FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| (X) |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2003 |
OR
| ( ) |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ |
| Commission file number 0-11399 |
| CINTAS CORPORATION | ||
|---|---|---|
| (Exact name of registrant as specified in its charter) |
| WASHINGTON | 31-1188630 | |
|---|---|---|
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| P.O. BOX 625737 CINCINNATI, OHIO 45262-5737 |
||
|---|---|---|
| (Address of principal executive offices) (Zip Code) |
| (513) 459-1200 | ||
|---|---|---|
| (Registrant's telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-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 | Outstanding March 31, 2003 | |
|---|---|---|
| Common Stock, no par value | 170,462,888 |
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CINTAS CORPORATION
INDEX
Page No.
| Part I. Financial Information | ||
Item 1. Financial Statements |
||
| Consolidated Condensed Balance Sheets - | ||
| February 28, 2003 and May 31, 2002 | 3 | |
| Consolidated Condensed Statements of Income - | ||
| Three Months and Nine Months Ended February 28, 2003 and 2002 | 4 | |
| Consolidated Condensed Statements of Cash Flows - | ||
| Nine Months Ended February 28, 2003 and 2002 | 5 | |
| Notes to Consolidated Condensed Financial Statements | 6 | |
Item 2. Management’s Discussion and Analysis of Financial |
||
| Condition and Results of Operations | 21 | |
Item 3. Quantitative and Qualitative Disclosures About |
||
| Market Risk | 24 | |
|
Item 4. Controls and Procedures |
24 | |
|
Part II. Other Information |
25 | |
Signatures |
26 | |
Certifications |
27 |
-2-
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
| February 28, 2003 |
May 31, 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 42,175 | $ | 40,628 | ||||
| Marketable securities | 35,024 | 44,458 | ||||||
| Accounts receivable, net | 273,372 | 283,234 | ||||||
| Inventories | 230,171 | 193,821 | ||||||
| Uniforms and other rental items in service | 302,328 | 280,936 | ||||||
| Prepaid expenses | 8,078 | 10,173 | ||||||
| Total current assets | 891,148 | 853,250 | ||||||
| Property and equipment, at cost, net | 772,614 | 778,402 | ||||||
| Goodwill | 708,445 | 678,598 | ||||||
| Service contracts | 146,432 | 158,529 | ||||||
| Other assets | 58,574 | 50,455 | ||||||
| $ | 2,577,213 | $ | 2,519,234 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 49,912 | $ | 60,393 | ||||
| Accrued compensation and related liabilities | 26,483 | 29,004 | ||||||
| Accrued liabilities | 161,459 | 131,705 | ||||||
| Income taxes: | ||||||||
| Current | 40,293 | 11,791 | ||||||
| Deferred | 58,285 | 61,372 | ||||||
| Long-term debt due within one year | 16,223 | 18,369 | ||||||
| Total current liabilities | 352,655 | 312,634 | ||||||
| Long-term debt due after one year | 566,737 | 703,250 | ||||||
| Deferred income taxes | 88,033 | 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, | ||||||||
| 170,420,402 shares issued and outstanding | ||||||||
| (169,930,290 at May 31, 2002) | 71,303 | 66,508 | ||||||
| Retained earnings | 1,503,174 | 1,365,136 | ||||||
| Other accumulated comprehensive loss: | ||||||||
| Foreign currency translation | (2,023 | ) | (4,863 | ) | ||||
| Unrealized loss on derivatives | (2,666 | ) | (3,022 | ) | ||||
| Total shareholders' equity | 1,569,788 | 1,423,759 | ||||||
| $ | 2,577,213 | $ | 2,519,234 | |||||
See accompanying notes.
-3-
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
| Three months ended February 28, |
Nine months ended February 28, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| Revenue: | ||||||||||||||
| Rentals | $ | 523,195 | $ | 425,296 | $ | 1,573,162 | $ | 1,291,076 | ||||||
| Other services | 140,562 | 120,195 | 437,279 | 376,163 | ||||||||||
| 663,757 | 545,491 | 2,010,441 | 1,667,239 | |||||||||||
| Costs and expenses (income): | ||||||||||||||
| Cost of rentals | 293,938 | 230,627 | 876,029 | 703,165 | ||||||||||
| Cost of other services | 95,403 | 85,524 | 294,160 | 264,557 | ||||||||||
| Selling and admin. expenses | 174,192 | 140,263 | 526,870 | 425,370 | ||||||||||
| Interest income | (825 | ) | (1,527 | ) | (2,176 | ) | (4,068 | ) | ||||||
| Interest expense | 7,434 | 2,389 | 23,470 | 8,196 | ||||||||||
| 570,142 | 457,276 | 1,718,353 | 1,397,220 | |||||||||||
| Income before income taxes | 93,615 | 88,215 | 292,088 | 270,019 | ||||||||||
| Income taxes | 34,560 | 32,631 | 108,046 | 99,910 | ||||||||||
| Net income | $ | 59,055 | $ | 55,584 | $ | 184,042 | $ | 170,109 | ||||||
| Basic earnings per share | $ | .35 | $ | .33 | $ | 1.08 | $ | 1.00 | ||||||
| Diluted earnings per share | $ | .34 | $ | .32 | $ | 1.07 | $ | .99 | ||||||
See accompanying notes.
-4-
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Nine Months Ended February 28, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 184,042 | $ | 170,109 | ||||
| Adjustments to reconcile net income to net cash provided | ||||||||
| by operating activities: | ||||||||
| Depreciation | 87,700 | 75,146 | ||||||
| Amortization of deferred charges | 21,294 | 14,210 | ||||||
| Deferred income taxes | 5,355 | 9,160 | ||||||
| Change in current assets and liabilities, net of | ||||||||
| acquisitions of businesses: | ||||||||
| Accounts receivable | 10,735 | 9,214 | ||||||
| Inventories | (36,169 | ) | 20,936 | |||||
| Uniforms and other rental items in service | (21,388 | ) | (12,942 | ) | ||||
| Prepaid expenses | 2,120 | (1,233 | ) | |||||
| Accounts payable | (10,556 | ) | (6,676 | ) | ||||
| Accrued compensation and related liabilities | (2,521 | ) | (2,662 | ) | ||||
| Accrued liabilities | (17,186 | ) | (9,133 | ) | ||||
| Income taxes payable | 28,502 | 14,662 | ||||||
| Net cash provided by operating activities | 251,928 | 280,791 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (80,447 | ) | (84,977 | ) | ||||
| Proceeds from sale or redemption of marketable securities | 14,038 | 47,486 | ||||||
| Purchase of marketable securities | (4,604 | ) | (163,866 | ) | ||||
| Acquisitions of businesses, net of cash acquired | (24,535 | ) | (30,349 | ) | ||||
| Other | (12,732 | ) | 580 | |||||
| Net cash used in investing activities | (108,280 | ) | (231,126 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of long-term debt | (150,092 | ) | (37,263 | ) | ||||
| Issuance of common stock | 3,987 | 2,442 | ||||||
| Other | 4,004 | (2,311 | ) | |||||
| Net cash used in financing activities | (142,101 | ) | (37,132 | ) | ||||
| Net increase in cash and cash equivalents | 1,547 | 12,533 | ||||||
| Cash and cash equivalents at beginning of period | 40,628 | 73,724 | ||||||
| Cash and cash equivalents at end of period | $ | 42,175 | $ | 86,257 | ||||
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. Effective December 1, 2002, Cintas adopted Financial Interpretation No. 45 and it did not have a material effect on the financial statements.
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 regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Cintas continues to apply Accounting Principles Board Opinion No. 25 for the method used to account for stock-based employee compensation arrangements, where applicable, but has adopted the disclosure requirements of SFAS 148 beginning with its third quarter ending February 28, 2003.
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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 February 28, |
Nine Months Ended February 28, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | ||||||
| Numerator: | |||||||||
| Net income | $ 59,055 | $ 55,584 | $184,042 | $170,109 | |||||
| Denominator: | |||||||||
| Denominator for basic earnings per | |||||||||
| share-weighted avg. shares | 170,322 | 169,786 | 170,177 | 169,675 | |||||
| Effect of dilutive securities- employee | |||||||||
| stock options | 1,641 | 2,507 | 1,961 | 2,444 | |||||
| Denominator for diluted earnings per | |||||||||
| share-adjusted weighted avg. shares and | |||||||||
| assumed conversions | |||||||||
| 171,963 | 172,293 | 172,138 | 172,119 | ||||||
| Basic earnings per share | $ .35 | $ .33 | $ 1.08 | $ 1.00 | |||||
| Diluted earnings per share | $ .34 | $ .32 | $ 1.07 | $ .99 | |||||
4. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended February 28, 2003, by operating segment, are as follows:
“Acquired Intangible Assets”
| Rentals |
Other Services |
Total | |||||
|---|---|---|---|---|---|---|---|
| Balance as of June 1, 2002 | $645,445 | $33,153 | $678,598 | ||||
| Goodwill acquired during the period | 21,924 | 7,923 | 29,847 | ||||
| Balance as of February 28, 2003 | $667,369 | $41,076 | $708,445 | ||||
-7-
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Information regarding Cintas’ other assets follows:
| As of February 28, 2003 | |||||||
|---|---|---|---|---|---|---|---|
| Carrying Amount |
Accumulated Amortization |
Net | |||||
| Service contracts | $228,569 | $82,137 | $146,432 | ||||
| Noncompete and consulting agreements | 55,376 | 38,655 | 16,721 | ||||
| Other | 43,120 | 1,267 | 41,853 | ||||
| Total other assets | $ 98,496 | $39,922 | $ 58,574 | ||||
| As of May 31, 2002 | |||||||
|---|---|---|---|---|---|---|---|
| Carrying Amount |
Accumulated 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 $21,294 and $14,210 for the nine months ended February 28, 2003 and 2002, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $27,638, $24,995, $22,872, $20,247 and $19,037, 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 74%, or $50 million, of outstanding floating rate debt was designated as the hedged items covered by interest-rate swap agreements at February 28, 2003. The change in fair value of these cash flow hedges during the third quarter of FY 2003 resulted in a credit of $366 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 $2.9 million favorable change in the fair value of this hedge for the third 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 on May 13, 2002, 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.
As of the end of the third quarter, the integration of the acquired Omni facilities into existing Cintas locations is substantially complete. Payments to date for severance-related costs were approximately $4 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. Stock-Based Compensation
During the third quarter of fiscal 2003, Cintas adopted the disclosure requirements of FASB Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, but will continue to apply Accounting Principles Board Opinion No. 25 as the method used to account for stock-based employee compensation arrangements. The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.
| Three Months Ended February 28, |
Nine Months Ended February 28, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| Net income, as reported | $ | 59,055 | $ | 55,584 | $ | 184,042 | $ | 170,109 | ||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | 1,315 | 1,135 | 4,099 | 3,475 | ||||||||||
| Pro forma net income | $ | 57,740 | $ | 54,449 | $ | 179,943 | $ | 166,634 | ||||||
| Earnings per share: | ||||||||||||||
| Basic--as reported | $ | .35 | $ | .33 | $ | 1.08 | $ | 1.00 | ||||||
| Basic--pro forma | $ | .34 | $ | .32 | $ | 1.06 | $ | .98 | ||||||
| Diluted--as reported | $ | .34 | $ | .32 | $ | 1.07 | $ | .99 | ||||||
| Diluted--pro forma | $ | .34 | $ | .32 | $ | 1.05 | $ | .97 | ||||||
-10-
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except
per share data)
8. 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 nine month periods ended February 28, 2003 and 2002 are as follows:
| Three Months Ended February 28, |
Nine Months Ended February 28, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| Net income | $ | 59,055 | $ | 55,584 | $ | 184,042 | $ | 170,109 | ||||||
| Other comprehensive income: | ||||||||||||||
| Foreign currency translation | ||||||||||||||
| adjustment | 5,011 | (865 | ) | 2,840 | (1,906 | ) | ||||||||
| Net unrealized gain (loss) on cash | ||||||||||||||
| flow hedges | 366 | 63 | 356 | (919 | ) | |||||||||
| Comprehensive income | $ | 64,432 | $ | 54,782 | $ | 187,238 | $ | 167,284 | ||||||
9. 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.
-11-
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except
per share data)
| Rentals |
Other Services |
Corporate |
Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the three months ended | ||||||||||||||
| February 28, 2003 | ||||||||||||||
| Revenue | $ | 523,195 | $ | 140,562 | $ | -- | $ | 663,757 | ||||||
| Income before income taxes | $ | 89,048 | $ | 11,176 | $ | (6,609 | ) | $ | 93,615 | |||||
| For the three months ended | ||||||||||||||
| February 28, 2002 | ||||||||||||||
| Revenue | $ | 425,296 | $ | 120,195 | $ | -- | $ | 545,491 | ||||||
| Income before income taxes | $ | 82,997 | $ | 6,080 | $ | (862 | ) | $ | 88,215 | |||||
| As of and for the nine months ended | ||||||||||||||
| February 28, 2003 | ||||||||||||||
| Revenue | $ | 1,573,162 | $ | 437,279 | $ | -- | $ | 2,010,441 | ||||||
| Income before income taxes | $ | 274,327 | $ | 39,055 | $ | (21,294 | ) | $ | 292,088 | |||||
| Total assets | $ | 2,201,786 | $ | 298,228 | $ | 77,199 | $ | 2,577,213 | ||||||
| As of and for the nine months ended | ||||||||||||||
| February 28, 2002 | ||||||||||||||
| Revenue | $ | 1,291,076 | $ | 376,163 | $ | -- | $ | 1,667,239 | ||||||
| Income before income taxes | $ | 253,310 | $ | 20,837 | $ | (4,128 | ) | $ | 270,019 | |||||
| Total assets | $ | 1,378,217 | $ | 281,003 | $ | 239,142 | $ | 1,898,362 | ||||||
10. 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, unconditionally guaranteed, 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:
-12-
CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF FEBRUARY 28, 2003
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | -- | $ | 31,790 | $ | 5,153 | $ | 5,232 | $ | -- | $ | 42,175 | ||||||||
| Marketable securities | -- | 30,911 | -- | 4,113 | -- | 35,024 | ||||||||||||||
| Accounts receivable, net | -- | 206,583 | 75,250 | 3,375 | (11,836 | ) | 273,372 | |||||||||||||
| Inventories | -- | 218,081 | 15,199 | 6,960 | (10,069 | ) | 230,171 | |||||||||||||
| Uniforms and other rental items in service | -- | 246,234 | 70,796 | 15,360 | (30,062 | ) | 302,328 | |||||||||||||
| Prepaid expenses | -- | 4,658 | 2,556 | 864 | -- | 8,078 | ||||||||||||||
| Total current assets | -- | 738,257 | 168,954 | 35,904 | (51,967 | ) | 891,148 | |||||||||||||
| Property and equipment, at cost, net | -- | 602,190 | 132,939 | 37,485 | -- | 772,614 | ||||||||||||||
| Goodwill | -- | 113,463 | 584,011 | 10,971 | -- | 708,445 | ||||||||||||||
| Service contracts | -- | 30,761 | 105,492 | 10,179 | -- | 146,432 | ||||||||||||||
| Other assets | 1,155,233 | 33,755 | 737,457 | 125,230 | (1,993,101 | ) | 58,574 | |||||||||||||
| $ | 1,155,233 | $ | 1,518,426 | $ | 1,728,853 | $ | 219,769 | $ | (2,045,068 | ) | $ | 2,577,213 | ||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable | $ | (465,247 | ) | $ | 57,397 | $ | 418,781 | $ | 1,068 | $ | 37,913 | $ | 49,912 | |||||||
| Accrued comp and related liabilities | -- | 19,131 | 6,335 | 1,017 | -- | 26,483 | ||||||||||||||
| Accrued liabilities | 46,003 | 169,463 | (57,891 | ) | 3,929 | (45 | ) | 161,459 | ||||||||||||
| Income taxes: | ||||||||||||||||||||
| Current | -- | (26,720 | ) | 67,346 | (304 | ) | (29 | ) | 40,293 | |||||||||||
| Deferred | -- | 1,047 | 55,575 | 1,663 | -- | 58,285 | ||||||||||||||
| Long-term debt due within one year | -- | 15,713 | 594 | 120 | (204 | ) | 16,223 | |||||||||||||
| Total current liabilities | (419,244 | ) | 236,031 | 490,740 | 7,493 | 37,635 | 352,655 | |||||||||||||
| Long-term debt due after one year | -- | 574,483 | (44,834 | ) | 66,914 | (29,826 | ) | 566,737 | ||||||||||||
| Deferred income taxes | -- | 9,246 | 76,386 | 2,401 | -- | 88,033 | ||||||||||||||
| Total shareholders' equity | 1,574,477 | 698,666 | 1,206,561 | 142,961 | (2,052,877 | ) | 1,569,788 | |||||||||||||
| $ | 1,155,233 | $ | 1,518,426 | $ | 1,728,853 | $ | 219,769 | $ | (2,045,068 | ) | $ | 2,577,213 | ||||||||
-13-
CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF MAY 31, 2002
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation 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 comp 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 | ||||||||
-14-
CONDENSED CONSOLIDATED
INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 28, 2003
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | ||||||||||||||||||||
| Rentals | $ | -- | $ | 393,146 | $ | 105,872 | $ | 24,209 | $ | (32 | ) | $ | 523,195 | |||||||
| Other services | -- | 291,372 | 48,673 | 6,479 | (205,962 | ) | 140,562 | |||||||||||||
| Equity in net income of affiliates | 59,055 | -- | -- | -- | (59,055 | ) | -- | |||||||||||||
| 59,055 | 684,518 | 154,545 | 30,688 | (265,049 | ) | 663,757 | ||||||||||||||
| Costs and expenses (income): | ||||||||||||||||||||
| Cost of rentals | -- | 257,643 | 55,154 | 15,655 | (34,514 | ) | 293,938 | |||||||||||||
| Cost of other services | -- | 222,737 | 35,094 | 3,816 | (166,244 | ) | 95,403 | |||||||||||||
| Selling and administrative expenses | -- | 173,432 | (6,858 | ) | 8,170 | (552 | ) | 174,192 | ||||||||||||
| Interest income | -- | (617 | ) | (138 | ) | (70 | ) | -- | (825 | ) | ||||||||||
| Interest expense | -- | 7,307 | (674 | ) | 801 | -- | 7,434 | |||||||||||||
| -- | 660,502 | 82,578 | 28,372 | (201,310 | ) | 570,142 | ||||||||||||||
| Income before income taxes | 59,055 | 24,016 | 71,967 | 2,316 | (63,739 | ) | 93,615 | |||||||||||||
| Income taxes | -- | 5,027 | 28,289 | 1,244 | -- | 34,560 | ||||||||||||||
| Net income | $ | 59,055 | $ | 18,989 | $ | 43,678 | $ | 1,072 | $ | (63,739 | ) | $ | 59,055 | |||||||
-15-
CONDENSED CONSOLIDATED
INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 28, 2002
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | ||||||||||||||||||||
| Rentals | $ | -- | $ | 311,592 | $ | 92,852 | $ | 20,886 | $ | (34 | ) | $ | 425,296 | |||||||
| Other services | -- | 215,259 | 36,857 | 6,580 | (138,501 | ) | 120,195 | |||||||||||||
| Equity in net income of affiliates | 55,584 | -- | -- | -- | (55,584 | ) | -- | |||||||||||||
| 55,584 | 526,851 | 129,709 | 27,466 | (194,119 | ) | 545,491 | ||||||||||||||
| Costs and expenses (income): | ||||||||||||||||||||
| Cost of rentals | -- | 198,495 | 48,746 | 11,510 | (28,124 | ) | 230,627 | |||||||||||||
| Cost of other services | -- | 161,480 | (3,195 | ) | 5,307 | (78,068 | ) | 85,524 | ||||||||||||
| Selling and administrative expenses | -- | 143,459 | (9,027 | ) | 6,373 | (542 | ) | 140,263 | ||||||||||||
| Interest income | -- | (1,360 | ) | (101 | ) | (66 | ) | -- | (1,527 | ) | ||||||||||
| Interest expense | -- | 6,194 | (3,805 | ) | -- | -- | 2,389 | |||||||||||||
| -- | 508,268 | 32,618 | 23,124 | (106,734 | ) | 457,276 | ||||||||||||||
| Income before income taxes | 55,584 | 18,583 | 97,091 | 4,342 | (87,385 | ) | 88,215 | |||||||||||||
| Income taxes | -- | 13,986 | 17,147 | 1,498 | -- | 32,631 | ||||||||||||||
| Net income | $ | 55,584 | $ | 4,597 | $ | 79,944 | $ | 2,844 | $ | (87,385 | ) | $ | 55,584 | |||||||
-16-
CONDENSED CONSOLIDATED
INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 28, 2003
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | ||||||||||||||||||||
| Rentals | $ | -- | $ | 1,187,014 | $ | 316,282 | $ | 69,970 | $ | (104 | ) | $ | 1,573,162 | |||||||
| Other services | -- | 887,331 | 147,203 | 23,871 | (621,126 | ) | 437,279 | |||||||||||||
| Equity in net income of affiliates | 184,042 | -- | -- | -- | (184,042 | ) | -- | |||||||||||||
| 184,042 | 2,074,345 | 463,485 | 93,841 | (805,272 | ) | 2,010,441 | ||||||||||||||
| Costs and expenses (income): | ||||||||||||||||||||
| Cost of rentals | -- | 770,388 | 164,999 | 44,754 | (104,112 | ) | 876,029 | |||||||||||||
| Cost of other services | -- | 670,978 | 107,669 | 14,364 | (498,851 | ) | 294,160 | |||||||||||||
| Selling and administrative expenses | -- | 534,388 | (30,062 | ) | 23,979 | (1,435 | ) | 526,870 | ||||||||||||
| Interest income | -- | (1,788 | ) | (234 | ) | (154 | ) | -- | (2,176 | ) | ||||||||||
| Interest expense | ||||||||||||||||||||
| -- | 22,800 | (1,700 | ) | 2,370 | -- | 23,470 | ||||||||||||||
| -- | 1,996,766 | 240,672 | 85,313 | (604,398 | ) | 1,718,353 | ||||||||||||||
| Income before income taxes | 184,042 | 77,579 | 222,813 | 8,528 | (200,874 | ) | 292,088 | |||||||||||||
| Income taxes | -- | 16,087 | 88,391 | 3,568 | -- | 108,046 | ||||||||||||||
| Net income | $ | 184,042 | $ | 61,492 | $ | 134,422 | $ | 4,960 | $ | (200,874 | ) | $ | 184,042 | |||||||
-17-
CONDENSED CONSOLIDATED
INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 28, 2002
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | ||||||||||||||||||||
| Rentals | $ | -- | $ | 946,391 | $ | 284,651 | $ | 60,171 | $ | (137 | ) | $ | 1,291,076 | |||||||
| Other services | -- | 651,544 | 127,578 | 15,382 | (418,341 | ) | 376,163 | |||||||||||||
| Equity in net income of affiliates | 170,109 | -- | -- | -- | (170,109 | ) | -- | |||||||||||||
| 170,109 | 1,597,935 | 412,229 | 75,553 | (588,587 | ) | 1,667,239 | ||||||||||||||
| Costs and expenses (income): | ||||||||||||||||||||
| Cost of rentals | -- | 594,837 | 154,515 | 34,714 | (80,901 | ) | 703,165 | |||||||||||||
| Cost of other services | -- | 491,090 | 97,003 | 11,312 | (334,848 | ) | 264,557 | |||||||||||||
| Selling and administrative expenses | -- | 436,352 | (26,533 | ) | 17,822 | (2,271 | ) | 425,370 | ||||||||||||
| Interest income | -- | (3,503 | ) | (293 | ) | (272 | ) | -- | (4,068 | ) | ||||||||||
| Interest expense | -- | 18,594 | (10,419 | ) | 21 | -- | 8,196 | |||||||||||||
| -- | 1,537,370 | 214,273 | 63,597 | (418,020 | ) | 1,397,220 | ||||||||||||||
| Income before income taxes | 170,109 | 60,565 | 197,956 | 11,956 | (170,567 | ) | 270,019 | |||||||||||||
| Income taxes | -- | 22,811 | 73,246 | 3,853 | -- | 99,910 | ||||||||||||||
| Net income | $ | 170,109 | $ | 37,754 | $ | 124,710 | $ | 8,103 | $ | (170,567 | ) | $ | 170,109 | |||||||
-18-
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 2003
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities | ||||||||||||||||||||
| Net income | $ | 184,042 | $ | 61,492 | $ | 134,422 | $ | 4,960 | $ | (200,874 | ) | $ | 184,042 | |||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||
| Depreciation | -- | 56,359 | 27,537 | 3,804 | -- | 87,700 | ||||||||||||||
| Amortization of deferred charges | -- | 7,932 | 11,904 | 1,458 | -- | 21,294 | ||||||||||||||
| Deferred income taxes | -- | 1,305 | 3,702 | 348 | -- | 5,355 | ||||||||||||||
| Changes in current assets and liabilities, | ||||||||||||||||||||
| net of acquisitions of businesses: | ||||||||||||||||||||
| Accounts receivable | -- | 19,189 | (4,440 | ) | (2,218 | ) | (1,796 | ) | 10,735 | |||||||||||
| Inventories | -- | (35,205 | ) | (137 | ) | (1,421 | ) | 594 | (36,169 | ) | ||||||||||
| Uniforms and other rental items in service | -- | (35,825 | ) | 459 | (2,259 | ) | 16,237 | (21,388 | ) | |||||||||||
| Prepaid expenses | -- | 2,763 | (554 | ) | (86 | ) | (3 | ) | 2,120 | |||||||||||
| Accounts payable | -- | 116,124 | (112,763 | ) | (13,849 | ) | (68 | ) | (10,556 | ) | ||||||||||
| Accrued compensation and related liabilities | -- | (4,310 | ) | 1,827 | (38 | ) | -- | (2,521 | ) | |||||||||||
| Accrued liabilities | -- | (2,486 | ) | (15,263 | ) | (399 | ) | 962 | (17,186 | ) | ||||||||||
| Income taxes payable | -- | 8,169 | 23,262 | (2,929 | ) | -- | 28,502 | |||||||||||||
| Net cash provided by (used in) operating activities | 184,042 | 195,507 | 69,956 | (12,629 | ) | (184,948 | ) | 251,928 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | -- | (20,575 | ) | (50,978 | ) | (8,894 | ) | -- | (80,447 | ) | ||||||||||
| Proceeds from sale or redemption of marketable securities | -- | 12,042 | 1 | 1,995 | -- | 14,038 | ||||||||||||||
| Purchase of marketable securities | -- | (481 | ) | -- | (4,123 | ) | -- | (4,604 | ) | |||||||||||
| Acquisitions of businesses, net of cash acquired | -- | (8,497 | ) | (10,264 | ) | (5,774 | ) | -- | (24,535 | ) | ||||||||||
| Other | (191,677 | ) | (21,210 | ) | 14,782 | 2,674 | 182,699 | (12,732 | ) | |||||||||||
| Net cash (used in) provided by investing activities | (191,677 | ) | (38,721 | ) | (46,459 | ) | (14,122 | ) | 182,699 | (108,280 | ) | |||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Repayment of long-term debt | -- | (147,792 | ) | (23,355 | ) | 18,806 | 2,249 | (150,092 | ) | |||||||||||
| Stock options exercised | 3,987 | -- | -- | -- | -- | 3,987 | ||||||||||||||
| Other | 3,648 | 356 | -- | -- | -- | 4,004 | ||||||||||||||
| Net cash provided by (used in) financing activities | 7,635 | (147,436 | ) | (23,355 | ) | 18,806 | 2,249 | (142,101 | ) | |||||||||||
| Net increase (decrease) in cash and cash equivalents | -- | 9,350 | 142 | (7,945 | ) | -- | 1,547 | |||||||||||||
| Cash and cash equivalents at beginning of period | -- | 22,440 | 5,011 | 13,177 | -- | 40,628 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | -- | $ | 31,790 | $ | 5,153 | $ | 5,232 | $ | -- | $ | 42,175 | ||||||||
-19-
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 2002
| Cintas Corporation |
Corp. 2 |
Subsidiary Guarantors |
Non-Guarantors |
Eliminations |
Cintas Corporation Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities | ||||||||||||||||||||
| Net income | $ | 170,109 | $ | 37,754 | $ | 124,710 | $ | 8,103 | $ | (170,567 | ) | $ | 170,109 | |||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||
| Depreciation | -- | 49,431 | 22,379 | 3,336 | -- | 75,146 | ||||||||||||||
| Amortization of deferred charges | -- | 8,489 | 4,459 | 1,262 | -- | 14,210 | ||||||||||||||
| Deferred income taxes | -- | (83,632 | ) | 92,144 | 648 | -- | 9,160 | |||||||||||||
| Changes in current assets and liabilities, | ||||||||||||||||||||
| net of acquisitions of businesses: | ||||||||||||||||||||
| Accounts receivable | -- | (14,908 | ) | 16,982 | 5,825 | 1,315 | 9,214 | |||||||||||||
| Inventories | -- | 19,964 | 1,157 | (1,218 | ) | 1,033 | 20,936 | |||||||||||||
| Uniforms and other rental items in service | -- | (11,013 | ) | (117 | ) | (1,236 | ) | (576 | ) | (12,942 | ) | |||||||||
| Prepaid expenses | -- | (764 | ) | (22 | ) | (447 | ) | -- | (1,233 | ) | ||||||||||
| Accounts payable | -- | 126,190 | (135,381 | ) | 3,772 | (1,257 | ) | (6,676 | ) | |||||||||||
| Accrued compensation and related liabilities | -- | (2,619 | ) | (227 | ) | 184 | -- | (2,662 | ) | |||||||||||
| Accrued liabilities | -- | (2,345 | ) | (11,088 | ) | 1,966 | 2,334 | (9,133 | ) | |||||||||||
| Income taxes payable | -- | 5,455 | 6,405 | 2,802 | -- | 14,662 | ||||||||||||||
| Net cash provided by (used in) operating activities | 170,109 | 132,002 | 121,401 | 24,997 | (167,718 | ) | 280,791 | |||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | -- | (52,067 | ) | (28,783 | ) | (4,127 | ) | -- | (84,977 | ) | ||||||||||
| Proceeds from sale or redemption of marketable securities | -- | 45,469 | -- | 2,017 | -- | 47,486 | ||||||||||||||
| Purchase of marketable securities | -- | (159,451 | ) | (1 | ) | (4,414 | ) | -- | (163,866 | ) | ||||||||||
| Acquisitions of businesses, net of cash acquired | -- | (12,192 | ) | (7,494 | ) | (10,663 | ) | -- | (30,349 | ) | ||||||||||
| Other | (170,240 | ) | 90,366 | (87,618 | ) | (1,264 | ) | 169,336 | 580 | |||||||||||
| Net cash (used in) provided by investing activities | (170,240 | ) | (87,875 | ) | (123,896 | ) | (18,451 | ) | 169,336 | (231,126 | ) | |||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Proceeds from issuance of long-term debt | -- | -- | 2,658 | -- | (2,658 | ) | -- | |||||||||||||
| Repayment of long-term debt | -- | (34,146 | ) | (3,289 | ) | (868 | ) | 1,040 | (37,263 | ) | ||||||||||
| Stock options exercised | 2,442 | -- | -- | -- | -- | 2,442 | ||||||||||||||
| Other | (2,311 | ) | -- | -- | -- | -- | (2,311 | ) | ||||||||||||
| Net cash provided by (used in) financing activities | 131 | (34,146 | ) | (631 | ) | (868 | ) | (1,618 | ) | (37,132 | ) | |||||||||
| Net increase (decrease) in cash and cash equivalents | -- | 9,981 | (3,126 | ) | 5,678 | -- | 12,533 | |||||||||||||
| Cash and cash equivalents at beginning of period | -- | 57,629 | 8,792 | 7,303 | -- | 73,724 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | -- | $ | 67,610 | $ | 5,666 | $ | 12,981 | $ | -- | $ | 86,257 | ||||||||
-20-
ITEM 2
CINTAS CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended February 2003 Compared to Three Months Ended February 2002
Total revenue of $664 million for the three months ended February 28, 2003, increased 22% over the three months ended February 28, 2002. Net rental revenue of $523 million for the three months ended February 28, 2003, increased 23% over the three months ended February 28, 2002, 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 $140 million for the three months ended February 28, 2003, increased 17% over the three month period ended February 28, 2002, due to acquisitions made in late fiscal 2002 and the increase in customer sales that were originally delayed after September 11, 2001. The increased revenues experienced in both rental and other services were mitigated by increased lost business and reductions in existing business, attributable to the current sluggish economy and the resulting reduction in the labor force.
Net income of $59 million for the three months ended February 28, 2003, increased 6% over the three months ended February 28, 2002. Diluted earnings per share of $.34 for the three months ended February 28, 2003, increased 6% over the three months ended February 28, 2002.
Net interest expense (interest expense less interest income) was $6 million for the three months ended February 28, 2003, compared to $1 million for the three months ended February 28, 2002. 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 36.9% for the three months ended February 28, 2003, and 37.0% for the three months ended February 28, 2002.
Nine Months Ended February 2003 Compared to Nine Months Ended February 2002
Total revenue of $2,010 million for the nine months ended February 28, 2003, increased 21% over the nine months ended February 28, 2002. Net rental revenue of $1,573 million for the nine months ended February 28, 2003, increased 22% over the nine months ended February 28, 2002, 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 $437 million for the nine months ended February 28, 2003, increased 16% over the nine months ended February 28, 2002, due to acquisitions made in late fiscal 2002 and the increase in customer sales that were originally delayed after September 11, 2001. The increased revenues experienced in both rental and other services were mitigated by increased lost business and reductions in existing business, attributable to the current sluggish economy and the resulting reduction in the labor force.
-21-
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net income of $184 million for the nine months ended February 28, 2003, increased 8% over the nine months ended February 28, 2002. Diluted earnings per share of $1.07, for the nine months ended February 28, 2003, increased 8% over the nine months ended February 28, 2002.
Net interest expense (interest expense less interest income) was $21 million, for the nine months ended February 28, 2003, compared to $4 million, for the nine months ended February 28, 2002. 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 the nine months ended February 28, 2003, and 37.0% for the nine months ended February 28, 2002.
Financial Condition
At February 28, 2003, cash, cash equivalents and marketable securities totaled $77 million. This decrease of $8 million from May 31, 2002, is 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 and funds generated from operations, in conjunction with the strength of our banking relationships, are sufficient to meet our anticipated operational and capital requirements.
Inventory levels of $194 million on May 31, 2002 increased to $230 million February 28, 2003. This additional $36 million of inventory primarily represents additional levels to support customers acquired in the Omni transaction and the conversion of Omni customers to our product line. Additionally, Cintas is now manufacturing more uniform inventory for our cleanroom and flame resistant clothing customers.
Net property and equipment decreased $6 million from May 31, 2002 to February 28, 2003, due to the excess of depreciation over capital expenditures in the third quarter. Capital expenditures have been curtailed given current economic indicators and lower demand for production capacity. At the end of the third quarter of fiscal 2003, Cintas had nine uniform rental facilities in various stages of construction.
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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 February 28, 2003:
| (In thousands) |
Payments Due by Period | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Long-term contractual obligations |
Total |
One year or less |
Two to three years |
Four to five years |
After five years | ||||||||||||
| Long-term debt (1) | $ | 578,967 | $ | 15,798 | $ | 92,157 | $ | 242,297 | $ | 228,715 | |||||||
| Capital lease obligations (2) | 3,993 | 425 | 1,099 | 1,200 | 1,269 | ||||||||||||
| Operating leases (3) | 65,000 | 13,000 | 24,000 | 16,000 | 12,000 | ||||||||||||
| Unconditional purchase obligations | -- | -- | -- | -- | -- | ||||||||||||
| Total contractual cash obligations | $ | 647,960 | $ | 29,223 | $ | 117,256 | $ | 259,497 | $ | 241,984 | |||||||
| (1) | Long-term debt primarily consists of commercial paper and $450,000 in long-term notes. |
| (2) | Capital lease obligations are classified as long-term debt on the balance sheet. |
| (3) | Operating leases are estimated as of February 28, 2003, and consist primarily of building leases and synthetic leases on the two corporate jets. |
| (In thousands) |
Amount of Commitment Expiration Per Period | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other commercial commitments |
Total |
One year or less |
Two to three years |
Four to five years |
After five years | ||||||||||||
| Lines of credit (1) | $ | 300,000 | $ | 150,000 | $ | 150,000 | $ | -- | $ | -- | |||||||
| Standby letters of credit (2) | 34,540 | 34,540 | -- | -- | -- | ||||||||||||
| Guarantees | -- | -- | -- | -- | -- | ||||||||||||
| Standby repurchase obligations | -- | -- | -- | -- | -- | ||||||||||||
| Other commercial commitments | -- | -- | -- | -- | -- | ||||||||||||
| Total commercial commitments | $ | 334,540 | $ | 184,540 | $ | 150,000 | $ | -- | $ | -- | |||||||
| (1) | Back-up facility for the commercial paper program. |
| (2) | Support for 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. 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.
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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.
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CINTAS CORPORATION
Part II. Other Information
| Item 5. | Other Events On January 24, 2003, Cintas declared an annual cash dividend on $.27 per share on outstanding common stock, an 8 percent increase over the dividends paid in the prior year. The dividend was paid on March 14, 2003, to shareholders of record as of February 7, 2003. |
| Item 6. | Exhibits and Reports on Form 8-K |
| (a.) | Exhibit Index |
| Exhibit Number | Description of Exhibit | |
| 10.17 | Resignation Agreement |
| (b.) | No reports were filed on form 8-K during the quarter. |
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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.
| Date: April 11, 2003 |
CINTAS CORPORATION (Registrant) /s/William C. Gale - ------------------------------------------ William C. Gale Vice President and Chief Financial Officer (Chief Accounting Officer) |
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I, Robert J. Kohlhepp, the principal executive officer of Cintas Corporation, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cintas Corporation; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| 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; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| 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 |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| Date: April 11, 2003 | /s/Robert J. Kohlhepp _____________________________ Robert J. Kohlhepp Chief Executive Officer (Principal Executive Officer) |
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I, William C. Gale, the principal financial officer of Cintas Corporation, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cintas Corporation; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| 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; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| 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 |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| Date: April 11, 2003 |
/s/William C. Gale _____________________________ William C. Gale Vice President and Chief Financial Officer (Principal Financial Officer) |
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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 April 11, 2003 |
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In connection with the filing with the Securities and Exchange Commission of the Quarterly 0Report 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 April 11, 2003 |
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