Company Quick10K Filing
Cintas
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 109 $25,524
10-Q 2020-01-09 Quarter: 2019-11-30
10-Q 2019-10-08 Quarter: 2019-08-31
10-K 2019-07-26 Annual: 2019-05-31
10-Q 2019-04-05 Quarter: 2019-02-28
10-Q 2019-01-08 Quarter: 2018-11-30
10-Q 2018-10-05 Quarter: 2018-08-31
10-K 2018-07-27 Annual: 2018-05-31
10-Q 2018-04-06 Quarter: 2018-02-28
10-Q 2018-01-05 Quarter: 2017-11-30
10-Q 2017-10-06 Quarter: 2017-08-31
10-K 2017-07-31 Annual: 2017-05-31
10-Q 2017-04-07 Quarter: 2017-02-28
10-Q 2017-01-06 Quarter: 2016-11-30
10-Q 2016-10-11 Quarter: 2016-08-31
10-K 2016-07-29 Annual: 2016-05-31
10-Q 2016-04-08 Quarter: 2016-02-29
10-Q 2016-01-08 Quarter: 2015-11-30
10-Q 2015-10-09 Quarter: 2015-08-31
10-K 2015-07-30 Annual: 2015-05-31
10-Q 2015-04-02 Quarter: 2015-02-28
10-Q 2015-01-09 Quarter: 2014-11-30
10-Q 2014-10-10 Quarter: 2014-08-31
10-K 2014-07-30 Annual: 2014-05-31
10-Q 2014-04-09 Quarter: 2014-02-28
10-Q 2014-01-09 Quarter: 2013-11-30
10-Q 2013-10-10 Quarter: 2013-08-31
10-Q 2013-04-09 Quarter: 2013-02-28
10-Q 2013-01-09 Quarter: 2012-11-30
10-Q 2012-10-10 Quarter: 2012-08-31
10-K 2012-07-30 Annual: 2012-05-31
10-Q 2012-04-09 Quarter: 2012-02-29
10-Q 2012-01-09 Quarter: 2011-11-30
10-Q 2011-10-07 Quarter: 2011-08-31
10-K 2011-07-29 Annual: 2011-05-31
10-Q 2011-04-08 Quarter: 2011-02-28
10-Q 2011-01-07 Quarter: 2010-11-30
10-Q 2010-10-08 Quarter: 2010-08-31
10-K 2010-07-30 Annual: 2010-05-31
10-Q 2010-04-09 Quarter: 2010-02-28
10-Q 2010-01-08 Quarter: 2009-11-30
8-K 2019-12-17 Earnings, Exhibits
8-K 2019-10-29 Shareholder Vote
8-K 2019-09-24 Earnings, Exhibits
8-K 2019-07-16 Earnings, Exhibits
8-K 2019-07-01 Officers
8-K 2019-05-24 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-03-21 Earnings, Exhibits
8-K 2018-12-20 Earnings, Exhibits
8-K 2018-10-30 Shareholder Vote
8-K 2018-09-25 Earnings, Exhibits
8-K 2018-08-03 Officers, Amend Bylaw, Exhibits
8-K 2018-07-19 Earnings, Exhibits
8-K 2018-06-13 Officers
8-K 2018-03-22 Earnings, Exhibits
CTAS 2019-11-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue Recognition
Note 3 - Leases
Note 4 - Fair Value Measurements
Note 5 - Investments
Note 6 - Earnings per Share
Note 7 - Goodwill, Service Contracts and Other Assets
Note 8 - Debt, Derivatives and Hedging Activities
Note 9 - Income Taxes
Note 10 - Pension Plans
Note 11 - Accumulated Other Comprehensive Income (Loss)
Note 12 - Segment Information
Note 13 - G&K Services, Inc. Integration Expenses
Note 14 - Supplemental Guarantor Information
Item 2. Management's Discussion and Analysis of Financial
Item 3. Quantitative and Qualitative
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ctas-ex311x2019x11x30x.htm
EX-31.2 ctas-ex312x2019x11x30x.htm
EX-32.1 ctas-ex321x2019x11x30x.htm
EX-32.2 ctas-ex322x2019x11x30x.htm

Cintas Earnings 2019-11-30

CTAS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
VFC 35,308 10,402 6,250 13,332 6,853 1,149 1,806 36,816 51% 20.4 11%
LULU 25,580 2,695 1,187 3,581 1,983 534 911 24,957 55% 27.4 20%
CTAS 25,524 7,437 4,434 6,892 824 885 1,564 27,965 12% 17.9 12%
UA 10,186 4,680 2,632 5,229 2,390 85 281 10,311 46% 36.7 2%
RL 9,083 7,344 4,331 6,351 3,911 439 935 9,084 62% 9.7 6%
TPR 8,951 6,877 3,364 6,027 4,054 643 1,158 9,592 67% 8.3 9%
COLM 6,781 2,662 1,007 2,894 1,449 313 489 6,395 50% 13.1 12%
PVH 6,549 13,821 7,949 9,729 5,305 677 1,131 8,900 55% 7.9 5%
DXF 4,960 869 0 0 0 0 4,960 0%
CRI 4,315 2,747 1,919 3,486 1,494 281 481 4,801 43% 10.0 10%

Document
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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
November 30, 2019
 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
 cintasreadyfortheworkdaya01.jpg
Cintas Corporation
(Exact name of registrant as specified in its charter)
Washington
 
31-1188630
(State or Other Jurisdiction of Incorporation)
 
(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 December 31, 2019
Common Stock, no par value
 
103,750,798




CINTAS CORPORATION
TABLE OF CONTENTS

 
 
 
 
Page No.
Part I.
Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three and Six Months Ended November 30, 2019 and 2018
 
 
 
 
 
 
 
 
Three and Six Months Ended November 31, 2019 and 2018
 
 
 
 
 
 
 
 
November 30, 2019 and May 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Six Months Ended November 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II.
Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
 
 
 
 
 
 
Signatures
 
 

2



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
 
Six Months Ended
 
November 30,
2019
 
November 30,
2018
 
November 30,
2019
 
November 30,
2018
Revenue:
 

 
 

 
 
 
 
Uniform rental and facility services
$
1,469,976

 
$
1,390,778

 
$
2,924,503

 
$
2,765,716

Other
373,773

 
327,490

 
730,385

 
650,527

Total revenue
1,843,749

 
1,718,268

 
3,654,888

 
3,416,243

 
 
 
 
 
 
 
 
Costs and expenses:
 

 
 

 
 
 
 
Cost of uniform rental and facility services
784,937

 
761,119

 
1,553,613

 
1,507,572

Cost of other
206,421

 
181,991

 
399,742

 
358,801

Selling and administrative expenses
517,927

 
491,671

 
1,060,923

 
996,305

G&K Services, Inc. integration expenses

 
7,847

 

 
12,697

 
 
 
 
 
 
 
 
Operating income
334,464

 
275,640

 
640,610

 
540,868

 
 
 
 
 
 
 
 
Gain on sale of a cost method investment

 
69,373

 

 
69,373

 
 
 
 
 
 
 
 
Interest income
(283
)
 
(391
)
 
(445
)
 
(887
)
Interest expense
26,177

 
24,880

 
53,498

 
49,184

 
 
 
 
 
 
 
 
Income before income taxes
308,570


320,524


587,557


561,944

Income taxes
62,127

 
77,530

 
90,302

 
106,403

Income from continuing operations
246,443

 
242,994

 
497,255

 
455,541

(Loss) income from discontinued operations,
net of tax benefit of $107, tax expense of
$6, tax benefit of $107 and tax benefit of $4,
respectively
(323
)
 
19

 
(323
)
 
(13
)
Net income
$
246,120

 
$
243,013


$
496,932


$
455,528

 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
Continuing operations
$
2.35

 
$
2.25

 
$
4.75

 
$
4.21

Discontinued operations
0.00

 
0.00

 
0.00

 
0.00

Basic earnings per share
$
2.35

 
$
2.25


$
4.75


$
4.21

 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
Continuing operations
$
2.27

 
$
2.18

 
$
4.60

 
$
4.07

Discontinued operations
0.00

 
0.00

 
0.00

 
0.00

Diluted earnings per share
$
2.27


$
2.18


$
4.60


$
4.07

 
 
 
 
 
 
 
 
Dividends declared per share
$
2.55

 
$
2.05

 
$
2.55

 
$
2.05

 

See accompanying notes.

3



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

 
Three Months Ended
 
Six Months Ended
 
November 30, 2019
 
November 30, 2018
 
November 30, 2019
 
November 30, 2018
 
 
 
 
 
 
 
 
Net income
$
246,120

 
$
243,013

 
$
496,932

 
$
455,528

 
 
 
 
 
 
 
 
Other comprehensive income (loss),
   net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
1,413

 
(10,623
)
 
8,137

 
(13,642
)
Change in fair value of interest rate lock
   agreements
22,761

 
4,921

 
(7,142
)
 
1,753

Amortization of interest rate lock agreements
(358
)
 
(294
)
 
(653
)
 
(589
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
23,816

 
(5,996
)
 
342

 
(12,478
)
 
 
 
 
 
 
 
 
Comprehensive income
$
269,936

 
$
237,017

 
$
497,274

 
$
443,050



See accompanying notes.







4



CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
 
November 30,
2019
 
May 31,
2019
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
226,535

 
$
96,645

Accounts receivable, net
949,122

 
910,120

Inventories, net
348,304

 
334,589

Uniforms and other rental items in service
817,859

 
784,133

Income taxes, current
24,878

 
7,475

Prepaid expenses and other current assets
123,589

 
103,318

Total current assets
2,490,287

 
2,236,280

 
 
 
 
Property and equipment, net
1,425,584

 
1,430,685

 
 
 
 
Investments
218,873

 
192,346

Goodwill
2,852,801

 
2,842,441

Service contracts, net
469,933

 
494,595

Operating lease right-of-use assets, net
169,233

 

Other assets, net
260,626

 
240,315

 
$
7,887,337

 
$
7,436,662

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
254,611

 
$
226,020

Accrued compensation and related liabilities
124,349

 
155,509

Accrued liabilities
674,240

 
433,940

Operating lease liabilities, current
44,263

 

Debt due within one year
199,788

 
312,264

Total current liabilities
1,297,251

 
1,127,733

 
 
 
 
Long-term liabilities:
 

 
 

Debt due after one year
2,538,606

 
2,537,507

Deferred income taxes
443,857

 
438,179

Operating lease liabilities
130,580

 

Accrued liabilities
372,073

 
330,522

Total long-term liabilities
3,485,116

 
3,306,208

 
 
 
 
Shareholders’ equity:
 

 
 

Preferred stock, no par value:

 

100,000 shares authorized, none outstanding


 


Common stock, no par value:
1,066,814

 
840,328

425,000,000 shares authorized
 

 
 

FY 2020: 186,298,161 shares issued and 103,702,675 shares outstanding
 

 
 

FY 2019: 184,790,626 shares issued and 103,284,401 shares outstanding
 
 
 
Paid-in capital
134,041

 
227,928

Retained earnings
6,917,310

 
6,691,236

Treasury stock:
(4,976,360
)
 
(4,717,619
)
FY 2020: 82,595,486 shares
 

 
 

FY 2019: 81,506,225 shares
 
 
 
Accumulated other comprehensive loss
(36,835
)
 
(39,152
)
Total shareholders’ equity
3,104,970

 
3,002,721

 
$
7,887,337

 
$
7,436,662

See accompanying notes.

5



CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
 
Common Stock  
 
Paid-In
Capital
 
Retained
Earnings
 
Other
Accumulated
Comprehensive
Loss
 
Treasury Stock  
 
Total
Shareholders'
Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 1, 2019
184,791

 
$
840,328

 
$
227,928

 
$
6,691,236

 
$
(39,152
)
 
(81,506
)
 
$
(4,717,619
)
 
$
3,002,721

Net income

 

 

 
250,812

 

 

 

 
250,812

Comprehensive loss, net of tax

 

 

 

 
(23,474
)
 

 

 
(23,474
)
Stock-based compensation

 

 
40,395

 

 

 

 

 
40,395

Vesting of stock-based compensation
   awards
605

 
157,882

 
(157,882
)
 

 

 

 

 

Stock options exercised, net of shares
   surrendered
557

 
37,915

 

 

 

 

 

 
37,915

Repurchase of common stock

 

 

 

 

 
(1,082
)
 
(256,830
)
 
(256,830
)
Cumulative effect of change in accounting
   principle

 

 

 
(2,808
)
 
1,975

 

 

 
(833
)
Balance at August 31, 2019
185,953

 
$
1,036,125

 
$
110,441

 
$
6,939,240

 
$
(60,651
)
 
(82,588
)
 
$
(4,974,449
)
 
$
3,050,706

Net income

 

 

 
246,120

 

 

 

 
246,120

Comprehensive income, net of tax

 

 

 

 
23,816

 

 

 
23,816

Dividends

 

 

 
(268,050
)
 

 

 

 
(268,050
)
Stock-based compensation

 

 
29,003

 

 

 

 

 
29,003

Vesting of stock-based compensation
   awards
21

 
5,403

 
(5,403
)
 

 

 

 

 

Stock options exercised, net of shares
   surrendered
324

 
25,286

 

 

 

 

 

 
25,286

Repurchase of common stock

 

 

 

 

 
(7
)
 
(1,911
)
 
(1,911
)
Balance at November 30, 2019
186,298

 
$
1,066,814

 
$
134,041

 
$
6,917,310

 
$
(36,835
)
 
(82,595
)
 
$
(4,976,360
)
 
$
3,104,970


See accompanying notes.


6



CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
 
Common Stock  
 
Paid-In
Capital
 
Retained
Earnings
 
Other
Accumulated
Comprehensive
Income
 
Treasury Stock  
 
Total
Shareholders'
Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 1, 2018
182,723

 
$
618,464

 
$
245,211

 
$
5,837,827

 
$
16,343

 
(76,397
)
 
$
(3,701,319
)
 
3,016,526

Cumulative effect of change in accounting
   principle

 

 

 
189,192

 

 

 

 
189,192

Net income

 

 

 
212,515

 

 

 

 
212,515

Comprehensive loss, net of tax

 

 

 

 
(6,482
)
 

 

 
(6,482
)
Dividends

 

 

 
1

 

 

 

 
1

Stock-based compensation

 

 
46,172

 

 

 

 

 
46,172

Vesting of stock-based compensation
   awards
739

 
151,012

 
(151,012
)
 

 

 

 

 

Stock options exercised, net of shares
   surrendered
594

 
27,512

 

 

 

 

 

 
27,512

Repurchase of common stock

 

 

 

 

 
(689
)
 
(139,468
)
 
(139,468
)
Balance at August 31, 2018
184,056

 
$
796,988

 
$
140,371

 
$
6,239,535

 
$
9,861

 
(77,086
)
 
$
(3,840,787
)
 
$
3,345,968

Net income

 

 

 
243,013

 

 

 

 
243,013

Comprehensive loss, net of tax

 

 

 

 
(5,996
)
 

 

 
(5,996
)
Dividends

 

 

 
(220,792
)
 

 

 

 
(220,792
)
Stock-based compensation

 

 
28,612

 

 

 

 

 
28,612

Vesting of stock-based compensation
   awards
11

 
2,146

 
(2,146
)
 

 

 

 

 

Stock options exercised, net of shares
   surrendered
86

 
5,100

 

 

 

 

 

 
5,100

Repurchase of common stock

 

 

 

 

 
(1,943
)
 
(368,661
)
 
(368,661
)
Balance at November 30, 2018
184,153

 
$
804,234

 
$
166,837

 
$
6,261,756

 
$
3,865

 
(79,029
)
 
$
(4,209,448
)
 
$
3,027,244


See accompanying notes.

7



CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) 
 
Six Months Ended
 
November 30,
2019
 
November 30,
2018
Cash flows from operating activities:
 

 
 

Net income
$
496,932

 
$
455,528

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

 
 

Depreciation
115,367

 
107,112

Amortization of intangible assets and capitalized contract costs
70,963

 
67,559

Stock-based compensation
69,398

 
74,784

Gain on sale of a cost method investment

 
(69,373
)
Deferred income taxes
7,632

 
19,227

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

 
 

Accounts receivable, net
(37,940
)
 
(85,748
)
Inventories, net
(13,402
)
 
(53,227
)
Uniforms and other rental items in service
(32,744
)
 
(57,684
)
Prepaid expenses and other current assets and capitalized
   contract costs
(68,409
)
 
(58,161
)
Accounts payable
28,055

 
(1,955
)
Accrued compensation and related liabilities
(29,326
)
 
(20,969
)
Accrued liabilities and other
(17,883
)
 
(15,322
)
Income taxes, current
(17,292
)
 
(17,204
)
Net cash provided by operating activities
571,351

 
344,567

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(126,167
)
 
(137,614
)
Purchases of investments
(10,121
)
 
(14,071
)
Proceeds from sale of a cost method investment

 
73,342

Proceeds from sale of assets
13,300

 

Acquisitions of businesses, net of cash acquired
(6,582
)
 
(6,580
)
Other, net
(2,103
)
 
(1,717
)
Net cash used in investing activities
(131,673
)
 
(86,640
)
 
 
 
 
Cash flows from financing activities:
 

 
 

(Payments) issuance of commercial paper, net
(112,500
)
 
173,500

Proceeds from exercise of stock-based compensation awards
63,201

 
32,612

Repurchase of common stock
(258,741
)
 
(508,129
)
Other, net
(1,952
)
 
(5,362
)
Net cash used in financing activities
(309,992
)
 
(307,379
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
204

 
(793
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
129,890

 
(50,245
)
 
 
 
 
Cash and cash equivalents at beginning of period
96,645

 
138,724

 
 
 
 
Cash and cash equivalents at end of period
$
226,535

 
$
88,479

See accompanying notes.

8



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 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, 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, 2019. 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 other than the adoption of new accounting pronouncements discussed below. 

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 measured at the lower of cost (first-in, first-out) or net realizable value. Inventory is comprised of the following: 
(In thousands)
November 30,
2019
 
May 31,
2019
 
 
 
 
Raw materials
$
15,550

 
$
17,812

Work in process
27,148

 
28,820

Finished goods
305,606

 
287,957

 
$
348,304

 
$
334,589


Inventories are recorded net of reserves for obsolete inventory of $33.8 million and $32.7 million at November 30, 2019 and May 31, 2019, respectively.
 
New Accounting Pronouncements
Effective June 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)”, using a modified retrospective transition approach. Topic 842 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. 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. Topic 842 provided a number of optional practical expedients in transition, and we have determined to use certain of these practical expedients upon our adoption of Topic 842. Specifically, the Company elected the package of practical expedients permitted under Topic 842, which allows a lessee to carryforward their population of existing leases, the classification of each lease, as well as the treatment of initial direct lease costs as of the period of adoption. The Company also elected the practical expedient related to lease and non-lease components, as an accounting policy election for the fleet and vehicle asset class, which allows a lessee to not separate non-lease from lease components and instead account for consideration paid in a contract as a single lease component. In addition, the Company elected the short-term lease recognition exemption for all leases with a term of 12 months or less, which means it will not recognize right-of-use assets or lease liabilities for these leases. The adoption of Topic 842, on June 1, 2019, resulted in the Company recognizing right-of-use assets, net of $168.0 million and corresponding lease liabilities of $173.4 million. The adoption of Topic 842 did not have a material impact on the Company's consolidated condensed statements of income or consolidated condensed statements of cash flows.


9



Effective June 1, 2019, Cintas adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows companies to elect to reclassify the disproportionate income tax effects resulting from the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings. The adoption of ASU 2018-02, on a prospective basis, resulted in a $2.0 million reclassification adjustment of the stranded tax effects from retained earnings to accumulated other comprehensive loss that was determined using a specific identification method.

In April 2019, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 will replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In connection with recognizing credit losses on accounts receivable and other financial instruments, Cintas will be required to use a forward-looking expected loss model rather than the incurred loss model. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The adoption of this standard will be through a cumulative-effect adjustment to retained earnings as of the effective date. Cintas is currently evaluating the impact that ASU 2016-13 will have on its consolidated condensed financial statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). ASU 2017-04 is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The adoption of ASU 2017-04 is not expected to have an impact on the consolidated condensed financial statements.

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

Note 2 - Revenue Recognition
The following table presents Cintas' total revenue disaggregated by service type:
 
Three Months Ended
 
Six Months Ended
 
November 30,
2019
 
November 30,
2018
 
November 30,
2019
 
November 30,
2018
(In thousands)
Revenue
%
 
Revenue
%
 
Revenue
%
 
Revenue
%
 
 
 
 
 
 
 
 
 
 
 
 
Uniform Rental and
   Facility Services
$
1,469,976

79.7
%
 
$
1,390,778

81.0
%
 
$
2,924,503

80.0
%
 
$
2,765,716

81.0
%
First Aid and Safety
   Services
169,668

9.2
%
 
153,348

8.9
%
 
341,758

9.4
%
 
306,765

9.0
%
Fire Protection
   Services
106,735

5.8
%
 
96,183

5.6
%
 
216,861

5.9
%
 
194,292

5.7
%
Uniform Direct
   Sales
97,370

5.3
%
 
77,959

4.5
%
 
171,766

4.7
%
 
149,470

4.3
%
Total revenue
$
1,843,749

100.0
%
 
$
1,718,268

100.0
%
 
$
3,654,888

100.0
%
 
$
3,416,243

100.0
%

Fire Protection Services and Uniform Direct Sales are recorded within the All Other segment disclosed in Note 12 entitled Segment Information.

Revenue Recognition Policy
More than 95% of the Company's revenues are derived from fees for route servicing of Uniform Rental and Facility Services, First Aid and Safety Services and Fire Protection Services, 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 these revenues over time as services are performed based on the nature of services provided and contractual rates (input method). The Company's remaining revenues, primarily within the Uniform Direct Sales operating segment, and representing less than 5% of the Company's total revenues, are 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.

10



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, primarily within our Uniform Direct Sales business, 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 or six months ended November 30, 2019 or 2018. 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 in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue (ASC 606). These assets are included in other assets, net on the consolidated condensed balance sheet.

Additionally, in accordance with ASC 606, certain Uniform Direct Sales customer contracts contain a provision with an enforceable right of payment and the underlying product has no alternative use to Cintas. Consequently, when both aforementioned provisions are prevalent in a customer contract, the revenue is recorded for finished goods that the customer is obligated to purchase under the termination terms of the contract.

Costs to Obtain a Contract