Cintas (CTAS) Risk Analysis

Our business is subject to complex and stringent state and federal regulations, including employment laws and regulations, minimum wage requirements, overtime requirements, working condition requirements, citizenship requirements, transportation laws and regulations, sustainability-related regulations, cybersecurity laws and regulations, data privacy and protection laws and regulations, environmental regulations, and other laws and regulations. In particular, we are subject to the regulations promulgated by the U.S. Department of Transportation (USDOT) and under the Occupational Safety and Health Act of 1970, as amended (OSHA Act). We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of our business in complying with the USDOT regulations, the OSHA Act and other laws and regulations to which we are subject. Changes in laws, regulations and the related interpretations, including any laws or regulations that may be enacted by the current U.S. presidential administration and Congress, may alter the landscape in which we do business and may affect our costs of doing business. The impact of new laws and regulations cannot be predicted. Compliance with new laws and regulations may increase our operating costs or require significant capital expenditures. Any failure to comply with applicable laws or regulations could result in substantial fines by government authorities, payment of damages to private litigants, or possible revocation of our authority to conduct our operations, which could adversely affect our ability to service customers and our consolidated results of operations. In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to sustainability matters, and increased regulation will likely lead to increased compliance costs as well as scrutiny that could heighten all of the risks identified in this risk factor.

We are subject to various litigation claims and legal proceeding arising from the ordinary course of our business, including personal injury, customer contract, environmental and employment claims. Certain of these lawsuits or potential future lawsuits, if decided adversely to us or settled by us, may result in liability and expense material to our consolidated financial condition and consolidated results of operations.

Changes in tax laws or regulations in the jurisdictions in which we do business, or other tax law implementations or interpretations, including the Inflation Reduction Act (IRA), which includes a corporate alternative minimum tax on certain large corporations and other non-income tax provisions, including an excise tax on the repurchase of corporate stock could increase our effective tax rate, restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions on our current practices and reduce our net income and adversely affect our cash flows. In addition, some countries have enacted or have committed to enact Pillar Two global minimum tax, which may increase our tax expense in future years. We are also subject to tax audits, including with respect to transfer pricing, in the U.S. and other jurisdictions and our tax positions may be challenged by tax authorities. Although we believe that our current tax provisions are reasonable and appropriate, there can be no assurance that these items will be settled for the amounts accrued, that additional tax exposures will not be identified in the future or that additional tax reserves will not be necessary for any such exposures. Any increase in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on our business, consolidated results of operations and consolidated financial condition.

Our operating locations are subject to environmental laws and regulations relating to the protection of the environment and health and safety matters, including those related to sustainability and governing discharges of pollutants to the air and water, the management and disposal of hazardous substances and wastes and the clean-up of contaminated sites. The operation of our businesses entails risks under environmental laws and regulations. We could incur significant costs, including clean-up costs, fines and sanctions and claims by third parties for property damage and personal injury, as a result of violations of, or liabilities under these laws and regulations. We are currently involved in a limited number of remedial investigations and actions at various locations. While based on information currently known to us, we believe that we maintain adequate reserves with respect to these matters, our liability could exceed forecasted amounts, and the imposition of additional clean-up obligations or the discovery of additional contamination at these or other sites could result in significant additional costs which could adversely affect our consolidated results of operations. In addition, potentially significant expenditures could be required to comply with environmental laws and regulations, including requirements that may be adopted or imposed in the future. We may not be able to timely recover the cost of compliance with such new or more stringent laws and regulations, which could adversely affect our consolidated results of operations. Under applicable environmental laws, an owner or operator of real estate may be required to pay the costs of removing or remediating hazardous materials located on or emanating from property, whether or not the owner or operator knew of or was responsible for the presence of such hazardous materials. While we regularly engage in environmental due diligence in connection with acquisitions, we can give no assurance that locations that have been acquired or leased have been operated in compliance with environmental laws and regulations during prior periods or that future uses or conditions will not make us liable under these laws or expose us to third-party actions, including tort suits.

We believe that a key component of our success is our corporate culture, which has been imparted by management throughout our corporate organization. Our corporate culture, along with our entire operation, depends on our ability to attract, develop and retain key employee-partners. Competitive pressures and labor shortages within and outside our industry may make it more difficult and expensive for us to attract and retain key employee-partners which could adversely affect our businesses. Our ability to attract, retain, and motivate employee-partners may also be adversely affected by stock price volatility. In addition, the pendency of the Transaction may cause our current and prospective employee-partners to experience uncertainty about their roles after the completion of the Transaction, which may have an adverse effect on our ability to attract, motivate or retain management personnel and other key employee-partners. We believe we have positive labor relationships with our employee-partners. However, factors such as difficulty to attract key employees, reduced employee engagement, third-party organizational efforts, scrutiny from advocacy groups and increased employee-partner turnover could adversely affect our labor relationships with our employee-partners. A failure to preserve positive labor relationships with our employee-partners could adversely affect our consolidated financial condition and consolidated results of operations.

The products we sell are sourced from a wide variety of domestic and international suppliers. Global sourcing of many of the products we sell is an important factor in our financial performance. We require all our suppliers to comply with applicable laws, including labor and environmental laws, and otherwise be certified as meeting our required supplier standards of conduct. Our ability to find qualified suppliers who meet our standards, and to access products in a timely and efficient manner, is a significant challenge, especially with respect to suppliers located and goods sourced outside the U.S. political and economic stability in the countries in which foreign suppliers are located, the financial stability of suppliers, suppliers' failure to meet our supplier standards, labor problems experienced by our suppliers, the availability of raw materials to suppliers, currency exchange rates, transport availability and cost, inflation and other factors relating to the suppliers and the countries in which they are located are beyond our control. In addition, U.S. and foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. These and other factors affecting our suppliers and our access to products could adversely affect our consolidated results of operations.

We plan to expand our presence in existing markets and enter new markets. The opening of new operating facilities is necessary to gain the capacity required for this expansion. Our ability to open new operating facilities depends on our ability to identify attractive locations, negotiate leases or real estate purchase agreements on acceptable terms, identify and obtain adequate utility and water sources and comply with environmental regulations, zoning laws and other similar factors. Any inability to effectively identify and manage these items may adversely affect our expansion efforts, and consequently, adversely affect our consolidated results of operations.

Negative economic conditions, in North America and our other markets, have in the past and could again in the future, adversely affect our financial performance. Higher levels of unemployment, inflation, recessionary conditions, geopolitical developments, changes in trade agreements, tax rates and other changes in tax laws and other economic factors could adversely affect the demand for Cintas' products and services. Increases in labor costs, including the cost to provide employee-partner related healthcare benefits, minimum wages, labor shortages or shortages of skilled labor, regulations regarding the classification of employees and/or their eligibility for overtime wages, higher material costs for items such as fabrics, textiles and other products used in our operations, the inability to obtain insurance coverage at cost-effective rates, higher interest rates, inflation, higher tax rates and other changes in tax laws and other economic factors could increase our costs of rental uniforms and facility services, cost of other services and selling and administrative expenses. In addition, changes in U.S. and foreign trade policies, including the imposition of new tariffs, increases in existing tariffs, retaliatory trade measures, import or export restrictions, economic sanctions, customs regulations and other actions affecting international commerce, could increase the cost of raw materials, finished goods, equipment and other products sourced directly by us or indirectly through our suppliers. Such measures could also reduce the availability of products and materials, disrupt established sourcing arrangements, increase transportation and logistics costs, extend lead times and contribute to volatility in commodity and input costs. We may not be able to predict, mitigate or fully offset the impact of such measures, and competitive conditions or contractual arrangements may limit our ability to pass increased costs on to customers in a timely manner, or at all. Further, geopolitical tensions, armed conflicts, acts of terrorism, military actions and related sanctions or other governmental responses, including developments in the Middle East and other strategically important regions, may disrupt global trade routes, shipping channels, transportation networks, energy supplies and financial markets. Such events may contribute to volatility in fuel and energy prices, increase freight and distribution costs, adversely affect the operations of suppliers and other business partners, and exacerbate inflationary pressures and broader economic uncertainty. Disruptions affecting key maritime shipping routes, ports or other critical infrastructure could adversely affect the availability, timing and cost of materials and products used in our business and may require us or our suppliers to implement alternative sourcing, transportation or inventory strategies, which could increase costs and reduce operating efficiencies. As a result, these factors could adversely affect our revenue, operating margins, cash flows and consolidated results of operations.

Unexpected events, including fires or explosions at facilities, severe weather conditions and natural disasters such as hurricanes, fires, floods, droughts and tornadoes, geopolitical conflicts, war or terrorist activities, unplanned outages, supply disruptions, failure of equipment or systems or changes in laws and/or regulations impacting our businesses, could adversely affect our consolidated results of operations. Any of these events could result in customer disruption, physical damage to one or more key operating facilities, the temporary closure of one or more key operating facilities or the temporary disruption of information systems. In addition, negative publicity related to such unexpected events, whether warranted or not, may impact brand image perception and could adversely affect our consolidated results of operations.

We earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, primarily the Canadian dollar. In fiscal years 2026, 2025 and 2024, revenue denominated in currencies other than the U.S. dollar represented less than 10% of our consolidated revenue. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenue and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, fluctuations in the value of the U.S. dollar against other major currencies, particularly in the event of significant increases in foreign currency revenue, will impact our revenue and operating income and the value of consolidated balance sheet items denominated in foreign currencies. This impact could adversely affect our consolidated financial condition and consolidated results of operations.

We are increasingly utilizing artificial intelligence (AI), including generative AI, machine learning, automation and other emerging technologies across various aspects of our business, including customer service, sales and marketing, logistics and route optimization, supply chain management, operational processes, data analytics, software development and internal business functions. We also rely on third-party vendors, service providers and technology partners that utilize AI in products and services that support our operations. The successful deployment of these technologies depends on, among other things, our ability to identify appropriate use cases, maintain high-quality data, develop and implement effective governance and control frameworks, manage costs, protect confidential information and comply with evolving legal and regulatory requirements. The development, implementation and use of AI technologies present a number of risks. AI systems may produce inaccurate, incomplete, biased, misleading or otherwise flawed outputs, including decisions or recommendations that adversely affect our operations, customers, partners or employee-partners. Errors in AI-generated outputs may lead to operational inefficiencies, customer dissatisfaction, business disruptions, reputational harm, litigation, regulatory scrutiny or liability. In addition, our employee-partners or third parties may use AI technologies in ways that are inconsistent with our policies, contractual obligations or applicable laws. The regulatory environment governing AI is rapidly evolving in the U.S. and internationally. Existing and new laws, regulations, industry standards and governmental guidance relating to AI, data privacy, cybersecurity, intellectual property, transparency, consumer protection, employment practices and automated decision-making may increase our compliance costs, restrict our ability to develop and deploy AI solutions, require changes to our business practices or expose us to regulatory investigations, enforcement actions, penalties or litigation. Our use of AI technologies also may increase cybersecurity, privacy and data protection risks. AI systems may process large volumes of proprietary, personal, customer, supplier and employee-partner information, and failures in the design, implementation or oversight of such systems could result in the unauthorized disclosure, misuse, loss or corruption of data. Additionally, threat actors may utilize AI to develop increasingly sophisticated cyberattacks, phishing campaigns, malware, fraud schemes, social engineering techniques and other malicious activities targeting the Company, our customers, suppliers and employee-partners. Further, AI technologies raise complex intellectual property and ownership issues. We may face claims alleging that AI-generated content, models, tools or outputs infringe, misappropriate or otherwise violate the intellectual property or proprietary rights of third parties. We may also encounter uncertainty regarding our ownership or ability to protect intellectual property created through the use of AI technologies. In addition, competitors may develop or adopt AI capabilities more rapidly or more effectively than we do, which could impair our ability to compete, improve productivity, enhance customer experiences, attract talent or achieve expected returns on technology investments. The costs of developing, acquiring, maintaining and governing AI technologies may be significant, and the expected benefits may not be realized on a timely basis or at all. If we are unable to effectively manage the risks associated with AI and other emerging technologies, including risks relating to data protection, cybersecurity, intellectual property, regulatory compliance, operational effectiveness, ethical use and reputational considerations, our business, financial condition, results of operations and reputation could be materially adversely affected.

Our businesses rely on various information technology systems, including third-party systems, to provide customer information, process customer transactions and provide other general information necessary to manage our businesses. Our information technology systems are subject to damage or interruption due to cybersecurity attacks, system conversions, power outages, computer or telecommunication failures, catastrophic events such as fires, tornadoes and hurricanes and usage errors by our employee-partners. Although we have an active disaster recovery plan in place that is frequently reviewed and tested, and we believe that we have adopted appropriate measures designed to mitigate potential risks to our technology and our operations from these information technology-related and other potential disruptions, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational delays and interruptions in our ability to provide products and services to our customers. Any disruption caused by the unavailability of our information technology systems could adversely affect our revenue, could require us to make a significant investment to fix or replace them and, therefore, could adversely affect our consolidated results of operations. Cyber-security attacks are evolving, and cybercriminals have increasingly demonstrated advanced capabilities, such as zero-day vulnerabilities and rapid integration of new technology such as generative artificial intelligence. Cyber-security attacks may include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security incidents that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data. Emerging artificial intelligence technologies may intensify these cybersecurity risks. The rapid, ongoing evolution and increased adoption of emerging technologies such as artificial intelligence and machine learning may make it more difficult to anticipate and implement protective measures to recognize, detect, and prevent the occurrence of any of the cyber events. Our response to cybersecurity incidents, and our investments in our technology and our controls, processes and practices related to cybersecurity incidents and risks from cybersecurity threats, may not be sufficient to shield us from significant losses or liability. Given the increasing sophistication of bad actors and complexity of the techniques used to obtain unauthorized access or disable systems, a cybersecurity incident or attack could potentially persist for an extended period of time before being detected. As a result, we may not be able to anticipate the attack or respond adequately or timely, and the extent of a particular cybersecurity incident, and the steps that we may need to take to investigate the incident, may not be immediately clear. It could take a significant amount of time before an investigation can be completed and full, reliable information about the incident becomes known. During an investigation, it is possible we may not necessarily know the extent of the harm or how to remediate it, which could further adversely impact us. In addition, new laws or regulations could result in us being required to disclose information about a material cybersecurity incident before it has been mitigated or resolved, or even fully investigated. We have experienced cybersecurity incidents in the past, but none of these incidents, individually or in the aggregate, have had a material adverse effect on our business or results of operations. However, there can be no assurance that we will not experience material cybersecurity incidents in the future. If the network of security controls, policy enforcement mechanisms and monitoring systems to address these threats to our technology fails, or we are unable to successfully address cybersecurity incidents or the risks from cybersecurity threats, we could experience production downtimes, operational delays and interruptions in our ability to provide products and services to our customers, the compromising of confidential or otherwise protected Company, customer, or employee-partner information, destruction or corruption of data, security incidents, or other manipulation or improper use of our systems and networks which could result in financial losses from remedial actions, loss of business or potential liability and damage to our reputation. In addition, we rely on software applications, enterprise cloud storage systems and cloud computing services provided by third-party vendors for certain information technology services, including our SAP enterprise system, payroll data, risk management data and lease data. If these third-party vendors, as well as our suppliers and other vendors, experience service interruptions or damage, security incidents, cyber-attacks, computer viruses, ransomware or other similar events or intrusions, our business and our consolidated results of operations may be adversely affected. Additionally, we cannot be certain that any insurance coverage will be adequate for cybersecurity liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that our insurer will not deny coverage as to any future claim.

We operate in highly competitive industries and compete with national, regional and local providers. Product, design, price, quality, service and convenience to the customer are the competitive elements in these industries. If existing or future competitors seek to gain or retain market share by reducing prices, Cintas may be required to lower prices, which would adversely affect our consolidated results of operations. Cintas' competitors also generally compete with Cintas for acquisition candidates, which can increase the price for acquisitions and reduce the number of available acquisition candidates. In addition, our customers and prospects may decide to perform certain services in-house instead of outsourcing these services to us. These competitive pressures could adversely affect our revenue and consolidated results of operations.

The price of fuel and energy needed to run our vehicles and equipment is unpredictable and fluctuates based on events outside of our control, including geopolitical developments, supply and demand fluctuations for fuel and other energy related products, actions by energy producers, war and unrest in oil producing countries, regional production patterns, limits on refining capacities, natural disasters and environmental concerns including the impact of legislative and regulatory efforts to limit GHG emissions. Increases in fuel and energy costs could adversely affect our consolidated financial condition and consolidated results of operations.