FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2001
( ) 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
(Exact name of registrant as specified in its charter)
WASHINGTON | 31-1188630 |
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 NoIndicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding March 16, 2001 |
INDEX
Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - February 28, 2001 and May 31, 2000 3 Consolidated Condensed Statements of Income - Three Months and Nine Months Ended February 28, 2001 and February 29, 2000 4 Consolidated Condensed Statements of Cash Flows - Nine Months Ended February 28, 2001 and February 29, 2000 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 11
CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands except share data) February 28, May 31, 2001 2000 ----------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 39,179 $ 52,182 Marketable securities 28,483 57,640 Accounts receivable, net 246,669 225,735 Inventories 223,330 164,906 Uniforms and other rental items in service 232,682 213,770 Prepaid expenses 8,215 7,237 ----------- ----------- Total current assets 778,558 721,470 Property and equipment, at cost, net 690,886 642,507 Other assets 255,507 217,365 ----------- ----------- $ 1,724,951 $ 1,581,342 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 49,244 $ 50,976 Accrued compensation and related liabilities 30,486 28,140 Accrued liabilities 75,648 90,058 Deferred income taxes 58,698 49,614 Long-term debt due within one year 15,609 16,604 ----------- ----------- Total current liabilities 229,685 235,392 Long-term debt due after one year 232,621 254,378 Deferred income taxes 55,741 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, 168,984,960 shares issued and outstanding (168,281,506 at May 31, 2000) 60,745 54,738 Retained earnings 1,151,285 992,450 Accumulated other comprehensive income (loss) (5,126) (4,312) ----------- ----------- Total shareholders' equity 1,206,904 1,042,876 ----------- ----------- $ 1,724,951 $ 1,581,342 =========== =========== See accompanying notes.CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In thousands except per share data) Three months ended Nine months ended February 28, February 29, February 28, February 29, 2001 2000 2001 2000 Revenue: Rentals $ 399,957 $ 355,739 $ 1,188,513 $ 1,049,982 Other services 136,766 118,190 409,221 347,171 ----------- ----------- ----------- ----------- 536,723 473,929 1,597,734 1,397,153 Costs and expenses (income): Cost of rentals 223,945 202,323 665,763 599,894 Cost of other services 92,862 77,031 271,414 228,229 Selling and admin. expenses 129,348 112,701 392,203 333,422 Interest income (924) (1,259) (3,311) (3,475) Interest expense 3,749 3,998 11,719 12,015 ----------- ---------- --------- --------- 448,980 394,794 1,337,788 1,170,085 ----------- ---------- --------- --------- Income before income taxes 87,743 79,135 259,946 227,068 Income taxes 32,833 30,073 97,653 86,506 ----------- --------- --------- --------- Net income $ 54,910 $ 49,062 $ 162,293 $ 140,562 =========== =========== =========== =========== Basic earnings per share $ .32 $ .29 $ .96 $ .84 =========== =========== =========== =========== Diluted earnings per share $ .32 $ .29 $ .95 $ .83 =========== =========== =========== =========== See accompanying notes. CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended --------------------------------------- February 28, February 29, Cash flows from operating activities: 2001 2000 Net income $ 162,293 $ 140,562 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 66,758 58,465 Amortization of deferred charges 16,189 15,239 Deferred income taxes 16,129 18,086 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (19,369) (23,016) Inventories (58,344) (13,181) Uniforms and other rental items in service (18,981) (8,914) Prepaid expenses (965) (3,628) Accounts payable (2,952) 2,635 Accrued compensation and related liabilities 2,018 (701) Accrued liabilities (15,226) (9,203) --------- --------- Net cash provided by operating activities 147,550 176,344 Cash flows from investing activities: Proceeds from divestiture of certain facilities 1,400 21,578 Capital expenditures (113,809) (124,234) Proceeds from sale or redemption of marketable 44,603 75,680 securities Purchase of marketable securities (15,446) (77,430) Acquisitions of businesses, net of cash acquired (34,236) (21,754) Other (21,948) (713) --------- --------- Net cash used by investing activities (139,436) (126,873) Cash flows from financing activities: Proceeds from issuance of long-term debt 16 140,000 Repayment of long-term debt (26,327) (168,549) Issuance of common stock 4,600 2,986 Other 594 1,101 --------- --------- Net cash used in financing activities (21,117) (24,462) Net (decrease)/increase in cash and cash (13,003) 25,009 equivalents Cash and cash equivalents at beginning of period 52,182 15,803 --------- --------- Cash and cash equivalents at end of period $ 39,179 $ 40,812 ========= ========= See accompanying notes.
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.
- 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 29, February 28, February 29, 2001 2000 2001 2000 Numerator: Net income $ 54,910 $ 49,062 $162,293 $140,562 ======== ======== ======== ======== Denominator: Denominator for basic earnings per share- weighted avg. shares 168,890 167,368 168,637 166,921 Effect of dilutive securities-Employee stock options 2,868 1,948 2,905 2,849 Denominator for diluted Earnings per share- adjusted weighted avg. shares and assumed conversions 171,758 169,316 171,542 169,770 ======== ======== ======== ========
CINTAS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) (In thousands except per share data) Three Months Ended Nine Months Ended February 28, February 29, February 28, February 29, 2001 2000 2001 2000 Basic earnings per $ .32 $ .29 $ .96 $ .84 share ========== ======== ========= ======== Diluted earnings per $ .32 $ .29 $ .95 $ .83 share ========== ======== ========= ======== - The components of comprehensive income for the three and nine month periods ended February 28, 2001 and February 29, 2000 are as follows:
Three Months Ended Nine Months Ended February 28, February 29, February 28, February 29, 2001 2000 2001 2000 Net income $ 54,910 $ 49,062 $162,293 $140,562 Other comprehensive income/(loss): Foreign currency translation adjustment 210 563 (814) 715 -------- -------- -------- -------- Comprehensive income $ 55,120 $ 49,625 $161,479 $141,277 ======== ======== ======== ========
- 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.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) (In thousands except per share data) Other Rentals services Corporate Total ------------------------------------------------ For the three months ended February 28, 2001 Revenue $ 399,957 $ 136,766 -- $ 536,723 =========== ========== ======== ========== Income before income taxes $ 78,064 $ 12,504 (2,825) $ 87,743 =========== ========== ======== ========== For the three months ended February 29, 2000 Revenue $ 355,739 $ 118,190 -- $ 473,929 =========== ========== ======== ========== Income before income taxes $ 68,144 $ 13,730 (2,739) $ 79,135 =========== ========== ======== ========== As of and for the nine months ended February 28, 2001 Revenue $ 1,188,513 $ 409,221 $ -- $1,597,734 =========== ========== ======== ========== Income before income taxes $ 228,393 $ 39,961 $ (8,408) $ 259,946 =========== ========== ======== ========== Total assets $ 1,362,965 $ 294,324 $ 67,662 $1,724,951 =========== ========== ======== ========== As of and for the nine months ended February 29, 2000 Revenue $ 1,049,982 $ 347,171 $ -- $1,397,153 =========== =========== ======== ========== Income before income taxes $ 197,972 $ 37,636 $ (8,540) $ 227,068 =========== =========== ======== ========== Total assets $ 1,187,835 $ 241,172 $114,877 $1,543,884 =========== =========== ======== ==========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 13% and 14%, respectively, for the three and nine months ended February 28, 2001, over the same periods in fiscal 2000. Net rental revenue increased 12% and 13%, respectively, for the three and nine months ended February 28, 2001, 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 16% and 18%, respectively, for the three and nine months ended February 28, 2001, over the same periods in the prior year, as a result of the increased sales of uniforms and accessories and first aid products and services.
Net income increased 12% and 16%, respectively, for the three and nine months ended February 28, 2001, over the same periods in fiscal 2000. Diluted earnings per share increased 10% and 14%, respectively, for the three and nine months ended February 28, 2001, over the same periods in the prior fiscal year.
Net interest expense (interest expense less interest income) was $2,825,000 and $8,408,000 for the three and nine months ended February 28, 2001 compared to $2,739,000 and $8,540,000, respectively, for the same periods in the prior fiscal year. Net interest expense for the third quarter of fiscal 2001 increased over the third quarter of fiscal 2000 due to decreased interest income as a result of lower investments in marketable securities. Net interest expense for the nine months 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 37.4% and 37.6% for the three and nine months ended February 28, 2001, 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 $42 million at February 28, 2001 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. The increase in inventory was also due to opening new distribution centers, an increase in captive manufacturing and efforts to improve customer service levels. 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 $48 million from May 31, 2000 to February 28, 2001. At the end of the third quarter of fiscal 2001, we had eight uniform rental facilities in various stages of construction.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
At February 28, 2001, we had $68 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.
Quantitative and Qualitative Disclosures About Market RiskIn 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.
Part II. Other Information
Item 5. | Other Events On January 16, 2001, Cintas declared an annual cash dividend of $.22 per share on outstanding common stock, an 18 percent increase over the dividends paid in the prior year. The dividend was payable on March 26, 2001 to shareholders of record as of February 2, 2001. |
Item 6. | Exhibits and Reports on Form 8-K (a) Form 8-K was filed on February 28, 2001 to announce anticipated sales and earnings for fiscal year 2001. |
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
William C. Gale
Vice President and Chief Financial Officer
(Chief Accounting Officer)