Cintas Corporation 2012 Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2012. The request references 2011 Q4, but the provided filing is the fiscal 2012 annual report; fourth-quarter data below is for the quarter ended May 31, 2012.
Business context
Cintas provides uniform rental and ancillary services, direct uniform sales, first aid and safety products, fire protection services, and document management services primarily in North America, with additional international operations. It serves more than 900,000 businesses through approximately 7,800 delivery routes, 429 operational facilities and about 30,000 employees. No individual customer represented more than 1% of revenue.
Financial performance and metrics
<>| Metric | Fiscal 2012 | Fiscal 2011 | Change |
|---|---|---|---|
| Revenue | $4.102 billion | $3.810 billion | +7.7% |
| Operating income | $539.6 million | $440.3 million | +22.5% |
| Income before taxes | $470.9 million | $392.7 million | +19.9% |
| Net income | $297.6 million | $247.0 million | +20.5% |
| Diluted EPS | $2.27 | $1.68 | +35.1% |
| Gross margin | 42.4% | 42.2% | +20 bps |
| Operating margin | 13.2% | 11.6% | +160 bps |
| Net margin | 7.3% | 6.5% | +80 bps |
| Net cash from operations | $469.9 million | $340.9 million | +37.8% |
Fiscal 2012 revenue growth included 6.1% organic growth, 0.4% from one additional workday and 1.2% from acquisitions. Selling and administrative expenses increased 2.6% but declined to 29.2% of revenue from 30.7%, reflecting productivity and cost-control initiatives.
| Segment | Fiscal 2012 revenue | Year-over-year change | Fiscal 2012 gross margin |
|---|---|---|---|
| Rental Uniforms and Ancillary Products | $2.912 billion | +8.2% | 43.4% |
| Uniform Direct Sales | $434.0 million | +3.5% | 29.9% |
| First Aid, Safety and Fire Protection | $415.7 million | +10.1% | 42.9% |
| Document Management | $340.0 million | +5.8% | 49.1% |
Fourth quarter: Revenue was $1.054 billion, gross margin was $443.9 million, net income was $78.6 million and diluted EPS was $0.60. Compared with the prior-year fourth quarter, revenue increased from $1.012 billion and diluted EPS increased from $0.49. Fourth-quarter organic growth was 4.0%, down from 7.0% in the second quarter and 5.9% in the third quarter.
Liquidity, cash flow and capital structure
- Cash and cash equivalents were $339.8 million at May 31, 2012, including $51.8 million held outside the United States. No marketable securities were outstanding, compared with $87.2 million at the prior year-end.
- Operating cash flow was $469.9 million. Capital expenditures were $160.8 million, and cash acquisitions were $24.9 million.
- Long-term debt totaled approximately $1.285 billion, including $225.6 million due within one year. No commercial paper or revolving-credit borrowings were outstanding.
- The commercial paper program has $300 million of capacity and is supported by a revolving facility with an accordion feature allowing capacity up to $450 million. The facility matures October 6, 2016.
- Cintas repurchased 11.4 million shares during fiscal 2012 for approximately $389.1 million and paid $70.8 million in dividends, or $0.54 per share. A $500 million repurchase authorization remained active; approximately $129.6 million had been used under the program through May 31, 2012.
- Debt covenants were satisfied at year-end. Contractual cash obligations totaled $2.089 billion, including debt, operating leases and interest payments.
Material changes versus the prior comparable period
- Revenue growth accelerated modestly to 7.7% from 7.4%, while organic growth increased to 6.1% from 5.1%.
- Operating income and net income grew substantially faster than revenue due to higher volume, improved capacity utilization, productivity gains and lower selling and administrative expense as a percentage of revenue.
- Interest expense increased to $70.6 million from $49.7 million, primarily because of the $500 million senior-note issuance in the fourth quarter of fiscal 2011.
- Document Management gross margin declined to 49.1% from 51.3% because of lower recycled-paper prices and higher energy costs; segment income before taxes fell to $26.0 million from $31.1 million.
- First Aid, Safety and Fire Protection gross margin improved to 42.9% from 41.3%, and pretax income increased to $35.1 million from $21.5 million.
- Cash acquisitions declined sharply from $171.6 million to $24.9 million, while share repurchases remained significant.
- Cintas repatriated approximately $110 million of foreign cash and recognized $7.4 million of related tax expense. Approximately $140.7 million of foreign earnings remained designated as permanently reinvested.
Outlook, risks and unusual items
Management did not provide specific numeric fiscal 2013 revenue or earnings guidance in the provided filing. Its stated strategy is to increase penetration of existing customers, broaden the customer base, expand geographically, develop additional services and pursue acquisitions.
- Key risks include economic weakness, unemployment, inflation, fuel and energy costs, labor and healthcare costs, material costs, competition and customer decisions to perform services internally.
- Acquisition integration, facility expansion, supplier and international sourcing risks could affect growth and margins.
- Unionization campaigns, employment and safety regulations, environmental compliance, litigation, cybersecurity and business interruption could result in material costs or disruption.
- Credit-market volatility or lower credit ratings could restrict financing access or increase borrowing costs.
- Fiscal 2012 had no legal-settlement or restructuring charge, compared with $23.5 million of net legal settlements and a $2.9 million restructuring credit in fiscal 2010. No goodwill impairment was recorded in fiscal 2012, 2011 or 2010.
- On June 1, 2012, Cintas repaid $225 million of 6.00% senior notes due 2012. On June 5, 2012, it issued $250 million of 3.25% senior notes due 2022.
- Management and Ernst & Young concluded that internal control over financial reporting and disclosure controls were effective as of May 31, 2012. Ernst & Young issued unqualified audit opinions.
Important facts for investors to verify
- Whether the deceleration in quarterly organic growth, including 4.0% in the fourth quarter, continued after fiscal 2012.
- The sustainability of margin expansion amid higher labor, fuel, energy, cotton, freight and other input costs.
- Document Management profitability and sensitivity to recycled-paper prices.
- Debt maturities, refinancing following the June 2012 note repayment and compliance with leverage and interest-coverage covenants.
- The pace and valuation of future acquisitions and the remaining share-repurchase authorization.
- Potential exposure from employment-discrimination litigation, environmental matters, union activity and other contingencies whose ultimate costs were not determinable.
- The tax consequences of future foreign-cash repatriation and the treatment of approximately $140.7 million of permanently reinvested foreign earnings.