Discontinued Operations

At May 31, 2017, Cintas has classified a significant business, referred to as Discontinued Services, as held for sale. Prior to meeting the held for sale criteria, Discontinued Services was primarily included in All Other. Additionally, 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 Discontinued Services, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented.

At May 31, 2015, the carrying value of Shred-it was $210.1 million. In the fourth quarter of fiscal 2015, the Company received a dividend from 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. In conjunction with the Shred-it 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.

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



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. 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 of Shred-it, the basis differences no longer exist and Cintas no longer records income or loss from Shred-it.

In fiscal 2017, we received additional proceeds related to the sale of Shred-it. Cintas realized a pre-tax gain of $25.5 million as a result of the additional consideration received. Cintas still has the opportunity to receive additional consideration, subject to certain holdback provisions. Because of the uncertainty surrounding the holdback provisions, this opportunity represents a gain contingency that has not been recorded as of May 31, 2017.

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. In fiscal 2017, Cintas received additional proceeds related to the sale of Storage and recorded a pre-tax gain of $2.4 million.

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



(In thousands)	2017			2016⁽¹⁾			2015⁽¹⁾

Revenue	$	105,559		$	109,686		$	138,584

Income before income taxes, excluding gains (losses) from sale transactions and investments	10,622			13,242			9,253

Gain on Storage transactions	2,400			15,786			38,573
Gain (loss) on Shred-it	25,457			354,071			(3,851		)
Income tax expense	(15,057		)	(138,184		)	(15,910		)
Net income from discontinued operations	$	23,422		$	244,915		$	28,065

⁽¹⁾ Results for the fiscal years ended May 31, 2016 and 2015 related to Discontinued Services were previously presented in continuing operations and were reclassified to discontinued operations as previously discussed.