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 February 28, 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
- --------------------------------------------------------------------------------
(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
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(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 March 20, 1998
- -------------------------- --------------------------
Common Stock, no par value 98,088,774
<PAGE>
CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Condensed Balance Sheets -
February 28, 1998 and May 31, 1997 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
February 28, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended February 28, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information 8
Signatures 9
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
February 28, May 31,
1998 1997
------------ --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,875 $ 14,221
Marketable securities 75,754 88,655
Accounts receivable (net) 117,860 95,161
Inventories 61,181 43,076
Uniforms and other rental items
in service 127,878 112,844
Prepaid expenses 2,937 2,018
--------- ----------
Total current assets 401,485 355,975
Property, plant and equipment,
at cost, net 332,765 287,446
Other assets 137,719 118,402
---------- ----------
$871,969 $761,823
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,660 $ 20,719
Accrued liabilities 59,238 55,336
Income taxes -
Current 7,914 454
Deferred 36,286 32,889
Long-term debt due within one year 6,654 6,733
---------- --------
Total current liabilities 138,752 116,131
Long-term debt due after one year 134,031 111,457
Deferred income taxes 24,398 21,859
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized,
none outstanding ----- -----
Common stock, no par value,
120,000,000 shares authorized,
98,076,569 shares issued
and outstanding (96,533,578
at May 31, 1997) 46,234 45,039
Retained earnings 530,651 468,411
Foreign currency translation adjustment (2,097) (1,074)
------------ ----------
Total shareholders' equity 574,788 512,376
------------ ----------
$871,969 $761,823
============ ==========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28, February 28, February 28, February 28,
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net rentals $ 218,640 $ 185,439 $ 633,941 $ 541,830
Other service revenue 44,197 24,513 116,381 69,476
--------- --------- ---------- ----------
262,837 209,952 750,322 611,306
Costs and expenses (income):
Cost of rentals 122,327 105,133 353,977 305,976
Cost of other
service revenue 32,702 20,220 89,511 58,621
Selling and administrative
expenses 62,666 47,439 176,939 139,154
Interest income (1,206) (1,161) (3,516) (3,071)
Interest expense 1,679 2,007 5,143 6,018
--------- --------- --------- ----------
218,168 173,638 622,054 506,698
--------- --------- --------- ----------
Income before income taxes 44,669 36,314 128,268 104,608
Income taxes 16,995 13,860 48,560 39,759
--------- --------- --------- ----------
Net income $ 27,674 $ 22,454 $ 79,708 $ 64,849
========= ========= ========= ==========
Basic earnings per share $ 0.28 $ 0.23 $ 0.82 $ 0.68
========= ========= ========= ==========
Diluted earnings per share $ 0.27 $ 0.23 $ 0.80 $ 0.67
=========== ========= ========= ==========
</TABLE>
See accompanying notes.
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
February 28,
------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net income $ 79,708 $ 64,849
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 31,069 25,950
Amortization of deferred charges 9,797 8,838
Deferred income taxes 5,926 3,642
Change in current assets and
liabilities, net of
acquisitions of businesses:
Accounts receivable (12,054) (6,952)
Inventories (13,579) (7,826)
Uniforms and other rental
items in service (14,001) (6,654)
Prepaid expenses (768) (118)
Accounts payable 2,451 655
Accrued liabilities (776) 1,169
Income taxes payable 7,369 4,997
--------- --------
Net cash provided by operating
activities 95,142 88,550
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 928 299
Capital expenditures (69,167) (49,006)
Proceeds from sale or redemption of
marketable securities 69,459 25,820
Purchase of marketable securities (56,558) (50,778)
Acquisitions of businesses,
net of cash acquired (33,045) (8,570)
Other (1,833) (3,208)
--------- --------
Net cash used by investing activities (90,216) (85,443)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 27,010 ----
Repayment of long-term debt (11,130) (5,401)
Issuance of common stock 748 1,026
Dividends paid (17,634) ---
Repurchase of common stock (1,282) ---
Other (984) 205
--------- -------
Net cash used in financing activities (3,272) (4,170)
Net increase/(decrease) in cash
and cash equivalents 1,654 (1,063)
Cash and cash equivalents at
beginning of period 14,221 9,066
-------- -------
Cash and cash equivalents at end of period $ 15,875 $ 8,003
======== ========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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, 1997.
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. On October 22, 1997, the Company announced a 2-for-1 split of its common
stock. The stock split was distributed on November 18, 1997 to shareholders
of record on November 3, 1997. All basic and diluted share and per share
data contained herein has been adjusted to reflect the stock split.
4. In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. This statement
requires basic and diluted earnings per share be reported. Basic earnings
per share excludes any dilutive effects of options and warrants whereas
diluted earnings per share includes their effect. All earnings per share
amounts for all periods have been presented. The following table sets forth
the computation of basic and diluted earnings per share:
Three months ended Nine months ended
February 28, February 28, February 28, February 28,
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Net Income 27,674 22,454 79,708 64,849
Weighted average number
of shares outstanding 97,881 95,169 97,386 94,841
======== ======== ======== ========
Net shares to be issued
upon exercise of
dilutive stock
options after applying
treasury stock method 1,652 1,643 1,743 1,508
-------- -------- -------- --------
Adjusted weighted
average number of
shares outstanding 99,533 96,812 99,129 96,349
======== ======== ======== ========
Basic earnings
per share $ 0.28 $ 0.23 $ 0.82 $ 0.68
======== ======== ======== ========
Diluted earnings
per share $ 0.27 $ 0.23 $ 0.80 $ 0.67
======== ======== ======== ========
5. On March 5, 1998, the Company announced it had entered into an agreement to
acquire Uniforms To You, a privately held uniform company headquartered in
Chicago, Illinois. Annual revenues for Uniforms To You were approximately
$150 million in 1997. The transaction is expected to be effective in April
and will be accounted for as a pooling of interests.
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 25% and 23% respectively, for the three and nine months
ended February 28, 1998 over the same periods in fiscal 1997. Net rental revenue
increased 18% and 17% respectively, for the three and nine months ended February
28, 1998 over the same periods in the prior fiscal year, due primarily to growth
in the customer base. Third quarter revenues from other services increased 80%
over the prior year=s third quarter. For the nine months ended February 28, 1998
these revenues increased 68% over the same period in fiscal 1997. These
increases are a result of the Company's entry into the first aid supply business
in addition to increased catalog sales.
Net income increased 23% for the three and nine months ended February 28, 1998,
over the same periods in fiscal 1997. Basic earnings per share increased 22% and
21% respectively, and the diluted earnings per share increased 17% and 19% for
the three and nine months ended February 28, 1998, over the same periods in
fiscal 1997.
Net interest expense (interest expense less interest income) was $473,000 and
$1,627,000 respectively, for the three and nine months ended February 28, 1998
compared to $846,000 and $2,947,000 respectively, for the same periods in the
prior fiscal year. Net interest expense has decreased primarily due to an
increase in interest income (related to a higher level of cash and marketable
securities on hand from the prior year) combined with a decrease in interest
expense (related to a lower amount of long-term debt and improved interest
rates). The Company's effective tax rate was 38% in both periods of fiscal 1998
as well as fiscal 1997.
Cash, cash equivalents and marketable securities decreased by $11 million at
February 28, 1998 from May 31, 1997 primarily due to funding of the Company's
dividend payment and higher capital expenditures. The cash, cash equivalents and
marketable securities will be used to finance future acquisitions and capital
expenditures.
Net property, plant and equipment increased by $56 million from May 31, 1997 to
February 28, 1998. At the end of the third quarter of fiscal 1998, the Company
had twelve uniform rental facilities in various stages of construction.
Financial Condition
At February 28, 1998, the Company had $92 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 needs requirements.
As discussed in Note 5 to the Consolidated Condensed Financial Statements, the
Company announced it had entered into an agreement to acquire Uniforms To You
headquartered in Chicago, Illinois. The transaction is expected to be effective
in April and will be accounted for as a pooling of interests.
<PAGE>
CINTAS CORPORATION
Part II. Other Information
Item 2. Changes in Securities.
(c.) During the quarterly period ended February 28, 1998,
the registrant issued 445,375 shares of Common Stock
for companies being acquired in seven separate
transactions to the owners of those companies. 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 5. Other Events.
On January 19, 1998, the registrant declared an annual cash
dividend of $.18 per share on outstanding common stock, a
20% increase over the dividend paid in the prior year. The
dividend was payable on March 2, 1998 to shareholders of
record as of February 6, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibit Index
Exhibit Number Description of Exhibit
-------------- ----------------------------------
27.1 Financial Data Schedule for Period
Ended February 28, 1998
27.2 Financial Data Schedule for Period
Ended February 28, 1997
(b.) No reports were filed on Form 8-K during the quarter.
<PAGE>
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: March 24, 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-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 15,875,000
<SECURITIES> 75,754,000
<RECEIVABLES> 122,065,000
<ALLOWANCES> 4,205,000
<INVENTORY> 189,059,000
<CURRENT-ASSETS> 401,485,000
<PP&E> 490,832,000
<DEPRECIATION> 158,067,000
<TOTAL-ASSETS> 871,969,000
<CURRENT-LIABILITIES> 138,752,000
<BONDS> 0
0
0
<COMMON> 46,234,000
<OTHER-SE> 528,554,000
<TOTAL-LIABILITY-AND-EQUITY> 871,969,000
<SALES> 116,381,000
<TOTAL-REVENUES> 750,322,000
<CGS> 89,511,000
<TOTAL-COSTS> 443,488,000
<OTHER-EXPENSES> 176,939,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,143,000
<INCOME-PRETAX> 128,268,000
<INCOME-TAX> 48,560,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,708,000
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.80
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 8,003,000
<SECURITIES> 98,436,000
<RECEIVABLES> 88,931,000
<ALLOWANCES> 3,289,000
<INVENTORY> 149,645,000
<CURRENT-ASSETS> 343,595,000
<PP&E> 404,139,000
<DEPRECIATION> 127,010,000
<TOTAL-ASSETS> 741,847,000
<CURRENT-LIABILITIES> 112,968,000
<BONDS> 0
0
0
<COMMON> 44,706,000
<OTHER-SE> 452,108,000
<TOTAL-LIABILITY-AND-EQUITY> 741,847,000
<SALES> 69,476,000
<TOTAL-REVENUES> 611,306,000
<CGS> 58,621,000
<TOTAL-COSTS> 364,597,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,018,000
<INCOME-PRETAX> 104,608,000
<INCOME-TAX> 39,759,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,849,000
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.67
</TABLE>
