CINTAS CORPORATION Business Strategy
Cintas helps more than one million businesses of all types and sizes, primarily inthe United States (U.S. ), as well asCanada andLatin America , get 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, mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety training, Cintas helps customers get Ready for the Workday®. We areNorth 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, 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 market 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 market 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. 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 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 the Uniform Direct Sale 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. Cintas evaluates operating segment performance based on revenue and income before income taxes. Revenue and income before income taxes for the three and six months endedNovember 30, 2022 and 2021, for the two reportable operating segments and All Other are presented in Note 12 entitled Segment Information of "Notes to Consolidated Condensed Financial Statements."
Consolidated Results
Three Months Ended
Total revenue increased 13.1% to$2,174.9 million for the three months endedNovember 30, 2022 , compared to$1,922.3 million for the three months endedNovember 30, 2021 . The organic revenue growth rate, which adjusts for the impact of acquisitions, divestitures and foreign currency exchange rate fluctuations, was 12.8%. Revenue growth was positively impacted by 0.7% due primarily to acquisitions and negatively impacted by 0.4% due to foreign currency exchange rate fluctuations. 23
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Uniform Rental and Facility Services reportable operating segment revenue was$1,710.0 million for the three months endedNovember 30, 2022 , compared to$1,535.3 million for the same period in the prior fiscal year, which was an increase of 11.4%. The organic revenue growth rate for this reportable operating segment was 11.3%. Revenue growth in the Uniform Rental and Facility Services reportable operating segment was positively impacted by 0.6% due to acquisitions and negatively impacted by 0.5% due to foreign currency exchange rate fluctuations. Revenue growth was a result of new business, the penetration of additional products and services into existing customers and price increases, partially offset by lost business. New business growth resulted from an increase in the number and productivity of sales representatives. Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 20.1% for the three months endedNovember 30, 2022 , compared to the same period in the prior fiscal year, from$387.0 million to$464.9 million . The organic revenue growth rate for other revenue was 19.0%. Revenue growth was positively impacted by 1.3% due primarily to acquisitions and negatively impacted by 0.2% due to foreign currency exchange rate fluctuations. 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$89.5 million , or 10.9%, for the three months endedNovember 30, 2022 , compared to the three months endedNovember 30, 2021 . This change from the same period in the prior fiscal year was primarily due to higher Uniform Rental and Facility Services reportable operating segment sales volume, as well as increased energy costs and investments in material cost to support increased revenue growth achieved during the three months endedNovember 30, 2022 . 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$25.8 million , or 11.7%, for the three months endedNovember 30, 2022 , compared to the three months endedNovember 30, 2021 , primarily due to increased sales volume in each of the underlying operating segments. Cost of other improved as a percentage of revenue, decreasing from 56.8% for three months endedNovember 30, 2021 to 52.8% for the three months endedNovember 30, 2022 . The improvement in cost of sales as a percent to revenue was primarily due to favorable changes in the sales mix in the First Aid and Safety Services reportable operating segment as well as improved leverage of fixed costs for both the First Aid and Safety Services reportable operating segment and All Other. Selling and administrative expenses increased$73.6 million , or 14.6%, in the three months endedNovember 30, 2022 , compared to the same period of the prior fiscal year. The increase was primarily due to increases in labor and other employee-partner expenses. Selling and administrative expenses as a percent of revenue were 26.6% for the three months endedNovember 30, 2022 , compared to 26.2% for the same period in the prior fiscal year. Selling and administrative expenses increased as a percent to revenue due to employee-partner related expenses, including medical expenses, increasing at a faster rate than revenue growth in the three months endedNovember 30, 2022 . Operating income was$444.9 million , or 20.5% of revenue, for the three months endedNovember 30, 2022 , compared to$381.2 million , or 19.8% of revenue, for the three months endedNovember 30, 2021 . The increase in operating income as a percent of revenue was due to previously mentioned improvements in cost of sales slightly offset by the increase in selling and administrative expenses as a percent of revenue. Net interest expense (interest expense less interest income) was$28.6 million for the three months endedNovember 30, 2022 , compared to$21.8 million for the three months endedNovember 30, 2021 . The change was primarily due to an increase in interest rates on commercial paper and an increase in outstanding commercial paper during the three months endedNovember 30, 2022 compared to the three months endedNovember 30, 2021 . Cintas' effective tax rate was 22.1% and 18.0% for the three months endedNovember 30, 2022 and 2021, 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 for the three months endedNovember 30, 2022 , increased$29.6 million , or 10.1%, compared to the three months endedNovember 30, 2021 . Diluted earnings per share were$3.12 for the three months endedNovember 30, 2022 , which was an increase of 13.0% compared to the same period in the prior fiscal year. Diluted earnings per share increased primarily due to the increase in net income combined with the decrease in diluted 24
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weighted average common shares outstanding. The decrease in diluted weighted average common shares outstanding resulted from purchasing an aggregate of approximately 2.7 million shares of common stock under the board approved share buyback programs since the beginning of the third quarter of fiscal 2022 through the second quarter of fiscal 2023.
Uniform Rental and Facility Services Reportable Operating Segment
Three Months Ended
Uniform Rental and Facility Services reportable operating segment revenue was$1,710.0 million for the three months endedNovember 30, 2022 compared to$1,535.3 million for the same period of the prior fiscal year. The organic revenue growth rate for the reportable operating segment was 11.3%. The cost of uniform rental and facility services increased$89.5 million , or 10.9%. The reportable operating segment's gross margin was$803.3 million . Gross margin as a percentage of revenue was 47.0% for the three months endedNovember 30, 2022 and 46.8% for the three months endedNovember 30, 2021 . The improvement in gross margin was the result of efficiencies in labor and improved leverage of fixed costs, partially offset by investments in material cost to support increased revenue growth and a 20 basis point increase in energy costs. Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased$53.8 million in the three months endedNovember 30, 2022 compared to the same period of the prior fiscal year. Selling and administrative expenses as a percent of revenue for the three months endedNovember 30, 2022 was 25.4% compared to the 24.8% in the second quarter of the prior fiscal year. The change as a percent of revenue was primarily due to higher employee-partner related expenses, including medical expenses, in the three months endedNovember 30, 2022 . Income before income taxes increased$31.5 million , or 9.3%, for the Uniform Rental and Facility Services reportable operating segment for the three months endedNovember 30, 2022 , compared to the same period in the prior fiscal year. Income before income taxes was 21.6% of the reportable operating segment's revenue, which was a 40 basis point decrease from the second quarter of the prior fiscal year of 22.0%. This decrease as a percent of revenue was primarily due to the previously discussed increase in selling and administrative expenses partially offset by the improvements in gross margin.
First Aid and Safety Services Reportable Operating Segment
Three Months Ended
First Aid and Safety Services reportable operating segment revenue increased from$202.2 million to$236.0 million , or 16.7%, for the three months endedNovember 30, 2022 , over the same period in the prior fiscal year. The organic revenue growth rate for the reportable operating segment was 15.1%. First Aid and Safety Services reportable operating segment revenue was positively impacted by 1.9% due to acquisitions and negatively impacted by 0.3% due to foreign currency exchange rate fluctuations. The increase in revenue was driven by many factors including new business sold by sales representatives, penetration of additional products and services into existing customers, price increases and strong customer retention. Cost of first aid and safety services increased$2.7 million , or 2.4%, for the three months endedNovember 30, 2022 , over the three months endedNovember 30, 2021 , due to higher sales volume. The gross margin as a percent of revenue was 50.5% for the quarter endedNovember 30, 2022 , compared to the gross margin as a percent of revenue of 43.5% in the same period of the prior fiscal year. The improvement in gross margin from the second quarter of the prior fiscal year was primarily driven by favorable changes in the sales mix as well as improved leverage of fixed costs. Selling and administrative expenses increased$7.7 million in the three months endedNovember 30, 2022 , compared to the same period of the prior fiscal year. Selling and administrative expenses as a percent of revenue for the three months endedNovember 30, 2022 were 31.2%, compared to 32.6% in the second quarter of the prior fiscal year. The improvement as a percent of revenue from the same period in the prior fiscal year was primarily due to a decrease in bad debt expense and efficiencies realized in selling and administrative labor expenses. 25
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Income before income taxes for the First Aid and Safety Services reportable operating segment increased$23.4 million to$45.5 million for the three months endedNovember 30, 2022 , compared to the same period in the prior fiscal year. Income before income taxes was 19.3% of the reportable operating segment's revenue compared to the second quarter of the prior fiscal year of 10.9%. The increase in income before income taxes was due to the previously discussed improvements in gross margin and selling and administrative expenses.
Consolidated Results
Six Months Ended
Total revenue increased 13.7% to$4,341.3 million for the six months endedNovember 30, 2022 , compared to$3,819.2 million for the six months endedNovember 30, 2021 . Total organic revenue growth was 13.4%. Organic growth adjusts for the impact of acquisitions, divestitures and foreign currency exchange rate fluctuations. Revenue growth was positively impacted by a net 0.6% due primarily to acquisitions and negatively impacted by 0.3% due to foreign currency exchange rate fluctuations. Uniform Rental and Facility Services reportable operating segment revenue was$3,407.8 million for the six months endedNovember 30, 2022 , compared to$3,043.4 million in the same period of the prior fiscal year, which was an increase of 12.0%. Organic revenue growth for this reportable operating segment was 11.8%. Uniform Rental and Facility Services reportable operating segment revenue was positively impacted by 0.6% due to acquisitions and negatively impacted by 0.4% due to foreign currency exchange rate fluctuations. Revenue growth was a result of new business, the penetration of additional products and services into existing customers and price increases, partially offset by lost business. New business growth resulted from an increase in the number and productivity of sales representatives. Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, was$933.6 million for the six months endedNovember 30, 2022 , compared to$775.8 million for the six months endedNovember 30, 2021 , which was an increase of 20.3%. Other revenue organic growth was 19.8%. Revenue growth was positively impacted by a net 0.7% due primarily to acquisitions and negatively impacted by 0.2% due to foreign currency exchange rate fluctuations. 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$200.9 million , or 12.6%, for the six months endedNovember 30, 2022 , compared to the six months endedNovember 30, 2021 . This increase over the same period of the prior fiscal year was due to higher Uniform Rental and Facility Services reportable operating segment sales volume, as well as a 30 basis point increase in energy costs. Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, personal protective equipment, uniforms, and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other increased$58.5 million , or 13.5%, for the six months endedNovember 30, 2022 , compared to the six months endedNovember 30, 2021 . Cost of other improved as a percentage of revenue, decreasing from 56.0% for six months endedNovember 30, 2021 to 52.8% for the six months endedNovember 30, 2022 . The improvement in cost of sales as a percent to revenue was primarily due to favorable changes in the sales mix in the First Aid and Safety Services reportable operating segment as well as improved leverage of fixed costs for both the First Aid and Safety Services reportable operating segment and All Other. Selling and administrative expenses increased$152.9 million , or 15.1%, for the six months endedNovember 30, 2022 , compared to the same period in the prior fiscal year. Selling and administrative expenses as a percent to revenue were 26.8% for the six months endedNovember 30, 2022 , compared to 26.5% for the same period of the prior fiscal year. The change as a percent of revenue is primarily due to the$12.1 million gain on the sale of certain operating assets recorded within the Uniform Direct Sales operating segment as a reduction of selling and administrative expenses in the six months endedNovember 30, 2021 . Operating income was$885.1 million , or 20.4% of revenue, for the six months endedNovember 30, 2022 , compared to$775.3 million , or 20.3% of revenue, for the six months endedNovember 30, 2021 . The improvement in operating income as a percent of revenue was due to the improvements in gross margin for both the First Aid and Safety Services reportable operating segment and All Other, noted above. 26
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Net interest expense (interest expense less interest income) was$56.1 million for the six months endedNovember 30, 2022 , compared to$43.6 million for the six months endedNovember 30, 2021 . The change was primarily due to an increase in interest rates on commercial paper and an increase in outstanding commercial paper during the six months endedNovember 30, 2022 . Cintas' effective tax rate was 18.4% and 14.5% for the six months endedNovember 30, 2022 and 2021, respectively. The effective tax rate in both periods was impacted by certain discrete items, primarily the tax accounting for stock-based compensation. Net income for the six months endedNovember 30, 2022 , increased$50.1 million , or 8.0%, compared to the six months endedNovember 30, 2021 . Diluted earnings per share was$6.51 for the six months endedNovember 30, 2022 , which was an increase of 10.9% compared to the same period in the prior fiscal year. Diluted earnings per share increased due to the increase in net income combined with the decrease in diluted weighted average common shares outstanding. The decrease in diluted weighted average common shares outstanding resulted from purchasing an aggregate of approximately 2.7 million shares of common stock under the board approved share buyback programs since the beginning of the third quarter of fiscal 2022 through the second quarter of fiscal 2023.
Uniform Rental and Facility Services Reportable Operating Segment
Six Months Ended
Uniform Rental and Facility Services reportable operating segment revenue increased 12.0% to$3,407.8 million for the six months endedNovember 30, 2022 , compared to$3,043.4 million for the same period of the prior fiscal year. Organic revenue growth for this reportable operating segment was 11.8%. The cost of uniform rental and facility services increased$200.9 million , or 12.6%, for the six months endedNovember 30, 2022 over the same period in the prior fiscal year. The reportable operating segment's gross margin was$1,610.3 million , or 47.3% of revenue, for the six months endedNovember 30, 2022 , compared to the gross margin of 47.5% for the six months endedNovember 30, 2021 . The change in gross margin was primarily due to a 30 basis point increase in energy costs in the current year. Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased$96.5 million , increasing as a percent to revenue for the six months endedNovember 30, 2022 to 25.7%, compared to 25.6% for the same period of the prior fiscal year. The increase was primarily due to higher employee-partner related expenses, including medical expenses. Income before income taxes increased$66.9 million , or 10.0%, for the Uniform Rental and Facility Services reportable operating segment for the six months endedNovember 30, 2022 , compared to the same period in the prior fiscal year. Income before income taxes was 21.5% of the reportable operating segment's revenue, compared to 21.9% for the six months endedNovember 30, 2021 . The change in percent to revenue is due to the reasons previously discussed.
First Aid and Safety Services Reportable Operating Segment
Six Months Ended
First Aid and Safety Services reportable operating segment revenue increased from$401.3 million to$470.1 million , or 17.2%, for the six months endedNovember 30, 2022 , over the same period in the prior fiscal year. Organic revenue growth for this reportable operating segment was 15.4%. First Aid and Safety Services reportable operating segment revenue was positively impacted by 1.9% due to acquisitions and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations. Increases in new business sold by sales representatives, penetration of additional products and services into existing customers and strong customer retention. Cost of first aid and safety services increased$10.9 million , or 4.9%, for the six months endedNovember 30, 2022 , from the six months endedNovember 30, 2021 , due to higher sales volume. The gross margin as a percent of revenue was 50.0% for the six months endedNovember 30, 2022 , which was an increase of 580 basis points compared to the gross margin as a percent of revenue of 44.2% in the same period of the prior fiscal year. The change in gross margin from the first half of the prior fiscal year was primarily driven by favorable changes in the sales mix as well as improved leverage of fixed costs. 27
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Selling and administrative expenses increased$19.4 million , but decreased as a percent of revenue to 31.7%, for the six months endedNovember 30, 2022 , compared to 32.3% for the six months endedNovember 30, 2021 . The decrease in expenses as a percent of revenue was primarily due efficiencies realized in selling and administrative labor expenses. Income before income taxes for the First Aid and Safety Services reportable operating segment was$86.3 million for the six months endedNovember 30, 2022 , compared to$47.8 million for the same period in the prior fiscal year. Income before income taxes, at 18.4% of the reportable operating segment's revenue, increased 650 basis points compared to the same period of the prior fiscal year due to the improvements in both gross margin and selling and administrative expenses.
Liquidity and Capital Resources
The following is a summary of our cash flows and cash and cash equivalents as of
and for the six months ended
(In thousands) 2022
2021
Net cash provided by operating activities$ 619,149 $
593,782
Net cash used in investing activities$ (171,424) $
(151,595)
Net cash used in financing activities$ (446,368) $
(819,876)
Cash and cash equivalents at the end of the period
Cash and cash equivalents as of
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. We expect our cash flows from operating activities to remain sufficient to provide us with adequate levels of liquidity. In addition, we have access to$2.0 billion of debt capacity from our amended and restated revolving credit facility. We believe the Company has sufficient liquidity to operate in the current business environment for at least the next 12 months and the foreseeable future thereafter. Acquisitions, repurchases of our common stock and dividends remain strategic objectives, but they will be dependent on the economic outlook and liquidity of the Company. Net cash provided by operating activities was$619.1 million for the six months endedNovember 30, 2022 , compared to$593.8 million for the six months endedNovember 30, 2021 . The change from the prior fiscal year was primarily due to an increase in net income and favorable changes in working capital, specifically accounts payable and current income taxes, which was partially offset by unfavorable changes in working capital, specifically, accounts receivable and inventories, net which resulted from the growth in revenue. Net cash used in investing activities includes capital expenditures, purchases of investments, proceeds from sale of operating assets and cash paid for acquisitions of businesses. Capital expenditures were$146.4 million and$108.6 million for the six months endedNovember 30, 2022 and 2021, respectively. Capital expenditures in the six months endedNovember 30, 2022 , included$105.7 million for the Uniform Rental and Facility Services reportable operating segment and$28.0 million for the First Aid and Safety Services reportable operating segment. The increase in capital expenditures during the six months endedNovember 30, 2022 over the same period in the prior fiscal year is due to an investment in the operating segments to support continued market penetration and revenue growth. Cash paid for acquisitions of businesses was$15.5 million and$45.7 million for the six months endedNovember 30, 2022 and 2021, respectively. The acquisitions during both the six months endedNovember 30, 2022 and 2021, occurred in our Uniform Rental and Facility Services reportable operating segment, our First Aid and Safety Services reportable operating segment and our Fire Protection operating segment, which is included in All Other. During the six months endedNovember 30, 2021 , the Company received proceeds of$15.3 million from the sale of certain operating assets, net of cash disposed in the Uniform Direct Sales operating segment, which is included in All Other. 28
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Net cash used in investing activities also includes
Net cash used in financing activities was$446.4 million and$819.9 million for the six months endedNovember 30, 2022 and 2021, respectively. The decrease in cash used in financing activities was primarily due to the decrease in share buyback activity and debt payments partially offset by the increase in dividends paid in the six months endedNovember 30, 2022 . OnOctober 29, 2019 , we announced that the Board of Directors authorized a$1.0 billion share buyback program, which was completed during the first quarter of fiscal 2022. OnJuly 27, 2021 , Cintas announced that the Board of Directors authorized a$1.5 billion share buyback program, which does not have an expiration date. From the inception of theJuly 27, 2021 share buyback program throughNovember 30, 2022 , Cintas purchased a total of 2.7 million shares of Cintas common stock at an average price of$385.62 per share for a total purchase price of$1.0 billion . OnJuly 26, 2022 , Cintas announced that the Board of Directors authorized a new$1.0 billion share buyback program, which does not have an expiration date. The following table summarizes the buyback activity by program for the six months endedNovember 30 : 2022 2021 Buyback Activity (In thousands except per Avg. Price Purchase Avg. Price Purchase share data) Shares per Share Price Shares per Share Price October 29, 2019 - $ - $ - 1,590$ 365.41 $ 581,220 July 27, 2021 544 395.97 215,434 - - - July 26, 2022 - - - - - - 544$ 395.97 $ 215,434 1,590$ 365.41 $ 581,220 Shares acquired for taxes due (1) 326$ 408.97 $ 133,248 211$ 395.84 $ 83,506 Total repurchase of Cintas common stock$ 348,682 $ 664,726
(1) Shares of Cintas common stock acquired for employee payroll taxes due on options exercised and vested restricted stock awards.
Our Board of Directors declared the following dividends:
Paid Dividends Declaration Date (In millions except per share Record Payment Dividend Total data) Date Date Per Share Amount Six months endedNovember 30, 2022 April 12, 2022 May 16, 2022 June 15, 2022$ 0.95 $ 97.7 July 26, 2022 August 15, 2022 September 15, 2022 1.15 117.3$ 2.10 $ 215.0 Six months endedNovember 30, 2021 April 13, 2021 May 15, 2021 June 15, 2021$ 0.75 $ 79.1 July 27, 2021 August 13, 2021 September 15, 2021 0.95 98.8$ 1.70 $ 177.9 Accrued Dividends As ofNovember 30, 2022 October 25, 2022 (1) November 15, 2022 December 15, 2022$ 1.15 $ 117.4 As ofNovember 30, 2021 October 26, 2021 (1) November 15, 2021 December 15, 2021$ 0.95 $ 99.1 (1) The dividends declared during the three months endedNovember 30, 2022 and 2021 were included in current accrued liabilities on the consolidated condensed balance sheet atNovember 30, 2022 and 2021. 29
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Any future dividend declarations, including the amount of any dividends, are at the discretion of the Board of Directors and dependent upon then-existing conditions, including the Company's consolidated operating results and consolidated financial condition, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors may deem relevant. During the six months endedNovember 30, 2022 and 2021, Cintas issued a net$124.0 million and$167.0 million of commercial paper, respectively. OnJune 1, 2021 , in accordance with the terms of the notes, Cintas paid the$250.0 million aggregate principal amount of its 4.30%, 10-year senior notes that matured on that date with cash on hand. The following table summarizes Cintas' outstanding debt: Interest Fiscal Year Fiscal Year November 30, May 31, (In thousands) Rate Issued Maturity 2022 2022 Debt due within one year Commercial paper 4.30 % (1) 2023 2023$ 385,246 $ 261,200 Senior notes (2) 2.78 % 2013 2023 50,163 50,380 Debt issuance costs (3) (6) Total debt due within one year$ 435,406 $ 311,574 Debt due after one year Senior notes (3) 3.11 % 2015 2025$ 50,798 $ 50,965 Senior notes 3.45 % 2022 2025 400,000 400,000 Senior notes 3.70 % 2017 2027 1,000,000 1,000,000 Senior notes 4.00 % 2022 2032 800,000 800,000 Senior notes 6.15 % 2007 2037 250,000 250,000 Debt issuance costs (15,521) (17,033) Total debt due after one year$ 2,485,277 $ 2,483,932
(1) Variable rate debt instrument. The rate presented is the variable borrowing
rate at
(2) Cintas assumed these senior notes with the acquisition ofG&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%. The credit agreement that supports our commercial paper program has a revolving credit facility with a capacity of$2.0 billion . The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under the revolving credit facility of up to$500.0 million in the aggregate, subject to customary conditions. The maturity date of the revolving credit facility isMarch 23, 2027 . As ofNovember 30, 2022 , there was$385.2 million of commercial paper outstanding with a weighted average interest rate of 4.30% and maturity dates less than 120 days and no borrowings on our revolving credit facility. As ofMay 31, 2022 , there was$261.2 million of commercial paper outstanding with a weighted average interest rate of 1.20% and maturity dates less than 120 days 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. Cintas was in compliance with all of the debt covenants for all periods presented. Our access to the commercial paper and long-term debt markets has historically provided us with sources of 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. 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 30
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degree, on the ratings assigned by the credit rating agencies to our
indebtedness. As of
Commercial Long-term
Rating Agency Outlook Paper Debt
Standard & Poor's Stable A-2 A-
Moody's Investors Service Stable P-2 A3
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,
long-term debt and standby letters of credit.
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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 ofCintas. Corp. 2 is the issuer of the$2,550.0 million aggregate principal amount of senior notes outstanding as ofNovember 30, 2022 , which are unconditionally guaranteed, jointly and severally, byCintas Corporation and its wholly owned, direct and indirect domestic subsidiaries.
Basis of Preparation of the Summarized Financial Information
The following tables include summarized financial information ofCintas Corporation (Issuer), Corp. 2 and subsidiary guarantors (together, theObligor Group ). Investments in and equity in the earnings of non-guarantors, which are not members of theObligor Group , have been excluded. Non-guarantor subsidiaries are located outside theU.S. , and therefore, excluded from theObligor Group . The summarized financial information of theObligor Group is presented on a combined basis with intercompany balances and transactions between entities in theObligor Group eliminated.The Obligor Group's amounts due from, amounts due to and transactions with non-guarantors have been presented in separate line items, if they are material. Summarized financial information of theObligor Group is as follows: Six Months Ended Summarized Consolidated Condensed Statement of Income November 30, November 30, (In thousands) 2022
2021
Net sales to unrelated parties$ 4,105,128 $ 3,599,543 Net sales to non-guarantors$ 7,227 $ 3,242 Operating income$ 861,404 $ 749,944 Net income$ 658,665 $ 607,272
Summarized Consolidated Condensed Balance Sheets
2022 2022
ASSETS
Receivables due from non-obligor subsidiaries
11,759 Total other current assets$ 2,696,839 $ 2,427,494 Total other noncurrent assets$ 5,130,643 $ 5,081,265 LIABILITIES Amounts due to non-obligor subsidiaries$ 836 $ 11,383 Current liabilities$ 1,521,610 $ 1,388,310 Noncurrent liabilities$ 3,386,322 $ 3,346,851 32
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Litigation and Other Contingencies
Cintas is subject to legal proceedings, insurance receipts, legal settlements
and claims arising from the ordinary course of its business, including personal
injury, customer contract, environmental and employment claims. In the opinion
of management, the aggregate liability, if any, with respect to such ordinary
course of business actions will not have a material adverse effect on the
consolidated financial position, consolidated results of operations or
consolidated cash flows of Cintas. Cintas is also party to additional litigation
not considered in the ordinary course of business. See Note 13 entitled
Litigation and Other Contingencies of "Notes to Consolidated Condensed Financial
Statements" for a detailed discussion of such additional litigation.
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, 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;
inflationary pressures and fluctuations in costs of materials and labor,
including increased medical costs; interest rate volatility; 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; our ability to
meet our goals relating to environmental, social and governance (ESG)
opportunities, improvements and efficiencies; the cost, results and ongoing
assessment of internal controls for financial reporting; the effect of new
accounting pronouncements; 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 including global health 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, 2022 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.
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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 30 of our Annual
Report on Form 10-K for the year ended
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
ITEM 4.
CONTROLS AND PROCEDURESDisclosure Controls and Procedures
With the participation of Cintas' management, including Cintas' President and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as ofNovember 30, 2022 . Based on such evaluation, Cintas' management, including Cintas' President and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, has concluded that Cintas' disclosure controls and procedures were effective as ofNovember 30, 2022 , 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 theSecurities 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
There were no changes in Cintas' internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter endedNovember 30, 2022 , that have materially affected, or are reasonably likely to materially affect, Cintas' internal control over financial reporting. 34
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