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.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
February 28, 2002 and May 31, 2001 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
February 28, 2002 and 2001 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended February 28, 2002 and 2001 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II. Other Information 15
Signatures 15
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
February 28, May 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 86,257 $ 73,724
Marketable securities 152,885 36,505
Accounts receivable, net 237,694 244,450
Inventories 194,360 214,349
Uniforms and other rental
items in service 255,853 242,172
Prepaid expenses 9,755 8,470
---------- -----------
Total current assets 936,804 819,670
Property and equipment, at cost, net 712,688 702,132
Goodwill 145,845 123,753
Other assets 103,025 106,669
---------- -----------
$1,898,362 $1,752,224
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Accounts payable $ 38,205 $ 42,495
Accrued compensation and
related liabilities 32,499 35,140
Accrued liabilities 121,078 81,548
Income Taxes -
Current 28,074 13,412
Deferred 60,380 57,703
Long-term debt due within one year 18,139 20,605
---------- -----------
Total current liabilities 298,375 250,903
Long-term debt due after one year 186,143 220,940
Deferred income taxes 55,549 49,066
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized,
none outstanding ---- ----
Common stock, no par value,
425,000,000 shares authorized,
169,825,861 shares issued
and outstanding
(169,370,563 at May 31, 2001) 65,365 62,409
Retained earnings 1,301,179 1,174,330
Accumulated other comprehensive loss (8,249) (5,424)
---------- -----------
Total shareholders' equity 1,358,295 1,231,315
---------- -----------
$1,898,362 $1,752,224
========== ===========
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 28
-------------------- -------------------------
2002 2001 2002 2001
-------- -------- ---------- -----------
Revenue:
Rentals $425,296 $399,957 $1,291,076 $1,188,513
Other services 120,195 136,766 376,163 409,221
-------- -------- ---------- ----------
545,491 536,723 1,667,239 1,597,734
Costs and expenses (income):
Cost of rentals 230,627 223,945 703,165 665,763
Cost of other services 85,524 92,862 262,259 271,414
Selling and admin. expenses 140,263 129,348 427,668 392,203
Interest income (1,527) (924) (4,068) (3,311)
Interest expense 2,389 3,749 8,196 11,719
-------- -------- ---------- ----------
457,276 448,980 1,397,220 1,337,788
-------- -------- ---------- ----------
Income before income taxes 88,215 87,743 270,019 259,946
Income taxes 32,631 32,833 99,910 97,653
-------- -------- ---------- ----------
Net income $ 55,584 $ 54,910 $ 170,109 $ 162,293
======== ======== ========== ==========
Basic earnings per share $ .33 $ .32 $ 1.00 $ .96
======== ======== ========== ==========
Diluted earnings per share $ .32 $ .32 $ .99 $ .95
======== ======== ========== ==========
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
February 28
--------------------------
Cash flows from operating activities: 2002 2001
- ------------------------------------- --------- ----------
Net income $ 170,109 $ 162,293
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation 75,146 66,758
Amortization of deferred charges 14,210 16,189
Deferred income taxes 9,160 16,129
Change in current assets and liabilities,
net of acquisitions of businesses:
Accounts receivable 9,214 (19,369)
Inventories 20,936 (58,344)
Uniforms and other rental
items in service (12,942) (18,981)
Prepaid expenses (1,233) (965)
Accounts payable (6,676) (2,952)
Accrued compensation and
related liabilities (2,662) 2,018
Accrued liabilities (9,133) (13,794)
Income taxes payable 14,662 (1,432)
--------- ---------
Net cash provided by operating activities 280,791 147,550
Cash flows from investing activities:
- -------------------------------------
Proceeds from divestiture of
certain facilities -- 1,400
Capital expenditures (84,977) (113,809)
Proceeds from sale or redemption
of marketable securities 47,486 44,603
Purchase of marketable securities (163,866) (15,446)
Acquisitions of businesses,
net of cash acquired (30,349) (34,236)
Other 580 (21,948)
--------- ---------
Net cash used by investing activities (231,126) (139,436)
Cash flows from financing activities:
- -------------------------------------
Proceeds from issuance of
long-term debt -- 16
Repayment of long-term debt (37,263) (26,327)
Issuance of common stock 2,442 4,600
Other (2,311) 594
--------- ---------
Net cash used in financing activities (37,132) (21,117)
Net increase/(decrease) in cash
and cash equivalents 12,533 (13,003)
Cash and cash equivalents at
beginning of period 73,724 52,182
--------- ---------
Cash and cash equivalents
at end of period $ 86,257 $ 39,179
========= =========
See accompanying notes.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands except per share data)
1. Basis of Presentation
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, we suggest 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, 2001. 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 2002 except for those changes described in notes 3 and 4.
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.
2. Earnings per Share
The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective periods:
Three Months Ended Nine Months Ended
February 28 February 28
--------------------- ---------------------
2002 2001 2002 2001
--------- -------- -------- ---------
Numerator:
Net income $ 55,584 $ 54,910 $170,109 $162,293
========= ======== ======== ========
Denominator:
Denominator for basic
earnings per share-weighted
avg. shares 169,786 168,890 169,675 168,637
Effect of dilutive
securities- employee
stock options 2,507 2,868 2,444 2,905
--------- -------- -------- --------
Denominator for diluted
earnings per share-adjusted
weighted avg. shares and
assumed conversions 172,293 171,758 172,119 171,542
========= ======== ======== ========
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Three Months Ended Nine Months Ended
February 28 February 28
------------------- ----------------------
2002 2001 2002 2001
---------- ------- ------- --------
Basic earnings per share $ .33 $ .32 $ 1.00 $ .96
====== ====== ====== =======
Diluted earnings per share $ .32 $ .32 $ .99 $ .95
====== ====== ====== =======
3. Goodwill and Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141,BusinessCombinations, which eliminates the pooling of interests method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. Cintas adopted this accounting standard for business combinations initiated after June 30, 2001.
As of June 1, 2001, Cintas adopted Statement of Financial Accounting Standards No. 142,GoodwillandOtherIntangibleAssets, which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the balance sheet, and no longer be amortized, but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle.
In accordance with Statement of Financial Accounting Standards No. 142, Cintas discontinued the amortization of goodwill effective June 1, 2001. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:
"Goodwill and Adoption of Statement No. 142"
Three Months Ended Nine Months Ended
February 28 February 28
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Reported net income $ 55,584 $ 54,910 $170,109 $162,293
Add: Goodwill amortization,
net of tax -- 720 -- 2,648
-------- -------- -------- --------
Adjusted net income $ 55,584 $ 55,630 $170,109 $164,941
======== ======== ======== ========
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Three Months Ended Nine Months Ended
February 28 February 28
------------------ ----------------
2002 2001 2002 2001
----- ----- ----- ------
Reported basic earnings per
share $.33 $.32 $1.00 $.96
Add: Goodwill amortization,
net of tax per basic share -- .01 -- .02
----- ----- ----- -----
Adjusted basic earnings per share $.33 $.33 $1.00 $.98
===== ===== ===== =====
Reported diluted earnings per share $.32 $.32 $ .99 $.95
Add: Goodwill amortization, net of
tax per diluted share -- .01 -- .02
----- ----- ----- -----
Adjusted diluted earnings per share $.32 $.33 $ .99 $.97
===== ===== ===== =====
Changes in the carrying amount of goodwill for the nine months ended February 28, 2002, by operating segment, are as follows:
Other
Rentals Services Total
-------- -------- --------
Balance as of June 1, 2001 $110,030 $13,723 $123,753
Goodwill acquired during the period 12,333 9,759 22,092
-------- ------- --------
Balance as of February 28, 2002 $122,363 $23,482 $145,845
======== ======= ========
As required by the Statement, intangible assets that do not meet the criteria for recognition apart from goodwill must be reclassified. As a result of Cintas’ analysis, no reclassifications to goodwill were required as of June 1, 2001.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Information regarding Cintas' other intangible assets follows:
As of February 28, 2002
-----------------------------------------------
Carrying Accumulated
Amount Amortization Net
--------- ------------ ----------
Service contracts $124,432 $ 68,391 $56,041
Noncompete and consulting
agreements 63,936 45,991 17,945
--------- --------- -------
Total $188,368 $ 114,382 $73,986
========= ========= =======
As of May 31, 2001
-----------------------------------------------
Carrying Accumulated
Amount Amortization Net
--------- ------------ ----------
Service contracts $118,241 $ 61,810 $ 56,431
Noncompete and consulting
agreements 63,519 42,334 21,185
--------- -------- --------
Total $181,760 $104,144 $ 77,616
========= ======== ========
Amortization expense for the nine months ended February 28, 2002 was $14,210. Estimated amortization expense, excluding any future acquisitions, for each of the five succeeding fiscal years is as follows:
Fiscal year ended May 31: Amount
------------------------ ---------
2002 $18,685
2003 $16,491
2004 $13,461
2005 $11,563
2006 $10,830
Cintas completed the transitional goodwill impairment test as required by the Statement using a measurement date of June 1, 2001. Based on the results of the transitional impairment test, Cintas was not required to recognize an impairment of goodwill. Cintas will continue to perform future impairment tests as required by the Statement.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
4. Derivative Financial Instruments
Accounting Policy for Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued statement No. 133,AccountingforDerivativeInstrumentsandHedgingActivities. The Statement requires that companies recognize all derivatives on the balance sheet at fair value. Derivatives that do not qualify as hedges must be adjusted to fair value through income. For those derivatives that are designated and qualify as a hedge, changes in the fair value of the derivatives are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings. The accounting treatment will depend on whether the derivative is considered a fair value hedge or a cash flow hedge.
Cintas has used derivatives for cash flow hedging purposes only. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified to earnings in the period in which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. The adoption of Statement 133 on June 1, 2001, resulted in a charge of $44 in other comprehensive income. The change in fair value during the nine months ended February 28, 2002, resulted in a charge of $875 to other comprehensive income.
Cash Flow Hedging Strategy
Cintas uses interest rate swap agreements as a hedge against variability in short term interest rates. These swap agreements effectively convert a portion of our floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense.
During fiscal 2001, and again in the second quarter of fiscal 2002, Cintas entered into interest-rate swap agreements that effectively converted a portion of our floating-rate debt to a fixed-rate basis for a period of two years. Approximately 37%, or $50 million, of outstanding floating rate debt was designated as the hedged items covered by interest-rate swap agreements at February 28, 2002.
5. Acquisitions
On March 18, 2002, Cintas announced that it had reached an agreement to acquire Omni Services, Inc. (Omni), a wholly owned subsidiary of Filuxel SA. Consummation of the acquisition is subject to customary closing conditions, including approval from certain regulatory authorities. Omni revenues are approximately $320 million annually.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
On March 4, 2002, Cintas announced that it was in negotiations with Angelica Corporation to acquire assets related to the non-health care portion of their image apparel operations.
6. Comprehensive Income
Total comprehensive income represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders and, as such, includes net earnings. For Cintas, the only other components of total comprehensive income are the change in cumulative foreign currency translation adjustments and the change in the fair value of forecasted cash flows associated with derivatives accounted for as cash flow hedges. The components of comprehensive income for the three and nine month periods ended February 28, 2002 and 2001 are as follows:
Three Months Ended Nine Months Ended
February 28 February 28
------------------ --------------------
2002 2001 2002 2001
------- ------- -------- --------
Net income $55,584 $54,910 $170,109 $162,293
Other comprehensive
income:
Foreign currency
translation adjustment (865) 210 (1,906) (814)
Net unrealized loss on
cash flow hedges 63 -- (919) --
------- ------- -------- --------
Comprehensive income $54,782 $55,120 $167,284 $161,479
======= ======= ======== ========
7. Segment Information
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
Rentals Services Corporate Total
----------- --------- --------- -----------
For the three months ended
February 28, 2002
Revenue $ 425,296 $120,195 $ -- $ 545,491
========== ======== ======== ==========
Income before income taxes $ 82,997 $ 6,080 $ (862) $ 88,215
========== ======== ======== ==========
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
========== ======== ======== ==========
As of and for the nine months
ended February 28, 2002
Revenue $1,291,076 $376,163 $ -- $1,667,239
========== ======== ======== ==========
Income before income taxes $ 253,310 $ 20,837 $ (4,128) $ 270,019
========== ======== ======== ==========
Total assets $1,378,217 $281,003 $239,142 $1,898,362
========== ======== ======== ==========
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
========== ======== ======== ==========
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 2% and 4%, respectively, for the three and nine months ended February 28, 2002, over the same periods in fiscal 2001. Net rental revenue increased 6% and 9%, respectively, for the three and nine months ended February 28, 2002, 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 declined 12% and 8% for the three and nine months ended February 28, 2002, over the same periods in the prior year. This decrease is primarily driven by our customers’ delay in purchasing new uniforms because of the economic slowdown, the decline in the hospitality and airline industries as a result of the events of September 11, and a strong third quarter in the prior year due to a large customer installation.
Net income increased 1% and 5%, respectively, for the three and nine months ended February 28, 2002, over the same periods in fiscal 2001. Diluted earnings per share remained flat for the three months ended February 28, 2002, and increased 4% for the nine months ended February 28, 2002, over the same periods in the prior fiscal year.
Net interest expense (interest expense less interest income) was $.9 million and $4.1 million, respectively, for the three and nine months ended February 28, 2002, compared to $2.8 million and $8.4 million, respectively, for the same periods in the prior fiscal year. This decrease was a result of lower levels of long-term debt, as well as decreased interest rates. Cintas’ effective tax rate was 37.0% for both the three and nine months ended February 28, 2002, compared to 37.4% and 37.6%, respectively, for the same periods in fiscal 2001. The decrease was primarily the result of a decrease in state and local income taxes attributable to state tax planning programs.
Financial Condition
At February 28, 2002, we had $239 million in cash, cash equivalents and marketable securities, an increase of $129 million over May 31, 2001, primarily due to strong cash flow from operations. The implementation of tax planning programs, reductions in direct sale inventory and strong earnings all contributed to this positive operating cash flow. This is slightly offset by higher in service inventory due to a strong rate of new business, as well as decreased accounts payable and accrued liabilities. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures.
Net property and equipment increased by $11 million from May 31, 2001 to February 28, 2002. At the end of the third quarter of fiscal 2002, we had five uniform rental facilities in various stages of construction.
In the third quarter of fiscal 2002, Cintas announced an agreement to acquire Omni Services, Inc. from Filuxel SA (refer to Note 5). In addition to this acquisition, Cintas announced that we are in discussions with Angelica Corporation to buy the assets of their non-health care business. These pending acquisitions, coupled with smaller acquisitions in the rental segment, will be financed with a
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
combination of approximately $200 million in cash and approximately $500 million in long term debt. 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.
During the quarter, Cintas approved a 14% increase in the Company’s annual dividend to 25 cents per share from 22 cents per share. The dividend is payable on April 8, 2002 to shareholders of record as of February 15, 2002.
Litigation and Other Contingencies
Cintas is party to litigation in the normal course of business, none of which is expected to have a material impact on operating results. This litigation includes lawsuits that challenge the legality of certain ancillary charges on invoices. The estimated liability, if any, related to these lawsuits has not been determined, but is not expected to have a material adverse effect on results. In addition, a class action suit was filed in the State of California alleging that Cintas violated the California overtime pay laws applicable to its service sales representatives, which Cintas believed to be exempt employees. Management has established estimated accruals to the extent that liabilities exist for such matters and believes that any liability in excess of amounts accrued will not have a material impact on the financial statements.
Quantitative and Qualitative Disclosures About Market Risk
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 Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This report contains forward-looking statements that reflect the company’s current views as to future events and financial performance with respect to its 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, higher assumed sourcing or distribution costs of products 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 under the Act to update any forward-looking statements to reflect the events or circumstances arising after the date on which they are made.
CINTAS CORPORATION
Part II. Other Information
| | Item 5. | Other Events
On January 31, 2002, Cintas declared an annual cash dividend of $.25 per share on outstanding common stock, a 14 percent increase over the dividends paid in the prior year. The dividend is payable on April 8, 2002 to shareholders of record as of February 15, 2002. |
| | Item 6. | Exhibits and Reports on Form 8-K
(a.) Exhibit Index
Exhibit Number Description of Exhibit |
| | | 10.14 | | Stock Purchase Agreement between Cintas Corporation and Filuxel SA dated as of March 15, 2002 |
| | | (b.) Form 8-K was filed on February 21, 2002, to announce anticipated sales and
earnings for fiscal year 2002. |
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.
Date: April 11, 2002
| CINTAS CORPORATION
(Registrant)
/s/William C. Gale
William C. Gale
Vice President and Chief Financial Officer
(Chief Accounting Officer) |
