Cintas Corporation Announces Fiscal 2013 Results

CINCINNATI--()--Cintas Corporation (Nasdaq:CTAS) today reported results for its fourth quarter ended May 31, 2013. Revenue for the fourth quarter was $1.13 billion, representing a 7.2% increase compared to last year’s fourth quarter. Organic growth, which adjusts for the impact of acquisitions, compared to last year’s fourth quarter, was 6.2%. Net income increased 9.4% to $86.0 million as compared to $78.6 million in last year’s fourth quarter. Earnings per diluted share (EPS) for the fourth quarter were $0.69, a 15.0% increase over the $0.60 EPS in last year’s fourth quarter.

Scott D. Farmer, Chief Executive Officer, stated, “We are pleased to report another quarter of record revenue. In addition, our fourth quarter operating margin of 13.6% of revenue reflects the execution of our plan to sell profitable business, manage our cost structure and continuously improve the efficiency of our processes. These solid results conclude a successful year for Cintas achieved in large part by the hard work and dedication of our employees, who we call partners.”

For the fiscal year ended May 31, 2013, revenue was a record $4.32 billion, a 5.2% increase from the prior fiscal year. Adjusting for one less workday in this fiscal year compared to last fiscal year, revenue grew 5.6% over last fiscal year. Organic growth, which adjusts for the impact of acquisitions and the impact of one less workday compared to last fiscal year, was 4.9%. Net income increased 6.0% to $315.4 million compared to last fiscal year. EPS increased 11.0% to $2.52 as compared to last fiscal year.

Mr. Farmer added, “I am proud to report that we achieved record fiscal year sales and EPS in fiscal year 2013. It was the third consecutive fiscal year of double digit EPS growth. In addition, our balance sheet and cash flow remain very strong. As of May 31, 2013, cash and marketable securities totaled $358.0 million, and debt to EBITDA was 1.9 to one. Cash flow from operations for the fiscal year increased 17.6% to $552.7 million compared to last fiscal year.”

Mr. Farmer concluded, “While the U.S. economy has shown some signs of improvement in the past several months, much uncertainty remains. This uncertainty, due to a number of factors including the effect of the Affordable Care Act, continues to cause many of our customers to delay hiring and investment decisions. We have developed our fiscal 2014 expectations with this uncertain economic landscape in mind. We expect fiscal 2014 revenue to be in the range of $4.5 billion to $4.6 billion, and full year EPS to be in the range of $2.66 to $2.75. This guidance assumes no deterioration in the U.S. economy and does not consider any additional share buybacks. It does incorporate the impact of having one less workday in fiscal 2014 compared to fiscal 2013 and our current estimate of the impact of the Affordable Care Act on our cost structure during fiscal year 2014.”

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, the ultimate impact of the Affordable Care Act and the finalization of our financial statements for the year ended May 31, 2013. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2012 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

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

May 31,
2013

May 31,
2012

% Chng.
 
Revenue:
Rental uniforms and ancillary products $ 785,018 $ 749,037 4.8
Other services   344,068     304,545   13.0
Total revenue $ 1,129,086 $ 1,053,582 7.2
 
Costs and expenses:
Cost of rental uniforms and ancillary products $ 454,438 $ 424,940 6.9
Cost of other services 207,433 184,774 12.3
Selling and administrative expenses   313,344     303,036   3.4
 
Operating income $ 153,871 $ 140,832 9.3
 
Interest income $ (51 ) $ (801 ) -93.6
Interest expense   16,518     18,344   -10.0
 
Income before income taxes $ 137,404 $ 123,289 11.4
Income taxes   51,427     44,675   15.1
Net income $ 85,977   $ 78,614   9.4
 
Per share data:
Basic earnings per share $ 0.69   $ 0.60   15.0
Diluted earnings per share $ 0.69   $ 0.60   15.0
 
Weighted average number of shares outstanding 122,392 128,788
Diluted average number of shares outstanding 123,103 129,040
 
 
 
Twelve Months Ended

May 31,
2013

May 31,
2012

% Chng.

 
Revenue:
Rental uniforms and ancillary products $ 3,044,587 $ 2,912,261 4.5
Other services   1,271,884     1,189,739   6.9
Total revenue $ 4,316,471 $ 4,102,000 5.2
 
Costs and expenses:
Cost of rental uniforms and ancillary products $ 1,756,297 $ 1,648,551 6.5
Cost of other services 773,107 714,841 8.2
Selling and administrative expenses   1,221,856     1,198,981   1.9
 
Operating income $ 565,211 $ 539,627 4.7
 
Interest income $ (409 ) $ (1,942 ) -78.9
Interest expense   65,712     70,625   -7.0
 
Income before income taxes $ 499,908 $ 470,944 6.2
Income taxes   184,466     173,307   6.4
Net income $ 315,442   $ 297,637   6.0
 
Per share data:
Basic earnings per share $ 2.53   $ 2.27   11.5
Diluted earnings per share $ 2.52   $ 2.27   11.0
 
Weighted average number of shares outstanding 123,956 129,891
Diluted average number of shares outstanding 124,531 130,033
 
 
 
CINTAS CORPORATION SUPPLEMENTAL DATA
 
Three Months Ended

May 31,
2013

May 31,
2012

Rental uniforms and ancillary products gross margin 42.1 % 43.3 %
Other services gross margin 39.7 % 39.3 %
Total gross margin 41.4 % 42.1 %
Net margin 7.6 % 7.5 %
 
Depreciation and amortization $ 48,251 $ 49,080
Capital expenditures $ 44,687 $ 43,086
 
 
Twelve Months Ended

May 31,
2013

May 31,
2012

Rental uniforms and ancillary products gross margin 42.3 % 43.4 %
Other services gross margin 39.2 % 39.9 %
Total gross margin 41.4 % 42.4 %
Net margin 7.3 % 7.3 %
 
Depreciation and amortization $ 189,377 $ 194,165
Capital expenditures $ 196,486 $ 160,802
 
Debt / EBITDA 1.9 1.9
 
Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure
 
The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional measures of revenue growth, debt and cash flow. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP is shown below.
 
Computation of Workday Adjusted Revenue Growth
     
 
Twelve Months Ended

May 31,
2013

 

May 31,
2012

  Growth %
 
A B G
Revenue $ 4,316,471 $ 4,102,000 5.2%
G=(A-B)/B
C D
Workdays in the period 261 262
 
E F H
Revenue adjusted for workday difference $ 4,333,009 $ 4,102,000 5.6%
H=(E-F)/F
E=(A/C)*D F=(B/D)*D
 
Management believes that Workday Adjusted Revenue Growth is valuable to investors because it reflects the revenue performance compared to a prior period with the same number of revenue generating days.
 
Computation of Debt to EBITDA
   
As of As of

May 31,
2013

 

May 31,
2012

 
Long-term debt $ 1,309,166 $ 1,284,802
Letters of credit   85,775     85,716
Debt $ 1,394,941 $ 1,370,518
 
 
Twelve Months Ended

May 31,
2013

 

May 31,
2012

Net Income $ 315,442 $ 297,637
 
Add back:
Interest expense 65,712 70,625
Taxes 184,466 173,307
Depreciation 165,664 155,830
Amortization   23,713     38,335
EBITDA $ 754,997 $ 735,734
 
Debt / EBITDA   1.9     1.9
Management believes the ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA) is valuable to investors, particularly investors of the company's debt, because it is a common metric that reflects the company's earnings and cash flow available for debt service payments.
 
Computation of Free Cash Flow
   
Twelve Months Ended

May 31,
2013

 

May 31,
2012

 
Net Cash Provided by Operations $ 552,748 $ 469,862
 
Capital Expenditures $ (196,486 )   $ (160,802 )
 
Free Cash Flow $ 356,262 $ 309,060
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 May 31, 2013          
Revenue $ 785,018 $ 124,717 $ 125,360 $ 93,991 $ - $ 1,129,086
Gross margin $ 330,580 $ 38,472 $ 54,593 $ 43,570 $ - $ 467,215
Selling and administrative expenses $ 213,044 $ 20,421 $ 40,716 $ 39,163 $ - $ 313,344
Interest income $ - $ - $ - $ - $ (51 ) $ (51 )
Interest expense $ - $ - $ - $ - $ 16,518 $ 16,518
Income (loss) before income taxes $ 117,536 $ 18,051 $ 13,877 $ 4,407 $ (16,467 ) $ 137,404
 
For the three months ended May 31, 2012
Revenue $ 749,037 $ 111,232 $ 108,895 $ 84,418 $ - $ 1,053,582
Gross margin $ 324,097 $ 34,153 $ 46,119 $ 39,499 $ - $ 443,868
Selling and administrative expenses $ 210,963 $ 21,246 $ 36,061 $ 34,766 $ - $ 303,036
Interest income $ - $ - $ - $ - $ (801 ) $ (801 )
Interest expense $ - $ - $ - $ - $ 18,344 $ 18,344
Income (loss) before income taxes $ 113,134 $ 12,907 $ 10,058 $ 4,733 $ (17,543 ) $ 123,289
 
For the twelve months ended May 31, 2013
Revenue $ 3,044,587 $ 461,328 $ 460,592 $ 349,964 $ - $ 4,316,471
Gross margin $ 1,288,290 $ 134,985 $ 199,314 $ 164,478 $ - $ 1,787,067
Selling and administrative expenses $ 835,249 $ 81,739 $ 156,232 $ 148,636 $ - $ 1,221,856
Interest income $ - $ - $ - $ - $ (409 ) $ (409 )
Interest expense $ - $ - $ - $ - $ 65,712 $ 65,712
Income (loss) before income taxes $ 453,041 $ 53,246 $ 43,082 $ 15,842 $ (65,303 ) $ 499,908
Assets $ 2,830,941 $ 152,551 $ 398,614 $ 605,573 $ 357,953 $ 4,345,632
 
For the twelve months ended May 31, 2012
Revenue $ 2,912,261 $ 433,994 $ 415,703 $ 340,042 $ - $ 4,102,000
Gross margin $ 1,263,710 $ 129,614 $ 178,465 $ 166,819 $ - $ 1,738,608
Selling and administrative expenses $ 834,210 $ 80,577 $ 143,338 $ 140,856 $ - $ 1,198,981
Interest income $ - $ - $ - $ - $ (1,942 ) $ (1,942 )
Interest expense $ - $ - $ - $ - $ 70,625 $ 70,625
Income (loss) before income taxes $ 429,500 $ 49,037 $ 35,127 $ 25,963 $ (68,683 ) $ 470,944
Assets $ 2,770,491 $ 136,478 $ 362,128 $ 556,784 $ 339,825 $ 4,165,706
 
Cintas Corporation
Consolidated Balance Sheets
(In thousands except share data)
         
 

ASSETS

May 31,
2013

May 31,
2012

 
Current assets:
Cash & cash equivalents $ 352,273 $ 339,825
Marketable securities 5,680 -
Accounts receivable, net 496,049 450,861
Inventories, net 240,440 251,205
Uniforms and other rental items in service 496,752 452,785
Income taxes, current 9,102 22,188
Prepaid expenses and other   24,530     21,222  
Total current assets 1,624,826 1,538,086
 
Property and equipment, at cost, net 986,703 952,587
 
Goodwill 1,517,560 1,485,375
Service contracts, net 92,153 76,822
Other assets, net   124,390     112,836  
 
$ 4,345,632   $ 4,165,706  
 

LIABILITIES AND SHAREHOLDERS' EQUITY

 
Current liabilities:
Accounts payable $ 121,029 $ 94,840
Accrued compensation and related liabilities 78,050 91,214
Accrued liabilities 271,821 261,442
Deferred tax liability 77,169 2,559
Long-term debt due within one year   8,187     225,636  
Total current liabilities 556,256 675,691
 
Long-term liabilities:
Long-term debt due after one year 1,300,979 1,059,166
Deferred income taxes 210,483 204,581
Accrued liabilities   76,422     87,133  
Total long-term liabilities 1,587,884 1,350,880
 
Shareholders' equity:
Preferred stock, no par value: - -
100,000 shares authorized, none outstanding
Common stock, no par value: 186,332 148,255
425,000,000 shares authorized
FY13: 174,786,010 issued and 122,281,507 outstanding
FY12: 173,745,913 issued and 126,519,758 outstanding
Paid-in capital 109,822 107,019
Retained earnings 3,717,771 3,482,073
Treasury stock: (1,850,556 ) (1,634,875 )
FY13: 52,504,503 shares
FY12: 47,226,155 shares
Other accumulated comprehensive income (loss):
Foreign currency translation 51,312 52,399
Unrealized loss on derivatives (14,339 ) (16,104 )
Other   1,150     368  
Total shareholders' equity 2,201,492 2,139,135
 
$ 4,345,632   $ 4,165,706  
 
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(In thousands)
         
 
Twelve Months Ended

Cash flows from operating activities:

May 31, 2013 May 31, 2012
 
Net income $ 315,442 $ 297,637
 

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

Depreciation 165,664 155,831
Amortization of intangible assets 23,713 38,334
Stock-based compensation 23,310 20,312
Deferred income taxes 48,023 56,727

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

Accounts receivable, net (42,704 ) (24,261 )
Inventories, net 10,997 (2,330 )
Uniforms and other rental items in service (44,179 ) (60,279 )
Prepaid expenses and other (3,281 ) (1,496 )
Accounts payable 25,023 (12,557 )
Accrued compensation and related liabilities (13,161 ) 11,625
Accrued liabilities 31,873 (20,371 )
Income taxes payable   12,028     10,690  
 
Net cash provided by operating activities 552,748 469,862
 

Cash flows from investing activities:

 
Capital expenditures (196,486 ) (160,802 )
Proceeds from redemption of marketable securities 161,478 665,016
Purchase of marketable securities and investments (178,464 ) (585,655 )
Acquisitions of businesses, net of cash acquired (69,370 ) (24,864 )
Other, net   (1,339 )   2,011  
 
Net cash used in investing activities (284,181 ) (104,294 )
 

Cash flows from financing activities:

 
Proceeds from issuance of debt 250,000 -
Repayment of debt (225,636 ) (1,323 )
Proceeds from exercise of stock-based compensation awards 14,807 3,341
Dividends paid (79,744 ) (70,820 )
Repurchase of common stock (215,681 ) (392,328 )
Other, net   196     555  
 
Net cash used in financing activities (256,058 ) (460,575 )
 
Effect of exchange rate changes on cash and cash equivalents (61 ) (3,274 )
 
Net increase (decrease) in cash and cash equivalents 12,448 (98,281 )
 
Cash and cash equivalents at beginning of period   339,825     438,106  
 
Cash and cash equivalents at end of period $ 352,273   $ 339,825  

Contacts

Cintas Corporation
William C. Gale, Sr. Vice President-Finance and Chief Financial Officer, 513-573-4211
J. Michael Hansen, Vice President and Treasurer, 513-701-2079

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Contacts

Cintas Corporation
William C. Gale, Sr. Vice President-Finance and Chief Financial Officer, 513-573-4211
J. Michael Hansen, Vice President and Treasurer, 513-701-2079