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, 2000
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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
P.O. BOX 625737
CINCINNATI, OHIO 45262-5737
(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 15, 2000
- ------------------------------- - -----------------------------------
Common Stock, no par value 168,756,504
CINTAS CORPORATION
INDEX
Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - November 30, 2000 and May 31, 2000 3 Consolidated Condensed Statements of Income - Three Months and Six Months Ended November 30, 2000 and 1999 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended November 30, 2000 and 1999 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, 2000 2000 ---------------------- ---------------------- (Unaudited) ASSETS - ------ Current assets: Cash and cash equivalents $ 34,176 $ 52,182 Marketable securities 37,311 57,640 Accounts receivable, net 252,537 225,735 Inventories 200,449 164,906 Uniforms and other rental items in service 230,119 213,770 Prepaid expenses 8,530 7,237 ---------------------- ---------------------- Total current assets 763,122 721,470 Property and equipment, at cost, net 678,065 642,507 Other assets 229,586 217,365 ---------------------- ---------------------- $ 1,670,773 $ 1,581,342 ====================== ====================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 55,362 $ 50,976 Accrued compensation and related liabilities 29,233 28,140 Accrued liabilities 67,555 90,058 Deferred income taxes 60,138 49,614 Long-term debt due within one year 15,850 16,604 ---------------------- ---------------------- Total current liabilities 228,138 235,392 Long-term debt due after one year 238,939 254,378 Deferred income taxes 53,344 48,696 Shareholders' equity: Preferred stock, no par value, 100,000 shares authorized, none outstanding ---- ---- Common stock, no par value, 425,000,000 shares authorized, 168,735,788 shares issued and outstanding (168,281,506 at May 31, 2000) 58,938 54,738 Retained earnings 1,096,750 992,450 Accumulated other comprehensive income (loss) (5,336) (4,312) ---------------------- ---------------------- Total shareholders' equity 1,150,352 1,042,876 ---------------------- ---------------------- $ 1,670,773 $ 1,581,342 ====================== ====================== 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 ----------- ---------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenue: Rentals $ 398,929 $ 349,726 $ 788,556 $ 694,243 Other services 140,123 116,123 272,455 228,981 ------------------ ------------------- ----------------- ------------------ 539,052 465,849 1,061,011 923,224 Costs and expenses (income): Cost of rentals 223,997 199,645 441,818 397,572 Cost of other services 91,678 76,038 178,552 151,197 Selling and admin. expenses 129,921 109,334 262,856 220,721 Interest income (1,127) (1,086) (2,387) (2,216) Interest expense 3,883 3,908 7,970 8,017 ------------------ ------------------- ----------------- ------------------ 448,352 387,839 888,809 775,291 ------------------ ------------------- ----------------- ------------------ Income before income taxes 90,700 78,010 172,202 147,933 Income taxes 34,167 29,675 64,820 56,433 ------------------ ------------------- ----------------- ------------------ Net income $ 56,533 $ 48,335 $ 107,382 $ 91,500 ================== =================== ================= ================ Basic earnings per share $ .34 $ .29 $ .64 $ .55 ================== ================== ================= ================ Diluted earnings per share $ .33 $ .29 $ .63 $ .54 ================== ================== ================= ================ See accompanying notes. CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended November 30 Cash flows from operating activities: 2000 1999 - ------------------------------------ ---- ---- Net income $ 107,382 $ 91,500 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 43,856 39,003 Amortization of deferred charges 10,481 10,553 Deferred income taxes 15,172 11,810 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (26,219) (23,870) Inventories (35,772) 2,526 Uniforms and other rental items in service (16,418) (10,489) Prepaid expenses (1,319) (1,307) Accounts payable 3,746 (246) Accrued compensation and related liabilities 1,160 (3,407) Accrued liabilities (22,765) (8,082) --------------------- -------------------- Net cash provided by operating activities 79,304 107,991 Cash flows from investing activities: - ------------------------------------- Proceeds from divestiture of certain facilities - 8,769 Capital expenditures (78,041) (81,914) Proceeds from sale or redemption of marketable securities 30,687 62,423 Purchase of marketable securities (10,358) (57,455) Acquisitions of businesses, net of cash acquired (15,044) (7,315) Other (8,582) (922) --------------------- -------------------- Net cash used by investing activities (81,338) (76,414) Cash flows from financing activities: - ------------------------------------- Repayment of long-term debt (19,149) (23,858) Issuance of common stock 971 2,370 Other 2,206 538 --------------------- -------------------- Net cash used in financing activities (15,972) (20,950) Net (decrease)/increase in cash and cash equivalents (18,006) 10,627 Cash and cash equivalents at beginning of period 52,182 15,803 --------------------- -------------------- Cash and cash equivalents at end of period $ 34,176 $ 26,430 ===================== ==================== See accompanying notes.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands except per share data)
- 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 accounting principles generally accepted in the United States 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, 2000. A summary of our significant accounting policies is presented on page 22 of our most recent annual report. There have been no material changes in the accounting policies followed by Cintas during fiscal year 2001.
- 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.
- On January 18, 2000, Cintas announced a 3-for-2 split of its common stock. The stock split was distributed on March 7, 2000 to shareholders of record on February 4, 2000. All share and per share data contained herein has been adjusted to reflect the stock split.
- 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 2000 1999 2000 1999 ---- ---- ---- ---- Numerator: Net income $56,533 $48,335 $107,382 $91,500 =========== =========== ============= ============= Denominator: Denominator for basic earnings per share-weighted avg. shares 168,660 166,898 168,513 166,698 Effect of dilutive securities- employee stock options 3,178 2,934 2,932 3,078 ------------- ------------- --------------- --------------- Denominator for diluted earnings per share-adjusted weighted avg. shares and assumed conversions 171,838 169,832 171,445 169,776 ============= ============= =============== ===============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 2000 1999 2000 1999 ---- ---- ---- ---- Basic earnings per share $ .34 $ .29 $ .64 $ .55 ============ ========== =========== ============= Diluted earnings per share $ .33 $ .29 $ .63 $ .54 ============ ========== =========== =============
- The components of comprehensive income for the three and six month periods ended November 30, 2000 and 1999 are as follows:
Three Months Ended Six Months Ended November 30 November 30 2000 1999 2000 1999 ---- ---- ---- ---- Net income $56,533 $48,335 $107,382 $91,500 Other comprehensive income: Foreign currency translation adjustment (1,669) 395 (1,024) 152 ---------------- -------------- -------------- -------------- Comprehensive income $54,864 $ 48,730 $106,35 $ 91,652 ================ ============== ============== ==============
- Cintas classifies its businesses into two operating segments: Rentals and Other Services. The Rentals 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 about 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 services Rentals Corporate Total ------------------- --- ------------- --------------- -------------------- For the three months ended November 30, 2000 Revenue $ 398,929 $ 140,123 $ -- $ 539,052 =============== ============= =========== ================ Income before income taxes $ 77,087 $ 16,369 $ (2,756) $ 90,700 =============== ============= =========== ================ 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 =============== ============= =========== ================ As of and for the six months ended November 30, 2000 Revenue $ 788,556 $ 272,455 $ -- $ 1,061,011 =============== ============= =========== ================ Income before income taxes $ 150,328 $ 27,457 $ (5,583) $ 172,202 =============== ============= =========== ================ Total assets $ 1,304,031 $ 295,255 $ 71,487 $ 1,670,773 =============== ============= =========== ================ 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 =============== ============= =========== ================
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 16% and 15%, respectively, for the three and six months ended November 30, over the same periods in fiscal 2000. Net rental revenue increased 14% for the three and six months ended November 30, over the same periods in the prior fiscal year primarily due to growth in the customer base. Revenue from the sale of uniforms and other direct sale items increased 21% and 19%, respectively, for the three and six months ended November 30, over the same periods in the prior year, as a result of the increased sales in our catalog business, as well as our First Aid and Safety, Cleanroom, National Account and Uniforms To You divisions.
Net income increased 17% for the three and six months ended November 30, over the same periods in fiscal 2000. Diluted earnings per share increased 14% and 17%, respectively, for the three and six months ended November 30, over the same periods in the prior fiscal year.
Net interest expense (interest expense less interest income) was $2,756,000 and $5,583,000 for the three and six months ended November 30, 2000 compared to $2,822,000 and $5,801,000, respectively, for the same periods in the prior fiscal year. Net interest expense has decreased primarily due to the repayment of long-term debt. Also, in February 2000, we refinanced our variable rate bank debt and replaced it with our own commercial paper program. Cintas received an A1/P1 rating from Standard & Poor’s and Moody’s. Cintas’ effective tax rate was 37.7% and 37.6% for the three and six months ended November 30, compared to 38.0% and 38.1%, respectively, for the same periods in fiscal 2000. The decrease was primarily the result of a decrease in state and local income taxes attributable to state tax planning programs.
Cash, cash equivalents and marketable securities decreased by $38 million at November 30, 2000 from May 31, 2000 due to capital expenditures for new uniform facilities and an acceleration in sales growth causing our working capital assets, primarily accounts receivable and inventories, to increase. In addition, we prefunded the majority of our medical costs into a VEBA Trust, thereby generating a favorable tax impact. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures.
Net property and equipment increased by $36 million from May 31, 2000 to November 30, 2000. At the end of the second quarter of fiscal 2001, we had nine uniform rental facilities in various stages of construction.
Financial ConditionAt November 30, 2000, we had $71 million in cash, cash equivalents and marketable securities. We believe that our current cash position, funds generated from operations and the strength of our banking relationships are sufficient to meet our anticipated operational and capital requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In our normal operations, Cintas has market risk exposure to interest rates. There has been no significant change in our exposure to these risks, which has been previously disclosed.
Forward-Looking StatementsThe 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 current views as to future events and financial performance with respect to our operations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in this report. Factors that might cause such a difference include the possibility of greater than anticipated operating costs, lower sales volumes, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor, the outcome of pending environmental matters and the reactions of competitors in terms of price and service. Forward-looking statements speak only as of the date made. Cintas undertakes no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date of which they are made.
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 25, 2000, 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 seven.
FOR 154,170,157 AGAINST 1,041,060 ABSTAIN 131,562 BROKER NON-VOTES 0
Issue No. 2
-----------------
Authority to elect seven Directors.
Shares - Name Shares For Withheld Authority - ------------------------------- ----------------------------- ----------------------------- Richard T. Farmer 150,325,280 5,017,499 Scott D. Farmer 150,340,327 5,002,452 Gerald V. Dirvin 150,543,170 4,799,609 James J. Gardner 150,316,165 5,026,614 Roger L. Howe 150,558,957 4,783,822 Donald P. Klekamp 150,304,247 5,038,532 Robert J. Kohlhepp 150,341,343 5,001,436
CINTAS CORPORATION
Issue No. 3
----------------
Proposal to increase shares of Common Stock.
FOR 153,920,786 AGAINST 1,226,506 ABSTAIN 195,487 BROKER NON-VOTES 0
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Index
Exhibit Number Description of Exhibit
10.12 Directors' Deferred Compensation 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) Date: January 3, 2001 /s/William C. Gale ----------------------- --------------------------------------- William C. Gale Vice President and Chief Financial Officer (Chief Accounting Officer)