Cintas Corporation Announces Fiscal 2013 Second Quarter Results

CINCINNATI--(BUSINESS WIRE)-- Cintas Corporation (Nasdaq:CTAS) today reported results for its second quarter ended November 30, 2012. Revenue for the second quarter was $1.06 billion, representing a 4.0% increase compared to last year’s second quarter. Organic growth, which adjusts for the impact of acquisitions, compared to last year’s second quarter, was 3.4%. Recycled paper prices remained lower than last year, and this negatively impacted second quarter consolidated revenue by $5.5 million, or 0.6%, compared to last year’s second quarter.

The Company’s operating income of $139.0 million was a 4.8% increase as compared to last year’s second quarter. Net income increased 4.9% to $78.0 million as compared to $74.4 million in last year’s second quarter. Earnings per diluted share (EPS) for the second quarter were $0.63, a 10.5% increase over the $0.57 earnings per diluted share in last year’s second quarter.

Scott D. Farmer, Chief Executive Officer, stated, “We continued to operate during the second quarter in a climate of much economic uncertainty. These uncertainties, largely regarding U.S. tax policies and changing healthcare regulation and costs, caused our customers to be very cautious about both spending and hiring.”

The Company’s balance sheet and cash flow remain very strong. Cash and marketable securities totaled $276.3 million at November 30, 2012. Cash flow from operations in the first half of fiscal 2013 improved to $227.3 million, a 29.2% increase over the first half of last fiscal year. As of November 30, 2012, the Company’s current ratio was 2.7 to one, and its debt to EBITDA was 1.9 to one.

During the second quarter of fiscal 2013, the Company purchased 1.9 million shares of its common stock at an aggregate cost of $81.1 million. While it had no impact on the second quarter EPS, this buyback is expected to benefit fiscal year 2013 EPS by approximately $0.01. The Cintas Board of Directors authorized a $500.0 million share buyback program in October 2011. As of November 30, 2012, the Company had $218.7 million available under the current Board authorization for future share repurchases.

Mr. Farmer added, “Last week, we paid our annual dividend to our shareholders amounting to $0.64 per share, an 18.5% increase from last year’s dividend of $0.54 per share. Our consistently strong operating results have allowed us to continue to increase our dividend while executing our stock buyback program, demonstrating our continued commitment to increase shareholder value.”

Mr. Farmer concluded, “Based on our second quarter results and the uncertain U.S. economic climate, we are updating our fiscal 2013 revenue expectations to be in the range of $4.275 billion to $4.325 billion. We are not changing our EPS guidance, which is an expectation of fiscal 2013 EPS to be in the range of $2.50 to $2.58. This guidance assumes no further deterioration in the U.S. economy and does not consider any additional share buybacks.”

About Cintas
Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types primarily throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid, safety, fire protection products and services and document management services for over one million businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of the Standard & Poor’s 500 Index.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy and fuel costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the inaccessibility of computer systems data, the initiation or outcome of litigation, investigations or other proceedings, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic or extraordinary events, the amount and timing of repurchases of our common stock, if any, changes in federal and state tax and labor laws, the reactions of competitors in terms of price and service and the finalization of our financial statements for the quarter ended November 30, 2012. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2012 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
					Three Months Ended
					November 30, 2012					November 30, 2011					% Chng.
Revenue:
Rental uniforms and ancillary products					$	755,839				$	722,789				4.6
Other services						304,547					296,337				2.8
Total revenue					$	1,060,386				$	1,019,126				4.0
Costs and expenses:
Cost of rental uniforms and ancillary products					$	438,902				$	410,247				7.0
Cost of other services						189,448					179,082				5.8
Selling and administrative expenses						293,013					297,112				-1.4
Operating income					$	139,023				$	132,685				4.8
Interest income					$	(149	)			$	(403	)			-63.0
Interest expense						16,294					17,728				-8.1
Income before income taxes					$	122,878				$	115,360				6.5
Income taxes						44,851					41,010				9.4
Net income					$	78,027				$	74,350				4.9
Per share data:
Basic earnings per share					$	0.63				$	0.57				10.5
Diluted earnings per share					$	0.63				$	0.57				10.5
Weighted average number of shares outstanding						124,185					129,727
Diluted average number of shares outstanding						124,609					129,740
					Six Months Ended
					November 30, 2012					November 30, 2011					% Chng.
Revenue:
Rental uniforms and ancillary products					$	1,510,682				$	1,442,212				4.7
Other services						601,029					594,094				1.2
Total revenue					$	2,111,711				$	2,036,306				3.7
Costs and expenses:
Cost of rental uniforms and ancillary products					$	867,050				$	813,653				6.6
Cost of other services						366,750					353,816				3.7
Selling and administrative expenses						599,594					607,578				-1.3
Operating income					$	278,317				$	261,259				6.5
Interest income					$	(226	)			$	(768	)			-70.6
Interest expense						32,892					35,062				-6.2
Income before income taxes					$	245,651				$	226,965				8.2
Income taxes						90,891					83,977				8.2
Net income					$	154,760				$	142,988				8.2
Per share data:
Basic earnings per share					$	1.24				$	1.09				13.8
Diluted earnings per share					$	1.23				$	1.09				12.8
Weighted average number of shares outstanding						125,153					130,522
Diluted average number of shares outstanding						125,541					130,543
CINTAS CORPORATION SUPPLEMENTAL DATA
					Three Months Ended
					November 30, 2012					November 30, 2011
Rental uniforms and ancillary products gross margin						41.9	%				43.2	%
Other services gross margin						37.8	%				39.6	%
Total gross margin						40.7	%				42.2	%
Net margin						7.4	%				7.3	%
Depreciation and amortization					$	46,852				$	48,516
Capital expenditures					$	51,624				$	35,411
					Six Months Ended
					November 30, 2012					November 30, 2011
Rental uniforms and ancillary products gross margin						42.6	%				43.6	%
Other services gross margin						39.0	%				40.4	%
Total gross margin						41.6	%				42.7	%
Net margin						7.3	%				7.0	%
Depreciation and amortization					$	93,294				$	97,026
Capital expenditures					$	99,062				$	79,832
Debt / EBITDA						1.9					2.0

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure
The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional measures of operating results, net earnings, net margin and earnings per share adjusted to exclude certain costs, expenses and gains and losses. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP is shown below.
Management believes the ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA) is valuable to investors, particularly investors of the company's debt, because it is a common metric that reflects the company's earnings and cash flow available for debt service payments.

									As of
									November 30, 2012
Long-term debt									$	1,309,490
Letters of credit										85,719
Debt									$	1,395,209
									Rolling Twelve Months Ended November 30, 2012				Three Months Ended November 30, 2012				Three Months Ended August 31, 2012				Three Months Ended May 31, 2012				Three Months Ended February 29, 2012
Net Income									$	309,409			$	78,027			$	76,733			$	78,614			$	76,035
Add back:
Interest expense										68,455				16,294				16,598				18,344				17,219
Taxes										180,221				44,851				46,040				44,675				44,655
Depreciation										160,230				40,979				40,342				40,265				38,644
Amortization										30,203				5,873				6,100				8,814				9,416
EBITDA									$	748,518			$	186,024			$	185,813			$	190,712			$	185,969
Debt / EBITDA										1.9
									As of
									November 30, 2011
Long-term debt									$	1,285,222
Letters of credit										85,720
Debt									$	1,370,942
									Rolling Twelve Months Ended November 30, 2011				Three Months Ended November 30, 2011				Three Months Ended August 31, 2011				Three Months Ended May 31, 2011				Three Months Ended February 28, 2011
Net Income									$	272,834			$	74,350			$	68,638			$	70,776			$	59,070
Add back:
Interest expense										60,331				17,728				17,334				12,749				12,520
Taxes										167,673				41,010				42,967				46,130				37,566
Depreciation										153,245				38,645				38,277				38,760				37,563
Amortization										41,503				9,871				10,233				10,415				10,984
EBITDA									$	695,586			$	181,604			$	177,449			$	178,830			$	157,703
Debt / EBITDA										2.0

Computation of Free Cash Flow
							Six Months Ended
							November 30, 2012					November 30, 2011
Net Cash Provided by Operations							$	227,263				$	175,958
Capital Expenditures							$	(99,062	)			$	(79,832	)
Free Cash Flow							$	128,201				$	96,126

Note:		Management uses free cash flow to assess the financial performance of the Company. Management
		believes that free cash flow is useful to investors because it relates the operating cash flow of the
		Company to the capital that is spent to continue, improve and grow business operations.

SUPPLEMENTAL SEGMENT DATA					Rental Uniforms and Ancillary Products				Uniform Direct Sales				First Aid, Safety and Fire Protection				Document Management				Corporate					Total
For the three months ended November 30, 2012
Revenue					$	755,839			$	110,203			$	111,513			$	82,831			$	-				$	1,060,386
Gross margin					$	316,937			$	30,206			$	47,279			$	37,614			$	-				$	432,036
Selling and administrative expenses					$	200,886			$	19,802			$	37,625			$	34,700			$	-				$	293,013
Interest income					$	-			$	-			$	-			$	-			$	(149	)			$	(149	)
Interest expense					$	-			$	-			$	-			$	-			$	16,294				$	16,294
Income (loss) before income taxes					$	116,051			$	10,404			$	9,654			$	2,914			$	(16,145	)			$	122,878
For the three months ended November 30, 2011
Revenue					$	722,789			$	111,946			$	101,687			$	82,704			$	-				$	1,019,126
Gross margin					$	312,542			$	33,127			$	43,800			$	40,328			$	-				$	429,797
Selling and administrative expenses					$	208,065			$	19,885			$	34,838			$	34,324			$	-				$	297,112
Interest income					$	-			$	-			$	-			$	-			$	(403	)			$	(403	)
Interest expense					$	-			$	-			$	-			$	-			$	17,728				$	17,728
Income (loss) before income taxes					$	104,477			$	13,242			$	8,962			$	6,004			$	(17,325	)			$	115,360
For the six months ended November 30, 2012
Revenue					$	1,510,682			$	210,482			$	222,354			$	168,193			$	-				$	2,111,711
Gross margin					$	643,632			$	59,684			$	95,070			$	79,525			$	-				$	877,911
Selling and administrative expenses					$	410,674			$	40,539			$	76,395			$	71,986			$	-				$	599,594
Interest income					$	-			$	-			$	-			$	-			$	(226	)			$	(226	)
Interest expense					$	-			$	-			$	-			$	-			$	32,892				$	32,892
Income (loss) before income taxes					$	232,958			$	19,145			$	18,675			$	7,539			$	(32,666	)			$	245,651
Assets					$	2,813,707			$	143,880			$	393,429			$	590,517			$	276,349				$	4,217,882
For the six months ended November 30, 2011
Revenue					$	1,442,212			$	213,648			$	205,430			$	175,016			$	-				$	2,036,306
Gross margin					$	628,559			$	62,235			$	88,587			$	89,456			$	-				$	868,837
Selling and administrative expenses					$	424,664			$	40,586			$	71,242			$	71,086			$	-				$	607,578
Interest income					$	-			$	-			$	-			$	-			$	(768	)			$	(768	)
Interest expense					$	-			$	-			$	-			$	-			$	35,062				$	35,062
Income (loss) before income taxes					$	203,895			$	21,649			$	17,345			$	18,370			$	(34,294	)			$	226,965
Assets					$	2,803,231			$	157,339			$	364,461			$	552,676			$	337,605				$	4,215,312

Cintas Corporation
Consolidated Balance Sheets
(In thousands except share data)
ASSETS									November 30, 2012			May 31, 2012
									(Unaudited)
Current assets:
		Cash & cash equivalents							$ 242,487			$ 339,825
		Marketable securities							33,862			-
		Accounts receivable, net							479,106			450,861
		Inventories, net							236,195			251,205
		Uniforms and other rental items in service							482,001			452,785
		Income taxes, current							20,976			22,188
		Prepaid expenses and other							25,035			24,704
				Total current assets					1,519,662			1,541,568
Property and equipment, at cost, net									967,260			944,305
Goodwill									1,522,411			1,485,375
Service contracts, net									90,480			76,822
Other assets, net									118,069			112,836
									$ 4,217,882			$ 4,160,906
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
		Accounts payable							$ 118,534			$ 94,840
		Accrued compensation and related liabilities							54,480			91,214
		Accrued liabilities							325,077			256,642
		Deferred tax liability							56,427			2,559
		Long-term debt due within one year							661			225,636
				Total current liabilities					555,179			670,891
Long-term liabilities:
		Long-term debt due after one year							1,308,829			1,059,166
		Deferred income taxes							206,782			204,581
		Accrued liabilities							66,448			87,133
				Total long-term liabilities					1,582,059			1,350,880
Shareholders' equity:
		Preferred stock, no par value:							-			-
				100,000 shares authorized, none outstanding
		Common stock, no par value:							173,127			148,255
				425,000,000 shares authorized
				FY13: 174,419,454 issued and 123,228,777 outstanding
				FY12: 173,745,913 issued and 126,519,758 outstanding
		Paid-in capital							98,311			107,019
		Retained earnings							3,557,088			3,482,073
		Treasury stock:							(1,794,050)			(1,634,875)
				FY13: 51,190,677 shares
				FY12: 47,226,155 shares
		Other accumulated comprehensive income (loss):
				Foreign currency translation					61,091			52,399
				Unrealized loss on derivatives					(15,279)			(16,104)
				Other					356			368
				Total shareholders' equity					2,080,644			2,139,135
									$ 4,217,882			$ 4,160,906

Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
									Six Months Ended
Cash flows from operating activities:									November 30, 2012				November 30, 2011
Net income									$	154,760			$	142,988
Adjustments to reconcile net income to net cash provided
by operating activities:
		Depreciation								81,321				76,922
		Amortization of deferred charges								11,973				20,104
		Stock-based compensation								11,084				9,756
		Deferred income taxes								55,245				(11,767	)
		Change in current assets and liabilities, net of
		acquisitions of businesses:
				Accounts receivable, net						(24,528	)			(20,850	)
				Inventories, net						15,460				(39,268	)
				Uniforms and other rental items in service						(28,105	)			(29,630	)
				Prepaid expenses and other						(202	)			(5,128	)
				Accounts payable						23,019				1,843
				Accrued compensation and related liabilities						(36,899	)			(15,314	)
				Accrued liabilities						(36,464	)			26,306
				Income taxes payable						599				19,996
		Net cash provided by operating activities								227,263				175,958
Cash flows from investing activities:
Capital expenditures										(99,062	)			(79,832	)
Proceeds from redemption of marketable securities										41,453				140,162
Purchase of marketable securities and investments										(80,054	)			(193,527	)
Acquisitions of businesses, net of cash acquired										(53,243	)			(14,551	)
Other, net										(673	)			5,772
		Net cash used in investing activities								(191,579	)			(141,976	)
Cash flows from financing activities:
Proceeds from issuance of debt										250,000				-
Repayment of debt										(225,312	)			(903	)
Proceeds from exercise of stock-based compensation awards										2,357				78
Repurchase of common stock										(159,175	)			(262,682	)
Other, net										(2,476	)			1,454
		Net cash used in financing activities								(134,606	)			(262,053	)
Effect of exchange rate changes on cash and cash equivalents										1,584				(2,263	)
Net decrease in cash and cash equivalents										(97,338	)			(230,334	)
Cash and cash equivalents at beginning of period										339,825				438,106
Cash and cash equivalents at end of period									$	242,487			$	207,772

Cintas Corporation
William C. Gale, 513-573-4211
Sr. Vice President-Finance and Chief Financial Officer
or
J. Michael Hansen, 513-701-2079
Vice President and Treasurer

Source: Cintas Corporation