EX-99 2 ex991122209.htm EXHIBIT 99 ex991122209.htm
Exhibit 99
FOR IMMEDIATE RELEASE
December 22, 2009
 
Cintas Corporation Announces Fiscal 2010 Second Quarter Results
 
 
CINCINNATI, December 22, 2009 -- Cintas Corporation (Nasdaq:CTAS) today reported results for the second quarter of its fiscal year 2010, which ended on November 30, 2009.  Revenue for the quarter was $884.5 million, a 1% decrease as compared to the first quarter of fiscal 2010, which ended on August 31, 2009.  However, when adjusted for a comparable number of workdays, revenue increased 1% compared to the first quarter.
 
Scott D. Farmer, Chief Executive Officer, stated, “According to the U.S. Department of Labor, the U.S. economy has lost jobs for 23 consecutive months, with 7.2 million jobs lost during that time frame.  These job losses directly affect our business as many of our products and services are dependant on customer employee levels.  While job losses have moderated recently, 1.2 million jobs were lost during the last six months and we do not know when positive job growth will return.  We will continue to focus on taking care of our customers and actively managing our cost structure in this difficult environment.”
 
Second quarter net income was $57.2 million and earnings per share were $0.37.  Both represented a 6% increase over the first quarter of fiscal 2010.  Excluding one-time legal settlements net of insurance proceeds of $4.1 million in the second quarter and $19.5 million in the first quarter, second quarter net income decreased 10% to $59.7 million and earnings per share decreased 9% to $0.39.  The Company offset revenue declines, primarily due to job losses, by adding new customers and further penetrating existing customer accounts with additional products and services.  The costs associated with this additional revenue, as well as heightened pricing pressures, impacted second quarter margins.  In addition, the Company’s effective tax rate increased to 39.3% as expected due to quarterly tax reserve requirements.  The Company believes its full fiscal year 2010 tax rate will be approximately 37.5%.
 
Mr. Farmer continued, “It appears that our business has stabilized as this was our third straight quarter of relatively flat revenue on a per workday basis.  Given our businesses’ correlation to employment levels, it is unlikely that we will return to steady growth until the U. S. job market begins to recover, which historically has lagged general economic growth.  We anticipate that when job recovery does occur, it will be a slow and lengthy process.  In addition, the third quarter of our fiscal year is traditionally our most challenging, with fewer workdays and customer holiday closures.  This year, we anticipate customer holiday closures will be longer and more widespread than they have been in better economic climates.  For these reasons, we believe that current analyst expectations for Cintas revenue and earnings are too optimistic.”
 
Mr. Farmer emphasized, “Our solid foundation and focus on cost control and cash generation continue to enable us to weather this difficult economic environment.  Over the last six months, we have significantly increased our cash flow.  We generated $246 million of free cash flow in the first six months of this fiscal year, which is a $167 million increase over the first six months of last year.  This cash flow has helped strengthen an already robust balance sheet.  We continue to be a market leader in all of our businesses, with state-of-the-art technology, efficient operations and dedicated employee partners.  When market conditions improve, we expect these competitive advantages will provide us enhanced opportunities.”
 
About Cintas
Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid, safety, fire protection products and services and document management services for approximately 800,000 businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS, and is a Nasdaq-100 company and component of the Standard & Poor’s 500 Index.
 
 

 
 
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
 
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements.  Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used.  Such statements are based upon current expectations of Cintas and speak only as of the date made.  You should not place undue reliance on any forward-looking statement.  We cannot guarantee that any forward-looking statement will be realized.  These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release.  Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, the initiation or outcome of litigation, investigations or other proceedings, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic or extraordinary events, changes in federal and state tax and labor laws and the reactions of competitors in terms of price and service.  Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made.  A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2009 and in our reports on Forms 10-Q and 8-K.  The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.
 
 
For additional information, contact:
 
William C. Gale, Sr. Vice President-Finance and Chief Financial Officer – 513-573-4211
 
Michael L. Thompson, Vice President and Treasurer – 513-573-4133
 


 
 

 

 
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)

 

   
Three Months Ended
   
Three Months Ended
 
   
November 30, 2009
   
August 31, 2009
   
% Chng.
   
November 30, 2008
   
% Chng.
 
                               
Revenue:
 
 
   
 
   
 
             
  Rental uniforms and ancillary products
  $ 643,597     $ 655,638       -1.8     $ 711,454       -9.5  
  Other services
    240,912       235,931       2.1       273,730       -12.0  
  Total revenue
  $ 884,509     $ 891,569       -0.8     $ 985,184       -10.2  
 
                                       
Costs and expenses:
                                       
  Cost of rental uniforms and ancillary products
  $ 363,728     $ 362,929       0.2     $ 401,614       -9.4  
  Cost of other services
    150,934       145,845       3.5       168,570       -10.5  
  Selling and administrative expenses
    259,406       264,427       -1.9       284,608       -8.9  
  Legal settlements, net of insurance proceeds
    4,052       19,477       N/A       -       N/A  
                                         
Operating income
  $ 106,389     $ 98,891       7.6     $ 130,392       -18.4  
                                         
  Interest income
    (314 )     (359 )     -12.5       (830 )     -62.2  
  Interest expense
    12,579       12,038       4.5       12,768       -1.5  
 
                                       
Income before income taxes
  $ 94,124     $ 87,212       7.9     $ 118,454       -20.5  
Income taxes
    36,948       33,228       11.2       46,616       -20.7  
Net income
  $ 57,176     $ 53,984       5.9     $ 71,838       -20.4  
                                         
Per share data:
                                       
Basic earnings per share
  $ 0.37     $ 0.35       5.7     $ 0.47       -21.3  
Diluted earnings per share
  $ 0.37     $ 0.35       5.7     $ 0.47       -21.3  
                                         
Weighted average number of shares outstanding
    152,866       152,828               152,788          
Diluted average number of shares outstanding
    152,867       152,828               152,788          
 
 


 
   
Six Months Ended
 
   
November 30, 2009
   
November 30, 2008
   
% Chng.
 
                   
Revenue:
 
 
   
 
   
 
 
  Rental uniforms and ancillary products
  $ 1,299,235     $ 1,432,827       -9.3  
  Other services
    476,843       554,536       -14.0  
  Total revenue
  $ 1,776,078     $ 1,987,363       -10.6  
 
                       
Costs and expenses:
                       
  Cost of rental uniforms and ancillary products
  $ 726,657     $ 808,904       -10.2  
  Cost of other services
    296,779       338,376       -12.3  
  Selling and administrative expenses
    523,833       571,903       -8.4  
  Legal settlements, net of insurance proceeds
    23,529       -       N/A  
                         
Operating income
  $ 205,280     $ 268,180       -23.5  
                         
  Interest income
    (673 )     (1,895 )     -64.5  
  Interest expense
    24,617       25,799       -4.6  
 
                       
Income before income taxes
  $ 181,336     $ 244,276       -25.8  
Income taxes
    70,176       93,802       -25.2  
Net income
  $ 111,160     $ 150,474       -26.1  
                         
Per share data:
                       
Basic earnings per share
  $ 0.72     $ 0.98       -26.5  
Diluted earnings per share
  $ 0.72     $ 0.98       -26.5  
                         
Weighted average number of shares outstanding
    152,847       153,093          
Diluted average number of shares outstanding
    152,847       153,093          

CINTAS CORPORATION SUPPLEMENTAL DATA
 
   
Three Months Ended
   
Three Months Ended
 
   
November 30,
2009
   
August 31,
2009
   
November 30,
2008
 
Rental uniforms and ancillary products gross margin
    43.5 %     44.6 %     43.6 %
Other services gross margin
    37.3 %     38.2 %     38.4 %
Total gross margin
    41.8 %     42.9 %     42.1 %
Net margin
    6.5 %     6.1 %     7.3 %
Net margin, excluding charges
    6.7 %     7.4 %     7.3 %
                         
Depreciation and amortization
  $ 47,562     $ 48,905     $ 50,009  
Capital expenditures
  $ 23,273     $ 24,819     $ 41,496  
                         
Debt to total capitalization
    24.0 %     24.5 %     27.2 %
 
 


 
   
Six Months Ended
 
   
November 30, 2009
   
November 30, 2008
 
Rental uniforms and ancillary products gross margin
    44.1 %     43.5 %
Other services gross margin
    37.8 %     39.0 %
Total gross margin
    42.4 %     42.3 %
Net margin
    6.3 %     7.6 %
Net margin, excluding charges
    7.1 %     7.6 %
                 
Depreciation and amortization
  $ 96,467     $ 99,894  
Capital expenditures
  $ 48,092     $ 95,957  
                 
Debt to total capitalization
    24.0 %     27.2 %

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission.  To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional measures of operating results, net earnings and earnings per share adjusted to exclude certain costs, expenses and gains and losses.  The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance.  A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP is shown below.

Management believes earnings per diluted share excluding the legal settlement charge provides investors pertinent information given the one-time nature of these charges.

   
Three Months Ended
   
Three Months Ended
 
   
November 30, 2009
   
August 31, 2009
   
% Chng.
   
November 30, 2008
   
% Chng.
 
                               
Income before income taxes
  $ 94,124     $ 87,212       7.9     $ 118,454       -20.5  
                                         
Excluding:
                                       
  Legal settlements, net of insurance proceeds
    4,052       19,477               -          
                                         
Total charges
  $ 4,052     $ 19,477             $ -          
                                         
Income before income taxes, excluding charges
  $ 98,176     $ 106,689       -8.0     $ 118,454       -17.1  
Income taxes, excluding charges
    38,517       40,649               46,616          
Net income, excluding charges
  $ 59,659     $ 66,040       -9.7     $ 71,838       -17.0  
                                         
Per share data:
                                       
Earnings per diluted share, excluding charges
  $ 0.39     $ 0.43       -9.3     $ 0.47       -17.0  
 
 


 
   
Six Months Ended
 
   
November 30, 2009
   
November 30, 2008
   
% Chng.
 
                   
Income before income taxes
  $ 181,336     $ 244,276       -25.8  
                         
Excluding:
                       
  Legal settlements, net of insurance proceeds
    23,529       -          
                         
Total charges
  $ 23,529     $ -          
                         
Income before income taxes, excluding charges
  $ 204,865     $ 244,276       -16.1  
Income taxes, excluding charges
    79,283       93,802          
Net income, excluding charges
  $ 125,582     $ 150,474       -16.5  
                         
Per share data:
                       
Earnings per diluted share, excluding charges
  $ 0.82     $ 0.98       -16.3  
 
 
Computation of Free Cash Flow
 
   
Six Months
Ended November 30,
 
   
2009
   
2008
 
             
Net Cash Provided by Operations
  $ 294,175     $ 175,141  
                 
Capital Expenditures
  $ (48,092 )   $ (95,957 )
                 
Free Cash Flow
  $ 246,083     $ 79,184  

Note: Management uses free cash flow to assess the financial performance of the Company.  Management believes that free cash flow is useful to investors because it relates the operating cash flow of the Company to the capital that is spent to continue, improve and grow business operations.
 
 


 SUPPLEMENTAL SEGMENT DATA
Rental
Uniforms and Ancillary Products
   
Uniform
Direct
Sales
   
First Aid, Safety
and Fire Protection
   
Document Management
   
Corporate
   
Total
 
For the three months ended November 30, 2009
                               
Revenue
  $ 643,597     $ 99,434     $ 81,557     $ 59,921     $ -     $ 884,509  
Gross margin
  $ 279,869     $ 29,182     $ 30,560     $ 30,236     $ -     $ 369,847  
  Selling and administrative expenses
  $ 187,988     $ 18,707     $ 27,542     $ 25,169     $ -     $ 259,406  
  Legal settlements, net of insurance proceeds
  $ -     $ -     $ -     $ -     $ 4,052     $ 4,052  
Interest income
  $ -     $ -     $ -     $ -     $ (314 )   $ (314 )
Interest expense
  $ -     $ -     $ -     $ -     $ 12,579     $ 12,579  
Income (loss) before income taxes
  $ 91,881     $ 10,475     $ 3,018     $ 5,067     $ (16,317 )   $ 94,124  
                                                 
For the three months ended August 31, 2009
                                         
Revenue
  $ 655,638     $ 89,301     $ 90,001     $ 56,629     $ -     $ 891,569  
Gross margin
  $ 292,709     $ 27,245     $ 35,262     $ 27,579     $ -     $ 382,795  
  Selling and administrative expenses
  $ 190,256     $ 19,156     $ 29,475     $ 25,540     $ -     $ 264,427  
  Legal settlement, net of insurance proceeds
  $ -     $ -     $ -     $ -     $ 19,477     $ 19,477  
Interest income
  $ -     $ -     $ -     $ -     $ (359 )   $ (359 )
Interest expense
  $ -     $ -     $ -     $ -     $ 12,038     $ 12,038  
Income (loss) before income taxes
  $ 102,453     $ 8,089     $ 5,787     $ 2,039     $ (31,156 )   $ 87,212  
                                                 
For the three months ended November 30, 2008
                                         
Revenue
  $ 711,454     $ 120,035     $ 100,490     $ 53,205     $ -     $ 985,184  
Gross margin
  $ 309,840     $ 36,851     $ 40,442     $ 27,867     $ -     $ 415,000  
  Selling and administrative expenses
  $ 201,470     $ 27,614     $ 32,774     $ 22,750     $ -     $ 284,608  
Interest income
  $ -     $ -     $ -     $ -     $ (830 )   $ (830 )
Interest expense
  $ -     $ -     $ -     $ -     $ 12,768     $ 12,768  
Income (loss) before income taxes
  $ 108,370     $ 9,237     $ 7,668     $ 5,117     $ (11,938 )   $ 118,454  
                                                 
For the six months ended November 30, 2009
                                         
Revenue
  $ 1,299,235     $ 188,735     $ 171,558     $ 116,550     $ -     $ 1,776,078  
Gross margin
  $ 572,578     $ 56,427     $ 65,822     $ 57,815     $ -     $ 752,642  
  Selling and administrative expenses
  $ 378,244     $ 37,863     $ 57,017     $ 50,709     $ -     $ 523,833  
  Legal settlements, net of insurance proceeds
  $ -     $ -     $ -     $ -     $ 23,529     $ 23,529  
Interest income
  $ -     $ -     $ -     $ -     $ (673 )   $ (673 )
Interest expense
  $ -     $ -     $ -     $ -     $ 24,617     $ 24,617  
Income (loss) before income taxes
  $ 194,334     $ 18,564     $ 8,805     $ 7,106     $ (47,473 )   $ 181,336  
Assets
  $ 2,469,393     $ 140,923     $ 311,050     $ 475,836     $ 480,240     $ 3,877,442  
                                                 
For the six months ended November 30, 2008
                                         
Revenue
  $ 1,432,827     $ 237,518     $ 209,022     $ 107,996     $ -     $ 1,987,363  
Gross margin
  $ 623,923     $ 74,228     $ 84,566     $ 57,366     $ -     $ 840,083  
  Selling and administrative expenses
  $ 408,494     $ 52,988     $ 65,548     $ 44,873     $ -     $ 571,903  
Interest income
  $ -     $ -     $ -     $ -     $ (1,895 )   $ (1,895 )
Interest expense
  $ -     $ -     $ -     $ -     $ 25,799     $ 25,799  
Income (loss) before income taxes
  $ 215,429     $ 21,240     $ 19,018     $ 12,493     $ (23,904 )   $ 244,276  
Assets
  $ 2,657,929     $ 180,413     $ 349,518     $ 459,847     $ 127,346     $ 3,775,053  



 
 

 

Cintas Corporation
Consolidated Balance Sheets
(In thousands except share data)


ASSETS
 
November 30, 2009
   
May 31,
2009
 
   
(Unaudited)
       
Current assets:
           
Cash & cash equivalents
  $ 342,014     $ 129,745  
Marketable securities
    138,226       120,393  
Accounts receivable, net
    377,151       357,678  
Inventories, net
    166,373       202,351  
  Uniforms and other rental items in service
    329,561       335,447  
Income taxes, current
    8,906       25,512  
Deferred tax asset
    69,558       66,368  
Prepaid expenses
    17,637       17,035  
Assets held for sale
    15,744       15,744  
Total current assets
    1,465,170       1,270,273  
                 
Property and equipment, at cost, net
    888,005       914,627  
                 
Goodwill
    1,334,773       1,331,388  
Service contracts, net
    110,104       124,330  
Other assets, net
    88,296       80,333  
                 
    $ 3,886,348     $ 3,720,951  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable
  $ 73,574     $ 69,965  
  Accrued compensation and related liabilities
    46,872       48,414  
Accrued liabilities
    224,526       198,488  
Long-term debt due within one year
    588       598  
Total current liabilities
    345,560       317,465  
                 
Long-term liabilities:
               
Long-term debt due after one year
    785,748       786,058  
Deferred income taxes
    157,143       149,032  
Accrued liabilities
    101,812       100,987  
Total long-term liabilities
    1,044,703       1,036,077  
                 
Shareholders' equity:
               
Preferred stock, no par value: 100,000 shares authorized, none outstanding
    -       -  
Common stock, no par value:  425,000,000 shares authorized
    132,034       129,215  
FY10: 173,206,493 issued and 152,869,220 outstanding
               
FY09: 173,085,926 issued and 152,790,170 outstanding
               
Paid-in capital
    77,116       72,364  
Retained earnings
    3,049,579       2,938,419  
Treasury stock:
    (798,847 )     (797,888 )
FY10:  20,337,273 shares
               
FY09:  20,295,756 shares
               
Other accumulated comprehensive income (loss):
               
Foreign currency translation
    44,031       33,505  
Unrealized loss on derivatives
    (7,847 )     (8,207 )
  Unrealized loss on available-for-sale securities
    19       1  
   Total shareholders' equity
    2,496,085       2,367,409  
                 
    $ 3,886,348     $ 3,720,951  


 
 

 
Cintas Corporation
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In thousands)


     
Six Months Ended
 
Cash flows from operating activities:
 
November 30, 2009
   
November 30, 2008
 
               
Net income
  $ 111,160     $ 150,474  
                   
Adjustments to reconcile net income to net cash provided by operating activities:
               
 
               
 
Depreciation
    75,899       78,372  
 
Amortization of deferred charges
    20,568       21,522  
 
Stock-based compensation
    7,571       6,911  
 
Deferred income taxes
    4,777       (1,840 )
 
Change in current assets and liabilities, net of acquisitions of businesses:
               
 
Accounts receivable, net
    (12,843 )     (8,064 )
 
Inventories, net
    34,874       (15,169 )
 
Uniforms and other rental items in service
    5,495       (6,237 )
 
Prepaid expenses
    (568 )     (3,799 )
 
Accounts payable
    6,914       (509 )
 
Accrued compensation and related liabilities
    (1,646 )     (8,685 )
 
Accrued liabilities and other
    25,246       (16,400 )
 
Income taxes payable
    16,728       (21,435 )
                   
 
Net cash provided by operating activities
    294,175       175,141  
                   
Cash flows from investing activities:
               
                   
Capital expenditures
    (48,092 )     (95,957 )
Proceeds from sale or redemption of marketable securities
    25,852       61,662  
Purchase of marketable securities and investments
    (53,060 )     (23,222 )
Acquisitions of businesses, net of cash acquired
    (6,601 )     (18,331 )
Other
      1,053       353  
                   
 
Net cash used in investing activities
    (80,848 )     (75,495 )
                   
Cash flows from financing activities:
               
                   
Proceeds from issuance of debt
    -       7,500  
Repayment of debt
    (321 )     (80,749 )
Exercise of stock-based compensation awards
    2,819       -  
Repurchase of common stock
    (959 )     (25,847 )
Other
      (3,536 )     413  
                   
 
Net cash used in financing activities
    (1,997 )     (98,683 )
                   
Effect of exchange rate changes on cash and cash equivalents
    939       (4,774 )
                   
Net increase (decrease) in cash and cash equivalents
    212,269       (3,811 )
 
                 
Cash and cash equivalents at beginning of period
    129,745       66,224  
                   
Cash and cash equivalents at end of period
  $ 342,014     $ 62,413