Cintas is an American company specialized in the manufacture and sale of workwear and uniforms
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 November 30, 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 - -------------------------------------------------------------------------------- (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 December 31, 1999 - -------------------------- ------------------------------ Common Stock, no par value 111,565,276
CINTAS CORPORATION INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - November 30, 1999 and May 31, 1999 3 Consolidated Condensed Statements of Income - Three Months and Six Months Ended November 30, 1999 and 1998 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended November 30, 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 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 Part II. Other Information 11 Signatures 12
CINTAS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands except share data) November 30, May 31, 1999 1999 ------------ ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 26,430 $ 15,803 Marketable securities 67,347 72,315 Accounts receivable, net 226,996 202,079 Inventories 136,091 137,983 Uniforms and other rental items in service 209,616 200,154 Prepaid expenses 7,470 6,151 ----------- ----------- Total current assets 673,950 634,485 Property, plant and equipment, at cost, net 615,121 573,087 Other assets 197,494 200,246 ----------- ----------- $ 1,486,565 $ 1,407,818 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 49,692 $ 46,783 Accrued compensation and related liabilities 22,148 25,521 Accrued liabilities 72,014 83,209 Income taxes - Current 4,184 -- Deferred 49,016 40,214 Long-term debt due within one year 16,117 16,370 ----------- ----------- Total current liabilities 213,171 212,097 Long-term debt due after one year 260,000 283,581 Deferred income taxes 43,725 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, 111,534,779 shares issued and outstanding (110,949,274 at May 31, 1999) 53,345 49,974 Retained earnings 919,991 825,268 Accumulated other comprehensive income (3,667) (3,819) ----------- ----------- Total shareholders' equity 969,669 871,423 ----------- ----------- $ 1,486,565 $ 1,407,818 =========== =========== See accompanying notes.
CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In thousands except per share data) Three months ended Six months ended November 30 November 30 ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- ---------- Revenue: Rentals $ 349,726 $ 320,342 $ 694,243 $ 637,833 Other service 116,123 116,156 228,981 225,095 --------- --------- --------- --------- 465,849 436,498 923,224 862,928 Costs and expenses (income): Cost of rentals 199,645 183,110 397,572 366,948 Cost of other service revenue 76,038 78,948 151,197 153,865 Selling and admin. expenses 109,334 99,226 220,721 204,554 Interest income (1,086) (1,228) (2,216) (2,477) Interest expense 3,908 4,483 8,017 8,876 --------- --------- --------- --------- 387,839 364,539 775,291 731,766 --------- --------- --------- --------- Income before income taxes 78,010 71,959 147,933 131,162 Income taxes 29,675 27,581 56,433 50,533 --------- --------- --------- --------- Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629 ========= ========= ========= ========= Basic earnings per share $ .43 $ .40 $ .82 $ .73 ========= ========= ========= ========= Diluted earnings per share $ .43 $ .39 $ .81 $ .71 ========= ========= ========= ========= See accompanying notes.
CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended November 30 ----------------------- 1999 1998 ---------- ---------- Cash flows from operating activities: - ------------------------------------ Net income $91,500 $ 80,629 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 39,003 32,466 Amortization of deferred charges 10,553 9,191 Deferred income taxes 11,810 6,036 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (23,870) (25,322) Inventories 2,526 (7,324) Uniforms and other rental items in service (10,489) (12,068) Prepaid expenses (1,307) (1,858) Accounts payable (246) (8,375) Accrued compensation and related liabilities (3,407) (89) Accrued liabilities (12,266) 1,601 Income taxes payable 4,184 11,856 -------- -------- Net cash provided by operating activities 107,991 86,743 Cash flows from investing activities: - ------------------------------------ Proceeds from divestiture of certain facilities 8,769 20,044 Capital expenditures (81,914) (89,204) Proceeds from sale or redemption of marketable securities 62,423 80,386 Purchase of marketable securities (57,455) (67,081) Acquisitions of businesses, net of cash acquired (7,315) (5,099) Other (922) 6,404 -------- -------- Net cash used by investing activities (76,414) (54,550) Cash flows from financing activities: - ------------------------------------ Repayment of long-term debt (23,858) (38,807) Issuance of common stock 2,370 1,354 Pre merger dividends to former UTY owners -- (846) Other 538 (2,851) -------- -------- Net cash used in financing activities (20,950) (41,150) Net increase/(decrease) in cash and cash equivalents 10,627 (8,957) Cash and cash equivalents at beginning of period 15,803 13,423 -------- -------- Cash and cash equivalents at end of period $ 26,430 $ 4,466 ======== ======== See accompanying notes.
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 financial 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. 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 Six Months Ended November 30, November 30 -------------------- ------------------ 1999 1998 1999 1998 --------- -------- ------- -------- Numerator: Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629 Denominator: Denominator for basic earnings per share-weighted avg. shares 111,265 110,358 111,132 110,402 ======== ======== ======= ======== Effect of dilutive securities- employee stock options 1,956 2,214 2,052 2,492 ======== ======== ======= ======== Denominator for diluted earnings per share-adjusted weighted avg. shares and assumed conversions 113,221 112,572 113,184 112,894 ======== ======== ======= ========
CINTAS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) (In thousands except per share data) Three Months Ended Six Months Ended November 30 November 30 ------------------ ------------------- 1999 1998 1999 1998 ------- -------- -------- --------- Basic earnings per share $ .43 $ .40 $ .82 $ .73 ======== ========= ========= ====== Diluted earnings per share $ .43 $ .39 $ .81 $ .71 ======== ========= ========= ====== 5. The components of comprehensive income for the three and six month periods ended November 30, 1999 and 1998 are as follows: Three Months Ended Six Months Ended November 30 November 30 -------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629 Other comprehensive income: Foreign currency translation adjustment 395 664 152 (2,801) -------- -------- -------- -------- Comprehensive income $ 48,730 $ 45,042 $ 91,652 $ 77,828 ======== ======== ======== ======== 6. 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 factors of which the primary financial measures are business segment revenue and income before income taxes.
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 November 30, 1999 Revenue $ 349,726 $ 116,123 $ -- $ 465,849 ============ ========= ========= ========== Income before income taxes $ 67,784 $ 13,048 $ (2,822) $ 78,010 ============ ========= ========= ========== For the three months ended November 30, 1998 Revenue $ 320,342 $ 116,156 $ -- $ 436,498 ============ ========= ========= ========== Income before income taxes $ 61,437 $ 13,777 $ (3,255) $ 71,959 ============ ========= ========= ========== As of and for the six months ended November 30, 1999 Revenue $ 694,243 $ 228,981 $ -- $ 923,224 ============ ========= ========= ========== Income before income taxes $ 129,828 $ 23,906 $ (5,801) $ 147,933 ============ ========= ========= ========== Total assets $ 1,150,455 $ 242,333 $ 93,777 $1,486,565 ============ ========= ========= ========== As of and for the six months ended November 30, 1998 Revenue $ 637,833 $ 225,095 $ -- $ 862,928 ============ ========= ========= ========== Income before income taxes $ 115,558 $ 22,003 $ (6,399) $ 131,162 ============ ========= ========= ========== Total assets $ 1,061,340 $ 227,846 $ 79,315 $1,368,501 ============ ========= ========= ==========
CINTAS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Total revenues increased 7% for the three and six months ended November 30, over the same periods in fiscal 1999. Net rental revenue increased 9% for the three and six months ended November 30, 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 November 1999 and the high rate of lost business occurring at Unitog operations prior to the merger. For the six months ended November 30, 1999 revenues from other services increased 2% over the same period in fiscal 1999, principally as a result of the increased sales of first aid supplies. Net income increased 9% and 14% respectively, for the three and six months ended November 30, over the same periods in fiscal 1999. This increase in net income occurred even though income was recognized in the second quarter of fiscal 1999 by Unitog 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. Diluted earnings per share increased 10% and 14%, respectively, for the three and six months ended November 30 over the same periods in fiscal 1999. Net interest expense (interest expense less interest income) was $2,822,000 and $5,801,000, respectively, for the three and six months ended November 30 compared to $3,255,000 and $6,399,000, respectively, for the same periods in the prior fiscal year. Net 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 $6 million at November 30, 1999 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 $42 million from May 31, 1999 to November 30, 1999. At the end of the second quarter of fiscal 2000, we had nine uniform rental facilities in various stages of construction. The integration of Unitog facilities and corporate functions are progressing as planned. Activity in the second quarter of fiscal 2000 related to the Special Charge accrual established in fiscal 1999 for the Unitog integration amounted to $2.9 million, primarily related to severance payments. The remaining balance at the end of the second quarter of fiscal 2000 is $2.0 million. Financial Condition At November 30, 1999, we had $94 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.
CINTAS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quantitative and Qualitative Disclosures About Market Risk In its 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 has been 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.
CINTAS CORPORATION Part II. Other Information Item 4. Submission of matters to a vote of security holders Cintas' Annual Shareholders' meeting was held on October 20, 1999, at which the following issues were voted upon by shareholders: Issue No. 1 Authority to establish the number of Directors to be elected at the Meeting at eight. FOR 97,538,157 AGAINST 446,335 ABSTAIN 60,252 BROKER NON-VOTES 0 ---------- ------- ------ --- Issue No. 2 Authority to elect eight Directors. Shares - Withheld Name Shares For Authority - ------------------- ---------- ---------- Richard T. Farmer 96,405,493 1,639,251 Scott D. Farmer 96,392,678 1,652,066 Gerald V. Dirvin 96,558,337 1,486,407 James J. Gardner 96,284,523 1,760,221 Roger L. Howe 96,564,334 1,480,410 Donald P. Klekamp 95,950,730 2,094,014 Robert J. Kohlhepp 96,406,548 1,638,196 John S. Lillard 96,546,745 1,497,999
CINTAS CORPORATION Issue No. 3 Proposal for the new stock option plan. FOR 76,216,312 AGAINST 12,268,532 ABSTAIN 214,209 BROKER NON-VOTES 9,345,691 ---------- ---------- ------- --------- Item 6. Exhibits and Reports on Form 8-K (a.) Exhibit Index Exhibit Number Description of Exhibit -------------- ----------------------- 10.13 1999 Stock Option Plan 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: January 10, 2000 William C. Gale Vice President and Chief Financial Officer (Chief Accounting Officer)