CTAS Cintas Corporation

Cintas Corporation (Nasdaq:CTAS) today reported results for its third quarter ended February 28, 2013. Revenue for the third quarter was $1.08 billion, representing a 6.3% increase compared to last year’s third quarter. Adjusting for one less workday in this year’s third quarter compared to last year’s quarter, revenue grew 7.9% over last year’s third quarter. Organic growth, which adjusts for the impact of acquisitions and the impact of one less workday compared to last year’s third quarter, was 6.9%. Organic growth rates in each of the Company’s four operating segments increased from second quarter levels.

Scott D. Farmer, Chief Executive Officer, stated, “We are pleased to report record quarterly revenue led by very strong Uniform Direct Sales performance. We are also encouraged to see organic growth rates improve in each of our operating segments, reflecting the great execution by our dedicated team of employees, who we call partners.”

The Company’s operating income of $133.0 million and net income of $74.7 million decreased compared to last year’s third quarter by 3.3% and 1.7%, respectively. These decreases were due in part to the effect of one less workday compared to last year’s third quarter. In addition, continuing solid new business sales have resulted in higher material cost amortization and the need for additional route capacity in our route based businesses.

Earnings per diluted share (EPS) for the third quarter were $0.60, a 3.4% increase over the $0.58 EPS in last year’s third quarter. EPS increased despite the decrease in net income as a result of the positive impact of the Company’s share buyback program in fiscal 2012 and 2013.

The Company’s balance sheet and cash flow remain very strong. Cash and marketable securities totaled $245.7 million at February 28, 2013. Cash flow from operations in the first three quarters of fiscal 2013 improved to $368.3 million, a 19.7% increase over the same period of last fiscal year. As of February 28, 2013, the Company’s current ratio was 3.0 to one, and its debt to EBITDA was 1.9 to one.

The effective tax rate for the third quarter of fiscal 2013 and fiscal 2012 was 36.1% and 37.0%, respectively. The effective tax rate can fluctuate from quarter to quarter based on specific discrete items. We expect the effective tax rate for the entire 2013 fiscal year to be approximately 37.0%, which would be slightly higher than last year’s effective tax rate of 36.8%.

Mr. Farmer concluded, “Based on our third quarter results, we are updating our fiscal 2013 guidance with revenue in the range of $4.3 billion to $4.325 billion and EPS to be in the range of $2.50 to $2.54. This guidance assumes no deterioration in the U.S. economy and does not consider any additional share buybacks.”

About Cintas

Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types primarily throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid, safety, fire protection products and services and document management services for over one million businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of the Standard & Poor’s 500 Index.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy and fuel costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the inaccessibility of computer systems data, the initiation or outcome of litigation, investigations or other proceedings, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic or extraordinary events, the amount and timing of repurchases of our common stock, if any, changes in federal and state tax and labor laws, the reactions of competitors in terms of price and service and the finalization of our financial statements for the quarter ended February 28, 2013. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2012 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

      Cintas Corporation Consolidated Condensed Statements of Income (Unaudited) (In thousands except per share data)     Three Months Ended

February 28,2013

 

February 29,2012

  % Chng.   Revenue: Rental uniforms and ancillary products $ 748,887 $ 721,012 3.9 Other services   326,787       291,100   12.3 Total revenue $ 1,075,674 $ 1,012,112 6.3   Costs and expenses: Cost of rental uniforms and ancillary products $ 434,809 $ 409,958 6.1 Cost of other services 198,924 176,251 12.9 Selling and administrative expenses   308,918       288,367   7.1   Operating income $ 133,023 $ 137,536 -3.3   Interest income $ (132 ) $ (373 ) -64.6 Interest expense   16,302       17,219   -5.3   Income before income taxes $ 116,853 $ 120,690 -3.2 Income taxes   42,148       44,655   -5.6 Net income $ 74,705     $ 76,035   -1.7   Per share data: Basic earnings per share $ 0.60     $ 0.58   3.4 Diluted earnings per share $ 0.60     $ 0.58   3.4   Weighted average number of shares outstanding 123,220 129,735 Diluted average number of shares outstanding 123,857 129,945       Nine Months Ended

February 28,2013

 

February 29,2012

% Chng.   Revenue: Rental uniforms and ancillary products $ 2,259,569 $ 2,163,224 4.5 Other services   927,816       885,194   4.8 Total revenue $ 3,187,385 $ 3,048,418 4.6   Costs and expenses: Cost of rental uniforms and ancillary products $ 1,301,859 $ 1,223,611 6.4 Cost of other services 565,674 530,067 6.7 Selling and administrative expenses   908,512       895,945   1.4   Operating income $ 411,340 $ 398,795 3.1   Interest income $ (358 ) $ (1,141 ) -68.6 Interest expense   49,194       52,281   -5.9   Income before income taxes $ 362,504 $ 347,655 4.3 Income taxes   133,039       128,632   3.4 Net income $ 229,465     $ 219,023   4.8   Per share data: Basic earnings per share $ 1.84     $ 1.67   10.2 Diluted earnings per share $ 1.83     $ 1.67   9.6   Weighted average number of shares outstanding 124,483 130,261 Diluted average number of shares outstanding 124,901 130,321       CINTAS CORPORATION SUPPLEMENTAL DATA   Three Months Ended

February 28,2013

 

February 29,2012

Rental uniforms and ancillary products gross margin 41.9 % 43.1 % Other services gross margin 39.1 % 39.5 % Total gross margin 41.1 % 42.1 % Net margin 6.9 % 7.5 %   Depreciation and amortization $ 47,832 $ 48,060 Capital expenditures $ 52,737 $ 37,884     Nine Months Ended

February 28,2013

 

February 29,2012

Rental uniforms and ancillary products gross margin 42.4 % 43.4 % Other services gross margin 39.0 % 40.1 % Total gross margin 41.4 % 42.5 % Net margin 7.2 % 7.2 %   Depreciation and amortization $ 141,126 $ 145,086 Capital expenditures $ 151,799 $ 117,716   Debt / EBITDA 1.9 1.9   Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure   The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional measures of revenue growth, debt and cash flow. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP is shown below.            

Computation of Workday Adjusted Revenue Growth

  Three Months Ended     Nine Months Ended

February 28,2013

 

February 29,2012

  Growth %    

February 28,2013

 

February 29,2012

  Growth %   A B G I J O Revenue $ 1,075,674 $ 1,012,112 6.3 % $ 3,187,385 $ 3,048,418 4.6 % G=(A-B)/B O=(I-J)/J C D K L

Workdays in the period

64 65 195 196   E F H M N P Revenue adjusted for workday difference $ 1,092,481 $ 1,012,112 7.9 % $ 3,203,731 $ 3,048,418 5.1 % H=(E-F)/F P=(M-N)/N E=(A/C)*D F=(B/D)*D M=(I/K)*L N=(J/L)*L Management believes that Workday Adjusted Revenue Growth is valuable to investors because it reflects the revenue performance compared to a prior period with the same number of revenue generating days.   Computation of Debt to EBITDA         As of

February 28,2013

  Long-term debt $ 1,309,330 Letters of credit   85,687 Debt $ 1,395,017  

Rolling TwelveMonths EndedFebruary 28,2013

 

Three MonthsEnded February 28,2013

 

Three MonthsEndedNovember 30,2012

 

Three MonthsEndedAugust 31,2012

 

Three MonthsEndedMay 31,2012

  Net Income $ 308,079 $ 74,705 $ 78,027 $ 76,733 $ 78,614   Add back: Interest expense 67,538 16,302 16,294 16,598 18,344 Taxes 177,714 42,148 44,851 46,040 44,675 Depreciation 163,507 41,921 40,979 40,342 40,265 Amortization   26,698     5,911     5,873     6,100     8,814 EBITDA $ 743,536 $ 180,987 $ 186,024 $ 185,813 $ 190,712   Debt / EBITDA   1.9     As of

February 29,2012

  Long-term debt $ 1,284,909 Letters of credit   85,718 Debt $ 1,370,627  

Rolling TwelveMonths EndedFebruary 29,2012

 

Three MonthsEnded February 29,2012

 

Three MonthsEndedNovember 30,2011

 

Three MonthsEndedAugust 31,2011

 

Three MonthsEndedMay 31,2011

  Net Income $ 289,799 $ 76,035 $ 74,350 $ 68,638 $ 70,776   Add back: Interest expense 65,030 17,219 17,728 17,334 12,749 Taxes 174,762 44,655 41,010 42,967 46,130 Depreciation 154,326 38,644 38,645 38,277 38,760 Amortization   39,935     9,416     9,871     10,233     10,415 EBITDA $ 723,852 $ 185,969 $ 181,604 $ 177,449 $ 178,830   Debt / EBITDA   1.9   Management believes the ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA) is valuable to investors, particularly investors of the company's debt, because it is a common metric that reflects the company's earnings and cash flow available for debt service payments.   Computation of Free Cash Flow           Nine Months Ended

February 28,2013

 

February 29,2012

  Net Cash Provided by Operations $ 368,343 $ 307,714   Capital Expenditures $ (151,799 )   $ (117,716 )   Free Cash Flow $ 216,544 $ 189,998 Management uses free cash flow to assess the financial performance of the Company. Management believes that free cash flow is useful to investors because it relates the operating cash flow of the Company to the capital that is spent to continue, improve and grow business operations.             SUPPLEMENTAL SEGMENT DATA

RentalUniforms andAncillaryProducts

 

Uniform DirectSales

 

First Aid, Safetyand FireProtection

 

DocumentManagement

  Corporate   Total For the three months ended February 28, 2013 Revenue $ 748,887 $ 126,129 $ 112,878 $ 87,780 $ - $ 1,075,674 Gross margin $ 314,078 $ 36,829 $ 49,651 $ 41,383 $ - $ 441,941 Selling and administrative expenses $ 211,531 $ 20,779 $ 39,121 $ 37,487 $ - $ 308,918 Interest income $ - $ - $ - $ - $ (132 ) $ (132 ) Interest expense $ - $ - $ - $ - $ 16,302 $ 16,302 Income (loss) before income taxes $ 102,547 $ 16,050 $ 10,530 $ 3,896 $ (16,170 ) $ 116,853   For the three months ended February 29, 2012 Revenue $ 721,012 $ 109,114 $ 101,378 $ 80,608 $ - $ 1,012,112 Gross margin $ 311,054 $ 33,226 $ 43,759 $ 37,864 $ - $ 425,903 Selling and administrative expenses $ 198,583 $ 18,745 $ 36,035 $ 35,004 $ - $ 288,367 Interest income $ - $ - $ - $ - $ (373 ) $ (373 ) Interest expense $ - $ - $ - $ - $ 17,219 $ 17,219 Income (loss) before income taxes $ 112,471 $ 14,481 $ 7,724 $ 2,860 $ (16,846 ) $ 120,690   For the nine months ended February 28, 2013 Revenue $ 2,259,569 $ 336,611 $ 335,232 $ 255,973 $ - $ 3,187,385 Gross margin $ 957,710 $ 96,513 $ 144,721 $ 120,908 $ - $ 1,319,852 Selling and administrative expenses $ 622,205 $ 61,318 $ 115,516 $ 109,473 $ - $ 908,512 Interest income $ - $ - $ - $ - $ (358 ) $ (358 ) Interest expense $ - $ - $ - $ - $ 49,194 $ 49,194 Income (loss) before income taxes $ 335,505 $ 35,195 $ 29,205 $ 11,435 $ (48,836 ) $ 362,504 Assets $ 2,809,886 $ 167,835 $ 392,820 $ 605,072 $ 245,686 $ 4,221,299   For the nine months ended February 29, 2012 Revenue $ 2,163,224 $ 322,762 $ 306,808 $ 255,624 $ - $ 3,048,418 Gross margin $ 939,613 $ 95,461 $ 132,346 $ 127,320 $ - $ 1,294,740 Selling and administrative expenses $ 623,247 $ 59,331 $ 107,277 $ 106,090 $ - $ 895,945 Interest income $ - $ - $ - $ - $ (1,141 ) $ (1,141 ) Interest expense $ - $ - $ - $ - $ 52,281 $ 52,281 Income (loss) before income taxes $ 316,366 $ 36,130 $ 25,069 $ 21,230 $ (51,140 ) $ 347,655 Assets $ 2,813,700 $ 153,181 $ 369,288 $ 564,383 $ 352,614 $ 4,253,166     Cintas Corporation Consolidated Balance Sheets (In thousands except share data)          

ASSETS

February 28,2013

May 31,2012

(Unaudited) Current assets: Cash & cash equivalents $ 217,470 $ 339,825 Marketable securities 28,216 - Accounts receivable, net 495,124 450,861 Inventories, net 246,957 251,205 Uniforms and other rental items in service 481,576 452,785 Income taxes, current 15,331 22,188 Prepaid expenses and other   24,778     24,704   Total current assets 1,509,452 1,541,568   Property and equipment, at cost, net 976,844 944,305   Goodwill 1,519,987 1,485,375 Service contracts, net 93,573 76,822 Other assets, net   121,443     112,836     $ 4,221,299   $ 4,160,906    

LIABILITIES AND SHAREHOLDERS' EQUITY

  Current liabilities: Accounts payable $ 109,064 $ 94,840 Accrued compensation and related liabilities 90,533 91,214 Accrued liabilities 238,462 256,642 Deferred tax liability 62,019 2,559 Long-term debt due within one year   674     225,636   Total current liabilities 500,752 670,891   Long-term liabilities: Long-term debt due after one year 1,308,656 1,059,166 Deferred income taxes 209,455 204,581 Accrued liabilities   72,190     87,133   Total long-term liabilities 1,590,301 1,350,880   Shareholders' equity: Preferred stock, no par value: - - 100,000 shares authorized, none outstanding Common stock, no par value: 178,290 148,255 425,000,000 shares authorized FY13: 174,570,683 issued and 122,723,896 outstanding FY12: 173,745,913 issued and 126,519,758 outstanding Paid-in capital 103,666 107,019 Retained earnings 3,631,793 3,482,073 Treasury stock: (1,821,951 ) (1,634,875 ) FY13: 51,846,787 shares FY12: 47,226,155 shares Other accumulated comprehensive income (loss): Foreign currency translation 52,918 52,399 Unrealized loss on derivatives (14,827 ) (16,104 ) Other   357     368   Total shareholders' equity 2,130,246 2,139,135   $ 4,221,299   $ 4,160,906         Cintas Corporation Consolidated Condensed Statements of Cash Flows (Unaudited) (In thousands)     Nine Months Ended

Cash flows from operating activities:

February 28,2013

February 29,2012

  Net income $ 229,465 $ 219,023   Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 123,242 115,566 Amortization of intangible assets 17,884 29,520 Stock-based compensation 16,660 15,023 Deferred income taxes 63,799 (995 )

Change in current assets and liabilities, net of acquisitions of businesses:

Accounts receivable, net (41,402 ) (11,760 ) Inventories, net 4,437 (26,958 ) Uniforms and other rental items in service (28,803 ) (40,435 ) Prepaid expenses and other 9 (5,977 ) Accounts payable 13,475 6,372 Accrued compensation and related liabilities (680 ) 3,251 Accrued liabilities (35,682 ) 9,327 Income taxes payable   5,939     (4,243 )   Net cash provided by operating activities 368,343 307,714  

Cash flows from investing activities:

  Capital expenditures (151,799 ) (117,716 ) Proceeds from redemption of marketable securities 97,651 519,955 Purchase of marketable securities and investments (135,398 ) (576,404 ) Acquisitions of businesses, net of cash acquired (64,625 ) (20,882 ) Other, net   (662 )   1,853     Net cash used in investing activities (254,833 ) (193,194 )  

Cash flows from financing activities:

  Proceeds from issuance of debt 250,000 - Repayment of debt (225,472 ) (1,216 ) Proceeds from exercise of stock-based compensation awards 7,156 356 Dividends paid (79,744 ) (70,820 ) Repurchase of common stock (187,076 ) (262,682 ) Other, net   (1,385 )   1,390     Net cash used in financing activities (236,521 ) (332,972 )   Effect of exchange rate changes on cash and cash equivalents 656 (1,671 )   Net decrease in cash and cash equivalents (122,355 ) (220,123 )   Cash and cash equivalents at beginning of period   339,825     438,106     Cash and cash equivalents at end of period $ 217,470   $ 217,983