Table of Contents
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
( X ) QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly
period ended
February 28, 2010
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
|
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
|
Identification
No.)
|
6800 CINTAS BOULEVARD
P.O. BOX
625737
CINCINNATI,
OHIO 45262-5737
(Address of
principal executive offices)
(Zip Code)
(513) 459-1200
(Registrants
telephone number, including area code)
Indicate by
checkmark 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
Ö
No ___
Indicate by a
checkmark whether the Registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the Registrant was required to submit
and post such files). Yes ___ No ___
Indicate by
checkmark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated
Filer
Ö
Accelerated
Filer ___ Smaller Reporting Company ___
Non-Accelerated
Filer ___ (Do not check if a smaller reporting
company)
Indicate by checkmark
whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ___ No
Ö
Indicate the number
of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Class
|
|
Outstanding
March 31, 2009
|
Common
Stock, no par value
|
|
152,869,848
|
Table of
Contents
CINTAS CORPORATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In
thousands except per share data)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
February 28,
|
|
February 28,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Rental
uniforms and ancillary products
|
|
$622,458
|
|
$674,701
|
|
$1,921,693
|
|
$2,107,528
|
|
Other
services
|
|
239,354
|
|
233,938
|
|
716,197
|
|
788,474
|
|
|
|
861,812
|
|
908,639
|
|
2,637,890
|
|
2,896,002
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
Cost
of rental uniforms and ancillary products
|
|
356,750
|
|
379,466
|
|
1,083,407
|
|
1,188,370
|
|
Cost
of other services
|
|
145,455
|
|
152,736
|
|
442,234
|
|
491,112
|
|
Selling
and administrative expenses
|
|
275,596
|
|
257,129
|
|
799,429
|
|
829,032
|
|
Legal
settlements, net of insurance proceeds
|
|
---
|
|
---
|
|
23,529
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
84,011
|
|
119,308
|
|
289,291
|
|
387,488
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
(422)
|
|
(540)
|
|
(1,095)
|
|
(2,435)
|
|
Interest
expense
|
|
11,575
|
|
12,407
|
|
36,192
|
|
38,206
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
72,858
|
|
107,441
|
|
254,194
|
|
351,717
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
23,876
|
|
35,630
|
|
94,052
|
|
129,432
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ 48,982
|
|
$ 71,811
|
|
$ 160,142
|
|
$ 222,285
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ 0.32
|
|
$ 0.47
|
|
$ 1.04
|
|
$ 1.45
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ 0.32
|
|
$ 0.47
|
|
$ 1.04
|
|
$ 1.45
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
|
|
|
|
$ 0.48
|
|
$ 0.47
|
|
See
accompanying notes.
3
Table of
Contents
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In
thousands except share data)
|
|
February 28,
2010
|
|
May 31,
2009
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ 406,503
|
|
|
$ 129,745
|
|
Marketable
securities
|
|
145,593
|
|
|
120,393
|
|
Accounts
receivable, net
|
|
356,453
|
|
|
357,678
|
|
Inventories,
net
|
|
167,814
|
|
|
202,351
|
|
Uniforms
and other rental items in service
|
|
321,964
|
|
|
335,447
|
|
Income
taxes, current
|
|
16,088
|
|
|
25,512
|
|
Deferred
income tax asset
|
|
68,165
|
|
|
66,368
|
|
Prepaid
expenses
|
|
17,421
|
|
|
17,035
|
|
Assets
held for sale
|
|
15,744
|
|
|
15,744
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
1,515,745
|
|
|
1,270,273
|
|
|
|
|
|
|
|
|
Property
and equipment, at cost, net
|
|
894,578
|
|
|
914,627
|
|
|
|
|
|
|
|
|
Goodwill
|
|
1,352,096
|
|
|
1,331,388
|
|
Service
contracts, net
|
|
109,402
|
|
|
124,330
|
|
Other
assets, net
|
|
88,088
|
|
|
80,333
|
|
|
|
$3,959,909
|
|
|
$3,720,951
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$ 80,406
|
|
|
$ 69,965
|
|
Accrued
compensation and related liabilities
|
|
55,702
|
|
|
48,414
|
|
Accrued
liabilities
|
|
302,543
|
|
|
198,488
|
|
Long-term
debt due within one year
|
|
598
|
|
|
598
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
439,249
|
|
|
317,465
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
Long-term
debt due after one year
|
|
785,595
|
|
|
786,058
|
|
Deferred
income taxes
|
|
162,989
|
|
|
149,032
|
|
Accrued
liabilities
|
|
96,888
|
|
|
100,987
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
1,045,472
|
|
|
1,036,077
|
|
|
|
|
|
|
|
|
Shareholders
equity:
|
|
|
|
|
|
|
Preferred
stock, no par value:
|
|
|
|
|
|
|
100,000
shares authorized, none outstanding
|
|
----
|
|
|
----
|
|
Common
stock, no par value:
|
|
|
|
|
|
|
425,000,000
shares authorized,
|
|
|
|
|
|
|
FY
2010: 173,207,493 issued and 152,869,848 outstanding
|
|
|
|
|
|
|
FY
2009: 173,085,926 issued and 152,790,170 outstanding
|
|
132,058
|
|
|
129,215
|
|
Paid-in
capital
|
|
80,978
|
|
|
72,364
|
|
Retained
earnings
|
|
3,024,601
|
|
|
2,938,419
|
|
Treasury
stock:
|
|
|
|
|
|
|
FY
2010: 20,337,645 shares
|
|
|
|
|
|
|
FY
2009: 20,295,756 shares
|
|
(798,848)
|
|
|
(797,888)
|
|
Other
accumulated comprehensive income
|
|
36,399
|
|
|
25,299
|
|
Total
shareholders equity
|
|
2,475,188
|
|
|
2,367,409
|
|
|
|
$3,959,909
|
|
|
$3,720,951
|
|
See
accompanying notes.
4
Table of
Contents
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In
thousands)
|
|
Nine
Months Ended
|
|
|
February 28,
2010
|
|
February 28,
2009
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$160,142
|
|
|
$222,285
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
113,834
|
|
|
118,119
|
|
Amortization
of deferred charges
|
|
30,606
|
|
|
32,023
|
|
Stock-based
compensation
|
|
11,323
|
|
|
8,904
|
|
Deferred
income taxes
|
|
11,945
|
|
|
9,052
|
|
Change
in current assets and liabilities, net of acquisitions of businesses:
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
10,785
|
|
|
42,118
|
|
Inventories,
net
|
|
31,900
|
|
|
(16,427)
|
|
Uniforms
and other rental items in service
|
|
14,223
|
|
|
12,998
|
|
Prepaid
expenses
|
|
(240)
|
|
|
(5,802)
|
|
Accounts
payable
|
|
15,167
|
|
|
(22,247)
|
|
Accrued
compensation and related liabilities
|
|
8,414
|
|
|
(3,250)
|
|
Accrued
liabilities and other
|
|
11,507
|
|
|
(45,734)
|
|
Income
taxes payable
|
|
9,583
|
|
|
(12,320)
|
|
Net
cash provided by operating activities
|
|
429,189
|
|
|
339,719
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(78,928)
|
|
|
(132,783)
|
|
Proceeds
from redemption of marketable securities
|
|
34,011
|
|
|
92,061
|
|
Purchase
of marketable securities and investments
|
|
(69,819)
|
|
|
(94,985)
|
|
Acquisitions
of businesses, net of cash acquired
|
|
(41,375)
|
|
|
(29,381)
|
|
Other,
net
|
|
3,804
|
|
|
(428)
|
|
Net
cash used in investing activities
|
|
(152,307)
|
|
|
(165,516)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of debt
|
|
---
|
|
|
7,500
|
|
Repayment
of debt
|
|
(464)
|
|
|
(164,510)
|
|
Exercise
of stock-based compensation awards
|
|
2,843
|
|
|
---
|
|
Repurchase
of common stock
|
|
(960)
|
|
|
(25,847)
|
|
Other,
net
|
|
(3,237)
|
|
|
736
|
|
Net
cash used in financing activities
|
|
(1,818)
|
|
|
(182,121)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
1,694
|
|
|
(4,055)
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
276,758
|
|
|
(11,973)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
129,745
|
|
|
66,224
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$406,503
|
|
|
$ 54,251
|
|
See
accompanying notes.
5
Table of Contents
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
1.
Basis of
Presentation
The consolidated
condensed financial statements of Cintas Corporation (Cintas) included herein
have been prepared by Cintas, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP) 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 consolidated financial statements and notes included in
our Form 10-K for the fiscal year ended May 31, 2009. A summary of our significant accounting
policies is presented beginning on page 38 of that 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 consolidated
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 consolidated
results of the interim periods shown have been made.
2.
New Accounting
Pronouncements
The Financial
Accounting Standards Board (FASB) issued FASB Accounting Standards Codification
(ASC) effective for financial statements issued for interim and annual periods
ending after September 30, 2009.
The ASC is an aggregation of previously issued authoritative GAAP in one
comprehensive set of guidance organized by subject area. In accordance with the ASC, references to
previously issued accounting standards have been removed. Subsequent revisions to GAAP will be incorporated
into the ASC through Accounting Standards Updates (ASU). The following is a list of recent
pronouncements issued by the FASB impacting Cintas.
Effective June 1,
2009, Cintas adopted fair value measurements guidance for all nonfinancial
assets and nonfinancial liabilities recognized or disclosed at fair value on a
nonrecurring basis. The guidance defines
fair value, establishes guidance for measuring fair value and expands
disclosures regarding fair value measurements.
The adoption did not have a material impact on our consolidated
financial statements. See Note 4
entitled Fair Value Measurements for additional information.
Effective June 1,
2009, Cintas adopted new guidance on business combinations, in which an entity
is required to recognize assets acquired, liabilities assumed, contractual
contingencies and contingent consideration at fair value on the acquisition
date. It further requires that acquisition-related costs are recognized
separately from the acquisition and expensed as incurred, restructuring costs
generally are expensed in periods subsequent to the acquisition date, and
changes in accounting for deferred tax asset valuation allowances and acquired
income tax uncertainties after the measurement period impact income tax expense.
This adoption did not have a material
impact on Cintas results of operations or financial condition. Any future effects will depend upon the terms
and size of future acquisitions.
Effective June 1,
2009, Cintas adopted new guidance for determining whether instruments granted
in share-based payment transactions are participating securities. This guidance provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method of determining earnings per share. The adoption did not have a material impact
on basic or diluted earnings per share.
Cintas adoption is more fully described in Note 5 entitled Earnings per
Share.
6
Table of
Contents
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
Effective June 1,
2009, Cintas adopted new guidance on subsequent events. The objective of
this guidance is to establish general standards of accounting for and
disclosure of events that occur after the consolidated balance sheet date but
before the consolidated financial statements are issued or are available to be
issued. This adoption did not have a material impact on Cintas results of
operations or financial condition.
3.
Restructuring and
Related Activity
Due to declining
economic conditions during fiscal 2009 which negatively impacted the U.S. and
Canadian economies and Cintas businesses, during the fourth quarter of fiscal
2009, management initiated certain restructuring activities to eliminate excess
capacity and reduce our cost structure.
These activities include closing or converting to branches 16 of our
rental processing plants and reducing our workforce by approximately 1,200
employees. We expect these restructuring
activities to be completed by May 31, 2010.
A progression of
our restructuring liability balance, primarily recorded in accrued compensation
and related liabilities, at February 28, 2010, is as follows:
|
|
Employee
Termination
Costs
|
|
Other Exit
Costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance
as of June 1, 2009
|
|
$
|
5,915
|
|
$
|
2,272
|
|
$
|
8,187
|
|
Cash
paid fiscal 2010
|
|
(3,706
|
)
|
(12
|
)
|
(3,718
|
)
|
Change
in estimate
|
|
(853
|
)
|
---
|
|
(853
|
)
|
Balance
as of February 28, 2010
|
|
$
|
1,356
|
|
$
|
2,260
|
|
$
|
3,616
|
|
Cash paid during
the three months ended February 28, 2010, was $1,554. The change in estimate represents the
difference between severance amounts accrued and severance amounts actually
paid.
4.
Fair Value
Measurements
FASB
ASC defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between market participants at the measurement date. It also establishes a three-level fair value
hierarchy that prioritizes the inputs used to measure fair value. This
hierarchy requires entities to maximize the use of observable inputs and
minimize the use of unobservable inputs. The three levels of inputs used to
measure fair value are as follows:
Level 1
|
Quoted
prices in active markets for identical assets or liabilities.
|
|
|
Level 2
|
Observable
inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices
for identical or similar assets and liabilities in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data.
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable
inputs.
|
7
Table of
Contents
CINTAS CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
All
financial assets that are measured at fair value on a recurring basis (at least
annually) have been segregated into the most appropriate level within the fair
value hierarchy based on the inputs used to determine the fair value at the
measurement date. These assets measured
at fair value on a recurring basis are summarized below:
|
|
As of
February 28, 2010
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$406,503
|
|
$
----
|
|
$ ----
|
|
$406,503
|
|
Marketable
securities
|
|
115,184
|
|
30,409
|
|
----
|
|
145,593
|
|
Other
assets, net
|
|
31,863
|
|
----
|
|
----
|
|
31,863
|
|
Total
assets at fair value
|
|
$553,550
|
|
$30,409
|
|
$ ----
|
|
$583,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
accrued liabilities
|
|
$ ----
|
|
$ 196
|
|
$ ----
|
|
$ 196
|
|
Total
liabilities at fair value
|
|
$ ----
|
|
$ 196
|
|
$ ----
|
|
$ 196
|
|
|
|
As of
May 31, 2009
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$129,745
|
|
$
----
|
|
$ ----
|
|
$129,745
|
|
Marketable
securities
|
|
120,393
|
|
----
|
|
----
|
|
120,393
|
|
Accounts
receivable, net
|
|
----
|
|
78
|
|
----
|
|
78
|
|
Other
assets, net
|
|
17,105
|
|
----
|
|
----
|
|
17,105
|
|
Total
assets at fair value
|
|
$267,243
|
|
$
78
|
|
$ ----
|
|
$267,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
accrued liabilities
|
|
$ ----
|
|
$
253
|
|
$ ----
|
|
$ 253
|
|
Total
liabilities at fair value
|
|
$ ----
|
|
$
253
|
|
$ ----
|
|
$ 253
|
|
As
of February 28, 2010, all marketable securities are concentrated in the
U.S. and Canada and consist primarily of Canadian treasury securities and U.S.
municipal bonds. The funds invested in
Canadian marketable securities are not expected to be repatriated, but instead
are expected to be invested indefinitely in foreign subsidiaries. The amortized cost basis of the marketable
securities as of February 28, 2010 and May 31, 2009, is $145,556 and
$120,403, respectively. All contractual
maturities of the marketable securities held at February 28, 2010, are
within one year.
Other
assets, net, include certain retirement assets.
Current accrued liabilities include average rate options.
8
Table of
Contents
CINTAS CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
except per share data)
5.
Earnings per Share
As described in
Note 2 entitled New Accounting Pronouncements, Cintas adopted new guidance for
determining whether instruments granted in share-based payment transactions are
participating securities on June 1, 2009, using the retrospective
method. The retrospective application
had no impact on the basic and diluted earnings per share for the three months
or nine months ended February 28, 2009.
The following table sets forth the computation of basic and diluted
earnings per share using the two-class method for amounts attributable to
Cintas common shares.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
February 28,
|
|
February 28,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
48,982
|
|
$
|
71,811
|
|
$
|
160,142
|
|
$
|
222,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
dividends to:
|
|
|
|
|
|
|
|
|
Common
shares
|
|
$
|
73,377
|
|
$
|
71,811
|
|
$
|
73,377
|
|
$
|
71,811
|
Unvested
shares
|
|
536
|
|
420
|
|
536
|
|
420
|
Total
dividends
|
|
$
|
73,913
|
|
$
|
72,231
|
|
$
|
73,913
|
|
$
|
72,231
|
|
|
|
|
|
|
|
|
|
Undistributed
net income
|
|
$
|
(24,931)
|
|
$
|
(420)
|
|
$
|
86,229
|
|
$
|
150,054
|
|
|
|
|
|
|
|
|
|
Less:
net income allocated to
|
|
|
|
|
|
|
|
|
participating
unvested securities
|
|
(94)
|
|
----
|
|
347
|
|
327
|
|
|
|
|
|
|
|
|
|
Net
income available to common
|
|
|
|
|
|
|
|
|
shareholders
|
|
$
|
(24,837)
|
|
$
|
(420)
|
|
$
|
85,882
|
|
$
|
149,727
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
152,869
|
|
152,993
|
|
152,854
|
|
152,790
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
Common
shares - distributed earnings
|
|
$
|
0.48
|
|
$
|
0.47
|
|
$
|
0.48
|
|
$
|
0.47
|
Common
shares - undistributed earnings
|
|
(0.16)
|
|
0.00
|
|
0.56
|
|
0.98
|
Total
common shares
|
|
$
|
0.32
|
|
$
|
0.47
|
|
$
|
1.04
|
|
$
|
1.45
|
|
|
|
|
|
|
|
|
|
Unvested
shares - distributed earnings
|
|
$
|
0.48
|
|
$
|
0.47
|
|
$
|
0.48
|
|
$
|
0.47
|
Unvested
shares - undistributed earnings
|
|
(0.16)
|
|
0.00
|
|
0.56
|
|
0.98
|
Total
unvested shares
|
|
$
|
0.32
|
|
$
|
0.47
|
|
$
|
1.04
|
|
$
|
1.45
|
9
Table of
Contents
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
February 28,
|
|
February 28,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
Net income
|
|
$ 48,982
|
|
$ 71,811
|
|
$160,142
|
|
$222,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less dividends to:
|
|
|
|
|
|
|
|
|
Common
shares
|
|
$ 73,377
|
|
$ 71,811
|
|
$ 73,377
|
|
$ 71,811
|
Unvested
shares
|
|
536
|
|
420
|
|
536
|
|
420
|
Total dividends
|
|
$ 73,913
|
|
$ 72,231
|
|
$ 73,913
|
|
$ 72,231
|
|
|
|
|
|
|
|
|
|
Undistributed net income
|
|
$(24,931)
|
|
$ (420)
|
|
$ 86,229
|
|
$150,054
|
|
|
|
|
|
|
|
|
|
Less: net income allocated to
|
|
|
|
|
|
|
|
|
participating
unvested securities
|
|
(94)
|
|
----
|
|
347
|
|
327
|
|
|
|
|
|
|
|
|
|
Net income available to common
|
|
|
|
|
|
|
|
|
shareholders
|
|
$(24,837)
|
|
$ (420)
|
|
$ 85,882
|
|
$149,727
|
|
|
|
|
|
|
|
|
|
Basic weighted average common
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
152,869
|
|
152,993
|
|
152,854
|
|
152,790
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities employee
|
|
|
|
|
|
|
|
|
stock
options
|
|
----
|
|
----
|
|
----
|
|
----
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common
shares
|
|
|
|
|
|
|
|
|
outstanding
|
|
152,869
|
|
152,993
|
|
152,854
|
|
152,790
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Common shares distributed
earnings
|
|
$ 0.48
|
|
$ 0.47
|
|
$ 0.48
|
|
$ 0.47
|
Common shares undistributed
earnings
|
|
(0.16)
|
|
0.00
|
|
0.56
|
|
0.98
|
Total
common shares
|
|
$ 0.32
|
|
$ 0.47
|
|
$ 1.04
|
|
$ 1.45
|
|
|
|
|
|
|
|
|
|
Unvested shares - distributed
earnings
|
|
$ 0.48
|
|
$ 0.47
|
|
$ 0.48
|
|
$ 0.47
|
Unvested shares - undistributed
earnings
|
|
(0.16)
|
|
0.00
|
|
0.56
|
|
0.98
|
Total
unvested shares
|
|
$ 0.32
|
|
$ 0.47
|
|
$ 1.04
|
|
$ 1.45
|
For the three
months ended February 28, 2010 and 2009, 4,671 and 7,646 options granted
to purchase shares of Cintas common stock, respectively, were excluded from the
computation of diluted earnings per share.
For the nine months ended February 28, 2010 and 2009, 4,316 and
5,843 options granted to purchase shares of Cintas common stock, respectively,
were excluded from the computation of diluted earnings per share. The exercise prices of these options were
greater than the average market price of the common shares (anti-dilutive).
10
Table of
Contents
CINTAS CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
6.
Goodwill, Service
Contracts and Other Assets
Changes in the
carrying amount of goodwill and service contracts for the nine months ended February 28,
2010, by operating segment, are as follows:
|
|
Rental
|
|
|
|
First Aid,
|
|
|
|
|
|
|
|
Uniforms &
|
|
Uniform
|
|
Safety
&
|
|
|
|
|
|
|
|
Ancillary
|
|
Direct
|
|
Fire
|
|
Document
|
|
|
|
|
|
Products
|
|
Sales
|
|
Protection
|
|
Management
|
|
Total
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 1, 2009
|
|
$
|
861,879
|
|
$
|
23,891
|
|
$
|
166,872
|
|
$
|
278,746
|
|
$
|
1,331,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
acquired, net
|
|
(1,239)
|
|
----
|
|
9,614
|
|
11,822
|
|
20,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
552
|
|
30
|
|
----
|
|
(71)
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of February 28, 2010
|
|
$
|
861,192
|
|
$
|
23,921
|
|
$
|
176,486
|
|
$
|
290,497
|
|
$
|
1,352,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
|
|
First Aid,
|
|
|
|
|
|
|
|
Uniforms &
|
|
Uniform
|
|
Safety
&
|
|
|
|
|
|
|
|
Ancillary
|
|
Direct
|
|
Fire
|
|
Document
|
|
|
|
|
|
Products
|
|
Sales
|
|
Protection
|
|
Management
|
|
Total
|
|
Service Contracts
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 1, 2009
|
|
$
|
65,897
|
|
$
|
----
|
|
$
|
36,042
|
|
$
|
22,391
|
|
$
|
124,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
contracts acquired
|
|
----
|
|
----
|
|
4,657
|
|
3,713
|
|
8,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
contracts amortization
|
|
(13,695)
|
|
----
|
|
(4,681)
|
|
(5,699)
|
|
(24,075)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
774
|
|
----
|
|
----
|
|
3
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of February 28, 2010
|
|
$
|
52,976
|
|
$
|
----
|
|
$
|
36,018
|
|
$
|
20,408
|
|
$
|
109,402
|
|
11
Table of
Contents
CINTAS CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
Information regarding Cintas
service contracts and other assets are as follows:
|
|
As of
February 28, 2010
|
|
|
Carrying
|
|
Accumulated
|
|
|
|
|
Amount
|
|
Amortization
|
|
Net
|
|
|
|
|
|
|
|
Service
contracts
|
|
$
|
344,633
|
|
$
|
235,231
|
|
$
|
109,402
|
|
|
|
|
|
|
|
|
|
|
Noncompete
and consulting agreements
|
|
$
|
65,961
|
|
$
|
50,864
|
|
$
|
15,097
|
Investments
|
|
66,456
|
|
----
|
|
66,456
|
Other
|
|
10,583
|
|
4,048
|
|
6,535
|
|
|
|
|
|
|
|
Total
|
|
$
|
143,000
|
|
$
|
54,912
|
|
$
|
88,088
|
|
|
|
|
|
As of May
31, 2009
|
|
|
Carrying
|
|
Accumulated
|
|
|
|
|
Amount
|
|
Amortization
|
|
Net
|
|
|
|
|
|
|
|
Service
contracts
|
|
$
|
335,473
|
|
$
|
211,143
|
|
$
|
124,330
|
|
|
|
|
|
|
|
|
|
|
Noncompete
and consulting agreements
|
|
$
|
65,683
|
|
$
|
44,320
|
|
$
|
21,363
|
Investments
|
|
51,762
|
|
----
|
|
51,762
|
Other
|
|
10,675
|
|
3,467
|
|
7,208
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,120
|
|
$
|
47,787
|
|
$
|
80,333
|
Amortization
expense was $30,606 and $32,023 for the nine months ended February 28,
2010 and February 28, 2009, respectively.
Estimated amortization expense, excluding any future acquisitions, for
each of the next five years is $40,161, $36,473, $30,237, $14,633 and $11,977,
respectively.
Investments
recorded using the cost or equity method are evaluated for impairment when
indicators of impairment are identified.
For the nine months ended February 28, 2010, no impairment losses
were recorded.
12
Table of Contents
CINTAS
CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
7.
Debt,
Derivatives and Hedging Activities
Cintas has certain covenants related to debt agreements.
These covenants limit Cintas ability to incur certain liens, to engage in
sale-leaseback transactions and to merge, consolidate or sell all or
substantially all of Cintas assets. These covenants also require Cintas to
maintain certain debt to capitalization and interest coverage ratios. Cross
default provisions exist between certain debt agreements. If a default of a significant covenant were
to occur, the default could result in an acceleration of the maturity of the
indebtedness, impair liquidity and limit the ability to raise future
capital. Cintas is in compliance with
all significant debt covenants for all periods presented.
Cintas at times may use hedges to hedge its exposure to such
things as movements in interest rates or movements in foreign currency
rates. 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.
The impacts from the effective portion of derivative instruments are reported
as a component of other comprehensive income and reclassified into earnings in
the same period or periods during which the hedged transactions affect
earnings. The impacts of any ineffective
portion of the hedges are charged to earnings in the current period. When outstanding, the effectiveness of
derivative instruments is reviewed at least every fiscal quarter.
To hedge the exposure of variability in short-term interest
rates, Cintas would use cash flow hedges. These agreements effectively convert
a portion of the floating rate long-term debt to a fixed rate basis, thus
reducing the impact of short-term interest rate changes on future interest
expense. Examples of cash flow hedging
instruments that Cintas may use are interest rate swaps, interest rate lock
agreements and forward starting interest rate swaps. No such instruments were outstanding as of February 28,
2010.
Cintas used interest rate lock agreements to hedge against
movements in the treasury rates at the time Cintas issued its senior notes in
fiscal 2002, fiscal 2007 and fiscal 2008. The amortization of the interest rate
lock agreements resulted in an increase to other comprehensive income of $192
for both the three months ended February 28, 2010 and February 28,
2009, and $575 for both the nine months ended February 28, 2010 and February 28,
2009, respectively.
To hedge the exposure of movements in the foreign currency rates,
Cintas uses foreign currency hedges.
These hedges would reduce the impact on cash flows from movements in the
foreign currency exchange rates.
Examples of foreign currency hedge instruments that Cintas may use are
average rate options and forward contracts.
At February 28, 2010, Cintas had accrued $196 for the
liabilities related to its average rate options which is included in
current accrued liabilities. These instruments increased foreign currency
exchange costs by $151 and $283 during the three months and nine months ended February 28,
2010, respectively.
8.
Income Taxes
In the normal course of business, Cintas provides for
uncertain tax positions and the related interest and adjusts its unrecognized
tax benefits and accrued interest accordingly. During the nine months
ended February 28, 2010, unrecognized tax benefits decreased by
approximately $5,310 and accrued interest decreased by approximately $1,681.
All U.S. federal
income tax returns are closed to audit through fiscal 2006. Cintas is
currently in advanced stages of audits with the U.S. Federal government and
certain domestic states and in certain foreign jurisdictions. The years under
audit cover fiscal years back to 2000. Based on the resolution of the
various audits, it is reasonably possible that the balance of unrecognized tax
benefits could decrease by $715 for the fiscal year ending May 31, 2010.
13
Table of Contents
CINTAS
CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
9.
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 components
of total comprehensive income are the change in cumulative foreign currency
translation adjustments, the change in the fair value of derivatives, the
amortization of interest rate lock agreements and the change in the fair value
of available-for-sale securities. The
components of comprehensive income for the three and nine month periods ended February 28,
2010 and February 28, 2009, are as follows:
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
February 28,
|
|
February 28,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$48,982
|
|
$71,811
|
|
$160,142
|
|
$222,285
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
(94)
|
|
(6,367)
|
|
10,432
|
|
(68,042)
|
Change
in fair value of derivatives*
|
|
87
|
|
(117)
|
|
64
|
|
97
|
Amortization
of interest rate lock agreements
|
|
192
|
|
192
|
|
575
|
|
575
|
Change
in fair value of available-for-sale securities**
|
|
11
|
|
(73)
|
|
29
|
|
83
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$49,178
|
|
$65,446
|
|
$171,242
|
|
$ 154,998
|
* Net of $52
and $(69) of tax expense (benefit) for the three months ended February 28,
2010 and February 28, 2009, respectively.
Net of $38 and $57 of tax expense for the nine months ended February 28,
2010 and February 28, 2009, respectively.
** Net of $7 and $63 of tax expense for the three
months ended February 28, 2010 and February 28, 2009,
respectively. Net of $18 and $33 of tax
expense for the nine months ended February 28, 2010 and February 28,
2009, respectively.
10.
Litigation and
Other Contingencies
Cintas is subject
to legal proceedings, insurance receipts, legal settlements and claims arising
from the ordinary course of its business, including personal injury, customer
contract, environmental and employment claims. In the opinion of
management, the aggregate liability, if any, with respect to such ordinary
course of business actions will not have a material adverse effect on the
financial position or results of operation of Cintas. Cintas is party to
additional litigation not considered in the ordinary course of business,
including the litigation discussed below.
Cintas is a
defendant in a purported class action lawsuit,
Mirna
E. Serrano, et al. v. Cintas Corporation (Serrano)
, filed on May 10,
2004, and pending in the United States District Court, Eastern District of
Michigan, Southern Division. The
Serrano
plaintiffs alleged that Cintas discriminated against women in hiring into
various service sales representative positions across all divisions of
Cintas. On November 15, 2005, the Equal Employment Opportunity
Commission (EEOC) intervened in the
Serrano
lawsuit. The
Serrano
plaintiffs seek injunctive relief, compensatory damages, punitive damages,
attorneys fees and other remedies. On October 27, 2008, the United
States District Court in the Eastern District of Michigan
14
Table of Contents
CINTAS
CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
granted summary
judgment in favor of Cintas limiting the scope of the putative class in the
Serrano
lawsuit to female applicants for
service sales representative positions at Cintas locations within the state of
Michigan. Consequently, all claims brought by female applicants for
service sales representative positions outside of the state of Michigan were
dismissed. Similarly, any claims brought by the EEOC on behalf of
similarly situated female applicants outside of the state of Michigan have also
been dismissed from the
Serrano
lawsuit. Cintas is a defendant in another purported class action lawsuit,
Blanca Nelly Avalos, et al. v. Cintas
Corporation (Avalos)
, currently pending in the United States
District Court, Eastern District of Michigan, Southern Division. The
Avalos
plaintiffs alleged that Cintas
discriminated against women, African-Americans and Hispanics in hiring into
various service sales representative positions in Cintas Rental division only
throughout the United States. The
Avalos
plaintiffs sought injunctive relief, compensatory damages, punitive damages,
attorneys fees and other remedies. The claims in
Avalos
originally were brought in the
lawsuit captioned
Robert Ramirez, et al. v.
Cintas Corporation (Ramirez)
, filed on January 20, 2004, in the
United States District Court, Northern District of California, San Francisco
Division. On May 11, 2006, the
Ramirez
and
Avalos
African-American,
Hispanic and female failure to hire into service sales representative positions
claims and the EEOCs intervention were consolidated for pretrial purposes with
the
Serrano
case and transferred
to the United States District Court for the Eastern District of Michigan,
Southern Division. The consolidated case was known as
Mirna E. Serrano/Blanca Nelly Avalos, et al. v.
Cintas Corporation (Serrano/Avalos)
. On March 31, 2009,
the United States District Court, Eastern District of Michigan, Southern
Division entered an order denying class certification to all plaintiffs in the
Serrano/Avalos
lawsuits. In the
Serrano
case, the individual claims of Stephanie McVay and
Linda Allen have been dismissed with prejudice, and the individual claim of
Mirna Serrano and the EEOCs claims on behalf of various individual claimants
remain pending. In the
Avalos
case, the individual gender claims of Tanesha Davis remain pending. On December 17,
2009, Davis voluntarily dismissed her claims for race discrimination with prejudice.
The Court has made no determination regarding the merits of Davis gender
claims.
The litigation
discussed above, if decided or settled adversely to Cintas, may, individually
or in the aggregate, result in liability material to Cintas consolidated
financial condition or results of operation and could increase costs of
operations on an ongoing basis. Any estimated liability relating to these
proceedings is not determinable at this time. Cintas may enter into
discussions regarding settlement of these and other lawsuits, and may enter
into settlement agreements if it believes such settlement is in the best
interest of Cintas shareholders.
Cintas is a
defendant in a purported class action lawsuit,
Paul
Veliz, et al. v. Cintas Corporation (Veliz)
, filed on March 19,
2003, in the United States District Court, Northern District of California,
Oakland Division, alleging that Cintas violated certain federal and state wage
and hour laws applicable to its service sales representatives, whom Cintas
considers exempt employees, and asserting additional related ERISA
claims. On April 5, 2004 and February 14, 2006, the Court
stayed the claims of all plaintiffs with valid arbitration agreements pending
arbitration of those claims. Claims made in the
Veliz
action, therefore, are pending
before the United States District Court, Northern District of California and
Judge Bruce Meyerson (Ret.), an Arbitrator selected by the parties. On August 5,
2009, the parties in the
Veliz
action reached a settlement in principle. When the settlement is fully
documented and approved by the Court, the settlement will resolve all claims
now pending or that could have been brought relating to the subject matter of
the case before the Court and the Arbitrator. Cintas expects that the approval
process will take several months. The principal terms of the settlement
provide for an aggregate cash payment of approximately $23,950 which is accrued
in current accrued liabilities at February 28, 2010. The pre-tax
impact, net of insurance proceeds, was $19,477.
During the second
quarter of fiscal 2010, Cintas had legal settlements that totaled $4,052, net
of insurance proceeds. None of these
settlements were significant individually.
These settlements included litigation related to multiple subjects
including employment practices and insurance coverage.
15
Table of Contents
CINTAS
CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
11.
Segment Information
Cintas classifies
its businesses into four operating segments.
The Rental Uniforms and Ancillary Products operating segment reflects
the rental and servicing of uniforms and other garments and facility products
and services including mats, mops, shop towels and other ancillary items. In addition to these rental items, other
facility products and services such as restroom and hygiene products and
services are also provided within this operating segment. The Uniform Direct Sales operating segment
consists of the direct sale of uniforms and related items and branded
promotional products. The First Aid,
Safety and Fire Protection Services operating segment consists of first aid,
safety and fire protection products and services. The Document Management Services operating
segment consists of document destruction, document imaging and document
retention services.
Cintas evaluates the performance of
each operating segment based on several factors of which the primary financial
measures are operating segment revenue and income before income taxes. The accounting policies of the operating
segments are the same as those described in Note 1 entitled Basis of Presentation. Information related to the operations of
Cintas operating segments is set forth below.
|
|
|
Rental
|
|
|
|
First Aid,
|
|
|
|
|
|
|
|
|
|
|
Uniforms &
|
|
Uniform
|
|
Safety
&
|
|
|
|
|
|
|
|
|
|
|
Ancillary
|
|
Direct
|
|
Fire
|
|
Document
|
|
|
|
|
|
|
|
|
Products
|
|
Sales
|
|
Protection
|
|
Management
|
|
Corporate
|
|
Total
|
|
For
the three months
ended February 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$ 622,458
|
|
$ 94,428
|
|
$ 79,210
|
|
$ 65,716
|
|
$ ----
|
|
$ 861,812
|
|
Income
(loss) before income taxes
|
|
|
$ 64,319
|
|
$ 8,208
|
|
$ 2,062
|
|
$ 9,422
|
|
$(11,153)
|
|
$ 72,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months
ended February 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$ 674,701
|
|
$ 97,010
|
|
$ 86,037
|
|
$ 50,891
|
|
$ ----
|
|
$ 908,639
|
|
Income
(loss) before income taxes
|
|
|
$ 110,447
|
|
$ 803
|
|
$ 4,141
|
|
$ 3,917
|
|
$(11,867)
|
|
$ 107,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the nine months ended February 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$1,921,693
|
|
$283,163
|
|
$250,768
|
|
$182,266
|
|
$ ----
|
|
$2,637,890
|
|
Income
(loss) before income taxes
|
|
|
$ 258,653
|
|
$ 26,772
|
|
$ 10,867
|
|
$ 16,528
|
|
$(58,626)
|
|
$ 254,194
|
|
Total
assets
|
|
|
$2,427,309
|
|
$158,229
|
|
$326,497
|
|
$495,778
|
|
$552,096
|
|
$3,959,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the nine months ended February 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$2,107,528
|
|
$334,528
|
|
$295,059
|
|
$158,887
|
|
$ ----
|
|
$2,896,002
|
|
Income
(loss) before income taxes
|
|
|
$ 325,876
|
|
$ 22,043
|
|
$ 23,159
|
|
$ 16,410
|
|
$(35,771)
|
|
$ 351,717
|
|
Total
assets
|
|
|
$2,595,144
|
|
$165,976
|
|
$338,509
|
|
$467,911
|
|
$151,904
|
|
$3,719,444
|
|
16
Table of Contents
CINTAS
CORPORATION
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands except per share data)
12.
Supplemental
Guarantor Information
Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $775,000 of long-term notes, which are unconditionally guaranteed, jointly and severally, by Cintas and its wholly-owned, direct and indirect domestic subsidiaries.
As permitted 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 consolidated financial statements. The condensed consolidating financial statements should be read in conjunction with the consolidated 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 on the following pages.
17
Table of
Contents
CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS
ENDED FEBRUARY 28, 2010
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
Non-
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
uniforms and ancillary products
|
$
|
----
|
$
|
474,757
|
$
|
124,523
|
$
|
45,472
|
$
|
(22,294)
|
$
|
622,458
|
|
Other
services
|
|
----
|
|
288,303
|
|
89,416
|
|
17,179
|
|
(155,544)
|
|
239,354
|
|
Equity
in net income of affiliates
|
|
48,982
|
|
----
|
|
----
|
|
----
|
|
(48,982)
|
|
----
|
|
|
|
48,982
|
|
763,060
|
|
213,939
|
|
62,651
|
|
(226,820)
|
|
861,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of rental uniforms and ancillary products
|
|
----
|
|
299,516
|
|
78,344
|
|
28,399
|
|
(49,509)
|
|
356,750
|
|
Cost
of other services
|
|
----
|
|
188,941
|
|
73,467
|
|
10,943
|
|
(127,896)
|
|
145,455
|
|
Selling
and administrative expenses
|
|
----
|
|
159,910
|
|
98,029
|
|
18,339
|
|
(682)
|
|
275,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
48,982
|
|
114,693
|
|
(35,901)
|
|
4,970
|
|
(48,733)
|
|
84,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
----
|
|
(80)
|
|
(275)
|
|
(67)
|
|
----
|
|
(422)
|
|
Interest
expense (income)
|
|
----
|
|
12,578
|
|
(1,005)
|
|
2
|
|
----
|
|
11,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
48,982
|
|
102,195
|
|
(34,621)
|
|
5,035
|
|
(48,733)
|
|
72,858
|
|
Income
taxes
|
|
----
|
|
46,690
|
|
(24,988)
|
|
2,191
|
|
(17)
|
|
23,876
|
|
Net
income
|
$
|
48,982
|
$
|
55,505
|
$
|
(9,633)
|
$
|
2,844
|
$
|
(48,716)
|
$
|
48,982
|
|
18
Table of Contents
CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS
ENDED FEBRUARY 28, 2009
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
Non-
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
uniforms and ancillary products
|
$
|
----
|
$
|
514,482
|
$
|
140,567
|
$
|
41,818
|
$
|
(22,166)
|
$
|
674,701
|
|
Other
services
|
|
----
|
|
294,282
|
|
89,869
|
|
12,013
|
|
(162,226)
|
|
233,938
|
|
Equity
in net income of affiliates
|
|
71,811
|
|
----
|
|
----
|
|
----
|
|
(71,811)
|
|
----
|
|
|
|
71,811
|
|
808,764
|
|
230,436
|
|
53,831
|
|
(256,203)
|
|
908,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of rental uniforms and ancillary products
|
|
----
|
|
304,321
|
|
86,358
|
|
25,195
|
|
(36,408)
|
|
379,466
|
|
Cost
of other services
|
|
----
|
|
217,163
|
|
79,876
|
|
7,398
|
|
(151,701)
|
|
152,736
|
|
Selling
and administrative expenses
|
|
----
|
|
244,568
|
|
(389)
|
|
13,443
|
|
(493)
|
|
257,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
71,811
|
|
42,712
|
|
64,591
|
|
7,795
|
|
(67,601)
|
|
119,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
----
|
|
----
|
|
(220)
|
|
(320)
|
|
----
|
|
(540)
|
|
Interest
expense (income)
|
|
----
|
|
12,820
|
|
(425)
|
|
12
|
|
----
|
|
12,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
71,811
|
|
29,892
|
|
65,236
|
|
8,103
|
|
(67,601)
|
|
107,441
|
|
Income
taxes
|
|
----
|
|
8,358
|
|
24,509
|
|
2,763
|
|
----
|
|
35,630
|
|
Net
income
|
$
|
71,811
|
$
|
21,534
|
$
|
40,727
|
$
|
5,340
|
$
|
(67,601)
|
$
|
71,811
|
|
19
Table of
Contents
CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS
ENDED FEBRUARY 28, 2010
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
Non-
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
uniforms and ancillary products
|
$
|
----
|
$
|
1,473,440
|
$
|
389,227
|
$
|
133,925
|
$
|
(74,899)
|
$
|
1,921,693
|
|
Other
services
|
|
----
|
|
887,147
|
|
244,239
|
|
47,559
|
|
(462,748)
|
|
716,197
|
|
Equity
in net income of affiliates
|
|
160,142
|
|
----
|
|
----
|
|
----
|
|
(160,142)
|
|
----
|
|
|
|
160,142
|
|
2,360,587
|
|
633,466
|
|
181,484
|
|
(697,789)
|
|
2,637,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of rental uniforms and ancillary products
|
|
----
|
|
925,918
|
|
238,015
|
|
81,722
|
|
(162,248)
|
|
1,083,407
|
|
Cost
of other services
|
|
----
|
|
584,829
|
|
206,990
|
|
30,061
|
|
(379,646)
|
|
442,234
|
|
Selling
and administrative expenses
|
|
----
|
|
757,038
|
|
(6,733)
|
|
48,681
|
|
443
|
|
799,429
|
|
Legal
settlements, net of insurance proceeds
|
|
----
|
|
----
|
|
23,529
|
|
----
|
|
----
|
|
23,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
160,142
|
|
92,802
|
|
171,665
|
|
21,020
|
|
(156,338)
|
|
289,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
----
|
|
(80)
|
|
(806)
|
|
(209)
|
|
----
|
|
(1,095)
|
|
Interest
expense (income)
|
|
----
|
|
38,060
|
|
(1,887)
|
|
19
|
|
----
|
|
36,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
160,142
|
|
54,822
|
|
174,358
|
|
21,210
|
|
(156,338)
|
|
254,194
|
|
Income
taxes
|
|
----
|
|
20,676
|
|
65,759
|
|
7,634
|
|
(17)
|
|
94,052
|
|
Net
income
|
$
|
160,142
|
$
|
34,146
|
$
|
108,599
|
$
|
13,576
|
$
|
(156,321)
|
$
|
160,142
|
|
20
Table of Contents
CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS
ENDED FEBRUARY 28, 2009
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
Non-
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
uniforms and ancillary products
|
$
|
----
|
$
|
1,600,762
|
$
|
438,888
|
$
|
135,745
|
$
|
(67,867)
|
$
|
2,107,528
|
|
Other
services
|
|
----
|
|
1,004,930
|
|
327,512
|
|
44,165
|
|
(588,133)
|
|
788,474
|
|
Equity
in net income of affiliates
|
|
222,285
|
|
----
|
|
----
|
|
----
|
|
(222,285)
|
|
----
|
|
|
|
222,285
|
|
2,605,692
|
|
766,400
|
|
179,910
|
|
(878,285)
|
|
2,896,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of rental uniforms and ancillary products
|
|
----
|
|
960,159
|
|
266,138
|
|
82,068
|
|
(119,995)
|
|
1,188,370
|
|
Cost
of other services
|
|
----
|
|
720,896
|
|
288,509
|
|
27,372
|
|
(545,665)
|
|
491,112
|
|
Selling
and administrative expenses
|
|
----
|
|
782,461
|
|
3,734
|
|
44,147
|
|
(1,310)
|
|
829,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
222,285
|
|
142,176
|
|
208,019
|
|
26,323
|
|
(211,315)
|
|
387,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
----
|
|
----
|
|
(661)
|
|
(1,774)
|
|
----
|
|
(2,435)
|
|
Interest
expense (income)
|
|
----
|
|
39,588
|
|
(1,397)
|
|
15
|
|
----
|
|
38,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
222,285
|
|
102,588
|
|
210,077
|
|
28,082
|
|
(211,315)
|
|
351,717
|
|
Income
taxes
|
|
----
|
|
33,734
|
|
86,964
|
|
8,734
|
|
----
|
|
129,432
|
|
Net
income
|
$
|
222,285
|
$
|
68,854
|
$
|
123,113
|
$
|
19,348
|
$
|
(211,315)
|
$
|
222,285
|
|
21
Table of Contents
CONDENSED
CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 28,
2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
Non-
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash
equivalents
|
$
|
----
|
$
|
39,480
|
$
|
344,360
|
|
$
|
22,663
|
$
|
----
|
$
|
406,503
|
|
Marketable
securities
|
|
----
|
|
----
|
|
21,937
|
|
123,656
|
|
----
|
|
145,593
|
|
Accounts
receivable, net
|
|
----
|
|
260,523
|
|
73,356
|
|
22,574
|
|
----
|
|
356,453
|
|
Inventories,
net
|
|
----
|
|
150,697
|
|
10,045
|
|
8,790
|
|
(1,718)
|
|
167,814
|
|
Uniforms
and other
rental items in service
|
|
----
|
|
246,729
|
|
68,519
|
|
24,668
|
|
(17,952)
|
|
321,964
|
|
Income
taxes, current
|
|
----
|
|
(6,654)
|
|
16,249
|
|
6,493
|
|
----
|
|
16,088
|
|
Deferred
income tax
asset (liability)
|
|
----
|
|
----
|
|
69,348
|
|
(1,183)
|
|
----
|
|
68,165
|
|
Prepaid
expenses
|
|
----
|
|
5,718
|
|
10,558
|
|
1,145
|
|
----
|
|
17,421
|
|
Assets
held for sale
|
|
----
|
|
----
|
|
15,744
|
|
----
|
|
----
|
|
15,744
|
|
Total
current assets
|
|
----
|
|
696,493
|
|
630,116
|
|
208,806
|
|
(19,670)
|
|
1,515,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment,
at cost, net
|
|
----
|
|
599,177
|
|
229,345
|
|
66,056
|
|
----
|
|
894,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
----
|
|
----
|
|
1,303,855
|
|
48,241
|
|
----
|
|
1,352,096
|
|
Service
contracts, net
|
|
----
|
|
102,651
|
|
1,063
|
|
5,688
|
|
----
|
|
109,402
|
|
Other
assets, net
|
|
1,973,542
|
|
1,587,108
|
|
811,133
|
|
268,875
|
|
(4,552,570)
|
|
88,088
|
|
|
$
|
1,973,542
|
$
|
2,985,429
|
$
|
2,975,512
|
|
$
|
597,666
|
$
|
(4,572,240)
|
$
|
3,959,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
(receivable)
payable
|
$
|
(465,247)
|
$
|
180,592
|
$
|
337,519
|
|
$
|
(10,481)
|
$
|
38,023
|
$
|
80,406
|
|
Accrued
compensation
and related liabilities
|
|
----
|
|
35,419
|
|
17,932
|
|
2,351
|
|
----
|
|
55,702
|
|
Accrued
liabilities
|
|
----
|
|
33,518
|
|
253,751
|
|
15,274
|
|
----
|
|
302,543
|
|
Long-term
debt due
within one year
|
|
----
|
|
794
|
|
(196)
|
|
----
|
|
----
|
|
598
|
|
Total
current liabilities
|
|
(465,247)
|
|
250,323
|
|
609,006
|
|
7,144
|
|
38,023
|
|
439,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt due
after one year
|
|
----
|
|
795,691
|
|
(10,096)
|
|
----
|
|
----
|
|
785,595
|
|
Deferred
income taxes
|
|
----
|
|
----
|
|
159,008
|
|
3,981
|
|
----
|
|
162,989
|
|
Accrued
liabilities
|
|
----
|
|
----
|
|
96,888
|
|
----
|
|
----
|
|
96,888
|
|
Total
long-term liabilities
|
|
----
|
|
795,691
|
|
245,800
|
|
3,981
|
|
----
|
|
1,045,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders equity
|
|
2,438,789
|
|
1,939,415
|
|
2,120,706
|
|
586,541
|
|
(4,610,263)
|
|
2,475,188
|
|
|
$
|
1,973,542
|
$
|
2,985,429
|
$
|
2,975,512
|
|
$
|
597,666
|
$
|
(4,572,240)
|
$
|
3,959,909
|
|
22
Table of Contents
CONDENSED
CONSOLIDATING BALANCE SHEET
AS OF MAY 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash
equivalents
|
$
|
----
|
$
|
39,397
|
$
|
76,979
|
|
$
|
13,369
|
|
$
|
----
|
$
|
129,745
|
|
Marketable
securities
|
|
----
|
|
----
|
|
----
|
|
120,393
|
|
|
----
|
|
120,393
|
|
Accounts
receivable, net
|
|
----
|
|
275,878
|
|
88,158
|
|
21,944
|
|
|
(28,302)
|
|
357,678
|
|
Inventories,
net
|
|
----
|
|
194,604
|
|
2,505
|
|
8,248
|
|
|
(3,006)
|
|
202,351
|
|
Uniforms
and other
rental items in service
|
|
----
|
|
258,766
|
|
76,167
|
|
20,998
|
|
|
(20,484)
|
|
335,447
|
|
Income
taxes, current
|
|
----
|
|
3,172
|
|
15,865
|
|
6,475
|
|
|
----
|
|
25,512
|
|
Deferred
income tax
asset (liability)
|
|
----
|
|
----
|
|
67,298
|
|
(930)
|
|
|
----
|
|
66,368
|
|
Prepaid
expenses
|
|
----
|
|
6,178
|
|
9,473
|
|
1,384
|
|
|
----
|
|
17,035
|
|
Assets
held for sale
|
|
----
|
|
----
|
|
15,744
|
|
----
|
|
|
----
|
|
15,744
|
|
Total
current assets
|
|
----
|
|
777,995
|
|
352,189
|
|
191,881
|
|
|
(51,792)
|
|
1,270,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment,
at cost, net
|
|
----
|
|
636,348
|
|
227,325
|
|
50,954
|
|
|
----
|
|
914,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
----
|
|
----
|
|
1,293,559
|
|
37,829
|
|
|
----
|
|
1,331,388
|
|
Service
contracts, net
|
|
----
|
|
118,459
|
|
1,658
|
|
4,213
|
|
|
----
|
|
124,330
|
|
Other
assets, net
|
|
1,876,863
|
|
1,598,027
|
|
1,782,517
|
|
336,264
|
|
|
(5,513,338)
|
|
80,333
|
|
|
$
|
1,876,863
|
$
|
3,130,829
|
$
|
3,657,248
|
|
$
|
621,141
|
|
$
|
(5,565,130)
|
$
|
3,720,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
(receivable)
payable
|
$
|
(465,247)
|
$
|
162,162
|
$
|
371,731
|
|
$
|
(20,013)
|
|
$
|
21,332
|
$
|
69,965
|
|
Accrued
compensation
and related liabilities
|
|
----
|
|
32,119
|
|
14,296
|
|
1,999
|
|
|
----
|
|
48,414
|
|
Accrued
liabilities
|
|
----
|
|
43,066
|
|
147,841
|
|
8,439
|
|
|
(858)
|
|
198,488
|
|
Long-term
debt due
within one year
|
|
----
|
|
749
|
|
68
|
|
----
|
|
|
(219)
|
|
598
|
|
Total
current liabilities
|
|
(465,247)
|
|
238,096
|
|
533,936
|
|
(9,575)
|
|
|
20,255
|
|
317,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt due
after one year
|
|
----
|
|
796,351
|
|
241
|
|
24,511
|
|
|
(35,045)
|
|
786,058
|
|
Deferred
income taxes
|
|
----
|
|
----
|
|
145,444
|
|
3,588
|
|
|
----
|
|
149,032
|
|
Accrued
liabilities
|
|
----
|
|
----
|
|
100,987
|
|
----
|
|
|
----
|
|
100,987
|
|
Total
long-term liabilities
|
|
----
|
|
796,351
|
|
246,672
|
|
28,099
|
|
|
(35,045)
|
|
1,036,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders equity
|
|
2,342,110
|
|
2,096,382
|
|
2,876,640
|
|
602,617
|
|
|
(5,550,340)
|
|
2,367,409
|
|
|
$
|
1,876,863
|
$
|
3,130,829
|
$
|
3,657,248
|
|
$
|
621,141
|
|
$
|
(5,565,130)
|
$
|
3,720,951
|
|
23
Table of Contents
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
FEBRUARY 28, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
Non-
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
160,142
|
$
|
34,146
|
$
|
108,599
|
$
|
13,576
|
$
|
(156,321)
|
$
|
160,142
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
----
|
|
72,271
|
|
36,008
|
|
5,555
|
|
----
|
|
113,834
|
|
Amortization
of deferred charges
|
|
----
|
|
28,334
|
|
675
|
|
1,597
|
|
----
|
|
30,606
|
|
Stock-based
compensation
|
|
11,323
|
|
----
|
|
----
|
|
----
|
|
----
|
|
11,323
|
|
Deferred
income taxes
|
|
----
|
|
----
|
|
11,444
|
|
501
|
|
----
|
|
11,945
|
|
Changes in
current assets and liabilities, net of acquisitions of businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
----
|
|
22,375
|
|
15,617
|
|
1,095
|
|
(28,302)
|
|
10,785
|
|
Inventories,
net
|
|
----
|
|
43,463
|
|
(9,991)
|
|
(284)
|
|
(1,288)
|
|
31,900
|
|
Uniforms
and other rental items in service
|
|
----
|
|
12,047
|
|
7,648
|
|
(2,940)
|
|
(2,532)
|
|
14,223
|
|
Prepaid
expenses
|
|
----
|
|
513
|
|
(1,086)
|
|
333
|
|
----
|
|
(240)
|
|
Accounts
payable
|
|
----
|
|
29,435
|
|
(47,745)
|
|
16,786
|
|
16,691
|
|
15,167
|
|
Accrued
compensation and related liabilities
|
|
----
|
|
3,277
|
|
3,618
|
|
1,519
|
|
----
|
|
8,414
|
|
Accrued
liabilities and other
|
|
----
|
|
(15,704)
|
|
27,848
|
|
(1,495)
|
|
858
|
|
11,507
|
|
Income
taxes payable
|
|
----
|
|
9,823
|
|
(384)
|
|
144
|
|
----
|
|
9,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) operating activities
|
|
171,465
|
|
239,980
|
|
152,251
|
|
36,387
|
|
(170,894)
|
|
429,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
----
|
|
(37,215)
|
|
(36,011)
|
|
(5,702)
|
|
----
|
|
(78,928)
|
|
Proceeds
from redemption of marketable securities
|
|
----
|
|
----
|
|
7,986
|
|
26,025
|
|
----
|
|
34,011
|
|
Purchase
of marketable securities and investments
|
|
----
|
|
(1,879)
|
|
218,340
|
|
(25,282)
|
|
(260,998)
|
|
(69,819)
|
|
Acquisitions
of businesses, net of cash acquired
|
|
----
|
|
(18,829)
|
|
----
|
|
(22,546)
|
|
----
|
|
(41,375)
|
|
Other, net
|
|
(170,639)
|
|
(182,120)
|
|
(40,072)
|
|
7
|
|
396,628
|
|
3,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by investing activities
|
|
(170,639)
|
|
(240,043)
|
|
150,243
|
|
(27,498)
|
|
135,630
|
|
(152,307)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of debt
|
|
----
|
|
(615)
|
|
(35,113)
|
|
---
|
|
35,264
|
|
(464)
|
|
Exercise
of stock-based compensation awards
|
|
2,843
|
|
----
|
|
----
|
|
----
|
|
----
|
|
2,843
|
|
Repurchase
of common stock
|
|
(960)
|
|
----
|
|
----
|
|
----
|
|
----
|
|
(960)
|
|
Other, net
|
|
(2,709)
|
|
575
|
|
----
|
|
(1,103)
|
|
----
|
|
(3,237)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by financing activities
|
|
(826)
|
|
(40)
|
|
(35,113)
|
|
(1,103)
|
|
35,264
|
|
(1,818)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
----
|
|
186
|
|
----
|
|
1,508
|
|
----
|
|
1,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
----
|
|
83
|
|
267,381
|
|
9,294
|
|
----
|
|
276,758
|
|
Cash and
cash equivalents at beginning of period
|
|
----
|
|
39,397
|
|
76,979
|
|
13,369
|
|
----
|
|
129,745
|
|
Cash and
cash equivalents at end of period
|
$
|
----
|
$
|
39,480
|
$
|
344,360
|
$
|
22,663
|
$
|
----
|
$
|
406,503
|
|
24
Table of Contents
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
FEBRUARY 28, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cintas
|
|
|
|
Cintas
|
|
|
|
Subsidiary
|
|
Non-
|
|
|
|
Corporation
|
|
|
|
Corporation
|
|
Corp. 2
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
222,285
|
$
|
$68,854
|
$
|
123,113
|
$
|
19,348
|
$
|
(211,315)
|
$
|
222,285
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
----
|
|
74,977
|
|
37,085
|
|
6,057
|
|
----
|
|
118,119
|
|
Amortization
of deferred charges
|
|
----
|
|
29,871
|
|
857
|
|
1,295
|
|
----
|
|
32,023
|
|
Stock-based
compensation
|
|
8,904
|
|
----
|
|
----
|
|
----
|
|
----
|
|
8,904
|
|
Deferred
income taxes
|
|
----
|
|
----
|
|
9,052
|
|
----
|
|
----
|
|
9,052
|
|
Changes in
current assets and liabilities, net of acquisitions of businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
----
|
|
15,402
|
|
25,087
|
|
5,210
|
|
(3,581)
|
|
42,118
|
|
Inventories,
net
|
|
----
|
|
(8,739)
|
|
(94)
|
|
(2,078)
|
|
(5,516)
|
|
(16,427)
|
|
Uniforms
and other rental items in service
|
|
----
|
|
15,520
|
|
3,689
|
|
(704)
|
|
(5,507)
|
|
12,998
|
|
Prepaid
expenses
|
|
----
|
|
(334)
|
|
(5,223)
|
|
(245)
|
|
----
|
|
(5,802)
|
|
Accounts
payable
|
|
----
|
|
14,969
|
|
(19,110)
|
|
(20,619)
|
|
2,513
|
|
(22,247)
|
|
Accrued
compensation and related liabilities
|
|
----
|
|
1,009
|
|
(4,031)
|
|
(228)
|
|
----
|
|
(3,250)
|
|
Accrued
liabilities and other
|
|
----
|
|
(27,179)
|
|
(18,884)
|
|
(591)
|
|
920
|
|
(45,734)
|
|
Income
taxes payable
|
|
----
|
|
8,614
|
|
(17,034)
|
|
(3,900)
|
|
----
|
|
(12,320)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) operating activities
|
|
231,189
|
|
192,964
|
|
134,507
|
|
3,545
|
|
(222,486)
|
|
339,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
----
|
|
(59,740)
|
|
(67,572)
|
|
(5,471)
|
|
----
|
|
(132,783)
|
|
Proceeds
from redemption of marketable securities
|
|
----
|
|
----
|
|
----
|
|
92,061
|
|
----
|
|
92,061
|
|
Purchase
of marketable securities and investments
|
|
----
|
|
1,411
|
|
63,708
|
|
(91,517)
|
|
(68,587)
|
|
(94,985)
|
|
Acquisitions
of businesses, net of cash acquired
|
|
----
|
|
(19,927)
|
|
----
|
|
(9,454)
|
|
----
|
|
(29,381)
|
|
Other, net
|
|
(205,342)
|
|
41,748
|
|
(119,418)
|
|
(25)
|
|
282,609
|
|
(428)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by investing activities
|
|
(205,342)
|
|
(36,508)
|
|
(123,282)
|
|
(14,406)
|
|
214,022
|
|
(165,516)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of debt
|
|
----
|
|
7,500
|
|
----
|
|
----
|
|
----
|
|
7,500
|
|
Repayment
of debt
|
|
----
|
|
(163,557)
|
|
(9,417)
|
|
----
|
|
8,464
|
|
(164,510)
|
|
Repurchase
of common stock
|
|
(25,847)
|
|
---
|
|
----
|
|
----
|
|
----
|
|
(25,847)
|
|
Other, net
|
|
----
|
|
458
|
|
----
|
|
278
|
|
----
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by financing activities
|
|
(25,847)
|
|
(155,599)
|
|
(9,417)
|
|
278
|
|
8,464
|
|
(182,121)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
----
|
|
(539)
|
|
----
|
|
(3,516)
|
|
----
|
|
(4,055)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
----
|
|
318
|
|
1,808
|
|
(14,099)
|
|
----
|
|
(11,973)
|
|
Cash and
cash equivalents at beginning of period
|
|
----
|
|
37,472
|
|
7,851
|
|
20,901
|
|
----
|
|
66,224
|
|
Cash and
cash equivalents at end of period
|
$
|
----
|
$
|
37,790
|
$
|
9,659
|
$
|
6,802
|
$
|
----
|
$
|
54,251
|
|
25
Table of Contents
CINTAS
CORPORATION
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
BUSINESS
STRATEGY
Cintas provides highly specialized
products and services to businesses of all types throughout the United States,
Canada and Europe. We refer to ourselves
as The Service Professionals. We bring
value to our customers by helping them provide a cleaner, safer, more pleasant
atmosphere for their customers and employees.
Our products and services are designed to improve our customers
images. We also help our customers
protect their employees and their company by enhancing workplace safety and
helping to ensure legal compliance in key areas of their business.
We are North America's leading
provider of corporate identity uniforms through rental and sales programs, as
well as a significant provider of related business services, including entrance
mats, restroom products and services, first aid, safety and fire protection
products and services, document management services and branded promotional
products.
Our business strategy is to achieve
revenue growth for all of our products and services by increasing our
penetration at existing customers and by broadening our customer base to
include business segments which Cintas has not historically served. We will also continue to identify additional
product and service opportunities for our current and future customers.
To pursue the strategy of increasing
penetration, we have a highly talented and diverse team of service
professionals visiting our customers on a regular basis. This frequent contact with our customers
enables us to develop close personal relationships. The combination of our distribution system
and these strong customer relationships provides a platform from which we
launch additional products and services.
We pursue the strategy of broadening
our customer base through various avenues.
Cintas has a national sales organization introducing all of our products
and services to prospects in all business segments. Our expanding range of products and services
allows our sales organization to consider any type of business a prospect. We also broaden our customer base through
geographic expansion, especially in our emerging businesses of first aid,
safety and fire protection and document management. Finally, we will evaluate strategic
acquisitions as opportunities arise.
RESULTS OF OPERATIONS
Cintas
classifies its businesses into four operating segments. The Rental Uniforms and Ancillary Products
operating segment reflects the rental and servicing of uniforms and other
garments and facility products and services including mats, mops, shop towels
and other ancillary items. In addition
to these rental items, other facility products and services such as restroom
and hygiene products and services are also provided within this operating
segment. The Uniform Direct Sales
operating segment consists of the direct sale of uniforms and related items and
branded promotional products. The First
Aid, Safety and Fire Protection Services operating segment consists of first
aid, safety and fire protection products and services. The Document Management Services operating
segment consists of document destruction, document imaging and document
retention services. Revenue and income
before income taxes for each of these operating segments for the three and nine
month periods ended February 28, 2010 and February 28, 2009, are presented in
Note 11 entitled Segment Information of Notes to Consolidated Condensed
Financial Statements.
26
Table of Contents
New Accounting Pronouncements
The
Financial Accounting Standards Board (FASB) issued FASB Accounting Standards
Codification (ASC) effective for financial statements issued for interim and
annual periods ending after September 30, 2009.
The ASC is an aggregation of previously issued authoritative GAAP in one
comprehensive set of guidance organized by subject area. In accordance with the ASC, references to
previously issued accounting standards have been removed. Subsequent revisions to GAAP will be
incorporated into the ASC through Accounting Standards Updates (ASU). The following is a list of recent pronouncements
issued by the FASB.
Effective
June 1, 2009, Cintas adopted fair value measurements guidance for all
nonfinancial assets and nonfinancial liabilities recognized or disclosed at
fair value on a nonrecurring basis. The
guidance defines fair value, establishes guidance for measuring fair value and
expands disclosures regarding fair value measurements. The adoption did not have a material impact
on our consolidated financial statements.
See Note 4 entitled Fair Value Measurements of Notes to Consolidated
Condensed Financial Statements for additional information.
Effective
June 1, 2009, Cintas adopted new guidance on business combinations, in which an
entity is required to recognize assets acquired, liabilities assumed,
contractual contingencies and contingent consideration at fair value on the
acquisition date. It further requires that acquisition-related costs are
recognized separately from the acquisition and expensed as incurred,
restructuring costs generally are expensed in periods subsequent to the
acquisition date, and changes in accounting for deferred tax asset valuation
allowances and acquired income tax uncertainties after the measurement period
impact income tax expense. This adoption
did not have a material impact on Cintas results of operations or financial
condition. Any future effects will
depend upon the terms and size of future acquisitions.
Effective
June 1, 2009, Cintas adopted new guidance for determining whether instruments
granted in share-based payment transactions are participating securities. This guidance provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method of determining earnings per share. The adoption did not have a material impact
on basic or diluted earnings per share.
Cintas adoption is more fully described in Note 5 entitled Earnings per
Share of Notes to Consolidated Condensed Financial Statements.
Effective
June 1, 2009, Cintas adopted new guidance on subsequent events. The
objective of this guidance is to establish general standards of accounting for
and disclosure of events that occur after the consolidated balance sheet date
but before the consolidated financial statements are issued or are available to
be issued. This adoption did not have a
material impact on Cintas results of operations or financial condition.
Consolidated Results
Three Months Ended February 28, 2010 Compared to Three Months Ended
February 28, 2009
Total revenue decreased 5.2% for the
three months ended February 28, 2010, as compared to the same period in the
prior fiscal year from $908.6 million to $861.8 million. Revenue was negatively impacted by 1.5% due to
one fewer workday in the three month period ended February 28, 2010, compared
to the three month period ended February 28, 2009. The remaining revenue decrease of 3.7% was
mainly due to lower sales volume resulting from loss of jobs in the U.S. and
Canadian economies during the last year.
Based on U.S. and Canadian government reports, these economies lost
approximately 1.5 million jobs in the nine months ended February 28, 2010, and
approximately 1.7 million jobs since February 28, 2009. Primarily because of customer job losses, we
experienced decreases in uniform revenue, both rented and purchased, and
revenue for our hygiene products and first aid and safety products in the third
quarter of fiscal 2010 compared to the third quarter of fiscal 2009. In addition, facility closures by our
customers reduced our volume of entrance mats, shop towels and other facility
needs such as fire protection services.
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Rental Uniforms and Ancillary
Products revenue decreased 7.7% for the three months ended February 28, 2010,
over the same period in the prior fiscal year from $674.7 million to $622.5
million. Revenue was negatively impacted
by 1.4% due to one fewer workday in the three month period ended February 28,
2010, compared to the three month period ended February 28, 2009. The remainder of the revenue decrease
primarily resulted from lower sales volume resulting from the job losses
described above.
Other Services revenue, consisting
of revenue from the reportable operating segments of Uniform Direct Sales,
First Aid, Safety and Fire Protection Services and Document Management
Services, increased 2.3% for the three months ended February 28, 2010, over the
same period in the prior fiscal year from $233.9 million to $239.4
million. The increase for the quarter
was primarily the result of a 29.1% increase in the Document Management
Services operating segment revenue, partially offset by decreases in the
Uniform Direct Sales and First Aid, Safety and Fire Protection Services
operating segment revenue. Revenue was
negatively impacted by 1.6% due to one fewer workday in the three month period
ended February 28, 2010, compared to the three month period ended February 28,
2009.
Cost of rental uniforms and
ancillary products consists primarily of production expenses, delivery expenses
and the amortization of in service inventory, including uniforms, mats, shop
towels and other ancillary items. Cost
of rental uniforms and ancillary products decreased $22.7 million, or 6.0%, for
the three months ended February 28, 2010, compared to the three months ended
February 28, 2009, mainly due to lower Rental Uniforms and Ancillary Products
operating segment volume.
Cost of other services consists
primarily of cost of goods sold (predominantly uniforms and first aid
products), delivery expenses and distribution expenses in the Uniform Direct
Sales operating segment, the First Aid, Safety and Fire Protection Services
operating segment and the Document Management Services operating segment. Cost of other services decreased $7.3
million, or 4.8%, for the three months ended February 28, 2010, compared to the
three months ended February 28, 2009.
This decrease was largely due to decreased First Aid, Safety and Fire
Protection Services operating segment revenue of 7.9% and decreased Uniform
Direct Sales operating segment revenue of 2.7% compared to the same period in
the prior fiscal year.
Selling and administrative expenses
increased $18.5 million, or 7.2%, for the three months ended February 28, 2010,
compared to the three months ended February 28, 2009. Selling expenses increased by $6.6 million
compared to the same period in the prior fiscal year due to a planned increase
in sales force headcount. In addition,
medical expense increased $6.1 million, mainly due to higher utilization of the
medical plans.
Net interest expense (interest expense less interest income) was $11.2
million for the three months ended February 28, 2010, which was relatively
consistent with $11.9 million for the same period in the prior fiscal year.
Cintas effective tax rate of 32.8% for the three months ended February
28, 2010, was relatively consistent compared to the 33.2% for the prior fiscal year
period.
Net income decreased $22.8 million,
or 31.8%, for the three months ended February 28, 2010, from the same period in
the prior fiscal year. Diluted earnings
per share were $0.32 for the three months ended February 28, 2010, which was a
decrease of 31.9% compared to the same period in the prior fiscal year. The decreased net income and diluted earnings
per share were due primarily to decreased revenue for the quarter.
Rental Uniforms and Ancillary Products Operating Segment
Three Months Ended February 28, 2010 Compared to Three Months Ended
February 28, 2009
As discussed above, Rental Uniforms
and Ancillary Products operating segment revenue decreased from $674.7 million
to $622.5 million, or 7.7%, and the cost of rental uniforms and ancillary
products decreased $22.7 million, or 6.0%. The operating segments gross margin
was $265.7 million, or 42.7% of revenue.
This gross margin percent of revenue of 42.7% was 110 basis points lower
than the prior fiscal years third quarter of 43.8%. Lower revenue levels and one fewer workday
for the three months ended
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February 28, 2010, compared to the
three months ended February 28, 2009, pressured the Rental Uniforms and
Ancillary Products operating segment gross margin. In addition, energy related costs, which
include natural gas, electric and gas, increased a combined 20 basis points as
a percent of revenue from the prior fiscal years third quarter.
Selling and administrative expenses
as a percent of revenue, at 32.4%, increased $16.6 million compared to the
third quarter of the prior fiscal year.
This increase was due to a planned increase in sales force headcount and
an increase in medical expense due to higher utilization of medical plans.
Income before income taxes decreased
$46.1 million to $64.3 million for the Rental Uniforms and Ancillary Products
operating segment for the period compared to the same period last fiscal
year. Income before income taxes was
10.3% of the operating segments revenue.
The decrease was due to lower Rental Uniforms and Ancillary Products operating
segment revenue and increased selling and administrative expenses.
Uniform Direct Sales Operating Segment
Three Months Ended February 28, 2010 Compared to Three Months Ended
February 28, 2009
Uniform Direct Sales operating
segment revenue decreased from $97.0 million to $94.4 million, or 2.7%, for the
three months ended February 28, 2010, compared to the same period in the prior
fiscal year. Revenue was negatively
impacted by 1.6% due to one fewer workday in the three month period ended
February 28, 2010, compared to the three month period ended February 28,
2009. Organically, revenue decreased by
1.1% compared to the same period in the prior fiscal year.
Cost of uniform direct sales
decreased $6.6 million, or 9.0%, for the three months ended February 28, 2010,
due to decreased Uniform Direct Sales operating segment volume and cost saving
initiatives implemented in this current fiscal year. The gross margin as a percent of revenue was
29.6% for the quarter ended February 28, 2010, which increased from 24.6% in
the same period in the prior fiscal year.
This increase was primarily due to cost savings initiatives implemented
during the past year.
Selling and administrative expenses
as a percent of revenue was 23.8% in the third quarter of last fiscal year and
decreased 290 basis points to 20.9% in this fiscal years third quarter. Selling and administrative expenses decreased
from $23.1 million in last fiscal years third quarter to $19.7 million in the
third quarter of this fiscal year due to a reduction of labor and payroll tax
expense associated with the decreased headcount resulting from cost reduction
initiatives.
Income before income taxes increased
$7.4 million to $8.2 million for the Uniform Direct Sales operating segment for
the three months ended February 28, 2010.
Income before income taxes was 8.7% of the operating segments revenue
compared to 0.8% for the same period last fiscal year. This increase in income before income taxes
was due to the reduction of cost of uniform direct sales as well as selling and
administrative expenses.
First Aid, Safety and Fire Protection Services Operating Segment
Three Months Ended February 28, 2010 Compared to Three Months Ended
February 28, 2009
First Aid, Safety and Fire
Protection Services operating segment revenue decreased from $86.0 million to
$79.2 million, or 7.9%, for the three months ended February 28, 2010. Revenue was negatively impacted by 1.4% due
to one fewer workday in the three month period ended February 28, 2010,
compared to the three month period ended February 28, 2009. Organically, revenue decreased by 6.1%
compared to the same period last fiscal year.
The difficult U.S. economic conditions continued and negatively affected
revenue in this operating segment. The
6.1% organic revenue decrease was a marked improvement over the second quarter
of fiscal 2010s organic revenue decrease of 17.2% compared to the same period
in the prior fiscal year.
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Cost of first aid, safety and fire
protection services decreased $5.0 million, or 9.5%, for the three months ended
February 28, 2010. Gross margin for the
First Aid, Safety and Fire Protection Services operating segment is defined as
revenue less cost of goods, warehouse expenses, service expenses and training
expenses. The gross margin as a percent
of revenue was 39.5% for the quarter ended February 28, 2010, which was a 100
basis point increase compared to the gross margin percentage in the third
quarter of the prior fiscal year. This
increase was mainly due to the elimination of lower margin fire installation
business throughout the course of this fiscal year.
Selling and administrative expenses
increased $0.3 million from $29 million in the third quarter of the prior
fiscal year to $29.3 million in the third quarter of this fiscal year. This increase was due to a planned increase
in sales force headcount and an increase in medical expense.
Income before income taxes for the
First Aid, Safety and Fire Protection Services operating segment decreased from
$4.2 million in last fiscal years third quarter to $2.1 million for the three
months ended February 28, 2010. Income
before income taxes was 2.6% of the operating segments revenue, compared to
4.8% in last fiscal years third quarter.
This decrease was primarily due to the decrease in First Aid, Safety and
Fire Protection services operating segment revenue.
Document Management Services Operating Segment
Three Months Ended February 28, 2010 Compared to Three Months Ended
February 28, 2009
Document Management Services
operating segment revenue increased from $50.9 million to $65.7 million, or
29.1%, for the three months ended February 28, 2010, over the same period in
the prior fiscal year. Revenue was
negatively impacted by 2.0% due to one fewer workday in the three month period
ended February 28, 2010, compared to the three month period ended February 28,
2009. This operating segments internal
growth for the period was 26.6% over the same period in the prior fiscal
year. The internal growth was due to the
sale of document management services to new customers and the positive impact
of recycled paper prices which increased compared to the same period of last
fiscal year. Excluding revenue for
recycled paper, document management internal growth was 14.4% for the three
months ended February 28, 2010, over the same period in the prior fiscal year. The remaining growth was generated through
the acquisition of document management businesses.
Cost of document management services
increased $4.4 million, or 16.3%, for the three months ended February 28, 2010,
due to increased Document Management Services operating segment volume. Gross margin for the Document Management
Services operating segment is defined as revenue less production and service
costs. The gross margin as a percent of
revenue increased from 47.5% in last fiscal years third quarter to 52.7% for
the quarter ended February 28, 2010.
This increase was due to increased operating segment revenue for the
Document Management Services operating segment as well as a significant
increase in recycled paper prices.
Selling and administrative expenses
increased $5.0 million due to planned increases in sales force headcount and an
increase in medical expense due to higher utilization of medical plans. Selling and administrative expenses as a
percent of revenue, at 38.4%, decreased 140 basis points compared to the third
quarter of the prior fiscal year, primarily as a result of the significant
increase in recycled paper prices.
Income before income taxes for the
Document Management Services operating segment increased $5.5 million to $9.4
million for the period compared to the same period in the prior fiscal
year. Income before income taxes as a
percentage of the operating segments revenue increased from 7.7% in last
fiscal years third quarter to 14.3% for the quarter ended February 28, 2010, primarily
as a result of the increase in Document Management Services operating segment
revenue and the significant increase in recycled paper prices.
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Consolidated Results
Nine Months Ended February 28, 2010 Compared to Nine Months Ended
February 28, 2009
Total revenue decreased 8.9% for the
nine months ended February 28, 2010, as compared to the same period in the
prior fiscal year from $2.90 billion to $2.64 billion. This decrease was mainly due to lower sales
volume resulting from loss of jobs in the U.S. and Canadian economies during
the last year. Based on U.S. and Canadian
government reports, these economies lost approximately 1.5 million jobs in the
nine months ended February 28, 2010, and approximately 1.7 million jobs since
February 28, 2009. Primarily because of
customer job losses, we experienced decreases in uniform revenue, both rented
and purchased, and revenue for our hygiene products and first aid and safety
products in the third quarter of fiscal 2010 compared to the third quarter of
fiscal 2009. In addition, facility
closures by our customers reduced our volume of entrance mats, shop towels and
other facility needs such as fire protection services. This decrease was partially offset by 0.1%
growth attributable to acquisitions in our First Aid, Safety and Fire
Protection Services operating segment and our Document Management Services
operating segment during the nine month period.
Rental Uniforms and Ancillary
Products operating segment revenue decreased 8.8% for the nine months ended
February 28, 2010, as compared to the same period in the prior fiscal year from
$2.11 billion to $1.92 billion. The
decrease primarily resulted from an organic revenue decrease of 8.7% for the
nine month period.
Other Services revenue, consisting
of revenue from the reportable operating segments of Uniform Direct Sales,
First Aid, Safety and Fire Protection Services and Document Management
Services, decreased 9.2% for the nine months ended February 28, 2010, as
compared to the same period in the prior fiscal year from $788.5 million to
$716.2 million. The decrease primarily
resulted from an organic decrease of 9.7%, partially offset by 0.5% growth attributable
to acquisitions in our First Aid, Safety and Fire Protection Services operating
segment and our Document Management Services operating segment during the nine
month period. The negative internal
growth rate for the nine month period was primarily the result of a 15.4%
decrease in Uniform Direct Sales operating segment revenue and a 15.0% decrease
in First Aid, Safety and Fire Protection Services operating segment revenue.
Cost of rental uniforms and
ancillary products consists primarily of production expenses, delivery expenses
and the amortization of in service inventory, including uniforms, mats, shop
towels and other rental items. Cost of
rental uniforms and ancillary products decreased $105.0 million, or 8.8%, for
the nine months ended February 28, 2010, as compared to the nine months ended
February 28, 2009. This decrease was
mainly due to decreased Rental Uniforms and Ancillary Products operating
segment volume and a $23.9 million decrease in energy costs.
Cost of other services consists primarily
of cost of goods sold (predominantly uniforms and first aid products), delivery
expenses and distribution expenses in the Uniform Direct Sales operating
segment, the First Aid, Safety and Fire Protection Services operating segment
and the Document Management Services operating segment. Cost of other services decreased $48.9
million, or 10.0%, for the nine months ended February 28, 2010, as compared to
the nine months ended February 28, 2009. This decrease was mainly due to
decreased Other Services sales volume.
Selling and administrative expenses
decreased $29.6 million, or 3.6%, for the nine months ended February 28, 2010,
as compared to the nine months ended February 28, 2009. Labor and payroll tax expenses decreased by $22.1
million compared to the same period in the prior fiscal year due to reduced
headcount resulting from cost reduction initiatives. In addition, bad debt expense decreased $8.1
million due to improved collections.
During the first quarter of fiscal
2010, Cintas and the plaintiffs involved in the litigation,
Paul Veliz, et al. v. Cintas Corporation
, reached a
settlement in principle. The principle
terms of the settlement provide for an aggregate cash payment of approximately
$24 million. The pre-tax impact, net of
insurance proceeds, was approximately $19.5 million. This settlement is more fully described in
Note 10 entitled Litigation and Other Contingencies in Notes to Consolidated
Condensed Financial Statements. During
the second quarter of fiscal 2010, Cintas had legal settlements that totaled
$4.1 million, net of insurance proceeds.
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None of these settlements were
significant individually. These
settlements included litigation related to multiple subjects including
employment practices and insurance proceeds.
Net interest expense (interest expense less interest income) was $35.1
million for the nine months ended February 28, 2010, which decreased slightly
from $35.8 million compared to the same period in prior fiscal year.
Cintas effective tax rate increased to 37.0% for the nine months ended
February 28, 2010, compared to 36.8% for the same period in the prior fiscal
year.
Net income decreased 28.0% for the
nine months ended February 28, 2010, from the same period in the prior fiscal
year. Diluted earnings per share
decreased 28.3% for the nine months ended February 28, 2010, compared to the
same period in the prior fiscal year.
The decreased net income and diluted earnings per share were due
primarily to decreased revenue and the legal settlements discussed above.
Rental Uniforms and Ancillary Products Operating Segment
Nine Months Ended February 28, 2010 Compared to Nine Months Ended
February 28, 2009
Rental Uniforms and Ancillary
Products operating segment revenue decreased from $2.11 billion to $1.92
billion, or 8.8%, and the cost of rental uniforms and ancillary products
decreased $105 million, or 8.8%. The operating
segments gross margin was $838.3 million, or 43.6% of revenue. This is consistent with the 43.6% gross
margin for the nine months ended February 28, 2009.
Selling and administrative expenses
in the Rental Uniforms and Ancillary Products operating segment as a percent to
revenue, at 30.2%, increased from 28.2% in the same period of the prior fiscal
year, despite a reduction in selling and administrative expenses of $13.6
million in the nine month period ended February 28, 2010, compared to last fiscal
years same period. The increase in
selling and administrative expenses as a percent to revenue was due to lower
operating segment revenue.
Income before income taxes decreased
$67.2 million to $258.7 million for the Rental Uniforms and Ancillary Products
operating segment for the period. Income
before income taxes was 13.5% of the operating segments revenue, a decrease
from 15.5% in the same period in the prior fiscal year. This was primarily due to the lower Rental
Uniforms and Ancillary Products operating segment revenue.
Uniform Direct Sales Operating Segment
Nine Months Ended February 28, 2010 Compared to Nine Months Ended
February 28, 2009
Uniform Direct Sales operating
segment revenue decreased from $334.5 million to $283.2 million, or 15.4%, for
the nine months ended February 28, 2010, as compared to the same period in the
prior fiscal year. Job losses in the
U.S. and Canadian economies continued to challenge us during the last nine
months, as many of our customers, especially those in the hospitality and
gaming industries, delayed uniform purchases and roll-outs of new uniform
programs.
Cost of uniform direct sales
decreased $37.6 million, or 15.9%, for the nine months ended February 28, 2010,
due to decreased Uniform Direct Sales operating segment volume. The gross margin as a percent of revenue was
29.8% for the nine months ended February 28, 2010, which was a 50 basis point
increase over the same period in the prior fiscal year. This increase in gross margin as a percent of
revenue was due to the 15.9% decrease in cost of uniform direct sales for the
nine months ended February 28, 2010, as compared to the same period in the
prior fiscal year.
Selling and administrative expenses
as a percent of revenue, at 20.3%, decreased 240 basis points for the nine
months ended February 28, 2010, compared to the same period in the prior fiscal
year. Selling and administrative expenses decreased $18.5 million for the nine
months ended February 28, 2010, compared to the same period in the prior fiscal
year due to various cost reduction initiatives.
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Income before income taxes increased
$4.7 million to $26.8 million for the Uniform Direct Sales operating segment
for the nine months ended February 28, 2010, compared to the same period in the
prior fiscal year. Income before income
taxes was 9.5% of the operating segments revenue, which was a 290 basis point
increase compared to the same period in the prior fiscal year. This increase was primarily due to the
reduction in selling and administrative expenses.
First Aid, Safety and Fire Protection Services Operating Segment
Nine Months Ended February 28, 2010 Compared to Nine Months Ended
February 28, 2009
First Aid, Safety and Fire
Protection Services operating segment revenue decreased from $295.1 million to
$250.8 million, or 15.0% for the nine months ended February 28, 2010. This decrease resulted primarily from an
organic decrease of 14.4% resulting from the difficult U.S. economic
environment which continued to challenge us during the last nine months.
Cost of first aid, safety and fire
protection services decreased $23.8 million, or 13.4%, for the nine months
ended February 28, 2010, due to decreased First Aid, Safety and Fire Protection
Services volume. Gross margin for the
First Aid, Safety and Fire Protection Services operating segment is defined as
revenue less cost of goods, warehouse expenses, service expenses and training
expenses. The gross margin as a percent
of revenue was 38.7% for the nine months ended February 28, 2010, which was a
120 basis point decrease compared to the gross margin percentage in the prior
fiscal year. This decrease was mainly
due to a decrease in the operating segments volume.
Selling and administrative expenses
as a percent of revenue, at 34.4%, increased 240 basis points for the nine
months ended February 28, 2010, compared to the same period in the prior fiscal
year despite a reduction in selling and administrative expenses of $8.2 million
in the nine months ended February 28, 2010, compared to the same period in the
prior fiscal year. This decrease in
expenses was due to various cost reduction initiatives.
Income before income taxes for the
First Aid, Safety and Fire Protection Services operating segment decreased
$12.3 million to $10.9 million for the nine months ended February 28, 2010,
compared to the same period of the prior fiscal year. Income before income taxes was 4.3% of the
operating segments revenue, which was a 350 basis point decrease compared to
the same period in the prior fiscal year as a result of the various items
described above.
Document Management Services Operating Segment
Nine Months Ended February 28, 2010 Compared to Nine Months Ended
February 28, 2009
Document Management Services
operating segment revenue increased from $158.9 million to $182.3 million, or
14.7% for the nine months ended February 28, 2010, over the same period in the
prior fiscal year. This operating
segments internal growth for the period was 10.6% over the same period in the
prior fiscal year. The internal growth
was primarily due to the sale of document management services to new
customers. Excluding revenue for recycled
paper, document management internal growth was 13.9% for the nine months ended
February 28, 2010, over the same period in the prior fiscal year. Acquisitions of document management
businesses accounted for growth of 4.1%.
Cost of document management services
increased $12.5 million, or 16.1%, for the nine months ended February 28, 2010,
due to increased Document Management Services operating segment volume. Gross margin for the Document Management
Services operating segment is defined as revenue less production and service
costs. The gross margin as a percent of
revenue was 50.7% for the nine months ended February 28, 2010, which was a 60
basis point decrease over the gross margin percentage in the same period of the
prior fiscal year. This decrease was due
to unfavorable recycled paper prices compared to last fiscal year.
Selling and administrative expenses
increased $10.8 million and as a percent of revenue, at 41.7%, increased 70
basis points for the nine months ended February 28, 2010, compared to the same
period in
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the prior fiscal year. The increase in expense was due to increases
in labor and support services and medical expenses. However, the increase in basis points was
primarily due to the impact of lower recycled paper prices.
Income before income taxes for the
Document Management Services operating segment increased to $16.5 million for
the nine months ended February 28, 2010, compared to $16.4 million in the same
period in the prior fiscal year. Income
before income taxes was 9.1% of the operating segments revenue, which was a
120 basis point decrease over the operating segments revenue for the same
period last fiscal year, primarily as a result of the unfavorable recycled
paper prices compared to last fiscal year.
Liquidity and Capital Resources
At February 28, 2010, Cintas had
$552.1 million in cash and cash equivalents and marketable securities which was
$302.0 million more than the $250.1 million at May 31, 2009. This increase was primarily due to cash
generated from operations of $429.2 million, offset by capital expenditures of
$78.9 million. Cash and cash equivalents
and marketable securities are expected to be used to finance future
acquisitions, capital expenditures and expansion.
Cintas believes that its investment
policy pertaining to marketable securities is conservative. Marketable securities consist primarily of
Canadian treasury securities and U.S. municipal bonds. The criterion used in making investment
decisions is the preservation of principal, while earning an attractive yield.
Working capital increased $123.7
million to $1.1 billion at February 28, 2010, due to the increased cash
balances discussed above offset by reductions in inventory levels.
We continue to reduce our capital
spending in this difficult economic environment and in the absence of revenue
growth. As a result, net property and
equipment decreased by $20.0 million from May 31, 2009 to February 28,
2010. We have available capacity in our
existing facilities to allow for growth.
As of February 28, 2010, we have
$775.0 million in fixed rate notes outstanding with maturities ranging from
2012 to 2036. We have a commercial paper
program with a capacity of $600.0 million that is fully supported by a backup
revolving credit facility through a credit agreement with our banking
group. As of February 28, 2010 and May 31,
2009, we had no commercial paper outstanding.
The credit agreement expires in February 2011. We believe this program, along with our cash
and cash equivalents on hand, will be adequate to provide necessary funding for
our operations.
Cintas total debt to capitalization
ratio improved to 24.1% at February 28, 2010, from 24.9% at May 31, 2009.
Litigation and Other Contingencies
Cintas is subject to legal
proceedings, insurance receipts, legal settlements and claims arising in the
ordinary and normal course of its business.
In the opinion of management, neither the individual or aggregate
liability, if any, associated with such ordinary course of business actions has
a material adverse effect on Cintas financial position or results of
operation. As is disclosed in Note 10
entitled Litigation and Other Contingencies of Notes to Consolidated Condensed
Financial Statements, Cintas is party to additional litigation not considered
in the ordinary course of business.
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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
Quarterly Report. Factors that might
cause such a difference include, but are not limited to, the possibility of
greater than anticipated operating costs including energy 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, 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, changes in federal and state tax and labor laws and
the reactions of competitors in terms of price and service. 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, 2009, 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.
ITEM
3.
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In our normal operations, Cintas has
market risk exposure to interest rates. We
refer to our market risk exposure to interest rates on page 29 of our Form 10-K
for the year ended May 31, 2009.
Through its foreign operations,
Cintas is exposed to foreign currency risk.
Foreign currency exposures arise from transactions denominated in a
currency other than the functional currency and from foreign denominated
revenue and profit translated into U.S. dollars. The primary foreign currency to which Cintas
is exposed is the Canadian dollar.
Cintas has average rate options in place to limit a portion of the risks
of the revenue translation from Canadian foreign currency exchange rate
movements during the remainder of the fiscal year; however, the amount of these
options is not material.
35
Table of Contents
ITEM
4.
CONTROLS AND
PROCEDURES.
Disclosure Controls and Procedures
With the
participation of Cintas management, including Cintas Chief Executive Officer,
Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated
the effectiveness of the disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of
February 28, 2010. Based on such
evaluation, Cintas management, including Cintas Chief Executive Officer,
Chief Financial Officer, General Counsel and Controllers, has concluded that
Cintas disclosure controls and procedures were effective as of February 28,
2010, in ensuring (i) information required to be disclosed by Cintas in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SECs rules
and forms and (ii) information required to be disclosed by Cintas in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to Cintas management, including its principal executive and
principal financial officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure.
Internal
Control over Financial Reporting
In September 2009,
Cintas implemented a new general ledger system and related processes as the
first phase in an enterprise wide system implementation. Various controls were modified due to the new
system. Additionally, in the second
quarter of fiscal 2010, Cintas implemented additional compensating controls
over financial reporting to ensure the accuracy and integrity of its
consolidated financial statements during the post-implementation phase. Cintas believes that the system and process
changes have enhanced internal control over the financial reporting. There were no significant changes in Cintas
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter ended February 28,
2010, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. See Managements Report
on Internal Control over Financial Reporting and Report of Independent
Registered Public Accounting Firm on pages 31 and 32 of our Form 10-K for the
year ended May 31, 2009.
36
Table of
Contents
CINTAS
CORPORATION
Part II. Other Information
Item 1. Legal Proceedings.
I.
Supplemental
Information: We discuss certain legal
proceedings pending against us in Part I of this Quarterly Report on Form 10-Q
under the caption Item 1. Financial Statements, in Note 10 entitled
Litigation and Other Contingencies of Notes to Consolidated Condensed
Financial Statements, and Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations under Litigation and Other
Contingencies. We refer you to those
discussions for important information concerning those legal proceedings,
including the basis for such actions and, where known, the relief sought.
Item 5. Other Information
On January 26,
2010, Cintas declared an annual cash dividend of $0.48 per share on outstanding
common stock, a two percent increase over the dividend paid in the prior
year. The dividend was paid on March 10,
2010, to shareholders of record as of February 10, 2010.
Item 6. Exhibits.
31.1
Certification of
Principal Executive Officer required by Rule 13a-14(a)
31.2
Certification of
Principal Financial Officer required by Rule 13a-14(a)
32.1
Section 1350
Certification of Chief Executive Officer
32.2
Section 1350
Certification of Chief Financial Officer
Signatures
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
CINTAS
CORPORATION
|
|
(Registrant)
|
|
|
|
|
Date: April 9, 2010
|
/s/ William C. Gale
|
|
|
William C.
Gale
|
|
Senior
Vice President and Chief Financial Officer
|
|
(Chief
Accounting Officer)
|
37
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