
 
Fiscal Year
Issued
 
Fiscal Year
 Maturity
 
August 31,
2019
 
May 31,
2019
(In thousands)Interest
Rate		Fiscal Year
Issued		Fiscal Year
Maturity		August 31,
2020		May 31,
2020
     
Debt due within one year     Debt due within one year
Commercial paper2.36%
(1) 
2020 2020 $139,000
 $112,500
Term loan2.88%
(1) 
2019 2020 200,000
 200,000
Senior notesSenior notes4.30 %20122022$250,000 $— 
Debt issuance costs  (224) (236)Debt issuance costs(192)— 
Total debt due within one year  $338,776
 $312,264
Total debt due within one year$249,808 $— 
     
Debt due after one year     Debt due after one year
Senior notes4.30% 2012 2022 $250,000
 $250,000
Senior notes4.30 %20122022$— $250,000 
Senior notes2.90% 2017 2022 650,000
 650,000
Senior notes2.90 %20172022650,000 650,000 
Senior notes3.25% 2013 2023 300,000
 300,000
Senior notes3.25 %20132023300,000 300,000 
Senior notes (2)(1)
2.78% 2013 2023 51,576
 51,684
2.78 %2013202351,141 51,250 
Senior notes (3)(2)
3.11% 2015 2025 51,889
 51,973
3.11 %2015202551,553 51,637 
Senior notes3.70% 2017 2027 1,000,000
 1,000,000
Senior notes3.70 %201720271,000,000 1,000,000 
Senior notes6.15% 2007 2037 250,000
 250,000
Senior notes6.15 %20072037250,000 250,000 
Debt issuance costs  (15,408) (16,150)Debt issuance costs(12,247)(13,182)
Total debt due after one year  $2,538,057
 $2,537,507
 Total debt due after one year$2,290,447 $2,539,705 
(1) Variable rate debt instrument. The rate presented is the variable borrowing rate at August 31, 2019.
(1)  (2)Cintas assumed these senior notes with the acquisition of G&K Services, Inc. (G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%.
(3)(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 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
23

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 23, 2024, and the maturity date of the term loan is May 23, 2020, which can be extended 12 months, annually, for up to four years.2024. As of August 31, 2019,2020 and May 31, 2020, there was $139.0 million ofno commercial paper outstanding and no borrowings on our revolving credit facility. As of May 31, 2019, there was $112.5 million of commercial paper outstanding and no borrowings on our revolving credit facility.

Cintas has certain covenants related to debt agreements. These covenants limit our 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 earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. As of August 31, 2019, Cintas was in compliance with all of the debt covenants.

covenants for all periods presented.
Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity.  We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. OurHowever, the COVID-19 pandemic, which has caused disruption in the capital markets, could make financing more difficult and/or expensive. Additionally, our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness. As of August 31, 2019,2020, our ratings were as follows:
Rating AgencyOutlookCommercial PaperLong-term Debt
Rating AgencyOutlookCommercial PaperLong-term Debt
Standard & Poor’sStableNegativeA-2A-
Moody’s Investors ServiceStableP-2A3


Standard and Poor's negative outlook reflects the inherent uncertainty regarding the spread of COVID-19 and the potential impact to Cintas’ operating conditions, which could result in Cintas being unable to maintain adjusted leverage of less than two times total debt to EBITDA.
In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected. In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above. The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.
To monitor our credit rating and our capacity for long-term financing, we consider various qualitative and quantitative factors. One such factor is the ratio of our total debt to EBITDA. For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and standby letters of credit. 
We have assessed the impact of events subsequent to our consolidated condensed balance sheet date but prior to the issuance of this filing. The impact from the COVID-19 pandemic, however, continues to evolve, and the scope and nature of the impacts of the COVID-19 pandemic remain unclear. As such, our conclusions regarding both our short-term and long-term obligations under capital leases. liquidity position remain unchanged. Management will continue to evaluate the Company’s liquidity position and our near- and longer-term financial performance as we manage the Company through the uncertainty related to the COVID-19 pandemic.

24

Financial and Nonfinancial Disclosure About Issuers and Guarantors of Cintas’ Senior Notes
Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $2,550.0 million aggregate principal amount of senior notes outstanding as of August 31, 2020, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly owned, direct and indirect domestic subsidiaries.

Basis of Preparation of the Summarized Financial Information
The following tables include summarized financial information of Cintas Corporation, Corp. 2 and subsidiary guarantors (together, the Obligor Group). Investments in and equity in the earnings of non-guarantors, which are not members of the Obligor Group, have been excluded. Non-guarantor subsidiaries are located outside the U.S., and therefore, excluded from the Obligor Group.

The summarized financial information of the Obligor Group is presented on a combined basis with intercompany balances and transactions between entities in the Obligor Group eliminated. The Obligor Group’s amounts due from, amounts due to and transactions with non-guarantors have been presented in separate line items, if they are material. Summarized financial information of the Obligor Group as of and for the three months ended August 31, 2020 is as follows:
Summarized Consolidated Statement of Income
(In thousands)
Obligor
Group
Net sales to unrelated parties$1,647,338 
Net sales to non-guarantors$831 
Operating income$338,962 
Net income$292,039 

Summarized Consolidated Balance Sheet
(In thousands)
Obligor
Group
ASSETS
Receivables due from non-obligor subsidiaries$2,950 
Total other current assets$2,485,529 
Total other noncurrent assets$4,935,408 
LIABILITIES
Amounts due to non-obligor subsidiaries$4,099 
Current liabilities$1,053,554 
Noncurrent liabilities$3,289,723 

25

Litigation and Other Contingencies
Cintas is subject to other legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, orconsolidated results of operationoperations or consolidated cash flows of Cintas. 

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements.  Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Quarterly Report. Factors that might cause such a difference include, but are not limited to, risks inherent with the G&K transaction in the achievement of cost synergies and the timing thereof, including whether the transaction will be accretive and within the expected timeframe and the actual amounts of future integration expenses; the possibility of greater than anticipated operating costs including energy and fuel costs; lower sales volumes; loss of customers due to outsourcing trends; the performance and costs of integration of acquisitions, including G&K;acquisitions; fluctuations in costs of materials and labor including increased medical costs; costs and possible effects of union organizing activities; failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety; the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks; uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation; the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002; the effect of new accounting pronouncements; costs of our SAP system implementation; disruptions caused by the inaccessibility of computer systems data, including cybersecurity risks; the initiation or outcome of litigation, investigations or other proceedings; higher assumed sourcing or distribution costs of products; the disruption of operations from catastrophic or extraordinary events;events including viral pandemics such as the COVID-19 coronavirus; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; and the reactions of competitors in terms of price and service. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 20192020 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us, or that we currently believe to be immaterial, may also harm our business.



26

ITEM 3.                           QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
In our normal operations, Cintas has market risk exposure to interest rates. There has been no material change to this market risk exposure to interest rates from that which was previously disclosed on page 3129 of our Annual Report on Form 10-K for the year ended May 31, 2019.2020.
 
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 currency denominated revenue and profit translated into U.S. dollars. The primary foreign currency to which Cintas is exposed is the Canadian dollar. 

 
ITEM 4.                             CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
With the participation of Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of August 31, 2019.2020.  Based on such evaluation, Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, has concluded that Cintas’ disclosure controls and procedures were effective as of August 31, 2019,2020, 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’sSecurities and Exchange Commission'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
Beginning June 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)." As a result, we implemented certain changes to our related internal control activities, including the development of new policies and periodic reviews of lease-related transactions and enhanced contract review requirements and other ongoing monitoring activities. There were no other 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 three months ended August 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, Cintas' internal control over financial reporting.





27

Part II.  Other Information
 
ITEM 1.                              LEGAL PROCEEDINGS

Cintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows of Cintas.


ITEM 1A.                             RISK FACTORS

The following disclosure modifies the discussion of certain risks and uncertainties previously disclosed in our Annual Report on Form 10-K for the year ended May 31, 2020. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our business or financial results. Additional risks and uncertainties that are not presently known to us or that we deem immaterial may also impact our business or financial results.

We rely extensively on computer systems, including third-party systems, to process transactions, maintain information and manage our businesses. Disruptions in the availability of computer systems due to implementation of a new system or otherwise, or privacy breaches involving computer systems, could impact our ability to service our customers and adversely affect our sales, consolidated results of operations and reputation and expose us to litigation risk.
Our businesses rely on various computer systems, including third-party systems, to provide customer information, process customer transactions and provide other general information necessary to manage our businesses. We have an active disaster recovery plan in place that is frequently reviewed and tested. However, our computer systems are subject to damage or interruption due to system conversions, such as our current conversion to SAP enterprise system, power outages, computer or telecommunication failures, catastrophic events such as fires, tornadoes and hurricanes and usage errors by our employees. Although we believe that we have adopted appropriate measures to mitigate potential risks to our technology and our operations from these information technology-related and other potential disruptions, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational delays and interruptions in our ability to provide products and services to our customers. Any disruption caused by the unavailability of our computer systems could adversely affect our sales, could require us to make a significant investment to fix or replace them and, therefore, could adversely affect our consolidated results of operations. In addition, cyber-security attacks are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data. If the network of security controls, policy enforcement mechanisms and monitoring systems to address these threats to our technology fails, or we are unable to successfully address security incidents, production downtimes, operational delays and interruptions in our ability to provide products and services to our customers, the compromising of confidential or otherwise protected Company, customer, or employee information, destruction or corruption of data, security breaches, or other manipulation or improper use of our systems and networks could result in financial losses from remedial actions, loss of business or potential liability and damage to our reputation or otherwise have a material impact on our business, operations or financial condition.

We also rely on software applications, enterprise cloud storage systems and cloud computing services provided by third-party vendors for certain information technology services, including our SAP enterprise system, payroll data, risk management data and lease data. If these third-party vendors, as well as our suppliers and other vendors, experience service interruptions or damage, security breaches, cyber-attacks, computer viruses, ransomware or other similar events or intrusions, our business and our consolidated results of operations may be adversely affected.
28

ITEM 2.                           UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS

Period
(In millions, except share and per share data)
Total number
of shares
purchased
 
Average
price paid
per share
 
Total number of
shares purchased
as part of the
publicly announced
plan (1)
 
Maximum
approximate dollar
value of shares that
may yet be
purchased under
the plan (1)
        
June 1 - 30, 2019 (2)
838,179
 $230.66
 837,205
 $263.5
July 1 - 31, 2019 (3)
177,328
 $261.67
 —
 $263.5
August 1 - 31, 2019 (4)
66,687
 $259.04
 —
 $263.5
Total1,082,194
 $237.49
 837,205
 $263.5

Period
(In millions, except share and per share data)
Total number
of shares
purchased		Average
price paid
per share
Total number of
shares purchased
as part of the
publicly announced
plan (1)
Maximum
approximate dollar
value of shares that
may yet be
purchased under
the plan (1)
June 1 - 30, 2020 (2)
17,744 $251.95 — $1,060.9 
July 1 - 31, 2020 (3)
167,822 $302.44 — $1,060.9 
August 1 - 31, 2020 (4)
44,391 $310.04 — $1,060.9 
Total229,957 $300.01 — $1,060.9 

(1)   On October 30, 2018, Cintas announced that the Board of Directors authorized a $1.0 billion share buyback program, which does not have an expiration date. From the inception of the October 30, 2018 share buyback program through August 31, 2019,2020, Cintas has purchased a total of 3.54.3 million shares of Cintas common stock at an average price of $209.82$219.42 per share for a total purchase price of $736.5$939.1 million. Additionally, on October 29, 2019, Cintas announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. Cintas has not made any purchases under the October 29, 2019 share buyback program through August 31, 2020.
(2)  During June 2019,2020, Cintas acquired 97417,744 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $229.51$251.95 per share for a total purchase price of $0.2$4.5 million.
(3)  During July 2019,2020, Cintas acquired 177,328167,822 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $261.67$302.44 per share for a total purchase price of $46.4$50.7 million.
(4)  During August 2019,2020, Cintas acquired 66,68744,391 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $259.04$310.04 per share for a total purchase price of $17.3$13.8 million.

29

ITEM 6.                                   EXHIBITS

101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


30

Signatures
 

Pursuant to the requirements 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.

 
CINTAS CORPORATION
(Registrant)
Date:October 9, 2020CINTAS CORPORATION/s/
(Registrant)
Date:October 8, 2019/s/J. Michael Hansen
J. Michael Hansen
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

36
31