信達思 (CTAS) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the Cintas quarterly earnings results conference call.

Today's call is being reported.

At this time, I'd like to turn the call over to Mr.

Bill Gale, Senior Vice President of Finance and Chief Financial Officer.

Please go ahead, sir.

Good evening, and thank you for joining us to discuss our third-quarter fiscal 2011 results.

With me today is Mike Hansen, Cintas's Vice President and Treasurer.

After some comments on the quarter's results, we will open the call to questions.

For the quarter ending February 28, 2011, total revenue was $938 million, an 8.8% increase from the third quarter of fiscal 2010.

Earnings per share were $0.41 versus $0.32 a year ago.

As provided in our press release, we are updating our guidance for the fiscal year ending May 31, 2011.

We now expect total revenues to be between $3.75 billion and $3.77 billion, and our total earnings per share to be in the range of $1.60 to $1.63.

This guidance takes into consideration our expectation that energy costs will pressure margins in our fourth quarter.

We will not be providing guidance for our fiscal year ending May 31, 2012 until we release our fourth-quarter 2011 results in mid-July.

We are pleased to see continuing improvement in our revenues among all four of our reportable segments.

As mentioned in our release, we ramped up the investment in our sales force in last year's third quarter because we saw signs of stabilization in the US economy.

We also expected a slow employment recovery, and we wanted to create revenue momentum by not only increasing our sales force, but also by having the sales force focus on added penetration at existing customers.

As we look one year later, we are pleased with the momentum created and with the improvement in our sales productivity.

This improved sales productivity, coupled with the stabilization of the economy, have now given Cintas four consecutive quarters of increasing total inorganic revenue growth beginning with our fiscal 2010 fourth quarter.

While we continue to see a general reluctance on the part of our customers to add employees, on a positive note, they continue to replace employees and large force -- workforce reductions are minimal.

The higher revenue levels, along with ongoing cost control efforts at Cintas, have helped drive margin improvement despite the higher energy costs and the fewer workdays in our third quarter than the prior two quarters this fiscal year.

These recent energy cost increases, if they continue, will pressure margins going forward.

While not significantly affecting this fiscal year, continued elevated cotton costs could impact fiscal year 2012 results.

We will discuss this impact further during our discussion of fiscal 2012 guidance in July.

Our balance sheet remains strong.

Total net debt to capitalization is 25%.

In December, we paid our annual dividend of $0.49 per share, the 28th consecutive year in which the dividend was increased, dating back to 1983, the year we went public.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements.

This conference call contains forward-looking statements that reflect the Company's current views as to future events and financial performance.

These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss.

I refer you to the discussion on these points contained in our most recent filings with the SEC.

I will now turn the call over to Mike Hansen.

Thank you, Bill.

Before discussing the quarter in more detail, please note that our fiscal 2011 workdays are the same as last year.

That means there were 64 in the third quarter and there will be 66 in the fourth quarter.

As a planning note for fiscal 2012, our workdays will be as follows -- 66 in the first quarter, 65 in the second quarter, 65 in the third quarter, and 66 in the fourth quarter.

As Bill mentioned, total revenue increased 8.8% from the third quarter of last year, with total Company organic growth being 5.5%.

We have four reportable operating segments -- Rental Uniforms and Ancillary Products; Uniform Direct Sales; First Aid, Safety and Fire Protection Services; and Document Management Services.

Uniform Direct Sales, First, Aid, Safety and Fire Protection Services, and Document Management Services are combined and presented as Other Services on the face of the income statement.

The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms, mats, towels, and other related items.

The segment also includes restroom supplies and other facility products and services.

Rental Uniforms and Ancillary Products revenue accounted for 71% of Company revenue in the third quarter.

Rental revenue was $665 million for the quarter, which is up 6.8% compared to last year's third quarter.

Organic growth was 4.3% over last year, which is an improvement from last quarter's organic growth of 1.9%.

As mentioned earlier, our sales productivity continued to improve this quarter, both in new business opportunities and in customer penetration.

We have also seen our account retention improve.

Our Uniform Direct Sales operating segment includes the direct sale of uniforms, branded promotional products, and other related products to national and regional customers.

Uniforms and Other Related Products are also sold to local customers, including products sold to rental customers through our direct sale catalog.

Uniform Direct Sales revenue accounted for 11% of Company revenue in the third quarter.

Third-quarter revenue of $102.6 million represents an increase of 8.7% compared to last year's third quarter.

Organic growth was also 8.7%.

Our growth in this segment continued to be broad-based, in which we saw rental catalog revenue, national account revenue, and lodging hospitality and gaming revenue increase nicely.

Our First Aid, Safety and Fire Protection Services operating segment includes revenue from the sale and servicing of first aid products, safety products, and training and fire protection products.

First Aid Safety and Fire Protection revenue accounted for 10% of Company revenue in the third quarter.

During the quarter, revenues within this operating segment were $91.2 million, an increase of 15.1% versus last year's third quarter.

Organic growth was 9.3%, up from the second-quarter organic growth rate of 8.4%.

Sales productivity has continued to improve, and customer spending in this space has also picked up.

Our Document Management Services operating segment includes document destruction, storage, and imaging services.

Document Management accounted for 8% of third-quarter total Company revenue.

Revenue increased 20.3% over last year's third quarter to $79.1 million, with organic growth of 7.8%.

Recycled paper prices remained at relatively high levels.

However, we have now anniversaried the high paper prices.

The Document Management growth rate in total now more closely resembles the impact of new customers and higher customer volume levels.

Moving on to margins, total Company gross margin for the third quarter was 48.1 -- 41.8%, which is in line with last year's third-quarter gross margin of 41.7%.

Energy-related costs were up 10 basis points compared to last year's third quarter.

The gross margin of 41.8% increased slightly compared to the 41.7% gross margin for the second quarter, despite having one less workday in the third quarter, and despite a 40 basis point increase in energy-related costs compared to the second quarter.

Sequentially through this third quarter, our energy-related costs did increase to fairly high levels by the end of the quarter.

After being at 3% in our first two quarters this fiscal year, our third-quarter energy-related costs as a percent of revenue were 3.4%, and reached as high as 3.6% during the quarter.

As Bill mentioned, these costs could continue to run at high levels and could negatively impact our fourth-quarter earnings.

The updated guidance in our press release considered this impact.

Rental gross margin of 42.8% was up 10 basis points from last year's third quarter.

Material cost has increased due to the injection of new garments during this fiscal year.

The injection of new garments has increased due to our higher new business levels, including many new Carhartt and flame-resistant clothing accounts.

This higher material cost is more than offset, though, by lower production and service costs as a percent of revenue, due to improved capacity utilization from the higher volumes.

The rental gross margin of 42.8% was also an increase from the 42.6% in our second fiscal quarter.

This improvement comes despite one less workday in the third quarter and an increase of 30 basis points in energy-related costs.

As just mentioned, material cost increases were more than offset by improved capacity utilization due to higher volumes.

Other Services gross margin was 39.3% for the quarter as compared to 39.2% in last year's third quarter.

First Aid, Safety and Fire Protection gross margin improved significantly, due to a better mix of higher-margin revenue and improved capacity utilization.

Uniform Direct Sales gross margin was relatively flat compared to last year.

Document Management Services gross margin decreased from 52.7% in last year's third quarter to 49.4% in this year's third quarter.

This decrease is mainly due to our US-based Storage and Imaging business.

Our Storage business had several greenfield starts this fiscal year.

While these startups are operating as planned, they do generate losses in the first year of operation.

In addition, our Imaging Services business, which is primarily a project-based business, began ramping up for several large fourth-quarter projects.

And finally, energy-related costs in this business segment increased 65 basis points compared to last year.

Selling and administrative expenses in the third quarter were 30.2% of revenue, a decrease from 32% in last year's third quarter, and also a decrease from 30.8% in this year's second fiscal quarter.

As we've discussed, our sales force productivity has improved over the course of the past year since we increased our investment in last year's third quarter.

In addition, we continue to look for ways of controlling administrative expenses.

As a result, our third-quarter selling and administrative expenses have only increased 2.7% year-over-year, while our revenue has grown 8.8%.

Our effective tax rate was 38.9% for the quarter compared to 32.8% last year.

Due to the timing of specific reserve builds and releases, our effective tax rate can fluctuate from quarter to quarter.

We expect our fiscal 2011 effective tax rate to be approximately 37%.

Our cash and marketable securities were $217 million at February 28, a decrease of $68 million from November 30, 2010.

This decrease is mainly due to the $72 million payment of our annual dividend in December.

Accounts Receivable increased by $14 million since November 30, primarily because of the higher revenue levels.

DSOs on Accounts Receivable remained at 40, the same as at November 30.

New goods inventory at February 28 was $232 million, up $24 million from November 30.

We converted our global supply chain to the SAP system in our third quarter, and that conversion has gone as planned.

In anticipation of this conversion, we intentionally built up inventory levels prior to the conversion.

We expect the added inventory related to this conversion to burn off over the next six months.

Uniforms and Other Rental Items in Service increased by $9 million from November 30 to February 28, due to the higher volume levels throughout the third quarter.

Accrued liabilities decreased $101 million compared to November 30, due to the $72 million accrual of the dividend, which was paid on December 15, and decreased accrued bond interest.

Long-term debt at February 28 was $808 million.

Our average rate on the outstanding debt is approximately 6%.

Total debt as a percentage of total book capitalization was 25%, while net debt, or long-term debt less cash and marketable securities as a percentage of total capitalization, was 19%.

Turning to our cash flow, cash provided by operating activities was $99 million for the third quarter -- a decrease from $135 million in last year's third quarter.

Last year's cash flow benefited from lower working capital needs associated with our decreasing volumes.

This year, the increasing revenue levels have increased our working capital needs, such as increased inventory levels and higher Accounts Receivable balances.

The third-quarter cash provided by operating activities of $99 million was an increase over the second quarter's $74 million.

CapEx for the third quarter was $54 million.

Our CapEx by operating segment was as follows -- $33 million in Rental; $1 million in Uniform Direct Sales; $6 million in First Aid, Safety and Fire Protection; and $14 million in Document Management.

We expect CapEx for the fiscal year to be in the range of $170 million to $180 million.

We invested $70 million in the third quarter on strategic acquisitions.

This includes acquisitions in our Rental Uniforms and Ancillary Products operating segment; our Document Management operating segment; and our First Aid, Safety and Fire Protection Services operating segment.

We will continue to evaluate acquisition candidates as opportunities arise.

That concludes our prepared remarks and we will now take any of your questions.

(Operator Instructions).

Andrew Wittmann, Baird.

I just wanted to just get a little clarity on some of the assumptions behind the guidance.

Looks like the midpoint is about a 5% -- 5.5-maybe-percent organic growth rate, which would be about consistent with what we saw in the third quarter.

Does that seem about right to you?

Well, it seems about right.

We are -- here's our concern -- and I would say we expected some of you to think maybe we were a little conservative on this, but our concern is in the energy cost arena, not only how it impacts our margins but how it might impact our customers.

So we are forecasting continued growth on the top line, but given the uncertainty in the energy markets as well as in other issues going on around the world, we felt it prudent to be somewhat conservative in our view of the revenue.

I see.

And just in terms of the margins -- thanks for the clarity.

It sounds like you are anywhere between 3.4% and 3%, and as high as 3.6%, I guess.

Given that, I mean, today, where are we on that spectrum?

Are we still kind of 40 basis points over the first two quarters of that 3.4% level?

I just want to try to get a handle of what that -- what you're implying on (multiple speakers) [that].

We're running at that 3.5% to 3.7% level right now.

And if you think about the way energy impacts us, we did some calculations and, basically, for every 50 basis points of energy cost, that's about $0.02 a share for us.

So, we're projecting energy costs will at best stay at these elevated levels, but likely could go even higher, depending on what happens.

Okay, great.

And then just in terms of the operating environment, it sounded -- last quarter, it sounds like pretty similar to this quarter in terms of add stops at existing customers.

Is that fair?

And is it also fair to assume then that it's still what you call the, I guess, new storefronts, new customers, and further penetration in existing customers that's really driving that organic growth?

That's primarily correct.

A little bit better result in lost business too, Andy.

But, yes, basically, we're seeing new business continuing to be pretty good.

And, fortunately, customers when they lose employees, are replacing those employees.

So they're just not -- there's not a lot of adds or additions to our customers' headcounts.

I might circle back later, but that's it for now.

Thank you.

Andrew Steinerman, JPMorgan.

Given the commodity changes that are going on here and your end customer must be sensitive to them as well, have you considered a fuel surcharge currently?

An would you consider a cotton surcharge to your customers prospectively?

Andrew, we don't really have a fuel surcharge, per se.

We have a service charge.

And we have been adjusting that service charge when we can with our customers, to try to overcome some of these additional costs.

Sometimes that is not feasible, but we're doing our best to do that.

Right.

But do you feel like your customers are sensitive to this matter?

When you come to them and everyone knows what the price of oil is, and you're starting that discussion now with that talking point.

It just seems like, hey, this is kind of a national situation.

Do you feel like it's a grind to get it through?

Or your customers realize that service charge, it includes higher oil prices and gas prices, should naturally ebb up?

Well, Andrew, I would say it all depends on what our customers are able to do with their prices.

If they are running into difficulty and raising their prices, they're very reluctant to allow any increase in their own costs.

So, it really just comes down to what the individual customer is able to do in the markets that they serve.

Okay.

And the reason why cotton doesn't hit you until later in the calendar year is because you have an inventory?

That is -- that's a big part of it, Andrew.

You know, when the prices of cotton started to escalate, that didn't mean that that was going to hit us immediately.

We still had a cotton fabric inventory that runs through our supply chain and goes through our distribution center before it gets to our operations.

And only then do we see some impact of it, and in our Rental business, it starts to amortize at that point.

So it is not a significant impact for some period of time.

Okay.

Makes sense.

Thank you.

Gary Bisbee, Barclays Capital.

Hi, guys.

Nice quarter.

I guess a couple of questions.

When you talk about, in the Rentals business, increased penetration of the customers rather than -- and I guess new customer growth -- rather than employment growth going up, can you give us a couple examples of what increased penetration -- I mean, is that literally, I've been doing uniforms and now I'm doing floor mats; or I've been doing uniforms and floor mats, now I'm also cleaning their restrooms?

What are some examples of the stuff you're penetrating?

Well, those items that you mention are certainly examples.

In addition to that, we have a full spectrum of hygiene services for restrooms; we have chemical dispensing units; we're doing tile and carpet cleaning.

So, all of these different facility services businesses that we have gone into, we're able to sell those to many of our existing customers.

And as Mike mentioned in his remarks, we began to utilize our professional sales force to assist our service organization in penetrating these customers with these additional products and services, and that has been successful.

Have you given -- given that it sounds like this is becoming a much more material business, have you given any thought to splitting it out within your segment results, the facility services?

Yes, we are looking at that.

It is difficult right now to do that on the cost side because they're housed in the same physical facility as the Uniform Rental business.

There would be a lot of allocations that would have to be made and it adds a lot of complexity to our financial systems.

But it is certainly something that we're going to continue to look at.

And when it's feasible to do so, I would say that we will start splitting that stuff out.

I just don't know when that will be.

Okay, great.

On the SG&A, I guess I was surprised it actually dropped by $5 million or so.

You mentioned cost savings.

Is there anything in particular that's been real helpful there?

Or was there also any sort of one-time issues that you had -- but you didn't spend on that you might expect to?

There were no one-time items.

I think a lot of it is the attitude that the Company management has taken, that we [haven't] controlled costs and we began doing that some time ago.

We did get slightly lower medical costs, which did help; but offsetting that by a much greater extent were the fact we had all the payroll taxes reset in January.

I just -- I think it's the higher revenues where we're, as I told you before, we can leverage these costs once we get the revenue line growing again.

And that was demonstrated in this quarter, but it really comes down to just a lot of effort on the part of all the partners at Cintas just watching every dollar they spend.

Part of that $5 million decrease you mentioned, Gary, from the second quarter to the third quarter, is also just simply due to one less workday; so there's one less payroll day in the quarter.

Okay.

That makes sense.

Then just one last one, if I could.

I realize you'll laugh.

I'm going back what feels like many, many years.

But in Q1 of 2006, you actually gave us your energy breakdown.

You said natural gas was 31%, electricity was 28%, I think diesel was -- gasoline and diesel were the rest.

Can you give us a sense -- is that changed a lot?

Or is that still a reasonable mix to think about in terms of the different energy components?

Much of the increase in energy that we've recently seen is the gas and diesel.

And the gas and diesel is about 60% of the total energy costs today.

Okay, great.

That's helpful.

But natural gas, which has actually been falling somewhat recently at least, is still 30% or so is still a reasonable number for that one?

Yes.

Okay, great.

Thank you.

John Healy, Northcoast Research.

Bill, I had a question on the SG&A line for you.

This is the one of the first quarters in awhile where we've seen revenues really accelerate beyond the SG&A line.

And I was hoping to get your thoughts if we've now reached an inflection point with the Company where you've increased your headcount on the sales side and you're positioned to grow.

And is it safe to assume that, maybe as we head through 2012 and maybe for a bit longer, that we should see revenues accelerate at a decent clip beyond what your growth in SG&A will be for awhile?

Or are you guys at a point where you feel comfortable seeing that in the business?

Well, I would answer that question a cautious yes, John, assuming that there is not any unusual spikes like medical expenses, unusual legal expenses that we might run into or something like that.

To those things that we can control, I would say your assumption is correct.

Okay, great.

And then I wanted to ask you on the M&A front, with the business now turning quite nicely and the balance sheet being as solid as it is, and the cash flow that you guys are able to produce, I mean, is there any thought of maybe becoming a little bit more aggressive with looking at larger type acquisitions, either on the emerging businesses or the uniform side?

Or any thoughts about maybe beginning to use the balance sheet in ways or maybe to drive a little bit more shareholder value, in terms of maybe looking at a bigger buyback or looking at a way to deploy capital a bit more aggressively?

I'd say the answer to your question is yes -- on all of those.

I guess from an acquisition standpoint, I mean, is there a priority right now?

Is it -- are you looking at things that are more to the core uniform side?

Or would you prefer to look at things that are more on the emerging business unit side right now?

Well, one of the priorities -- and we've talked about this -- is certainly to obtain a national footprint in some of the emerging businesses.

So that has been -- that has continued.

And as far as the other opportunities, we'll look at them as they present themselves and the value that they would create for the shareholders; the risks that they would involve; what type of returns that they would generate for the Company.

And I don't think we would necessarily be biased against anything except probably direct sale business, which we don't really see a lot of value in an acquisition for, but -- because we like the more service-type ongoing businesses.

But we are certainly open to looking at different things and we're doing that.

Great.

Vance Edelson, MS SB.

This is Vikram in for Vance with Morgan Stanley.

Just wanted to get a little more color.

You mentioned sort of going into next year, if cotton could be an issue.

I'm just sort of wondering, could you sort of break that up between how you'd view it in the Rental business, where I know amortization could hit in next year?

And how you'd think of it on the Direct Sales business?

We would prefer at this time to defer any real discussion on cotton until we have greater visibility as to what's going to happen in the cotton market and as we put our plans together.

So, we'll have to defer those questions until July.

Okay.

And then in terms of the -- you mentioned that you do have inventory, obviously, which is why it's not hit.

Could you just give us some sense of how -- at what point you are in the process of replenishing?

No.

We're not going to talk about that right now.

Okay.

Okay, thanks.

Scott Schneeberger, Oppenheimer.

Just a quickie follow-up on these cotton questions.

Presumably, the costs remain elevated.

What are some things internally you're considering -- I think it was asked surcharges -- but are you considering changing the mix?

Any thoughts you can give on that, just in a hypothetical, if it were to remain elevated?

Well, Scott, since so many things can happen from now until the end of the next growing season, we would rather defer those discussions until July.

And we'll be a little bit more prepared to talk about the impact on next year and some of the things that we plan to do about it.

Plus, just, Scott, there -- we may be working on some things that we really don't want to disclose publicly either.

Okay.

Fair enough.

Switching over to your sales force, it's been about a year now since you started bulking up.

Could you, I guess, speak to productivity, speed of productivity?

It sounds like you're happy with what you're seeing, but just remind us how quickly new staff gets up to the level you'd like to see; what your plans are for increasing or potentially decreasing from here; and if the fact that we've anniversaried is having any impact on the cost line, as I imagine it's variable, but just any thoughts there.

Well, we're very happy with the productivity.

We believe our sales force and our sales management team have done an excellent job of focusing their resources in the right area, and we're seeing the results on the top line.

We continually evaluate the appropriate size of the sales force, and we will continue to do that as we assess what the market potential is and what opportunities are out there.

So, right now, I would say it's an ongoing look at things.

We're not going to signal to our competitors what we're going to do with our sales force.

Therefore, we can't really talk about it publicly.

But I think we are very pleased with what we're seeing as the results of the actions that were taken about a year ago.

Keeping in mind, it generally takes a salesperson somewhere between six and 12 months to achieve appropriate productivity; and obviously, the more tenured they are, typically, the more productive they are.

It does vary by business unit.

The Rental Uniform business tends to be the longest cycle, but we do have a ramp-up in all of our businesses.

Okay, thanks.

So on those, there is benefit now that you're hitting that maturity phase, and that's what we're seeing with regard to the leverage in the business, presumably?

That's part of it.

Right.

Okay.

Thanks.

And then just could you speak one final question?

On the competitive environment pricing, particularly in Rental, just any change from what you've seen -- my understanding, just to set what I mean is, it sounds like it is still quite competitive out there -- but just any indication what you can talk about quarter-over-quarter.

Thanks.

Scott, I think the -- we have seen a, I guess, a firming up of the pricing environment a little bit.

I think many of our competitors have realized that some of the low prices that they were offering help keep their plants and routes as full as they could during the downturn, are going to come back to haunt them, especially now that we're seeing cost increases in a number of areas.

And keep in mind that cotton increases are probably going to hit our competitors much quicker and much more heavily than they necessarily will hit us.

Energy costs are probably a little bit more heavier on some of our competitors than us because of the route density.

So I think that we are pleased to be able to say that pricing has firmed up a bit from what it was.

All right.

Sounds good.

I appreciate it.

James Sanford, Citigroup.

I just wanted to touch on -- I know it's still early days post-Japan, but since you have exposure to manufacturing, I'm wondering if you're starting to hear any feedback from your channel about slowdowns due to supply chain, whether it's temporary shutdowns or anything like that?

Are you worried about that having an impact in your business at all?

No.

We haven't seen any of that, James.

Okay.

As far as buybacks are concerned, maybe I missed it, but any thoughts on how you're thinking about buybacks going forward?

I know you didn't buy any this quarter.

Is that sort of something you expect to put back in place next quarter?

I really can't say when that will be happening.

I can tell you that the Board talks about it continuously and looks at the alternatives we have, and will -- certainly gave us the opportunity to -- another authorization back at the late October.

So, it's -- we did $200 million just six months ago and we'll continue to assess it.

Great.

I guess one final one.

I guess the most recent acquisition is in the Document Management space.

Is that -- if that's sort of where you're concentrating some of your efforts, should we think about that as obviously structurally lower margin business, but do you -- as the rest of the business ramps up, should you more than offset some of that structural margin decline?

Well, James, that acquisition that was announced was more of a marketing issue.

It was a relatively small acquisition.

We made acquisitions in all of our businesses, with the exception of Uniform Direct Sale, this past quarter.

The Document Management business is actually a very good margin business; it's just that it's -- so much of it's in its infancy, and the size and the amount of sales costs that continues to be invested in it.

Mature Document Management operations, though, generate very good margins, comparable to the Rental business.

Great.

Thank you.

Christopher McGinnis, Sidoti & Company.

Just -- was weather an impact in the quarter at all?

I'm sorry, Chris, I didn't understand.

Oh, was weather -- was there an impact of weather at all in the quarter?

You know, I thought it would have more of an impact than it ended up having.

Part of the reason that it didn't impact us as much was the fact that we've converted many of our businesses to four-day routes; so, even when operations were forced to shut down in some of the cities, especially in the Northeast, they were able to make up the majority of that volume.

So, by and large, weather was not a significant factor to us.

And then just on the M&A front, has anything changed in the Rental, at least in the Rental market environment?

I guess maybe the valuations come down at all?

No, they really haven't.

I'd say the beneficial thing, though, is that with stabilization in the economy, potential acquisition targets aren't continuing to shrink like they were.

So, there's a little bit more uncertainty if one were to decide to buy one of those companies.

I know you've answered this in the past and I don't know if this -- I don't think the question has been posed in a few quarters, but of the large operators out there, I think you've responded that you felt that you could get an FTC approval.

Is that past?

Do you feel that you can still do that if they require a larger -- one of the larger operators on the Rental side?

Boy, Chris, I'd hate to predict what Washington may decide to do.

Until you present the facts, it would be tough for me to speculate.

Then just on the growth on the Rental side in the quarter itself, is there a component of taking share from some of the other players in that?

Maybe even just a little bit -- I mean that was a little bit stronger than I expected.

And was it more just end market demand on the services?

Or could you maybe just dig into that a little bit more?

Well, I will say that the rental growth for the quarter was a pretty broad improvement.

In other words, we had garment growth; we had facility services growth throughout our different products and services.

But, honestly, we don't have the information this quickly to be able to tell what was no programmer versus taking share.

All right.

Well, thank you very much.

Gary Bisbee, Barclays Capital.

Yes, just one quick follow-up.

Have you set a -- sort of an IRR hurdle rate for what you're expecting to earn in the Document Management business?

I just noticed that the CapEx there has been significant in relation to revenue, and I wonder how you're thinking about benchmarking that investment or --?

Gary, generally, as we've always said, our hurdle rates typically are 15%.

Now, there will be certain acquisitions that we might accept a slightly lower hurdle rate in going into, in order to do something on a strategic basis.

But our review of acquisitions in Document Management are no different than they were in Uniform Rental, that they typically have to have those hurdle rates.

What about internal investment, though, the CapEx being as high as it is?

Are you confident you'll earn that over time?

Oh, yes.

We have the same criteria on CapEx and that's all baked in to the analysis.

Keep in mind much of what you're seeing now is the investment in these businesses to grow them, just like what we did at Cintas in the Uniform Rental business in the 1980s and early '90s.

And can you give us a sense, within the Document Management, how much of this investment to date has been storage?

A year ago, you were telling us you didn't really like the storage business, at least relative to just the shredding business; but I get the sense from a few press releases here and there that might be changing.

Is that fair?

Is a lot of that incremental CapEx this year in storage?

Or is it buying more trucks to do more (multiple speakers) [storage]?

We're still focusing primarily on the shredding side.

Okay.

All right.

So that would be trucks and other facilities, I guess?

Yes, but as Mike mentioned, we have started up some selective storage operations in different parts of the country that we have -- we believe in opportunity to have a significant return in value.

So, it's not like we're -- I wouldn't characterize we don't like the storage company industry.

What we do is, we prefer the shredding industry and then selectively look at storage locations.

Got you.

Okay.

Thanks a lot.

Thank you.

And with that, we have no further questions in queue.

I'd like to turn it back over to Mr.

Gale for any closing or additional comments.

Thank you all very much for joining us today.

And, as we mentioned earlier, we will be announcing our fourth-quarter results in July -- probably mid-July.

So, thank you again.

That does conclude today's call.

Thank you for your participation.