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 August 31, 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
CINTAS CORPORATION
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(Exact name of registrant as specified in its charter)
WASHINGTON 31-1188630
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(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)
(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 September 29, 2000
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Common Stock, no par value 168,653,922
CINTAS CORPORATION
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
August 31, 2000 and May 31, 2000 3
Consolidated Condensed Statements of Income -
Three Months Ended August 31, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended August 31, 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 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 8
Part II. Other Information 10
Signatures 10
2
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
August 31, 2000 May 31, 2000
--------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 30,509 $ 52,182
Marketable securities 47,754 57,640
Accounts receivable, net 239,023 225,735
Inventories 175,549 164,906
Uniforms and other rental items in service 218,287 213,770
Prepaid expenses 8,125 7,237
----------- -----------
Total current assets 719,247 721,470
Property, plant and equipment, at cost, net 663,541 642,507
Other assets 220,014 217,365
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$ 1,602,802 $ 1,581,342
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,030 $ 50,976
Accrued compensation and related liabilities 26,601 28,140
Accrued liabilities 62,269 90,058
Deferred income taxes 59,323 49,614
Long-term debt due within one year 16,201 16,604
----------- -----------
Total current liabilities 211,424 235,392
Long-term debt due after one year 247,317 254,378
Deferred income taxes 52,036 48,696
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized,
none outstanding -- --
Common stock, no par value,
300,000,000 shares authorized,
168,512,002 shares issued
and outstanding (168,281,506
at May 31, 2000) 55,472 54,738
Retained earnings 1,040,220 992,450
Accumulated other comprehensive income (3,667) (4,312)
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Total shareholders' equity 1,092,025 1,042,876
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$ 1,602,802 $ 1,581,342
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See accompanying notes.
3
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
Three Months Ended
August 31,
---------------------------
2000 1999
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Revenue:
Rentals $ 389,627 $ 344,517
Other services 132,332 112,858
----------- -----------
521,959 457,375
Costs and expenses (income):
Cost of rentals 217,821 197,927
Cost of other services 86,873 75,159
Selling and administrative expenses 132,936 111,387
Interest income (1,260) (1,130)
Interest expense 4,087 4,109
----------- -----------
440,457 387,452
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Income before income taxes 81,502 69,923
Income taxes 30,653 26,758
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Net income $ 50,849 $ 43,165
=========== ===========
Basic earnings per share $ .30 $ .26
=========== ===========
Diluted earnings per share $ .30 $ .25
=========== ===========
See accompanying notes.
4
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
August 31,
--------------------------
Cash flows from operating activities: 2000 1999
- ------------------------------------ --------- ----------
Net income $ 50,849 $ 43,165
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 21,591 18,686
Amortization of deferred charges 6,025 4,817
Deferred income taxes 13,049 5,716
Change in current assets and
liabilities, net of acquisitions
of businesses:
Accounts receivable (12,705) (1,784)
Inventories (10,883) 3,278
Uniforms and other rental
items in service (4,586) (305)
Prepaid expenses (914) (1,521)
Accounts payable (4,586) 691
Accrued compensation and
related liabilities (1,472) (6,721)
Accrued liabilities (28,053) (6,383)
---------- ----------
Net cash provided by operating activities 28,315 59,639
Cash flows from investing activities:
- ------------------------------------
Proceeds from divestiture
of certain facilities --- 7,115
Capital expenditures (42,270) (52,803)
Proceeds from sale or redemption
of marketable securities 19,017 31,963
Purchase of marketable securities (9,131) (10,070)
Acquisitions of businesses,
net of cash acquired (572) (9,447)
Other (7,992) 4,691
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Net cash used in investing activities (40,948) (28,551)
Cash flows from financing activities:
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Repayment of long-term debt (10,420) (17,101)
Issuance of common stock 687 1,894
Other 693 116
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Net cash used in financing activities (9,040) (15,091)
Net (decrease) increase in cash
and cash equivalents (21,673) 15,997
Cash and cash equivalents at
beginning of period 52,182 15,803
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Cash and cash equivalents
at end of period $ 30,509 $ 31,800
========== ==========
See accompanying notes.
5
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts 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 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 are 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.
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. 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.
4. The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective periods:
August August
2000 1999
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Numerator:
Net income $ 50,849 $ 43,165
========== ========
Denominator:
Denominator for basic earnings per share-
weighted average shares 168,366 166,502
========== ========
Effect of dilutive securities-employee
stock options 2,851 3,262
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Denominator for diluted earnings
per share-adjusted weighted
average shares and assumed conversions 171,217 169,764
========== ========
Basic earnings per share $ .30 $ .26
========== ========
Diluted earnings per share $ .30 $ .25
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6
5. The components of comprehensive income for the three-month periods ended
August 31, 2000 and 1999 are as follows:
August 2000 August 1999
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Net income $50,849 $43,165
Other comprehensive income:
Foreign currency translation
Adjustment 645 (243)
========== =========
Comprehensive income $51,494 $42,922
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6. 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.
Other
Rentals Services Corporate Total
----------- -------- --------- ----------
As of and for the three
months ended
August 31, 2000
Revenue $ 389,627 $132,332 $ -- $ 521,959
========== ======== ======== ==========
Income before income taxes $ 73,229 $ 11,100 $(2,827) $ 81,502
========== ======== ======== ==========
Total assets $1,220,699 $303,840 $78,263 $1,602,802
========== ======== ======== ==========
As of and for the three
months ended
August 31, 1999
Revenue $ 344,517 $112,858 $ -- $ 457,375
========== ======== ======== ==========
Income before income taxes $ 62,043 $ 10,859 $(2,979) $ 69,923
========== ======== ======== ==========
Total assets $1,115,564 $231,416 $82,223 $1,429,203
========== ======== ======== ==========
7
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenue increased 14% in the first quarter of fiscal 2001 over the same
period in fiscal 2000. Net rental revenue increased 13% for the three months
ended August 31, 2000 over the same period in the prior fiscal year primarily
due to growth in the customer base. First quarter revenue from the sale of
uniforms and other direct sale items increased 17% over the prior year's first
quarter, 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 and basic earnings per share increased 18% and 15%, respectively, for
the three months ended August 31, 2000, over the same period in fiscal 2000.
Net interest expense (interest expense less interest income) was $2,827,000 for
the first quarter of fiscal 2001 compared to $2,979,000 in the first quarter of
fiscal 2000. 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
37.6% and 38.3% respectively, for the three months ended August 31, 2000 and
August 31, 1999. 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 $32 million at
August 31, 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, plant and equipment increased by $21 million from May 31, 2000 to
August 31, 2000. At the end of the first quarter of fiscal 2001, we had thirteen
uniform rental facilities in various stages of construction.
Financial Condition
At August 31, 2000, we had $78 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 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.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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 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.
9
CINTAS CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibit Index
Exhibit Number Description of Exhibit
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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: October 11, 2000 /s/William C. Gale
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William C. Gale
Vice President and Chief Financial Officer
(Chief Accounting Officer)