Cintas Corp. 10-Q Summary: Period Ended February 28, 1998
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Cintas Corporation, a provider of uniform rental and other services. The report covers the three and nine-month periods ended February 28, 1998. The company operates primarily in the United States and reported a 2-for-1 stock split effective November 1997, with all share data adjusted accordingly.
Key Financial Metrics
| Metric | Three Months Ended Feb 28, 1998 | Nine Months Ended Feb 28, 1998 |
|---|---|---|
| Total Revenues | $262.8 million | $750.3 million |
| Net Income | $27.7 million | $79.7 million |
| Diluted EPS | $0.27 | $0.80 |
| Net Cash from Operations | N/A | $95.1 million |
| Cash & Marketable Securities | $91.6 million (Balance Sheet) | N/A |
| Total Debt | $140.7 million | N/A |
Note: Total Debt includes $6.7 million current portion and $134.0 million long-term portion as of Feb 28, 1998.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 25% for the quarter and 23% for the nine-month period compared to the prior year. Net rental revenue grew 18% (quarter) and 17% (nine months), driven by customer base expansion.
- Service Revenue Surge: "Other service revenue" (including first aid supplies and catalog sales) jumped 80% for the quarter and 68% for the nine-month period.
- Profitability: Net income rose 23% for both the quarter and nine-month periods. Diluted earnings per share increased 17% (quarter) and 19% (nine months).
- Interest Expense: Net interest expense decreased significantly to $0.5 million (quarter) and $1.6 million (nine months) from $0.8 million and $2.9 million in the prior year, due to higher interest income and lower debt levels.
- Capital Expenditures: Capital expenditures for the nine months totaled $69.2 million, up from $49.0 million in the prior year, reflecting the construction of twelve new uniform rental facilities.
Outlook, Risks, and Unusual Items
- Acquisition Activity: On March 5, 1998, Cintas announced an agreement to acquire "Uniforms To You," a Chicago-based company with approximately $150 million in 1997 revenues. The deal is expected to close in April 1998 and will be accounted for as a pooling of interests.
- Dividends: The company declared an annual cash dividend of $0.18 per share, a 20% increase over the prior year, payable March 2, 1998.
- Liquidity: Management stated that current cash ($92 million combined with marketable securities), anticipated operating cash flows, and banking relationships are sufficient to meet operational needs and finance future acquisitions.
- Stock Issuance: During the quarter, 445,375 shares were issued to owners of acquired companies as part of seven separate transactions.
Investor Verification Checklist
- Verify the closing date and accounting treatment (pooling of interests) for the Uniforms To You acquisition.
- Confirm the impact of the $69.2 million capital expenditure on future depreciation and cash flow.
- Monitor the sustainability of the 80% growth rate in "other service revenue" as the company expands into first aid supplies.
- Review the effective tax rate consistency (38%) against future legislative changes.
- Assess the company's ability to fund the dividend increase and future acquisitions without increasing long-term debt significantly.