FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|
(X) |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE |
For the quarterly period ended November 30, 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
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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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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
|
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Outstanding December 31, 2002 |
CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
November 30, 2002 and May 31, 2002 3
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended
November 30, 2002 and 2001 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended November 30, 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 20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 22
Item 4. Controls and Procedures 22
Part II. Other Information 23
Signatures 24
Certifications 25
-2-
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
November 30, May 31,
2002 2002
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 50,909 $ 40,628
Marketable securities 38,315 44,458
Accounts receivable, net 287,476 283,234
Inventories 219,964 193,821
Uniforms and other rental items in service 299,989 280,936
Prepaid expenses 9,823 10,173
----------- -----------
Total current assets 906,476 853,250
Property and equipment, at cost, net 772,014 778,402
Goodwill 699,586 678,598
Service contracts 150,181 158,529
Other assets 56,584 50,455
----------- -----------
$ 2,584,841 $ 2,519,234
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65,357 $ 60,393
Accrued compensation and related liabilities 26,643 29,004
Accrued liabilities 107,846 131,705
Income taxes:
Current 58,168 11,791
Deferred 63,205 61,372
Long-term debt due within one year 17,355 18,369
----------- -----------
Total current liabilities 338,574 312,634
Long-term debt due after one year 610,894 703,250
Deferred income taxes 84,774 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,
170,241,970 shares issued and outstanding
(169,930,290 at May 31, 2002) 70,542 66,508
Retained earnings 1,490,123 1,365,136
Other accumulated comprehensive loss:
Foreign currency translation (7,034) (4,863)
Unrealized loss on derivatives (3,032) (3,022)
----------- -----------
Total shareholders' equity 1,550,599 1,423,759
----------- -----------
$ 2,584,841 $ 2,519,234
=========== ===========
See accompanying notes.
-3-
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
Three months ended Six months ended
November 30 November 30
-------------------- -------------------------
2002 2001 2002 2001
-------- -------- ---------- -----------
Revenue:
Rentals $526,311 $432,628 $1,049,967 $ 865,780
Other services 154,647 124,520 296,717 255,968
-------- -------- ---------- ----------
680,958 557,148 1,346,684 1,121,748
Costs and expenses (income):
Cost of rentals 295,140 234,618 582,091 472,538
Cost of other services 101,995 88,375 198,757 179,033
Selling and admin. expenses 175,846 140,619 352,678 285,107
Interest income (612) (1,290) (1,351) (2,541)
Interest expense 8,012 2,721 16,036 5,807
-------- -------- ---------- ----------
580,381 465,043 1,148,211 939,944
-------- -------- ---------- ----------
Income before income taxes 100,577 92,105 198,473 181,804
Income taxes 37,237 34,120 73,486 67,279
-------- -------- ---------- ----------
Net income $ 63,340 $ 57,985 $ 124,987 $ 114,525
======== ======== ========== ==========
Basic earnings per share $ .37 $ .34 $ .73 $ .68
======== ======== ========== ==========
Diluted earnings per share $ .37 $ .34 $ .73 $ .67
======== ======== ========== ==========
See accompanying notes.
-4-
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
November 30,
-----------------------------
Cash flows from operating activities: 2002 2001
--------- ---------
Net income $ 124,987 $ 114,525
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 58,692 49,578
Amortization of deferred charges 14,620 9,450
Deferred income taxes 7,016 11,764
Change in current assets and
liabilities, net of acquisitions
of businesses:
Accounts receivable (3,351) (6,398)
Inventories (26,045) 15,131
Uniforms and other rental
items in service (19,049) (12,112)
Prepaid expenses 367 (1,726)
Accounts payable 4,891 2,636
Accrued compensation and
related liabilities (2,361) (15,069)
Accrued liabilities (23,996) (21,661)
Income taxes payable 46,377 34,644
--------- ---------
Net cash provided by operating activities 182,148 180,762
Cash flows from investing activities:
Capital expenditures (51,382) (61,040)
Proceeds from sale or redemption of
marketable securities 10,422 4,332
Purchase of marketable securities (4,279) (69,480)
Acquisitions of businesses,
net of cash acquired (16,967) (15,685)
Other (9,642) (19)
--------- ---------
Net cash used in investing activities (71,848) (141,892)
Cash flows from financing activities:
Repayment of long-term debt (101,872) (11,446)
Issuance of common stock 3,226 1,640
Other (1,373) (1,509)
--------- ---------
Net cash used in financing activities (100,019) (11,315)
Net increase in cash and cash equivalents 10,281 27,555
Cash and cash equivalents
at beginning of period 40,628 73,724
--------- ---------
Cash and cash equivalents at end of period $ 50,909 $ 101,279
========= =========
See accompanying notes.
-5-
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 Standards
In November 2002, the Financial Accounting Standards Board issued Financial Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of this interpretation will be applied to guarantees issued or modified after December 31, 2002. Cintas is still evaluating the effect this interpretation will have on its financial results, but does not expect a material effect on the financial statements. Cintas will comply with the disclosure requirements of this interpretation in its third quarter ending February 28, 2003.
In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 148 (SFAS 148), Accounting for Stock-Based Compensation – Transition and Disclosure. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Cintas will continue to apply Accounting Principles Board Opinion No. 25 as the method used to account for stock-based employee compensation arrangements, where applicable, but will adopt the disclosure requirements of SFAS 148 beginning with its third quarter ending February 28, 2003.
-6-
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:
Three Months Ended Six Months Ended
November 30 November 30
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Numerator:
Net income $ 63,340 $ 57,985 $124,987 $114,525
======== ======== ======== ========
Denominator:
Denominator for basic
earnings per share-weighted
avg. shares 170,189 169,726 170,112 169,620
Effect of dilutive securities-
employee stock options 2,161 2,190 2,142 2,409
-------- -------- -------- --------
Denominator for diluted earnings
per share-adjusted weighted avg
shares and assumed conversions 172,350 171,916 172,254 172,029
======== ======== ======== ========
4. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the six months ended November 30, 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 18,532 2,456 20,988
-------- -------- --------
Balance as of November 30, 2002 $663,977 $ 35,609 $699,586
======== ======== ========
-7-
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Information regarding Cintas' other assets follows:
As of November 30, 2002
--------------------------------------------
Carrying Accumulated
Amount Amortization Net
--------- ------------ ---------
Service contracts $ 228,601 $ 78,420 $ 150,181
========= ========= =========
Noncompete and consulting
agreements 66,817 49,335 17,482
Other 40,012 910 39,102
--------- --------- ---------
Total other assets $ 106,829 $ 50,245 $ 56,584
========= ======== =========
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 other assets $ 92,853 $ 42,398 $ 50,455
========= ========== =========
Amortization expense was $14,620 and $9,450 for the six months ended November 30, 2002 and 2001, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $27,853, $24,515, $22,433, $19,829 and $18,621, 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.
-8-
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 44%, or $50 million, of outstanding floating rate debt was designated as the hedged items covered by interest-rate swap agreements at November 30, 2002. The change in fair value of these cash flow hedges during the second quarter of FY 2003 resulted in a credit of $254 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 $1.0 million favorable change in the fair value of this hedge for the second quarter 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 substantially complete. Through the second quarter, roughly 60% 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 asset write-downs and ongoing lease cancellation costs were approximately $28 million. Cintas expects to complete the integration and incur all related costs within the first year of acquisition.
-9-
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 income. 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 six month periods ended November 30, 2002 and 2001 are as follows:
Three Months Ended Six Months Ended
November 30 November 30
------------------ --------------------
2002 2001 2002 2001
------- ------- -------- --------
Net income $63,340 $57,985 $124,987 $114,525
Other comprehensive income:
Foreign currency translation
adjustment (631) (707) (2,171) (1,041)
Net unrealized gain (loss)
on cash flow hedges 254 (826) (10) (982)
------- ------- -------- --------
Comprehensive income $62,963 $56,452 $122,806 $112,502
======= ======= ======== ========
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.
-10-
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, 2002
Revenue $ 526,311 $154,647 $ -- $ 680,958
========== ======== ========== ==========
Income before income taxes $ 90,266 $ 17,711 $ (7,400) $ 100,577
========== ======== ========== ==========
For the three months
ended November 30, 2001
Revenue $ 432,628 $124,520 $ -- $ 557,148
========== ======== ========== ==========
Income before income taxes $ 87,526 $ 6,010 $ (1,431) $ 92,105
========== ======== ========== ==========
As of and for the six months
ended November 30, 2002
Revenue $1,049,967 $296,717 $ -- $1,346,684
========== ======== ========== ==========
Income before income taxes $ 185,016 $ 28,142 $ (14,685) $ 198,473
========== ======== ========== ==========
Total assets $2,199,763 $295,854 $ 89,224 $2,584,841
========== ======== ========== ==========
As of and for the six months
ended November 30, 2001
Revenue $ 865,780 $255,968 $ -- $1,121,748
========== ======== ========== ==========
Income before income taxes $ 170,313 $ 14,757 $ (3,266) $ 181,804
========== ======== ========== ==========
Total assets $1,379,033 $293,234 $ 202,932 $1,875,199
========== ======== ========== ==========
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%. An additional working capital payment of $3,000 was made during the second quarter of FY 2003, bringing the total purchase price to approximately $659,000.
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:
-11-
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 30, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- ----------- ---------- ---------- ------------ -----------
Assets
Current assets:
Cash and cash
equivalents $ ---- $ 32,177 $ 5,862 $ 12,870 $ ---- $ 50,909
Marketable securities ---- 33,155 ---- 5,160 ---- 38,315
Accounts receivable,
net ---- 225,675 76,251 (2,103) (12,347) 287,476
Inventories ---- 209,280 15,235 6,639 (11,190) 219,964
Uniforms and other
rental items in
service ---- 241,470 68,957 13,819 (24,257) 299,989
Prepaid expenses ---- 5,432 3,233 1,161 (3) 9,823
---------- ---------- ---------- -------- ----------- ----------
Total current assets ---- 747,189 169,538 37,546 (47,797) 906,476
Property and
equipment,
at cost, net ---- 605,935 131,934 34,145 ---- 772,014
Goodwill ---- 109,989 578,843 10,754 ---- 699,586
Service contracts ---- 31,800 108,302 10,079 ---- 150,181
Other assets 1,095,418 31,671 786,157 115,390 (1,972,052) 56,584
---------- ---------- ---------- -------- ----------- ----------
$1,095,418 $1,526,584 $1,774,774 $207,914 $(2,019,849) $2,584,841
========== ========== ========== ======== =========== ==========
Liabilities and
Shareholders'
Equity
Current liabilities:
Accounts payable $ (465,247) $ 34,878 $ 453,934 $ 3,809 $ 37,983 $ 65,357
Accrued compensation
and related
liabilities ---- 19,464 6,106 1,073 ---- 26,643
Accrued liabilities ---- 178,024 (73,650) 3,517 (45) 107,846
Income taxes:
Current ---- (30,713) 87,981 929 (29) 58,168
Deferred ---- 1,047 60,581 1,577 ---- 63,205
Long-term debt
due within one year ---- 16,829 616 114 (204) 17,355
---------- --------- ---------- -------- ----------- ----------
Total current liabilities (465,247) 219,529 535,568 11,019 37,705 338,574
Long-term debt due after
one year ---- 618,497 (42,165) 63,930 (29,368) 610,894
Deferred income taxes ---- 9,246 73,244 2,284 ---- 84,774
Total shareholders'
equity 1,560,665 679,312 1,208,127 130,681 (2,028,186) 1,550,599
---------- ----------- ---------- -------- ----------- ----------
$1,095,418 $1,526,584 $1,774,774 $207,914 $(2,019,849) $2,584,841
========== ========== ========== ======== =========== ==========
-12-
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
========== ========== ========== ========= =========== ==========
-13-
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED NOVEMBER 30, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- ----------- ---------- ---------- ------------ ------------
Revenue:
Rentals $ ---- $ 397,640 $ 105,928 $ 22,780 $ (37) $ 526,311
Other services ---- 319,954 49,384 9,036 (223,727) 154,647
Equity in net income
of affiliates 63,340 ---- ---- ---- (63,340) ----
---------- ---------- ---------- --------- ----------- ----------
63,340 717,594 155,312 31,816 (287,104) 680,958
Costs and expenses
(income):
Cost of rentals ---- 260,706 55,542 14,207 (35,315) 295,140
Cost of other services ---- 238,431 36,134 6,183 (178,753) 101,995
Selling and administrative
expenses ---- 182,754 (13,544) 7,570 (934) 175,846
Interest income ---- (500) (48) (64) ---- (612)
Interest expense ---- 15,405 (8,178) 785 ---- 8,012
---------- ---------- ---------- --------- ----------- ----------
---- 696,796 69,906 28,681 (215,002) 580,381
Income before income taxes 63,340 20,798 85,406 3,135 (72,102) 100,577
Income taxes ---- 5,535 30,687 1,015 ---- 37,237
---------- ---------- ---------- --------- ----------- ----------
Net income $ 63,340 $ 15,263 $ 54,719 $ 2,120 $ (72,102) $ 63,340
========== ========== ========== ========= =========== ==========
-14-
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED NOVEMBER 30, 2001
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- ----------- ---------- ---------- ------------ ------------
Revenue:
Rentals $ ---- $ 318,324 $ 94,709 $ 19,642 $ (47) $ 432,628
Other services ---- 216,458 44,625 4,567 (141,130) 124,520
Equity in net
income of affiliates 57,985 ---- ---- ---- (57,985) ----
---------- ---------- ---------- --------- ----------- ----------
57,985 534,782 139,334 24,209 (199,162) 557,148
Costs and expenses
(income):
Cost of rentals ---- 197,169 52,588 11,183 (26,322) 234,618
Cost of other services ---- 165,792 65,709 3,568 (146,694) 88,375
Selling and
administrative
expenses ---- 145,695 (9,836) 5,438 (678) 140,619
Interest income ---- (1,092) (67) (131) ---- (1,290)
Interest expense ---- 6,196 (3,475) ---- ---- 2,721
---------- ---------- ---------- --------- ----------- ----------
---- 513,760 104,919 20,058 (173,694) 465,043
Income before income
taxes 57,985 21,022 34,415 4,151 (25,468) 92,105
Income taxes ---- 4,544 28,231 1,345 ---- 34,120
---------- ---------- ---------- --------- ----------- ----------
Net income $ 57,985 $ 16,478 $ 6,184 $ 2,806 $ (25,468) $ 57,985
========== ========== ========== ========= =========== ==========
-15-
CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED NOVEMBER 30, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- ----------- ---------- ---------- ------------ ------------
Revenue:
Rentals $ ---- $ 793,868 $ 210,410 $ 45,761 $ (72) $1,049,967
Other services ---- 595,959 98,530 17,392 (415,164) 296,717
Equity in net income
of affiliates 124,987 ---- ---- ---- (124,987) ----
---------- ---------- ---------- --------- ----------- ----------
124,987 1,389,827 308,940 63,153 (540,223) 1,346,684
Costs and expenses
(income):
Cost of rentals ---- 512,745 109,845 29,099 (69,598) 582,091
Cost of other services ---- 448,241 72,575 10,548 (332,607) 198,757
Selling and
administrative expenses ---- 360,956 (23,204) 15,809 (883) 352,678
Interest income ---- (1,171) (96) (84) ---- (1,351)
Interest expense ---- 15,493 (1,026) 1,569 ---- 16,036
---------- ---------- ---------- --------- ----------- ----------
---- 1,336,264 158,094 56,941 (403,088) 1,148,211
Income before income
taxes 124,987 53,563 150,846 6,212 (137,135) 198,473
Income taxes ---- 11,060 60,102 2,324 ---- 73,486
---------- ---------- ---------- --------- ----------- ----------
Net income $ 124,987 $ 42,503 $ 90,744 $ 3,888 $ (137,135) $ 124,987
========== ========== ========== ========= =========== ==========
-16-
CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED NOVEMBER 30, 2001
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- ----------- ---------- ---------- ------------ ------------
Revenue:
Rentals $ ---- $ 634,799 $ 191,799 $ 39,285 $ (103) $ 865,780
Other services ---- 436,285 90,721 8,802 (279,840) 255,968
Equity in net income
of affiliates 114,525 ---- ---- ---- (114,525) ----
---------- ---------- ---------- --------- ----------- ----------
114,525 1,071,084 282,520 48,087 (394,468) 1,121,748
Costs and expenses
(income):
Cost of rentals ---- 396,342 105,769 23,204 (52,777) 472,538
Cost of other services ---- 329,610 100,198 6,005 (256,780) 179,033
Selling and
administrative
expenses ---- 292,893 (17,506) 11,449 (1,729) 285,107
Interest income ---- (2,143) (192) (206) ---- (2,541)
Interest expense ---- 12,400 (6,614) 21 ---- 5,807
---------- ---------- ---------- --------- ----------- ----------
---- 1,029,102 181,655 40,473 (311,286) 939,944
Income before income
taxes 114,525 41,982 100,865 7,614 (83,182) 181,804
Income taxes ---- 8,825 56,099 2,355 ---- 67,279
---------- ---------- ---------- --------- ----------- ----------
Net income $ 114,525 $ 33,157 $ 44,766 $ 5,259 $ (83,182) $ 114,525
========== ========== ========== ========= =========== ==========
-17-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 2002
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- ----------- ---------- ---------- ------------ ------------
Cash flows from operating
activities
Net income $ 124,987 $ 42,503 $ 90,744 $ 3,888 $ (137,135) $ 124,987
Adjustments to reconcile
net income to net
cash provided by (used in)
operating activities:
Depreciation ---- 37,735 18,423 2,534 ---- 58,692
Amortization of
deferred charges ---- 5,423 8,217 980 ---- 14,620
Deferred income taxes ---- 1,305 5,566 145 ---- 7,016
Changes in current
assets and
liabilities, net of
acquisitions of
businesses:
Accounts receivable ---- 97 (5,414) 3,251 (1,285) (3,351)
Inventories ---- (26,404) (256) (1,100) 1,715 (26,045)
Uniforms and other
rental items in
service ---- (31,061) 2,298 (718) 10,432 (19,049)
Prepaid expenses ---- 1,989 (1,238) (384) ---- 367
Accounts payable ---- 93,605 (77,610) (11,106) 2 4,891
Accrued compensation
and related
liabilities ---- (3,977) 1,598 18 ---- (2,361)
Accrued liabilities ---- 6,076 (30,227) (807) 962 (23,996)
Income taxes payable ---- 4,176 43,897 (1,696) ---- 46,377
---------- ---------- ---------- --------- ----------- ----------
Net cash provided by
(used in) operating
activities 124,987 131,467 55,998 (4,995) (125,309) 182,148
Cash flows from investing
activities:
Capital expenditures ---- (5,737) (41,352) (4,293) ---- (51,382)
Proceeds from sale or
redemption of
marketable securities ---- 9,763 ---- 659 ---- 10,422
Purchase of marketable
securities ---- (446) 1 (3,834) ---- (4,279)
Acquisitions of
businesses, net of
cash acquired ---- (8,369) (2,970) (5,628) ---- (16,967)
Other (126,850) (17,198) 9,836 1,968 122,602 (9,642)
---------- ---------- ---------- --------- ----------- ----------
Net cash (used in)
provided by investing
activities (126,850) (21,987) (34,485) (11,128) 122,602 (71,848)
Cash flows from financing
activities:
Repayment of long-term
debt ---- (99,733) (20,662) 15,816 2,707 (101,872)
Stock options exercised 3,226 ---- ---- ---- ---- 3,226
Other (1,363) (10) ---- ---- ---- (1,373)
---------- ---------- ---------- --------- ----------- ----------
Net cash provided by
(used in) financing
activities 1,863 (99,743) (20,662) 15,816 2,707 (100,019)
Net increase (decrease)
in cash and cash
equivalents ---- 9,737 851 (307) ---- 10,281
Cash and cash equivalents
at beginning of period ---- 22,440 5,011 13,177 ---- 40,628
---------- ---------- ---------- --------- ----------- ----------
Cash and cash equivalents
at end of period $ ---- $ 32,177 $ 5,862 $ 12,870 $ ---- $ 50,909
========== ========== ========== ========= =========== ==========
-18-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 2001
Cintas
Cintas Subsidiary Non- Corporation
Corporation Corp. 2 Guarantors Guarantors Eliminations Consolidated
----------- ----------- ---------- ---------- ------------ ------------
Cash flows from operating
activities
Net income $ 114,525 $ 33,157 $ 44,766 $ 5,259 $ (83,182) $ 114,525
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation ---- 32,683 14,702 2,193 ---- 49,578
Amortization of deferred
charges ---- 5,524 3,109 817 ---- 9,450
Deferred income taxes ---- (83,632) 94,746 650 ---- 11,764
Changes in current assets
and liabilities,
net of acquisitions of
businesses:
Accounts receivable ---- (25,442) 15,695 2,257 1,092 (6,398)
Inventories ---- 16,760 (613) (1,374) 358 15,131
Uniforms and other
rental items in
service ---- (11,282) (75) (1,467) 712 (12,112)
Prepaid expenses ---- (1,155) (269) (302) ---- (1,726)
Accounts payable ---- 104,656 (106,443) 5,683 (1,260) 2,636
Accrued compensation
and related
liabilities ---- (11,758) (2,898) (413) ---- (15,069)
Accrued liabilities ---- 684 (23,041) 555 141 (21,661)
Income taxes payable ---- 1,544 31,334 1,766 ---- 34,644
---------- ---------- ---------- --------- ----------- ----------
Net cash provided by
(used in) operating
activities 114,525 61,739 71,013 15,624 (82,139) 180,762
Cash flows from investing
activities:
Capital expenditures ---- (38,888) (20,007) (2,145) ---- (61,040)
Proceeds from sale or
redemption of
marketable securities ---- 4,332 ---- ---- ---- 4,332
Purchase of marketable
securities ---- (65,645) ---- (3,835) ---- (69,480)
Acquisitions of
businesses, net of
cash acquired ---- (10,468) (5,195) (22) ---- (15,685)
Other (115,638) 82,307 (46,480) (1,893) 81,685 (19)
---------- ---------- ---------- --------- ----------- ----------
Net cash (used in)
provided by
investing activities (115,638) (28,362) (71,682) (7,895) 81,685 (141,892)
Cash flows from financing
activities:
Repayment of long-term
debt ---- (9,911) (1,707) (282) 454 (11,446)
Stock options exercised 1,640 ---- ---- ---- ---- 1,640
Other (527) (982) ---- ---- ---- (1,509)
---------- ---------- ---------- --------- ----------- ----------
Net cash provided by
(used in) financing
activities 1,113 (10,893) (1,707) (282) 454 (11,315)
Net increase (decrease)
in cash and cash
equivalents ---- 22,484 (2,376) 7,447 ---- 27,555
Cash and cash equivalents
at beginning of period ---- 57,629 8,792 7,303 ---- 73,724
---------- ---------- ---------- --------- ----------- ----------
Cash and cash equivalents
at end of period $ ---- $ 80,113 $ 6,416 $ 14,750 $ ---- $ 101,279
========== ========== ========== ========= =========== ==========
-19-
ITEM 2
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenue of $681 million and $1,347 million, for the three and six months ended November 30, 2002, increased 22% and 20%, respectively over the same periods in the prior fiscal year. Net rental revenue of $526 million and $1,050 million, for the three and six months ended November 30, 2002, increased 22% and 21%, respectively, over the same periods 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 of $155 million and $297 million, for the three and six months ended November 30, 2002, increased 24% and 16%, respectively, over the same periods in the prior year, due to acquisitions made in late fiscal 2002 and the increase in customer sales that were originally delayed after September 11, 2001.
Net income of $63 million and $125 million increased 9% for both the three and six months ended November 30, 2002, over the same periods in the prior fiscal year. Diluted earnings per share of $.37 and $.73 increased 9% for both the three and six months ended November 30, 2002, over the same periods in the prior fiscal year.
Net interest expense (interest expense less interest income) was $7 million and $15 million, respectively, for the three and six months ended November 30, 2002 compared to $1 million and $3 million, respectively, for the same periods in the prior fiscal year. This increase was primarily a result of interest on $450 million in long-term notes issued in late fiscal 2002 to finance the Omni acquisition. The effective tax rate was 37.0% for both the three and six months ended November 30, 2002, and the three and six months ended November 30, 2001.
Financial Condition
At November 30, 2002, we had $89 million in cash, cash equivalents and marketable securities, an increase of $4 million from May 31, 2002, primarily due to income from operations. 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 $6 million from May 31, 2002 to November 30, 2002, due to the excess of depreciation over capital expenditures in the second quarter. At the end of the second quarter of fiscal 2003, Cintas had seven uniform rental facilities in various stages of construction.
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following is information regarding Cintas’ long-term contractual obligations and other commitments outstanding as of November 30, 2002:
(In thousands) Payments Due by Period
- --------------------------------------------------------------------------------
Two to Four to After
One year three five five
Long-term contractual obligation Total or less years years years
- -------------------------------- -------- ------- -------- -------- --------
Long-term debt (1) $624,031 $16,902 $138,669 $239,697 $228,763
Capital lease obligations (2) 4,218 453 1,064 1,187 1,514
Operating leases (3) 65,000 13,000 24,000 16,000 12,000
Unconditional purchase obligations - - - - -
-------- ------- -------- -------- --------
Total contractual cash obligations $693,249 $30,355 $163,733 $256,884 $242,277
======== ======= ======== ======== ========
(1) |
Long-term debt primarily consists of commercial paper and $450,000 in
long-term notes. |
(In thousands) Amount of Commitment Expiration Per Period
- ------------------------------------------------------------------------------
Two to Four to After
One year three five five
Other commercial commitments Total or less years years years
- ---------------------------- -------- -------- -------- -------- --------
Lines of credit (1) $300,000 $150,000 $150,000 $ - $ -
Standby letters of credit (2) 41,000 41,000 - - -
Guarantees - - - - -
Standby repurchase obligations - - - - -
Other commercial commitments - - - - -
-------- -------- -------- -------- --------
Total commercial commitments $341,000 $191,000 $150,000 $ - $ -
======== ======== ======== ======== ========
(1) |
Back-up facility for the commercial paper program.
|
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. 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.
-21-
ITEM 3
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.
ITEM 4
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.
-22-
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 16, 2002, 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 157,232,466 AGAINST 472,372 ABSTAIN 779,857 BROKER NON-VOTES 0
Issue No. 2
Authority to elect eight Directors.
Shares -
Name Shares For Withheld Authority
------------------- ----------- ------------------
Richard T. Farmer 141,391,285 17,093,410
Robert J. Kohlhepp 141,744,627 16,740,068
Scott D. Farmer 141,516,088 16,968,607
Paul R. Carter 150,626,641 7,858,054
Gerald V. Dirvin 150,632,951 7,851,744
James J. Gardner 152,965,575 5,519,120
Robert J. Herbold 150,619,151 7,865,544
Roger L. Howe 150,624,714 7,859,981
Item 6. Exhibits and Reports on Form 8-K
| (b.) No reports were filed on form 8-K during the quarter. |
-23-
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 |
-24-
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: January 13, 2003 |
/s/Robert J. Kohlhepp
|
-25-
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: January 13, 2003 |
/s/William C. Gale
|
-26-
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 November 30, 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
January 13, 2003
-27-
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 November 30, 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
January 13, 2003
-28-