-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D2v28G0UeZdWJqwdZ6k+8LxHJC6RLkBOF/JmZYc4lq0WVZp/1YjMtZE/pDXFjuum 4MODvqoMNymhZCCrZunM+w== 0000892251-99-000084.txt : 19990323 0000892251-99-000084.hdr.sgml : 19990323 ACCESSION NUMBER: 0000892251-99-000084 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINTAS CORP CENTRAL INDEX KEY: 0000723254 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 311188630 STATE OF INCORPORATION: WA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72457 FILM NUMBER: 99569879 BUSINESS ADDRESS: STREET 1: 6800 CINTAS BLVD STREET 2: P O BOX 625737 CITY: CINCINNATI STATE: OH ZIP: 45262 BUSINESS PHONE: 5134591200 MAIL ADDRESS: STREET 1: 6800 CINTAS BOULEVARD STREET 2: P O BOX 625737 CITY: CINCINNATI STATE: OH ZIP: 45262 10-Q 1 FORM 10-Q FOR CINTAS CORPORATION 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 - -------------------------------------------------------------------------------- (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 18, 1999 - -------------------------- -------------------------- Common Stock, no par value 105,744,995 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- 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- CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In thousands except per share data)
Three months ended Nine months ended February 28, February 28, February 28, February 28, ------------ ------------ ------------ ------------ 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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 =========== =========== =========== ===========
See accompanying notes. -4- 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. -5- 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:
Three months ended Nine months ended February 28, February 28, February 28, February 28, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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 ======== ======== ======== =========
-6- The following table represents a reconciliation of the shares used to calculate pro forma basic and diluted earnings per share for the respective years:
Three months ended Nine months ended February 28, February 28, February 28, February 28, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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 ======= ======= ======= =======
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:
Three months ended Nine months ended February 28, February 28, February 28, February 28, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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 ========== =========== ========= ========
-7- 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- 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- 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- 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- 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) EX-27 2 FDS -- CINTAS CORPORATION
5 3-MOS MAY-31-1999 FEB-28-1999 28,258,000 73,735,000 178,190,000 5,890,000 277,965,000 557,968,000 643,403,000 193,556,000 1,145,089,000 179,309,000 0 0 0 48,686,000 720,372,000 1,145,089,000 93,669,000 360,504,000 63,547,000 210,966,000 87,692,000 0 2,034,000 60,924,000 23,052,000 0 0 0 0 37,872,000 0.36 0.35
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