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, 2022

 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

Cintas Corporation

(Exact name of registrant as specified in its charter)

Washington	31-1188630
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

6800 Cintas Boulevard
P.O. Box 625737
Cincinnati,	Ohio	45262-5737
(Address of Principal Executive Offices)		(Zip Code)

Registrant's Telephone Number, Including Area Code: (513) 459-1200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, no par value	CTAS	The 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.

Class	Outstanding September 30, 2022
Common Stock, no par value	101,545,323

CINTAS CORPORATION

TABLE OF CONTENTS

		Page
Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Condensed Statements of Income – Three Months Ended August 31, 2022 and 2021	3
	Consolidated Condensed Statements of Comprehensive Income – Three Months Ended August 31, 2022 and 2021	4
	Consolidated Condensed Balance Sheets – August 31, 2022 and May 31, 2022	5
	Consolidated Condensed Statements of Shareholders' Equity - Three Months Ended August 31, 2022 and 2021	6
	Consolidated Condensed Statements of Cash Flows – Three Months Ended August 31, 2022 and 2021	7
	Notes to Consolidated Condensed Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II. Other Information
Item 1.	Legal Proceedings	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	32
Signatures		33

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, 2022		August 31, 2021
Revenue:
Uniform rental and facility services	$	1,697,772	$	1,508,176
Other	468,682		388,774
Total revenue	2,166,454		1,896,950
Costs and expenses:
Cost of uniform rental and facility services	890,766		779,301
Cost of other	247,576		214,893
Selling and administrative expenses	587,992		508,655
Operating income	440,120		394,101
Interest income	(155)		(56)
Interest expense	27,720		21,854
Income before income taxes	412,555		372,303
Income taxes	60,866		41,124
Net income	$	351,689	$	331,179
Basic earnings per share	$	3.45	$	3.19
Diluted earnings per share	$	3.39	$	3.11
Dividends declared per share	$	1.15	$	0.95

See accompanying notes.

3

CINTAS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended
	August 31, 2022		August 31, 2021
Net income	$	351,689	$	331,179
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(19,206)		(24,016)
Change in fair value of interest rate lock agreements, net of tax    expense (benefit) of $320 and $(12,554), respectively	934		(36,679)
Amortization of interest rate lock agreements, net of tax expense    of $512 and $148, respectively	(1,521)		(459)
Other comprehensive loss, net of tax expense (benefit)    of $832 and $(12,406), respectively	(19,793)		(61,154)
Comprehensive income	$	331,896	$	270,025

See accompanying notes.

4

CINTAS CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands except share data)

	August 31, 2022		May 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	74,558	$	90,471
Accounts receivable, net	1,082,783		1,006,220
Inventories, net	473,888		472,150
Uniforms and other rental items in service	953,717		916,706
Income taxes, current	—		21,708
Prepaid expenses and other current assets	162,844		124,728
Total current assets	2,747,790		2,631,983
Property and equipment, net	1,329,131		1,323,673
Investments	239,335		242,873
Goodwill	3,037,278		3,042,976
Service contracts, net	379,379		391,638
Operating lease right-of-use assets, net	174,697		170,003
Other assets, net	353,416		344,110
	$	8,261,026	$	8,147,256
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	292,321	$	251,504
Accrued compensation and related liabilities	176,865		236,992
Accrued liabilities	543,566		588,948
Income taxes, current	35,783		—
Operating lease liabilities, current	43,539		43,872
Debt due within one year	507,467		311,574
Total current liabilities	1,599,541		1,432,890
Long-term liabilities:
Debt due after one year	2,484,602		2,483,932
Deferred income taxes	487,755		473,777
Operating lease liabilities	134,010		129,064
Accrued liabilities	325,492		319,397
Total long-term liabilities	3,431,859		3,406,170
Shareholders’ equity:
Preferred stock, no par value:	—		—
100,000 shares authorized, none outstanding
Common stock, no par value, and paid-in capital:	1,878,837		1,771,917
425,000,000 shares authorized
FY 2023: 191,654,188 shares issued and 101,532,642 shares outstanding
FY 2022: 190,837,921 shares issued and 101,711,215 shares outstanding
Retained earnings	8,953,391		8,719,163
Treasury stock:	(7,690,726)		(7,290,801)
FY 2023: 90,121,546 shares
FY 2022: 89,126,706 shares
Accumulated other comprehensive income	88,124		107,917
Total shareholders’ equity	3,229,626		3,308,196
	$	8,261,026	$	8,147,256

See accompanying notes.

5

CINTAS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(In thousands)

	Common Stock and Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Shareholders' Equity
	Shares	Amount						Shares	Amount
Balance at June 1, 2022	190,838	$	1,771,917	$	8,719,163	$	107,917	(89,127)	$	(7,290,801)	$	3,308,196
Net income	—	—		351,689		—		—	—		351,689
Comprehensive loss, net of tax	—	—		—		(19,793)		—	—		(19,793)
Dividends	—	—		(117,461)		—		—	—		(117,461)
Stock-based compensation	—	26,282		—		—		—	—		26,282
Vesting of stock-based compensation awards	273	—		—		—		—	—		—
Stock options exercised	543	80,638		—		—		(193)	(79,591)		1,047
Repurchase of common stock	—	—		—		—		(802)	(320,334)		(320,334)
Balance at August 31, 2022	191,654	$	1,878,837	$	8,953,391	$	88,124	(90,122)	$	(7,690,726)	$	3,229,626

	Common Stock and Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Shareholders' Equity
	Shares	Amount						Shares	Amount
Balance at June 1, 2021	189,071	$	1,516,202	$	7,877,015	$	30,888	(85,010)	$	(5,736,258)	$	3,687,847
Net income	—	—		331,179		—		—	—		331,179
Comprehensive loss, net of tax	—	—		—		(61,154)		—	—		(61,154)
Dividends	—	—		(98,826)		—		—	—		(98,826)
Stock-based compensation	—	36,496		—		—		—	—		36,496
Vesting of stock-based compensation awards	493	—		—		—		—	—		—
Stock options exercised	564	72,896		—		—		—	—		72,896
Repurchase of common stock	—	—		—		—		(1,788)	(659,235)		(659,235)
Balance at August 31, 2021	190,128	$	1,625,594	$	8,109,368	$	(30,266)	(86,798)	$	(6,395,493)	$	3,309,203

See accompanying notes.

6

CINTAS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended
	August 31, 2022		August 31, 2021
Cash flows from operating activities:
Net income	$	351,689	$	331,179
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	63,057		60,955
Amortization of intangible assets and capitalized contract costs	36,989		36,994
Stock-based compensation	26,282		36,496
Gain on sale of operating assets	—		(12,178)
Deferred income taxes	14,829		22,887
Change in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	(79,397)		(27,742)
Inventories, net	(2,476)		14,986
Uniforms and other rental items in service	(39,327)		(39,274)
Prepaid expenses and other current assets and capitalized contract costs	(63,641)		(36,724)
Accounts payable	41,681		(26,272)
Accrued compensation and related liabilities	(59,957)		(85,834)
Accrued liabilities and other	(49,105)		(24,342)
Income taxes, current	57,532		11,010
Net cash provided by operating activities	298,156		262,141
Cash flows from investing activities:
Capital expenditures	(70,016)		(48,748)
Purchases of investments	(5,930)		(8,738)
Proceeds from sale of operating assets, net of cash disposed	—		15,070
Acquisitions of businesses, net of cash acquired	(7,060)		(35,725)
Other, net	(3,589)		(6,180)
Net cash used in investing activities	(86,595)		(84,321)
Cash flows from financing activities:
Issuance of commercial paper, net	196,000		326,000
Repayment of debt	—		(250,000)
Proceeds from exercise of stock-based compensation awards	1,047		72,896
Dividends paid	(97,655)		(79,135)
Repurchase of common stock	(320,334)		(659,235)
Other, net	(5,257)		(610)
Net cash used in financing activities	(226,199)		(590,084)
Effect of exchange rate changes on cash and cash equivalents	(1,275)		(1,627)
Net decrease in cash and cash equivalents	(15,913)		(413,891)
Cash and cash equivalents at beginning of period	90,471		493,640
Cash and cash equivalents at end of period	$	74,558	$	79,749

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 United States generally accepted accounting principles (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, 2022 filed with the SEC on July 27, 2022. A summary of our significant accounting policies is presented beginning on page 41 of that report. There have been no material changes in the accounting policies followed by Cintas during the current fiscal year. 

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 valued at the lower of cost (first-in, first-out) or net realizable value. Inventory is comprised of the following: 

(In thousands)	August 31, 2022		May 31, 2022
Raw materials	$	25,728	$	19,071
Work in process	34,310		34,280
Finished goods	413,850		418,799
	$	473,888	$	472,150

Inventories are recorded net of reserves for obsolete inventory (excess and slow-moving) of $89.1 million and $100.3 million at August 31, 2022 and May 31, 2022, 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

There are no new accounting pronouncements recently issued or newly effective that had, or are 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 operating segment for the three months ended August 31:

(In thousands)	2022				2021
Uniform Rental and Facility Services	$	1,697,772	78.4	%	$	1,508,176	79.5	%
First Aid and Safety Services	234,161		10.8	%	199,116		10.5	%
Fire Protection Services	151,847		7.0	%	128,218		6.8	%
Uniform Direct Sales	82,674		3.8	%	61,440		3.2	%
Total revenue	$	2,166,454	100.0	%	$	1,896,950	100.0	%

Fire Protection Services and Uniform Direct Sales operating segments are included within All Other as disclosed in Note 12 entitled Segment Information.

Revenue Recognition Policy

Approximately 95% of the Company's revenue is derived from fees for route servicing of Uniform Rental and Facility Services, First Aid and Safety Services and Fire Protection Services customers, 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 revenues over time as services are performed, based on the nature of services provided and contractual rates (output method) or at a point in time when the performance obligation under the terms of the contract with a customer are satisfied, at the customer's location of business. The Company's remaining revenue, primarily within the Uniform Direct Sales operating segment, and representing approximately 5% of the Company's total revenue, is recognized when the obligations under the terms of a contract with a customer are satisfied. This generally occurs when the goods are transferred to the customer.

Revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. Shipping and handling costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Certain of our customer contracts 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, 2022 or 2021. 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. These assets are included in prepaid expenses and other current assets and in other assets, net on the consolidated condensed balance sheets.

We are exposed to credit losses primarily through our trade receivables. We determine the allowance for credit losses using both an estimate, based on historical rates of collections, and reserves for specific accounts identified as uncollectible. The portion of the allowance that is an estimate based on Cintas' historical rates of collections is recorded for overdue amounts, beginning with a nominal percentage when the account is current and increasing substantially as the account ages. The amount provided as the account ages will differ slightly between the Uniform Rental and Facility Services reportable operating segment, the First Aid and Safety Services reportable operating segment and All Other because of differences in customers served and the nature of each business. We update our estimate of credit loss reserves quarterly, considering recent write-offs and collections information and underlying economic expectations.

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. As permitted by Accounting Standards Codification 606, "Revenue from Contracts with Customers (Topic 606)", the Company has elected to apply the guidance to a portfolio of contracts (or performance obligations) with similar characteristics because the Company reasonably expects that the effects on the consolidated condensed financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within the portfolio. The Company also continues to expense certain costs to obtain a contract if those costs do not meet the criteria of the standard or the amortization period of the asset would have been one year or less. The deferred commissions are amortized on a straight-line basis over the expected period of benefit. We review the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when we expect to recognize the expense. The current portion is included in prepaid expenses and other current assets and the noncurrent portion is included in other assets, net on the Company's consolidated condensed balance sheets. As of August 31, 2022, the current and noncurrent assets related to deferred commissions totaled $86.1 million and $239.2 million, respectively. As of May 31, 2022, the current and noncurrent assets related to deferred commissions totaled $83.7 million and $232.2 million, respectively. We recorded amortization expense related to deferred commissions of $22.4 million and $21.4 million during the three months ended August 31, 2022 and 2021, respectively. These expenses are classified in selling and administrative expenses 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 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 cost 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 both periods, were $19.5 million and $18.1 million for the three months ended August 31, 2022 and 2021, respectively.

The following table provides supplemental information related to the Company's consolidated condensed statements of cash flows for the three months ended August 31:

(In thousands)	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	12,608	$	11,913
Operating lease right-of-use assets obtained in exchange for new and renewed    operating lease liabilities	$	15,836	$	2,792

10

Other information related to the operating lease right-of-use assets, net and operating lease liabilities was as follows:

	August 31, 2022	May 31, 2022
Weighted-average remaining lease term - operating leases	5.38 years	5.40 years
Weighted-average discount rate - operating leases	2.37%	2.20%

The contractual future minimum lease payments of Cintas' operating lease liabilities by fiscal year are as follows as of August 31, 2022:

(In thousands)
2023 (remaining nine months)	$	35,860
2024	40,851
2025	32,515
2026	25,800
2027	18,342
Thereafter	36,036
Total payments	189,404
Less interest	(11,855)
Total present value of lease payments	$	177,549

11

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, 2022
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Cash and cash equivalents	$	74,558	$	—	$	—	$	74,558
Other assets, net:
Interest rate lock agreements	—		58,131		—		58,131
Total assets at fair value	$	74,558	$	58,131	$	—	$	132,689

	As of May 31, 2022
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Cash and cash equivalents	$	90,471	$	—	$	—	$	90,471
Other assets, net:
Interest rate lock agreements	—		56,877		—		56,877
Total assets at fair value	$	90,471	$	56,877	$	—	$	147,348

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, 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.

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. No other amounts included in other assets, net, are recorded at fair 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. The Company's acquisition of the remaining interest of an equity method investment during fiscal 2022 was recorded at fair value. See Note 10 entitled Acquisitions for additional information.

12

Note 5 - Investments

Cintas' investments are summarized as follows:

(In thousands)	August 31, 2022		May 31, 2022
Cash surrender value of insurance policies	$	233,650	$	237,136
Other investments	5,685		5,737
Total investments	$	239,335	$	242,873

Investments are generally evaluated for impairment on an annual basis or when indicators of impairment exist. For the three months ended August 31, 2022 and 2021, no 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 using the two-class method for amounts attributable to Cintas’ common shares for the three months ending August 31:

Basic Earnings per Share (In thousands except per share data)	2022		2021
Net income	$	351,689	$	331,179
Less: income allocated to participating securities	1,520		1,765
Income available to common shareholders	$	350,169	$	329,414
Basic weighted average common shares outstanding	101,428		103,295
Basic earnings per share	$	3.45	$	3.19

Diluted Earnings per Share (In thousands except per share data)	2022		2021
Net income	$	351,689	$	331,179
Less: income allocated to participating securities	1,520		1,765
Income available to common shareholders	$	350,169	$	329,414
Basic weighted average common shares outstanding	101,428		103,295
Effect of dilutive securities – employee stock options	1,909		2,649
Diluted weighted average common shares outstanding	103,337		105,944
Diluted earnings per share	$	3.39	$	3.11

For the three months ended August 31, 2022 and 2021, options granted to purchase 0.8 million and 0.1 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 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. On July 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 the July 27, 2021 share buyback program through August 31, 2022, Cintas purchased a total of 2.7 million shares of Cintas common stock at an average price of $385.66 per share for a total purchase price of $1.0 billion. On July 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.

13

The following tables summarize the share buyback activity by program for the three months ended August 31:

	2022					2021
Buyback Activity (In thousands except per share data)	Shares	Avg. Price per Share		Purchase Price		Shares	Avg. Price per Share		Purchase Price
October 29, 2019	—	$	—	$	—	1,590	$	365.41	$	581,220
July 27, 2021	532	396.39		210,751		—	—		—
July 26, 2022	—	—		—		—	—		—
	532	$	396.39	$	210,751	1,590	$	365.41	$	581,220
Shares acquired for taxes due (1)	270	$	405.93	$	109,583	198	$	394.19	$	78,015
Total repurchase of Cintas     common stock				$	320,334				$	659,235

(1) Shares of Cintas common stock acquired for employee payroll taxes due on options exercised and vested restricted stock awards.

In addition to the share buyback activity presented above, Cintas acquired shares of Cintas common stock, via non-cash transactions, in connection with net-share settlements of option exercises. During the three months ended August 31, 2022, Cintas acquired 0.2 million shares of Cintas common stock via such non-cash transactions at an average price of $411.93 for a total non-cash value of $79.6 million.

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Note 7 - Goodwill, Service Contracts and Other Assets, Net

Changes in the carrying amount of goodwill and service contracts for the three months ended August 31, 2022, 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, 2022	$	2,635,099	$	285,769	$	122,108	$	3,042,976
Goodwill acquired	652		3,283		484		4,419
Foreign currency translation	(9,265)		(820)		(32)		(10,117)
Balance as of August 31, 2022	$	2,626,486	$	288,232	$	122,560	$	3,037,278

Service Contracts (in thousands)	Uniform Rental  and Facility Services		First Aid  and Safety Services		All Other		Total
Balance as of June 1, 2022	$	349,634	$	24,144	$	17,860	$	391,638
Service contracts acquired	1,253		986		630		2,869
Service contracts amortization	(10,781)		(1,250)		(1,223)		(13,254)
Foreign currency translation	(1,793)		(81)		—		(1,874)
Balance as of August 31, 2022	$	338,313	$	23,799	$	17,267	$	379,379

Information regarding Cintas’ service contracts and other assets, net is as follows:

	As of August 31, 2022						As of May 31, 2022
(In thousands)	Carrying Amount		Accumulated Amortization		Net		Carrying Amount		Accumulated Amortization		Net
Service contracts	$	1,000,115	$	620,736	$	379,379	$	1,001,311	$	609,673	$	391,638
Capitalized contract    costs (1)	$	580,949	$	341,753	$	239,196	$	551,582	$	319,358	$	232,224
Noncompete and    consulting agreements	50,944		44,191		6,753		50,637		43,775		6,862
Other	128,491		21,024		107,467		125,941		20,917		105,024
Total other assets, net	$	760,384	$	406,968	$	353,416	$	728,160	$	384,050	$	344,110

(1)    The current portion of capitalized contract costs, included in prepaid expenses and other current assets on the consolidated condensed balance sheets as of August 31, 2022 and May 31, 2022, is $86.1 million and $83.7 million, respectively.

Amortization expense for service contracts and other assets, was $36.4 million and $36.5 million for the three months ended August 31, 2022 and 2021, respectively. These expenses are recorded in selling and administrative expenses on the consolidated condensed statements of income. As of August 31, 2022, the estimated future amortization expense for service contracts and other assets, excluding any future acquisitions and commissions to be earned, is as follows:

Fiscal Year (In thousands)
2023 (remaining nine months)	$	107,424
2024	131,835
2025	117,265
2026	97,896
2027	79,275
Thereafter	181,622
Total future amortization expense	$	715,317

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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, 2022		May 31, 2022
Debt due within one year
Commercial paper	2.69	%	(1)	2023	2023	$	457,200	$	261,200
Senior notes (2)	2.78	%		2013	2023	50,272		50,380
Debt issuance costs						(5)		(6)
Total debt due within one year						$	507,467	$	311,574
Debt due after one year
Senior notes (3)	3.11	%		2015	2025	$	50,881	$	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						(16,279)		(17,033)
Total debt due after one year						$	2,484,602	$	2,483,932

(1)    Variable rate debt instrument. The rate presented is the variable borrowing rate at August 31, 2022.

(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, 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, 2022 were $3,007.2 million and $2,990.2 million, respectively, and as of May 31, 2022 were $2,811.2 million and $2,862.2 million, respectively. During the three months ended August 31, 2022 and 2021, Cintas issued $196.0 million and $326.0 million, net of commercial paper, respectively.

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 is March 23, 2027. As of August 31, 2022, there was $457.2 million of commercial paper outstanding with a weighted average interest rate of 2.69% and maturity dates less than 120 days and no borrowings on our revolving credit facility. As of May 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. The fair value of the commercial paper, which approximates carrying value, is estimated using level 2 inputs based on general market prices and interest rates.

Cintas uses interest rate locks to manage its overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate locks, which represent cash flow hedges, to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2013, fiscal 2017 and fiscal 2022. The amortization of the interest rate locks resulted in a decrease to other comprehensive income of $1.5 million and $0.5 million for the three months ended August 31, 2022 and 2021, respectively.

16

During fiscal 2022 and fiscal 2020, Cintas entered into interest rate lock agreements for forecasted debt issuances. The aggregate notional value of outstanding cash flow hedges was $500.0 million at both August 31, 2022 and May 31, 2022, respectively. The notional and fair values of the outstanding interest rate locks, for forecasted debt issuances, are summarized as follows:

	August 31, 2022			May 31, 2022
Fiscal Year of Issuance (in thousands)		Other assets, net		Other assets, net
2022		$	19,168	$	18,331
2020		$	38,963	$	38,546

The interest rate locks are also recorded in accumulated other comprehensive income, net of tax. These interest rate locks had no impact on net income or cash flows for the three months ended August 31, 2022 or 2021.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) 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.

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, 2022 and May 31, 2022, recorded unrecognized tax benefits were $26.0 million and $30.8 million, respectively, and are included in long-term accrued liabilities on the consolidated condensed balance sheets.

The majority of Cintas' operations are in North America. Cintas is required to file U.S. 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. federal income tax returns are closed to audit through fiscal 2018. Cintas is currently in various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2014. Based on the resolution of the various audits and other potential regulatory developments, it is reasonably possible that the balance of unrecognized tax benefits would not change for the fiscal year ending May 31, 2023.

Cintas’ effective tax rate was 14.8% and 11.0% for the three months ended August 31, 2022 and 2021, respectively. The effective tax rate for all periods was impacted by certain discrete items (primarily the tax accounting for stock-based compensation).

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Note 10 - Acquisitions

On December 10, 2021, Cintas acquired the remaining interest of an equity method investment. The acquisition operates as a component of Cintas' supply chain within the Uniform Rental and Facility Services reportable operating segment. The cash consideration transferred to acquire the remaining interest of the equity method investment was $48.0 million, net of cash acquired of $1.7 million. Under applicable accounting guidance, the Company was required to record its historical equity method investment at fair value ($43.5 million), resulting in a gain of $30.2 million, which was recorded as a reduction in selling and administrative expenses in fiscal 2022. The fair value of the historical equity method investment was determined using a combination of a market and income approach (discounted cash flow analysis). The key assumptions and estimates utilized in these approaches included market data and market multiples, discount rates, as well as future levels of revenue growth and operating margins. The Company believes these assumptions and estimates are reasonable and based on the best information available at the valuation date.

Cintas accounted for the acquisition using the acquisition method of accounting. The preliminary purchase price allocation was determined by management with the assistance of third-party valuation specialists and is based on estimates of the fair value of assets acquired and liabilities assumed as of December 10, 2021. During the three months ended August 31, 2022, no material adjustments were made to the preliminary purchase price allocation. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of the amount of goodwill are based on several strategic supply chain and synergistic benefits that will allow for Cintas to further vertically integrate the operations for certain product lines, and are expected to be realized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes.

The allocation of the preliminary purchase price, including the value of the previously held equity method investment, at fair value is as follows:

(In thousands)	December 10, 2021
ASSETS
Working capital assets	$	17,352
Property and equipment	16,230
Operating lease right-of-use assets	16,882
Goodwill	55,986
Separately identifiable intangible assets	9,201
LIABILITIES
Total current liabilities	(6,425)
Operating lease liabilities	(17,734)
Total allocation (consideration)	$	91,492

As additional information is obtained, adjustments may be made to the preliminary purchase price allocation. The Company is still finalizing the estimated fair value of certain of the tangible and identifiable intangible assets acquired and liabilities assumed. The separately identifiable intangible assets are primarily made up of a customer relationship intangible asset that will be amortized over a period of 9 years, which represents the estimated useful life of the economic benefit.

Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated condensed financial statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business combinations). The working capital assets and liabilities, as well as the property and equipment acquired, were valued using Level 2 inputs which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill and separately identifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). The results of operations of the acquisition are included in Cintas' consolidated condensed statements of income subsequent to the date of acquisition, and are not material to the consolidated condensed financial statements.

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Note 11 - Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income (loss), net of tax:

(In thousands)	Foreign Currency		Unrealized Income on Interest Rate Locks		Other		Total
Balance at June 1, 2022	$	17,006	$	92,688	$	(1,777)	$	107,917
Other comprehensive (loss) income before reclassifications	(19,206)		934		—		(18,272)
Amounts reclassified from accumulated other    comprehensive income (loss)	—		(1,521)		—		(1,521)
Net current period other comprehensive loss	(19,206)		(587)		—		(19,793)
Balance at August 31, 2022	$	(2,200)	$	92,101	$	(1,777)	$	88,124

(In thousands)	Foreign Currency		Unrealized Loss on Interest Rate Locks		Other		Total
Balance at June 1, 2021	$	41,839	$	(7,308)	$	(3,643)	$	30,888
Other comprehensive loss before reclassifications	(24,016)		(36,679)		—		(