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, 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
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(Address of principal executive offices)
(Zip Code)
(513) 459-1200
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(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 31, 1999
- -------------------------- ------------------------------
Common Stock, no par value 111,565,276
CINTAS CORPORATION
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
November 30, 1999 and May 31, 1999 3
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended
November 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended November 30, 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 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,
1999 1999
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 26,430 $ 15,803
Marketable securities 67,347 72,315
Accounts receivable, net 226,996 202,079
Inventories 136,091 137,983
Uniforms and other rental items in service 209,616 200,154
Prepaid expenses 7,470 6,151
----------- -----------
Total current assets 673,950 634,485
Property, plant and equipment, at cost, net 615,121 573,087
Other assets 197,494 200,246
----------- -----------
$ 1,486,565 $ 1,407,818
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,692 $ 46,783
Accrued compensation and related liabilities 22,148 25,521
Accrued liabilities 72,014 83,209
Income taxes -
Current 4,184 --
Deferred 49,016 40,214
Long-term debt due within one year 16,117 16,370
----------- -----------
Total current liabilities 213,171 212,097
Long-term debt due after one year 260,000 283,581
Deferred income taxes 43,725 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,
111,534,779 shares issued and outstanding
(110,949,274 at May 31, 1999) 53,345 49,974
Retained earnings 919,991 825,268
Accumulated other comprehensive income (3,667) (3,819)
----------- -----------
Total shareholders' equity 969,669 871,423
----------- -----------
$ 1,486,565 $ 1,407,818
=========== ===========
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
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ----------
Revenue:
Rentals $ 349,726 $ 320,342 $ 694,243 $ 637,833
Other service 116,123 116,156 228,981 225,095
--------- --------- --------- ---------
465,849 436,498 923,224 862,928
Costs and expenses (income):
Cost of rentals 199,645 183,110 397,572 366,948
Cost of other service revenue 76,038 78,948 151,197 153,865
Selling and admin. expenses 109,334 99,226 220,721 204,554
Interest income (1,086) (1,228) (2,216) (2,477)
Interest expense 3,908 4,483 8,017 8,876
--------- --------- --------- ---------
387,839 364,539 775,291 731,766
--------- --------- --------- ---------
Income before income taxes 78,010 71,959 147,933 131,162
Income taxes 29,675 27,581 56,433 50,533
--------- --------- --------- ---------
Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629
========= ========= ========= =========
Basic earnings per share $ .43 $ .40 $ .82 $ .73
========= ========= ========= =========
Diluted earnings per share $ .43 $ .39 $ .81 $ .71
========= ========= ========= =========
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
November 30
-----------------------
1999 1998
---------- ----------
Cash flows from operating activities:
- ------------------------------------
Net income $91,500 $ 80,629
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 39,003 32,466
Amortization of deferred charges 10,553 9,191
Deferred income taxes 11,810 6,036
Change in current assets and liabilities,
net of acquisitions of businesses:
Accounts receivable (23,870) (25,322)
Inventories 2,526 (7,324)
Uniforms and other rental items in service (10,489) (12,068)
Prepaid expenses (1,307) (1,858)
Accounts payable (246) (8,375)
Accrued compensation and related liabilities (3,407) (89)
Accrued liabilities (12,266) 1,601
Income taxes payable 4,184 11,856
-------- --------
Net cash provided by operating activities 107,991 86,743
Cash flows from investing activities:
- ------------------------------------
Proceeds from divestiture of certain facilities 8,769 20,044
Capital expenditures (81,914) (89,204)
Proceeds from sale or redemption of
marketable securities 62,423 80,386
Purchase of marketable securities (57,455) (67,081)
Acquisitions of businesses, net of cash acquired (7,315) (5,099)
Other (922) 6,404
-------- --------
Net cash used by investing activities (76,414) (54,550)
Cash flows from financing activities:
- ------------------------------------
Repayment of long-term debt (23,858) (38,807)
Issuance of common stock 2,370 1,354
Pre merger dividends to former UTY owners -- (846)
Other 538 (2,851)
-------- --------
Net cash used in financing activities (20,950) (41,150)
Net increase/(decrease) in cash and cash equivalents 10,627 (8,957)
Cash and cash equivalents at beginning of period 15,803 13,423
-------- --------
Cash and cash equivalents at end of period $ 26,430 $ 4,466
======== ========
See accompanying notes.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
1. 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 generally accepted accounting
principles 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,
1999. A summary of our significant accounting policies is presented on page
27 of our most recent annual report. There have been no material changes in
the accounting policies followed by Cintas 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, Cintas acquired Unitog Company, 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 years:
Three Months Ended Six Months Ended
November 30, November 30
-------------------- ------------------
1999 1998 1999 1998
--------- -------- ------- --------
Numerator:
Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629
Denominator:
Denominator for basic earnings per
share-weighted avg. shares 111,265 110,358 111,132 110,402
======== ======== ======= ========
Effect of dilutive securities-
employee stock options 1,956 2,214 2,052 2,492
======== ======== ======= ========
Denominator for diluted earnings
per share-adjusted weighted avg.
shares and assumed conversions 113,221 112,572 113,184 112,894
======== ======== ======= ========
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
------------------ -------------------
1999 1998 1999 1998
------- -------- -------- ---------
Basic earnings per share $ .43 $ .40 $ .82 $ .73
======== ========= ========= ======
Diluted earnings per share $ .43 $ .39 $ .81 $ .71
======== ========= ========= ======
5. The components of comprehensive income for the three and six month periods
ended November 30, 1999 and 1998 are as follows:
Three Months Ended Six Months Ended
November 30 November 30
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629
Other comprehensive income:
Foreign currency
translation adjustment 395 664 152 (2,801)
-------- -------- -------- --------
Comprehensive income $ 48,730 $ 45,042 $ 91,652 $ 77,828
======== ======== ======== ========
6. Cintas 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 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
November 30, 1999
Revenue $ 349,726 $ 116,123 $ -- $ 465,849
============ ========= ========= ==========
Income before income taxes $ 67,784 $ 13,048 $ (2,822) $ 78,010
============ ========= ========= ==========
For the three months ended
November 30, 1998
Revenue $ 320,342 $ 116,156 $ -- $ 436,498
============ ========= ========= ==========
Income before income taxes $ 61,437 $ 13,777 $ (3,255) $ 71,959
============ ========= ========= ==========
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
============ ========= ========= ==========
As of and for the six months
ended November 30, 1998
Revenue $ 637,833 $ 225,095 $ -- $ 862,928
============ ========= ========= ==========
Income before income taxes $ 115,558 $ 22,003 $ (6,399) $ 131,162
============ ========= ========= ==========
Total assets $ 1,061,340 $ 227,846 $ 79,315 $1,368,501
============ ========= ========= ==========
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 7% for the three and six months ended November 30, over
the same periods in fiscal 1999. Net rental revenue increased 9% for the three
and six months ended November 30, over the same periods in the prior fiscal
year, due primarily to growth in the customer base. This revenue growth came
despite the disposition of linen volume occurring from September 1998 through
November 1999 and the high rate of lost business occurring at Unitog operations
prior to the merger. For the six months ended November 30, 1999 revenues from
other services increased 2% over the same period in fiscal 1999, principally as
a result of the increased sales of first aid supplies.
Net income increased 9% and 14% respectively, for the three and six months ended
November 30, over the same periods in fiscal 1999. This increase in net income
occurred even though income was recognized in the second quarter of fiscal 1999
by Unitog 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. Diluted earnings per share increased 10% and 14%, respectively, for
the three and six months ended November 30 over the same periods in fiscal 1999.
Net interest expense (interest expense less interest income) was $2,822,000 and
$5,801,000, respectively, for the three and six months ended November 30
compared to $3,255,000 and $6,399,000, respectively, for the same periods in the
prior fiscal year. Net interest expense has decreased primarily due to the
repayment of long-term debt. Cintas' effective tax rate was approximately 38% in
both periods of fiscal 2000 as well as fiscal 1999.
Cash, cash equivalents and marketable securities increased by $6 million at
November 30, 1999 from May 31, 1999 primarily due to strong cash flow from
operations. These sources will be used to finance future acquisitions and
capital expenditures.
Net property, plant and equipment increased by $42 million from May 31, 1999 to
November 30, 1999. At the end of the second quarter of fiscal 2000, we had nine
uniform rental facilities in various stages of construction.
The integration of Unitog facilities and corporate functions are progressing as
planned. Activity in the second quarter of fiscal 2000 related to the Special
Charge accrual established in fiscal 1999 for the Unitog integration amounted to
$2.9 million, primarily related to severance payments. The remaining balance at
the end of the second quarter of fiscal 2000 is $2.0 million.
Financial Condition
At November 30, 1999, we had $94 million in cash, cash equivalents and
marketable securities. We believe that our current cash position, funds
anticipated to be generated from operations and the strength of our banking
relationships are sufficient to meet our anticipated operational and capital
needs requirements.
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quantitative and Qualitative Disclosures About Market Risk
In its normal operations, we have market risk exposure to interest rates. There
has been no significant change in our exposure to these risks which has been
previously disclosed.
Impact of Year 2000
We have completed the changes required to ensure that all of our software,
hardware and operating equipment will function properly with respect to dates in
the year 2000 and thereafter. The total cost of these changes was not material
and has been expensed as incurred. We incurred the majority of our Year 2000
costs during fiscal 1998, with substantially all of the remaining costs expensed
in fiscal 1999. As of the date of this filing, our ability to manufacture and
distribute products and services has not been adversely affected by Year 2000
issues.
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
Part II. Other Information
Item 4. Submission of matters to a vote of security holders
Cintas' Annual Shareholders' meeting was held on October 20,
1999, 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 eight.
FOR 97,538,157 AGAINST 446,335 ABSTAIN 60,252 BROKER NON-VOTES 0
---------- ------- ------ ---
Issue No. 2
Authority to elect eight Directors.
Shares -
Withheld
Name Shares For Authority
- ------------------- ---------- ----------
Richard T. Farmer 96,405,493 1,639,251
Scott D. Farmer 96,392,678 1,652,066
Gerald V. Dirvin 96,558,337 1,486,407
James J. Gardner 96,284,523 1,760,221
Roger L. Howe 96,564,334 1,480,410
Donald P. Klekamp 95,950,730 2,094,014
Robert J. Kohlhepp 96,406,548 1,638,196
John S. Lillard 96,546,745 1,497,999
CINTAS CORPORATION
Issue No. 3
Proposal for the new stock option plan.
FOR 76,216,312 AGAINST 12,268,532 ABSTAIN 214,209 BROKER NON-VOTES 9,345,691
---------- ---------- ------- ---------
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Index
Exhibit Number Description of Exhibit
-------------- -----------------------
10.13 1999 Stock Option 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)
/s/William C. Gale
-----------------------------------
Date: January 10, 2000 William C. Gale
Vice President and Chief Financial
Officer (Chief Accounting Officer)