10-KPeriod: FY2006

CINTAS CORP Annual Report, Year Ended May 31, 2006

Filed August 11, 2006For Securities:CTAS

Summary

Cintas Corporation's 2006 10-K filing reveals a company with consistent growth and a strong market position in the uniform and business services sector. For the fiscal year ending May 31, 2006, Cintas reported total revenues of $3.4 billion, an increase of 11.0% over the prior year, driven by both organic growth and strategic acquisitions. The company operates across two main segments: Rentals, which includes uniform and garment rentals, and Other Services, encompassing direct sales of uniforms, first aid, safety, and document management solutions. Both segments demonstrated healthy performance, with 'Other Services' showing a higher growth rate primarily due to recent acquisitions. Cintas highlighted its ongoing commitment to cost containment, operational efficiency through Six Sigma initiatives, and reinvestment in facilities and equipment to support future expansion. The company also continued its shareholder-friendly capital allocation strategy, including consistent dividend increases and a significant stock repurchase program. Despite a generally positive outlook, Cintas faces several risks, including general economic conditions, increased competition, supplier reliance, and potential disruptions from unionization campaigns. Notably, the company is involved in ongoing wage and hour, race, and gender discrimination litigation, the outcomes of which could materially impact its financial condition. Management emphasized its robust internal controls and affirmed their effectiveness. Overall, Cintas presents a picture of a well-managed, growing enterprise navigating industry challenges while focusing on long-term value creation for its shareholders.

Key Highlights

  • 1Achieved 37th consecutive year of uninterrupted growth in sales and profits.
  • 2Reported total revenues of $3.4 billion for fiscal year 2006, an 11.0% increase year-over-year.
  • 3Strategic acquisitions continued to drive growth, particularly in the 'Other Services' segment.
  • 4Implemented Six Sigma initiatives to enhance operational efficiency and cost containment.
  • 5Returned capital to shareholders through an 11.5% increase in diluted EPS and a significant stock repurchase program.
  • 6Experienced a rise in debt to capitalization ratio to 27.6% primarily due to funding acquisitions and share repurchases.
  • 7Management identified ongoing litigation, unionization campaigns, and economic factors as key risks.

Frequently Asked Questions

Cintas' revenue growth in fiscal year 2006 was driven by a combination of factors. Organic growth improved to 7.8%, fueled by sales of new uniform rental programs and increased penetration of ancillary products to existing customers. Additionally, strategic acquisitions, particularly in the first aid, safety, fire protection, and document management businesses, contributed significantly to the overall revenue increase.

Cintas identified several key risks. These include adverse impacts from general economic conditions, increased competition leading to potential price reductions, risks associated with suppliers and product sourcing, challenges in opening new cost-effective facilities, and the potential disruption and adverse effects of ongoing unionization campaigns. The company is also subject to significant litigation, including class-action lawsuits related to wage and hour claims and alleged discrimination, the outcomes of which could materially affect financial results.

Cintas generated $462 million in cash from operations and deployed it towards capital expenditures ($157 million), acquisitions ($346 million), and stock repurchases ($323 million). The company also paid dividends of $59 million, marking its 23rd consecutive year of increasing its annual dividend. A significant stock repurchase program authorized in May 2005 continued actively throughout fiscal year 2006, and was further expanded in July 2006.

Cintas is involved in several significant legal proceedings. These include a class-action lawsuit regarding wage and hour laws for service sales representatives, and multiple class-action lawsuits alleging race and gender discrimination in recruitment, hiring, promotions, and pay. The company is also a defendant in a lawsuit concerning alleged breaches of fiduciary duties related to former subsidiaries. Cintas denies the claims in these lawsuits and is vigorously defending itself, but acknowledges that adverse outcomes could materially impact its financial condition and results of operations.