-----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, EUD5KUQ8OS0X2t42ye4N3fFBQEPFNdjzKDH+nApFIbcEOru4wUAt5b12b+7YO9IA 8wEz1rwvnZJ2TYx52LP15A== 0000892251-99-000296.txt : 19991018 0000892251-99-000296.hdr.sgml : 19991018 ACCESSION NUMBER: 0000892251-99-000296 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991013 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: 000-11399 FILM NUMBER: 99727429 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 August 31, 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) (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, 1999 - -------------------------- ------------------------------------ Common Stock, no par value 111,091,423 CINTAS CORPORATION INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - August 31, 1999 and May 31, 1999 3 Consolidated Condensed Statements of Income - Three Months Ended August 31, 1999 and 1998 4 Consolidated Condensed Statements of Cash Flows - Three Months Ended August 31, 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 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 Part II. Other Information 11 Signatures 11 CINTAS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands except share data) August 31, 1999 May 31, 1999 --------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 31,800 $ 15,803 Marketable securities 50,422 72,315 Accounts receivable (net) 204,967 202,079 Inventories 134,741 137,983 Uniforms and other rental items in service 200,493 200,154 Prepaid expenses 7,672 6,151 ----------- ----------- Total current assets 630,095 634,485 Property, plant and equipment, at cost, net 599,727 573,087 Other assets 199,381 200,246 ----------- ----------- $ 1,429,203 $ 1,407,818 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 47,476 $ 46,783 Accrued compensation and related liabilities 18,800 25,521 Accrued liabilities 62,603 83,209 Income taxes - Current 14,228 -- Deferred 44,166 40,214 Long-term debt due within one year 16,200 16,370 ----------- ----------- Total current liabilities 203,473 212,097 Long-term debt due after one year 266,650 283,581 Deferred income taxes 42,481 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, 111,081,523 shares issued and outstanding (110,949,274 at May 31, 1999) 52,227 49,974 Retained earnings 868,434 825,268 Accumulated other comprehensive income (4,062) (3,819) ----------- ----------- Total shareholders' equity 916,599 871,423 ----------- ----------- $ 1,429,203 $ 1,407,818 =========== =========== See accompanying notes. CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In thousands except per share data) Three Months Ended August 31, --------------------------- 1999 1998 --------- ---------- Revenue: Net rentals $ 344,517 $ 317,491 Other service revenue 112,858 108,939 --------- --------- 457,375 426,430 Costs and expenses (income): Cost of rentals 197,927 183,838 Cost of other service revenue 75,159 74,917 Selling and administrative expenses 111,387 105,329 Interest income (1,130) (1,249) Interest expense 4,109 4,393 --------- --------- 387,452 367,228 --------- --------- Income before income taxes 69,923 59,202 Income taxes 26,758 22,952 --------- --------- Net income $ 43,165 $ 36,250 ========= ========= Basic earnings per share $ .39 $ .33 ========= ========= Diluted earnings per share $ .38 $ .33 ========= ========= CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended August 31, --------------------- Cash flows from operating activities: 1999 1998 - ------------------------------------ -------- -------- Net income $ 43,165 $ 36,250 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 18,686 16,849 Amortization of deferred charges 4,817 5,726 Deferred income taxes 5,716 4,638 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (1,784) (5,979) Inventories 3,278 (5,100) Uniforms and other rental items in service (305) (1,124) Prepaid expenses (1,521) 294 Accounts payable 691 (7,574) Accrued compensation and related liabilities (6,721) (2,465) Accrued liabilities (20,611) (1,737) Income taxes payable 14,228 13,792 -------- -------- Net cash provided by operating activities 59,639 53,570 Cash flows from investing activities: - ------------------------------------ Capital expenditures (45,688) (42,958) Proceeds from sale or redemption of marketable securities 31,963 31,736 Purchase of marketable securities (10,070) (24,326) Acquisitions of businesses, net of cash acquired (9,447) (1,709) Other 4,691 1,459 -------- -------- Net cash used in investing activities (28,551) (35,798) Cash flows from financing activities: - ------------------------------------ Repayment of long-term debt (17,101) (10,831) Issuance of common stock 1,894 956 Dividends paid -- (846) Other 116 (1,898) -------- -------- Net cash used in financing activities (15,091) (12,619) Net increase in cash and cash equivalents 15,997 5,153 Cash and cash equivalents at beginning of period 15,803 13,423 -------- -------- Cash and cash equivalents at end of period $ 31,800 $ 18,576 ======== ======== 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 are adequately presented, it is suggested that these consolidated condensed financial statements are 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, 1999. A summary of the Company's significant accounting policies is presented on page 27 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 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, the Company acquired Unitog Company (Unitog), 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 periods: August August 1999 1998 -------- -------- Numerator: Net income $ 43,165 $ 36,250 ======== ======== Denominator: Denominator for basic earnings per share-weighted average shares 111,001 109,929 ======== ======== Effect of dilutive securities- employee stock options 2,175 2,046 ======== ======== Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions 113,176 111,975 ======== ======== Basic earnings per share $ .39 $ .33 ======== ======== Diluted earnings per share $ .38 $ .33 ======== ======== 5. The components of comprehensive income for the three-month periods ended August 31, 1999 and 1998 are as follows: August 1999 August 1998 ----------- ----------- Net income $43,165 $36,250 Other comprehensive income: Foreign currency translation adjustment (243) (3,465) ======== ======== Comprehensive income $42,922 $32,785 ======== ======== 6. The Company 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 the Company's different business segments is set forth based on the distribution of products and services offered. The Company evaluates performance based on several factors of which the primary financial measures are business segment revenue and income before income taxes. Other Rentals Services Corporate Total ----------- ---------- ----------- ---------- As of and for the three months ended August 31, 1999 Revenue $ 344,517 $ 112,858 $ -- $ 457,375 ========== ========== ========== ========== Income before income taxes $ 62,043 $ 10,859 $ (2,979) $ 69,923 ========== ========== ========== ========== Total assets $1,115,564 $ 231,416 $ 82,223 $1,429,203 ========== ========== ========== ========== As of and for the three months ended August 31, 1998 Revenue $ 317,491 $ 108,939 $ -- $ 426,430 ========== ========== ========== ========== Income before income taxes $ 54,120 $ 8,226 $ (3,144) $ 59,202 ========== ========== ========== ========== Total assets $1,014,366 $ 221,366 $ 99,320 $1,335,052 ========== ========== ========== ========== CINTAS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Total revenue increased 7% in the first quarter of fiscal 2000 over the same period in fiscal 1999. Net rental revenue increased 9% for the three months ended August 31, 1999 over the same period in the prior fiscal year primarily due to growth in the customer base. This revenue growth came despite the sale of linen volume occurring in the period from September 1998 through August 1999. First quarter revenue from the sale of uniforms and other direct sale items increased 4% over the prior year's first quarter, principally as a result of the increased sales of first aid supplies. Revenue for the first quarter of fiscal 2000 was negatively impacted by the loss of business from former Unitog customers when compared to the first quarter of fiscal 1999. This lost business is primarily the result of the disruption in normal operations that occurred from the time Unitog announced it was selling the company until recent months when Cintas management took over. Cintas believes it has taken the necessary steps to minimize any further loss of business resulting from this issue. Net income and basic earnings per share increased 19% and 18%, respectively, for the three months ended August 31, 1999, over the same period in fiscal 1999. Net interest expense (interest expense less interest income) was $2,979,000 for the first quarter of fiscal 2000 compared to $3,144,000 in the first quarter of fiscal 1999. Net interest expense has decreased primarily due to the repayment of long-term debt. The Company's effective tax rate on a pro forma basis was 38.3% and 38.8% respectively, for the three months ended August 31, 1999 and August 31, 1998. The decrease was the result of state and local tax incentives and a lower tax rate in Canada due to a favorable ruling by Revenue Canada. Cash, cash equivalents and marketable securities decreased by $6 million at August 31, 1999 from May 31, 1999 primarily due to capital expenditures for new uniform rental facilities and repayment of long-term debt. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Net property, plant and equipment increased by $27 million from May 31, 1999 to August 31, 1999. At the end of the first quarter of fiscal 2000, the Company had fourteen uniform rental facilities in various stages of construction. The integration of Unitog facilities and corporate functions are progressing as planned; however, the benefits may not be apparent in the second quarter because of certain items affecting income in the prior year. In the second quarter of fiscal 1999, income was recognized by the Unitog Company 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. Activity in the first quarter of fiscal 2000 related to the Special Charge accrual established in fiscal 1999 for the Unitog integration amounted to $1.2 million, primarily related to severance payments. The remaining balance at the end of the first quarter of fiscal 2000 is $4.9 million. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Financial Condition At August 31, 1999, the Company had $82 million in cash, cash equivalents and marketable securities. The Company believes that its current cash position, funds generated from operations and the strength of its banking relationships are sufficient to meet its anticipated operational and capital requirements. Quantitative and Qualitative Disclosures About Market Risk In its normal operations, the Company has market risk exposure to interest rates. There has been no significant change in the company's exposure to these risks, which has been previously disclosed. Impact of Year 2000 The Company has determined the changes required to ensure that all of its software, hardware and operating equipment will function properly with respect to dates in the year 2000 and thereafter. The total cost of these changes is not material and is being expensed as incurred. The Company incurred the majority of its Year 2000 costs during fiscal 1998 with substantially all of the remaining costs expensed in fiscal 1999. The Company has been proactive in addressing the Year 2000 with a strategy that consists of the following critical components: inventory, internal assessment, remediation, testing, vendor assessment and contingency planning. A complete inventory of all software and hardware was conducted in 1997 and has been updated for new acquisitions and subsequent purchases. Through a combination of testing, vendor inquiries and third party assistance, all hardware and software items requiring remediation were identified. A remediation plan was developed and implemented, with substantially all of the spending occurring in fiscal 1998 and 1999. All critical equipment used for operations and distribution has been tested and upgraded or replaced as required. The Company believes that all critical production systems are now fully compliant. A proactive January 1, 2000 rollover test of all critical systems was conducted this past summer. Major suppliers were contacted to obtain certification and an assessment of their Year 2000 compliance, and all high-risk suppliers identified. Appropriate actions are being taken to mitigate this risk for all critical suppliers and alternative sources, if practical, are being identified as required. The Company continues to monitor the progress of all major suppliers toward completion of their Year 2000 plans, and is developing contingency plans to minimize any potential risk. These contingency plans are being formalized and will address all aspects of the business. Contingency plans for all critical aspects of the Company's business are underway and will be finalized in the second quarter. The Company believes that 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. While the Company believes its efforts are sufficient to address any Year 2000 issues, it recognizes that failing to resolve these issues on a timely basis could adversely affect the Company's ability to manufacture and distribute products and services. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 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) /s/William C. Gale Date: October 13, 1999 -------------------------------- William C. Gale Vice President and Chief Financial Officer (Chief Accounting Officer) EX-27 2 FDS -- CINTAS CORPORATION
5 3-MOS MAY-31-2000 AUG-31-1999 31,800,000 50,422,000 211,892,000 6,925,000 335,234,000 630,095,000 866,238,000 266,511,000 1,429,203,000 203,473,000 0 0 0 52,227,000 864,372,000 1,429,203,000 112,858,000 457,375,000 75,159,000 273,086,000 111,387,000 0 4,109,000 69,923,000 26,758,000 0 0 0 0 43,165,000 0.39 0.38
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