Cintas Corporation Announces Fiscal 2017 First Quarter Results

CINCINNATI–(BUSINESS WIRE)–Cintas Corporation (Nasdaq: CTAS) today reported results for its
first quarter of fiscal year 2017 which ended August 31, 2016.

Revenue for the first quarter was $1.29 billion, an increase of 7.9%
over the prior year period. Organic growth, which adjusts for the
impacts of acquisitions and foreign currency exchange rate fluctuations,
was 5.7%.

Operating income for the first quarter of fiscal year 2017 of $207.0
million increased 11.6% from the prior year period. Operating income
margin improved to 16.0% from 15.5% of revenue in last year’s first
quarter. Fiscal year 2017 operating income includes $2.8 million of
transaction expenses related to the recently announced agreement to
acquire G&K Services, Inc. (G&K).

Net income from continuing operations for the first quarter of fiscal
2017 was $138.1 million compared to $106.2 million in the prior year
period, and earnings per diluted share (EPS) from continuing operations
for the first quarter of fiscal year 2017 were $1.26 compared to $0.93
for last year’s first quarter. First quarter of fiscal 2017 net income
and EPS from continuing operations increased 30.0% and 35.5%,
respectively, compared to the prior year period. Net income from
continuing operations as a percent of revenue improved to 10.7% from
8.9% in last year’s first quarter.

During the first quarter of fiscal 2017, Accounting Standards Update
2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment
Accounting, was adopted. Under ASU 2016-09, excess tax benefits and
deficiencies associated with employee share-based payments are no longer
recognized as additional paid-in capital on the balance sheet but
instead recognized directly to income tax expense or benefit in the
income statement in the reporting period in which they occur. Other
financial statement items impacted include share-based compensation
expense and the computation of fully diluted shares outstanding. The
first quarter of fiscal 2017 net benefit to EPS from the adoption of ASU
2016-09 was $0.14, consisting of a reduction of income tax expense of
$0.16 partially offset by a $0.01 negative impact from additional
employee share-based compensation expense reducing operating income and
a $0.01 negative impact from an increase in the number of dilutive
shares outstanding.

Scott D. Farmer, Cintas’ Chief Executive Officer, stated, “In our
recently ended fiscal year 2016, we achieved record revenue and EPS and
increased EPS by double-digits for the sixth consecutive year. We are
pleased to report a continuation of strong results into the first
quarter of fiscal 2017. This solid start positions us for another year
of record-breaking results.”

Mr. Farmer concluded, “As a result of our first quarter results, we are
updating our annual guidance. We expect fiscal 2017 revenue to be in the
range of $5.160 billion to $5.225 billion and fiscal 2017 EPS from
continuing operations to be in the range of $4.55 to $4.63. This
guidance does not include any potential deterioration in the U.S.
economy, future share buybacks, or any future financial impact from our
acquisition of G&K, including transaction expenses. It does include the
impact of one less workday in fiscal 2017 compared to fiscal 2016, and
it assumes a negative impact in the remaining quarters of fiscal 2017
from adoption of ASU 2016-09 such that we end fiscal 2017 with an
estimated net benefit to EPS of $0.07.”

The table below provides a comparison of fiscal 2016 revenue and EPS
from continuing operations to our fiscal 2017 guidance.

		Fiscal 2016		Fiscal 2017 Low End of Range		Growth vs. Fiscal 2016		Fiscal 2017 High End of Range		Growth vs. Fiscal 2016
Revenue (dollar amounts in millions)		$4,905.5		$5,160.0		5.2%		$5,225.0		6.5%
EPS from continuing operations		$4.09		$4.55		11.2%		$4.63		13.2%

About Cintas

Cintas Corporation helps more than 900,000 businesses of all types and
sizes get Ready™ to open their doors with confidence every day by
providing a wide range of products and services that enhance our
customers’ image and help keep their facilities and employees clean,
safe and looking their best. With products and services including
uniforms, floor care, restroom supplies, first aid and safety products,
fire extinguishers and testing, and safety and compliance training,
Cintas helps customers get Ready for the Workday™. Headquartered
in Cincinnati, Cintas is a publicly held company traded over the Nasdaq
Global Select Market under the symbol CTAS and is a component of the
Standard & Poor’s 500 Index.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe
harbor from civil litigation for forward-looking statements. Forward-looking
statements may be identified by words such as “estimates,”
“anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,”
“target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and
“will” or the negative versions thereof and similar words, terms and
expressions and by the context in which they are used. Such
statements are based upon current expectations of Cintas and speak only
as of the date made. You should not place undue reliance on any
forward-looking statement. We cannot guarantee that any
forward-looking statement will be realized. These statements are
subject to various risks, uncertainties, potentially inaccurate
assumptions and other factors that could cause actual results to differ
from those set forth in or implied by this Press Release. Factors
that might cause such a difference include, but are not limited to, the
failure to obtain G&K stockholder approval of the proposed transaction;
the possibility that the closing conditions to the contemplated
transaction may not be satisfied or waived, including that a
governmental entity may prohibit, delay or refuse to grant a necessary
regulatory approval; delay in closing the proposed transaction or the
possibility of non-consummation of the proposed transaction; the
potential for regulatory authorities to require divestitures in
connection with the proposed transaction; the occurrence of any event
that could give rise to termination of the merger agreement; the risk
that stockholder litigation in connection with the contemplated
transaction may affect the timing or occurrence of the contemplated
transaction or result in significant costs of defense, indemnification
and liability; risks inherent in the achievement of cost synergies and
the timing thereof, including whether the proposed transaction will be
accretive and within the expected timeframe; risks related to the
disruption of the transaction to G&K and its management; the effect of
announcement of the transaction on G&K’s ability to retain and hire key
personnel and maintain relationships with customers, suppliers and other
third parties; our ability to promptly and effectively integrate
acquisitions, including G&K and ZEE Medical; the possibility of greater
than anticipated operating costs including energy and fuel costs; lower
sales volumes; loss of customers due to outsourcing trends; the
performance and costs of integration of acquisitions, including G&K and
ZEE Medical; fluctuations in costs of materials and labor including
increased medical costs; costs and possible effects of union organizing
activities; failure to comply with government regulations concerning
employment discrimination, employee pay and benefits and employee health
and safety; the effect on operations of exchange rate fluctuations,
tariffs and other political, economic and regulatory risks;
uncertainties regarding any existing or newly-discovered expenses and
liabilities related to environmental compliance and remediation; the
cost, results and ongoing assessment of internal controls for financial
reporting required by the Sarbanes-Oxley Act of 2002; costs of our SAP
system implementation; disruptions caused by the inaccessibility of
computer systems data, including cybersecurity risks; the initiation or
outcome of litigation, investigations or other proceedings; higher
assumed sourcing or distribution costs of products; the disruption of
operations from catastrophic or extraordinary events; the amount and
timing of repurchases of our common stock, if any; changes in federal
and state tax and labor laws; the reactions of competitors in terms of
price and service; and the finalization of our financial statements for
the quarter ended August 31, 2016. Cintas undertakes no obligation to
publicly release any revisions to any forward-looking statements or to
otherwise update any forward-looking statements whether as a result of
new information or to reflect events, circumstances or any other
unanticipated developments arising after the date on which such
statements are made. A further list and description of risks,
uncertainties and other matters can be found in our Annual Report on
Form 10-K for the year ended May 31, 2016 and in our reports on Forms
10-Q and 8-K. The risks and uncertainties described herein are
not the only ones we may face. Additional risks and uncertainties
presently not known to us or that we currently believe to be immaterial
may also harm our business.

Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
		Three Months Ended
		August 31, 2016				August 31, 2015				% Change
Revenue:
Uniform rental and facility services		$	999,596			$	938,408			6.5
Other			294,534				260,482			13.1
Total revenue			1,294,130				1,198,890			7.9
Costs and expenses:
Cost of uniform rental and facility services			540,932				518,503			4.3
Cost of other			169,424				156,243			8.4
Selling and administrative expenses			374,026				338,637			10.5
G&K Services acquisition expenses			2,787				–			100.0
Operating income			206,961				185,507			11.6
Interest income			(65	)			(119	)		-45.4
Interest expense			14,172				16,412			-13.6
Income before income taxes			192,854				169,214			14.0
Income taxes			54,763				63,016			-13.1
Income from continuing operations			138,091				106,198			30.0
Loss from discontinued operations, net of tax			–				(6,017	)		100.0
Net income		$	138,091			$	100,181			37.8
Basic earnings (loss) per share:
Continuing operations		$	1.29			$	0.94			37.2
Discontinued operations			0.00				(0.05	)		100.0
Basic earnings per share		$	1.29			$	0.89			44.9
Diluted earnings (loss) per share:
Continuing operations		$	1.26			$	0.93			35.5
Discontinued operations			0.00				(0.05	)		100.0
Diluted earnings per share		$	1.26			$	0.88			43.2
Weighted average number of shares outstanding			104,483				110,597
Diluted average number of shares outstanding			107,114				112,229

CINTAS CORPORATION SUPPLEMENTAL DATA
		Three Months Ended
		August 31, 2016			August 31, 2015
Uniform rental and facility services gross margin		45.9	%		44.7	%
Other gross margin		42.5	%		40.0	%
Total gross margin		45.1	%		43.7	%
Net margin, continuing operations		10.7	%		8.9	%

Computation of Diluted Earnings Per Share from Continuing Operations
		Three Months Ended
		August 31, 2016			August 31, 2015
Income from continuing operations		$	138,091		$	106,198
Less: income from continuing operations allocated to participating securities			2,727			1,742
Income from continuing operations available to common shareholders		$	135,364		$	104,456
Basic weighted average common shares outstanding			104,483			110,597
Effect of dilutive securities – employee stock options			2,631			1,632
Diluted weighted average common shares outstanding			107,114			112,229
Diluted earnings per share from continuing operations		$	1.26		$	0.93

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure
The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional non-GAAP financial measures of revenue and related growth, net income, earnings per diluted share, and cash flow. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. Reconciliations of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP are shown in the tables within the narrative of the press release or below.

Computation of Free Cash Flow
		Three Months Ended
		August 31, 2016				August 31, 2015
Net Cash Provided by Operations		$	157,588			$	143,083
Capital Expenditures			(78,580	)			(62,631	)
Free Cash Flow		$	79,008			$	80,452

Management uses free cash flow to assess the financial performance of the Company. Management believes that free cash flow is useful to investors because it relates the operating cash flow of the Company to the capital that is spent to continue, improve and grow business operations.

SUPPLEMENTAL SEGMENT DATA		Uniform Rental and Facility Services			First Aid and Safety Services			All Other			Corporate(1)				Total
As of and for the three months ended August 31, 2016
Revenue		$	999,596		$	124,839		$	169,695		$	–			$	1,294,130
Gross margin		$	458,664		$	57,126		$	67,984		$	–			$	583,774
Selling and administrative expenses		$	270,632		$	45,615		$	57,779		$	–			$	374,026
G&K Services acquisition expenses		$	2,787		$	–		$	–		$	–			$	2,787
Interest income		$	–		$	–		$	–		$	(65	)		$	(65	)
Interest expense		$	–		$	–		$	–		$	14,172			$	14,172
Income (loss) before income taxes		$	185,245		$	11,511		$	10,205		$	(14,107	)		$	192,854
Assets		$	3,109,120		$	578,855		$	315,403		$	163,767			$	4,167,145
As of and for the three months ended August 31, 2015
Revenue		$	938,408		$	99,488		$	160,994		$	–			$	1,198,890
Gross margin		$	419,905		$	42,111		$	62,128		$	–			$	524,144
Selling and administrative expenses		$	254,524		$	33,519		$	50,594		$	–			$	338,637
Interest income		$	–		$	–		$	–		$	(119	)		$	(119	)
Interest expense		$	–		$	–		$	–		$	16,412			$	16,412
Income (loss) before income taxes		$	165,381		$	8,592		$	11,534		$	(16,293	)		$	169,214
Assets		$	2,865,675		$	397,573		$	341,839		$	511,378			$	4,116,465

(1) Corporate assets include cash and marketable securities in all periods. Corporate assets as of August 31, 2015 include the investment in the Shred-it Partnership.

Cintas Corporation
Consolidated Condensed Balance Sheets
(In thousands except share data)
ASSETS					August 31, 2016				May 31, 2016
					(unaudited)
Current assets:
	Cash and cash equivalents				$	99,209			$	139,357
	Marketable securities					64,558				70,405
	Accounts receivable, net					586,372				563,178
	Inventories, net					262,156				249,362
	Uniforms and other rental items in service					542,124				539,956
	Income taxes, current					–				1,712
	Prepaid expenses and other current assets					40,329				26,065
		Total current assets				1,594,748				1,590,035
Property and equipment, at cost, net						1,033,160				994,237
Investments						140,876				124,952
Goodwill						1,298,375				1,291,593
Service contracts, net						84,792				83,715
Other assets, net						15,194				14,283
					$	4,167,145			$	4,098,815
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	129,650			$	114,514
	Accrued compensation and related liabilities					64,692				101,976
	Accrued liabilities					313,888				349,065
	Income taxes, current					38,829				–
	Debt due within one year					163,800				250,000
		Total current liabilities				710,859				815,555
Long-term liabilities:
	Debt due after one year					1,044,628				1,044,422
	Deferred income taxes					255,380				259,475
	Accrued liabilities					168,876				136,704
		Total long-term liabilities				1,468,884				1,440,601
Shareholders’ equity:
	Preferred stock, no par value:									–
		100,000 shares authorized, none outstanding
	Common stock, no par value:					463,375				409,682
		425,000,000 shares authorized
		FY17: 180,482,036 issued and 104,905,807 outstanding
		FY16: 179,598,516 issued and 104,213,479 outstanding
	Paid-in capital					161,938				205,260
	Retained earnings					4,970,647				4,805,867
	Treasury stock:					(3,572,146	)			(3,553,276	)
		FY17: 75,576,229 shares
		FY16: 75,385,037 shares
	Accumulated other comprehensive loss					(36,412	)			(24,874	)
		Total shareholders’ equity				1,987,402				1,842,659
					$	4,167,145			$	4,098,815

Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
					Three Months Ended
					August 31, 2016				August 31, 2015
Cash flows from operating activities:
Net income					$	138,091			$	100,181
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation					39,679				36,165
	Amortization of intangible assets					3,489				3,603
	Stock-based compensation					20,779				23,917
	Gain on Storage transaction					–				(4,843	)
	Loss on Shred-it					–				14,516
	Deferred income taxes					1,970				5,632
	Change in current assets and liabilities, net of acquisitions of businesses:
		Accounts receivable, net				(22,946	)			(19,255	)
		Inventories, net				(13,017	)			(8,109	)
		Uniforms and other rental items in service				(1,872	)			(4,939	)
		Prepaid expenses and other current assets				(5,655	)			(6,024	)
		Accounts payable				17,480				15,531
		Accrued compensation and related liabilities				(37,276	)			(35,579	)
		Accrued liabilities and other				(23,676	)			(26,253	)
		Income taxes, current				40,542				48,540
	Net cash provided by operating activities					157,588				143,083
Cash flows from investing activities:
Capital expenditures						(78,580	)			(62,631	)
Proceeds from redemption of marketable securities						109,612				152,907
Purchase of marketable securities and investments						(119,729	)			(196,020	)
Proceeds from Storage transaction						–				24,395
Acquisitions of businesses, net of cash acquired						(10,991	)			(121,434	)
Other, net						(918	)			921
	Net cash used in investing activities					(100,606	)			(201,862	)
Cash flows from financing activities:
Proceeds from issuance of commercial paper, net						163,800				–
Repayment of debt						(250,000	)			(16	)
Prepaid short-term debt financing fees						(8,625	)			–
Proceeds from exercise of stock-based compensation awards						16,282				11,844
Repurchase of common stock						(18,870	)			(221,598	)
Other, net						385				51
	Net cash used in financing activities					(97,028	)			(209,719	)
Effect of exchange rate changes on cash and cash equivalents						(102	)			(1,715	)
Net decrease in cash and cash equivalents						(40,148	)			(270,213	)
Cash and cash equivalents at beginning of year						139,357				417,073
Cash and cash equivalents at end of year					$	99,209			$	146,860

Contacts

Cintas Corporation
J. Michael Hansen, 513-701-2079
Senior Vice
President-Finance and Chief Financial Officer
or
Paul F.
Adler, 513-573-4195
Vice President and Treasurer