Cintas Corporation Announces Fiscal 2013 Second Quarter Results

CINCINNATI--(BUSINESS WIRE)--Cintas Corporation (Nasdaq:CTAS) today reported results for its second quarter ended November 30, 2012. Revenue for the second quarter was $1.06 billion, representing a 4.0% increase compared to last year’s second quarter. Organic growth, which adjusts for the impact of acquisitions, compared to last year’s second quarter, was 3.4%. Recycled paper prices remained lower than last year, and this negatively impacted second quarter consolidated revenue by $5.5 million, or 0.6%, compared to last year’s second quarter.

The Company’s operating income of $139.0 million was a 4.8% increase as compared to last year’s second quarter. Net income increased 4.9% to $78.0 million as compared to $74.4 million in last year’s second quarter. Earnings per diluted share (EPS) for the second quarter were $0.63, a 10.5% increase over the $0.57 earnings per diluted share in last year’s second quarter.

Scott D. Farmer, Chief Executive Officer, stated, “We continued to operate during the second quarter in a climate of much economic uncertainty. These uncertainties, largely regarding U.S. tax policies and changing healthcare regulation and costs, caused our customers to be very cautious about both spending and hiring.”

The Company’s balance sheet and cash flow remain very strong. Cash and marketable securities totaled $276.3 million at November 30, 2012. Cash flow from operations in the first half of fiscal 2013 improved to $227.3 million, a 29.2% increase over the first half of last fiscal year. As of November 30, 2012, the Company’s current ratio was 2.7 to one, and its debt to EBITDA was 1.9 to one.

During the second quarter of fiscal 2013, the Company purchased 1.9 million shares of its common stock at an aggregate cost of $81.1 million. While it had no impact on the second quarter EPS, this buyback is expected to benefit fiscal year 2013 EPS by approximately $0.01. The Cintas Board of Directors authorized a $500.0 million share buyback program in October 2011. As of November 30, 2012, the Company had $218.7 million available under the current Board authorization for future share repurchases.

Mr. Farmer added, “Last week, we paid our annual dividend to our shareholders amounting to $0.64 per share, an 18.5% increase from last year’s dividend of $0.54 per share. Our consistently strong operating results have allowed us to continue to increase our dividend while executing our stock buyback program, demonstrating our continued commitment to increase shareholder value.”

Mr. Farmer concluded, “Based on our second quarter results and the uncertain U.S. economic climate, we are updating our fiscal 2013 revenue expectations to be in the range of $4.275 billion to $4.325 billion. We are not changing our EPS guidance, which is an expectation of fiscal 2013 EPS to be in the range of $2.50 to $2.58. This guidance assumes no further deterioration in the U.S. economy and does not consider any additional share buybacks.”

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

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy and fuel costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the inaccessibility of computer systems data, the initiation or outcome of litigation, investigations or other proceedings, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic or extraordinary events, the amount and timing of repurchases of our common stock, if any, changes in federal and state tax and labor laws, the reactions of competitors in terms of price and service and the finalization of our financial statements for the quarter ended November 30, 2012. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2012 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
	Three Months Ended
	November 30, 2012			November 30, 2011			% Chng.
Revenue:
Rental uniforms and ancillary products	$	755,839		$	722,789		4.6
Other services		304,547			296,337		2.8
Total revenue	$	1,060,386		$	1,019,126		4.0
Costs and expenses:
Cost of rental uniforms and ancillary products	$	438,902		$	410,247		7.0
Cost of other services		189,448			179,082		5.8
Selling and administrative expenses		293,013			297,112		-1.4
Operating income	$	139,023		$	132,685		4.8
Interest income	$	(149	)	$	(403	)	-63.0
Interest expense		16,294			17,728		-8.1
Income before income taxes	$	122,878		$	115,360		6.5
Income taxes		44,851			41,010		9.4
Net income	$	78,027		$	74,350		4.9
Per share data:
Basic earnings per share	$	0.63		$	0.57		10.5
Diluted earnings per share	$	0.63		$	0.57		10.5
Weighted average number of shares outstanding		124,185			129,727
Diluted average number of shares outstanding		124,609			129,740
	Six Months Ended
	November 30, 2012			November 30, 2011			% Chng.
Revenue:
Rental uniforms and ancillary products	$	1,510,682		$	1,442,212		4.7
Other services		601,029			594,094		1.2
Total revenue	$	2,111,711		$	2,036,306		3.7
Costs and expenses:
Cost of rental uniforms and ancillary products	$	867,050		$	813,653		6.6
Cost of other services		366,750			353,816		3.7
Selling and administrative expenses		599,594			607,578		-1.3
Operating income	$	278,317		$	261,259		6.5
Interest income	$	(226	)	$	(768	)	-70.6
Interest expense		32,892			35,062		-6.2
Income before income taxes	$	245,651		$	226,965		8.2
Income taxes		90,891			83,977		8.2
Net income	$	154,760		$	142,988		8.2
Per share data:
Basic earnings per share	$	1.24		$	1.09		13.8
Diluted earnings per share	$	1.23		$	1.09		12.8
Weighted average number of shares outstanding		125,153			130,522
Diluted average number of shares outstanding		125,541			130,543
CINTAS CORPORATION SUPPLEMENTAL DATA
	Three Months Ended
	November 30, 2012			November 30, 2011
Rental uniforms and ancillary products gross margin		41.9	%		43.2	%
Other services gross margin		37.8	%		39.6	%
Total gross margin		40.7	%		42.2	%
Net margin		7.4	%		7.3	%
Depreciation and amortization	$	46,852		$	48,516
Capital expenditures	$	51,624		$	35,411
	Six Months Ended
	November 30, 2012			November 30, 2011
Rental uniforms and ancillary products gross margin		42.6	%		43.6	%
Other services gross margin		39.0	%		40.4	%
Total gross margin		41.6	%		42.7	%
Net margin		7.3	%		7.0	%
Depreciation and amortization	$	93,294		$	97,026
Capital expenditures	$	99,062		$	79,832
Debt / EBITDA		1.9			2.0

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, net margin 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 the ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA) is valuable to investors, particularly investors of the company's debt, because it is a common metric that reflects the company's earnings and cash flow available for debt service payments.

	As of
	November 30, 2012
Long-term debt	$	1,309,490
Letters of credit		85,719
Debt	$	1,395,209
	Rolling Twelve Months Ended November 30, 2012		Three Months Ended November 30, 2012		Three Months Ended August 31, 2012		Three Months Ended May 31, 2012		Three Months Ended February 29, 2012
Net Income	$	309,409	$	78,027	$	76,733	$	78,614	$	76,035
Add back:
Interest expense		68,455		16,294		16,598		18,344		17,219
Taxes		180,221		44,851		46,040		44,675		44,655
Depreciation		160,230		40,979		40,342		40,265		38,644
Amortization		30,203		5,873		6,100		8,814		9,416
EBITDA	$	748,518	$	186,024	$	185,813	$	190,712	$	185,969
Debt / EBITDA		1.9
	As of
	November 30, 2011
Long-term debt	$	1,285,222
Letters of credit		85,720
Debt	$	1,370,942
	Rolling Twelve Months Ended November 30, 2011		Three Months Ended November 30, 2011		Three Months Ended August 31, 2011		Three Months Ended May 31, 2011		Three Months Ended February 28, 2011
Net Income	$	272,834	$	74,350	$	68,638	$	70,776	$	59,070
Add back:
Interest expense		60,331		17,728		17,334		12,749		12,520
Taxes		167,673		41,010		42,967		46,130		37,566
Depreciation		153,245		38,645		38,277		38,760		37,563
Amortization		41,503		9,871		10,233		10,415		10,984
EBITDA	$	695,586	$	181,604	$	177,449	$	178,830	$	157,703
Debt / EBITDA		2.0

Computation of Free Cash Flow
	Six Months Ended
	November 30, 2012			November 30, 2011
Net Cash Provided by Operations	$	227,263		$	175,958
Capital Expenditures	$	(99,062	)	$	(79,832	)
Free Cash Flow	$	128,201		$	96,126

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, improve and grow business operations.

SUPPLEMENTAL SEGMENT DATA	Rental Uniforms and Ancillary Products		Uniform Direct Sales		First Aid, Safety and Fire Protection		Document Management		Corporate			Total
For the three months ended November 30, 2012
Revenue	$	755,839	$	110,203	$	111,513	$	82,831	$	-		$	1,060,386
Gross margin	$	316,937	$	30,206	$	47,279	$	37,614	$	-		$	432,036
Selling and administrative expenses	$	200,886	$	19,802	$	37,625	$	34,700	$	-		$	293,013
Interest income	$	-	$	-	$	-	$	-	$	(149	)	$	(149	)
Interest expense	$	-	$	-	$	-	$	-	$	16,294		$	16,294
Income (loss) before income taxes	$	116,051	$	10,404	$	9,654	$	2,914	$	(16,145	)	$	122,878
For the three months ended November 30, 2011
Revenue	$	722,789	$	111,946	$	101,687	$	82,704	$	-		$	1,019,126
Gross margin	$	312,542	$	33,127	$	43,800	$	40,328	$	-		$	429,797
Selling and administrative expenses	$	208,065	$	19,885	$	34,838	$	34,324	$	-		$	297,112
Interest income	$	-	$	-	$	-	$	-	$	(403	)	$	(403	)
Interest expense	$	-	$	-	$	-	$	-	$	17,728		$	17,728
Income (loss) before income taxes	$	104,477	$	13,242	$	8,962	$	6,004	$	(17,325	)	$	115,360
For the six months ended November 30, 2012
Revenue	$	1,510,682	$	210,482	$	222,354	$	168,193	$	-		$	2,111,711
Gross margin	$	643,632	$	59,684	$	95,070	$	79,525	$	-		$	877,911
Selling and administrative expenses	$	410,674	$	40,539	$	76,395	$	71,986	$	-		$	599,594
Interest income	$	-	$	-	$	-	$	-	$	(226	)	$	(226	)
Interest expense	$	-	$	-	$	-	$	-	$	32,892		$	32,892
Income (loss) before income taxes	$	232,958	$	19,145	$	18,675	$	7,539	$	(32,666	)	$	245,651
Assets	$	2,813,707	$	143,880	$	393,429	$	590,517	$	276,349		$	4,217,882
For the six months ended November 30, 2011
Revenue	$	1,442,212	$	213,648	$	205,430	$	175,016	$	-		$	2,036,306
Gross margin	$	628,559	$	62,235	$	88,587	$	89,456	$	-		$	868,837
Selling and administrative expenses	$	424,664	$	40,586	$	71,242	$	71,086	$	-		$	607,578
Interest income	$	-	$	-	$	-	$	-	$	(768	)	$	(768	)
Interest expense	$	-	$	-	$	-	$	-	$	35,062		$	35,062
Income (loss) before income taxes	$	203,895	$	21,649	$	17,345	$	18,370	$	(34,294	)	$	226,965
Assets	$	2,803,231	$	157,339	$	364,461	$	552,676	$	337,605		$	4,215,312

Cintas Corporation
Consolidated Balance Sheets
(In thousands except share data)
ASSETS			November 30, 2012	May 31, 2012
			(Unaudited)
Current assets:
	Cash & cash equivalents		$ 242,487	$ 339,825
	Marketable securities		33,862	-
	Accounts receivable, net		479,106	450,861
	Inventories, net		236,195	251,205
	Uniforms and other rental items in service		482,001	452,785
	Income taxes, current		20,976	22,188
	Prepaid expenses and other		25,035	24,704
		Total current assets	1,519,662	1,541,568
Property and equipment, at cost, net			967,260	944,305
Goodwill			1,522,411	1,485,375
Service contracts, net			90,480	76,822
Other assets, net			118,069	112,836
			$ 4,217,882	$ 4,160,906
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$ 118,534	$ 94,840
	Accrued compensation and related liabilities		54,480	91,214
	Accrued liabilities		325,077	256,642
	Deferred tax liability		56,427	2,559
	Long-term debt due within one year		661	225,636
		Total current liabilities	555,179	670,891
Long-term liabilities:
	Long-term debt due after one year		1,308,829	1,059,166
	Deferred income taxes		206,782	204,581
	Accrued liabilities		66,448	87,133
		Total long-term liabilities	1,582,059	1,350,880
Shareholders' equity:
	Preferred stock, no par value:		-	-
		100,000 shares authorized, none outstanding
	Common stock, no par value:		173,127	148,255
		425,000,000 shares authorized
		FY13: 174,419,454 issued and 123,228,777 outstanding
		FY12: 173,745,913 issued and 126,519,758 outstanding
	Paid-in capital		98,311	107,019
	Retained earnings		3,557,088	3,482,073
	Treasury stock:		(1,794,050)	(1,634,875)
		FY13: 51,190,677 shares
		FY12: 47,226,155 shares
	Other accumulated comprehensive income (loss):
		Foreign currency translation	61,091	52,399
		Unrealized loss on derivatives	(15,279)	(16,104)
		Other	356	368
		Total shareholders' equity	2,080,644	2,139,135
			$ 4,217,882	$ 4,160,906

Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
			Six Months Ended
Cash flows from operating activities:			November 30, 2012			November 30, 2011
Net income			$	154,760		$	142,988
Adjustments to reconcile net income to net cash provided
by operating activities:
	Depreciation			81,321			76,922
	Amortization of deferred charges			11,973			20,104
	Stock-based compensation			11,084			9,756
	Deferred income taxes			55,245			(11,767	)
	Change in current assets and liabilities, net of
	acquisitions of businesses:
		Accounts receivable, net		(24,528	)		(20,850	)
		Inventories, net		15,460			(39,268	)
		Uniforms and other rental items in service		(28,105	)		(29,630	)
		Prepaid expenses and other		(202	)		(5,128	)
		Accounts payable		23,019			1,843
		Accrued compensation and related liabilities		(36,899	)		(15,314	)
		Accrued liabilities		(36,464	)		26,306
		Income taxes payable		599			19,996
	Net cash provided by operating activities			227,263			175,958
Cash flows from investing activities:
Capital expenditures				(99,062	)		(79,832	)
Proceeds from redemption of marketable securities				41,453			140,162
Purchase of marketable securities and investments				(80,054	)		(193,527	)
Acquisitions of businesses, net of cash acquired				(53,243	)		(14,551	)
Other, net				(673	)		5,772
	Net cash used in investing activities			(191,579	)		(141,976	)
Cash flows from financing activities:
Proceeds from issuance of debt				250,000			-
Repayment of debt				(225,312	)		(903	)
Proceeds from exercise of stock-based compensation awards				2,357			78
Repurchase of common stock				(159,175	)		(262,682	)
Other, net				(2,476	)		1,454
	Net cash used in financing activities			(134,606	)		(262,053	)
Effect of exchange rate changes on cash and cash equivalents				1,584			(2,263	)
Net decrease in cash and cash equivalents				(97,338	)		(230,334	)
Cash and cash equivalents at beginning of period				339,825			438,106
Cash and cash equivalents at end of period			$	242,487		$	207,772