10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
( X )
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2016
 
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
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
6800 CINTAS BOULEVARD
P.O. BOX 625737
CINCINNATI, OHIO 45262-5737
(Address of principal executive offices)(Zip Code)
 
(513) 459-1200
(Registrant’s telephone number, including area code)
 
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   ü   No     
 
Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes   ü   No     
 
Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large Accelerated Filer    ü               Accelerated Filer                          Smaller Reporting Company     
Non-Accelerated Filer          (Do not check if a smaller reporting company)
 
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No     ü  
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding March 31, 2016
Common Stock, no par value
 
107,003,201



CINTAS CORPORATION
TABLE OF CONTENTS

Part I.
Financial Information
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months and Nine Months Ended February 29, 2016
and February 28, 2015
 
 
 
 
 
 
 
 
Three Months and Nine Months Ended February 29, 2016
and February 28, 2015
 
 
 
 
 
 
 
 
February 29, 2016 and May 31, 2015
 
 
 
 
 
 
 
 
    Nine Months Ended February 29, 2016 and February 28, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibits
 
 
 
 
 
 
 
 

2


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

 
Three Months Ended
 
Nine Months Ended
 
February 29,
2016
 
February 28,
2015
 
February 29,
2016
 
February 28,
2015
Revenue:
 

 
 

 
 
 
 
Uniform rental and facility services
$
936,565

 
$
883,401

 
$
2,812,677

 
$
2,648,574

Other
279,518

 
225,446

 
821,376

 
685,729

 
1,216,083

 
1,108,847

 
3,634,053

 
3,334,303

Costs and expenses:
 

 
 

 
 
 
 
Cost of uniform rental and facility services
524,656

 
501,273

 
1,569,250

 
1,497,771

Cost of other
166,819

 
132,267

 
488,651

 
401,855

Selling and administrative expenses
331,656

 
301,690

 
997,344

 
915,989

 
 
 
 
 
 
 
 
Operating income
192,952

 
173,617

 
578,808

 
518,688

 
 
 
 
 
 
 
 
Gain on sale of stock of an equity method investment
—

 
—

 
—

 
21,739

 
 
 
 
 
 
 
 
Interest income
(335
)
 
(96
)
 
(565
)
 
(168
)
Interest expense
16,163

 
16,254

 
48,746

 
48,766

 
 
 
 
 
 
 
 
Income before income taxes
177,124


157,459


530,627


491,829

Income taxes
59,845

 
57,128

 
191,697

 
181,892

Income from continuing operations
117,279

 
100,331

 
338,930

 
309,937

Income (loss) from discontinued operations,
   net of tax benefit of $741 and $3,494 and
   tax expense of $142,235 and $10,828,
   respectively
62

 
(5,448
)
 
223,692

 
15,466

Net income
$
117,341

 
$
94,883


$
562,622


$
325,403

 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
1.07

 
$
0.86

 
$
3.06

 
$
2.64

Discontinued operations
0.00

 
(0.05
)
 
2.02

 
0.13

Basic earnings per share
$
1.07

 
$
0.81


$
5.08


$
2.77

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
1.05

 
$
0.85

 
$
3.01

 
$
2.60

Discontinued operations
0.00

 
(0.05
)
 
1.99

 
0.13

Diluted earnings per share
$
1.05


$
0.80


$
5.00


$
2.73

 
 
 
 
 
 
 
 
Dividends declared per share
$
—

 
$
—

 
$
1.05

 
$
1.70

 

See accompanying notes.

3


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

 
Three Months Ended
 
Nine Months Ended
 
February 29, 2016
 
February 28, 2015
 
February 29, 2016
 
February 28, 2015
 
 
 
 
 
 
 
 
Net income
$
117,341

 
$
94,883

 
$
562,622

 
$
325,403

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(2,405
)
 
(22,237
)
 
(19,044
)
 
(34,130
)
Cumulative translation adjustment on investment in Shred-it Partnership
—

 
—

 
6,472

 
—

Change in fair value of derivatives
(14,070
)
 
(29
)
 
(14,070
)
 
(33
)
Amortization of interest rate lock agreements
488

 
488

 
1,464

 
1,464

Change in fair value of available-for-sale securities
(7
)
 
5

 
(25
)
 
8

 
 
 
 
 
 
 
 
Other comprehensive loss
(15,994
)
 
(21,773
)
 
(25,203
)
 
(32,691
)
 
 
 
 
 
 
 
 
Comprehensive income
$
101,347

 
$
73,110

 
$
537,419

 
$
292,712


See accompanying notes.







4


CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
 
February 29,
2016
 
May 31,
2015
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
315,116

 
$
417,073

Marketable securities
71,703

 
16,081

Accounts receivable, net
550,748

 
496,130

Inventories, net
255,203

 
226,211

Uniforms and other rental items in service
539,401

 
534,005

Income taxes, current
—

 
936

Assets held for sale
—

 
21,341

Prepaid expenses and other current assets
26,653

 
24,030

Total current assets
1,758,824

 
1,735,807

 
 
 
 
Property and equipment, at cost, net
964,680

 
871,421

 
 
 
 
Investments
118,607

 
329,692

Goodwill
1,284,434

 
1,195,612

Service contracts, net
86,380

 
42,434

Other assets, net
18,285

 
17,494

 
$
4,231,210

 
$
4,192,460

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
151,833

 
$
109,607

Accrued compensation and related liabilities
84,992

 
88,423

Accrued liabilities
319,438

 
309,935

Income taxes, current
52,541

 
—

Liabilities held for sale
—

 
704

Long-term debt due within one year
250,000

 
—

Total current liabilities
858,804

 
508,669

 
 
 
 
Long-term liabilities:
 

 
 

Long-term debt due after one year
1,050,000

 
1,300,000

Deferred income taxes
240,714

 
339,327

Accrued liabilities
131,586

 
112,009

Total long-term liabilities
1,422,300

 
1,751,336

 
 
 
 
Shareholders’ equity:
 

 
 

Preferred stock, no par value:
—

 
—

100,000 shares authorized, none outstanding


 


Common stock, no par value:
399,927

 
329,248

425,000,000 shares authorized
 

 
 

FY 2016:  179,368,804 issued and 107,064,235 outstanding
 

 
 

FY 2015:  178,117,334 issued and 111,702,949 outstanding
 
 
 
Paid-in capital
184,442

 
157,183

Retained earnings
4,674,975

 
4,227,620

Treasury stock:
(3,275,564
)
 
(2,773,125
)
FY 2016:  72,304,569 shares
 

 
 

FY 2015:  66,414,385 shares
 
 
 
Accumulated other comprehensive loss
(33,674
)
 
(8,471
)
Total shareholders’ equity
1,950,106

 
1,932,455

 
$
4,231,210

 
$
4,192,460

See accompanying notes.

5


CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) 
 
Nine Months Ended
 
February 29,
2016
 
February 28,
2015
Cash flows from operating activities:
 

 
 

Net income
$
562,622

 
$
325,403

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
110,535

 
104,950

Amortization of intangible assets
12,136

 
11,090

Stock-based compensation
57,169

 
36,016

Gain on Storage Transactions
(15,786
)
 
(35,036
)
Loss on investment in Shred-it Partnership
24,288

 
4,570

Gain on sale of investment in Shred-it Partnership
(374,026
)
 
—

Gain on sale of stock of an equity method investment
—

 
(21,739
)
Deferred income taxes
(74,540
)
 
15,428

Change in current assets and liabilities, net of acquisitions of businesses:
 

 
 

Accounts receivable, net
(41,523
)
 
(3,168
)
Inventories, net
(24,009
)
 
15,370

Uniforms and other rental items in service
(6,905
)
 
(22,203
)
Prepaid expenses and other current assets
(1,580
)
 
(1,609
)
Accounts payable
37,370

 
(33,615
)
Accrued compensation and related liabilities
(3,731
)
 
(7,086
)
Accrued liabilities and other
(18,301
)
 
1,841

Income taxes, current
53,435

 
(12,566
)
Net cash provided by operating activities
297,154

 
377,646

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(207,502
)
 
(163,040
)
Proceeds from redemption of marketable securities
327,779

 
18,711

Purchase of marketable securities and investments
(384,796
)
 
(79,947
)
Proceeds from Storage Transactions, net of cash contributed
35,338

 
154,891

Proceeds from Shredding Transactions
578,257

 
3,344

Proceeds from sale of stock of an equity method investment
—

 
29,933

Dividends received on equity method investment
—

 
5,247

Acquisitions of businesses, net of cash acquired
(151,731
)
 
(13,798
)
Other, net
4,433

 
1,583

Net cash provided by (used in) investing activities
201,778

 
(43,076
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Repayment of debt
(16
)
 
(456
)
Proceeds from exercise of stock-based compensation awards
22,260

 
31,956

Dividends paid
(115,273
)
 
(201,941
)
Repurchase of common stock
(502,439
)
 
(314,648
)
Other, net
1,153

 
3,139

Net cash used in financing activities
(594,315
)
 
(481,950
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(6,574
)
 
(7,588
)
 
 
 
 
Net decrease in cash and cash equivalents
(101,957
)
 
(154,968
)
 
 
 
 
Cash and cash equivalents at beginning of period
417,073

 
513,288

 
 
 
 
Cash and cash equivalents at end of period
$
315,116

 
$
358,320

 See accompanying notes.

6


CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited) 
1.             Basis of Presentation
 
The consolidated condensed financial statements of Cintas Corporation (Cintas, the Company, we, us or our) included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations.  While we believe that the disclosures are adequately presented, it is suggested 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, 2015. A summary of our significant accounting policies is presented beginning on page 37 of that report and a discussion of litigation and other contingencies is included on page 56. There have been no material changes in the accounting policies followed by Cintas during the current fiscal year other than the adoption of new accounting pronouncements discussed in Note 2.  Additionally, see Note 12 entitled Segment Information for discussion of the change in reportable operating segments in the first quarter of fiscal 2016.
 
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.

Cintas' investment in the Shred-it Partnership (Shred-it) is classified as discontinued operations for all periods presented as a result of entering into a definitive agreement on July 15, 2015 to sell the investment. In the quarter ended November 30, 2015, Cintas completed the sale of its investment in Shred-it. During fiscal 2015, Cintas sold its document imaging and retention services (Storage) business and, as a result, its operations are also classified as discontinued operations for all periods presented. See Note 12 entitled Discontinued Operations for more information.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2015, inventories are valued at the lower of cost (first-in, first-out) or market. Inventory is comprised of the following amounts at: 
(In thousands)
February 29,
2016
 
May 31,
2015
 
 
 
 
Raw materials
$
18,788

 
$
16,935

Work in process
17,748

 
17,079

Finished goods
218,667

 
192,197

 
$
255,203

 
$
226,211


2.             New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606),’’ to clarify revenue recognition principles. This guidance is intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that is recognized from contracts with customers. This guidance will be effective for reporting periods beginning after December 15, 2017 and will be required to be applied retrospectively. Early application of the amendments in this update is not permitted. Cintas is currently evaluating the impact that ASU 2014-09 will have on its consolidated condensed financial statements.

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,”  which amended accounting guidance related to the reporting of discontinued operations and disclosures of disposals of components of an entity. The amended guidance changes the thresholds for disposals to qualify as discontinued operations and requires additional disclosures. This guidance is effective for reporting periods beginning after December 15, 2014 and is required to be applied prospectively.  Cintas adopted ASU 2014-08 during the quarter ended August 31, 2015 and applied the amended accounting guidance to its investment in Shred-it and will apply it to future transactions, as appropriate.



7


In April 2015, the FASB issued ASU 2015-17, “Balance Sheet Classifications of Deferred Taxes,”  which amended accounting guidance related to the presentation of deferred tax liabilities and assets. The amended guidance requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. This guidance can also be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Cintas adopted ASU 2015-17 during the quarter ended November 30, 2015 and has applied this amended accounting guidance to its deferred tax liabilities and assets for all periods presented. The impact of this change in accounting principle on balances previously reported as of May 31, 2015 was a reclassification of $112.4 million from current liabilities to long term liabilities.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Topic 842 supersedes the previous leases standard, ASC 840, Leases.This guidance is effective for reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Cintas is currently evaluating the impact that ASU 2016-02 will have on its consolidated condensed financial statements.

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

3.             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 balance sheet date. These financial instruments measured at fair value on a recurring basis are summarized below: 
 
As of February 29, 2016
 (In thousands)
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
265,149

 
$
49,967

 
$
—

 
$
315,116

Marketable securities:
 

 
 

 
 

 
 

Canadian treasury securities
—

 
71,703

 
—

 
71,703

Total assets at fair value
$
265,149

 
$
121,670

 
$
—

 
$
386,819

 
 
 
 
 
 
 
 
Long term accrued liabilities:
 
 
 
 
 
 
 
  Interest rate lock agreement
$
—

 
$
22,438

 
$
—

 
$
22,438

Total liabilities at fair value
$
—

 
$
22,438

 
$
—

 
$
22,438

 
As of May 31, 2015
 (In thousands)
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
417,073

 
$
—

 
$
—

 
$
417,073

Marketable securities:
 
 
 
 
 
 
 
Canadian treasury securities
—

 
16,081

 
—

 
16,081

Total assets at fair value
$
417,073

 
$
16,081

 
$
—

 
$
433,154

 
Cintas’ cash and cash equivalents and marketable securities 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

8


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 types of financial instruments Cintas classifies within Level 2 are primarily high grade domestic commercial paper and Canadian treasury securities (federal). The valuation technique used for Cintas’ marketable securities classified within Level 2 of the fair value hierarchy is primarily the market approach. The primary inputs to value Cintas’ marketable securities are the respective instrument's future cash flows based on its stated yield and the amount a market participant would pay for a similar instrument. Primarily all of Cintas’ marketable securities are actively traded and the recorded fair value reflects current market conditions. However, due to the inherent volatility in the investment market, there is at least a possibility that recorded investment values may change in the near term.

The funds invested in Canadian treasury securities are not presently expected to be repatriated, but instead are expected to be invested indefinitely in foreign subsidiaries. Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of the securities sold is based on the specific identification method. The amortized cost basis of marketable securities as of February 29, 2016 and May 31, 2015 was $71.7 million and $16.1 million, respectively. All outstanding marketable securities at February 29, 2016 and May 31, 2015 had contractual maturities due within one year.

As of February 29, 2016, long term accrued liabilities include interest rate lock agreements. The fair value 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.

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 balance sheet date.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a nonrecurring basis as required under GAAP. The Company's acquisition of ZEE Medical, Inc. (ZEE) was recorded at fair value. See Note 9 entitled Acquisitions for additional information on the measurement of the ZEE assets acquired.

4.             Investments
 
Investments at February 29, 2016 of $118.6 million include the cash surrender value of insurance policies of $101.3 million, equity method investments of $15.0 million, and cost method investments of $2.3 million. Investments at May 31, 2015 of $329.7 million include the cash surrender value of insurance policies of $101.8 million, equity method investments of $225.7 million and cost method investments of $2.2 million.

Effective August 31, 2015, Cintas' investment in Shred-it was classified as discontinued operations as a result of Cintas entering into a definitive agreement to sell its investment. In the quarter ended November 30, 2015, Cintas completed the transaction to sell its investment in Shred-it. Cash proceeds received at the closing of the transaction totaled $578.3 million. The transaction involved contingent consideration that the Company has an opportunity to receive if specified future events occur. Because of the uncertainty surrounding the future events, these amounts represent gain contingencies that have not been recorded. As allowed under applicable accounting guidance, the May 31, 2015 consolidated condensed balance sheet amounts for these assets and liabilities remain in their natural classifications. See Note 12 entitled Discontinued Operations.

On June 30, 2014, Cintas sold stock in an equity method investment. In conjunction with the sale of the equity method investment, Cintas also received a cash dividend of $5.2 million. Total cash received from the transaction was $35.2 million. The sale resulted in the recording of a gain, net of tax, of approximately $13.6 million in the nine months ended February 28, 2015. As a result, the Company no longer has the ability to exercise significant influence over the investee. Therefore, effective July 1, 2014, the remaining investment retained by Cintas is accounted for under the cost method.

Investments are evaluated for impairment on an annual basis or when indicators of impairment exist. For the nine months ended February 29, 2016 and February 28, 2015, no impairment losses were recorded.


9


5.             Earnings Per Share
 
The following table sets forth the computation of basic and diluted earnings per share from continuing operations using the two-class method for amounts attributable to Cintas’ common shares: 
 
Three Months Ended
 
Nine Months Ended
(In thousands except per share data)
February 29,
2016
 
February 28,
2015
 
February 29,
2016

February 28,
2015
 
 
 
 
 
 
 
 
Basic Earnings per Share from Continuing Operations
 

 
 

 
 
 
 
Income from continuing operations
$
117,279

 
$
100,331

 
$
338,930

 
$
309,937

Less: income from continuing operations allocated to participating securities
1,871

 
733

 
5,500

 
2,666

Income from continuing operations available to common shareholders
$
115,408

 
$
99,598


$
333,430


$
307,271

Basic weighted average common shares outstanding
107,843

 
116,178

 
108,923

 
116,653

 
 
 
 
 
 
 
 
Basic earnings per share from continuing operations
$
1.07

 
$
0.86


$
3.06


$
2.64

 
Three Months Ended
 
Nine Months Ended
(In thousands except per share data)
February 29,
2016
 
February 28,
2015
 
February 29,
2016
 
February 28,
2015
 
 
 
 
 
 
 
 
Diluted Earnings per Share from Continuing Operations
 

 
 

 
 
 
 
Income from continuing operations
$
117,279

 
$
100,331

 
$
338,930

 
$
309,937

Less: income from continuing operations allocated to participating securities
1,871

 
733

 
5,500

 
2,666

Income from continuing operations available to common shareholders
$
115,408

 
$
99,598

 
$
333,430

 
$
307,271

Basic weighted average common shares outstanding
107,843

 
116,178

 
108,923

 
116,653

Effect of dilutive securities – employee stock options
1,620

 
1,689

 
1,689

 
1,561

Diluted weighted average common shares outstanding
109,463

 
117,867

 
110,612

 
118,214

 
 
 
 
 
 
 
 
Diluted earnings per share from continuing operations
$
1.05

 
$
0.85

 
$
3.01

 
$
2.60


Both basic and diluted earnings per share from discontinued operations were $0.00 for the three months ended February 29, 2016, and both basic and diluted losses per share were $0.05 for the three months ended February 28, 2015. Basic and diluted earnings per share from discontinued operations were $2.02 and $1.99, respectively, for the nine months ended February 29, 2016, and both basic and diluted earnings per share from discontinued operations were $0.13 for the nine months ended February 28, 2015.

For the three months ended February 29, 2016 and February 28, 2015, options granted to purchase 0.3 million and 0.4 million shares of Cintas common stock, respectively, were excluded from the computation of diluted earnings per share. For the nine months ended February 29, 2016 and February 28, 2015, options granted to purchase 0.3 million and 0.7 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).


10


On January 13, 2015, we announced that the Board of Directors authorized a $500.0 million share buyback program, which does not have an expiration date. The January 13, 2015 share buyback program was completed during the second quarter of fiscal 2016. From the inception of the January 13, 2015 share buyback program through September 2015, Cintas purchased a total of 5.9 million shares of Cintas common stock at an average price of $84.07 per share for a total purchase price of $500.0 million. On August 4, 2015, we announced that the Board of Directors authorized a new $500.0 million share buyback program. The following table summarizes the buyback activity by program and fiscal period:
(In thousands except per share data)
Three Months Ended
 February 29, 2016
 
Nine Months Ended
 February 29, 2016
Buyback Program
Shares
 
Avg. Price per Share
 
Purchase Price
 
Shares
 
Avg. Price per Share
 
Purchase Price
 
 
 
 
 
 
 
 
 
 
 
 
January 13, 2015
—

 
$
—

 
$
—

 
3,078

 
$
85.44

 
$
262,937

August 4, 2015
1,188

 
$
84.15

 
$
99,997

 
2,584

 
$
85.11

 
$
219,978

 
1,188

 
$
84.15

 
$
99,997

 
5,662

 
$
85.29

 
$
482,915


In the period subsequent to February 29, 2016 through April 8, 2016, Cintas purchased 0.5 million shares of Cintas Common stock for a total purchase price of $47.8 million. In addition, for the nine months ended February 29, 2016, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the nine months ended February 29, 2016. These shares were acquired at an average price of $85.62 per share for a total purchase price of $19.5 million. Of the total purchase price, $0.1 million occurred in the three months ended February 29, 2016.



6.             Goodwill, Service Contracts and Other Assets
 
Effective June 1, 2015, Cintas realigned its organizational structure and updated its reportable operating segments in light of certain changes in its business, including the acquisition of ZEE. Cintas’ updated reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The remainder of Cintas’ business, which consists primarily of Fire Protection Services and its Direct Sale business, are included in All Other. For additional information regarding Cintas’ realignment and reportable operating segment determination, see Note 11 entitled Segment Information.

As a result of Cintas’ segment realignment, the composition of Cintas’ reporting units for the evaluation of goodwill impairment also changed. Historically, Cintas’ reporting units were the same as the reportable operating segments, Rental Uniforms and Ancillary Products, Uniform Direct Sales and First Aid, Safety and Fire Protection Services. Effective June 1, 2015, Cintas identified five reporting units for purposes of evaluating goodwill impairment, Uniform Rental and Facility Services, First Aid and Safety Services, and three reporting units within All Other. As a result of the change in reporting units, Cintas was required to perform an interim impairment test on Goodwill at June 1, 2015.  There was no impairment recorded as a result of the interim impairment test.
 
As the composition of the reporting units changed, the Company allocated historical goodwill to the new reporting units based on a relative fair value allocation approach. Fair value of each reporting unit was determined using a combination of the market approach and the income approach. Under the market approach, fair value is based on revenue and earnings multiples for guideline public companies in the reporting unit's peer group. Under the income approach, value is dependent on the present value of net cash flows to be derived from the ownership. The relative fair value allocation approach yielded the following allocation of total goodwill as of June 1, 2015: Uniform Rental and Facility Services reportable operating segment goodwill of $943.9 million, First Aid and Safety Services reportable operating segment goodwill of $155.0 million and All Other goodwill of $96.7 million.

Changes in the carrying amount of goodwill and service contracts for the nine months ended February 29, 2016, by reportable operating segment and All Other, are as follows:

11


Goodwill (in thousands)
Uniform
 Rental and Facility Services
 
First Aid
 and Safety Services
 
All
Other
 
Total
 
 
 
 
 
 
 
 
Balance as of June 1, 2015
$
943,909

 
$
154,954

 
$
96,749

 
$
1,195,612

Goodwill acquired
9,066

 
81,304

 
203

 
90,573

Foreign currency translation
(1,163
)
 
(535
)
 
(53
)
 
(1,751
)
Balance as of February 29, 2016
$
951,812

 
$
235,723

 
$
96,899

 
$
1,284,434

Service Contracts (in thousands)
Uniform
 Rental and Facility Services
 
First Aid
 and Safety Services
 
All
Other
 
Total
 
 

 
 

 
 

 
 

Balance as of June 1, 2015
$
6,677

 
$
1,576

 
$
34,181

 
$
42,434

Service contracts acquired
18,473

 
34,000

 
2,730

 
55,203

Service contracts amortization
(3,623
)
 
(2,414
)
 
(5,185
)
 
(11,222
)
Foreign currency translation
—

 
(35
)
 
—

 
(35
)
Balance as of February 29, 2016
$
21,527

 
$
33,127

 
$
31,726

 
$
86,380


Information regarding Cintas’ service contracts and other assets is as follows:
 
As of February 29, 2016
(In thousands)
Carrying Amount
 
Accumulated Amortization
 
Net
 
 
 
 
 
 
Service contracts
$
394,326

 
$
307,946

 
$
86,380

 
 
 
 
 
 
Noncompete and consulting agreements
$
42,321

 
$
40,754

 
$
1,567

Other
25,721

 
9,003

 
16,718

Total other assets
$
68,042

 
$
49,757

 
$
18,285

 
As of May 31, 2015
(In thousands)
Carrying Amount
 
Accumulated Amortization
 
Net
 
 
 
 
 
 
Service contracts
$
340,816

 
$
298,382

 
$
42,434

 
 
 
 
 
 
Noncompete and consulting agreements
$
41,828

 
$
40,379

 
$
1,449

Other
23,595

 
7,550

 
16,045

Total other assets
$
65,423

 
$
47,929

 
$
17,494


Amortization expense for continuing operations was $4.4 million and $3.4 million for the three months ended February 29, 2016 and February 28, 2015, respectively. Amortization expense for continuing operations was $12.1 million and $10.3 million for the nine months ended February 29, 2016 and February 28, 2015, respectively. Estimated amortization expense for continuing operations, excluding any future acquisitions, for each of the next five full fiscal years is $15.6 million, $13.0 million, $12.2 million, $11.6 million and $11.1 million, respectively.


12


7.             Debt, Derivatives and Hedging Activities
 
Cintas' senior notes are recorded at cost. The fair value of the senior notes is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' senior notes as of February 29, 2016 were $1,300.0 million and $1,408.9 million, respectively, and as of May 31, 2015 were $1,300.0 million and $1,418.6 million, respectively.

Cintas’ commercial paper program has a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group. This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million and has a maturity date of May 28, 2019. No commercial paper or borrowings on our revolving credit facility were outstanding as of February 29, 2016 or May 31, 2015.

Cintas uses interest rate locks to manage our overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The treasury locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2008, fiscal 2011 and fiscal 2013. The amortization of the cash flow hedges resulted in an increase to other comprehensive income of $0.5 million for the three months ended February 29, 2016 and February 28, 2015 and $1.5 million for the nine months ended February 29, 2016 and February 28, 2015. During the quarter ending February 29, 2016, Cintas entered into an interest rate lock agreement with a notional value of $550.0 million for a forecasted debt issuance. As of February 29, 2016, the fair value of this treasury lock was $22.4 million and is recorded in long-term liabilities and other comprehensive income, net of tax. The interest rate lock had no impact on net income or cash flows from continuing operations for the three months ending February 29, 2016.

To hedge the exposure of movements in the foreign currency rates, Cintas may use foreign currency hedges. These hedges reduce the impact on cash flows from movements in the foreign currency exchange rates. Examples of foreign currency hedge instruments that Cintas may use are average rate options and forward contracts. Cintas had no foreign currency forward contracts as of February 29, 2016 or May 31, 2015.

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. Cintas was in compliance with all debt covenants for all periods presented. 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. 

8.             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. During the three months ended February 29, 2016, unrecognized tax benefits decreased by approximately $0.4 million and accrued interest remained unchanged. During the nine months ended February 29, 2016, unrecognized tax benefits increased by approximately $0.7 million and accrued interest increased by approximately $0.2 million.

All U.S. federal income tax returns are closed to audit through fiscal 2011. Cintas is currently in advanced stages of its U.S. federal audit and various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2009. Based on the resolution of the various audits and other potential regulatory developments, it is reasonably possible that the balance of unrecognized tax benefits will decrease by $3.1 million for the fiscal year ending May 31, 2017.

The majority of Cintas' operations are in North America. Cintas is required to file federal income tax returns, as well as state income tax returns in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated condensed results of operation in any given period.


13


9.             Acquisitions

On August 1, 2015, the Company acquired all of the shares of ZEE for acquisition-date fair value consideration of $134.0 million, consisting of cash of $120.6 million and contingent consideration, subject to certain holdback provisions of $13.4 million. ZEE operates within the First Aid and Safety Services reportable operating segment. This acquisition has expanded our footprint in van delivered first aid, safety, training and emergency products and will allow us to serve an even greater number of customers in North America.

The table below summarizes the preliminary purchase price allocation of ZEE as determined by management with the assistance of third-party valuation specialists. 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. None of the goodwill is expected to be deductible for income tax purposes. The assets acquired and liabilities assumed are valued at the estimated fair value at the acquisition date as required by GAAP.
(In thousands)
 
 
 
 
 
 
 
Assets:
 
 
 
Cash and cash equivalents
 
$
333

 
Accounts receivable
 
16,705

 
Inventory
 
5,987

 
Other current assets
 
1,443

 
Property, plant and equipment
 
1,331

 
Goodwill
 
81,303

 
Service contracts
 
34,000

 
Other intangibles
 
4,500

 
Liabilities:
 

 
Accounts payable
 
(7,195
)
 
Accrued liabilities
 
(4,407
)
 
Total consideration
 
$
134,000

 

The estimated useful life of the acquired service contracts is 10 years.

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 acquisitions). 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, service contracts and other intangibles were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flow using a discount rate of 11% (income approach).

The results of operations of ZEE are not material to the consolidated condensed financial statements.

14


10. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss), net of tax:
(In thousands)
Foreign Currency
 
Unrealized
Loss on
Derivatives
 
Other
 
Total
 
 
 
 
 
 
 
 
Balance at June 1, 2015
$
2,987

 
$
(10,626
)
 
$
(832
)
 
$
(8,471
)
Other comprehensive loss before reclassifications
(12,013
)
 
—

 
(8
)
 
(12,021
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
488

 
—

 
488

Net current period other comprehensive (loss) income
(12,013
)

488


(8
)

(11,533
)
Balance at August 31, 2015
(9,026
)

(10,138
)

(840
)

(20,004
)
Other comprehensive loss before reclassifications
(4,626
)
 
—

 
(10
)
 
(4,636
)
Amounts reclassified from accumulated other comprehensive income (loss)
6,472

 
488

 
—

 
6,960

Net current period other comprehensive income (loss)
1,846

 
488

 
(10
)
 
2,324

Balance at November 30, 2015
(7,180
)

(9,650
)

(850
)

(17,680
)
Other comprehensive loss before reclassifications
(2,405
)
 
(14,070
)
 
(7
)
 
(16,482
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
488

 
—

 
488

Net current period other comprehensive loss
(2,405
)
 
(13,582
)
 
(7
)
 
(15,994
)
Balance at February 29, 2016
$
(9,585
)
 
$
(23,232
)
 
$
(857
)
 
$
(33,674
)
(In thousands)
Foreign Currency
 
Unrealized
Loss on
Derivatives
 
Other
 
Total
 
 
 
 
 
 
 
 
Balance at June 1, 2014
$
41,525

 
$
(12,615
)
 
$
(482
)
 
$
28,428

Other comprehensive (loss) income before reclassifications
(2,115
)
 
17

 
—

 
(2,098
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
488

 
—

 
488

Net current period other comprehensive (loss) income
(2,115
)

505


—


(1,610
)
Balance at August 31, 2014
39,410

 
(12,110
)
 
(482
)
 
26,818

Other comprehensive (loss) income before reclassifications
(9,778
)
 
(21
)
 
3

 
(9,796
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
488

 
—

 
488

Net current period other comprehensive (loss) income
(9,778
)
 
467

 
3

 
(9,308
)
Balance at November 30, 2014
29,632

 
(11,643
)
 
(479
)
 
17,510

Other comprehensive (loss) income before reclassifications
(22,237
)
 
(29
)
 
5

 
(22,261
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
488

 
—

 
488

Net current period other comprehensive (loss) income
(22,237
)
 
459

 
5

 
(21,773
)
Balance at February 28, 2015
$
7,395

 
$
(11,184
)
 
$
(474
)
 
$
(4,263
)








15


The following table summarizes the reclassifications out of accumulated other comprehensive loss:
Reclassifications out of Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated
 Other Comprehensive Loss
 
Affected Line in the Consolidated Condensed Statements of Income
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
(In thousands)
 
February 29, 2016
 
February 28, 2015
 
February 29, 2016
 
February 28, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of interest rate locks
 
$
(783
)
 
$
(783
)
 
$
(2,348
)
 
$
(2,348
)
 
Interest expense
Tax benefit
 
295

 
295

 
884

 
884

 
Income taxes
Amortization of interest rate locks, net of tax
 
$
(488
)
 
$
(488
)

$
(1,464
)

$
(1,464
)
 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
(In thousands)
 
February 29, 2016
 
February 28, 2015
 
February 29, 2016
 
February 28, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative translation adjustment on investment in Shred-it
 
$
—

 
$
—

 
$
(10,381
)
 
$
—

 
Income from discontinued operations
Tax benefit
 
—

 
—

 
3,909

 
—

 
Income from discontinued operations
Cumulative translation adjustment on investment in Shred-it, net of tax
 
$
—

 
$
—

 
$
(6,472
)
 
$
—

 
Net of tax


16


11.      Segment Information
 
GAAP requires companies to evaluate their reportable operating segments periodically and when certain events occur. As a result of a recent evaluation, effective June 1, 2015, Cintas realigned its organizational structure and updated its reportable operating segments in light of certain changes in its business including the acquisition of ZEE in the first quarter of fiscal 2016. Cintas’ updated reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and Facility Services reportable operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items.  In addition to these rental items, restroom cleaning services and supplies, carpet and tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ business, which consists primarily of Fire Protection Services and its Direct Sale business, is included in All Other. All prior fiscal year results presented in the table below have been recasted to reflect these new segments.

Prior to June 1, 2015, Cintas classified its business into the following three reportable operating segments: The Rental Uniforms and Ancillary Products operating segment consisted 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 carpet and tile cleaning services were also provided within this operating segment. The Uniform Direct Sales operating segment consisted of the direct sale of uniforms and related items. The First Aid, Safety and Fire Protection Services operating segment consisted of first aid, safety and fire protection products and services.
 
Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment revenue and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Basis of Presentation. Information related to the operations of Cintas’ operating segments is set forth below: 
(In thousands)
Uniform Rental and Facility Services
 
First Aid
and Safety Services
 
All
Other
 
Corporate (1)
 
Total
 
 
 
 
 
 
 
 
 
 
For the three months ended February 29, 2016
 

 
 

 
 

 
 

 
 

Revenue
$
936,565

 
$
119,064

 
$
160,454

 
$
—

 
$
1,216,083

Income (loss) before income taxes
$
167,502

 
$
12,634

 
$
12,816

 
$
(15,828
)
 
$
177,124

 
 
 
 
 
 
 
 
 
 
For the three months ended February 28, 2015
 

 
 

 
 

 
 

 
 

Revenue
$
883,401

 
$
79,471

 
$
145,975

 
$
—

 
$
1,108,847

Income (loss) before income taxes
$
152,165

 
$
11,298

 
$
10,154

 
$
(16,158
)
 
$
157,459

 
 
 
 
 
 
 
 
 
 
As of and for the nine months ended February 29, 2016
 

 
 

 
 

 
 

 
 

Revenue
$
2,812,677

 
$
338,990

 
$
482,386

 
$
—

 
$
3,634,053

Income (loss) before income taxes
$
502,178

 
$
36,073

 
$
40,557

 
$
(48,181
)
 
$
530,627

Total assets
$
3,050,138

 
$
436,390

 
$
357,863

 
$
386,819

 
$
4,231,210

 
 
 
 
 
 
 
 
 
 
As of and for the nine months ended February 28, 2015
 
 
 
 
 
 
 
 
 
Revenue
$
2,648,574

 
$
241,666

 
$
444,063

 
$
—

 
$
3,334,303

Income (loss) before income taxes
$
456,548

 
$
32,222

 
$
29,918

 
$
(26,859
)
 
$
491,829

Total assets
$
2,908,813

 
$
264,357

 
$
340,705

 
$
752,471

 
$
4,266,346


(1) Corporate assets include cash and marketable securities in all periods. Corporate assets as of February 28, 2015 include the investment in Shred-it and the Storage assets that were classified as held for sale.

17


12.      Discontinued Operations
 
Cintas' investment in Shred-it was classified as discontinued operations for all periods presented as a result of entering into a definitive agreement on July 15, 2015 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.

In the quarter ended November 30, 2015, we completed the transaction to sell our investment in Shred-it. Cintas’ share of the proceeds from the sale were $578.3 million. Cintas also has the opportunity to receive up to $34.0 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. As of May 31, 2015, the equity method investment in Shred-it was $210.1 million. Cintas’ carrying value of its investment in Shred-it exceeded its share of the underlying equity in the net assets of Shred-it (basis difference). The basis difference was amortized over the weighted average estimated useful lives of the underlying assets which generated the basis difference (approximately 9 years) and was recorded as a reduction in our share of income from Shred-it, net of tax. For the nine months ended February 29, 2016, Cintas recorded a net loss on the investment in 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 difference no longer exists and Cintas will no longer record income or loss from the investment in Shred-it.

In the first quarter of fiscal 2015, Cintas received additional proceeds related to the contribution of its shredding business to Shred-it. The Company realized a $3.9 million gain, net of tax, as a result of the additional consideration received. During the three and nine months ended February 28, 2015, Cintas recorded a net loss on our investment in Shred-it of $6.8 million and $7.0 million, respectively.

In fiscal 2015, Cintas sold Storage, excluding certain real estate owned by Cintas, in three separate transactions to three separate buyers. Certain real estate owned by Cintas is being leased by the buyers. These lease payments do 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. On July 10, 2015, Cintas sold the remaining Storage assets classified as held for sale. During the nine months ended February 29, 2016, Cintas received additional proceeds related to contingent consideration on the sale of Storage. The Company realized a pre-tax gain of $10.9 million as a result of the additional consideration received. For the nine months ended February 29, 2016, Cintas received proceeds of $24.4 million from the sale of the remaining Storage assets previously classified as held for sale and realized a pre-tax gain of $4.8 million on the sale.

Following is selected financial information included in net income (loss) from discontinued operations for the Shredding and Storage businesses:
 
Three Months Ended
 
Nine Months Ended
(In thousands)
February 29,
2016
 
February 28,
2015(1)
 
February 29,
2016
 
February 28,
2015(1)
 
 
 
 
 
 
 
 
Revenue
$
—

 
$
—

 
$
—

 
$
31,379

 
 
 
 
 
 
 
 
(Loss) income before income taxes
(679
)
 
940

 
403

 
(4,172
)
Income tax benefit (expense)
264

 
(159
)
 
(157
)
 
2,063

Gain on Storage Transactions
—

 
899

 
15,786

 
35,036

Loss on investment in Shred-it Partnership(1)
—

 
(10,781
)
 
(24,288
)
 
(4,570
)
Gain on sale of investment in Shred-it
    Partnership
—

 
—

 
374,026

 
—

Income tax benefit (expense) on net
    gain (loss)
477

 
3,653

 
(142,078
)
 
(12,891
)
Net income (loss) from discontinued
     operations
$
62


$
(5,448
)

$
223,692


$
15,466

(1) Results for the three and nine months ended February 28, 2015 related to the net loss on the investment in Shred-it were previously presented in continuing operations and were reclassified to discontinued operations as previously discussed.



18



13.      Supplemental Guarantor Information
 
Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $1,300.0 million aggregate principal amount of senior notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.
 
As allowed by SEC rules, the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the following condensed consolidating financial statements has been fully consolidated in Cintas’ consolidated financial statements. The following condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of Cintas and notes thereto of which this note is an integral part.
 
Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages: 




19


Condensed Consolidating Income Statement
Three Months Ended February 29, 2016
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 

 
 

 
 

 
 

 
 

 
 

Uniform rental and facility services
$
—

 
$
723,280

 
$
198,943

 
$
50,763

 
$
(36,421
)
 
$
936,565

Other
—

 
390,199

 
959

 
14,952

 
(126,592
)
 
279,518

Equity in net income of affiliates
117,279

 
—

 
—

 
—

 
(117,279
)
 
—

 
117,279

 
1,113,479

 
199,902

 
65,715

 
(280,292
)
 
1,216,083

Costs and expenses (income):
 

 
 

 
 

 
 

 
 

 
 

Cost of uniform rental and facility services
—

 
449,530

 
112,701

 
35,678

 
(73,253
)
 
524,656

Cost of other
—

 
246,282

 
(8,083
)
 
9,777

 
(81,157
)
 
166,819

Selling and administrative expenses
—

 
344,736

 
(23,684
)
 
17,459

 
(6,855
)
 
331,656

Operating income
117,279

 
72,931

 
118,968

 
2,801

 
(119,027
)
 
192,952

 
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
(7
)
 
(262
)
 
(68
)
 
2

 
(335
)
Interest expense (income)
—

 
16,350

 
(207
)
 
20

 
—

 
16,163

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
117,279


56,588


119,437


2,849


(119,029
)

177,124

Income taxes
—

 
18,980

 
39,764

 
1,130

 
(29
)
 
59,845

Income from continuing operations
117,279


37,608


79,673


1,719


(119,000
)
 
117,279

 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax
62

 
74

 
—

 
(12
)
 
(62
)
 
62

 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
117,341

 
$
37,682

 
$
79,673

 
$
1,707

 
$
(119,062
)
 
$
117,341



20


Condensed Consolidating Income Statement
Three Months Ended February 28, 2015
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 

 
 

 
 

 
 

 
 

 
 

Uniform rental and facility services
$
—

 
$
671,490

 
$
187,389

 
$
56,379

 
$
(31,857
)
 
$
883,401

Other
—

 
328,626

 
322

 
12,224

 
(115,726
)
 
225,446

Equity in net income of affiliates
100,331

 
—

 
—

 
—

 
(100,331
)
 
—

 
100,331

 
1,000,116

 
187,711

 
68,603

 
(247,914
)
 
1,108,847

Costs and expenses (income):
 

 
 

 
 

 
 

 
 

 
 

Cost of uniform rental and facility services
—

 
420,917

 
105,871

 
37,858

 
(63,373
)
 
501,273

Cost of other
—

 
211,502

 
(8,810
)
 
7,544

 
(77,969
)
 
132,267

Selling and administrative expenses
—

 
308,953

 
(18,542
)
 
18,235

 
(6,956
)
 
301,690

Operating income
100,331

 
58,744

 
109,192

 
4,966

 
(99,616
)
 
173,617

 
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
(2
)
 
(77
)
 
(18
)
 
1

 
(96
)
Interest expense (income)
—

 
16,356

 
(101
)
 
(1
)
 
—

 
16,254