Cintas Corp. 10-Q Summary: Period Ended November 30, 1993
Business Context and Reporting Period
This is a quarterly report (Form 10-Q) for Cintas Corporation, a provider of uniform rental and sales services. The report covers the three and six-month periods ended November 30, 1993 (Fiscal Year 1994). The company operates primarily through rental services and direct sales of uniforms and related items.
Key Financial Metrics
| Metric | Six Months Ended Nov 30, 1993 | Six Months Ended Nov 30, 1992 |
|---|---|---|
| Total Revenues | $252,007,000 | $215,642,000 |
| Net Income | $24,123,000 | $21,212,000 |
| Earnings Per Share (EPS) | $0.52 | $0.46 |
| Operating Cash Flow | $28,513,000 | $39,508,000 |
| Net Interest Expense | $2,814,000 | $2,579,000 |
| Total Debt (Current + Long-term) | $105,599,000 | $108,073,000 (May 31, 1993) |
| Cash and Equivalents | $9,266,000 | $14,192,000 (May 31, 1993) |
Margins: Income from operations as a percent of revenues was 17% for the six months ended November 30, 1993, consistent with the prior year period.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 17% year-over-year for both the quarter and the six-month period. Net rental revenue grew 17%, driven by a 9% increase from customer base growth and price increases, and an 8% increase from acquisitions. Direct sales revenue increased 13% year-over-year.
- Profitability: Pre-tax income increased 18% for the six-month period. However, reported net income and EPS were reduced by one-time tax adjustments.
- Cash Flow: Net cash provided by operating activities decreased to $28.5 million from $39.5 million in the prior year, primarily due to increases in accounts receivable and inventory levels.
- Acquisitions: The company acquired the Career Apparel Division of Palm Beach Co., Inc. on November 1, 1993. This acquisition did not significantly impact second-quarter sales.
Guidance, Outlook, and Risks
Management Commentary: Management believes capital requirements for operations, improvements, debt repayment, and dividends can be met from funds on hand and operating cash flows. The company noted that results for the six months ended November 30, 1993, are not necessarily indicative of full-year results.
Unusual Items and Tax Adjustments: Net income was adversely impacted by one-time tax adjustments related to the Omnibus Budget Reconciliation Act of 1993 and the adoption of SFAS No. 109. These adjustments included a $274,000 charge for retroactive tax rates, a $201,000 offset from jobs tax credits, and a $789,000 charge for deferred tax reclassification. These items reduced EPS by $0.02.
Risks and Contingencies: The filing does not explicitly list new material risks beyond standard operational disclosures. The primary financial risk noted is the impact of new tax legislation on earnings.
Investor Verification Checklist
- Verify the sustainability of the 17% revenue growth rate, distinguishing between organic growth (9%) and acquisition-driven growth (8%).
- Confirm the impact of the one-time tax charges ($1.063 million net charge) on the true operating profitability of the period.
- Monitor the decline in operating cash flow ($11 million decrease) relative to net income growth, specifically regarding the buildup in accounts receivable and inventory.
- Review the integration progress of the Palm Beach Co. acquisition and its contribution to future quarters.
- Assess the company's liquidity position given the decrease in cash and cash equivalents from $14.2 million to $9.3 million over the six-month period.