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, 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)
(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 18, 1999
- -------------------------- --------------------------
Common Stock, no par value 105,744,995
<PAGE>
CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Condensed Balance Sheets -
February 28, 1999 and May 31, 1998 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
February 28, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended February 28, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 11
Signatures 12
-2-
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
February 28, May 31,
1999 1998
(Unaudited)
ASSETS ------------ ----------
- ------
Current assets:
Cash and cash equivalents $ 28,258 $ 12,717
Marketable securities 73,735 88,154
Accounts receivable, net 172,300 157,603
Inventories 122,340 108,226
Uniforms and other rental items in service 155,625 136,659
Prepaid expenses 5,710 5,242
----------- ----------
Total current assets 557,968 508,601
Property, plant and equipment, at cost, net 449,847 367,094
Other assets 137,274 142,141
---------- --------
$1,145,089 $1,017,836
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 39,876 $ 41,801
Accrued compensation and related liabilities 18,029 16,615
Accrued liabilities 74,022 61,239
Income taxes -
Current 8,866 ----
Deferred 32,843 31,219
Long-term debt due within one year 5,673 8,117
---------- --------
Total current liabilities 179,309 158,991
Long-term debt due after one year 168,396 180,007
Deferred income taxes 28,326 24,346
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized, none outstanding ----- -----
Common stock, no par value,
300,000,000 shares authorized,
105,712,501 shares issued and outstanding
(104,610,716 at May 31, 1998) 48,686 46,965
Retained earnings 724,850 610,025
Accumulated other comprehensive income (4,478) (2,498)
----------- -----------
Total shareholders' equity 769,058 654,492
------- -------
$1,145,089 $1,017,836
========== ==========
See accompanying notes.
-3-
<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,
------------ ------------ ------------ ------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net rentals $ 266,835 $ 218,640 $ 791,167 $ 633,941
Other service revenue 93,669 83,249 291,009 234,450
----------- ----------- ----------- -----------
360,504 301,889 1,082,176 868,391
Costs and expenses (income):
Cost of rentals 147,419 122,327 440,020 353,977
Cost of other service
revenue 63,547 56,607 200,343 161,052
Selling and administrative
expenses 87,692 74,800 257,438 210,606
Interest income (1,112) (1,223) (3,492) (3,561)
Interest expense 2,034 2,093 7,015 6,475
----------- ----------- ----------- -----------
299,580 254,604 901,324 728,549
----------- ----------- ----------- -----------
Income before income taxes 60,924 47,285 180,852 139,842
Income taxes 23,052 16,995 69,320 48,560
----------- ----------- ----------- -----------
Net income $ 37,872 $ 30,290 $ 111,532 $ 91,282
=========== =========== =========== ===========
Basic earnings per share $ .36 $ .30 $ 1.06 $ .90
=========== =========== =========== ===========
Diluted earnings per share $ .35 $ .29 $ 1.04 $ .89
=========== =========== =========== ===========
Net income as reported $ 37,872 $ 30,290 $ 111,532 $ 91,282
Pro forma adjustment for
UTY Income taxes -- 1,001 -- 4,427
----------- ----------- ----------- -----------
Pro forma net income $ 37,872 $ 29,289 $ 111,532 $ 86,855
=========== =========== =========== ===========
Pro forma basic earnings
per share $ .36 $ .29 $ 1.06 $ .86
=========== =========== =========== ===========
Pro forma diluted earnings
per share $ .35 $ .28 $ 1.04 $ .84
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
-4-
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
February 28,
----------------------
Cash flows from operating activities: 1999 1998
- ------------------------------------ ---------- ----------
Net income $ 111,532 $ 91,282
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 40,414 33,367
Amortization of deferred charges 9,347 9,797
Deferred income taxes 5,895 5,926
Change in current assets and liabilities,
net of acquisitions of businesses:
Accounts receivable (10,193) (14,855)
Inventories (12,180) (19,629)
Uniforms and other rental items in service (18,225) (14,001)
Prepaid expenses (396) (2,087)
Accounts payable (7,884) 5,744
Accrued compensation and related liabilities 937 702
Accrued liabilities 11,019 (5,906)
Income taxes payable 8,830 7,369
--------- --------
Net cash provided by operating activities 139,096 97,709
Cash flows from investing activities:
- ------------------------------------
Capital expenditures (119,778) (69,587)
Proceeds from sale or redemption of
marketable securities 117,549 69,459
Purchase of marketable securities (103,130) (56,558)
Acquisitions of businesses, net of cash acquired (7,541) (33,045)
Other 3,731 (1,982)
--------- --------
Net cash used by investing activities (109,169) (91,713)
Cash flows from financing activities:
- ------------------------------------
Proceeds from issuance of long-term debt ---- 35,305
Repayment of long-term debt (14,114) (12,761)
Issuance of common stock 1,202 750
Dividends paid ---- (17,634)
Distributions to S corporation shareholders ---- (8,285)
Repurchase of common stock ---- (1,282)
Other (1,474) (990)
--------- --------
Net cash used in financing activities (14,386) (4,897)
--------- --------
Net increase in cash and cash equivalents 15,541 1,099
Cash and cash equivalents at beginning of period 12,717 16,362
--------- --------
Cash and cash equivalents at end of period $ 28,258 $ 17,461
========== ========
See accompanying notes.
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<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(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. The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective years:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 37,872 $ 30,290 $111,532 $ 91,282
Denominator:
Denominator for
basic earnings per
share-weighted avg. shares 105,628 101,840 105,455 101,327
======= ======= ======= =======
Effect of dilutive securities-
employee stock options 2,256 1,652 2,302 1,761
------- ------- ------- -------
Denominator for
diluted earnings per share-
adjusted weighted avg.
shares and assumed conversions 107,884 103,492 107,757 103,088
======= ======= ======= =======
Basic earnings per share $ .36 $ .30 $ 1.06 $ .90
======== ======== ======== =========
Diluted earnings per share $ .35 $ .29 $ 1.04 $ .89
======== ======== ======== =========
</TABLE>
-6-
<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:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Pro forma net income $ 37,872 $ 29,289 $111,532 $ 86,855
Denominator:
Denominator for pro forma
basic earnings per
share-weighted avg. shares 105,628 101,840 105,455 101,327
======= ======= ======= =======
Effect of dilutive securities-
employee stock options 2,256 1,652 2,302 1,761
------- ------- ------- -------
Denominator for pro forma
diluted earnings per share-
adjusted weighted avg.
shares and assumed conversions 107,884 103,492 107,757 103,088
======= ======= ======= =======
Pro forma basic earnings per share $ .36 $ .29 $ 1.06 $ .86
======= ======= ======= =======
Pro forma diluted earnings per share $ .35 $ .28 $ 1.04 $ .84
======= ======= ======= =======
</TABLE>
4. 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 accumulated 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 and nine month periods
ended February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 37,872 $ 30,920 $ 111,532 $ 91,282
Other comprehensive income:
Foreign currency translation
adjustment 892 (346) (1,980) (1,029)
---------- ----------- --------- --------
Comprehensive income $ 38,764 $ 30,574 $ 109,552 $ 90,253
========== =========== ========= ========
</TABLE>
-7-
<PAGE>
5. On January 11, 1999, the Company announced it had entered into an agreement
to acquire Unitog Company, a publicly held uniform company headquartered in
Kansas City, Missouri. Annual revenues for Unitog were approximately $270
million in 1998. Unitog shareholders are scheduled to consider the merger
at a special Unitog Company Shareholders Meeting on March 24th and if
consummated, the transaction will be accounted for as a pooling of
interests.
-8-
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total revenues increased 19% and 25% respectively, for the three and nine months
ended February 28, 1999 over the same periods in fiscal 1998. The current
quarter of FY 1999 reflects one less work day than the same quarter of FY 1998.
One work day represents approximately $6 million in revenue. Net rental revenue
increased 22% and 25% respectively, for the three and nine months ended February
28, 1999 over the same periods in the prior fiscal year, due primarily to growth
in the customer base and the acquisitions of Apparelmaster and Mechanics Laundry
in the second half of fiscal 1998. Third quarter revenues from other services
increased 13% over the prior year's third quarter. For the nine months ended
February 28, 1999 these revenues increased 24% over the same period in fiscal
1998. These increases are a result of increased sales in the Company's catalog,
first aid and safety and Uniforms To You divisions. The Company's cleanroom
division experienced weakness in revenue growth due to cutbacks in customer
operations in the biotech and computer chip industries.
Net income on a pro forma basis increased 29% and 28% respectively, for the
three and nine months ended February 28, 1999, over the same periods in fiscal
1998. Pro forma basic earnings per share increased 24% and 23% respectively, and
pro forma diluted earnings per share increased 25% and 24% for the three and
nine months ended February 28, 1999, over the same periods in fiscal 1998.
Net interest expense (interest expense less interest income) was $922,000 and
$3,523,000 respectively, for the three and nine months ended February 28, 1999
compared to $870,000 and $2,914,000 respectively, for the same periods in the
prior fiscal year. 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 of 38% was comparable to the prior year.
Cash, cash equivalents and marketable securities increased by $1 million at
February 28, 1999 from May 31, 1998. The cash, cash equivalents and marketable
securities will be used to finance future acquisitions and capital expenditures.
Net property, plant and equipment increased by $83 million from May 31, 1998 to
February 28, 1999. At the end of the third quarter of fiscal 1999, the Company
had seventeen uniform rental facilities in various stages of construction.
-9-
<PAGE>
Liquidity and Capital Resources
At February 28, 1999, the Company had $102 million in cash, cash equivalents and
marketable securities. The Company believes with 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 has entered into an agreement to acquire Unitog Company headquartered in
Kansas City, Missouri. The transaction is expected to be effective March 24th
and will be accounted for as a pooling of interests.
Impact of Year 2000
The company has completed an assessment of all of its software systems and has
determined the changes that 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 are being
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. These expenses will
be funded through existing cash resources and future operating cashflows. All of
the Company's critical production systems are now fully compliant; and
therefore, the Company has developed no contingency plans for its systems.
The Company has contacted its major suppliers to obtain certification of their
systems Year 2000 compliance in order to identify any high-risk vendors. The
Company is now evaluating the responses from these vendors and is developing a
strategy to minimize their risk. During 1999, the Company will follow up with
all of its major suppliers to ensure that they meet their target dates.
Strategies will include contingency plans such as alternative suppliers or
alternative processes.
The Company believes 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. Based upon the work performed to date, the
Company presently believes that the likelihood of the Year 2000 having a
material result on its operations, liquidity or financial position is remote.
-10-
<PAGE>
CINTAS CORPORATION
Part II. Other Information
Item 2. Changes in Securities.
(c.) During the quarterly period ended February 28, 1999, the
registrant issued 56,429 shares of Common Stock for
companies being acquired in six 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, 1999, the registrant declared an annual cash
dividend of $.22 per share on outstanding common stock, a 22%
increase over the dividend paid in the prior year. The dividend
was payable on March 3, 1999 to shareholders of record as of
February 5, 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibit Index
Exhibit Number Description of Exhibit
-------------- ----------------------
27 Financial Data Schedule
(b.) Form 8-K was filed on January 14, 1999 reporting items 5
and 7.
-11-
<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 19, 1999 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> FEB-28-1999
<CASH> 28,258,000
<SECURITIES> 73,735,000
<RECEIVABLES> 178,190,000
<ALLOWANCES> 5,890,000
<INVENTORY> 277,965,000
<CURRENT-ASSETS> 557,968,000
<PP&E> 643,403,000
<DEPRECIATION> 193,556,000
<TOTAL-ASSETS> 1,145,089,000
<CURRENT-LIABILITIES> 179,309,000
<BONDS> 0
0
0
<COMMON> 48,686,000
<OTHER-SE> 720,372,000
<TOTAL-LIABILITY-AND-EQUITY> 1,145,089,000
<SALES> 93,669,000
<TOTAL-REVENUES> 360,504,000
<CGS> 63,547,000
<TOTAL-COSTS> 210,966,000
<OTHER-EXPENSES> 87,692,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,034,000
<INCOME-PRETAX> 60,924,000
<INCOME-TAX> 23,052,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,872,000
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
