Discontinued Operations

12 Months Ended

May 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

The results of Shred-it and Shredding are classified as discontinued operations for all periods presented as a result of entering into a definitive agreement during fiscal 2016 to sell the investment. During fiscal 2015, Cintas sold Storage and, as a result, its operations are also classified as discontinued operations for all periods presented. Shredding and Storage were previously included in the former Document Management Services reportable operating segment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented.

In fiscal 2014, Cintas completed the Shredding Transaction and realized a $106.4 million gain. The gain was computed as follows: the fair value of consideration received of $180.0 million plus the fair value of Cintas' retained non-controlling interest in Shred-it of $339.4 million less the carrying amount of Shredding of $413.0 million. As a result of the Shredding Transaction, the Company recorded an asset impairment charge of $16.1 million and other transaction costs of $28.5 million in fiscal 2014. The impairment charge was related to the abandonment of information systems assets that were not contributed to Shred-it and cannot be used by the Company for other purposes. The other transaction costs consisted of the following: $4.7 million of professional and legal fees; $0.7 million of employee termination benefit costs; $12.4 million of stock compensation expense resulting from the immediate vesting of Cintas stock options and awards of employees contributed to Shred-it; a $4.2 million charge for information systems contracts for which no future economic benefit exists; and $6.5 million of incremental profit sharing and employee compensation resulting from the gain, net of the impairment charge and other transaction costs. All of the impacts from the Shredding Transaction have been included in discontinued operations. For the fiscal year ended May 31, 2014, Cintas recorded a net gain on Shred-it of $1.2 million. Also, in conjunction with the partnership agreement, Cintas agreed to provide certain transition services such as information technology and accounting in support of Shred-it. The agreement expired in September 2015.

At May 31, 2015, the carrying value of Shred-it was $210.1 million. In May of fiscal 2015, the Company received a dividend on Shred-it of $113.4 million, which reduced the carrying value of the investment. As of May 31, 2015, Cintas’ carrying value of Shred-it exceeded its share of the underlying equity in the net assets of the Shred-it Partnership by approximately $94.0 million (basis difference). The remaining basis difference was to be amortized over the weighted average estimated useful lives of the underlying assets which generated the basis difference (approximately 9 years) and recorded as a reduction in the income (loss) on Shred-it, net of tax. Cintas recorded its share of the partnership's income on a one month lag. For the fiscal year ended May 31, 2015, Cintas recorded a net loss on Shred-it of $5.5 million, which included amortization of basis differences of approximately $11.0 million.

Cintas provides the following unaudited summary information regarding the Shred-it Partnership's financial position and results of operations as of and for the twelve months ended April 30, 2015:

Summary Balance Sheet Information	As of
(in thousands)	April 30, 2015
Assets
Current assets	$	150,792
Non-current assets	$	968,956
Liabilities
Current liabilities	$	73,971
Non-current liabilities	$	532,673

Summary Income Statement Information	For the 12 Months Ended
(in thousands)	April 30, 2015
Net sales	$	695,628
Gross profit	$	432,532
Net income	$	10,385

In fiscal 2015, Cintas received additional proceeds related to the Shred-it Transaction. The Company realized a $4.1 million gain, net of tax, as a result of the additional consideration received. During fiscal 2015, we also recorded a loss related to the Shred-it Transaction due to the settlement of an outstanding Shredding-related legal claim. The expense, net of tax, was $1.0 million.

In fiscal 2016, we completed the transaction to sell Shred-it. Cintas’ share of the proceeds from the sale were $578.3 million. During the fourth quarter of fiscal 2016, Cintas received additional proceeds and consideration related to the sale of Shred-it. The Company realized a pre-tax gain of $4.3 million as a result of the additional consideration received. At May 31, 2016, Cintas still has the opportunity to receive up to $30 million in additional consideration in the future, subject to certain holdback provisions. Because of the uncertainty surrounding the holdback provisions, this amount represents a gain contingency that has not been recorded. During the fiscal year ended May 31, 2016, Cintas recorded a net loss on Shred-it of $24.3 million, which included amortization of basis differences of approximately $4.8 million. After the sale Shred-it, the basis difference no longer exists and Cintas no longer records income or loss from Shred-it.

In fiscal 2015, Cintas sold Storage, excluding certain real estate owned by Cintas, in three separate transactions to three separate buyers. Certain real estate assets and related liabilities were not included in the Storage transactions in 2015 and were classified as held for sale as of May 31, 2015. This real estate was leased by a buyer of part of Storage. These lease payments did not represent a material direct cash flow of the disposed Storage business, and therefore, do not impact the classification of the Storage business as a discontinued operation. For the fiscal year ended May 31, 2015, cash proceeds received at the closing of each transaction or upon the settlement of contingencies totaled $158.4 million, net of cash contributed. Each transaction involved contingent consideration, and the Company had opportunities to receive additional proceeds if specified future events occurred. Because of the uncertainty surrounding the future events, these amounts represented gain contingencies and were not recorded until realized. During fiscal 2016, Cintas received additional proceeds on the sale of Storage related to the contingent consideration and realized a pre-tax gain of $10.9 million. During fiscal 2016, Cintas also sold the remaining Storage assets classified as held for sale. Cintas received proceeds of $24.4 million from the sale of these assets and realized a pretax gain of $4.8 million.

Following is selected financial information included in net income from discontinued operations for the Shredding and Storage businesses:

(In thousands)	2016			2015(1)			2014(1)
Revenue	$	—		$	31,379		$	357,967
Income (loss) before income taxes, excluding gains (losses) from sale transactions and investments	434			(3,515		)	6,913
Gain on Storage transactions	15,786			38,573			—
(Loss) gain on Shred-it (1)	(24,288		)	(3,851		)	63,817
Gain on sale of Shred-it	378,359			—			—
Income tax expense	(133,712		)	(11,110		)	(34,060		)
Net income from discontinued operations	$	236,579		$	20,097		$	36,670

⁽¹⁾ Results for the fiscal years ended May 31, 2015 and 2014 related to Shred-it and Shredding were previously presented in continuing operations and were reclassified to discontinued operations as previously discussed.