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CINTAS CORP 8-K Report, Executive Changes (Oct 23, 2013)

Filed October 23, 2013For Securities:CTAS

Summary

This 8-K filing from Cintas Corporation (CTAS) details key decisions made at the company's Annual Meeting of Shareholders held on October 22, 2013. The most significant investor-focused information revolves around the approval of amendments to executive compensation plans. Specifically, shareholders ratified Amendment No. 3 to the Cintas Corporation 2005 Equity Compensation Plan, which enhances the flexibility to structure equity awards as "performance-based compensation" under IRS Section 162(m). This amendment broadens the types of performance measures that can be used, including profits, cash flow, returns, working capital, profit margins, liquidity, sales metrics, and strategic initiatives. It also introduces individual grant limits and extends the plan's term. Additionally, the shareholders approved the Cintas Corporation Management Incentive Plan, an annual cash-based incentive plan for executive officers and key employees, also designed to comply with Section 162(m) and utilizing similar performance measures. Furthermore, the filing confirms the election of directors, the approval of an advisory resolution on executive compensation, and the ratification of Ernst & Young LLP as the independent registered public accounting firm for fiscal year 2014. These actions by shareholders reflect ongoing efforts by Cintas to align executive compensation with performance and maintain strong corporate governance practices.

Key Highlights

  • 1Shareholders approved Amendment No. 3 to the 2005 Equity Compensation Plan, enabling performance-based equity awards under Section 162(m) of the Code.
  • 2The amended Equity Compensation Plan expands the list of permissible performance measures for awards, covering financial and strategic goals.
  • 3Individual grant limits of $5 million per participant for restricted stock and performance awards were added to the 2005 Equity Compensation Plan.
  • 4The term of the 2005 Equity Compensation Plan was extended by an additional five years, now set to terminate in October 2018.
  • 5Shareholders approved the Cintas Corporation Management Incentive Plan, an annual cash incentive plan for executives and key employees, aligned with Section 162(m) requirements.
  • 6All incumbent directors were elected to the board with strong shareholder support.
  • 7An advisory resolution on executive compensation received overwhelmingly positive shareholder approval.
  • 8Ernst & Young LLP was ratified as the independent registered public accounting firm for fiscal year 2014.

Frequently Asked Questions

The primary purpose of Amendment No. 3 is to allow Cintas Corporation to structure certain equity awards so they can qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code. This is intended to allow the company to maintain tax deductibility for certain compensation expenses while incentivizing executives based on predefined performance metrics.

The approved amendments significantly broaden the range of performance measures that can be used. These include various metrics related to Profits (e.g., EPS, net income), Cash Flow (e.g., EBITDA, operating cash flow), Returns (e.g., ROA, ROIC), Working Capital, Profit Margins, Liquidity, Sales growth, Stock Price performance, and Strategic Initiative Key Deliverables (e.g., market penetration, R&D goals, customer satisfaction).

For the 2005 Equity Compensation Plan, individual grant limits of $5 million per participant during any 12-month period have been added for both restricted stock awards and performance awards. For the Management Incentive Plan, the maximum annual dollar award paid to any participant for any one plan year is also capped at $5,000,000.

Shareholders also elected the company's directors, approved an advisory resolution on executive compensation (often referred to as 'say-on-pay'), and ratified the selection of Ernst & Young LLP as the independent auditor for the upcoming fiscal year 2014.