FOR IMMEDIATE RELEASE
September 27, 2007
Cintas Corporation Reports First Quarter Fiscal 2008
Revenue and Earnings and Announces International Expansion
New Sales Organization Gaining Momentum
Company Acquires Business in Europe
CINCINNATI, September 27, 2007 -- Cintas Corporation (Nasdaq:CTAS) today reported revenue for the first quarter of fiscal 2008 of $969.1 million, a 6.0% increase from the previous year’s first quarter revenue of $914.2 million. Net income was $81.1 million and earnings per diluted share were $0.51.
Scott D. Farmer, President and Chief Executive Officer, stated, “Our results for the first quarter are in line with our expectations. Our new sales organization is now fully staffed and operational. We believe that the initial disruption in new business sales caused by the rollout of this new organization is behind us and we are beginning to see an improvement in new business results. We expect the new sales organization to continue to gain strength and momentum, resulting in improving revenue growth as we progress through the rest of our fiscal year.”
While net income and earnings per diluted share decreased 4.6% and 3.8%, respectively, as compared to the first quarter of last fiscal year, the results were in line with Company projections. The Company indicated that the investment in the new sales organization has impacted profitability, as expected. Mr. Farmer stated, “The investment in the new organization has been made in order to enhance future growth opportunities. As the amount of new business sold improves under this new organization, we expect our selling costs as a percent of revenue to begin to trend back to more traditional levels.”
International Expansion
In addition to their first quarter results, Cintas announced that it has expanded internationally. Scott Farmer stated, “I am very pleased to announce that we have acquired Certo Information Management, a privately-held document shredding and storage business located in the Netherlands. We are very excited about the opportunity to now expand our services outside of North America. While the revenue added directly from this acquisition is not material to our operations, our hope and intent is that experience gained from operating this business will provide a platform for further international expansion.”
Strong Balance Sheet and Cash Flow
The Company’s balance sheet continues to be strong. As of August 31, 2007, the Company’s current assets exceeded current liabilities by over a four to one ratio and debt to total capitalization was 28.2%. The Company’s cash flow from operations continues to be healthy.
As of June 1, 2007, the Company adopted FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes– an interpretation of FASB Statement No. 109. As a result of the implementation of FIN 48, the Company recorded a $14 million decrease to opening retained earnings as of June 1, 2007, and a corresponding tax reserve was established.
New Segment Reporting
Cintas also announced that beginning this quarter it will increase the number of operating segments reported in the Company’s financial statements. Scott Farmer stated, “Our Document Management business and our First Aid, Safety and Fire business have grown to a sufficient size and scale that we believe reporting these businesses as separate operating segments is appropriate. These emerging businesses, which have historically been included in our “Other Services” operating segment, will now be broken out separately.”
As a result of this change, the Company will now report results for five operating segments: Rental Uniforms and Ancillary Products; Uniform Direct Sales; First Aid, Safety and Fire Protection Services; Document Management Services; and Corporate.
Outlook
Mr. Farmer stated, “Our first quarter results are in line with our expectations for the quarter. Based on these results and the improvement we are beginning to experience in our new business sales, we reiterate our full fiscal year guidance of $3.9 billion to $4.1 billion in revenue and earnings per diluted share of $2.15 to $2.25. Achieving this guidance would allow us to reach our 39th consecutive year of growth in revenue and earnings.”
About Cintas
Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types predominantly in the United States and Canada. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid and safety products, fire protection services and document management services for approximately 800,000 businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS, and is a Nasdaq-100 company and component of the Standard & Poor’s 500 Index. The Company has achieved 38 consecutive years of growth in sales and earnings, to date.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates”, “anticipates”, “predicts”, “projects”, “plans”, “expects”, “intends”, “target”, “forecast”, “believes”, “seeks”, “could”, “should”, “may” and “will” or the negative versions thereof and similar expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ from those set forth in or implied by this news release. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, the initiation or outcome of litigation, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic events, changes in federal and state tax laws and the reactions of competitors in terms of price and service. Cintas undertakes no obligation to update any forward-looking statements whether as a result of new information or to reflect events or circumstances arising after the date on which they are made. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8K and 10-K reports to the SEC.
For additional information, contact:
William C. Gale, Senior Vice President-Finance and Chief Financial Officer - 513-573-4211
Michael L. Thompson, Vice President and Treasurer – 513-573-4133
Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended | ||||||||||||
Aug. 31, 2007 | Aug. 31, 2006 | % Chng. | ||||||||||
| Revenue: | ||||||||||||
Rental uniforms and ancillary products | $ | 710,354 | $ | 687,658 | 3.3 | |||||||
Other services | 258,774 | 226,503 | 14.2 | |||||||||
Total revenue | $ | 969,128 | $ | 914,161 | 6.0 | |||||||
| Costs and expenses (income): | ||||||||||||
Cost of rental uniforms and ancillary products | $ | 391,490 | $ | 378,300 | 3.5 | |||||||
Cost of other services | 160,266 | 145,380 | 10.2 | |||||||||
Selling and administrative expenses | 276,710 | 244,128 | 13.3 | |||||||||
Interest income | (1,462 | ) | (1,526 | ) | -4.2 | |||||||
Interest expense | 12,837 | 12,432 | 3.3 | |||||||||
Total costs and expenses | $ | 839,841 | $ | 778,714 | 7.8 | |||||||
| Income before income taxes | $ | 129,287 | $ | 135,447 | -4.5 | |||||||
| Income taxes | 48,224 | 50,485 | -4.5 | |||||||||
| Net income | $ | 81,063 | $ | 84,962 | -4.6 | |||||||
| Per share data: | ||||||||||||
| Basic earnings per share | $ | 0.51 | $ | 0.53 | -3.8 | |||||||
| Diluted earnings per share | $ | 0.51 | $ | 0.53 | -3.8 | |||||||
| Basic shares outstanding | 158,771 | 160,770 | ||||||||||
| Diluted shares outstanding | 159,038 | 161,147 | ||||||||||
CINTAS CORPORATION SUPPLEMENTAL DATA
Three Months Ended | ||||||||||||
Aug. 31, 2007 | Aug. 31, 2006 | % Chng. | ||||||||||
| Rental uniforms and ancillary products gross margin | 44.9 | % | 45.0 | % | ||||||||
| Other services gross margin | 38.1 | % | 35.8 | % | ||||||||
| Total gross margin | 43.1 | % | 42.7 | % | ||||||||
| Net margin | 8.4 | % | 9.3 | % | ||||||||
| Depreciation and amortization | $46,222 | $42,768 | 8.1 | |||||||||
| Capital expenditures | $45,344 | $36,496 | 24.2 | |||||||||
| Debt to total capitalization | 28.2 | % | 29.5 | % | ||||||||
SUPPLEMENTAL SEGMENT DATA | Rental Uniforms and Ancillary Products | Uniform Direct Sales | First Aid, Safety and Fire Protection | Document Management | Corporate | Total | ||||||||||||||||||
| For the three months ended August 31, 2007 | ||||||||||||||||||||||||
Revenue | $ | 710,354 | $ | 118,805 | $ | 102,256 | $ | 37,713 | $ | 0 | $ | 969,128 | ||||||||||||
Gross margin | $ | 318,864 | $ | 36,470 | $ | 41,820 | $ | 20,218 | $ | 0 | $ | 417,372 | ||||||||||||
Selling and administrative expenses | $ | 204,071 | $ | 25,343 | $ | 31,199 | $ | 16,097 | $ | 0 | $ | 276,710 | ||||||||||||
Income (loss) before income taxes | $ | 114,793 | $ | 11,127 | $ | 10,621 | $ | 4,121 | $ | (11,375 | ) | $ | 129,287 | |||||||||||
Assets | $ | 2,592,401 | $ | 182,278 | $ | 332,757 | $ | 375,122 | $ | 138,272 | $ | 3,620,830 | ||||||||||||
| For the three months ended August 31, 2006 | ||||||||||||||||||||||||
Revenue | $ | 687,658 | $ | 116,997 | $ | 88,336 | $ | 21,170 | $ | 0 | $ | 914,161 | ||||||||||||
Gross margin | $ | 309,358 | $ | 35,693 | $ | 34,330 | $ | 11,100 | $ | 0 | $ | 390,481 | ||||||||||||
Selling and administrative expenses | $ | 185,278 | $ | 23,790 | $ | 25,151 | $ | 9,909 | $ | 0 | $ | 244,128 | ||||||||||||
Income (loss) before income taxes | $ | 124,080 | $ | 11,903 | $ | 9,179 | $ | 1,191 | $ | (10,906 | ) | $ | 135,447 | |||||||||||
Assets | $ | 2,519,943 | $ | 163,572 | $ | 287,521 | $ | 238,291 | $ | 174,894 | $ | 3,384,221 | ||||||||||||
RECONCILIATION TO GAAP MEASURES
Three Months Ended | ||||||||||||
Aug. 31, 2007 | Aug. 31, 2006 | % Chng. | ||||||||||
| Income before income taxes | $ | 129,287 | $ | 135,447 | -4.5 | |||||||
| Interest income | (1,462 | ) | (1,526 | ) | -4.2 | |||||||
| Interest expense | 12,837 | 12,432 | 3.3 | |||||||||
| Earnings before interest and taxes | $ | 140,662 | $ | 146,353 | -3.9 | |||||||
Consolidated Condensed Balance Sheets
(In thousands except share data)
Aug. 31, 2007 (Unaudited) | May 31, 2007 | |||||||
ASSETS | ||||||||
| Current assets: | ||||||||
Cash and cash equivalents | $ | 40,841 | $ | 35,360 | ||||
Marketable securities | 97,431 | 120,053 | ||||||
Accounts receivable, net | 409,441 | 408,870 | ||||||
Inventories, net | 236,102 | 231,741 | ||||||
Uniforms and other rental items in service | 352,279 | 344,931 | ||||||
Deferred tax assets | 19,912 | - | ||||||
Prepaid expenses | 17,896 | 15,781 | ||||||
| Total current assets | 1,173,902 | 1,156,736 | ||||||
| Property and equipment, at cost, net | 933,233 | 920,243 | ||||||
| Goodwill | 1,270,780 | 1,245,877 | ||||||
| Service contracts, net | 166,223 | 171,361 | ||||||
| Other assets, net | 76,692 | 76,263 | ||||||
| $ | 3,620,830 | $ | 3,570,480 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
Accounts payable | $ | 70,093 | $ | 64,622 | ||||
Accrued compensation & related liabilities | 34,517 | 62,826 | ||||||
Accrued liabilities | 124,174 | 200,686 | ||||||
Income taxes: | ||||||||
Current | 27,966 | 18,584 | ||||||
Deferred | - | 52,179 | ||||||
Long-term debt due within one year | 4,161 | 4,141 | ||||||
| Total current liabilities | 260,911 | 403,038 | ||||||
| Long-term liabilities: | ||||||||
Long-term debt due after one year | 876,522 | 877,074 | ||||||
Deferred income taxes | 122,884 | 122,630 | ||||||
Accrued liabilities | 116,552 | 0 | ||||||
| Total long-term liabilities | 1,115,958 | 999,704 | ||||||
| Shareholders' equity: | ||||||||
Preferred stock, no par value: 100,000 shares authorized, none outstanding | - | - | ||||||
Common stock, no par value: 425,000,000 shares authorized | ||||||||
FY 2008: 173,057,674 issued and 158,860,351 outstanding | ||||||||
FY 2007: 172,874,195 issued and 158,676,872 outstanding | 128,041 | 120,811 | ||||||
Paid-in capital | 55,542 | 56,909 | ||||||
Retained earnings | 2,600,792 | 2,533,459 | ||||||
Treasury stock FY 2008: 14,197,323; FY 2007: 14,197,323 | (580,562 | ) | (580,562 | ) | ||||
Other accumulated comprehensive income | 40,148 | 37,121 | ||||||
| Total shareholders' equity | 2,243,961 | 2,167,738 | ||||||
| $ | 3,620,830 | $ | 3,570,480 | |||||
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended | ||||||||
Aug. 31, 2007 | Aug. 31, 2006 | |||||||
Cash flows from operating activities: | ||||||||
| Net income | $ | 81,063 | $ | 84,962 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 35,636 | 33,078 | ||||||
Amortization of deferred charges | 10,586 | 9,690 | ||||||
Stock-based compensation | 2,132 | (598 | ) | |||||
Deferred income taxes | 17,418 | 10,772 | ||||||
Change in current assets and liabilities, net of acquisitions of businesses: | ||||||||
Accounts receivable | 644 | (1,202 | ) | |||||
Inventories | (4,293 | ) | (12,381 | ) | ||||
Uniforms and other rental items in service | (7,128 | ) | (2,311 | ) | ||||
Prepaid expenses | (2,117 | ) | 634 | |||||
Accounts payable | 5,435 | (11,770 | ) | |||||
Accrued compensation and related liabilities | (28,386 | ) | (2,777 | ) | ||||
Accrued liabilities | (77,865 | ) | (58,777 | ) | ||||
Income taxes payable | 24,001 | 6,524 | ||||||
Net cash provided by operating activities | 57,126 | 55,844 | ||||||
Cash flows from investing activities: | ||||||||
| Capital expenditures | (45,344 | ) | (36,496 | ) | ||||
| Proceeds from sale or redemption of marketable securities | 29,156 | 66,214 | ||||||
| Purchase of marketable securities and investments | (6,237 | ) | (3,527 | ) | ||||
| Acquisitions of businesses, net of cash acquired | (32,630 | ) | (25,101 | ) | ||||
| Other | 177 | (1,954 | ) | |||||
Net cash used in investing activities | (54,878 | ) | (864 | ) | ||||
Cash flows from financing activities: | ||||||||
| Proceeds from issuance of debt | 224,750 | 252,460 | ||||||
| Repayment of debt | (225,282 | ) | (194,283 | ) | ||||
| Stock options exercised | 7,230 | 3,403 | ||||||
| Repurchase of common stock | - | (114,418 | ) | |||||
| Other | (3,465 | ) | (6,091 | ) | ||||
Net cash provided by (used in) financing activities | 3,233 | (58,929 | ) | |||||
| Net increase/(decrease) in cash and cash equivalents | 5,481 | (3,949 | ) | |||||
| Cash and cash equivalents at beginning of period | 35,360 | 38,914 | ||||||
| Cash and cash equivalents at end of period | $ | 40,841 | $ | 34,965 | ||||