Acquisitions

On August 15, 2016, the Company entered into the Merger Agreement pursuant to which the Company will acquire all outstanding shares of G&K for $97.50 per share in cash, for a total enterprise value of approximately $2.2 billion, including acquired net debt. It is expected that this acquisition will be financed with short and long-term debt. The completion of the Merger is subject to customary conditions, including, without limitation: the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), as amended; the receipt of Canadian antitrust approvals; the absence of any order, law or other legal restraint or prohibition preventing or prohibiting completion of the Merger; subject to certain exceptions, the accuracy of representations and warranties of the Company, Merger Sub and G&K; and the performance or compliance by the Company, Merger Sub and G&K with their respective covenants and agreements. On November 15, 2016, G&K held its annual meeting of shareholders at which the shareholders voted on and approved the Merger. The Merger has not closed as of the date of the filing of this Form 10-Q.

On September 29, 2016, both the Company and G&K received a request for additional information and documentary material, commonly referred to as a "second request," from the Federal Trade Commission (FTC), pursuant to the HSR Act, in connection with the Merger. The FTC's second request has the effect of extending the waiting period applicable to the consummation of the Merger until the 30th day after substantial compliance by the Company and G&K with the second request, unless the waiting period is extended voluntarily by the parties or terminated sooner by the FTC.

On October 12, 2016, both the Company and G&K received a supplemental information request, commonly referred to as SIR, from the Competition Bureau of Canada, pursuant to the Canada Competition Act, in connection with the Merger. SIR is part of the prescribed process for review of proposed transactions in Canada and has the effect of extending the waiting period applicable to the consummation of the Merger until the 30th day after compliance by the Company and G&K with the SIR.

During the three and six months ended November 30, 2016, we incurred expenses of $3.3 million and $6.1 million, respectively, related to the pending Merger for legal and professional services and regulatory fees. Many of these expenses are non-deductible for income tax purposes once the Merger has been executed.

During the first quarter of fiscal 2016, 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. To date, the Company has paid $4.5 million of the contingent consideration. This payment occurred during the three months ended November 30, 2016 and is included within other financing activities on the statement of cash flows. 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 final 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 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.



Assets:
Cash and cash equivalents	$	333
Accounts receivable	16,705
Inventory	5,987
Other current assets	1,443
Property, plant and equipment	849
Goodwill	87,442
Service contracts	34,000
Other intagibles	4,500
Liabilities:
Accounts payable	(7,195		)
Accrued liabilities	(4,428		)
Deferred income taxes	(5,636		)
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 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 for the acquired businesses are included in the consolidated condensed statements of income from the dates of acquisition. The proforma revenue, net income and earnings per share information relating to acquired businesses are not presented because they are not significant to Cintas.