10-QPeriod: Q3 FY2003

CINTAS CORP Quarterly Report for Q3 Ended Feb 28, 2003

Filed April 11, 2003For Securities:CTAS

Summary

Cintas Corporation's 10-Q filing for the period ending February 28, 2003, demonstrates continued revenue growth, driven significantly by the acquisition of Omni Services, Inc. Total revenue increased by 22% for the quarter and 21% for the nine-month period compared to the prior year, with both Rental and Other Services segments contributing to this expansion. Despite the revenue growth, net income saw a more modest increase of 6% for the quarter and 8% for the nine months, reflecting higher interest expenses related to the Omni acquisition financing and impacts from the sluggish economy. Key financial metrics show a rise in diluted EPS, reaching $0.34 for the quarter and $1.07 for the nine months. The company's balance sheet indicates an increase in inventory to support acquired customers and expanded manufacturing, alongside a decrease in net property and equipment due to depreciation exceeding capital expenditures. Cintas maintains sufficient liquidity, with cash and marketable securities projected to cover operational needs, debt repayment, and dividends.

Key Highlights

  • 1Total revenue increased by 22% year-over-year for the third quarter and 21% for the first nine months of fiscal year 2003.
  • 2Net income grew by 6% for the quarter and 8% for the nine months, reaching $59 million and $184 million, respectively.
  • 3Diluted earnings per share (EPS) rose to $0.34 for the quarter and $1.07 for the nine months, up from $0.32 and $1.00 in the prior year.
  • 4The acquisition of Omni Services, Inc. was a significant driver of revenue growth, particularly in the Rental segment.
  • 5Interest expense increased substantially due to long-term notes issued to finance the Omni acquisition, impacting net income.
  • 6Inventory levels increased by $36 million to support acquired customers and internal manufacturing expansion.
  • 7The company declared an 8% increase in its annual cash dividend, amounting to $0.27 per share.

Frequently Asked Questions

The primary driver of Cintas' revenue growth in this period was the acquisition of Omni Services, Inc. in the fourth quarter of fiscal year 2002. This acquisition contributed significantly to the increases in both the Rental and Other Services segments.

The financing for the Omni acquisition, primarily through $450 million in long-term notes, led to a substantial increase in interest expense. This higher interest expense mitigated the overall growth in net income, despite strong revenue increases.

Cintas believes its current cash position, combined with funds generated from operations and strong banking relationships, is sufficient to meet its operational and capital requirements, including future growth, capital expenditures, debt repayment, and dividends. Cash and cash equivalents, along with marketable securities, totaled $77 million at the end of the period.

Inventory levels increased by $36 million. This increase is attributed to supporting customers acquired in the Omni transaction, converting Omni customers to Cintas' product line, and increased manufacturing of uniform inventory for specific customer segments like cleanroom and flame-resistant clothing.