Cintas Corp. 10-Q Summary: Quarter Ended August 31, 1994
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Cintas Corporation for the three-month period ended August 31, 1994 (First Quarter of Fiscal 1995). The company provides uniform rental and sales services. The report is unaudited and should be read in conjunction with the annual report for the fiscal year ended May 31, 1994.
Key Financial Metrics
| Metric | Q1 1995 (Aug 31, 1994) | Q1 1994 (Aug 31, 1993) |
|---|---|---|
| Total Revenues | $142,037,000 | $122,224,000 |
| Net Income | $13,760,000 | $10,543,000 |
| Earnings Per Share (EPS) | $0.29 | $0.23 |
| Operating Cash Flow | $19,960,000 | $8,564,000 |
| Cash and Equivalents (End of Period) | $8,798,000 | $6,014,000 |
| Long-Term Debt | $83,533,000 | $84,184,000 (May 31, 1994) |
| Working Capital | $136,810,000 | $129,969,000 (May 31, 1994) |
Margins: Income from operations (excluding interest) was 16% of revenues for both the current and prior year quarters. Net interest expense decreased to $1,023,000 from $1,507,000 in the prior year.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 16% year-over-year. Net rental revenue grew 14%, driven by a 12% increase from customer base growth and price increases, and 2% from acquisitions. Net sales of uniforms and direct items surged 43% due to higher unit sales.
- Profitability: Pre-tax income increased 21% to $22,193,000. Net income rose 31% to $13,760,000.
- Comparability Note: The prior year quarter (Aug 31, 1993) included a one-time tax charge of $1,064,000 related to the Omnibus Budget Reconciliation Act of 1993, which reduced EPS by $0.02. This makes the year-over-year growth appear stronger than operational performance alone might suggest.
- Debt Reduction: Long-term debt decreased due to the repayment of industrial revenue bonds in Cleveland, Tampa, and Dallas.
Outlook, Risks, and Management Commentary
- Capital Allocation: On July 20, 1994, the Board authorized the repurchase of up to 2 million shares of common stock to fund future acquisitions. During the quarter, the company purchased $4,719,000 of treasury stock.
- Liquidity: Management believes capital requirements for operations, improvements, debt repayment, and dividends can be met from funds on hand and operating cash flows.
- Investments: The company adopted SFAS No. 115, classifying marketable securities as "available-for-sale." Unrealized gains/losses are reported in shareholders' equity. At period end, the difference between cost and fair value was not significant.
- Stock Options: Additional options were granted to officers and directors during the quarter. 66,629 shares were exercised in the first quarter of fiscal 1995.
Investor Verification Checklist
- Verify the impact of the one-time $1,064,000 tax charge in the prior year to accurately assess organic earnings growth.
- Confirm the status of the authorized $2 million share repurchase program and its execution rate.
- Review the composition of "Uniforms and other rental items in service" ($75.9M) to understand asset base growth relative to revenue.
- Monitor the 43% growth in direct sales to determine if this trend is sustainable or a one-time spike in unit sales.
- Check subsequent events regarding the adoption of the 1994 Directors' Stock Option Plan approved in October 1994.