10-QPeriod: Q2 FY2002

CINTAS CORP Quarterly Report for Q2 Ended Nov 30, 2001

Filed January 9, 2002For Securities:CTAS

Summary

Cintas Corporation's quarterly report for the period ending November 30, 2001, demonstrates continued revenue and net income growth, albeit at a moderated pace compared to the prior year. Total revenues saw a 3% increase for the quarter and 6% for the six-month period, driven by an 8% and 10% rise in net rental revenue, respectively. However, revenue from direct uniform sales declined due to economic slowdown and post-September 11th industry impacts. Despite these challenges, the company's net income grew by 3% for the quarter and 7% for the six-month period, with diluted EPS also showing modest increases. Cintas' financial position remains strong, with a significant increase in cash, cash equivalents, and marketable securities, bolstering its capacity for future investments. A key accounting change, the adoption of Statement No. 142, eliminated goodwill amortization, positively impacting reported earnings, though the company noted no goodwill impairment.

Key Highlights

  • 1Total revenues increased by 3% for the three months ended November 30, 2001, to $557.1 million, and by 6% for the six months to $1.12 billion.
  • 2Net income grew by 3% for the quarter to $58.0 million and by 7% for the six months to $114.5 million.
  • 3Diluted earnings per share for the quarter remained stable at $0.34, while increasing from $0.63 to $0.67 for the six-month period.
  • 4Rental revenue showed robust growth, increasing 8% for the quarter and 10% for the six months, indicating strong demand in this segment.
  • 5Direct uniform sales revenue declined by 11% for the quarter and 6% for the six months, attributed to economic conditions and industry-specific impacts.
  • 6Goodwill amortization was discontinued effective June 1, 2001, aligning with new accounting standards (SFAS 142), with no impairment charge recognized.
  • 7Cash, cash equivalents, and marketable securities increased significantly to $203 million at November 30, 2001, providing ample liquidity for future growth initiatives.

Frequently Asked Questions

The primary driver of revenue growth is the 'Rentals' segment, which includes corporate identity uniforms. This segment saw an 8% increase in revenue for the quarter and 10% for the six-month period, indicating consistent customer demand and expansion of their rental base.

The decline in direct uniform sales revenue is attributed to a combination of factors including the general economic slowdown, specific impacts on the hospitality and airline industries following the September 11th events, and a strong performance in the prior year's comparable period which set a high benchmark.

Cintas adopted SFAS No. 142, which eliminated the amortization of goodwill starting June 1, 2001. This change positively impacts reported net income and earnings per share by removing a non-cash expense. The company also performed a transitional impairment test and found no impairment of goodwill.

Cintas' liquidity is strong, with cash, cash equivalents, and marketable securities totaling $203 million at the end of the period. The company states these funds, along with operational cash flow, are sufficient for anticipated needs and will be used to finance future acquisitions and capital expenditures.