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Cintas Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: April 8, 2011 12:15PM
Cintas Corp. (CTAS) filed Quarterly Report for the period ended 2011-02-28.
Highlight of Business Operations:
Rental Uniforms and Ancillary Products operating segment revenue increased 6.8% for the three months ended February 28, 2011, over the same period in the prior fiscal year from $622.5 million to $665.0 million. Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, increased 14.0% for the three months ended February 28, 2011, over the same period in the prior fiscal year from $239.4 million to $272.9 million. The increase primarily resulted from an organic growth increase of 8.6%. The remaining 5.4% represents growth derived through acquisitions in our Document Management Services operating segment and our First Aid, Safety and Fire Protection Services operating segment during the quarter. The organic growth rate for Other Services revenue for the quarter was due to organic growth in each operating segment making up Other Services. The organic growth for these operating segments was 8.7% in Uniform Direct Sales, 9.3% in First Aid, Safety and Protection Services and 7.8% in Document Management Services.
As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased from $1.9 billion to $2.0 billion, or 3.1%, and the cost of rental uniforms and ancillary products increased $45.8 million, or 4.2%. The operating segments gross margin was $851.2 million, or 43.0% of revenue. This gross margin percent of revenue of 43.0% was 60 basis points lower than the prior fiscal years 43.6%. Maintenance costs increased $7.0 million, or approximately 30 basis points, and energy related costs, which include natural gas, electric and gas, increased $3.8 million, or 10 basis points, from the prior fiscal year period.
Net cash provided by operating activities was $208.0 million for the nine months ended February 28, 2011, a decrease of $221.2 million compared to the same period last fiscal year. Last fiscal years net cash provided by operating activities benefited from lower working capital needs associated with our decreasing sales volumes and the accrual of approximately $28.0 million in legal settlements. As sales volumes have increased this fiscal year, our working capital needs have increased. Our operating cash flows were negatively impacted by the accounts receivable increase of $32.8 million, and the inventories, net and uniforms and other rental items in service increase of $100.1 million, both due to the higher sales volume and an intentional increase in inventory in anticipation of and as a precaution to a planned enterprise-wide system conversion of the Cintas Global Supply Chain division.
Net cash used in investing activities includes capital expenditures and cash paid for acquisitions of businesses. Capital expenditures were $142.3 million and $78.9 million for the nine months ended February 28, 2011 and 2010, respectively. These capital expenditures primarily relate to expansion efforts in Rental Uniforms and Ancillary Products and Document Management Services operating segments and to an enterprise-wide system conversion. Capital expenditures increased during the nine months ended February 28, 2011, compared to the same period last fiscal year as economic conditions in the United States and Canada stabilized in 2010, providing better revenue growth opportunities. Cash paid for acquisitions of businesses was $158.5 million and $41.4 million for the nine months ended February 28, 2011 and 2010, respectively. The acquisitions this fiscal year occurred in our Document Management Services, First Aid, Safety and Fire Protection Services and Rental Uniforms and Ancillary Products operating segments. The cash used for capital expenditures and acquisitions was offset by net proceeds from the sale or redemption of marketable securities.
Net cash used in financing activities was $252.1 million and $1.8 million for the nine months ended February 28, 2011 and 2010, respectively. We completed our share buyback program by purchasing $203.2 million of Cintas common stock during the nine months ended February 28, 2011. We also paid an annual cash dividend of $71.8 million in December 2010. Throughout our third quarter, we issued various levels of commercial paper in order to fund the dividend payment and other cash requirements. The maximum amount of commercial paper outstanding at any one time was approximately $90 million, and the amount outstanding at February 28, 2011, was $21.5 million.
As of February 28, 2011, we had $775.0 million in fixed rate notes outstanding with maturities ranging from 2012 to 2036. Cintas has a commercial paper program with capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group. This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million and an expiration date of September 26, 2014. We believe this program will be adequate to provide necessary funding for our cash requirements. As of February 28, 2011, we had $21.5 million of commercial paper outstanding. No commercial paper outstanding and no outstanding borrowings on our revolving credit facility were outstanding as of May 31, 2010.