10-KPeriod: FY2014

CINTAS CORP Annual Report, Year Ended May 31, 2014

Filed July 30, 2014For Securities:CTAS

Summary

Cintas Corporation (CTAS) filed its 2014 10-K report, detailing a year marked by strategic adjustments and steady operational growth. The company reported total revenue of $4.55 billion, an increase of 5.5% over the prior year, driven primarily by organic growth across its core segments, particularly Rental Uniforms and Ancillary Products, which saw a 5.9% revenue increase. A significant event was the April 30, 2014, partnership transaction combining Cintas' document destruction business with Shred-it, creating a new partnership where Cintas holds a 42% stake and receiving $180 million in cash. While this transaction resulted in a substantial gain on deconsolidation, it also led to asset impairment and transaction costs. The company's financial performance remained robust, with net income increasing by 18.7% to $374.4 million and diluted earnings per share growing by 21.0% to $3.05. Cintas continued its commitment to shareholder returns, demonstrating its 31st consecutive year of increasing its annual dividend. The company also actively repurchased shares, underscoring its financial strength and confidence in its business model. Looking ahead, Cintas is focused on expanding its customer base and penetration, leveraging its strong customer relationships and extensive service network.

Financial Statements
Beta
Revenue$4.19B
Gross Profit$1.75B
SG&A Expenses$1.15B
Operating Income$602.72M
Interest Expense$65.82M
Net Income$374.44M
EPS (Basic)$0.77
EPS (Diluted)$0.76
Shares Outstanding (Basic)481.51M
Shares Outstanding (Diluted)486.56M

Key Highlights

  • 1Total revenue for fiscal year 2014 reached $4.55 billion, a 5.5% increase from fiscal year 2013, driven by a 5.9% organic growth rate.
  • 2The company successfully completed a partnership transaction with Shred-it to combine their document destruction businesses, resulting in Cintas receiving $180 million in cash and a 42% ownership stake in the new partnership.
  • 3Net income grew by 18.7% to $374.4 million, and diluted EPS increased by 21.0% to $3.05, reflecting strong operational performance.
  • 4Cintas demonstrated a consistent commitment to shareholder returns by increasing its annual dividend for the 31st consecutive year.
  • 5The Rental Uniforms and Ancillary Products segment remains the largest revenue contributor, showing solid growth of 5.9% year-over-year.
  • 6Despite a strategic divestiture in its document management segment, the company's overall financial health remained strong, supported by healthy operating cash flows.
  • 7Cintas continues to execute share buyback programs, repurchasing approximately $199.5 million in the fourth quarter of fiscal 2014 under its July 2013 authorization.

Frequently Asked Questions

The partnership with Shred-it, completed on April 30, 2014, involved contributing Cintas' document destruction business to a new partnership. Cintas received $180 million in cash and a 42% ownership stake, accounted for using the equity method. This transaction resulted in a $106.4 million gain on deconsolidation but also incurred $16.1 million in asset impairment charges and $28.5 million in other transaction costs, impacting the fiscal year 2014 results.

The largest segment, Rental Uniforms and Ancillary Products, grew revenue by 5.9%. The First Aid, Safety and Fire Protection Services segment also showed strong growth of 11.7%. The Uniform Direct Sales segment experienced a slight decrease of 1.3%, while the Document Management Services segment grew by 2.3% before the deconsolidation of the shredding business. Overall revenue increased by 5.5%.

Cintas demonstrated a strong commitment to shareholder returns by increasing its annual dividend for the 31st consecutive year. The company also actively engaged in share repurchases, completing a $500 million buyback program authorized in 2011 and initiating another $500 million program in July 2013, significantly reducing the number of shares outstanding and supporting earnings per share growth.

Cintas identified several key risks, including potential difficulties in integrating the Shred-it partnership and realizing synergies, increased competition leading to price pressures, rising fuel and energy costs, potential unionization campaigns, risks associated with its acquisition strategy, and the impact of economic factors and government regulations such as the Affordable Care Act.