FORM 10-Q
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
WASHINGTON | 31-1188630 |
(State or other jurisdiction of | (I.R.S. Employer | ||||||
incorporation or organization) | Identification No.) |
(Zip Code)
o
o
þ
Class | Outstanding | |||||
Common Stock, no par value | 159,707,836 |
1
INDEX
Page No. | ||||||||
Part I. Financial Information | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
25 | ||||||||
33 | ||||||||
33 | ||||||||
35 | ||||||||
35 | ||||||||
36 | ||||||||
36 | ||||||||
37 | ||||||||
38 | ||||||||
38 | ||||||||
Certifications | 39 | |||||||
EX-31.1 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Three Months Ended August 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2006 | 2005 | |||||||
(Restated)* | ||||||||
Revenue: | ||||||||
Rentals | $ | 687,658 | $ | 628,008 | ||||
Other services | 226,503 | 195,467 | ||||||
914,161 | 823,475 | |||||||
Costs and expenses (income): | ||||||||
Cost of rentals | 378,300 | 339,425 | ||||||
Cost of other services | 145,380 | 128,562 | ||||||
Selling and administrative expenses | 244,128 | 224,550 | ||||||
Interest income | (1,526 | ) | (1,702 | ) | ||||
Interest expense | 12,432 | 7,336 | ||||||
778,714 | 698,171 | |||||||
Income before income taxes | 135,447 | 125,304 | ||||||
Income taxes | 50,485 | 46,882 | ||||||
Net income | $ | 84,962 | $ | 78,422 | ||||
Basic earnings per share | $ | .53 | $ | .46 | ||||
Diluted earnings per share | $ | .53 | $ | .46 | ||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
Three Months Ended | Six Months Ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Restated)* | (Restated)* | |||||||||||||||
Revenue: | ||||||||||||||||
Rentals | $ | 684,491 | $ | 631,590 | $ | 1,372,149 | $ | 1,259,598 | ||||||||
Other services | 238,775 | 204,195 | 465,278 | 399,662 | ||||||||||||
923,266 | 835,785 | 1,837,427 | 1,659,260 | |||||||||||||
Costs and expenses (income): | ||||||||||||||||
Cost of rentals | 380,015 | 349,658 | 758,315 | 689,083 | ||||||||||||
Cost of other services | 152,178 | 135,666 | 297,558 | 264,228 | ||||||||||||
Selling and administrative expenses | 248,628 | 221,044 | 492,756 | 445,594 | ||||||||||||
Interest income | (1,623 | ) | (1,332 | ) | (3,149 | ) | (3,034 | ) | ||||||||
Interest expense | 12,483 | 7,484 | 24,915 | 14,820 | ||||||||||||
791,681 | 712,520 | 1,570,395 | 1,410,691 | |||||||||||||
Income before income taxes | 131,585 | 123,265 | 267,032 | 248,569 | ||||||||||||
Income taxes | 49,058 | 46,426 | 99,543 | 93,308 | ||||||||||||
Net income | $ | 82,527 | $ | 76,839 | $ | 167,489 | $ | 155,261 | ||||||||
Basic earnings per share | $ | .51 | $ | .46 | $ | 1.04 | $ | .92 | ||||||||
Diluted earnings per share | $ | .51 | $ | .46 | $ | 1.04 | $ | .92 | ||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
3
August 31, 2006 | May 31, 2006 | |||||||
---|---|---|---|---|---|---|---|---|
(Unaudited) | (Restated)* | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 34,965 | $ | 38,914 | ||||
Marketable securities | 139,929 | 202,539 | ||||||
Accounts receivable, net | 391,411 | 389,905 | ||||||
Inventories, net | 210,381 | 198,000 | ||||||
Uniforms and other rental items in service | 339,798 | 337,487 | ||||||
Prepaid expenses | 10,529 | 11,163 | ||||||
Total current assets | 1,127,013 | 1,178,008 | ||||||
Property and equipment, at cost, net | 867,631 | 863,783 | ||||||
Goodwill | 1,153,867 | 1,136,175 | ||||||
Service contracts, net | 175,020 | 179,965 | ||||||
Other assets, net | 60,690 | 67,306 | ||||||
$ | 3,384,221 | $ | 3,425,237 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 59,865 | $ | 71,635 | ||||
Accrued compensation and related liabilities | 47,357 | 50,134 | ||||||
Accrued liabilities | 129,863 | 188,927 | ||||||
Income taxes: | ||||||||
Current | 50,218 | 43,694 | ||||||
Deferred | 66,174 | 51,669 | ||||||
Long-term debt due within one year | 229,526 | 4,288 | ||||||
Total current liabilities | 583,003 | 410,347 | ||||||
Long-term debt due after one year | 627,393 | 794,454 | ||||||
Deferred income taxes | 122,766 | 130,244 | ||||||
Shareholders' equity: | ||||||||
Preferred stock, no par value: | ||||||||
100,000 shares authorized, none outstanding | -- | -- | ||||||
Common stock, no par value: | ||||||||
425,000,000 shares authorized, | ||||||||
FY 2007: 172,683,005 issued and 160,548,869 outstanding | ||||||||
FY 2006: 172,571,083 issued and 163,181,738 outstanding | 124,263 | 120,860 | ||||||
Paid in capital | 45,177 | 47,644 | ||||||
Retained earnings | 2,345,879 | 2,260,917 | ||||||
Treasury stock: | ||||||||
FY 2007: 12,134,136 shares | ||||||||
FY 2006: 9,389,345 shares | (496,031 | ) | (381,613 | ) | ||||
Other accumulated comprehensive income | 31,771 | 42,384 | ||||||
Total shareholders' equity | 2,051,059 | 2,090,192 | ||||||
$ | 3,384,221 | $ | 3,425,237 | |||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
November 30, 2006 | May 31, 2006 | |||||||
(Unaudited) | (Restated)* | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 38,939 | $ | 38,914 | ||||
Marketable securities | 133,282 | 202,539 | ||||||
Accounts receivable, net | 405,042 | 389,905 | ||||||
Inventories, net | 217,575 | 198,000 | ||||||
Uniforms and other rental items in service | 347,021 | 337,487 | ||||||
Prepaid expenses | 13,594 | 11,163 | ||||||
Total current assets | 1,155,453 | 1,178,008 | ||||||
Property and equipment, at cost, net | 880,955 | 863,783 | ||||||
Goodwill | 1,170,480 | 1,136,175 | ||||||
Service contracts, net | 171,391 | 179,965 | ||||||
Other assets, net | 56,785 | 67,306 | ||||||
$ | 3,435,064 | $ | 3,425,237 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 79,144 | $ | 71,635 | ||||
Accrued compensation and related liabilities | 50,649 | 50,134 | ||||||
Accrued liabilities | 162,316 | 188,927 | ||||||
Income taxes: | ||||||||
Current | 81,886 | 43,694 | ||||||
Deferred | 56,493 | 51,669 | ||||||
Long-term debt due within one year | 229,477 | 4,288 | ||||||
Total current liabilities | 659,965 | 410,347 | ||||||
Long-term debt due after one year | 561,796 | 794,454 | ||||||
Deferred income taxes | 116,891 | 130,244 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, no par value: | ||||||||
100,000 shares authorized, none outstanding | — | — | ||||||
Common stock, no par value: | ||||||||
425,000,000 shares authorized, | ||||||||
FY 2007: 172,743,841 issued and 159,947,356 outstanding | ||||||||
FY 2006: 172,571,083 issued and 163,181,738 outstanding | 126,641 | 120,860 | ||||||
Paid in capital | 45,696 | 47,644 | ||||||
Retained earnings | 2,428,406 | 2,260,917 | ||||||
Treasury stock: | ||||||||
FY 2007: 12,796,485 shares | ||||||||
FY 2006: 9,389,345 shares | (523,573 | ) | (381,613 | ) | ||||
Other accumulated comprehensive income | 19,242 | 42,384 | ||||||
Total shareholders’ equity | 2,096,412 | 2,090,192 | ||||||
$ | 3,435,064 | $ | 3,425,237 | |||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
4
Three Months Ended August 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2006 | 2005 | |||||||
(Restated)* | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 84,962 | $ | 78,422 | ||||
Adjustments to reconcile net income to net cash provided | ||||||||
by operating activities: | ||||||||
Depreciation | 33,078 | 30,579 | ||||||
Amortization of deferred charges | 9,690 | 7,774 | ||||||
Stock-based compensation | (598 | ) | 1,613 | |||||
Deferred income taxes | 10,772 | 17,230 | ||||||
Change in current assets and liabilities, net of | ||||||||
acquisitions of businesses: | ||||||||
Accounts receivable | (1,202 | ) | (11,258 | ) | ||||
Inventories | (12,381 | ) | (5,610 | ) | ||||
Uniforms and other rental items in service | (2,311 | ) | (3,318 | ) | ||||
Prepaid expenses | 634 | (1,664 | ) | |||||
Accounts payable | (11,770 | ) | (3,529 | ) | ||||
Accrued compensation and related liabilities | (2,777 | ) | (1,769 | ) | ||||
Accrued liabilities | (58,777 | ) | (66,996 | ) | ||||
Tax benefit on exercise of stock options | -- | (189 | ) | |||||
Income taxes payable | 6,524 | 5,590 | ||||||
Net cash provided by operating activities | 55,844 | 46,875 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (36,496 | ) | (36,144 | ) | ||||
Proceeds from sale or redemption of marketable securities | 66,214 | 54,047 | ||||||
Purchase of marketable securities | (3,044 | ) | (2,125 | ) | ||||
Acquisitions of businesses, net of cash acquired | (25,101 | ) | (20,968 | ) | ||||
Other | (2,437 | ) | 3,487 | |||||
Net cash used in investing activities | (864 | ) | (1,703 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of debt | 252,460 | 46,000 | ||||||
Repayment of debt | (194,283 | ) | (237 | ) | ||||
Stock options exercised | 3,403 | 5,498 | ||||||
Tax benefit on exercise of stock options | -- | 189 | ||||||
Repurchase of common stock | (114,418 | ) | (102,257 | ) | ||||
Other | (6,091 | ) | 5,876 | |||||
Net cash used in financing activities | (58,929 | ) | (44,931 | ) | ||||
Net (decrease) / increase in cash and cash equivalents | (3,949 | ) | 241 | |||||
Cash and cash equivalents at beginning of period | 38,914 | 43,196 | ||||||
Cash and cash equivalents at end of period | $ | 34,965 | $ | 43,437 | ||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
Six Months Ended | ||||||||
November 30, | ||||||||
2006 | 2005 | |||||||
(Restated)* | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 167,489 | $ | 155,261 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 66,074 | 61,982 | ||||||
Amortization of deferred charges | 19,679 | 15,678 | ||||||
Stock-based compensation | 1,250 | 3,045 | ||||||
Deferred income taxes | 999 | 6,413 | ||||||
Change in current assets and liabilities, net of acquisitions of businesses: | ||||||||
Accounts receivable | (14,179 | ) | (27,567 | ) | ||||
Inventories | (19,254 | ) | 3,096 | |||||
Uniforms and other rental items in service | (9,534 | ) | (10,027 | ) | ||||
Prepaid expenses | (2,424 | ) | 710 | |||||
Accounts payable | 7,506 | (10,751 | ) | |||||
Accrued compensation and related liabilities | 515 | 1,657 | ||||||
Accrued liabilities | (28,979 | ) | (43,231 | ) | ||||
Tax benefit on exercise of stock options | (97 | ) | (301 | ) | ||||
Income taxes payable | 38,289 | 49,934 | ||||||
Net cash provided by operating activities | 227,334 | 205,899 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (81,321 | ) | (70,181 | ) | ||||
Proceeds from sale or redemption of marketable securities | 80,485 | 73,171 | ||||||
Purchase of marketable securities | (10,218 | ) | (10,277 | ) | ||||
Acquisitions of businesses, net of cash acquired | (53,782 | ) | (87,078 | ) | ||||
Other | (2,740 | ) | 3,111 | |||||
Net cash used in investing activities | (67,576 | ) | (91,254 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of debt | 252,460 | — | ||||||
Repayment of debt | (259,929 | ) | (6,403 | ) | ||||
Stock options exercised | 5,781 | 7,152 | ||||||
Tax benefit on exercise of stock options | 97 | 301 | ||||||
Purchase of common stock | (141,960 | ) | (114,170 | ) | ||||
Other | (16,182 | ) | 7,875 | |||||
Net cash used in financing activities | (159,733 | ) | (105,245 | ) | ||||
Net increase in cash and cash equivalents | 25 | 9,400 | ||||||
Cash and cash equivalents at beginning of period | 38,914 | 43,196 | ||||||
Cash and cash equivalents at end of period | $ | 38,939 | $ | 52,596 | ||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
5
6
Three Months Ended August 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2006 | 2005 | |||||||
(Restated)* | ||||||||
Numerator: | ||||||||
Net income | $ | 84,962 | $ | 78,422 | ||||
Denominator: | ||||||||
Denominator for basic earnings per | ||||||||
share-weighted average shares | 160,770 | 168,939 | ||||||
Effect of dilutive securities- | ||||||||
employee stock options | 377 | 625 | ||||||
Denominator for diluted earnings per | ||||||||
share-adjusted weighted average | ||||||||
shares and assuming conversions | 161,147 | 169,564 | ||||||
Basic earnings per share | $ | .53 | $ | .46 | ||||
Diluted earnings per share | $ | .53 | $ | .46 | ||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
Three Months Ended | Six Months Ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Restated)* | (Restated)* | |||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 82,527 | $ | 76,839 | $ | 167,489 | $ | 155,261 | ||||||||
Denominator: | ||||||||||||||||
Denominator for basic earnings per share-weighted average shares | 160,312 | 167,975 | 160,542 | 168,460 | ||||||||||||
Effect of dilutive securities-employee stock options | 409 | 636 | 390 | 623 | ||||||||||||
Denominator for diluted earnings per share-adjusted weighted average shares and assuming conversions | 160,721 | 168,611 | 160,932 | 169,083 | ||||||||||||
Basic earnings per share | $ | .51 | $ | .46 | $ | 1.04 | $ | .92 | ||||||||
Diluted earnings per share | $ | .51 | $ | .46 | $ | 1.04 | $ | .92 | ||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
Rentals | Other Services | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Goodwill | |||||||||||
Balance as of June 1, 2006 | $ | 855,135 | $ | 281,040 | $ | 1,136,175 | |||||
Goodwill acquired | (599 | ) | 18,369 | 17,770 | |||||||
Foreign currency translation | (56 | ) | (22 | ) | (78 | ) | |||||
Balance as of August 31, 2006 | $ | 854,480 | $ | 299,387 | $ | 1,153,867 | |||||
Other | ||||||||||||
Rentals | Services | Total | ||||||||||
Goodwill | ||||||||||||
Balance as of June 1, 2006 | $ | 855,135 | $ | 281,040 | $ | 1,136,175 | ||||||
Goodwill acquired | (1,373 | ) | 36,445 | 35,072 | ||||||||
Foreign currency translation | (581 | ) | (186 | ) | (767 | ) | ||||||
Balance as of November 30, 2006 | $ | 853,181 | $ | 317,299 | $ | 1,170,480 | ||||||
7
Rentals | Other Services | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Service Contracts | |||||||||||
Balance as of June 1, 2006 | $ | 132,391 | $ | 47,574 | $ | 179,965 | |||||
Service contracts acquired | -- | 2,732 | 2,732 | ||||||||
Service contracts amortization | (5,327 | ) | (2,239 | ) | (7,566 | ) | |||||
Foreign currency translation | (107 | ) | (4 | ) | (111 | ) | |||||
Balance as of August 31, 2006 | $ | 126,957 | $ | 48,063 | $ | 175,020 | |||||
Other | ||||||||||||
Rentals | Services | Total | ||||||||||
Service Contracts | ||||||||||||
Balance as of June 1, 2006 | $ | 132,391 | $ | 47,574 | $ | 179,965 | ||||||
Service contracts acquired | 304 | 6,722 | 7,026 | |||||||||
Service contracts amortization | (10,088 | ) | (4,626 | ) | (14,714 | ) | ||||||
Foreign currency translation | (844 | ) | (42 | ) | (886 | ) | ||||||
Balance as of November 30, 2006 | $ | 121,763 | $ | 49,628 | $ | 171,391 | ||||||
As of August 31, 2006 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Carrying Amount | Accumulated Amortization | Net | |||||||||
Service contracts | $ | 296,943 | $ | 121,923 | $ | 175,020 | |||||
Noncompete and | |||||||||||
consulting agreements | $ | 47,145 | $ | 16,734 | $ | 30,411 | |||||
Other | 34,020 | 3,741 | 30,279 | ||||||||
Total | $ | 81,165 | $ | 20,475 | $ | 60,690 | |||||
As of May 31, 2006 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Carrying Amount | Accumulated Amortization | Net | |||||||||
Service contracts | $ | 295,929 | $ | 115,964 | $ | 179,965 | |||||
Noncompete and | |||||||||||
consulting agreements | $ | 45,801 | $ | 15,484 | $ | 30,317 | |||||
Other | 40,512 | 3,523 | 36,989 | ||||||||
Total | $ | 86,313 | $ | 19,007 | $ | 67,306 | |||||
As of November 30, 2006 | ||||||||||||
Carrying | Accumulated | |||||||||||
Amount | Amortization | Net | ||||||||||
Service contracts | $ | 300,463 | $ | 129,072 | $ | 171,391 | ||||||
Noncompete and consulting agreements | $ | 49,791 | $ | 18,968 | $ | 30,823 | ||||||
Other | 29,952 | 3,990 | 25,962 | |||||||||
Total | $ | 79,743 | $ | 22,958 | $ | 56,785 | ||||||
As of May 31, 2006 | ||||||||||||
Carrying | Accumulated | |||||||||||
Amount | Amortization | Net | ||||||||||
Service contracts | $ | 295,929 | $ | 115,964 | $ | 179,965 | ||||||
Noncompete and consulting agreements | $ | 45,801 | $ | 15,484 | $ | 30,317 | ||||||
Other | 40,512 | 3,523 | 36,989 | |||||||||
Total | $ | 86,313 | $ | 19,007 | $ | 67,306 | ||||||
8
Fair value hedges protect assets, liabilities and firm commitments against changes in fair values. Cintas has used reverse interest rate swap agreements to hedge the exposure to changes in the fair value of certain fixed rate debt. These agreements involve the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreements without an exchange of underlying principal amount. The change in the fair value of the hedging instruments and the underlying debt obligations are recorded in current period earnings. Cintas attempts to structure these agreements to be perfectly effective such that the adjustments from the mark-to-market values are equal and result in offsetting gains and losses. If these agreements are structured to be perfectly effective, Cintas can qualify for treatment under the short-cut method of measuring effectiveness, which under the provisions of FASB Statement 133,Accounting for Derivative Instruments and Hedging Activities, eliminates the requirement to periodically evaluate effectiveness. There were no reverse interest rate swap agreementsfair value hedges in place as of August 31,November 30, 2006.
9
CINTAS CORPORATIONNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(In thousands except per share data)
resulted in a credit to other comprehensive income of $73$104 for both the three months ended August 31,November 30, 2006, and August 31, 2005. Amortization of$177 for the fiscal 2007 lock agreement will begin in Septembersix months ended November 30, 2006.
9
Three Months Ended August 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2006 | 2005 | |||||||
Risk-free interest rate | 4.00 | % | 4.00 | % | ||||
Dividend yield | .70 | % | .50 | % | ||||
Expected volatility of | ||||||||
Cintas' common stock | 35 | % | 35 | % | ||||
Expected life of the option in years | 7.5 | 9 |
10
CINTAS CORPORATIONNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(Unaudited)(In thousands except per share data)
Three and Six Months Ended | ||||||||
November 30, | ||||||||
2006 | 2005 | |||||||
Risk-free interest rate | 4.00 | % | 4.00 | % | ||||
Dividend yield | .70 | % | .50 | % | ||||
Expected volatility of Cintas’ common stock | 35 | % | 35 | % | ||||
Expected life of the option in years | 7.5 | 9 |
for the six months ended November 30, 2005.
10
Shares | Weighted Average Exercise Price | |||||||
---|---|---|---|---|---|---|---|---|
Outstanding May 31, 2006 (2,718,180 shares | ||||||||
exercisable) | 6,535,404 | $ | 40.08 | |||||
Granted | 1,061,005 | 37.60 | ||||||
Forfeitures/Cancellations | (157,435 | ) | 42.52 | |||||
Exercised | (144,607 | ) | 18.95 | |||||
Outstanding August 31, 2006 (2,707,855 shares | ||||||||
exercisable) | 7,294,367 | $ | 40.09 | |||||
Weighted Average | ||||||||
Shares | Exercise Price | |||||||
Outstanding May 31, 2006 (2,718,180 shares exercisable) | 6,535,404 | $ | 40.08 | |||||
Granted | 1,061,005 | 37.60 | ||||||
Forfeitures/Cancellations | (157,435 | ) | 42.52 | |||||
Exercised | (144,607 | ) | 18.95 | |||||
Outstanding August 31, 2006 (2,707,855 shares exercisable) | 7,294,367 | $ | 40.09 | |||||
Granted | 111,500 | 41.31 | ||||||
Forfeitures/Cancellations | (198,545 | ) | 42.02 | |||||
Exercised | (79,038 | ) | 24.38 | |||||
Outstanding November 30, 2006 (2,561,212 shares exercisable) | 7,128,284 | $ | 40.23 | |||||
$1,464 and $4,068, respectively.
Outstanding Options | Exercisable Options | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Number Outstanding | Average Remaining Option Life | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | ||||||||||||
$17.75 - $39.29 | 2,831,440 | 6.75 | $34.76 | 680,388 | $25.86 | ||||||||||||
39.42 - 41.98 | 1,171,827 | 5.37 | 41.59 | 966,917 | 41.77 | ||||||||||||
42.06 - 44.33 | 1,699,000 | 6.98 | 42.36 | 462,400 | 42.77 | ||||||||||||
44.43 - 53.19 | 1,592,100 | 7.45 | 45.68 | 598,150 | 47.70 | ||||||||||||
$17.75 - $53.19 | 7,294,367 | 6.73 | $40.09 | 2,707,855 | $39.25 | ||||||||||||
Outstanding Options | Exercisable Options | |||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Range of | Number | Option | Exercise | Number | Exercise | |||||||||||||||
Exercise Prices | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||
$18.00–$39.19 | 1,919,132 | 6.70 | $ | 33.43 | 584,350 | $ | 26.06 | |||||||||||||
39.29 – 41.98 | 1,989,902 | 5.91 | 40.69 | 947,062 | 41.77 | |||||||||||||||
42.06 – 44.33 | 1,668,000 | 6.77 | 42.35 | 446,650 | 42.76 | |||||||||||||||
44.43 – 53.19 | 1,551,250 | 7.20 | 45.67 | 583,150 | 47.69 | |||||||||||||||
$18.00–$53.19 | 7,128,284 | 6.61 | $ | 40.23 | 2,561,212 | $ | 39.71 | |||||||||||||
11
The information presented in the following table relates to restricted stock awards granted and outstanding under the plan adopted in fiscal 2006:
Shares | Weighted Average Price | ||||
---|---|---|---|---|---|
Outstanding, unvested grants at May 31, 2006 | 128,075 | $36.08 | |||
Granted | 230,365 | 38.06 | |||
Cancelled | -- | -- | |||
Vested | -- | -- | |||
Outstanding, unvested grants at August 31, 2006 | 358,440 | $37.36 |
Weighted Average | ||||||||
Shares | Price | |||||||
Outstanding, unvested grants at May 31, 2006 | 128,075 | $ | 36.08 | |||||
Granted | 230,365 | 38.06 | ||||||
Cancelled | — | — | ||||||
Vested | — | — | ||||||
Outstanding, unvested grants at August 31, 2006 | 358,440 | $ | 37.36 | |||||
Granted | 15,866 | 38.97 | ||||||
Cancelled | (2,460 | ) | 36.08 | |||||
Vested | — | — | ||||||
Outstanding, unvested grants at November 30, 2006 | 371,846 | $ | 37.43 | |||||
3.7 years.
Three Months Ended August 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2006 | 2005 | |||||||
(Restated)* | ||||||||
Net income | $ | 84,962 | $ | 78,422 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation adjustment | (531 | ) | 8,150 | |||||
Change in fair value of derivatives, net of $6,169 of tax | (10,430 | ) | 73 | |||||
Change in fair value of available-for-sale securities, | ||||||||
net of $211 of tax | 348 | -- | ||||||
Comprehensive income | $ | 74,349 | $ | 86,645 | ||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
12
Three Months Ended | Six Months Ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Restated)* | (Restated)* | |||||||||||||||
Net income | $ | 82,527 | $ | 76,839 | $ | 167,489 | $ | 155,261 | ||||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustment | (6,563 | ) | 2,637 | (7,094 | ) | 10,787 | ||||||||||
Change in fair value of derivatives** | (6,258 | ) | 73 | (16,688 | ) | 146 | ||||||||||
Change in fair value of available-for-sale securities, net of $164 and $375 of tax, respectively | 292 | — | 640 | — | ||||||||||||
Comprehensive income | $ | 69,998 | $ | 79,549 | $ | 144,347 | $ | 166,194 | ||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. | |
** | Net of $3,736 of tax for the three months ended November 30, 2006, and net of $9,905 of tax for the six months ended November 30, 2006. |
13
14
15
Other | ||||||||||||||||
Rentals | Services | Corporate | Total | |||||||||||||
For the three months ended November 30, 2006 | ||||||||||||||||
Revenue | $ | 684,491 | $ | 238,775 | $ | — | $ | 923,266 | ||||||||
Income (loss) before income taxes | $ | 117,797 | $ | 24,648 | $ | (10,860 | ) | $ | 131,585 | |||||||
For the three months ended November 30, 2005 (Restated)* | ||||||||||||||||
Revenue | $ | 631,590 | $ | 204,195 | $ | — | $ | 835,785 | ||||||||
Income (loss) before income taxes | $ | 112,637 | $ | 16,780 | $ | (6,152 | ) | $ | 123,265 | |||||||
As of and for the six months ended November 30, 2006 | ||||||||||||||||
Revenue | $ | 1,372,149 | $ | 465,278 | $ | — | $ | 1,837,427 | ||||||||
Income (loss) before income taxes | $ | 241,877 | $ | 46,921 | $ | (21,766 | ) | $ | 267,032 | |||||||
Total assets | $ | 2,531,085 | $ | 731,758 | $ | 172,221 | $ | 3,435,064 | ||||||||
As of and for the six months ended November 30, 2005 (Restated)* | ||||||||||||||||
Revenue | $ | 1,259,598 | $ | 399,662 | $ | — | $ | 1,659,260 | ||||||||
Income (loss) before income taxes | $ | 227,796 | $ | 32,559 | $ | (11,786 | ) | $ | 248,569 | |||||||
Total assets | $ | 2,284,343 | $ | 580,690 | $ | 255,934 | $ | 3,120,967 | ||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
16
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Corporation | ||||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Rentals | $ | — | $ | 502,623 | $ | 138,631 | $ | 43,389 | $ | (152 | ) | $ | 684,491 | |||||||||||
Other services | — | 342,641 | 130,277 | 16,009 | (250,152 | ) | 238,775 | |||||||||||||||||
Equity in net income of affiliates | 82,527 | — | — | — | (82,527 | ) | — | |||||||||||||||||
82,527 | 845,264 | 268,908 | 59,398 | (332,831 | ) | 923,266 | ||||||||||||||||||
Costs and expenses (income): | ||||||||||||||||||||||||
Cost of rentals | — | 318,314 | 79,434 | 25,428 | (43,161 | ) | 380,015 | |||||||||||||||||
Cost of other services | — | 265,011 | 84,905 | 9,673 | (207,411 | ) | 152,178 | |||||||||||||||||
Selling and administrative expenses | — | 225,676 | 11,815 | 12,697 | (1,560 | ) | 248,628 | |||||||||||||||||
Interest income | — | (843 | ) | (3 | ) | (777 | ) | — | (1,623 | ) | ||||||||||||||
Interest expense | — | 12,538 | (1,451 | ) | 1,396 | — | 12,483 | |||||||||||||||||
— | 820,696 | 174,700 | 48,417 | (252,132 | ) | 791,681 | ||||||||||||||||||
Income before income taxes | 82,527 | 24,568 | 94,208 | 10,981 | (80,699 | ) | 131,585 | |||||||||||||||||
Income taxes | — | 9,397 | 35,995 | 3,666 | — | 49,058 | ||||||||||||||||||
Net income | $ | 82,527 | $ | 15,171 | $ | 58,213 | $ | 7,315 | $ | (80,699 | ) | $ | 82,527 | |||||||||||
17
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Corporation | ||||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Rentals | $ | — | $ | 463,499 | $ | 129,694 | $ | 38,524 | $ | (127 | ) | $ | 631,590 | |||||||||||
Other services | — | 290,925 | 102,980 | 14,035 | (203,745 | ) | 204,195 | |||||||||||||||||
Equity in net income of affiliates | 76,839 | — | — | — | (76,839 | ) | — | |||||||||||||||||
76,839 | 754,424 | 232,674 | 52,559 | (280,711 | ) | 835,785 | ||||||||||||||||||
Costs and expenses (income): | ||||||||||||||||||||||||
Cost of rentals | — | 292,922 | 76,735 | 22,532 | (42,531 | ) | 349,658 | |||||||||||||||||
Cost of other services | — | 218,488 | 69,319 | 9,043 | (161,184 | ) | 135,666 | |||||||||||||||||
Selling and administrative expenses | — | 202,677 | 8,016 | 10,123 | 228 | 221,044 | ||||||||||||||||||
Interest income | — | (898 | ) | (106 | ) | (328 | ) | — | (1,332 | ) | ||||||||||||||
Interest expense | — | 7,403 | (986 | ) | 1,067 | — | 7,484 | |||||||||||||||||
— | 720,592 | 152,978 | 42,437 | (203,487 | ) | 712,520 | ||||||||||||||||||
Income before income taxes | 76,839 | 33,832 | 79,696 | 10,122 | (77,224 | ) | 123,265 | |||||||||||||||||
Income taxes | — | 12,808 | 29,874 | 3,744 | — | 46,426 | ||||||||||||||||||
Net income | $ | 76,839 | $ | 21,024 | $ | 49,822 | $ | 6,378 | $ | (77,224 | ) | $ | 76,839 | |||||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
18
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Corporation | ||||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Rentals | $ | — | $ | 1,008,146 | $ | 277,871 | $ | 86,436 | $ | (304 | ) | $ | 1,372,149 | |||||||||||
Other services | — | 662,760 | 260,504 | 29,046 | (487,032 | ) | 465,278 | |||||||||||||||||
Equity in net income of affiliates | 167,489 | — | — | — | (167,489 | ) | — | |||||||||||||||||
167,489 | 1,670,906 | 538,375 | 115,482 | (654,825 | ) | 1,837,427 | ||||||||||||||||||
Costs and expenses (income): | ||||||||||||||||||||||||
Cost of rentals | — | 632,626 | 160,882 | 50,693 | (85,886 | ) | 758,315 | |||||||||||||||||
Cost of other services | — | 509,362 | 169,991 | 17,717 | (399,512 | ) | 297,558 | |||||||||||||||||
Selling and administrative expenses | — | 453,164 | 19,679 | 23,479 | (3,566 | ) | 492,756 | |||||||||||||||||
Interest income | — | (1,694 | ) | (5 | ) | (1,450 | ) | — | (3,149 | ) | ||||||||||||||
Interest expense | — | 24,978 | (2,834 | ) | 2,771 | — | 24,915 | |||||||||||||||||
— | 1,618,436 | 347,713 | 93,210 | (488,964 | ) | 1,570,395 | ||||||||||||||||||
Income before income taxes | 167,489 | 52,470 | 190,662 | 22,272 | (165,861 | ) | 267,032 | |||||||||||||||||
Income taxes | — | 19,859 | 72,161 | 7,523 | — | 99,543 | ||||||||||||||||||
Net income | $ | 167,489 | $ | 32,611 | $ | 118,501 | $ | 14,749 | $ | (165,861 | ) | $ | 167,489 | |||||||||||
19
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Corporation | ||||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Rentals | $ | — | $ | 925,447 | $ | 259,701 | $ | 74,703 | $ | (253 | ) | $ | 1,259,598 | |||||||||||
Other services | — | 587,496 | 201,936 | 27,088 | (416,858 | ) | 399,662 | |||||||||||||||||
Equity in net income of affiliates | 155,261 | — | — | — | (155,261 | ) | — | |||||||||||||||||
155,261 | 1,512,943 | 461,637 | 101,791 | (572,372 | ) | 1,659,260 | ||||||||||||||||||
Costs and expenses (income): | ||||||||||||||||||||||||
Cost of rentals | — | 578,709 | 152,418 | 43,838 | (85,882 | ) | 689,083 | |||||||||||||||||
Cost of other services | — | 442,244 | 138,889 | 17,453 | (334,358 | ) | 264,228 | |||||||||||||||||
Selling and administrative expenses | — | 424,882 | (998 | ) | 22,186 | (476 | ) | 445,594 | ||||||||||||||||
Interest income | — | (2,233 | ) | (197 | ) | (604 | ) | — | (3,034 | ) | ||||||||||||||
Interest expense | — | 14,717 | (1,993 | ) | 2,096 | — | 14,820 | |||||||||||||||||
— | 1,458,319 | 288,119 | 84,969 | (420,716 | ) | 1,410,691 | ||||||||||||||||||
Income before income taxes | 155,261 | 54,624 | 173,518 | 16,822 | (151,656 | ) | 248,569 | |||||||||||||||||
Income taxes | — | 20,902 | 66,395 | 6,011 | — | 93,308 | ||||||||||||||||||
Net income | $ | 155,261 | $ | 33,722 | $ | 107,123 | $ | 10,811 | $ | (151,656 | ) | $ | 155,261 | |||||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
20
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Corporation | ||||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 4,470 | $ | 7,270 | $ | 27,199 | $ | — | $ | 38,939 | ||||||||||||
Marketable securities | — | 77,644 | — | 55,638 | — | 133,282 | ||||||||||||||||||
Accounts receivable, net | — | 269,760 | 128,971 | 23,372 | (17,061 | ) | 405,042 | |||||||||||||||||
Inventories, net | — | 190,279 | 27,385 | 7,693 | (7,782 | ) | 217,575 | |||||||||||||||||
Uniforms and other rental items in service | — | 277,926 | 82,359 | 19,785 | (33,049 | ) | 347,021 | |||||||||||||||||
Prepaid expenses | — | 6,886 | 5,951 | 757 | — | 13,594 | ||||||||||||||||||
Total current assets | — | 826,965 | 251,936 | 134,444 | (57,892 | ) | 1,155,453 | |||||||||||||||||
Property and equipment, at cost, net | — | 600,950 | 230,088 | 49,917 | — | 880,955 | ||||||||||||||||||
Goodwill | — | 308,170 | 841,733 | 20,577 | — | 1,170,480 | ||||||||||||||||||
Service contracts, net | — | 104,998 | 61,146 | 5,247 | — | 171,391 | ||||||||||||||||||
Other assets, net | 1,611,923 | 76,054 | 1,293,662 | 176,575 | (3,101,429 | ) | 56,785 | |||||||||||||||||
$ | 1,611,923 | $ | 1,917,137 | $ | 2,678,565 | $ | 386,760 | $ | (3,159,321 | ) | $ | 3,435,064 | ||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | (465,247 | ) | $ | (314,011 | ) | $ | 828,255 | $ | (1,946 | ) | $ | 32,093 | $ | 79,144 | |||||||||
Accrued compensation and related liabilities | — | 35,011 | 12,998 | 2,640 | — | 50,649 | ||||||||||||||||||
Accrued liabilities | — | 203,635 | (45,562 | ) | 4,288 | (45 | ) | 162,316 | ||||||||||||||||
Income taxes: | ||||||||||||||||||||||||
Current | — | 8,707 | 72,756 | 423 | — | 81,886 | ||||||||||||||||||
Deferred | — | — | 55,339 | 1,154 | — | 56,493 | ||||||||||||||||||
Long-term debt due within one year | — | 228,563 | 1,101 | — | (187 | ) | 229,477 | |||||||||||||||||
Total current liabilities | (465,247 | ) | 161,905 | 924,887 | 6,559 | 31,861 | 659,965 | |||||||||||||||||
Long-term debt due after one year | — | 567,073 | (57,256 | ) | 86,572 | (34,593 | ) | 561,796 | ||||||||||||||||
Deferred income taxes | — | 10,263 | 102,005 | 4,623 | — | 116,891 | ||||||||||||||||||
Total shareholders’ equity | 2,077,170 | 1,177,896 | 1,708,929 | 289,006 | (3,156,589 | ) | 2,096,412 | |||||||||||||||||
$ | 1,611,923 | $ | 1,917,137 | $ | 2,678,565 | $ | 386,760 | $ | (3,159,321 | ) | $ | 3,435,064 | ||||||||||||
21
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Corporation | ||||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 9,461 | $ | 8,674 | $ | 20,779 | $ | — | $ | 38,914 | ||||||||||||
Marketable securities | — | 154,711 | — | 47,828 | — | 202,539 | ||||||||||||||||||
Accounts receivable, net | — | 256,602 | 124,143 | 21,378 | (12,218 | ) | 389,905 | |||||||||||||||||
Inventories, net | — | 172,279 | 27,582 | 8,256 | (10,117 | ) | 198,000 | |||||||||||||||||
Uniforms and other rental items in service | — | 272,197 | 77,636 | 19,996 | (32,342 | ) | 337,487 | |||||||||||||||||
Prepaid expenses | — | 8,169 | 2,539 | 455 | — | 11,163 | ||||||||||||||||||
Total current assets | — | 873,419 | 240,574 | 118,692 | (54,677 | ) | 1,178,008 | |||||||||||||||||
Property and equipment, at cost, net | — | 604,813 | 208,684 | 50,286 | — | 863,783 | ||||||||||||||||||
Goodwill | — | 292,969 | 822,165 | 21,041 | — | 1,136,175 | ||||||||||||||||||
Service contracts, net | — | 112,016 | 61,324 | 6,625 | — | 179,965 | ||||||||||||||||||
Other assets, net | 1,582,561 | 70,113 | 1,165,524 | 186,430 | (2,937,322 | ) | 67,306 | |||||||||||||||||
$ | 1,582,561 | $ | 1,953,330 | $ | 2,498,271 | $ | 383,074 | $ | (2,991,999 | ) | $ | 3,425,237 | ||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | (465,247 | ) | $ | (205,605 | ) | $ | 716,714 | $ | (12,240 | ) | $ | 38,013 | $ | 71,635 | |||||||||
Accrued compensation and related liabilities | — | 34,796 | 12,651 | 2,687 | — | 50,134 | ||||||||||||||||||
Accrued liabilities | — | 190,728 | (7,518 | ) | 6,666 | (949 | ) | 188,927 | ||||||||||||||||
Income taxes: | ||||||||||||||||||||||||
Current | — | 4,081 | 37,355 | 2,258 | — | 43,694 | ||||||||||||||||||
Deferred | — | — | 50,421 | 1,248 | — | 51,669 | ||||||||||||||||||
Long-term debt due within one year | — | 3,549 | 911 | — | (172 | ) | 4,288 | |||||||||||||||||
Total current liabilities | (465,247 | ) | 27,549 | 810,534 | 619 | 36,892 | 410,347 | |||||||||||||||||
Long-term debt due after one year | — | 801,649 | (61,312 | ) | 89,770 | (35,653 | ) | 794,454 | ||||||||||||||||
Deferred income taxes | — | 10,263 | 115,187 | 4,794 | — | 130,244 | ||||||||||||||||||
Total shareholders’ equity | 2,047,808 | 1,113,869 | 1,633,862 | 287,891 | (2,993,238 | ) | 2,090,192 | |||||||||||||||||
$ | 1,582,561 | $ | 1,953,330 | $ | 2,498,271 | $ | 383,074 | $ | (2,991,999 | ) | $ | 3,425,237 | ||||||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
22
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Non- | Corporation | |||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income | $ | 167,489 | $ | 32,611 | $ | 118,501 | $ | 14,749 | $ | (165,861 | ) | $ | 167,489 | |||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Depreciation | — | 40,653 | 22,155 | 3,266 | — | 66,074 | ||||||||||||||||||
Amortization of deferred charges | — | 11,174 | 7,194 | 1,311 | — | 19,679 | ||||||||||||||||||
Stock-based compensation | 1,250 | — | — | — | — | 1,250 | ||||||||||||||||||
Deferred income taxes | — | 9,479 | (8,264 | ) | (216 | ) | — | 999 | ||||||||||||||||
Changes in current assets and liabilities, net of acquisitions of businesses: | ||||||||||||||||||||||||
Accounts receivable | — | (12,662 | ) | (4,097 | ) | (2,263 | ) | 4,843 | (14,179 | ) | ||||||||||||||
Inventories | — | (17,989 | ) | 507 | 563 | (2,335 | ) | (19,254 | ) | |||||||||||||||
Uniforms and other rental items in service | — | (5,729 | ) | (4,723 | ) | 211 | 707 | (9,534 | ) | |||||||||||||||
Prepaid expenses | — | 1,283 | (3,405 | ) | (302 | ) | — | (2,424 | ) | |||||||||||||||
Accounts payable | — | (108,406 | ) | 111,538 | 10,294 | (5,920 | ) | 7,506 | ||||||||||||||||
Accrued compensation and related liabilities | — | 215 | 347 | (47 | ) | — | 515 | |||||||||||||||||
Accrued liabilities | — | 9,737 | (37,242 | ) | (2,378 | ) | 904 | (28,979 | ) | |||||||||||||||
Tax benefit on exercise of stock options | (97 | ) | — | — | — | — | (97 | ) | ||||||||||||||||
Income taxes payable | — | 4,626 | 35,498 | (1,835 | ) | — | 38,289 | |||||||||||||||||
Net cash provided by (used in) operating activities | 168,642 | (35,008 | ) | 238,009 | 23,353 | (167,662 | ) | 227,334 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Capital expenditures | — | (35,782 | ) | (42,406 | ) | (3,133 | ) | — | (81,321 | ) | ||||||||||||||
Proceeds from sale or redemption of marketable securities | — | 78,272 | — | 2,213 | — | 80,485 | ||||||||||||||||||
Purchase of marketable securities | — | (52 | ) | — | (10,166 | ) | — | (10,218 | ) | |||||||||||||||
Acquisitions of businesses, net of cash acquired | — | (23,546 | ) | (30,201 | ) | (35 | ) | — | (53,782 | ) | ||||||||||||||
Other | (29,265 | ) | 26,486 | (171,052 | ) | 4,474 | 166,617 | (2,740 | ) | |||||||||||||||
Net cash (used in) provided by investing activities | (29,265 | ) | 45,378 | (243,659 | ) | (6,647 | ) | 166,617 | (67,576 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Proceeds from issuance of debt | — | 250,000 | 2,460 | — | — | 252,460 | ||||||||||||||||||
Repayment of debt | — | (259,562 | ) | 1,786 | (3,198 | ) | 1,045 | (259,929 | ) | |||||||||||||||
Stock options exercised | 5,781 | — | — | — | — | 5,781 | ||||||||||||||||||
Tax benefit on exercise of stock options | 97 | — | — | — | — | 97 | ||||||||||||||||||
Purchase of common stock | (141,960 | ) | — | — | — | — | (141,960 | ) | ||||||||||||||||
Other | (3,295 | ) | (5,799 | ) | — | (7,088 | ) | — | (16,182 | ) | ||||||||||||||
Net cash (used in) provided by financing activities | (139,377 | ) | (15,361 | ) | 4,246 | (10,286 | ) | 1,045 | (159,733 | ) | ||||||||||||||
Net (decrease) increase in cash and cash equivalents | — | (4,991 | ) | (1,404 | ) | 6,420 | — | 25 | ||||||||||||||||
Cash and cash equivalents at beginning of period | — | 9,461 | 8,674 | 20,779 | — | 38,914 | ||||||||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 4,470 | $ | 7,270 | $ | 27,199 | $ | — | $ | 38,939 | ||||||||||||
23
Cintas | ||||||||||||||||||||||||
Cintas | Subsidiary | Non- | Corporation | |||||||||||||||||||||
Corporation | Corp. 2 | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income | $ | 155,261 | $ | 33,722 | $ | 107,123 | $ | 10,811 | $ | (151,656 | ) | $ | 155,261 | |||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Depreciation | — | 38,300 | 20,614 | 3,068 | — | 61,982 | ||||||||||||||||||
Amortization of deferred charges | — | 8,974 | 5,314 | 1,390 | — | 15,678 | ||||||||||||||||||
Stock-based compensation | 3,045 | — | — | — | — | 3,045 | ||||||||||||||||||
Deferred income taxes | — | — | 5,985 | 428 | — | 6,413 | ||||||||||||||||||
Changes in current assets and liabilities, net of acquisitions of businesses: | ||||||||||||||||||||||||
Accounts receivable | — | (6,729 | ) | (9,082 | ) | (10,680 | ) | (1,076 | ) | (27,567 | ) | |||||||||||||
Inventories | — | 5,831 | 101 | 74 | (2,910 | ) | 3,096 | |||||||||||||||||
Uniforms and other rental items in service | — | (6,089 | ) | (1,806 | ) | (1,437 | ) | (695 | ) | (10,027 | ) | |||||||||||||
Prepaid expenses | — | 951 | (308 | ) | 67 | — | 710 | |||||||||||||||||
Accounts payable | — | (77,407 | ) | 69,010 | (2,354 | ) | — | (10,751 | ) | |||||||||||||||
Accrued compensation and related liabilities | — | 69 | 1,273 | 315 | — | 1,657 | ||||||||||||||||||
Accrued liabilities | — | (8,060 | ) | (35,578 | ) | (510 | ) | 917 | (43,231 | ) | ||||||||||||||
Tax benefit on exercise of stock options | (301 | ) | — | — | — | — | (301 | ) | ||||||||||||||||
Income taxes payable | — | 7,823 | 41,636 | 475 | — | 49,934 | ||||||||||||||||||
Net cash provided by (used in) operating activities | 158,005 | (2,615 | ) | 204,282 | 1,647 | (155,420 | ) | 205,899 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Capital expenditures | — | (32,062 | ) | (32,181 | ) | (5,938 | ) | — | (70,181 | ) | ||||||||||||||
Proceeds from sale or redemption of marketable securities | — | 63,035 | — | 10,136 | — | 73,171 | ||||||||||||||||||
Purchase of marketable securities | — | (298 | ) | — | (9,979 | ) | — | (10,277 | ) | |||||||||||||||
Acquisitions of businesses, net of cash acquired | — | (12,379 | ) | (70,130 | ) | (4,569 | ) | — | (87,078 | ) | ||||||||||||||
Other | (48,230 | ) | 4,527 | (102,395 | ) | (7,679 | ) | 156,888 | 3,111 | |||||||||||||||
Net cash (used in) provided by investing activities | (48,230 | ) | 22,823 | (204,706 | ) | (18,029 | ) | 156,888 | (91,254 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Repayment of debt | — | (6,132 | ) | (4,764 | ) | 5,961 | (1,468 | ) | (6,403 | ) | ||||||||||||||
Stock options exercised | 7,152 | — | — | — | — | 7,152 | ||||||||||||||||||
Tax benefit on exercise of stock options | 301 | — | — | — | — | 301 | ||||||||||||||||||
Purchase of common stock | (114,170 | ) | — | — | — | — | (114,170 | ) | ||||||||||||||||
Other | (3,058 | ) | 146 | — | 10,787 | — | 7,875 | |||||||||||||||||
Net cash (used in) provided by financing activities | (109,775 | ) | (5,986 | ) | (4,764 | ) | 16,748 | (1,468 | ) | (105,245 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | — | 14,222 | (5,188 | ) | 366 | — | 9,400 | |||||||||||||||||
Cash and cash equivalents at beginning of period | — | 13,259 | 12,570 | 17,367 | — | 43,196 | ||||||||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 27,481 | $ | 7,382 | $ | 17,733 | $ | — | $ | 52,596 | ||||||||||||
* | Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method. |
24
25
26
27
28
(In thousands) | Payments Due by Period | |||||||||||||||||||
Two to | ||||||||||||||||||||
One year | three | Four to | After five | |||||||||||||||||
Long-term contractual obligations | Total | or less | years | five years | Years | |||||||||||||||
Long-term debt (1) | $ | 789,145 | $ | 228,870 | $ | 78,419 | $ | 1,233 | $ | 480,623 | ||||||||||
Capital lease obligations (2) | 2,128 | 607 | 921 | 240 | 360 | |||||||||||||||
Operating leases (3) | 58,363 | 17,211 | 23,280 | 11,369 | 6,503 | |||||||||||||||
Interest payments (4) | 545,190 | 39,595 | 58,788 | 58,560 | 388,247 | |||||||||||||||
Interest swap agreements (5) | — | — | — | — | — | |||||||||||||||
Unconditional purchase obligations | — | — | — | — | — | |||||||||||||||
Total contractual cash obligations | $ | 1,394,826 | $ | 286,283 | $ | 161,408 | $ | 71,402 | $ | 875,733 | ||||||||||
(1) | Long-term debt primarily consists of $700,000 in long-term notes, including $225,000 of long-term debt due within one year. | |
(2) | Capital lease obligations are classified as debt on the balance sheet. | |
(3) | Operating leases consist primarily of building leases and a synthetic lease on a corporate jet. | |
(4) | Interest payments include interest on both fixed and variable rate debt. Rates have been assumed to remain constant for the remainder of fiscal 2007, increase 50 basis points in fiscal 2008, an additional 25 basis points in fiscal 2009 and then remain constant in future years. | |
(5) | Reference Note 5 entitled Debt, Derivatives and Hedging Activities of “Notes to Consolidated Condensed Financial Statements” for a detailed discussion of interest swap agreements. |
29
(In thousands) | Amount of Commitment Expiration Per Period | |||||||||||||||||||
Two to | ||||||||||||||||||||
One year | three | Four to | After five | |||||||||||||||||
Other commercial commitments | Total | or less | years | five years | Years | |||||||||||||||
Lines of credit (1) | $ | 400,000 | $ | — | $ | — | $ | 400,000 | $ | — | ||||||||||
Standby letter of credit (2) | 56,948 | 56,948 | — | — | — | |||||||||||||||
Guarantees | — | — | — | — | — | |||||||||||||||
Standby repurchase obligations | — | — | — | — | — | |||||||||||||||
Other commercial commitments | — | — | — | — | — | |||||||||||||||
Total commercial commitments | $ | 456,948 | $ | 56,948 | $ | — | $ | 400,000 | $ | — | ||||||||||
(1) | Back-up facility for the commercial paper program. | |
(2) | Support certain outstanding debt and self-insured workers’ compensation and general liability insurance programs. |
30
13
CINTAS CORPORATIONNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(unaudited)(In thousands except per share data)
District of Michigan, Southern Division on behalf of female service sales representative job applicants at all Cintas locationsSSR route assignments and discriminated against African-Americans in Michigan. On September 6, 2005, a Magistrate Judge granted plaintiffs’ motion for leave to file a second amended complaint to expand the lawsuit to a nationwide claim. On November 15, 2005, the EEOC intervened inSerrano to participate in the lawsuit in continuation of an EEOC charge filed on April 17, 2000, by Mirna Serrano with the EEOC Detroit District office. On February 24, 2006, a motion to intervene inSerranowas filed by intervening plaintiffs Colleen Grindle, et al., on behalf of a nationwide subclass and an Ohio subclass of female employeeshourly pay in Cintas’ Rental Division who were allegedly denied hire, promotiondivision only throughout the United States. TheRamirezplaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. No filings or transferdeterminations have been made inRamirezas to class certification. There can be no assurance as to whether a service sales representative position. On March 24, 2006, the Grindle plaintiffs withdrew their motion to intervene without prejudice. On July 10, 2006, the claims of discrimination against females, African-Americans and Hispanics that were transferred from theRobert Ramirez, et al. v. Cintas Corporationmatterclass will be certified or, if a class is certified, as to the Eastern Districtgeographic or other scope of Michigan, Southern Division, were consolidated for pretrial purposes with theMirna E. Serrano v. Cintas Corporation lawsuit; the consolidated matter remains in the Eastern District of Michigan, Southern Division, and has been renamedMirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation.such class. In addition, a class action lawsuit,Larry Houston, et al., v. Cintas Corporation,was filed on August 3, 2005, in the United States District Court for the Northern District of California on behalf of African-American managers alleging racial discrimination. On November 22, 2005, the court entered an order requiring the named plaintiffs in theHoustonlawsuit to arbitrate all of their claims for monetary damages. If there is an adverse verdict or a negotiated settlement of all or any of these actions, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas. Any estimated liability relating to these proceedings is not determinable at this time.
14
CINTAS CORPORATIONNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(Unaudited)(In thousands except per share data)
The litigation discussed above, if decided adversely to or settled by Cintas, may, individually or in the aggregate, result in liability material to Cintas’ financial condition or results of operations. 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 interests of Cintas’ shareholders.
9. Segment Information
Cintas classifies its businesses into two operating segments, Rentals and Other Services, based on the similar economic characteristics of the products and services within each segment. The Rentals operating segment reflects the rental and servicing of uniforms and other garments, mats, mops and shop towels. In addition to these rental items, restroom and hygiene products and services are also provided within this segment. The Other Services operating segment consists of the direct sale of uniforms and related items, first aid, safety and fire protection products and services, document management services and branded promotional products. Both segments provide these products and services throughout the United States and Canada to businesses of all types — from small service and manufacturing companies to major corporations that employ thousands of people.
Information as to the operations of Cintas’ different business segments is set forth below based on the distribution of products and services offered. Cintas evaluates performances based on several factors of which the primary financial measures are business segment revenue and income before income taxes.
Rentals | Other Services | Corporate | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
As of and for the three months | ||||||||||||||
ended August 31, 2006 | ||||||||||||||
Revenue | $ | 687,658 | $ | 226,503 | $ | -- | $ | 914,161 | ||||||
Income (loss) before income taxes | $ | 124,080 | $ | 22,273 | $ | (10,906 | ) | $ | 135,447 | |||||
Total assets | $ | 2,519,943 | $ | 689,384 | $ | 174,894 | $ | 3,384,221 | ||||||
As of and for the three months | ||||||||||||||
ended August 31, 2005 | ||||||||||||||
(Restated)* | ||||||||||||||
Revenue | $ | 628,008 | $ | 195,467 | $ | -- | $ | 823,475 | ||||||
Income (loss) before income taxes | $ | 115,159 | $ | 15,779 | $ | (5,634 | ) | $ | 125,304 | |||||
Total assets | $ | 2,273,375 | $ | 511,604 | $ | 257,747 | $ | 3,042,726 | ||||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
15
CINTAS CORPORATIONNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(Unaudited)(In thousands except per share data)
10. Supplemental Guarantor Information
Effective June 1, 2000, Cintas reorganized its legal structure and created Cintas Corporation No. 2 (Corp. 2) as its indirectly, wholly-owned principal operating subsidiary. Cintas and its wholly-owned, direct and indirect domestic subsidiaries, other than Corp. 2, unconditionally guaranteed, jointly and severally, debt of Corp. 2.
On May 13, 2002, Cintas completed the acquisition of Omni Services, Inc. (Omni). A portion of the purchase price for Omni was funded with $450,000 in long-term notes. Corp. 2 was the issuer of the long-term notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and the subsidiary guarantors.
As allowed 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’ financial statements. The condensed consolidating financial statements should be read in conjunction with the 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 below:
16
CONDENSED CONSOLIDATING INCOME STATEMENTTHREE MONTHS ENDED AUGUST 31, 2006
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non-Guarantors | Eliminations | Cintas Corporation Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: | ||||||||||||||||||||
Rentals | $ | -- | $ | 505,523 | $ | 139,240 | $ | 43,047 | $ | (152 | ) | $ | 687,658 | |||||||
Other services | -- | 320,119 | 130,227 | 13,037 | (236,880 | ) | 226,503 | |||||||||||||
Equity in net income of affiliates | 84,962 | -- | -- | -- | (84,962 | ) | -- | |||||||||||||
84,962 | 825,642 | 269,467 | 56,084 | (321,994 | ) | 914,161 | ||||||||||||||
Costs and expenses (income): | ||||||||||||||||||||
Cost of rentals | -- | 314,312 | 81,448 | 25,265 | (42,725 | ) | 378,300 | |||||||||||||
Cost of other services | -- | 244,351 | 85,086 | 8,044 | (192,101 | ) | 145,380 | |||||||||||||
Selling and administrative expenses | -- | 227,488 | 7,864 | 10,782 | (2,006 | ) | 244,128 | |||||||||||||
Interest income | -- | (851 | ) | (2 | ) | (673 | ) | -- | (1,526 | ) | ||||||||||
Interest expense | -- | 12,440 | (1,383 | ) | 1,375 | -- | 12,432 | |||||||||||||
-- | 797,740 | 173,013 | 44,793 | (236,832 | ) | 778,714 | ||||||||||||||
Income before income taxes | 84,962 | 27,902 | 96,454 | 11,291 | (85,162 | ) | 135,447 | |||||||||||||
Income taxes | -- | 10,462 | 36,166 | 3,857 | -- | 50,485 | ||||||||||||||
Net income | $ | 84,962 | $ | 17,440 | $ | 60,288 | $ | 7,434 | $ | (85,162 | ) | $ | 84,962 | |||||||
17
CONDENSED CONSOLIDATING INCOME STATEMENTTHREE MONTHS ENDED AUGUST 31, 2005(RESTATED)*
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non-Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: | |||||||||||||
Rentals | $ -- | $ 461,948 | $ 130,007 | $ 36,179 | $ (126 | ) | $ 628,008 | ||||||
Other services | -- | 296,571 | 98,956 | 13,053 | (213,113 | ) | 195,467 | ||||||
Equity in net income of affiliates | 78,422 | -- | -- | -- | (78,422 | ) | -- | ||||||
78,422 | 758,519 | 228,963 | 49,232 | (291,661 | ) | 823,475 | |||||||
Costs and expenses (income): | |||||||||||||
Cost of rentals | -- | 285,787 | 75,683 | 21,306 | (43,351 | ) | 339,425 | ||||||
Cost of other services | -- | 223,756 | 69,570 | 8,410 | (173,174 | ) | 128,562 | ||||||
Selling and administrative expenses | -- | 222,205 | (9,014 | ) | 12,063 | (704 | ) | 224,550 | |||||
Interest income | -- | (1,335 | ) | (91 | ) | (276 | ) | -- | (1,702 | ) | |||
Interest expense | -- | 7,314 | (1,007 | ) | 1,029 | -- | 7,336 | ||||||
-- | 737,727 | 135,141 | 42,532 | (217,229 | ) | 698,171 | |||||||
Income before income taxes | 78,422 | 20,792 | 93,822 | 6,700 | (74,432 | ) | 125,304 | ||||||
Income taxes | -- | 8,094 | 36,521 | 2,267 | -- | 46,882 | |||||||
Net income | $ 78,422 | $ 12,698 | $ 57,301 | $ 4,433 | $(74,432 | ) | $ 78,422 | ||||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
18
CONDENSED CONSOLIDATING BALANCE SHEETAS OF AUGUST 31, 2006
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non-Guarantors | Eliminations | Cintas Corporation Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | -- | $ | (1,296 | ) | $ | 7,859 | $ | 28,402 | $ | -- | $ | 34,965 | |||||||
Marketable securities | -- | 90,073 | -- | 49,856 | -- | 139,929 | ||||||||||||||
Accounts receivable, net | -- | 259,034 | 128,642 | 20,712 | (16,977 | ) | 391,411 | |||||||||||||
Inventories, net | -- | 184,660 | 27,939 | 8,683 | (10,901 | ) | 210,381 | |||||||||||||
Uniforms and other rental items in service | -- | 271,785 | 79,748 | 20,022 | (31,757 | ) | 339,798 | |||||||||||||
Prepaid expenses | -- | 7,534 | 2,402 | 593 | -- | 10,529 | ||||||||||||||
Total current assets | -- | 811,790 | 246,590 | 128,268 | (59,635 | ) | 1,127,013 | |||||||||||||
Property and equipment, at cost, net | -- | 599,750 | 217,197 | 50,684 | -- | 867,631 | ||||||||||||||
Goodwill | -- | 292,370 | 840,535 | 20,962 | -- | 1,153,867 | ||||||||||||||
Service contracts, net | -- | 107,433 | 61,604 | 5,983 | -- | 175,020 | ||||||||||||||
Other assets, net | 1,554,041 | 71,461 | 1,272,398 | 185,413 | (3,022,623 | ) | 60,690 | |||||||||||||
$ | 1,554,041 | $ | 1,882,804 | $ | 2,638,324 | $ | 391,310 | $ | (3,082,258 | ) | $ | 3,384,221 | ||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | (465,247 | ) | $ | (386,974 | ) | $ | 887,322 | $ | (7,414 | ) | $ | 32,178 | $ | 59,865 | |||||
Accrued compensation and related liabilities | -- | 32,065 | 12,963 | 2,329 | -- | 47,357 | ||||||||||||||
Accrued liabilities | -- | 189,602 | (66,225 | ) | 6,531 | (45 | ) | 129,863 | ||||||||||||
Income taxes: | ||||||||||||||||||||
Current | -- | 8,171 | 41,734 | 313 | -- | 50,218 | ||||||||||||||
Deferred | -- | -- | 64,966 | 1,208 | -- | 66,174 | ||||||||||||||
Long-term debt due within one year | -- | 228,563 | 1,150 | -- | (187 | ) | 229,526 | |||||||||||||
Total current liabilities | (465,247 | ) | 71,427 | 941,910 | 2,967 | 31,946 | 583,003 | |||||||||||||
Long-term debt due after one year | -- | 632,446 | (59,133 | ) | 89,462 | (35,382 | ) | 627,393 | ||||||||||||
Deferred income taxes | -- | 10,263 | 107,726 | 4,777 | -- | 122,766 | ||||||||||||||
Total shareholders' equity | 2,019,288 | 1,168,668 | 1,647,821 | 294,104 | (3,078,822 | ) | 2,051,059 | |||||||||||||
$ | 1,554,041 | $ | 1,882,804 | $ | 2,638,324 | $ | 391,310 | $ | (3,082,258 | ) | $ | 3,384,221 | ||||||||
19
CONDENSED CONSOLIDATING BALANCE SHEETAS OF MAY 31, 2006(RESTATED)*
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non-Guarantors | Eliminations | Cintas Corporation Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | -- | $ | 9,461 | $ | 8,674 | $ | 20,779 | $ | -- | $ | 38,914 | ||||||||
Marketable securities | -- | 154,711 | -- | 47,828 | -- | 202,539 | ||||||||||||||
Accounts receivable, net | -- | 256,602 | 124,143 | 21,378 | (12,218 | ) | 389,905 | |||||||||||||
Inventories, net | -- | 172,279 | 27,582 | 8,256 | (10,117 | ) | 198,000 | |||||||||||||
Uniforms and other rental items in service | -- | 272,197 | 77,636 | 19,996 | (32,342 | ) | 337,487 | |||||||||||||
Prepaid expenses | -- | 8,169 | 2,539 | 455 | -- | 11,163 | ||||||||||||||
Total current assets | -- | 873,419 | 240,574 | 118,692 | (54,677 | ) | 1,178,008 | |||||||||||||
Property and equipment, at cost, net | -- | 604,813 | 208,684 | 50,286 | -- | 863,783 | ||||||||||||||
Goodwill | -- | 292,969 | 822,165 | 21,041 | -- | 1,136,175 | ||||||||||||||
Service contracts, net | -- | 112,016 | 61,324 | 6,625 | -- | 179,965 | ||||||||||||||
Other assets, net | 1,582,561 | 70,113 | 1,165,524 | 186,430 | (2,937,322 | ) | 67,306 | |||||||||||||
$ | 1,582,561 | $ | 1,953,330 | $ | 2,498,271 | $ | 383,074 | $ | (2,991,999 | ) | $ | 3,425,237 | ||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | (465,247 | ) | $ | (205,605 | ) | $ | 716,714 | $ | (12,240 | ) | $ | 38,013 | $ | 71,635 | |||||
Accrued compensation and related liabilities | -- | 34,796 | 12,651 | 2,687 | -- | 50,134 | ||||||||||||||
Accrued liabilities | -- | 190,728 | (7,518 | ) | 6,666 | (949 | ) | 188,927 | ||||||||||||
Income taxes: | ||||||||||||||||||||
Current | -- | 4,081 | 37,355 | 2,258 | -- | 43,694 | ||||||||||||||
Deferred | -- | -- | 50,421 | 1,248 | -- | 51,669 | ||||||||||||||
Long-term debt due within one year | -- | 3,549 | 911 | -- | (172 | ) | 4,288 | |||||||||||||
Total current liabilities | (465,247 | ) | 27,549 | 810,534 | 619 | 36,892 | 410,347 | |||||||||||||
Long-term debt due after one year | -- | 801,649 | (61,312 | ) | 89,770 | (35,653 | ) | 794,454 | ||||||||||||
Deferred income taxes | -- | 10,263 | 115,187 | 4,794 | -- | 130,244 | ||||||||||||||
Total shareholders' equity | 2,047,808 | 1,113,869 | 1,633,862 | 287,891 | (2,993,238 | ) | 2,090,192 | |||||||||||||
$ | 1,582,561 | $ | 1,953,330 | $ | 2,498,271 | $ | 383,074 | $ | (2,991,999 | ) | $ | 3,425,237 | ||||||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
20
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSTHREE MONTHS ENDED AUGUST 31, 2006
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | ||||||||||||||||||||
Net income | $ | 84,962 | $ | 17,440 | $ | 60,288 | $ | 7,434 | $ | (85,162 | ) | $ | 84,962 | |||||||
Adjustments to reconcile net income to net | ||||||||||||||||||||
cash provided by (used in) operating activities: | ||||||||||||||||||||
Depreciation | -- | 20,345 | 11,113 | 1,620 | -- | 33,078 | ||||||||||||||
Amortization of deferred charges | -- | 5,419 | 3,584 | 687 | -- | 9,690 | ||||||||||||||
Stock-based compensation | (598 | ) | -- | -- | -- | -- | (598 | ) | ||||||||||||
Deferred income taxes | -- | 3,711 | 7,084 | (23 | ) | -- | 10,772 | |||||||||||||
Changes in current assets and liabilities, | ||||||||||||||||||||
net of acquisitions of businesses: | ||||||||||||||||||||
Accounts receivable | -- | (2,432 | ) | (4,195 | ) | 666 | 4,759 | (1,202 | ) | |||||||||||
Inventories | -- | (12,381 | ) | (357 | ) | (427 | ) | 784 | (12,381 | ) | ||||||||||
Uniforms and other rental items in service | -- | 412 | (2,112 | ) | (26 | ) | (585 | ) | (2,311 | ) | ||||||||||
Prepaid expenses | -- | 635 | 137 | (138 | ) | -- | 634 | |||||||||||||
Accounts payable | -- | (181,369 | ) | 170,608 | 4,826 | (5,835 | ) | (11,770 | ) | |||||||||||
Accrued compensation and related liabilities | -- | (2,731 | ) | 312 | (358 | ) | -- | (2,777 | ) | |||||||||||
Accrued liabilities | -- | (1,176 | ) | (58,370 | ) | (135 | ) | 904 | (58,777 | ) | ||||||||||
Income taxes payable | -- | 4,090 | 4,379 | (1,945 | ) | -- | 6,524 | |||||||||||||
Net cash provided by operating activities | 84,364 | (148,037 | ) | 192,471 | 12,181 | (85,135 | ) | 55,844 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | -- | (15,271 | ) | (18,968 | ) | (2,257 | ) | -- | (36,496 | ) | ||||||||||
Proceeds from sale or redemption of marketable securities | -- | 65,298 | -- | 916 | -- | 66,214 | ||||||||||||||
Purchase of marketable securities | -- | -- | -- | (3,044 | ) | -- | (3,044 | ) | ||||||||||||
Acquisitions of businesses, net of cash acquired | -- | -- | (25,101 | ) | -- | -- | (25,101 | ) | ||||||||||||
Other | 28,520 | 35,133 | (151,636 | ) | 667 | 84,879 | (2,437 | ) | ||||||||||||
Net cash used in investing activities | 28,520 | 85,160 | (195,705 | ) | (3,718 | ) | 84,879 | (864 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from issuance of debt | -- | 250,000 | 2,460 | -- | -- | 252,460 | ||||||||||||||
Repayment of debt | -- | (194,189 | ) | (41 | ) | (309 | ) | 256 | (194,283 | ) | ||||||||||
Stock options exercised | 3,403 | -- | -- | -- | -- | 3,403 | ||||||||||||||
Repurchase of common stock | (114,418 | ) | -- | -- | -- | -- | (114,418 | ) | ||||||||||||
Other | (1,869 | ) | (3,691 | ) | -- | (531 | ) | -- | (6,091 | ) | ||||||||||
Net cash used in financing activities | (112,884 | ) | 52,120 | 2,419 | (840 | ) | 256 | (58,929 | ) | |||||||||||
Net (decrease) increase in cash and cash equivalents | -- | (10,757 | ) | (815 | ) | 7,623 | -- | (3,949 | ) | |||||||||||
Cash and cash equivalents at beginning of period | -- | 9,461 | 8,674 | 20,779 | -- | 38,914 | ||||||||||||||
Cash and cash equivalents at end of period | $ | -- | $ | (1,296 | ) | $ | 7,859 | $ | 28,402 | $ | -- | $ | 34,965 | |||||||
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSTHREE MONTHS ENDED AUGUST 31, 2005(RESTATED)*
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | ||||||||||||||||||||
Net income | $ | 78,422 | $ | 12,698 | $ | 57,301 | $ | 4,433 | $ | (74,432 | ) | $ | 78,422 | |||||||
Adjustments to reconcile net income to net | ||||||||||||||||||||
cash provided by (used in) operating activities: | ||||||||||||||||||||
Depreciation | -- | 18,978 | 10,108 | 1,493 | -- | 30,579 | ||||||||||||||
Amortization of deferred charges | -- | 4,494 | 2,596 | 684 | -- | 7,774 | ||||||||||||||
Stock-based compensation | 1,613 | -- | -- | -- | -- | 1,613 | ||||||||||||||
Deferred income taxes | -- | -- | 16,905 | 325 | -- | 17,230 | ||||||||||||||
Changes in current assets and liabilities, | ||||||||||||||||||||
net of acquisitions of businesses: | ||||||||||||||||||||
Accounts receivable | -- | (4,119 | ) | (3,802 | ) | (2,261 | ) | (1,076 | ) | (11,258 | ) | |||||||||
Inventories | -- | (2,542 | ) | 489 | 509 | (4,066 | ) | (5,610 | ) | |||||||||||
Uniforms and other rental items in service | -- | (1,166 | ) | (1,576 | ) | (651 | ) | 75 | (3,318 | ) | ||||||||||
Prepaid expenses | -- | (1,605 | ) | (276 | ) | 217 | -- | (1,664 | ) | |||||||||||
Accounts payable | -- | (81,887 | ) | 88,128 | (9,770 | ) | -- | (3,529 | ) | |||||||||||
Accrued compensation and related liabilities | -- | (2,445 | ) | 683 | (7 | ) | -- | (1,769 | ) | |||||||||||
Accrued liabilities | -- | (12,433 | ) | (55,748 | ) | 268 | 917 | (66,996 | ) | |||||||||||
Tax benefit on exercise of stock options | (189 | ) | -- | -- | -- | -- | (189 | ) | ||||||||||||
Income taxes payable | -- | 5,626 | 985 | (1,021 | ) | -- | 5,590 | |||||||||||||
Net cash provided by operating activities | 79,846 | (64,401 | ) | 115,793 | (5,781 | ) | (78,582 | ) | 46,875 | |||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | -- | (16,756 | ) | (15,119 | ) | (4,269 | ) | -- | (36,144 | ) | ||||||||||
Proceeds from sale or redemption of marketable securities | -- | 44,252 | 1 | 9,794 | -- | 54,047 | ||||||||||||||
Purchase of marketable securities | -- | (297 | ) | -- | (1,828 | ) | -- | (2,125 | ) | |||||||||||
Acquisitions of businesses, net of cash acquired | -- | (7,774 | ) | (8,625 | ) | (4,569 | ) | -- | (20,968 | ) | ||||||||||
Other | 19,071 | 4,643 | (93,974 | ) | (5,910 | ) | 79,657 | 3,487 | ||||||||||||
Net cash used in investing activities | 19,071 | 24,068 | (117,717 | ) | (6,782 | ) | 79,657 | (1,703 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from issuance of debt | -- | 46,000 | -- | -- | -- | 46,000 | ||||||||||||||
Repayment of debt | -- | (181 | ) | (3,501 | ) | 4,520 | (1,075 | ) | (237 | ) | ||||||||||
Stock options exercised | 5,498 | -- | -- | -- | -- | 5,498 | ||||||||||||||
Tax benefit on exercise of stock options | 189 | -- | -- | -- | -- | 189 | ||||||||||||||
Repurchase of common stock | (102,257 | ) | -- | -- | -- | -- | (102,257 | ) | ||||||||||||
Other | (2,347 | ) | 73 | -- | 8,150 | -- | 5,876 | |||||||||||||
Net cash used in financing activities | (98,917 | ) | 45,892 | (3,501 | ) | 12,670 | (1,075 | ) | (44,931 | ) | ||||||||||
Net (decrease) increase in cash and cash equivalents | -- | 5,559 | (5,425 | ) | 107 | -- | 241 | |||||||||||||
Cash and cash equivalents at beginning of period | -- | 13,259 | 12,570 | 17,367 | -- | 43,196 | ||||||||||||||
Cash and cash equivalents at end of period | $ | -- | $ | 18,818 | $ | 7,145 | $ | 17,474 | $ | -- | $ | 43,437 | ||||||||
* Restated to reflect the adoption of FAS 123(R), using the modified-retrospective method.
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CINTAS CORPORATIONITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cintas provides highly specialized products and services to businesses of all types throughout the United States and Canada. 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 products and services are designed to enhance our customers’ images and to provide additional safety and protection in the workplace.
Our business strategy is to increase our market share of the uniform rental and sales business in North America through the sale of new uniform programs and to provide our customers with all of the products and services we offer. We will also continue to identify additional product and service opportunities for our current and future customers. Our long-term goal is to provide a product or service to every business in North America.
To pursue this strategy, we focus on the development of a highly talented and diverse team of employees (whom we call partners) – a team that is properly trained and motivated to service our customers. We support our partners’ service efforts by providing superior products with distinct competitive advantages, and we embrace technological advances.
Continuous cost containment and product and process innovation are considered hallmarks of our organization. In order to sustain these efforts, we employ a Six Sigma effort within Cintas. Six Sigma is an analytical process that assists companies in improving quality and customer satisfaction while reducing cycle time and operating costs. We are pleased with our progress in this endeavor and are optimistic about the improved efficiencies that this process has and will continue to yield to Cintas.
We continue to leverage our size and core competencies to become a more valued business service provider to our current and future customers. We will also continue to supplement our internal growth with strategic acquisitions and the cultivation of new businesses.
Cintas classifies its businesses into two operating segments, Rentals and Other Services, based on the similar economic characteristics of the products and services within each segment. The Rentals operating segment reflects the rental and servicing of uniforms and other garments, mats, mops and shop towels. In addition to these rental items, we also provide our restroom and hygiene products and services within this segment. The Other Services operating segment consists of the direct sale of uniforms and related items, first aid, safety and fire protection products and services, document management services and branded promotional products. Both segments provide these products and services throughout the United States and Canada to businesses of all types — from small service and manufacturing companies to major corporations that employ thousands of people.
At August 31, 2006, Cintas has an equity compensation plan, which is more fully described in Note 6 entitled Stock-Based Compensation of “Notes to Consolidated Condensed Financial Statements.” Prior to June 1, 2006, Cintas accounted for this plan under the intrinsic value method proscribed by APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123,Accounting for Stock-Based Compensation. Effective June 1, 2006, Cintas adopted the fair value recognition provisions of FASB Statement No. 123(R),Share-Based Payment,
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using the modified-retrospective-transition method. Under that transition method, all prior periods have been restated based on the amounts previously calculated in the pro forma footnote disclosures required by Statement 123. Statement 123(R) requires all share-based payments to employees, including stock options, to be recognized as an expense in the statement of income based on their fair values. Due to this restatement, Cintas’ income before income taxes and net income decreased by $1,113 for the three months ended August 31, 2005. This adoption also lowered basic and diluted earnings per share for the first quarter of fiscal 2006 from $0.47 per share to $0.46 per share. The cumulative effect of the change on total shareholders’ equity as of May 31, 2006, was less than $1,000.
As a result of adopting Statement 123(R) on June 1, 2006, Cintas’ income before income taxes and net income for the three months ended August 31, 2006, are less than $1 million higher than if it had continued to account for share-based compensation under Opinion 25. This increase results from a cumulative catch-up adjustment due to a change in estimated forfeitures for certain existing stock option and restricted stock awards. Basic and diluted earnings per share for the three months ended August 31, 2006, are $.01 and $.01 higher, respectively, than if the company had continued to account for share-based compensation under Opinion 25.
Revenue, Expenses and Income
Revenue Comparison
Total revenue increased 11.0% for the three months ended August 31, 2006, over the same period in fiscal 2006. Internal growth for this period was 6.2%. The remaining 4.8% represents growth derived mainly through the acquisitions of uniform and mat rental businesses in our Rentals segment and acquisitions of first aid, safety and fire protection businesses and document management businesses within our Other Services segment.
Net Rentals revenue increased 9.5% for the three months ended August 31, 2006, over the same period in the prior fiscal year. Rentals operating segment internal growth for the first quarter of fiscal 2007 was 6.2% as compared to the three months ended August 31, 2005. The Net Rentals revenue growth is primarily due to the sale of new rental programs to customers, offset by lost business. The remaining growth was generated primarily through the acquisition of uniform and mat rental businesses.
Other Services revenue increased 15.9% for the three months ended August 31, 2006, over the same period in the prior year. Other Services operating segment internal growth for the first quarter of fiscal 2007 was 6.4% as compared to the three months ended August 31, 2005. This internal growth was generated primarily through the increased direct sale of uniforms to national customers and increased sales of first aid and safety products and services and document management services to customers. The additional growth was generated through a combination of acquisitions of first aid, safety and fire protection businesses and document management businesses.
Expense Comparison
Cost of rentals 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 rentals increased 11.5% for the three months ended August 31, 2006, as compared to the three months ended August 31, 2005. This increase reflects the growth in Rentals revenue and a 28.6% increase in Rentals energy costs. Rentals energy costs were approximately $27 million for the three months ended August 31, 2006, versus approximately $21 million for the same period in the prior year. In addition, we incurred $3.7 million in impairment and other related charges due to the closing of a Detroit, Michigan Rental processing plant. Partially offsetting these increased costs was an insurance recovery of $1.9 million representing receipt of the final settlement of our claims related to the hurricanes which occurred in fiscal 2006. As a result of these items, cost of rentals increased as a percent to Rentals revenue to 55.0% for the three months ended August 31, 2006, as compared to 54.0% for the three months ended August 31, 2005.
Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses. Cost of other services increased 13.1% for the three months ended August 31, 2006, as compared to the three months ended August 31, 2005. This
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increase was mainly due to increased sales in this segment. Gross margin within this segment may fluctuate depending on the type of product or service sold, as more cost efficient sourcing is employed and as products which require additional services or specialization generate higher gross margins. For example, tailored garments that incorporate high levels of design and customization tend to generate higher gross margins than work wear and standard catalog items. The current quarter’s gross margin is 35.8%, which is in line with the expected range of 32% to 37% for this segment.
Selling and administrative expenses increased 8.7% for the three months ended August 31, 2006, as compared to the three months ended August 31, 2005. Selling and administrative expenses as a percent of revenue decreased 0.6% for the three months ended August 31, 2006, as compared to the three months ended August 31, 2005. This decrease on a percent to revenue basis reflects a cumulative catch-up adjustment of $2.2 million to stock based compensation expense due to a change in estimated forfeitures for certain existing stock option and restricted stock awards and improved leverage of higher sales in both Rentals and Other Services. In order to accelerate revenue growth, we continue to increase our sales force, marketing plans and sales promotions. These measures combined to increase our selling costs by $4.1 million over the prior year. The cost of providing medical and retirement benefits to our employees increased $4.0 million, representing an 11.7% increase over the prior year. In addition, administrative expenses increased by $2.7 million as a result of an increase in professional services relating to legal and the outsourcing of certain human resource functions. Administrative expenses also increased by $1.9 million due to the amortization of intangibles obtained with new acquisitions.
Net interest expense (interest expense less interest income) was $10.9 million for the three months ended August 31, 2006, compared to $5.6 million for the same period in the prior fiscal year. This increase in net interest expense is primarily due to the increased level of borrowing used to fund acquisitions and to fund the stock repurchase program.
Cintas’ effective tax rate is 37.3% for the three months ended August 31, 2006, which is comparable to the 37.4% for the three months ended August 31, 2005.
Income Comparison
Net income increased 8.3% for the three months ended August 31, 2006, over the same period in fiscal 2006, primarily due to revenue growth. Diluted earnings per share increased 15.2% for the three months ended August 31, 2006, over the same period in the prior fiscal year. This increase is greater than the net income increase of 8.3% due to the impact of the stock repurchase program. From the inception of the stock repurchase program, Cintas has purchased approximately 12.1 million shares of Cintas stock.
At August 31, 2006, there was $175 million in cash, cash equivalents and marketable securities, a decrease of $67 million from May 31, 2006. This decrease was primarily due to acquisitions made in late fiscal 2006 and the repurchasing of our company stock, as discussed below. Capital expenditures were approximately $36 million for the three months ended August 31, 2006. We expect capital expenditures for the year to be between $150 and $170 million. Cash, cash equivalents and marketable securities are expected to be used to finance future acquisitions, capital expenditures, expansion and additional repurchases under the stock repurchase program as detailed below. We believe that our current cash position, funds generated from operations and the strength of our banking relationships are sufficient to meet our anticipated operational and capital requirements.
Net property and equipment at August 31, 2006, of $868 million is consistent with the May 31, 2006 balance. At the end of the first quarter of fiscal 2007, Cintas had three uniform rental facilities under construction.
During the first quarter of fiscal 2007, Cintas essentially completed the $500 million stock repurchase program that the Board of Directors authorized and announced in May 2005. For the three months ended August 31, 2006, Cintas purchased approximately 2.7 million shares of Cintas stock at an average price of $41.69 per share for a total purchase price of approximately $114 million. From the inception of the
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stock repurchase program through August 31, 2006, Cintas has purchased approximately 12.1 million shares of Cintas stock at an average price of $40.88 per share for a total purchase price of approximately $496 million. In July 2006, the Board of Directors approved the expansion of this share repurchase program by an additional $500 million. The Board did not specify an expiration date for this program.
Following is information regarding Cintas’ long-term contractual obligations and other commitments outstanding as of August 31, 2006:
(In thousands) | Payments Due by Period | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term contractual obligations | Total | One year or less | Two to three years | Four to five years | After five Years | ||||||||||||
Long-term debt (1) | $ | 854,682 | $ | 228,926 | $ | 143,715 | $ | 1,256 | $ | 480,785 | |||||||
Capital lease obligations (2) | 2,237 | 600 | 1,037 | 240 | 360 | ||||||||||||
Operating leases (3) | 63,328 | 18,340 | 25,043 | 12,650 | 7,295 | ||||||||||||
Interest payments (4) | 558,989 | 45,993 | 58,873 | 58,579 | 395,544 | ||||||||||||
Interest swap agreements (5) | -- | -- | -- | -- | -- | ||||||||||||
Unconditional purchase obligations | -- | -- | -- | -- | -- | ||||||||||||
Total contractual cash obligations | $ | 1,479,236 | $ | 293,859 | $ | 228,668 | $ | 72,725 | $ | 883,984 | |||||||
Cintas also makes payments to defined contribution plans. The amounts of contributions made to the plans are made at the discretion of Cintas. Future contributions are assumed to increase 15% annually. Assuming this 15% increase, payments due in one year or less would be $31,791, two to three years would be $78,602 and four to five years would be $103,951. Payments for years thereafter are assumed to continue increasing by 15% each year.
(In thousands) | Amount of Commitment Expiration Per Period | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Other commercial commitments | Total | One year or less | Two to three years | Four to five years | After five Years | ||||||||||||
Lines of credit (1) | $ | 400,000 | $ | -- | $ | -- | $ | 400,000 | $ | -- | |||||||
Standby letter of credit (2) | 56,950 | 56,950 | -- | -- | -- | ||||||||||||
Guarantees | -- | -- | -- | -- | -- | ||||||||||||
Standby repurchase obligations | -- | -- | -- | -- | -- | ||||||||||||
Other commercial commitments | -- | -- | -- | -- | -- | ||||||||||||
Total commercial commitments | $ | 456,950 | $ | 56,950 | $ | -- | $ | 400,000 | $ | -- | |||||||
Cintas has no off-balance sheet arrangements other than the synthetic lease on a corporate jet. The synthetic lease on the aircraft does not currently have, and is not reasonably likely to have, a current or future material effect on Cintas’ financial condition, changes in Cintas’ financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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Cintas is subject to legal proceedings 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 operations 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,PaulVeliz,etal., v.CintasCorporation, 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 August 23, 2005, an amended complaint was filed alleging additional state law wage and hour claims under the following state laws: Arkansas, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington, West Virginia and Wisconsin. The plaintiffs are seeking unspecified monetary damages, injunctive relief or both. Cintas denies these claims and is defending the plaintiffs’ allegations. On February 14, 2006, the court ordered a majority of the opt-in plaintiffs to arbitrate their claims in accordance with the terms of their Cintas employment agreement. On February 14, 2006, the court also permitted plaintiffs to file a second amended complaint alleging state law claims in the 15 states listed above only with respect to the putative class members that may litigate their claims in court. No determination has been made by the court or an arbitrator regarding class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. If a court or arbitrator certifies a class in this action and there is an adverse verdict on the merits, or in the event of a negotiated settlement of the action, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable at this time.
Cintas is also a defendant in a purported class action lawsuit,RobertRamirez, etal.,v.CintasCorporation, filed on January 20, 2004, and pending in the United States District Court, Northern District of California, San Francisco Division. The case was brought on behalf of all past and present female, African-American and Hispanic applicants and employees of Cintas and its subsidiaries. The complaint alleges that Cintas has engaged in a pattern and practice of discriminating against females and minorities in recruitment, hiring, promotions, transfers, job assignments and pay. The complaint seeks injunctive relief, compensatory damages, punitive damages and attorneys’ fees, among other things. The claims in the complaint were significantly narrowed down through dismissal and transfer of claims to several specific claims against Cintas’ Rental Division only, including, failure to hire African-Americans, Hispanics and females into service sales representative positions, failure to promote Hispanics to supervisory positions, discrimination against African-Americans and Hispanics in service sales representative route assignment and pay claims and discrimination against African-Americans in hourly pay. On April 27, 2005, the United States Equal Employment Opportunity Commission (EEOC) intervened in order to participate in the failure to hire females into service sales representative positions claim. On May 11, 2006, the court signed an order transferring the class claims of failure to hire African-Americans, Hispanics and females into service sales representative positions and the EEOC’s complaint in intervention to theMirna E. Serrano, et al., v. Cintas Corporation, filed on May 10, 2004, in the United States District Court for the Eastern District of Michigan, Southern Division. All of the remaining claims in theRamirez lawsuit were ordered to arbitration and stayed by the court pending the completion of arbitration. No filings or determination have been made in regard to the lawsuit or arbitration as to class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. Several related proceedings with similar allegations and seeking similar relief damages and fees are pending, including a class action lawsuit,Mirna E. Serrano, et al., v. Cintas Corporation, filed on May 10, 2004, in the United States District Court for the Eastern District of Michigan, Southern Division on behalf of female service sales representative job applicants at all Cintas locations in Michigan. On September 6, 2005, a Magistrate Judge granted plaintiffs’ motion for leave to file a second amended complaint to expand the lawsuit to a nationwide claim. On November 15, 2005, the EEOC intervened inSerrano to participate in the lawsuit in continuation of an EEOC charge filed on April 17, 2000, by Mirna Serrano with the EEOC Detroit District office. On February 24, 2006, a motion to intervene inSerrano was filed by intervening plaintiffs Colleen Grindle, et al., on behalf of a
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nationwide subclass and an Ohio subclass of female employees in Cintas’ Rental Division who were allegedly denied hire, promotion or transfer to a service sales representative position. On March 24, 2006, the Grindle plaintiffs withdrew their motion to intervene without prejudice. On July 10, 2006, the claims of discrimination against females, African-Americans and Hispanics that were transferred from theRobert Ramirez, et al. v. Cintas Corporation matter to the Eastern District of Michigan, Southern Division, were consolidated for pretrial purposes with theMirna E. Serrano v. Cintas Corporation lawsuit; the consolidated matter remains in the Eastern District of Michigan, Southern Division, and has been renamedMirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation. In addition, a class action lawsuit,Larry Houston, et al., v. Cintas Corporation, was filed on August 3, 2005, in the United States District Court for the Northern District of California on behalf of African-American managers alleging racial discrimination. On November 22, 2005, the court entered an order requiring the named plaintiffs in theHouston lawsuit to arbitrate all of their claims for monetary damages. If there is an adverse verdict or a negotiated settlement of all or any of these actions, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas. Any estimated liability relating to these proceedings is not determinable at this time.
Several other similar administrative proceedings are pending including: (i) two charges filed on November 30, 2004, by an EEOC Commissioner with the EEOC Systemic Litigation Unit alleging failure to hire and assign females to production job positions, and failing to hire females, African-Americans and Hispanics into the Management Trainee program, and (ii) a charge filed on January 24, 2005, by Jennifer Fargo on behalf of herself and a similarly situated class with the Augusta Human Relations Commission and the EEOC Detroit District office alleging gender and equal pay discrimination against female sales representatives and sales associates. The investigations of these allegations are pending and no determinations have been made. On August 29, 2006, the EEOC Indianapolis District Office issued a dismissal and notice of rights and closed its file on the Clifton Cooper charge filed on March 23, 2005, by Cooper on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race. On May 26, 2006, the EEOC issued a dismissal and notice of rights and closed its file on the Melissa Schulz charge filed on April 25, 2005, on behalf of herself and a similarly situated class with the EEOC Systemic Litigation Unit and the Oregon Bureau of Labor and Industries, Civil Rights Division alleging discriminatory pay and treatment due to race and gender, following a determination that it was unable to conclude that the information obtained established a violation of statute.
Cintas is also a defendant in a lawsuit,J.LesterAlexander,IIIvs.Cintas Corp.,etal., which was originally filed on October 25, 2004, and is currently pending in the Circuit Court of Randolph County, Alabama. The case was brought by J. Lester Alexander, III, the Chapter 7 Trustee (the “Trustee”) of Terry Manufacturing Company, Inc. (“TMC”) and Terry Uniform Company, LLC (“TUC”), against Cintas in Randolph County, Alabama. The Trustee seeks damages against Cintas for allegedly breaching fiduciary duties to TMC and TUC and for allegedly aiding and abetting breaches of fiduciary duties by others to those entities. The complaint also includes allegations that Cintas breached certain limited liability company agreements, or alternatively, misrepresented its intention to perform its obligations in those agreements and acted as alter egos of the bankrupt TMC and is therefore liable for all of TMC’s debts. The Trustee is seeking $50 million in compensatory damages and $100 million in punitive damages. Cintas denies these claims and is vigorously defending itself against all claims in the complaint. If there
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six months ended November 30, 2006.
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34
30
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Total number of | Maximum approximate | |||||||||||||||
shares purchased as | dollar value of | |||||||||||||||
part of the | shares that may yet | |||||||||||||||
Total number of | Average price paid | publicly announced | be purchased under | |||||||||||||
Period | shares purchased | per share | plan | the plan | ||||||||||||
September 2006 | — | — | 12,134,136 | $ | 503,968,617 | |||||||||||
October 2006 | 401,823 | $ | 41.44 | 12,535,959 | $ | 487,318,184 | ||||||||||
November 2006 | 260,526 | $ | 41.81 | 12,796,485 | $ | 476,426,792 | ||||||||||
Total | 662,349 | $ | 41.58 | 12,796,485 | $ | 476,426,792 | ||||||||||
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Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of the publicly announced plan | Maximum approximate dollar value of shares that may yet be purchased under the plan | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 2006 | 2,744,791 | $ | 41.69 | 12,134,136 | $ | 503,968,617 | ||||||||
July 2006 | -- | -- | -- | $ | 503,968,617 | |||||||||
August 2006 | -- | -- | -- | $ | 503,968,617 | |||||||||
Total | 2,744,791 | $ | 41.69 | 12,134,136 | $ | 503,968,617 | ||||||||
Shares - | ||||||||
Name | Shares For | Withheld Authority | ||||||
Richard T. Farmer | 142,652,254 | 7,769,567 | ||||||
Robert J. Kohlhepp | 148,265,590 | 2,156,231 | ||||||
Scott D. Farmer | 145,400,321 | 5,021,500 | ||||||
Gerald S. Adolph | 148,999,546 | 1,422,275 | ||||||
Paul R. Carter | 148,996,090 | 1,425,731 | ||||||
Gerald V. Dirvin | 148,461,581 | 1,960,240 | ||||||
Joyce Hergenhan | 148,913,637 | 1,508,184 | ||||||
Roger L. Howe | 145,808,198 | 4,613,623 | ||||||
David C. Phillips | 144,992,702 | 5,429,119 |
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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 |
32
CINTAS CORPORATION (Registrant) | ||||
Date: January 4, 2007 | /s/ William C. Gale | |||
William C. Gale | ||||
Senior Vice President and Chief Financial Officer (Chief Accounting Officer) |
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