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 29, 2000
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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(513) 459-1200
- --------------------------------------------------------------------------------
(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 31, 2000
- -------------------------- --------------------------
Common Stock, no par value 167,457,774
1
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CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
February 29, 2000 and May 31, 1999................................ 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended February 29,
2000 and February 28, 1999........................................ 4
Consolidated Condensed Statements of
Cash Flows - Nine Months Ended
February 29, 2000 and February 28, 1999........................... 5
Notes to Consolidated Condensed Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.......................................................10
Part II. Other Information.................................................11
Signatures.................................................................12
2
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
February 29, May 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 40,812 $ 15,803
Marketable securities 74,065 72,315
Accounts receivable, net 231,510 202,079
Inventories 153,466 137,983
Uniforms and other rental items in service 207,051 200,154
Prepaid expenses 9,880 6,151
----------- -----------
Total current assets 716,784 634,485
Property, plant and equipment, at cost, net 617,856 573,087
Other assets 209,244 200,246
----------- -----------
$ 1,543,884 $ 1,407,818
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 52,406 $ 46,783
Accrued compensation and related liabilities 24,875 25,521
Accrued liabilities 73,782 83,209
Income taxes -
Current 2,226 --
Deferred 53,728 40,214
Long-term debt due within one year 16,035 16,370
----------- -----------
Total current liabilities 223,052 212,097
Long-term debt due after one year 255,390 283,581
Deferred income taxes 45,289 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,
167,445,644 shares issued and
outstanding (166,423,911 at May 31, 1999) 53,961 49,974
Retained earnings 969,296 825,268
Accumulated other comprehensive income (3,104) (3,819)
----------- -----------
Total shareholders' equity 1,020,153 871,423
----------- -----------
$ 1,543,884 $ 1,407,818
=========== ===========
See accompanying notes.
3
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
Three Months Ended Nine Months Ended
------------------------ --------------------------
February 29 February 28 February 29 February 28
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenue:
Rentals $355,739 $322,614 $1,049,982 $ 960,447
Other service 118,190 111,055 347,171 336,150
------- ------- --------- ----------
473,929 433,669 1,397,153 1,296,597
Costs and expenses
(income):
Cost of rentals 202,323 183,592 599,894 550,540
Cost of other service
revenue 77,031 73,399 228,229 227,264
Selling and admin.
expenses 112,701 111,929 333,422 316,483
Interest income (1,259) (1,112) (3,475) (3,589)
Interest expense 3,998 3,711 12,015 12,587
---------- ---------- ---------- ----------
394,794 371,519 1,170,085 1,103,285
---------- ---------- ---------- ----------
Income before income
taxes 79,135 62,150 227,068 193,312
Income taxes 30,073 23,519 86,506 74,052
---------- ---------- ---------- ----------
Net income $ 49,062 $ 38,631 $140,562 $119,260
========== ========== ========== ==========
Basic earnings per
share $ .29 $ .23 $ .84 $ .72
========== ========== ========== ==========
Diluted earnings per
share $ .29 $ .22 $ .83 $ .70
========== ========== ========== ==========
See accompanying notes.
4
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
February 29 February 28
2000 1999
----------- -----------
Cash flows from operating activities:
- ------------------------------------
Net income $ 140,562 $ 119,260
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 58,465 49,800
Amortization of deferred charges 15,239 14,504
Deferred income taxes 18,086 1,734
Change in current assets and liabilities,
net of acquisitions of businesses:
Accounts receivable (23,016) (9,732)
Inventories (13,181) (10,282)
Uniforms and other rental items in service (8,914) (15,924)
Prepaid expenses (3,628) (1,182)
Accounts payable 2,635 (11,222)
Accrued compensation and related liabilities (701) 937
Accrued liabilities (11,429) 22,226
Income taxes payable 2,226 --
--------- ---------
Net cash provided by operating activities 176,344 160,119
Cash flows from investing activities:
- ------------------------------------
Capital expenditures (124,234) (128,109)
Proceeds from sale or redemption of
marketable securities 75,680 117,549
Purchase of marketable securities (77,430) (103,130)
Acquisitions of businesses,
net of cash acquired (21,754) (9,533)
Proceeds from divestiture of
certain facilities 21,578 19,911
Other (713) 4,842
--------- ---------
Net cash used by investing activities (126,873) (98,470)
Cash flows from financing activities:
- ------------------------------------
Proceeds from issuance of long-term debt 140,000 11,859
Repayment of long-term debt (168,549) (55,055)
Issuance of common stock 2,986 1,482
Dividends paid -- (1,692)
Other 1,101 (1,475)
--------- ---------
Net cash used by financing activities (24,462) (44,881)
Net increase in cash and
cash equivalents 25,009 16,768
Cash and cash equivalents
at beginning of period 15,803 13,423
--------- ---------
Cash and cash equivalents at
end of period $ 40,812 $ 30,191
========= =========
See accompanying notes.
5
<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
included herein have been prepared by Cintas, 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 we believe that the disclosures are adequately
presented, it is suggested that these consolidated condensed financial
statements be read in conjunction with the finan-cial statements and notes
included in our most recent annual report for the fiscal year ended May 31,
1999. A summary of our significant accounting policies is presented on page
27 of our most recent annual report. There have been no material changes in
the accounting policies followed by Cintas 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, Cintas acquired Unitog Company, 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. On January 18, 2000, Cintas announced a 3-for-2 split of its common stock.
The stock split was distributed on March 7, 2000 to shareholders of record
on February 4, 2000. All share and per share data contained herein has been
adjusted to reflect the stock split.
5. The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective years:
Three Months Ended Nine Months Ended
----------------------- ------------------------
February 29 February 28 February 29 February 28
2000 1999 2000 1999
----------- ----------- ----------- -----------
Numerator:
Net income $ 49,062 $ 38,631 $140,562 $119,260
Denominator:
Denominator for basic
earnings per share-
weighted avg. shares 167,368 166,224 166,921 165,960
======== ======== ======== ========
Effect of dilutive
securities-employee
stock options 1,948 3,450 2,849 3,506
======== ======== ======== ========
6
<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Three Months Ended Nine Months Ended
----------------------- ------------------------
February 29 February 28 February 29 February 28
2000 1999 2000 1999
----------- ----------- ----------- -----------
Denominator for diluted
earnings per share-
adjusted weighted avg.
shares and assumed
conversions 169,316 169,674 169,770 169,466
======== ======== ======== ========
Basic earnings per share $ .29 $ .23 $ .84 $ .72
======== ======== ======== ========
Diluted earnings per share $ .29 $ .22 $ .83 $ .70
======== ======== ======== ========
6. The components of comprehensive income for the three and nine month periods
ended February 29, 2000 and February 28, 1999 are as follows:
Three Months Ended Nine Months Ended
----------------------- ------------------------
February 29 February 28 February 29 February 28
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income $ 49,062 $ 38,631 $ 140,562 $ 119,260
Other comprehensive
income:
Foreign currency
translation adjustment 563 924 715 (1,877)
---------- --------- --------- ----------
Comprehensive income $ 49,625 $ 39,555 $ 141,277 $ 117,383
========== ======== ========= ==========
7. Cintas 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 our
different business segments is set forth based on the distribution of
products and services offered. Cintas evaluates performance based on
several financial measures, which are primarily business segment revenue
and income before income taxes.
7
<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Other
Rentals Services Corporate Total
---------- ---------- ----------- -----------
For the three months ended
February 29, 2000
Revenue $ 355,739 $ 118,190 $ -- $ 473,929
========== ========== ============ ==========
Income before income taxes $ 68,144 $ 13,730 $ (2,739) $ 79,135
========== ========== ============ ==========
For the three months ended
February 28, 1999
Revenue $ 322,614 $ 111,055 $ -- $ 433,669
========== ========== ============ ==========
Income before income taxes $ 54,113 $ 10,636 $ (2,599) $ 62,150
========== ========== ============ ==========
As of and for the nine
months ended
February 29, 2000
Revenue $1,049,982 $ 347,171 $ -- $1,397,153
========== ========== ============ ==========
Income before income taxes $ 197,972 $ 37,636 $ (8,540) $ 227,068
========== ========== ============ ==========
Total assets $1,187,835 $ 241,172 $ 114,877 $1,543,884
========== ========== ============ ==========
As of and for the nine
months ended
February 28, 1999
Revenue $ 960,447 $ 336,150 $ -- $1,296,597
========== ========== ============ ==========
Income before income taxes $ 169,671 $ 32,639 $ (8,998) $ 193,312
========== ========== ============ ==========
Total assets $1,061,340 $ 227,846 $ 79,315 $1,368,501
========== ========== ============ ==========
8
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 9% and 8% respectively, for the three and nine months
ended February 29, 2000 over the same periods in fiscal 1999. The third quarter
in fiscal 2000 included an extra work day in February due to the leap year. Net
rental revenue increased 10% and 9%, respectively, for the three and nine months
ended February 29, 2000 over the same periods in the prior fiscal year, due
primarily to growth in the customer base. This revenue growth came despite the
disposition of linen volume occurring from September 1998 through February 2000
and the high rate of lost business occurring at Unitog operations prior to the
merger. For the three and nine months ended February 29, 2000 revenues from
other services increased 6% and 3%, respectively, over the same periods in
fiscal 1999, principally as a result of the increased sales of first aid
supplies.
Net income increased 27% and 18%, respectively, for the three and nine months
ended February 29, 2000 over the same periods in fiscal 1999. Diluted earnings
per share increased 32% and 19%, respectively, for the three and nine months
ended February 29, 2000 over the same periods in fiscal 1999. In the third
quarter of last fiscal year, Unitog recorded a special charge related to
environmental costs. Excluding that special charge, net income for the quarter
increased 18% and diluted earnings per share for the quarter increased 16%.
Net interest expense (interest expense less interest income) was $2,739,000 and
$8,540,000, respectively, for the three and nine months ended February 29, 2000
compared to $2,599,000 and $8,998,000, respectively, for the same periods in the
prior fiscal year. The net interest expense for the third quarter of fiscal 2000
increased over the third quarter of fiscal 1999 because of the recent spike in
interest rates as a result of actions taken by the Federal Reserve. Year to date
interest expense has decreased primarily due to the repayment of long-term debt.
Cintas' effective tax rate was approximately 38% in both periods of fiscal 2000
as well as fiscal 1999.
Cash, cash equivalents and marketable securities increased by $27 million at
February 29, 2000 from May 31, 1999 primarily due to strong cash flow from
operations. These sources will be used to finance future acquisitions and
capital expenditures.
Net property, plant and equipment increased by $45 million from May 31, 1999 to
February 29, 2000. At the end of the third quarter of fiscal 2000, we had eight
uniform rental facilities in various stages of construction.
The integration of Unitog facilities and corporate functions are progressing as
planned. Activity in the third quarter of fiscal 2000 related to the Special
Charge accrual established in fiscal 1999 for the Unitog integration amounted to
$1.4 million, primarily related to cash payments for severance. The remaining
severance accrual at the end of the third quarter of fiscal 2000 is $.6 million.
Financial Condition
At February 29, 2000, we had $115 million in cash, cash equivalents and
marketable securities. We believe that our current cash position, funds
anticipated to be generated from operations and the strength of our banking
relationships are sufficient to meet our anticipated operational and capital
needs requirements.
9
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quantitative and Qualitative Disclosures About Market Risk
In our normal operations, we have market risk exposure to interest rates. There
has been no significant change in our exposure to these risks which has been
previously disclosed.
Impact of Year 2000
We have completed the changes required to ensure that all of our software,
hardware and operating equipment will function properly with respect to dates in
the year 2000 and thereafter. The total cost of these changes was not material
and was expensed as incurred. We incurred the majority of our Year 2000 costs
during fiscal 1998, with substantially all of the remaining costs expensed in
fiscal 1999. As of the date of this filing, our ability to manufacture and
distribute products and services has not been adversely affected by Year 2000
issues.
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.
10
<PAGE>
CINTAS CORPORATION
Part II. Other Information
Item 5. Other Events
On January 18, 2000, Cintas declared an annual cash dividend of
$.19 per share on outstanding common stock, a 27% increase over
the dividend paid in the prior year. The dividend was payable on
March 7, 2000 to shareholders of record as of February 4, 2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
Exhibit Number Description of Exhibit
-------------- ----------------------------------------
27.1 Financial Data Schedule
27.2 Financial Data Schedule -
Restated Six Months Ended November 1999
27.3 Financial Data Schedule -
Restated Three Months Ended August 1999
27.4 Financial Data Schedule -
Restated Twelve Months Ended May 1999
27.5 Financial Data Schedule -
Restated Nine Months Ended February 1999
27.6 Financial Data Schedule -
Restated Six Months Ended November 1998
27.7 Financial Data Schedule -
Restated Three Months Ended August 1998
(b) No reports were filed on Form 8-K during the quarter
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)
/s/William C. Gale
----------------------------------------
Date: April 7, 2000 William C. Gale
Vice President and Chief Financial Officer
(Chief Accounting Officer)
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