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 August 31, 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 ---------------------------------------- (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 September 30, 1998 - -------------------------- ------------------------------ Common Stock, no par value 105,031,731
CINTAS CORPORATION INDEX Page No. -------- Part I. Financial Information: Consolidated Condensed Balance Sheets - August 31, 1998 and May 31, 1998 3 Consolidated Condensed Statements of Income - Three Months Ended August 31, 1998 and 1997 4 Consolidated Condensed Statements of Cash Flows - Three Months Ended August 31, 1998 and 1997 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information 9 Signatures 10
CINTAS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands except share data) August 31, May 31, 1998 1998 ----------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 17,904 $ 12,717 Marketable securities 80,744 88,154 Accounts receivable (net) 164,000 157,603 Inventories 114,292 108,226 Uniforms and other rental items in service 138,224 136,659 Prepaid expenses 5,119 5,242 ---------- ---------- Total current assets 520,283 508,601 Property, plant and equipment, at cost, net 392,231 367,094 Other assets 138,332 142,141 ---------- ---------- $1,050,846 $1,017,836 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 37,666 $ 41,801 Accrued compensation and related liabilities 14,230 16,615 Accrued liabilities 60,190 61,239 Income taxes - Current 14,540 --- Deferred 34,736 31,219 Long-term debt due within one year 18,682 8,117 ---------- -------- Total current liabilities 180,044 158,991 Long-term debt due after one year 158,767 180,007 Deferred income taxes 25,965 24,346 Shareholders' equity: Preferred stock, no par value, 100,000 shares authorized, none outstanding ----- ----- Common stock, no par value, 120,000,000 shares authorized, 104,901,419 shares issued and outstanding (104,610,716 at May 31, 1998) 47,784 46,965 Retained earnings 644,293 610,025 Accumulated other comprehensive income (6,007) (2,498) ---------- ---------- Total shareholders' equity 686,070 654,492 ---------- ---------- $1,050,846 $1,017,836 ========== ========== See accompanying notes.
CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In thousands except per share data) Three Months Ended August 31, --------------------------- 1998 1997 --------- --------- Revenue: Net rentals $ 259,466 $ 202,999 Other service revenue 94,879 69,806 --------- --------- 354,345 272,805 Costs and expenses (income): Cost of rentals 145,486 112,671 Cost of other service revenue 65,835 48,379 Selling and administrative expenses 86,430 67,693 Interest income (1,207) (1,122) Interest expense 2,443 2,279 ---------- ---------- 298,987 229,900 ---------- ---------- Income before income taxes 55,358 42,905 Income taxes 21,498 14,645 ---------- ---------- Net income $ 33,860 $ 28,260 ========== ========== Basic earnings per share $ .32 $ .28 ========== ========== Diluted earnings per share $ .32 $ .28 ========== ========== Net income as reported $ 33,860 $ 28,260 Pro forma adjustment for UTY income taxes ---- 1,607 ----------- ---------- Pro forma net income $ 33,860 $ 26,653 =========== ========== Pro forma basic earnings per share $ .32 $ .26 =========== ========== Pro forma diluted earnings per share $ .32 $ .26 =========== ========== See accompanying notes.
CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended August 31, Cash flows from operating activities: 1998 1997 - ------------------------------------ -------- ------- Net income $ 33,860 $26,653 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 13,809 10,874 Amortization of deferred charges 3,868 3,012 Deferred income taxes 5,136 4,174 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (5,803) (3,443) Inventories (6,309) (1,017) Uniforms and other rental items in service (1,423) (2,287) Prepaid expenses 126 40 Accounts payable (5,789) 1,333 Accrued compensation and related liabilities (2,465) (6,288) Accrued liabilities (1,203) (14,333) Income taxes payable 14,540 9,307 ------- -------- Net cash provided by operating activities 48,347 28,025 Cash flows from investing activities: Capital expenditures (39,542) (20,407) Proceeds from sale or redemption of marketable securities 31,736 18,922 Purchase of marketable securities (24,326) (22,502) Acquisitions of businesses, net of cash acquired (1,734) (4,558) Other 1,187 300 -------- -------- Net cash used in investing activities (32,679) (28,245) Cash flows from financing activities: Proceeds from issuance of long-term debt -- 2,441 Repayment of long-term debt (9,403) (1,955) Issuance of common stock 819 230 Distributions to S corporation shareholders -- (2,633) Other (1,897) ( 599) ------- -------- Net cash used in financing activities (10,481) (2,516) -------- -------- Net increase (decrease) in cash and cash equivalents 5,187 (2,736) Cash and cash equivalents at beginning of period 12,717 16,362 ------- ------- Cash and cash equivalents at end of period $17,904 $13,626 ======= ======= See accompanying notes.
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 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. In April 1998, the Company acquired Uniforms To You (UTY), a 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 UTY for all periods. Prior to the merger, UTY had elected S Corporation status for income tax purposes. As a result of the merger, UTY terminated its S Corporation election. Pro forma adjustment for income taxes presents the pro forma tax expense of UTY as if UTY had been a C Corporation during the financial statement periods presented. 4. The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective years: August August 1998 1997 -------- -------- Numerator: Net income $ 33,860 $ 28,260 Denominator: Denominator for basic earnings per share-weighted avg. shares 104,744 100,772 ======== ======== Effect of dilutive securities- employee stock options 2,013 1,644 -------- -------- Denominator for diluted earnings per share-adjusted weighted avg. shares and assumed conversions 106,757 102,416 ======== ======== Basic earnings per share $ .32 $ .28 ======== ======== Diluted earnings per share $ .32 $ .28 ======== ========
The following table represents a reconciliation of the shares used to calculate pro forma basic and diluted earnings per share for the respective years: August August 1998 1997 -------- -------- Numerator: Pro forma income $ 33,860 $ 26,653 Denominator: Denominator for pro forma basic earnings per share-weighted avg. shares 104,744 100,772 ======== ======== Effect of dilutive securities- employee stock options 2,013 1,644 -------- -------- Denominator for pro forma diluted earnings per share-adjusted weighted avg. shares and assumed conversions 106,757 102,416 ======== ======== Pro forma basic earnings per share $ .32 $ .26 ======== ======== Pro forma diluted earnings per share $ .32 $ .26 ======== ======== 5. 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 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-month periods ended August 31, 1998 and 1997 are as follows: August 1998 August 1997 ----------- ----------- Net income $33,860 $28,260 Other comprehensive income: Foreign currency translation adjustment ( 3,509) ( 302) ---------- ----------- Comprehensive income $ 30,351 $ 27,958 ========== =========
CINTAS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Total revenues increased 30% in the first quarter of fiscal 1999 over the same period in fiscal 1998. Net rental revenue increased 28% for the three months ended August 31, 1998 over the same period in the prior fiscal year, due primarily to growth in the customer base. First quarter revenues from the sale of uniforms and other direct sale items increased 36% over the prior year's first quarter, principally as a result of the increased sales of first aid supplies. Net income and basic earnings per share on a pro forma basis increased 27% and 23%, respectively, for the three months ended August 31, 1998, over the same period in fiscal 1998. Net interest expense (interest expense less interest income) was $1,236,000 for the first quarter of fiscal 1999 compared to $1,157,000 in the first quarter of fiscal 1998. 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 was 39% and 38% respectively, for the three months ended August 31, 1998 and August 31, 1997. The increase was due to a higher state tax provision and the relative change between taxable income (increasing 29%) and tax exempt income which has remained stable. Cash, cash equivalents and marketable securities decreased by $2 million at August 31, 1998 from May 31, 1998 primarily due to capital expenditures for new uniform rental facilities. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Net property, plant and equipment increased by $25 million from May 31, 1998 to August 31, 1998. At the end of the first quarter of fiscal 1999, the Company had nineteen uniform rental facilities in various stages of construction. Financial Condition - ------------------- At August 31, 1998, the Company had $99 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 need requirements. Impact of Year 2000 - ------------------- The Company has completed an assessment of all of its software systems and has determined what changes, if any, 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 will be 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. The Company is in the process of contacting key suppliers to obtain certification of their systems Year 2000 compliance.
CINTAS CORPORATION Part II. Other Information Item 2. Changes in Securities (c.) During the quarterly period ended August 31, 1998, the registrant issued 234,469 shares of Common Stock for companies being acquired in eight separate transactions to the owners of those companies numbering one, two, two, two, four, two, one and two, respectively. 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 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) Date: October 13, 1998 /s/William C. Gale ---------------------------------- William C. Gale Vice President and Chief Financial Officer (Chief Accounting Officer)