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, 1999
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)
(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, 1999
- -------------------------- ------------------------------------
Common Stock, no par value 111,091,423
<PAGE>
CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
August 31, 1999 and May 31, 1999 3
Consolidated Condensed Statements of Income -
Three Months Ended August 31, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended August 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 9
Part II. Other Information 11
Signatures 11
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
August 31, 1999 May 31, 1999
--------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 31,800 $ 15,803
Marketable securities 50,422 72,315
Accounts receivable (net) 204,967 202,079
Inventories 134,741 137,983
Uniforms and other rental items in service 200,493 200,154
Prepaid expenses 7,672 6,151
----------- -----------
Total current assets 630,095 634,485
Property, plant and equipment, at cost, net 599,727 573,087
Other assets 199,381 200,246
----------- -----------
$ 1,429,203 $ 1,407,818
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,476 $ 46,783
Accrued compensation and related liabilities 18,800 25,521
Accrued liabilities 62,603 83,209
Income taxes -
Current 14,228 --
Deferred 44,166 40,214
Long-term debt due within one year 16,200 16,370
----------- -----------
Total current liabilities 203,473 212,097
Long-term debt due after one year 266,650 283,581
Deferred income taxes 42,481 40,717
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized, none outstanding -- --
Common stock, no par value,
300,000,000 shares authorized,
111,081,523 shares issued and outstanding
(110,949,274 at May 31, 1999) 52,227 49,974
Retained earnings 868,434 825,268
Accumulated other comprehensive income (4,062) (3,819)
----------- -----------
Total shareholders' equity 916,599 871,423
----------- -----------
$ 1,429,203 $ 1,407,818
=========== ===========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
Three Months Ended
August 31,
---------------------------
1999 1998
--------- ----------
Revenue:
Net rentals $ 344,517 $ 317,491
Other service revenue 112,858 108,939
--------- ---------
457,375 426,430
Costs and expenses (income):
Cost of rentals 197,927 183,838
Cost of other service revenue 75,159 74,917
Selling and administrative expenses 111,387 105,329
Interest income (1,130) (1,249)
Interest expense 4,109 4,393
--------- ---------
387,452 367,228
--------- ---------
Income before income taxes 69,923 59,202
Income taxes 26,758 22,952
--------- ---------
Net income $ 43,165 $ 36,250
========= =========
Basic earnings per share $ .39 $ .33
========= =========
Diluted earnings per share $ .38 $ .33
========= =========
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
August 31,
---------------------
Cash flows from operating activities: 1999 1998
- ------------------------------------ -------- --------
Net income $ 43,165 $ 36,250
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 18,686 16,849
Amortization of deferred charges 4,817 5,726
Deferred income taxes 5,716 4,638
Change in current assets and liabilities,
net of acquisitions of businesses:
Accounts receivable (1,784) (5,979)
Inventories 3,278 (5,100)
Uniforms and other rental items in service (305) (1,124)
Prepaid expenses (1,521) 294
Accounts payable 691 (7,574)
Accrued compensation and related liabilities (6,721) (2,465)
Accrued liabilities (20,611) (1,737)
Income taxes payable 14,228 13,792
-------- --------
Net cash provided by operating activities 59,639 53,570
Cash flows from investing activities:
- ------------------------------------
Capital expenditures (45,688) (42,958)
Proceeds from sale or redemption
of marketable securities 31,963 31,736
Purchase of marketable securities (10,070) (24,326)
Acquisitions of businesses,
net of cash acquired (9,447) (1,709)
Other 4,691 1,459
-------- --------
Net cash used in investing activities (28,551) (35,798)
Cash flows from financing activities:
- ------------------------------------
Repayment of long-term debt (17,101) (10,831)
Issuance of common stock 1,894 956
Dividends paid -- (846)
Other 116 (1,898)
-------- --------
Net cash used in financing activities (15,091) (12,619)
Net increase in cash and cash equivalents 15,997 5,153
Cash and cash equivalents at beginning of period 15,803 13,423
-------- --------
Cash and cash equivalents at end of period $ 31,800 $ 18,576
======== ========
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 are
adequately presented, it is suggested that these consolidated condensed
financial statements are 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, 1999. A summary of the Company's significant
accounting policies is presented on page 27 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 2000. Certain fiscal
1999 amounts have been reclassified to conform to the fiscal 2000
presentation.
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 March 1999, the Company acquired Unitog Company (Unitog), a rental and
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 Unitog for all periods.
4. The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective periods:
August August
1999 1998
-------- --------
Numerator:
Net income $ 43,165 $ 36,250
======== ========
Denominator:
Denominator for basic earnings
per share-weighted average shares 111,001 109,929
======== ========
Effect of dilutive securities-
employee stock options 2,175 2,046
======== ========
Denominator for diluted earnings
per share-adjusted weighted
average shares and assumed
conversions 113,176 111,975
======== ========
Basic earnings per share $ .39 $ .33
======== ========
Diluted earnings per share $ .38 $ .33
======== ========
<PAGE>
5. The components of comprehensive income for the three-month periods ended
August 31, 1999 and 1998 are as follows:
August 1999 August 1998
----------- -----------
Net income $43,165 $36,250
Other comprehensive income:
Foreign currency translation
adjustment (243) (3,465)
======== ========
Comprehensive income $42,922 $32,785
======== ========
6. The Company classifies its businesses into two operating segments: Rentals
and Other Services. The Rental operating segment designs and manufactures
corporate identity uniforms which it rents, along with other items, to its
customers. The Other Services operating segment involves the design,
manufacture and direct sale of uniforms to its customers as well as the
sale of ancillary services including sanitation supplies, first aid
products and services and cleanroom supplies. All of these services are
provided throughout the United States and Canada to businesses of all types
- from small service and manufacturing companies to major corporations that
employ thousands of people. Information as to the operations of the
Company's different business segments is set forth based on the
distribution of products and services offered. The Company evaluates
performance based on several factors of which the primary financial
measures are business segment revenue and income before income taxes.
Other
Rentals Services Corporate Total
----------- ---------- ----------- ----------
As of and for the three
months ended
August 31, 1999
Revenue $ 344,517 $ 112,858 $ -- $ 457,375
========== ========== ========== ==========
Income before income taxes $ 62,043 $ 10,859 $ (2,979) $ 69,923
========== ========== ========== ==========
Total assets $1,115,564 $ 231,416 $ 82,223 $1,429,203
========== ========== ========== ==========
As of and for the three
months ended
August 31, 1998
Revenue $ 317,491 $ 108,939 $ -- $ 426,430
========== ========== ========== ==========
Income before income taxes $ 54,120 $ 8,226 $ (3,144) $ 59,202
========== ========== ========== ==========
Total assets $1,014,366 $ 221,366 $ 99,320 $1,335,052
========== ========== ========== ==========
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenue increased 7% in the first quarter of fiscal 2000 over the same
period in fiscal 1999. Net rental revenue increased 9% for the three months
ended August 31, 1999 over the same period in the prior fiscal year primarily
due to growth in the customer base. This revenue growth came despite the sale of
linen volume occurring in the period from September 1998 through August 1999.
First quarter revenue from the sale of uniforms and other direct sale items
increased 4% over the prior year's first quarter, principally as a result of the
increased sales of first aid supplies.
Revenue for the first quarter of fiscal 2000 was negatively impacted by the loss
of business from former Unitog customers when compared to the first quarter of
fiscal 1999. This lost business is primarily the result of the disruption in
normal operations that occurred from the time Unitog announced it was selling
the company until recent months when Cintas management took over. Cintas
believes it has taken the necessary steps to minimize any further loss of
business resulting from this issue.
Net income and basic earnings per share increased 19% and 18%, respectively, for
the three months ended August 31, 1999, over the same period in fiscal 1999.
Net interest expense (interest expense less interest income) was $2,979,000 for
the first quarter of fiscal 2000 compared to $3,144,000 in the first quarter of
fiscal 1999. Net interest expense has decreased primarily due to the repayment
of long-term debt. The Company's effective tax rate on a pro forma basis was
38.3% and 38.8% respectively, for the three months ended August 31, 1999 and
August 31, 1998. The decrease was the result of state and local tax incentives
and a lower tax rate in Canada due to a favorable ruling by Revenue Canada.
Cash, cash equivalents and marketable securities decreased by $6 million at
August 31, 1999 from May 31, 1999 primarily due to capital expenditures for new
uniform rental facilities and repayment of long-term debt. The cash, cash
equivalents and marketable securities will be used to finance future
acquisitions and capital expenditures.
Net property, plant and equipment increased by $27 million from May 31, 1999 to
August 31, 1999. At the end of the first quarter of fiscal 2000, the Company had
fourteen uniform rental facilities in various stages of construction.
The integration of Unitog facilities and corporate functions are progressing as
planned; however, the benefits may not be apparent in the second quarter because
of certain items affecting income in the prior year. In the second quarter of
fiscal 1999, income was recognized by the Unitog Company as a result of a $2.1
million pre-tax gain on the sale of certain linen facilities and a $2.0 million
breach of contract settlement with a former customer.
Activity in the first quarter of fiscal 2000 related to the Special Charge
accrual established in fiscal 1999 for the Unitog integration amounted to $1.2
million, primarily related to severance payments. The remaining balance at the
end of the first quarter of fiscal 2000 is $4.9 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Financial Condition
At August 31, 1999, the Company had $82 million in cash, cash equivalents and
marketable securities. The Company believes that its current cash position,
funds generated from operations and the strength of its banking relationships
are sufficient to meet its anticipated operational and capital requirements.
Quantitative and Qualitative Disclosures About Market Risk
In its normal operations, the Company has market risk exposure to interest
rates. There has been no significant change in the company's exposure to these
risks, which has been previously disclosed.
Impact of Year 2000
The Company has determined the changes required to ensure that all of its
software, hardware and operating equipment will function properly with respect
to dates in the year 2000 and thereafter. The total cost of these changes is not
material and is being expensed as incurred. The Company incurred the majority of
its Year 2000 costs during fiscal 1998 with substantially all of the remaining
costs expensed in fiscal 1999.
The Company has been proactive in addressing the Year 2000 with a strategy that
consists of the following critical components: inventory, internal assessment,
remediation, testing, vendor assessment and contingency planning. A complete
inventory of all software and hardware was conducted in 1997 and has been
updated for new acquisitions and subsequent purchases. Through a combination of
testing, vendor inquiries and third party assistance, all hardware and software
items requiring remediation were identified. A remediation plan was developed
and implemented, with substantially all of the spending occurring in fiscal 1998
and 1999. All critical equipment used for operations and distribution has been
tested and upgraded or replaced as required. The Company believes that all
critical production systems are now fully compliant. A proactive January 1, 2000
rollover test of all critical systems was conducted this past summer. Major
suppliers were contacted to obtain certification and an assessment of their Year
2000 compliance, and all high-risk suppliers identified. Appropriate actions are
being taken to mitigate this risk for all critical suppliers and alternative
sources, if practical, are being identified as required. The Company continues
to monitor the progress of all major suppliers toward completion of their Year
2000 plans, and is developing contingency plans to minimize any potential risk.
These contingency plans are being formalized and will address all aspects of the
business. Contingency plans for all critical aspects of the Company's business
are underway and will be finalized in the second quarter.
The Company believes that it is devoting appropriate resources to resolve any
Year 2000 issues in a timely manner, and believes that all internal systems will
be prepared for Year 2000 processing. While the Company believes its efforts are
sufficient to address any Year 2000 issues, it recognizes that failing to
resolve these issues on a timely basis could adversely affect the Company's
ability to manufacture and distribute products and services.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides safe harbor from
civil litigation for forward-looking statements. This report contains
forward-looking statements that reflect our views as to future performance.
These statements are based on our expectations concerning future events which
involve a number of risks and uncertainties such as the performance and costs of
integration of acquisitions, fluctuations in costs of materials and labor, the
outcome of pending environmental matters and Year 2000 issues.
<PAGE>
CINTAS CORPORATION
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)
/s/William C. Gale
Date: October 13, 1999 --------------------------------
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-31-2000
<PERIOD-END> AUG-31-1999
<CASH> 31,800,000
<SECURITIES> 50,422,000
<RECEIVABLES> 211,892,000
<ALLOWANCES> 6,925,000
<INVENTORY> 335,234,000
<CURRENT-ASSETS> 630,095,000
<PP&E> 866,238,000
<DEPRECIATION> 266,511,000
<TOTAL-ASSETS> 1,429,203,000
<CURRENT-LIABILITIES> 203,473,000
<BONDS> 0
0
0
<COMMON> 52,227,000
<OTHER-SE> 864,372,000
<TOTAL-LIABILITY-AND-EQUITY> 1,429,203,000
<SALES> 112,858,000
<TOTAL-REVENUES> 457,375,000
<CGS> 75,159,000
<TOTAL-COSTS> 273,086,000
<OTHER-EXPENSES> 111,387,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,109,000
<INCOME-PRETAX> 69,923,000
<INCOME-TAX> 26,758,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,165,000
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.38
</TABLE>
