Cintas Corporation (CTAS) - 10-K Summary
Business Context and Reporting Period
Company: Cintas Corporation
Reporting Period: Fiscal year ended May 31, 1996
Business Overview: Cintas designs, manufactures, and implements corporate identity uniform programs, providing rental and sales of uniforms and ancillary products (mats, fender covers, linens) to businesses across the U.S. and Canada. The company operates 124 facilities in 118 cities, including four manufacturing plants and three distribution centers. It employs 10,803 people, with 88 represented by unions.
Key Financial Metrics
| Metric (in thousands) | Fiscal 1996 | Fiscal 1995 |
|---|---|---|
| Net Revenues | $730,130 | $615,098 |
| Net Income | $75,183 | $62,743 |
| Earnings Per Share (Basic) | $1.60 | $1.34 |
| Operating Cash Flow | $112,426 | $75,250 |
| Return on Average Equity | 18.9% | 18.6% |
| Working Capital | $194,908 | $146,410 |
| Current Ratio | 2.90:1 | 2.54:1 |
| Total Debt (Long-term + Current) | $124,516 | $130,305 |
| Debt to Total Capitalization | 22.5% | 26.0% |
| Cash & Marketable Securities | $82,543 | $45,482 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 18.7% to $730.1 million. Uniform rental revenue grew 18.6% ($492.4M vs $415.0M), while uniform sales grew 16.5% ($81.4M vs $69.8M).
- Profitability: Net income rose 19.8% to $75.2 million. Pretax income increased 21% to $122.2 million.
- Liquidity: Cash and marketable securities increased 81% to $82.5 million, driven by strong operating cash flow ($112.4M).
- Capital Structure: Total debt decreased slightly, reducing the debt-to-total-capitalization ratio from 26% to 22.5%.
- Acquisitions: The company made 3 acquisitions in 1996 (total cash paid $2.3M), compared to 12 acquisitions in 1995. The 1995 acquisition of Cadet Uniform Services (Toronto) contributed to debt levels in the prior year.
Outlook, Risks, and Management Commentary
- Guidance: Management anticipates capital expenditures for fiscal 1997 to approximate $62 million. The company plans to use its strong cash position to finance future acquisitions and internal growth.
- Management Commentary: Cintas marked its 27th consecutive year of uninterrupted growth in sales and profits. The company emphasizes its market leadership (17% market share), high customer satisfaction, and ownership-driven culture. New plants were completed in Las Vegas and Denver, with construction underway in Indianapolis, Austin, Ontario, and Boston.
- Risks and Contingencies:
- Legal Proceedings: An "Imminent and Substantial Endangerment and Remedial Action Order" was issued in December 1992 regarding soil and groundwater contamination at a leased facility in San Leandro, California. The company cannot estimate the loss but does not believe it will have a material adverse effect.
- Competition: The uniform rental market is highly fragmented with competition from local, regional, and national firms.
- Accounting Standards: The company will adopt FASB Statement No. 121 (Impairment of Long-Lived Assets) in fiscal 1997, though no material effect is expected.
Investor Verification Checklist
- Verify the sustainability of the 19% revenue growth rate given the fragmented competitive landscape.
- Confirm the status and potential financial impact of the San Leandro, California environmental remediation order.
- Review the pipeline of new facility construction (Indianapolis, Austin, Ontario, Boston) to ensure capacity expansion aligns with projected demand.
- Monitor the company's acquisition strategy, as acquisitions have historically accounted for approximately one-third of total growth.
- Validate the consistency of the 18-19% Return on Equity over the long term.