FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(X) |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE |
For the quarterly period ended August 31, 2002
OR
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( ) |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the transition period from to
Commission file number 0-11399
WASHINGTON
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31-1188630
|
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
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Outstanding September 30, 2002 |
CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
August 31, 2002 and May 31, 2002 3
Consolidated Condensed Statements of Income -
Three Months Ended August 31, 2002 and 2001 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended August 31, 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 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
Item 4. Controls and Procedures 20
Part II. Other Information 21
Signatures 21
Certifications 23
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
August 31, May 31,
2002 2002
------------ -------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 33,407 $ 40,628
Marketable securities 35,753 44,458
Accounts receivable, net 282,351 283,234
Inventories 209,513 193,821
Uniforms and other rental items in service 292,057 280,936
Prepaid expenses 10,963 10,173
----------- -----------
Total current assets 864,044 853,250
Property and equipment, at cost, net 770,291 778,402
Goodwill 689,043 678,598
Service contracts 155,361 158,529
Other assets 57,213 50,455
----------- -----------
$ 2,535,952 $ 2,519,234
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 70,854 $ 60,393
Accrued compensation and related liabilities 25,228 29,004
Accrued liabilities 90,105 131,705
Income taxes:
Current 26,233 11,791
Deferred 74,290 61,372
Long-term debt due within one year 16,736 18,369
----------- -----------
Total current liabilities 303,446 312,634
Long-term debt due after one year 663,590 703,250
Deferred income taxes 83,243 79,591
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized, none outstanding -- --
Common stock, no par value,
425,000,000 shares authorized,
170,142,146 shares issued and outstanding
(169,930,290 at May 31, 2002) 68,579 66,508
Retained earnings 1,426,783 1,365,136
Other accumulated comprehensive loss:
Foreign currency translation (6,403) (4,863)
Unrealized loss on derivatives (3,286) (3,022)
----------- -----------
Total shareholders' equity 1,485,673 1,423,759
----------- -----------
$ 2,535,952 $ 2,519,234
=========== ===========
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
Three Months Ended
August 31,
--------------------------
2002 2001
Revenue: --------- ---------
Rentals $ 523,656 $ 433,152
Other services 142,070 131,448
--------- ---------
665,726 564,600
Costs and expenses (income):
Cost of rentals 286,951 237,920
Cost of other services 96,762 90,658
Selling and administrative expenses 176,832 144,488
Interest income (739) (1,251)
Interest expense 8,024 3,086
--------- ---------
567,830 474,901
--------- ---------
Income before income taxes 97,896 89,699
Income taxes 36,249 33,159
--------- ---------
Net income $ 61,647 $ 56,540
========= =========
Basic earnings per share $ .36 $ .33
========= =========
Diluted earnings per share $ .36 $ .33
========= =========
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
August 31,
------------------------
Cash flows from operating activities: 2002 2001
- ------------------------------------ -------- ---------
Net income $ 61,647 $ 56,540
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 30,428 24,673
Amortization of deferred charges 7,638 4,732
Deferred income taxes 16,570 12,008
Change in current assets and
liabilities, net of acquisitions
of businesses:
Accounts receivable 1,739 (2,435)
Inventories (15,641) 10,727
Uniforms and other rental
items in service (11,121) (6,647)
Prepaid expenses (773) (2,100)
Accounts payable 10,388 (536)
Accrued compensation and
related liabilities (3,776) (16,820)
Accrued liabilities (41,562) (32,685)
Income taxes payable 14,442 12,973
-------- --------
Net cash provided by operating activities 69,979 60,430
Cash flows from investing activities:
- ------------------------------------
Capital expenditures (21,647) (32,731)
Proceeds from sale or redemption of
marketable securities 8,686 537
Purchase of marketable securities 19 (25,931)
Acquisitions of businesses,
net of cash acquired (15,931) (9,839)
Other 204 554
-------- --------
Net cash used in investing activities (28,669) (67,410)
Cash flows from financing activities:
- ------------------------------------
Repayment of long-term debt (48,798) (3,267)
Issuance of common stock 2,071 1,070
Other (1,804) 204
-------- --------
Net cash used in financing activities (48,531) (1,993)
Net decrease in cash and cash equivalents (7,221) (8,973)
Cash and cash equivalents at
beginning of period 40,628 73,724
-------- --------
Cash and cash equivalents
at end of period $ 33,407 $ 64,751
======== ========
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, 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, 2002. A summary of our significant accounting policies is presented on page 28 of our most recent annual report. There have been no material changes in the accounting policies followed by Cintas during the fiscal year.
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.
Certain prior year amounts have been reclassified to conform with current year presentation.
2. New Accounting Standard
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses significant issues relating to the implementation of Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and develops a single accounting model, based on the framework established in SFAS 121 for long-lived assets to be disposed of by sale, whether such assets are or are not deemed to be a business. SFAS 144 also modifies the accounting and disclosure rules for discontinued operations. Effective June 1, 2002, Cintas adopted SFAS 144 and it did not have a material effect on the financial statements.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
3. Earnings per Share
The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective years:
August 31, August 31,
2002 2001
---------- ----------
Numerator:
Net income $ 61,647 $ 56,540
======== ========
Denominator:
Denominator for basic earnings
per share-weighted average shares 170,036 169,528
======== ========
Effect of dilutive securities-
employee stock options 2,163 2,642
-------- --------
Denominator for diluted earnings
per share-adjusted weighted
average shares and assumed conversions 172,199 172,170
======== ========
Basic earnings per share $ .36 $ .33
======== ========
Diluted earnings per share $ .36 $ .33
======== ========
4. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the quarter ended August 31, 2002, by operating segment, are as follows:
“Acquired Intangible Assets”
Other
Rentals Services Total
-------- -------- --------
Balance as of June 1, 2002 $645,445 $ 33,153 $678,598
Goodwill acquired during the period 9,233 1,212 10,445
-------- -------- --------
Balance as of August 31, 2002 $654,678 $ 34,365 $689,043
======== ======== ========
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Information regarding Cintas' other assets follows:
As of August 31, 2002
------------------------------------------
Carrying Accumulated
Amount Amortization Net
-------- ------------ --------
Service contracts $228,337 $ 72,976 $155,361
Noncompete and consulting
agreements 61,850 42,933 18,917
Other 38,841 545 38,296
-------- -------- --------
Total $329,028 $116,454 $212,574
======== ======== ========
As of May 31, 2002
------------------------------------------
Carrying Accumulated
Amount Amortization Net
-------- ------------ --------
Service contracts $226,023 $ 67,494 $158,529
Noncompete and consulting
agreements 61,742 41,792 19,950
Other 31,111 606 30,505
-------- -------- --------
Total $318,876 $109,892 $208,984
======== ======== ========
Amortization expense was $7,638 and $4,732 for the three months ended August 31, 2002 and 2001, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $28,407, $24,851, $21,529, $19,629 and $18,421, respectively.
5. Derivatives and Hedging Activities
Cintas formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Cintas’ hedging activities are transacted only with highly-rated institutions, reducing the exposure to credit risk in the event of nonperformance.
Cintas uses derivatives for both cash flow hedging and fair value hedging purposes. For derivative instruments that hedge the exposure of variability in short-term interest rates, designated as cash flow hedges, the effective portion of the net gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For the ineffective portion of the hedge, gains or losses are charged to earnings in the current period. For derivative instruments that hedge the exposure to changes in the fair value of certain fixed rate debt, designated as fair value hedges, the effective portion of the net gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate debt attributable to the hedged risk, are recorded in current period earnings.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Cintas uses interest rate swap and lock agreements as hedges against variability in short-term interest rates. These agreements effectively convert a portion of the floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. Cintas uses the Hypothetical Derivative Method for assessing the effectiveness of these swaps. The effectiveness of these swaps is reviewed at least every fiscal quarter. Cintas will also periodically use reverse interest rate swap agreements to convert a portion of fixed rate debt to a floating rate basis, thus hedging for changes in the fair value of the fixed rate debt being hedged. Cintas has determined that the current interest rate swap agreement, designated as a fair value hedge, qualifies for treatment under the short-cut method of measuring effectiveness. Under the provisions of SFAS 133, this hedge is determined to be perfectly effective and there is no requirement to periodically evaluate effectiveness.
Approximately 28%, or $50 million, of outstanding floating rate debt was designated as the hedged items covered by interest-rate swap agreements at August 31, 2002. The change in fair value of these cash flow hedges during the first quarter of FY 2003 resulted in a charge of $264 to other comprehensive income. The reverse interest rate swap agreement is a fair value hedge that converts $125 million of fixed rate debt to a floating rate. This agreement expires in 2007, and allows Cintas to receive an effective interest rate of 5.13% and pay an interest rate based on LIBOR. Because this fair value hedge is 100% effective, the $7.0 million favorable change in the fair value of this hedge was directly offset by an increase in the fair value of the debt.
6. Acquisitions
At the time of the Omni Services, Inc. (Omni) acquisition, management approved a plan to integrate certain Omni facilities into existing Cintas operations. Included in the purchase price allocation was a restructuring charge of approximately $36 million, which includes approximately $6 million in severance-related costs for corporate and field employees and approximately $30 million in asset write-downs and lease cancellation costs.
The integration of Omni facilities is proceeding as planned. Through the first quarter, just under 50% of the acquired Omni facilities were integrated, or in the process of being integrated, into existing Cintas locations. Payments to date for severance-related costs were approximately $3 million, while assets write-downs and lease cancellation costs were approximately $26 million. Cintas expects to complete the integration within the first year of acquisition.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
7. 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 a derivative accounted for as a cash flow hedge. The components of comprehensive income for the three month periods ended August 31, 2002 and 2001 are as follows:
August 31, 2002 August 31, 2001
----------------- ---------------
Net income $61,647 $56,540
Other comprehensive income:
Foreign currency translation
adjustment (1,540) (334)
Net unrealized loss on cash flow
hedges (264) (156)
-------- --------
Comprehensive income $59,843 $56,050
======== ========
8. 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 first aid products and services and cleanroom supplies. Substantially 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, 2002
Revenue $ 523,656 $142,070 $ -- $ 665,726
========== ======== ======== ==========
Income before income taxes $ 94,225 $ 10,956 $ (7,285) $ 97,896
========== ======== ======== ==========
Total assets $2,249,053 $217,739 $ 69,160 $2,535,952
========== ======== ======== ==========
As of and for the
three months ended
August 31, 2001
Revenue $ 433,152 $131,448 $ -- $ 564,600
========== ======== ======== ==========
Income before income taxes $ 82,787 $ 8,747 $ (1,835) $ 89,699
========== ======== ======== ==========
Total assets $1,366,599 $292,021 $126,650 $1,785,270
========== ======== ======== ==========
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands except per share data)
9. Supplemental Guarantor Information
On May 13, 2002, Cintas completed the acquisition of Omni for approximately $656,000. The purchase price for Omni was funded with $450,000 in long-term notes, $100,000 of borrowings under a commercial paper program and approximately $106,000 in cash. The $450,000 in long-term notes consist of $225,000 with five-year maturities at an interest rate of 5 1/8% and $225,000 with ten-year maturities at an interest rate of 6%.
Effective June 1, 2000, Cintas reorganized its legal structure and created Cintas Corporation No. 2 (Corp. 2) as its indirectly, wholly-owned principal operating subsidiary. Cintas and its wholly-owned, direct and indirect domestic subsidiaries, other than Corp. 2, will unconditionally guarantee, jointly and severally, debt of Corp. 2. As allowed by SEC rules, the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the condensed consolidating financial statements has been fully consolidated in Cintas’ financial statements. The condensed consolidating financial statements should be read in conjunction with the financial statements of Cintas and notes thereto of which this note is an integral part.
Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented below:
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED AUGUST 31, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- -------- ---------- ---------- ------------ ------------
Revenue:
Rentals $ -- $396,228 $104,482 $22,981 $ (35) $523,656
Other services -- 276,005 49,146 8,356 (191,437) 142,070
Equity in net
income of
affiliates 61,647 -- -- -- (61,647) --
-------- -------- -------- ------- --------- --------
61,647 672,233 153,628 31,337 (253,119) 665,726
Costs and expenses
(income):
Cost of rentals -- 252,039 54,303 14,892 (34,283) 286,951
Cost of other services -- 209,810 36,441 4,365 (153,854) 96,762
Selling and
administrative
expenses -- 178,202 (9,660) 8,239 51 176,832
Interest income -- (671) (48) (20) -- (739)
Interest expense -- 88 7,152 784 -- 8,024
-------- -------- -------- ------- --------- --------
-- 639,468 88,188 28,260 (188,086) 567,830
Income before income
taxes 61,647 32,765 65,440 3,077 (65,033) 97,896
Income taxes -- 5,525 29,415 1,309 -- 36,249
-------- -------- -------- ------- --------- --------
Net income $61,647 $ 27,240 $ 36,025 $ 1,768 $ (65,033) $ 61,647
======== ======== ======== ======= ========= ========
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED AUGUST 31, 2001
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- -------- ---------- ---------- ------------ ------------
Revenue:
Rentals $ -- $ 316,475 $ 97,090 $ 19,643 $ (56) $433,152
Other services -- 219,827 46,096 4,235 (138,710) 131,448
Equity in net
income of
affiliates 56,540 -- -- -- (56,540) --
---------- --------- --------- --------- ---------- --------
56,540 536,302 143,186 23,878 (195,306) 564,600
Costs and expenses
(income):
Cost of rentals -- 199,173 53,181 12,021 (26,455) 237,920
Cost of other
services -- 163,818 34,489 2,437 (110,086) 90,658
Selling and
administrative
expenses -- 147,197 (7,669) 6,011 (1,051) 144,488
Interest income -- (1,051) (125) (75) -- (1,251)
Interest expense -- 6,204 (3,139) 21 -- 3,086
---------- --------- --------- --------- ---------- --------
-- 515,341 76,737 20,415 (137,592) 474,901
Income before income
taxes 56,540 20,961 66,449 3,463 (57,714) 89,699
Income taxes -- 4,281 27,868 1,010 -- 33,159
---------- --------- --------- --------- ---------- --------
Net income $ 56,540 $ 16,680 $ 38,581 $ 2,453 $ (57,714) $ 56,540
========= ========= ========= ========= ========= =========
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- -------- ---------- ---------- ------------ ------------
Assets
Current assets:
Cash and cash
equivalents $ -- $ 13,537 $ 6,962 $ 12,908 $ -- $ 33,407
Marketable
securities -- 34,445 -- 1,308 -- 35,753
Accounts receivable,
net -- 199,795 79,020 15,954 (12,418) 282,351
Inventories -- 195,013 16,571 6,482 (8,553) 209,513
Uniforms and other
rental items in
service -- 226,603 70,387 13,200 (18,133) 292,057
Prepaid expenses -- 6,432 3,677 857 (3) 10,963
---------- --------- --------- --------- ---------- --------
Total current assets -- 675,825 176,617 50,709 (39,107) 864,044
Property and equipment,
at cost, net -- 604,784 132,073 33,434 -- 770,291
Goodwill -- 110,006 568,341 10,696 -- 689,043
Service contracts -- 33,363 111,441 10,557 -- 155,361
Other assets 1,030,115 28,523 789,644 116,259 (1,907,328) 57,213
----------- ---------- ---------- --------- ----------- ----------
$ 1,030,115 $1,452,501 $1,778,116 $ 221,655 $(1,946,435) $2,535,952
=========== ========== ========== ========= =========== ==========
Liabilities and
Shareholders' Equity
Current liabilities:
Accounts payable $ (465,247) $ (66,429) $ 548,511 $ 16,042 $ 37,977 $ 70,854
Accrued compensation
and related
liabilities -- 15,519 8,714 995 -- 25,228
Accrued liabilities -- 173,551 (87,043) 3,642 (45) 90,105
Income taxes:
Current -- (31,073) 54,189 3,146 (29) 26,233
Deferred -- 696 72,010 1,584 -- 74,290
Long-term debt due
within one year -- 16,126 614 115 (119) 16,736
----------- ---------- ---------- --------- ----------- ----------
Total current
liabilities (465,247) 108,390 596,995 25,524 37,784 303,446
Long-term debt due
after one year -- 671,069 (42,168) 64,280 (29,591) 663,590
Deferred income taxes -- 9,246 71,847 2,150 -- 83,243
Total shareholders'
equity 1,495,362 663,796 1,151,442 129,701 (1,954,628) 1,485,673
----------- ---------- ---------- --------- ----------- ----------
$ 1,030,115 $1,452,501 $1,778,116 $ 221,655 $(1,946,435) $2,535,952
=========== ========== ========== ========= =========== ==========
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MAY 31, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- -------- ---------- ---------- ------------ ------------
Assets
Current assets:
Cash and cash
equivalents $ -- $ 22,440 $ 5,011 $ 13,177 $ -- $ 40,628
Marketable securities -- 42,472 -- 1,986 -- 44,458
Accounts receivable,
net -- 225,364 70,720 782 (13,632) 283,234
Inventories -- 182,858 14,899 5,539 (9,475) 193,821
Uniforms and other
rental items in
service -- 210,409 71,251 13,101 (13,825) 280,936
Prepaid expenses -- 7,421 1,995 760 (3) 10,173
--------- ---------- ----------- --------- ----------- ----------
Total current assets -- 690,964 163,876 35,345 (36,935) 853,250
Property and equipment,
at cost, net -- 637,882 108,258 32,262 -- 778,402
Goodwill -- 104,140 566,748 7,710 -- 678,598
Service contracts -- 34,588 112,488 11,453 -- 158,529
Other assets 966,397 20,983 792,865 94,727 (1,824,517) 50,455
--------- ---------- ---------- --------- ------------ ----------
$966,397 $1,488,557 $1,744,235 $ 181,497 $(1,861,452) $2,519,234
======== ========== ========== ========= =========== ==========
Liabilities and
Shareholders' Equity
Current liabilities:
Accounts payable $ (465,247) $ (58,727) $ 531,544 $ 14,842 $ 37,981 $ 60,393
Accrued compensation
and related
liabilities -- 23,441 4,508 1,055 -- 29,004
Accrued liabilities -- 172,125 (43,608) 4,195 (1,007) 131,705
Income taxes:
Current -- (34,889) 44,084 2,625 (29) 11,791
Deferred -- 1,737 58,020 1,615 -- 61,372
Long-term debt due
within one year -- 16,315 2,126 117 (189) 18,369
---------- ---------- ---------- -------- ----------- ----------
Total current
liabilities (465,247) 120,002 596,674 24,449 36,756 312,634
Long-term debt due
after one year -- 710,728 (23,499) 48,111 (32,090) 703,250
Deferred income taxes -- 7,251 70,239 2,101 -- 79,591
Total shareholders'
equity 1,431,644 650,576 1,100,821 106,836 (1,866,118) 1,423,759
---------- ---------- ---------- -------- ----------- ----------
$ 966,397 $1,488,557 $1,744,235 $181,497 $(1,861,452) $2,519,234
========== ========== ========== ======== =========== ==========
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- -------- ---------- ---------- ------------ ------------
Cash flows from
operating activities
Net income $ 61,647 $ 27,240 $ 36,025 $ 1,768 $(65,033) $ 61,647
Adjustments to
reconcile net
income to net
cash provided by
(used in) operating
activities:
Depreciation -- 19,228 9,942 1,258 -- 30,428
Amortization of
deferred charges -- 2,625 4,498 515 -- 7,638
Deferred income taxes -- 954 15,598 18 -- 16,570
Changes in current
assets and
liabilities, net
of acquisitions
of businesses:
Accounts
receivable -- 25,977 (8,217) (14,807) (1,214) 1,739
Inventories -- (12,137) (1,639) (943) (922) (15,641)
Uniforms and
other rental
items in
service -- (16,194) 864 (99) 4,308 (11,121)
Prepaid expenses -- 989 (1,682) (80) -- (773)
Accounts payable -- (7,702) 16,967 1,127 (4) 10,388
Accrued
compensation
and related
liabilities -- (7,922) 4,206 (60) -- (3,776)
Accrued
liabilities -- 1,603 (43,445) (682) 962 (41,562)
Income taxes
payable -- 3,816 10,105 521 -- 14,442
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities 61,647 38,477 43,222 (11,464) (61,903) 69,979
Cash flows from
investing
activities:
Capital expenditures -- 13,899 (33,245) (2,301) -- (21,647)
Proceeds from sale
or redemption
of marketable
securities -- 8,027 -- 659 -- 8,686
Purchase of
marketable
securities -- -- -- 19 -- 19
Acquisitions of
businesses,
net of cash
acquired -- (8,283) (2,020) (5,628) -- (15,931)
Other (62,178) (13,893) 14,661 2,280 59,334 204
-------- -------- -------- -------- -------- --------
Net cash (used in)
provided by
investing
activities (62,178) (250) (20,604) (4,971) 59,334 (28,669)
Cash flows from
financing
activities:
Repayment of
long-term debt -- (46,866) (20,667) 16,166 2,569 (48,798)
Stock options
exercised 2,071 -- -- -- -- 2,071
Other (1,540) (264) -- -- -- (1,804)
-------- -------- -------- -------- -------- --------
Net cash provided
by (used in)
financing
activities 531 (47,130) (20,667) 16,166 2,569 (48,531)
Net (decrease)
increase in
cash and cash
equivalents -- (8,903) 1,951 (269) -- (7,221)
Cash and cash
equivalents at
beginning of
period -- 22,440 5,011 13,177 -- 40,628
-------- -------- -------- -------- -------- --------
Cash and cash
equivalents
at end of period $ -- $ 13,537 $ 6,962 $ 12,908 $ -- $ 33,407
======== ======== ======== ======== ========= ========
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 2001
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- -------- ---------- ---------- ------------ ------------
Cash flows from
operating activities
Net income $ 56,540 $ 16,680 $ 38,581 $ 2,453 $(57,714) $ 56,540
Adjustments to
reconcile net
income to net
cash provided by
(used in) operating
activities:
Depreciation -- 16,281 7,270 1,122 -- 24,673
Amortization of
deferred charges -- 2,728 1,552 452 -- 4,732
Deferred income taxes -- (84,172) 95,480 700 -- 12,008
Changes in current
assets and
liabilities, net of
acquisitions of
businesses:
Accounts
receivable -- (20,476) 16,532 1,953 (444) (2,435)
Inventories -- 12,177 (270) (1,881) 701 10,727
Uniforms and
other rental
items in service -- (4,604) (1,366) (1,149) 472 (6,647)
Prepaid expenses -- (1,544) (316) (240) -- (2,100)
Accounts payable -- 35,319 (39,479) 3,636 (12) (536)
Accrued
compensation
and related
liabilities -- (13,349) (3,046) (425) -- (16,820)
Accrued liabilities -- 912 (36,523) 2,495 431 (32,685)
Income taxes
payable -- 1,556 10,774 643 -- 12,973
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities 56,540 (38,492) 89,189 9,759 (56,566) 60,430
Cash flows from
investing activities:
Capital expenditures -- (20,382) (11,270) (1,079) -- (32,731)
Proceeds from sale
or redemption
of marketable
securities -- 537 -- -- -- 537
Purchase of
marketable
securities -- (25,928) -- (3) -- (25,931)
Acquisitions of
businesses, net
of cash acquired -- (9,804) (188) 153 -- (9,839)
Other (57,970) 82,761 (79,066) (1,556) 56,385 554
-------- -------- -------- -------- -------- --------
Net cash (used in)
provided by investing
activities (57,970) 27,184 (90,524) (2,485) 56,385 (67,410)
Cash flows from
financing activities:
Repayment of
long-term debt -- (1,878) (1,561) (9) 181 (3,267)
Stock options
exercised 1,070 -- -- -- -- 1,070
Other 360 (156) -- -- -- 204
-------- -------- -------- -------- -------- -------- ----------------
Net cash provided by
(used in) financing
activities 1,430 (2,034) (1,561) (9) 181 (1,993)
Net (decrease) increase
in cash and cash
equivalents -- (13,342) (2,896) 7,265 -- (8,973)
Cash and cash
equivalents at
beginning of period -- 57,629 8,792 7,303 -- 73,724
-------- -------- -------- -------- -------- --------
Cash and cash
equivalents at
end of period $ -- $ 44,287 $ 5,896 $ 14,568 $ -- $ 64,751
======== ======== ======== ======== ======== ========
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenue increased 18% for the three months ended August 31, 2002, over the same period in fiscal 2002. Net rental revenue increased 21% for the three months ended August 31, 2002, over the same period in the prior fiscal year, primarily due to the acquisition of Omni in the fourth quarter of fiscal 2002 and growth in the customer base. Revenue from the sale of uniforms and other direct sale items increased 8% for the three months ended August 31, 2002, over the same period in the prior year, due to acquisitions made in fiscal 2002.
Net income increased 9% for the three months ended August 31, 2002, over the same period in fiscal 2002, primarily due to revenue growth. Diluted earnings per share increased 9% for the three months ended August 31, 2002, over the same period in the prior fiscal year.
Net interest expense (interest expense less interest income) was $7 million for the three months ended August 31, 2002 compared to $2 million for the same period in the prior fiscal year. This increase was primarily a result of $450 million of long-term notes issued in late fiscal 2002 to finance the Omni acquisition. Cintas’ effective tax rate was 37.0% for both the three months ended August 31, 2002 and August 31, 2001.
Financial Condition
At August 31, 2002, we had $69 million in cash, cash equivalents and marketable securities, a decrease of $16 million from May 31, 2002, primarily due to repayment of outstanding commercial paper. The cash, cash equivalents and marketable securities will be used to finance future growth, capital expenditures, repayment of debt and dividends. 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.
Net property and equipment decreased by $8 million from May 31, 2002 to August 31, 2002, due to the excess of depreciation over capital expenditures in the first quarter. At the end of the first quarter of fiscal 2003, Cintas had eight uniform rental facilities in various stages of construction.
Following is information regarding Cintas’ long-term contractual obligations and other commitments outstanding as of August 31, 2002:
(In thousands) Payments Due by Period
- --------------------------------------------------------------------------------
One Two to Four to After
Long-term contractual year three five five
obligations Total or less years years years
- --------------------------------- -------- -------- -------- -------- --------
Long-term debt (1)................ $676,000 $ 16,200 $181,800 $242,000 $236,000
Capital lease obligations (2) .... 4,300 500 1,000 1,200 1,600
Operating leases (3) ............. 62,000 15,000 22,000 14,000 11,000
Unconditional purchase
obligations .................... -- -- -- -- --
-------- -------- -------- -------- --------
Total contractual
cash obligations................ $742,300 $ 31,700 $204,800 $257,200 $248,600
======== ======== ======== ======== ========
(1) Long-term debt primarily consists of commercial paper and $450,000 in
long-term notes used to finance the Omni acquisition.
(2) Capital lease obligations are classified as long-term debt on the balance sheet.
(3) Operating leases consist primarily of building leases and synthetic leases
on the two corporate jets.
(In thousands) Amount of Commitment Expiration Per Period
- --------------------------------------------------------------------------------
One Two to Four to After
Other commercial year three five five
commitments Total or less years years years
- --------------------------------- -------- -------- -------- -------- --------
Lines of credit (1)............... $300,000 $150,000 $150,000 $-- $--
Standby letters of credit (2)..... 45,000 45,000 -- -- --
Guarantees........................ -- -- -- -- --
Standby repurchase
obligations .................... -- -- -- -- --
Other commercial commitments ..... -- -- -- -- --
-------- -------- -------- -------- --------
Total commercial commitments...... $345,000 $195,000 $150,000 $-- $--
========= ======== ======== ======== ========
(1) Back-up facility for the commercial paper program.
(2) Support certain outstanding debt and self-insured workers' compensation and general
liability insurance programs.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 on page 50 of our most recent annual report.
Controls and Procedures
Cintas performed an evaluation of disclosure controls and procedures within 90 days of filing this quarterly report (the “Evaluation Date”). After evaluating the effectiveness of disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer, along with other key management of Cintas, have determined that disclosure controls and procedures were effective and designed to ensure that material information relating to Cintas and its consolidated subsidiaries would be made known to them on a timely basis. There were no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the Evaluation Date.
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, the initiation or outcome of litigation, 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 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
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Item 6. |
Exhibits and Reports on Form 8-K |
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|
(b.) |
On August 27, 2002, Cintas filed a Current Report on Form 8-K to report the filing of the sworn statements by its principal executive officer and principal financial officer with the Securities and Exchange Commission in accordance with Commission Order No. 4-460. |
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.
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|
CINTAS CORPORATION |
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427
I, Robert J. Kohlhepp, the principal executive officer of Cintas Corporation, certify that:
| a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b. | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and |
| c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
Date: October 14, 2002 |
/s/Robert J. Kohlhepp
|
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427
I, William C. Gale, the principal financial officer of Cintas Corporation, certify that:
| a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b. | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and |
| c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
Date: October 14, 2002 |
/s/William C. Gale
|
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002
In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of Cintas Corporation (the “Company”) on Form 10-Q for the period ending August 31, 2002 (the “Report”), I, Robert J. Kohlhepp, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Robert J. Kohlhepp
Robert J. Kohlhepp
Chief Executive Officer
October 14, 2002
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002
In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of Cintas Corporation (the “Company”) on Form 10-Q for the period ending August 31, 2002 (the “Report”), I, William C. Gale, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/William C. Gale
William C. Gale
Chief Financial Officer
October 14, 2002