FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
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
CINTAS CORPORATION
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(Exact name of registrant as specified in its charter)
WASHINGTON 31-1188630
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6800 CINTAS BOULEVARD
P.O. BOX 625737
CINCINNATI, OHIO 45262-5737
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(513) 459-1200
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(Registrant's telephone number, including area code)
Indicate by check mark 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 X 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 September 30, 1998
- -------------------------- ------------------------------
Common Stock, no par value 105,031,731
<PAGE>
CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Condensed Balance Sheets -
August 31, 1998 and May 31, 1998 3
Consolidated Condensed Statements of Income -
Three Months Ended August 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended August 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 9
Signatures 10
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
August 31, May 31,
1998 1998
----------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 17,904 $ 12,717
Marketable securities 80,744 88,154
Accounts receivable (net) 164,000 157,603
Inventories 114,292 108,226
Uniforms and other rental
items in service 138,224 136,659
Prepaid expenses 5,119 5,242
---------- ----------
Total current assets 520,283 508,601
Property, plant and equipment,
at cost, net 392,231 367,094
Other assets 138,332 142,141
---------- ----------
$1,050,846 $1,017,836
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,666 $ 41,801
Accrued compensation and
related liabilities 14,230 16,615
Accrued liabilities 60,190 61,239
Income taxes -
Current 14,540 ---
Deferred 34,736 31,219
Long-term debt due
within one year 18,682 8,117
---------- --------
Total current liabilities 180,044 158,991
Long-term debt due after one year 158,767 180,007
Deferred income taxes 25,965 24,346
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized,
none outstanding ----- -----
Common stock, no par value,
120,000,000 shares authorized,
104,901,419 shares issued
and outstanding
(104,610,716 at May 31, 1998) 47,784 46,965
Retained earnings 644,293 610,025
Accumulated other comprehensive
income (6,007) (2,498)
---------- ----------
Total shareholders' equity 686,070 654,492
---------- ----------
$1,050,846 $1,017,836
========== ==========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
Three Months Ended
August 31,
---------------------------
1998 1997
--------- ---------
Revenue:
Net rentals $ 259,466 $ 202,999
Other service revenue 94,879 69,806
--------- ---------
354,345 272,805
Costs and expenses (income):
Cost of rentals 145,486 112,671
Cost of other service revenue 65,835 48,379
Selling and administrative expenses 86,430 67,693
Interest income (1,207) (1,122)
Interest expense 2,443 2,279
---------- ----------
298,987 229,900
---------- ----------
Income before income taxes 55,358 42,905
Income taxes 21,498 14,645
---------- ----------
Net income $ 33,860 $ 28,260
========== ==========
Basic earnings per share $ .32 $ .28
========== ==========
Diluted earnings per share $ .32 $ .28
========== ==========
Net income as reported $ 33,860 $ 28,260
Pro forma adjustment for UTY income taxes ---- 1,607
----------- ----------
Pro forma net income $ 33,860 $ 26,653
=========== ==========
Pro forma basic earnings per share $ .32 $ .26
=========== ==========
Pro forma diluted earnings per share $ .32 $ .26
=========== ==========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
August 31,
Cash flows from operating activities: 1998 1997
- ------------------------------------ -------- -------
Net income $ 33,860 $26,653
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 13,809 10,874
Amortization of deferred charges 3,868 3,012
Deferred income taxes 5,136 4,174
Change in current assets and liabilities,
net of acquisitions of businesses:
Accounts receivable (5,803) (3,443)
Inventories (6,309) (1,017)
Uniforms and other rental
items in service (1,423) (2,287)
Prepaid expenses 126 40
Accounts payable (5,789) 1,333
Accrued compensation and
related liabilities (2,465) (6,288)
Accrued liabilities (1,203) (14,333)
Income taxes payable 14,540 9,307
------- --------
Net cash provided by operating activities 48,347 28,025
Cash flows from investing activities:
Capital expenditures (39,542) (20,407)
Proceeds from sale or redemption
of marketable securities 31,736 18,922
Purchase of marketable securities (24,326) (22,502)
Acquisitions of businesses,
net of cash acquired (1,734) (4,558)
Other 1,187 300
-------- --------
Net cash used in investing activities (32,679) (28,245)
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 2,441
Repayment of long-term debt (9,403) (1,955)
Issuance of common stock 819 230
Distributions to S corporation shareholders -- (2,633)
Other (1,897) ( 599)
------- --------
Net cash used in financing activities (10,481) (2,516)
-------- --------
Net increase (decrease) in cash
and cash equivalents 5,187 (2,736)
Cash and cash equivalents at beginning of period 12,717 16,362
------- -------
Cash and cash equivalents at end of period $17,904 $13,626
======= =======
See accompanying notes.
<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands except per share data)
1. The consolidated condensed financial statements of Cintas Corporation (the
"Company") included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. While the Company believes that the disclosures presented
are adequate to make the information not misleading, it is suggested that
these consolidated condensed financial statements be read in conjunction
with the financial statements and notes included in the Company's most
recent annual report for the fiscal year ended May 31, 1998. A summary of
the Company's significant accounting policies is presented on page 21 of
the Company's most recent annual report. There have been no material
changes in the accounting policies followed by the Company during fiscal
year 1999.
2. 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 results of the interim
periods shown have been made.
3. In April 1998, the Company acquired Uniforms To You (UTY), a direct sale
uniform provider. The acquisition was accounted for using the pooling of
interests method of accounting. At that time, the accompanying consolidated
financial statements were restated to include the financial position and
operating results of UTY for all periods. Prior to the merger, UTY had
elected S Corporation status for income tax purposes. As a result of the
merger, UTY terminated its S Corporation election. Pro forma adjustment for
income taxes presents the pro forma tax expense of UTY as if UTY had been a
C Corporation during the financial statement periods presented.
4. The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective years:
August August
1998 1997
-------- --------
Numerator:
Net income $ 33,860 $ 28,260
Denominator:
Denominator for basic earnings
per share-weighted avg. shares 104,744 100,772
======== ========
Effect of dilutive securities-
employee stock options 2,013 1,644
-------- --------
Denominator for diluted earnings
per share-adjusted weighted avg.
shares and assumed conversions 106,757 102,416
======== ========
Basic earnings per share $ .32 $ .28
======== ========
Diluted earnings per share $ .32 $ .28
======== ========
<PAGE>
The following table represents a reconciliation of the shares used to
calculate pro forma basic and diluted earnings per share for the respective
years:
August August
1998 1997
-------- --------
Numerator:
Pro forma income $ 33,860 $ 26,653
Denominator:
Denominator for pro forma basic earnings
per share-weighted avg. shares 104,744 100,772
======== ========
Effect of dilutive securities-
employee stock options 2,013 1,644
-------- --------
Denominator for pro forma diluted earnings
per share-adjusted weighted avg.
shares and assumed conversions 106,757 102,416
======== ========
Pro forma basic earnings per share $ .32 $ .26
======== ========
Pro forma diluted earnings per share $ .32 $ .26
======== ========
5. As of June 1, 1998, the Company adopted the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. Statement 130 requires the Company's foreign currency
translation adjustment, which prior to adoption was reported separately
in shareholders' equity to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of Statement 130.
The components of comprehensive income for the three-month periods ended
August 31, 1998 and 1997 are as follows:
August 1998 August 1997
----------- -----------
Net income $33,860 $28,260
Other comprehensive income:
Foreign currency translation
adjustment ( 3,509) ( 302)
---------- -----------
Comprehensive income $ 30,351 $ 27,958
========== =========
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 30% in the first quarter of fiscal 1999 over the same
period in fiscal 1998. Net rental revenue increased 28% for the three months
ended August 31, 1998 over the same period in the prior fiscal year, due
primarily to growth in the customer base. First quarter revenues from the sale
of uniforms and other direct sale items increased 36% over the prior year's
first quarter, principally as a result of the increased sales of first aid
supplies.
Net income and basic earnings per share on a pro forma basis increased 27% and
23%, respectively, for the three months ended August 31, 1998, over the same
period in fiscal 1998.
Net interest expense (interest expense less interest income) was $1,236,000 for
the first quarter of fiscal 1999 compared to $1,157,000 in the first quarter of
fiscal 1998. Net interest expense has increased primarily due to an increase in
long-term debt related to acquisitions. The Company's effective tax rate on a
pro forma basis was 39% and 38% respectively, for the three months ended August
31, 1998 and August 31, 1997. The increase was due to a higher state tax
provision and the relative change between taxable income (increasing 29%) and
tax exempt income which has remained stable.
Cash, cash equivalents and marketable securities decreased by $2 million at
August 31, 1998 from May 31, 1998 primarily due to capital expenditures for new
uniform rental facilities. The cash, cash equivalents and marketable securities
will be used to finance future acquisitions and capital expenditures.
Net property, plant and equipment increased by $25 million from May 31, 1998 to
August 31, 1998. At the end of the first quarter of fiscal 1999, the Company had
nineteen uniform rental facilities in various stages of construction.
Financial Condition
- -------------------
At August 31, 1998, the Company had $99 million in cash, cash equivalents and
marketable securities. The Company believes that its current cash position,
funds anticipated to be generated from operations and the strength of its
banking relationships are sufficient to meet its anticipated operational and
capital need requirements.
Impact of Year 2000
- -------------------
The Company has completed an assessment of all of its software systems and has
determined what changes, if any, need to be made so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The total cost of those changes is not expected to be material and will be
expensed as incurred. The Company incurred the majority of its Year 2000 costs
during fiscal 1998, and the remaining costs are expected to be expensed in
fiscal 1999 when all changes are expected to be completed. The Company is in the
process of contacting key suppliers to obtain certification of their systems
Year 2000 compliance.
<PAGE>
CINTAS CORPORATION
Part II. Other Information
Item 2. Changes in Securities
(c.) During the quarterly period ended August 31, 1998, the
registrant issued 234,469 shares of Common Stock for
companies being acquired in eight separate transactions to
the owners of those companies numbering one, two, two, two,
four, two, one and two, respectively. These issuances were
exempt from the registration requirements of the Securities
Act of 1933 as private offerings pursuant to Section 4.2 of
that Act.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Index
Exhibit Number Description of Exhibit
-------------- ----------------------
27 Financial Data Schedule
(b.) No reports were filed on Form 8-K during the quarter.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CINTAS CORPORATION
(Registrant)
Date: October 13, 1998 /s/William C. Gale
----------------------------------
William C. Gale
Vice President and Chief Financial
Officer (Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 17,904,000
<SECURITIES> 80,744,000
<RECEIVABLES> 168,851,000
<ALLOWANCES> 4,851,000
<INVENTORY> 252,516,000
<CURRENT-ASSETS> 520,283,000
<PP&E> 577,733,000
<DEPRECIATION> 185,502,000
<TOTAL-ASSETS> 1,050,846,000
<CURRENT-LIABILITIES> 180,044,000
<BONDS> 0
0
0
<COMMON> 47,784,000
<OTHER-SE> 638,286,000
<TOTAL-LIABILITY-AND-EQUITY> 1,050,846,000
<SALES> 94,879,000
<TOTAL-REVENUES> 354,345,000
<CGS> 65,835,000
<TOTAL-COSTS> 211,321,000
<OTHER-EXPENSES> 86,430,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,443,000
<INCOME-PRETAX> 55,358,000
<INCOME-TAX> 21,498,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,860,000
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
