CTAS Cintas Corporation

Cintas Corporation (Nasdaq:CTAS) today reported its results for the first quarter of its fiscal year 2011. Revenue for the quarter, which ended August 31, 2010, was $924 million, representing a 3.6% increase compared to last year’s first quarter. When adjusting for the impact of acquisitions, the organic revenue growth was 2.8%.

Net income and earnings per diluted share for the quarter were $61 million and $0.40, respectively. Last year’s net income and earnings per diluted share were $54 million and $0.35, respectively. Last year’s first quarter results included a legal settlement, net of insurance proceeds, which reduced net income and earnings per diluted share by $12 million and $0.08, respectively.

First quarter earnings per diluted share were positively impacted by $0.03 due to the resolution of several tax audits which we anticipated would be resolved later in the fiscal year. The resolution of these tax audits during the first quarter resulted in an effective tax rate of 30.8%. We expect tax rates to be higher in subsequent quarters resulting in an annual rate of approximately 37.3%.

Scott D. Farmer, Chief Executive Officer, stated, “We continue to be encouraged by our performance in this period of economic uncertainty and sluggish private sector job growth. We have been able to generate revenue growth by focusing our sales force on both adding new customers and penetrating existing customer accounts with additional products and services.”

Mr. Farmer also announced, “During our first quarter and into September, we purchased 7.6 million shares of our common stock at a cost of approximately $202 million, completing our authorized share buyback program. The total purchases included acquiring 4.9 million shares at a cost of approximately $130 million during the latter part of the first quarter, and the remaining 2.7 million shares were purchased during September at a cost of approximately $72 million. Our strong cash position enabled us to take advantage of the opportunity to complete our program without incurring any additional debt. Going forward, we will continue to use our strong cash generation to take advantage of opportunities that maximize the long-term value of Cintas for our shareholders and working partners.”

The Company’s balance sheet remains very strong. Cash and marketable securities were $369 million at August 31, 2010. The current ratio was 3.8 to one and total debt to total capitalization was 24%.

Mr. Farmer concluded, “Based on our first quarter results, we reiterate our fiscal 2011 revenue expectations to be in the range of $3.55 billion to $3.75 billion. Although the purchases under our share buyback program had no impact on the first quarter results, they will impact our earnings per diluted share for the remainder of the fiscal year. As a result, we now expect fiscal 2011 earnings per diluted share to be in the range of $1.55 to $1.63.”

About Cintas

Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types primarily throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid, safety, fire protection products and services and document management services for approximately 800,000 businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS, and is a Nasdaq-100 company and component of the Standard & Poor’s 500 Index.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the unavailability of computer systems, 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, 2010 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

Cintas Corporation Consolidated Condensed Statements of Income (Unaudited) (In thousands except per share data)         Three Months Ended August 31,

2010

  August 31,

2009

  % Chng.   Revenue: Rental uniforms and ancillary products $ 657,564 $ 655,638 0.3 Other services   266,340       235,931   12.9 Total revenue $ 923,904 $ 891,569 3.6   Costs and expenses: Cost of rental uniforms and ancillary products $ 371,515 $ 362,929 2.4 Cost of other services 158,718 145,845 8.8 Selling and administrative expenses 293,425 264,427 11.0 Legal settlement, net of insurance proceeds   -       19,477   N/A   Operating income $ 100,246 $ 98,891 1.4   Interest income $ (578 ) $ (359 ) 61.0 Interest expense   12,274       12,038   2.0   Income before income taxes $ 88,550 $ 87,212 1.5 Income taxes   27,273       33,228   -17.9 Net income $ 61,277     $ 53,984   13.5   Per share data: Basic earnings per share $ 0.40     $ 0.35   14.3 Diluted earnings per share $ 0.40     $ 0.35   14.3   Weighted average number of shares outstanding 152,164 152,828 Diluted average number of shares outstanding 152,164 152,828   Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure   The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional measures of operating results, net earnings and earnings per share adjusted to exclude certain costs, expenses and gains and losses. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP is shown below.   Management believes earnings per diluted share excluding the legal settlement charge, net of insurance proceeds, provides investors pertinent information given the one-time nature of this charge.     Three Months Ended August 31,

2010

  August 31,

2009

  % Chng.     Income before income taxes $ 88,550   $ 87,212 1.5   Excluding: Legal settlement, net of insurance proceeds $ -   $ 19,477   Income before income taxes, excluding charge $ 88,550 $ 106,689 -17.0 Income taxes, excluding charge   27,273     40,649 Net income, excluding charge $ 61,277   $ 66,040 -7.2   Per share data: Earnings per diluted share, excluding charge $ 0.40   $ 0.43 -7.0   CINTAS CORPORATION SUPPLEMENTAL DATA   Three Months Ended August 31,

2010

  August 31,

2009

Rental uniforms and ancillary products gross margin 43.5%   44.6% Other services gross margin 40.4% 38.2% Total gross margin 42.6% 42.9% Net margin 6.6% 6.1% Net margin, excluding charge 6.6% 7.4%   Depreciation and amortization $47,791 $48,905 Capital expenditures $48,200 $24,819   Debt to total capitalization 24.2% 24.5%   Computation of Free Cash Flow     Three Months Ended August 31,

2010

  August 31,

2009

  Net cash provided by operations $ 35,298 $ 144,894   Capital expenditures   48,200     24,819   Free cash flow $ 83,498   $ 169,713  

Note:

 

Management uses free cash flow to assess the financial performance of the Company. Management believes that free cash flow is useful to investors because it relates the operating cash flow of the Company to the capital that is spent to continue to improve and grow business operations.

  SUPPLEMENTAL SEGMENT DATA  

RentalUniforms andAncillaryProducts

 

Uniform DirectSales

 

First Aid,Safety andFireProtection

 

DocumentManagement

  Corporate   Total For the three months ended August 31, 2010           Revenue $ 657,564 $ 98,780 $ 93,534 $ 74,026 $ - $ 923,904 Gross margin $ 286,049 $ 29,960 $ 38,253 $ 39,409 $ - $ 393,671 Selling and administrative expenses $ 207,831 $ 20,113 $ 34,475 $ 31,006 $ - $ 293,425 Interest income $ - $ - $ - $ - $ (578 ) $ (578 ) Interest expense $ - $ - $ - $ - $ 12,274 $ 12,274 Income (loss) before income taxes $ 78,218 $ 9,847 $ 3,778 $ 8,403 $ (11,696 ) $ 88,550 Assets $ 2,407,268 $ 221,053 $ 347,281 $ 545,853 $ 369,449 $ 3,890,904   For the three months ended August 31, 2009 Revenue $ 655,638 $ 89,301 $ 90,001 $ 56,629 $ - $ 891,569 Gross margin $ 292,709 $ 27,245 $ 35,262 $ 27,579 $ - $ 382,795 Selling and administrative expenses $ 190,256 $ 19,156 $ 29,475 $ 25,540 $ - $ 264,427 Legal settlement, net of insurance proceeds $ - $ - $ - $ - $ 19,477 $ 19,477 Interest income $ - $ - $ - $ - $ (359 ) $ (359 ) Interest expense $ - $ - $ - $ - $ 12,038 $ 12,038 Income (loss) before income taxes $ 102,453 $ 8,089 $ 5,787 $ 2,039 $ (31,156 ) $ 87,212 Assets $ 2,497,775 $ 130,721 $ 320,226 $ 472,469 $ 357,879 $ 3,779,070   Cintas Corporation Consolidated Balance Sheets (In thousands except share data)            

ASSETS

Aug 31,

2010

May 31,

2010

  Current assets: Cash & cash equivalents $ 290,646 $ 411,281 Marketable securities 78,803 154,806 Accounts receivable, net 383,943 366,301 Inventories, net 184,363 169,484 Uniforms and other rental items in service 347,588 332,106 Income taxes, current - 15,691 Deferred tax asset 52,907 52,415 Prepaid expenses and other   33,903     22,860   Total current assets 1,372,153 1,524,944   Property and equipment, at cost, net 915,358 894,522   Goodwill 1,400,797 1,356,925 Service contracts, net 102,661 103,445 Other assets, net   99,935     89,900     $ 3,890,904   $ 3,969,736    

LIABILITIES AND SHAREHOLDERS' EQUITY

  Current liabilities: Accounts payable $ 81,307 $ 71,747 Accrued compensation and related liabilities 45,585 66,924 Accrued liabilities 219,994 244,402 Income taxes, current 10,828 - Long-term debt due within one year   1,765     609   Total current liabilities 359,479 383,682   Long-term liabilities: Long-term debt due after one year 785,682 785,444 Deferred income taxes 148,180 150,560 Accrued liabilities   127,585     116,021   Total long-term liabilities 1,061,447 1,052,025   Shareholders' equity: Preferred stock, no par value: - - 100,000 shares authorized, none outstanding Common stock, no par value: 135,170 132,058 425,000,000 shares authorized FY11: 173,338,299 issued and 148,009,335 outstanding FY10: 173,207,493 issued and 152,869,848 outstanding Paid-in capital 84,550 84,616 Retained earnings 3,141,356 3,080,079 Treasury stock: (930,193 ) (798,857 ) FY11: 25,328,964 shares FY10: 20,337,645 shares Other accumulated comprehensive income (loss): Foreign currency translation 46,219 42,870 Unrealized loss on derivatives (7,411 ) (6,997 ) Other 287 287 Unrealized loss on available-for-sale securities   -     (27 ) Total shareholders' equity 2,469,978 2,534,029   $ 3,890,904   $ 3,969,736       Cintas Corporation Consolidated Condensed Statements of Cash Flows (In thousands)           Three Months Ended

Cash flows from operating activities:

Aug 31,

2010

Aug 31,

2009

  Net income $ 61,277 $ 53,984  

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 37,362 38,549 Amortization of deferred charges 10,429 10,356 Stock-based compensation 3,046 3,630 Deferred income taxes (2,538 ) (412 )

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

Accounts receivable, net (13,747 ) (1,425 ) Inventories, net (14,799 ) 16,976 Uniforms and other rental items in service (15,483 ) 5,986 Prepaid expenses and other (10,921 ) (4,890 ) Accounts payable 8,420 3,481 Accrued compensation and related liabilities (21,350 ) (7,118 ) Accrued liabilities (32,926 ) (6,433 ) Income taxes payable   26,528     32,210     Net cash provided by operating activities 35,298 144,894  

Cash flows from investing activities:

  Capital expenditures (48,200 ) (24,819 ) Proceeds from redemption of marketable securities 77,653 - Purchase of marketable securities and investments (6,416 ) (19,259 ) Acquisitions of businesses, net of cash acquired (47,824 ) (2,633 ) Other   (2,762 )   (25 )   Net cash used in investing activities (27,549 ) (46,736 )  

Cash flows from financing activities:

  Proceeds from issuance of debt 1,542 - Repayment of debt (148 ) (179 ) Repurchase of common stock (131,336 ) (959 ) Other   2,181     516     Net cash used in financing activities (127,761 ) (622 )   Effect of exchange rate changes on cash and cash equivalents (623 ) 30   Net (decrease) increase in cash and cash equivalents (120,635 ) 97,566   Cash and cash equivalents at beginning of period   411,281     129,745     Cash and cash equivalents at end of period $ 290,646   $ 227,311