-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XzuFPsbH4I6qz5xBi19HCsarHkr0tlebFSY3m2d8nvZBlUYrsCxlaCiLkDM3Y/4r 4LISrNoevydpRE10VA0XyQ== 0000723254-95-000006.txt : 19950830 0000723254-95-000006.hdr.sgml : 19950830 ACCESSION NUMBER: 0000723254-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19950829 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINTAS CORP CENTRAL INDEX KEY: 0000723254 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 311188630 STATE OF INCORPORATION: WA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11399 FILM NUMBER: 95568625 BUSINESS ADDRESS: STREET 1: 6800 CINTAS BLVD STREET 2: P O BOX 625737 CITY: CINCINNATI STATE: OH ZIP: 45262 BUSINESS PHONE: 5134591200 MAIL ADDRESS: STREET 1: 6800 CINTAS BOULEVARD STREET 2: P O BOX 625737 CITY: CINCINNATI STATE: OH ZIP: 45262 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES X EXCHANGE ACT OF 1934 For the Fiscal Year Ended May 31, 1995 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-11399 CINTAS CORPORATION (Exact name of registrant as specified in its charter) Incorporated under IRS Employer ID the Laws of Washington No. 31-1188630 (State or other juris- diction of incorporation or organization) 6800 Cintas Boulevard P.O. Box 625737 Cincinnati, Ohio 45262-5737 Phone: (513) 459-1200 (Address of principal executive offices) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES NO X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X] The aggregate market value of Common Stock held by nonaffiliates is $1,051,726,615, based on a closing price of $38.75 on August 11, 1995. As of August 11, 1995, 47,037,905 shares of no par value Common Stock were issued and outstanding. Documents Incorporated by Reference Portions of the Registrant's Annual Report to Shareholders for 1995 furnished to the Commission pursuant to Rule 14a-3(b) and portions of the Registrant's Proxy Statement to be filed with the Commission for its 1995 annual meeting are incorporated by reference in Parts I, II and III as specified. Page 1 of 37 Pages CINTAS CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K Page Part I Item 1 - Business 3 Item 2 - Properties 4 Item 3 - Legal Proceedings 6 Item 4 - Submission of Matters to a Vote of Security Holders 6 Part II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 6 Item 6 - Selected Financial Data 6 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 8 - Financial Statements and Supplementary Data 7 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 7 Part III Item 10 - Directors and Executive Officers of the Registrant 7 Item 11 - Executive Compensation 7 Item 12 - Security Ownership of Certain Beneficial Owners and Management 7 Item 13 - Certain Relationships and Related Transactions 7 Part IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 7 -2- PART I ITEM 1. BUSINESS The business discussion found on pages 2 through 9 of the Registrant's Annual Report to Shareholders for 1995 is incorporated herein by reference. Information regarding revenues from products and services, the number of employees and competition are listed or described below: The table sets forth the revenues derived from each service provided by Cintas.
Year Ended May 31 1995 1994 1993 (Amount in Thousands) Uniform Rental $415,035 $351,495 $307,904 Uniform Sales 69,825 58,294 47,853 Non-Uniform Rentals 124,045 108,360 92,368 Other 6,193 5,067 4,597 $615,098 $523,216 $452,722
The Company began business in 1929 under Ohio law and changed its state of incorporation to Washington in 1986. At May 31, 1995, the Company employed 9,724 employees of which 73 are represented by labor unions. The Company considers its relationship with its employees to be satisfactory. Cintas provides a highly specialized service to businesses of all types - from small service companies to major corporations that employ thousands of people. The Company designs, manufactures and implements corporate identity uniform programs throughout the United States. The rental markets served by the Company are highly fragmented and competition for this business varies at each of the Company's locations. There are other companies in the uniform rental business which have financial resources comparable to those of the Company, although much of the competition consists of smaller local and regional firms. In certain instances, local competitors may also have financial resources comparable to those deployed by the Company in a particular market. The service provided to the rental markets served by the Company principally consists of the rental and cleaning of uniforms as well as providing on-going uniform upgrades to each customer. The Company also offers ancillary products which includes the rental or sale of walk-off mats, fender covers, towels, mops and linen products. Due to its diverse customer base and average account size, the loss of one account would not have a significant financial impact on the Company. In its sale of customized uniforms, Cintas competes on a national basis with other uniform suppliers and manufacturers, some of which have financial resources comparable to the Company's. The Company operates four manufacturing facilities which provide for a substantial amount of standard uniform needs. Additional products are purchased from one of several outside suppliers. Because of the Company's ability to manufacture much of its own uniform needs, the loss of one vendor would not have a significant effect on the Company. In regard to the availability of fabric for the manufacturing process, the Company purchases fabric from several suppliers. The Company is not aware of any circumstances which would hinder its ability to obtain these materials. The Company does not anticipate any material capital expenditures for environmental controls that would have a material effect on its financial condition. The Company is not aware of any material non-compliance with environmental laws. The Company believes that the primary competitive factors that affect its operations are quality, service, design and price, in that order. -3- ITEM 2. PROPERTIES The Company currently occupies 113 facilities located in 109 cities. The corporate offices provide centrally located administrative functions including accounting, finance, marketing and data processing. The Company operates processing plants that house administrative, sales and service personnel and the necessary equipment involved in the cleaning of uniforms and bulk items. Branch operations provide administrative, sales and service functions. Cintas operates two distribution facilities and has four manufacturing plants, two of which produce uniform trousers and two producing uniform shirts. The Company considers the facilities it operates to be adequate for their intended use. The Company owns or leases 2,384 vehicles. The following chart provides additional information concerning Cintas' facilities:
Location Type of Facility Cincinnati, Ohio Corporate Offices, National Account Division,Distribution Center Akron, Ohio Processing Plant Ashland, Kentucky Processing Plant Atlanta, Georgia Processing Plant Augusta, Georgia Processing Plant Austin, Texas Processing Plant Baltimore, Maryland Processing Plant Baton Rouge, Louisiana Processing Plant Beaumont, Texas Processing Plant Birmingham, Alabama Branch* Boston, Massachusetts Processing Plant Brownsville, Texas Branch* Buffalo, New York Processing Plant Charlotte, North Carolina Branch* Chattanooga, Tennessee Branch* Chicago (South), Illinois Processing Plant Chicago (North), Illinois Processing Plant Cincinnati, Ohio Processing Plant Clay City, Kentucky Manufacturing Facility* Cleveland (West), Ohio Processing Plant Cleveland (East), Ohio Processing Plant Colorado Springs, Colorado Branch* Columbia, South Carolina Processing Plant* Columbus, Ohio Processing Plant Corpus Christi, Texas Branch* Dallas, Texas Processing Plant Dayton, Ohio Processing Plant Decatur, Georgia Processing Plant Denver, Colorado Processing Plant* Detroit, Michigan Processing Plant Evansville, Indiana Branch* Everett, Washington Branch Flint, Michigan Branch* Fort Smith, Arkansas Processing Plant* Fort Wayne, Indiana Branch* Grand Rapids, Michigan Branch* Greenville, South Carolina Processing Plant Greenwood, Mississippi Branch* Gulfport, Mississippi Branch* Hammond, Louisiana Branch Harrison, Arkansas Branch* Houston, Texas Processing Plant Indianapolis, Indiana Branch* Jackson, Mississippi Branch* -4- Jacksonville, Florida Branch* Kansas City, Kansas Processing Plant Knoxville, Tennessee Branch* Lafayette, Louisiana Branch Lake Charles, Louisiana Processing Plant Laredo, Texas Branch* Las Vegas, Nevada Processing Plant Lexington, Kentucky Processing Plant Little Rock, Arkansas Branch* Long Island, New York Branch* Los Angeles, California Processing Plant Louisville, Kentucky Processing Plant Lufkin, Texas Branch Madison, Alabama Branch* Madison, Wisconsin Processing Plant Memphis, Tennessee Branch* Miami, Florida Processing Plant Milwaukee, Wisconsin Branch* Minneapolis, Minnesota Processing Plant* Mobile, Alabama Branch* Mt. Vernon, Kentucky Manufacturing Facility* Nashville, Tennessee Processing Plant New Haven, Connecticut Processing Plant New Orleans, Louisiana Processing Plant Oklahoma City, Oklahoma Processing Plant Orange, California Branch* Orlando, Florida Processing Plant Owingsville, Kentucky Manufacturing Facility* Perry, Kentucky Manufacturing Facility* Philadelphia, Pennsylvania Processing Plant Phoenix, Arizona Processing Plant Piscataway, New Jersey Processing Plant Pittsburgh, Pennsylvania Processing Plant Portland, Maine Branch Portland, Oregon Processing Plant Raleigh-Durham, North Carolina Branch* Reno, Nevada Distribution Center* Richmond, Virginia Processing Plant Sacramento, California Branch* San Angelo, Texas Branch* San Antonio, Texas Processing Plant San Diego, California Processing Plant Sandusky, Ohio Branch* San Francisco(West), California Branch* San Francisco (East), California Processing Plant* San Jose, California Processing Plant Seattle, Washington Processing Plant* Shreveport, Louisiana Processing Plant Springdale, Arkansas Processing Plant Springfield, Missouri Branch* St. Louis, Missouri Processing Plant* Tacoma, Washington Branch* Tampa, Florida Processing Plant Thibodaux, Louisiana Processing Plant Toronto, Ontario (Canada) Processing Plant Etobicoke, Ontario (Canada) Processing Plant Tulsa, Oklahoma Processing Plant Tuscaloosa, Alabama Processing Plant Tyler, Texas Branch* Victoria, Texas Processing Plant Vidalia, Georgia Processing Plant Virginia Beach, Virginia Branch* -5- Walden, New York Branch* Washington, D.C. Processing Plant Westland, Michigan Processing Plant West Palm Beach, Florida Branch* Wichita, Kansas Branch* Winston-Salem, North Carolina Processing Plant Youngstown, Ohio Branch* *Leased for various terms ranging from monthly to 2019. The Company expects that it will be able to renew its leases on satisfactory terms. All other properties are owned.
ITEM 3. LEGAL PROCEEDINGS In December 1992, the Company was served with an "Imminent and Substantial Endangerment and Remedial Action Order" (the "Order") by the California Department of Toxic Substances Control relating to the facility leased by the Company in San Leandro, California. The Order requires Cintas and three other allegedly responsible parties to respond to alleged soil and groundwater contamination at and around the San Leandro facility. Details surrounding the claim are not yet known, and it is not possible at this time to estimate the loss or range of loss associated with the claim. Based on information that has been made available to the Company, however, it is not believed that the matter will have a material adverse effect on the Company's financial condition or results of its operations. The Company is also a party to incidental litigation brought in the ordinary course of business, none of which individually or in the aggregate, is considered to be material to its operations or financial condition. Cintas maintains insurance coverage against certain liabilities that it may incur in its operations from time to time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None in the fourth quarter of fiscal 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS "Market for Registrant's Common Stock and Security Holders Information" on page 25 of the Registrant's Annual Report to Shareholders for 1995 is incorporated herein by reference. Dividend information is incorporated by reference to the Consolidated Statement of Shareholders' Equity on page 13. Dividends on the outstanding Common Stock are paid annually and amounted to $.20 and $.17 per share in fiscal 1995 and 1994, respectively. ITEM 6. SELECTED FINANCIAL DATA The "Eleven Year Financial Summary" on page 10 of the Registrant's Annual Report to Shareholders for 1995 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" commencing on page 22 of the Registrant's Annual Report to Shareholders for 1995 is incorporated herein by reference. -6- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Financial Statements of the Registrant shown on pages 11 through 21 of its Annual Report to Shareholders for 1995 are incorporated herein by reference: Consolidated Balance Sheets as of May 31, 1995 and 1994 Consolidated Statements of Income for the years ended May 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended May 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Auditors ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Items 10., 11., 12., and 13. of Part III are incorporated by reference to the Registrant's Proxy Statement for its 1995 Annual Shareholders' Meeting to be filed with the Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K (a) (1) Financial Statements. All financial statements required to be filed by Item 8. of this Form and included in this report have been listed previously on page 7. No additional financial statements are being filed since the requirements for paragraph (d) under Item 14 are not applicable to the Company. (a) (2) Financial Statement Schedule: For each of the three years in the period ended May 31, 1995. Schedule II: Valuation and Qualifying Accounts and Reserves. All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or Notes thereto. -7-
(a) (3) Exhibits. Exhibit Number Description of Exhibit Filing Status 3.1 Restated Articles of Incorporation (1) 3.3 Bylaws (1) 10.1 Incentive Stock Option Plan (2) 10.2 Partners' Plan, as Amended (3) 10.3 1990 Directors' Stock Option Plan (4) 10.4 1992 Employee Stock Option Plan, as Amended (5) 10.5 1994 Directors' Stock Option Plan (6) 11 Statement re computation of filed herewith per share earnings 13 1995 Annual Report to Shareholders filed herewith 21 Subsidiaries of the Registrant filed herewith 23 Consent of Independent Auditors filed herewith (1) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1989. (2) Incorporated by reference to Registration Statement No. 33-23228 on Form S-8 filed under the Securities Act of 1933. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1993, and the Company's Registration Statement No. 33-56663 on Form S-8 filed under the Securities Act of 1933. (4) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1991. (5) Incorporated by reference to the Company's Proxy Statement for its 1995 Annual Shareholders' Meeting. (6) Incorporated by reference to the Company's Proxy Statement for its 1994 Annual Shareholders' Meeting.
-8- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CINTAS CORPORATION DATE SIGNED: August 22, 1995 /s/ Robert J. Kohlhepp By:Robert J. Kohlhepp President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date /s/ Richard T. Farmer Chairman of the Board Richard T. Farmer of Directors August 22, 1995 /s/ Robert J. Kohlhepp President, Chief Executive Robert J. Kohlhepp Officer and Director August 22, 1995 /s/ Scott D. Farmer Vice President and Director August 22, 1995 Scott D. Farmer /s/ James J. Gardner Director August 22, 1995 James J. Gardner /s/ Donald P. Klekamp Director August 22, 1995 Donald P. Klekamp /s/ William C. Gale Vice President- William C. Gale Finance (Principal Financial and Accounting Officer) August 22, 1995
-9- CINTAS CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves (In Thousands) Additions (1) (2) Balance At Charged to Charged to Beginning Costs and Other Description of Year Expenses Accounts May 31, 1993: Allowance for Doubtful $ 1,375 $ 1,448 $ 407 Accounts Accumulated Amortization of Customer Service Contracts 17,659 4,574 Accumulated Amortization of Non-Compete Agreements 14,101 4,228 Accumulated Amortization of Debt Issue and Organization Costs 382 181 Accumulated Amortization of Goodwill -0- 92 $32,142 $ 9,075
Balance At End of Description Deductions Year May 31, 1993: Allowance for Doubtful Accounts $ 1,254 (A) $ 1,976 Accumulated Amortization of Customer Service Contracts 4,184 (B) 18,049 Accumulated Amortization of Non-Compete Agreements 4,574 (B) 13,755 Accumulated Amortization of Debt Issue and Organization Costs 110 (B) 453 Accumulated Amortization of Goodwill 92 $ 8,868 $32,349
Additions (1) (2) Balance At Charged to Charged to Beginning Costs and Other Description of Year Expenses Accounts May 31, 1994: Allowance for Doubtful Accounts $ 1,976 $ 998 $209 Accumulated Amortization of Customer Service Contracts 18,049 5,608 Accumulated Amortization of Non-Compete Agreements & Consulting 13,755 4,706 Accumulated Amortization of Debt Issue and Organization Costs 453 254 Accumulated Amortization of Goodwill 92 222 $32,349 $ 10,790
Balance At End of Description Deductions Year May 31, 1994: Allowance for Doubtful Accounts $ 1,180 (A) $ 2,003 Accumulated Amortization of Customer Service Contracts 2,134 (B) 21,523 Accumulated Amortization of Non-Compete Agreements & Consulting 1,446 (B) 17,015 Accumulated Amortization of Debt Issue and Organization Costs 284 (B) 423 Accumulated Amortization of Goodwill 314 $ 3,864 $39,275
-10- CINTAS CORPORATION Schedule II - Valuation and Qualifying Accounts and Reserves (In Thousands)
Additions (1) (2) Balance At Charged to Charged to Beginning Costs and Other Description of Year Expenses Accounts May 31, 1995: Allowance for Doubtful Accounts $2,003 $1,465 ($325) Accumulated Amortization of Customer Service Contracts 21,523 5,967 Accumulated Amortization of Non-Compete Agreements & Consulting 17,015 4,675 Accumulated Amortization of Debt Issue and Organization Costs 423 263 Accumulated Amortization of Goodwill 314 622 $39,275 $11,527
Balance At End of Description Deductions Year May 31, 1995: Allowance for Doubtful Accounts $1,114 $2,029 Accumulated Amortization of Customer Service Contracts 70 (B) 27,420 Accumulated Amortization of Non-Compete Agreements & Consulting 1,085 (B) 20,605 Accumulated Amortization of Debt Issue and Organization Costs 83 (B) 603 Accumulated Amortization of Goodwill 936 $1,238 $49,564 (A) Uncollectible Accounts Charged-off, Net of Recoveries. (B) Elimination of Fully Amortized Amounts.
-11-
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS A. Weighted average shares outstanding basis: Fiscal year ended May 31 1995 1994 1993 Net income $62,743,000 $52,170,000 $44,873,000 Weighted average shares outstanding 46,891,376 $46,705,656 46,410,860 Earnings per share $1.338 $1.117 $.967 B. Primary basis: Fiscal year ended May 31 1995 1994 1993 Net income $62,743,000 $52,170,000 $44,873,000 Weighted average shares outstanding 46,891,376 46,705,656 46,410,860 Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 772,338 778,466 899,884 47,663,714 47,484,122 47,310,744 Earnings per share $1.316 $1.099 $.948 -12- C. Fully diluted basis: Fiscal year ended May 31 1995 1994 1993 Net income $62,743,000 $52,170,000 $44,873,000 Weighted average shares outstanding 46,891,376 46,705,656 46,410,860 Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 858,738 838,043 902,991 47,750,114 47,543,699 47,313,851 Earnings per share $1.314 $1.097 $.948
Note: Reported earnings per share for each year was based upon weighted average shares outstanding since neither the primary nor fully diluted amounts of per share earnings resulted in a reduction of 3% or more. -13-
Financial Highlights Years Ended May 31 (In thousands except per share data) % 1995 1994 Change Operating Results Net revenues $615,098 $523,216 17.6% Net income 62,743 52,170 20.3% Return on average equity 18.6% 18.2% 2.2% Financial Condition Shareholders' equity $364,344 $309,652 17.7% Working capital 146,410 129,969 12.6% Current ratio 2.54:1 2.42:1 5.0% Per Share Data Net income $1.34 $1.12 19.6% Shareholders' equity (book value) 7.75 6.62 17.1% Dividends 0.20 0.17 17.6%
-14- To Our Shareholders and Friends: We are pleased to report that Cintas has achieved record results for the twenty-sixth consecutive year. All of us at Cintas are guided by our principle objective which is "to maximize the long-term value of Cintas for our shareholders and working partners by exceeding our customers' expectations". As we pursue that objective, we constantly uncover new opportunities for continued growth and exciting opportunities for our employees who we call "partners". In addition to the excellent financial progress we achieved during the year, we are exploring new market niches that compliment our existing product and delivery systems and provide current and potential customers with more products and services. At the same time, we continue to invest in new technology, both to improve our operational productivity as well as to better serve our customers by providing them with services and information that will help them reduce their costs. We are in a great business and the opportunities for continued growth are exciting. We only have 15% of the served market which, according to industry statistics, is $3.5 billion. More and more businesses are beginning to use uniforms for the first time and, therefore, the business is growing at a significant pace. As a matter of fact, for the last several years, the majority of our new customers are businesses that never before had a uniform service. Cintas has been very successful in converting these nonusers and, because of our size and geographic presence, we expect to continue to benefit from this developing business. Our prospects for the future are excellent. Now that our annual revenues exceed $600 million, and we fully expect them to exceed a billion dollars in a few years, it is time to make some changes to our organization in order to prepare for the exciting opportunities we have before us. Our organization is stronger than it has ever been and we have the human resources necessary to run a much larger company. Beginning in August of 1995, Bob Kohlhepp, our President and Chief Operating Officer, will take on the additional responsibilities of Chief Executive Officer. Bob has served the Company for 28 years in important executive positions, including Controller, Vice President of Finance and Treasurer, Executive Vice President and, since 1984, President and Chief Operating Officer. Bob has been my closest partner and confidant and has been a key contributor to the Company's outstanding performance. This move is part of a long-standing succession plan that has been in place at Cintas for many years. I will continue to serve as Chairman of the Board and will remain actively involved in the business, and concentrate on the overall corporate strategy, organizational development, marketing and acquisitions. In order for Bob to concentrate on his new responsibilities, Dave Jeanmougin, previously Senior Vice President - Finance, was promoted to a newly created position of Senior Vice President, and will be responsible for manufacturing, distribution, management information systems and numerous administrative activities. Dave will also serve as Corporate Secretary. Replacing Dave as Vice President - Finance and Chief Financial Officer, is Bill Gale. Bill joined Cintas in April of 1995 after previously holding various executive financial positions in industry and public accounting. This new organization structure will position the Company for continued growth as we approach the twenty-first century and prepare to run a company with more than a billion dollars in revenues. I am also pleased to announce the promotion of Jay Case to Vice President of our southwestern region. Jay joined Cintas in 1980 and has served in various management positions since that time. Most recently, Jay held the position of General Manager of our Columbus uniform rental operation. It is comforting to see partners, such as Jay, who has -15- spent his entire career with Cintas, grow and mature to take over such an important post. This is just one example of the effectiveness of our management trainee program. This program is one of our competitive advantages which enables us to grow at a rapid rate and fill most management and supervisory positions from within. During this past fiscal year, another of our executives, Scott Farmer, was elected to the Board of Directors. He has rapidly progressed through the Company in his fifteen years with Cintas, and now serves as President of one of our largest divisions and Vice President in charge of our north central operations. Cintas is positioned to remain the premier company in the industry. We have excellent financial resources and the most modern facilities manned by enthusiastic, ownership-driven people. We will never rest on our past accomplishments. We pursue the future with a spirit of positive discontent, a phrase at Cintas which simply means we are never satisfied -- we are constantly looking for better ways to serve our customers. It is a pleasure to offer this special thank you to all of our partners for their substantial contributions, and we also thank each shareholder for your continued support and confidence in Cintas. Sincerely yours, Richard T. Farmer Chairman of the Board -16- FISCAL 1995 IN REVIEW FINANCIAL RESULTS Cintas achieved sales of $615 million during fiscal 1995, an 18% increase from last year. Pre-tax income of $101 million increased 18% from $85 million last year, while net income of $63 million increased 20% over $52 million in fiscal 1994. Our earnings per share increased 20% to $1.34 per share from $1.12 last year. TWENTY-SIX YEARS OF RECORD GROWTH Fiscal 1995 was our Company's twenty-sixth consecutive year of growth in both sales and profits. During this twenty-six year period, sales grew at a compound rate of 24% and profits grew at a compound rate of 34%. GEOGRAPHIC EXPANSION In our uniform rental operations, we extended our service to several new markets including St. Louis and Minneapolis. With a presence in these two important cities, we can now branch out into contiguous markets in Missouri, Southern Illinois, Minnesota and Northern Wisconsin. This geographic coverage also allows us to serve our national customers on a more efficient and cost-effective basis. The Company also completed construction of uniform rental plants in Portland, Oregon; Seattle, Washington; Phoenix, Arizona; Buffalo, New York and Charlotte, North Carolina. ACQUISITIONS Cintas made three key acquisitions during the year. One of those acquisitions enhanced our market presence in the southeast Texas area and another added additional volume in Little Rock, Arkansas and Memphis, Tennessee. In February, we acquired the remaining 80% ownership of Cadet Uniform Services, Ltd., based in Toronto, Ontario. Cintas had owned a 20% interest in the company since fiscal 1991. Cadet provides Cintas with an excellent opportunity to expand in the Canadian market. Cadet brings to the Company annual revenues of approximately $30 million Canadian and over 3,000 customers served from two state-of-the-art facilities in Toronto. MARKET SHARE INCREASE Each day more than 1.7 million workers go to work wearing a Cintas uniform. Our base of 150,000 business customers continues to grow and we now enjoy a national market share of 15% of the industrial uniform rental industry. The market continues to expand as many businesses are providing uniforms for their people for the first time. Fiscal 1995 was the fifth consecutive year in which the majority of our new business came from companies that never had a uniform program before. How the public perceives a business, and how its employees perceive themselves and their company, is vital to success. Uniforms send a powerful message of professionalism and competence to customers and employees. Therefore more and more companies are beginning to use a uniform service. Cintas is well positioned to take advantage of this developing business due to our extensive geographic presence and our marketing expertise. This is a great opportunity for growth. -17- NATIONAL ACCOUNTS The National Account Division continues to grow at an exciting pace. Many companies are consolidating their sources of supply in their quest to reduce costs. Companies prefer to deal with fewer suppliers to reduce the activities and costs connected with purchasing and administration. They are also looking for companies like Cintas who can provide on-line, paperless ordering, billing and control systems. This trend is having a positive impact on Cintas because we have already spent millions of dollars to develop and perfect these systems to meet our customers' needs. CATALOG PROGRAM Our Catalog Program continues to show healthy growth and a promising future. By leveraging our inventory and distribution capabilities, we are able to provide a valuable service to our customers through the Catalog Program. This program provides our customers with a convenient method to purchase shoes, belts, socks, safety gear, foul weather gear and all the accessories that a worker might need on the job. MARKET RESEARCH We have a first-class Marketing Department. Their primary focus is to fully understand customer and prospect needs and expectations so that we can continue to differentiate ourselves through the development of better service techniques and products. Each year, more than 20,000 customers are surveyed to monitor our performance on an ongoing basis. In-person interviews are conducted with hundreds of uniform wearers and decision makers to evaluate new product and service concepts. TRAINING ACTIVITIES Training is a key element in the development of Cintas partners. In fiscal 1995, we conducted 42 in-house seminars covering important management topics such as corporate culture and quality. We also rolled out an advanced course in service leadership. Cintas' service supervisors and managers collectively invested over 10,000 hours in an intense training program to learn and reinforce concepts on world-class service and exceeding customers' expectations. These managers are responsible for the ongoing weekly training of over 1,500 service sales representatives. Cintas is committed to providing our partners with the best tools and techniques needed to serve our customers in the most effective and efficient way possible. RESEARCH AND DEVELOPMENT In fiscal 1995, we created a centralized Research and Development Group to spearhead our continuing efforts to improve productivity and quality. A large part of their effort involves the development of new technology to use in our operations. Our new plants have exciting equipment and automation, much of which was designed in-house by this group. We continually test new equipment, material handling concepts, delivery systems and computer software so that we can be the best-cost producer. QUALITY PROGRAM Our people are empowered to meet the needs of our customers. A few years ago, we implemented a new approach to total quality management called "Continuous Process Improvement (CPI)". We are never satisfied with the "status quo". With the tools of CPI, we question every step taken in performing our jobs and we identify opportunities to improve productivity. We then measure our progress through an extensive customer feedback system. -18- THE ULTIMATE COMPETITIVE ADVANTAGE Our culture attracts a certain kind of people -- people who have common beliefs and values --working together as a team -- and these people have set new records for twenty-six years in a row! We are more committed and enthusiastic and, just like a sports team, the team with the best players who are willing to work hard and who have a winning attitude is the team that wins! This is the ultimate competitive advantage. Our competitors can copy our service systems and our sales literature, but not our culture. It is intangible, rare and difficult to emulate. It is amazing to see the power of our Corporate Culture. "The Spirit is the Difference." -19-
ELEVEN-YEAR FINANCIAL SUMMARY Years Ended May 31 (in thousands except per share data) 1985 1986 1987 1988 1989 1990 Net Revenues $125,632 $144,621 $185,101 $228,091 $269,260 $311,776 Net Income 9,446 12,318 14,737 18,550 23,101 27,994 Earnings Per Share 0.23 0.30 0.35 0.44 0.52 0.62 Dividends Per Share 0.02 0.02 0.03 0.04 0.05 0.07 Total Assets 124,960 165,474 194,847 213,958 228,000 274,103 Shareholders' Equity 61,621 72,961 86,646 104,710 138,079 163,026 Return on Avg. Equity 16.5% 18.3% 18.5% 19.4% 19.0% 18.6% Long-Term Debt 37,279 62,797 70,757 65,490 43,303 54,079 10 Year Compd 1991 1992 1993 1994 1995 Growth Net Revenues $352,480 $401,563 $452,722 $523,216 $615,098 17.2% Net Income 31,339 39,195 44,873 52,170 62,743 20.8% Earnings Per Share 0.69 0.85(a) 0.97 1.12 1.34 19.3% Dividends Per Share 0.09 0.11 0.14 0.17 0.20 25.9% Total Assets 326,752 361,261 454,165 501,632 596,181 16.9% Shareholders' Equity 191,124 225,864 264,914 309,652 364,344 19.4% Return on Avg. Equity 17.7% 18.8% 18.3% 18.2% 18.6% Long-Term Debt 68,974 67,790 103,611 84,184 120,275 (a) Includes earnings of $.06 per share due to the adoption of SFAS No. 96. Note: Results prior to October 1, 1991, have been restated to include Rental Uniform Service of Greenville, S.C., Inc.
-20-
Cintas Corporation CONSOLIDATED STATEMENTS OF INCOME Year Ended May 31 (In thousands except per share data) 1995 1994 1993 Revenues: Net rentals $545,267 $464,922 $404,869 Net sales 69,831 58,294 47,853 615,098 523,216 452,722 Cost and expenses (income): Cost of rentals 312,313 264,477 228,744 Cost of sales 58,952 48,868 40,910 Selling and administrative expenses 137,675 119,446 106,143 Interest income (2,148) (1,690) (1,424) Interest expense 7,345 6,664 7,046 514,137 437,765 381,419 Income before income taxes 100,961 85,451 71,303 Income taxes 38,218 33,281 26,430 Net income $62,743 $52,170 $44,873 Weighted average number of shares outstanding 46,891 46,706 46,411 Earnings per share $1.34 $1.12 $0.97 Dividends per share $0.20 $0.17 $0.14
See accompanying notes. -21-
Cintas Corporation CONSOLIDATED BALANCE SHEETS May 31 (In thousands except share data) 1995 1994 Assets Current assets: Cash and cash equivalents $6,685 $8,449 Marketable securities 38,797 52,333 Accounts receivable, principally trade, less allowance of $2,029 and $2,003, respectively 69,032 56,347 Inventories 36,883 29,059 Uniforms and other rental items in service 88,670 74,132 Prepaid expenses 1,355 1,133 Total current assets 241,422 221,453 Property, plant and equipment, at cost, net 227,997 192,503 Other assets 126,762 87,676 $596,181 $501,632 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $17,265 $18,795 Accrued liabilities 42,158 33,488 Income taxes: Current 2,191 2,300 Deferred 23,368 21,159 Long-term debt due within one year 10,030 15,742 Total current liabilities 95,012 91,484 Long-term debt due after one year 120,275 84,184 Deferred income taxes 16,550 16,312 Shareholders' equity: Preferred stock, no par value; 100,000 shares authorized, none outstanding --- --- Common stock, no par value; 120,000,000 shares authorized, 47,005,340 and 46,801,173 shares issued and outstanding, respectively 42,035 40,939 Retained earnings 323,284 269,939 Cumulative translation adjustment (975) (1,226) Total shareholders' equity 364,344 309,652 $596,181 $501,632
See accompanying notes. -22-
Cintas Corporation CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Year Ended May 31 (In thousands) Common Stock Total Cumulative Share- Retained Translation holders' Shares Amount Earnings Adjustment Equity Balance at May 31, 1992 46,190 $38,425 $187,745 $(306) $225,864 Net income --- --- 44,873 --- 44,873 Dividends --- --- (6,519) --- (6,519) Effects of acquisitions 180 401 (377) --- 24 Stock options exercised net of shares surrendered 209 288 --- --- 288 Tax benefit resulting from exercise of employee stock options --- 755 --- --- 755 Translation adjustment --- --- --- (371) (371) Balance at May 31, 1993 46,579 39,869 225,722 (677) 264,914 Net income --- --- 52,170 --- 52,170 Dividends --- --- (7,953) --- (7,953) Stock options exercised net of shares surrendered 222 750 --- --- 750 Tax benefit resulting from exercise of employee stock options --- 320 --- --- 320 Translation adjustment --- --- --- (549) (549) Balance at May 31, 1994 46,801 40,939 269,939 (1,226) 309,652 Net income --- --- 62,743 --- 62,743 Dividends --- --- (9,398) --- (9,398) Stock options exercised net of shares surrendered 204 906 --- --- 906 Tax benefit resulting from exercise of employee stock options --- 190 --- --- 190 Translation adjustment --- --- --- 251 251 Balance at May 31, 1995 47,005 $42,035 $323,284 $(975) $364,344
See accompanying notes. -23-
Cintas Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended May 31 (In thousands) 1995 1994 1993 Cash flows from operating activities: Net income $62,743 $52,170 $44,873 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 26,179 24,271 23,149 Amortization of deferred charges 11,527 10,789 9,075 Provision for losses on accounts receivable 1,165 998 1,448 Equity in earnings of affiliate (428) (347) (159) Change in current assets and liabilities: Accounts receivable (11,345) (8,053) (5,768) Inventories (21,400) (19,777) (7,223) Prepaid expenses (3) 503 (479) Accounts payable (2,162) (1,842) 5,770 Accrued liabilities 6,628 4,850 4,879 Income taxes payable 184 684 (1,601) Deferred income taxes 2,162 7,184 7,644 Net cash provided by operating activities 75,250 71,430 81,608 Cash flows from investing activities: Proceeds from sale of property, plant and equipment 2,333 1,326 274 Capital expenditures (58,879) (37,164) (29,699) Change in other assets 1,126 (2,753) (5,325) Proceeds from sale or redemption of marketable securities 196,204 47,053 20,664 Purchase of marketable securities (182,668) (58,609) (47,286) Acquisitions of businesses, net of cash acquired (50,095) (11,796) (42,384) Net cash used by investing activities (91,979) (61,943)(103,756) Cash flows from financing activities: Proceeds from issuance of long-term debt 52,208 63 38,384 Repayment of long-term debt (21,829) (8,410) (5,726) Issuance of common stock 906 750 689 Tax benefit resulting from exercise of employee stock options 190 320 755 Repurchase common stock (7,112) -- -- Dividends paid (9,398) (7,953) (6,519) Net cash provided by (used in) financing activities 14,965 (15,230) 27,583 Net (decrease) increase in cash and cash equivalents (2,620) (5,743) 5,435 Cash and cash equivalents at beginning of year 8,449 14,192 8,757 Cash and cash equivalents at end of year $5,829 $8,449 $14,192
See accompanying notes. -24- CINTAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share and share data) 1. SIGNIFICANT ACCOUNTING POLICIES Business description. Cintas provides a highly specialized service to businesses of all types--from small service companies to major corporations that employ thousands of people. The Company designs, manufactures and implements corporate identity uniform programs which it rents or sells to customers throughout the United States and Canada. Principles of consolidation. The consolidated financial statements include the accounts of Cintas Corporation and its subsidiaries, all of which are wholly-owned. Intercompany balances and transactions have been eliminated. Earnings per share is calculated on the basis of the weighted average number of shares of common stock outstanding during the year, including the dilutive effect, if any, of assumed conversion of common stock equivalents. Cash flows. For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less, at date of purchase, to be cash equivalents. Inventories are valued at the lower of cost (first-in, first-out) or market. Substantially all inventories represent finished goods. Uniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method generally over periods of eight to eighteen months. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Other assets consist primarily of service contracts and non-compete or consulting agreements obtained through the acquisition of businesses, which are amortized by use of the straight-line method over the estimated lives of the agreements which are generally five to ten years and goodwill which is amortized using the straight-line method over forty years. 2. MARKETABLE SECURITIES All marketable equity securities and debt securities are classified as available-for-sale. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value determined to be other-than-temporary on available-for-sale securities are included in investment income. The cost of the securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. The following is a summary of marketable securities at May 31, 1995:
Estimated Cost Fair Value Obligations of state and political subdivisions $26,434 $26,130 U.S. Treasury securities and obligations of U.S. government agencies 5,306 5,317 Other debt securities 7,057 7,036 $38,797 $38,483
The gross realized gains on sales of available-for-sale securities totaled $154, $42 and $6, for the years ended May 31, 1995, 1994 and 1993, and the gross realized losses totaled $203, $78 and $29, respectively. Net unrealized losses are $314 at May 31, 1995. Marketable securities are carried at cost which approximates market. The amortized cost and estimated fair value of debt and marketable equity securities at May 31, 1995, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay the obligations without prepayment penalties. -25-
Estimated Cost Fair Value Due in one year or less $23,371 $23,300 Due after one year through three years 8,804 8,704 Due after three years 6,622 6,479 $38,797 $38,483
3. PROPERTY, PLANT AND EQUIPMENT 1995 1994 Land $22,526 $19,834 Buildings and improvements 119,109 108,268 Equipment 175,858 152,441 Leasehold improvements 1,035 931 Construction in progress 14,862 6,928 333,390 288,402 Less accumulated depreciation 105,393 95,899 $227,997 $192,503 1995 1994 4. OTHER ASSETS Goodwill $56,562 $8,875 Service contracts 64,171 58,263 Non-compete and consulting agreements 48,452 46,591 169,185 113,729 Less accumulated amortization 49,564 39,275 119,621 74,454 Other 7,141 13,222 $126,762 $87,676 5. LONG-TERM DEBT 1995 1994 Secured term notes payable due through 2003 at an average rate of 9.14% $39,756 $19,000 Unsecured term notes payable due through 2002 at an average rate of 7.61% 40,000 20,000 Unsecured notes due through 2000 at an average rate of 6.51% 29,819 41,039 Unsecured revolving note payable due 2000 at a rate of 6.63% 10,000 -- Industrial development revenue bonds due through 2006 at an average rate of 4.17% 8,236 16,112 Other long-term obligations 2,494 3,775 130,305 99,926 Less amounts due within one year 10,030 15,742 $120,275 $84,184
Debt in the amount of $50,272 is secured by assets with a carrying value of $45,935 at May 31, 1995, and letters of credit in the amount of $12,175. Maturities of long-term debt during the five years ending May 31, 2000 are: $10,030, $29,265, $6,613, $6,398 and $24,385, respectively. At May 31, 1995, the fair value of the -26- Company's outstanding debt approximates its carrying value. Interest expense is net of capitalization of $638, $449 and $415 for the years ended May 31, 1995, 1994 and 1993, respectively. Interest paid, net of amount capitalized, was $7,453, $7,008 and $6,917 for the years ended May 31, 1995, 1994 and 1993, respectively. 6. LEASES The Company conducts certain operations from leased facilities and leases certain equipment. Most leases contain renewal options for periods from one to ten years. The lease agreements provide for increases in rentals if the options are exercised based on increases in certain price level factors or prearranged increases. The minimum rental payments for the five years ending May 31, 2000 are: $3,357, $2,772, $2,501, $2,151 and $2,029, respectively. Rent expense under operating leases during the years ended May 31, 1995, 1994 and 1993 was approximately $5,369, $4,258 and $3,823, respectively.
7. INCOME TAXES 1995 1994 1993 Income taxes consist of the following components: Current: Federal $29,787 $21,900 $16,002 State and local 5,389 4,197 3,485 35,176 26,097 19,487 Deferred 3,042 7,184 6,943 $38,218 $33,281 $26,430 Reconciliation of income tax expense using the statutory rate and actual income tax expense is as follows: Income taxes at the U.S. federal statutory rate $35,336 $29,908 $24,243 State and local income taxes, net of federal benefit 3,659 3,412 2,658 Non-taxable income earned (599) (554) (428) Jobs tax credits (395) (602) (198) Effect of tax rate changes on tax liabilities -- 1,064 -- Other 217 53 155 $38,218 $33,281 $26,430
SFAS No. 109, Accounting for Income Taxes, was adopted by the Company effective June 1, 1993, without restatement of prior period financial statements or recording of a cumulative adjustment. The adoption of SFAS No. 109 resulted primarily in the reclassification of certain deferred tax balances. The components of deferred income taxes included on the balance sheets at May 31, 1995, 1994 and 1993, are as follows:
1995 1994 1993 Deferred tax assets: Employee benefits $6,450 $4,272 $3,333 Allowance for bad debts and other 6,009 2,667 2,447 12,459 6,939 5,780 Deferred tax liabilities: In-service inventory 32,627 27,575 22,827 Depreciation 15,104 13,509 11,380 Other 4,646 3,326 1,860 52,377 44,410 36,067 Net deferred tax liability $39,918 $37,471 $30,287
Income taxes paid were $35,362, $29,741 and $20,938 for the years ended May 31, 1995, 1994 and -27- 1993, respectively. 8. ACQUISITIONS On February 13, 1995, the Company acquired 80% of the outstanding stock of Cadet Uniform Services, Ltd., a prominent uniform rental company in Toronto, Ontario, for approximately $41 million which was financed through borrowings. The purchase increased the Company's ownership from 20% to 100%. Cadet has annual sales volume of approximately $22 million. Information relating to the acquisitions of uniform rental businesses which were accounted for as purchases is as follows:
1995 1994 1993 Number of acquisitions 12 8 16 Fair value of assets acquired $52,684 $11,996 $47,264 Liabilities assumed and incurred 2,589 200 4,880 Total cash paid for acquisitions $50,095 $11,796 $42,384
In addition to the acquisitions reflected in the table, the Company acquired one business in fiscal 1995 by reissuing 219,765 treasury shares and accounted for the acquisition as a purchase. The Company acquired one business in fiscal 1993 in exchange for 180,383 shares of common stock which was accounted for as a pooling of interests. The results of operations from the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The unaudited proforma results of operations for the years ended May 31, 1995 and 1994, assuming the acquisitions had occurred on June 1 of each respective year, would be approximately as follows:
1995 1994 Revenues $635,368 $560,702 Net income 64,004 53,434 Earnings per share 1.36 1.14
The unaudited pro forma results of operations are not necessarily indicative of the actual operating results that would have occurred had the acquisitions been consummated on June 1 of each respective year or of future operating results of the combined companies. -28- 9. CINTAS PARTNERS' PLAN The Cintas Partners' Plan (the Plan) is a non-contributory profit sharing plan and ESOP for the benefit of Company employees who have completed one year of service. Contributions to the Plan are determined at the discretion of the Company. Effective June 1, 1993, the Company added a defined contribution feature to the Plan covering substantially all employees. A maximum 20% matching contribution to the Plan may be made at the Company's discretion. Total contributions, including the Company's matching contributions, were $4,956, $4,300 and $3,700 for the years ended May 31, 1995, 1994 and 1993, respectively. 10. STOCK OPTIONS Under a stock option plan adopted by the Company in fiscal 1993, the Company may grant officers and key employees incentive stock options and/or non-qualified stock options to purchase an aggregate of 2,300,000 shares of the Company's common stock. Options are generally granted at the fair market value of the underlying common stock on the date of grant and generally become exercisable at the rate of 20% per year commencing five years after grant, so long as the holder remains an employee of the Company. The information presented in the following table relates to incentive stock options granted and outstanding under either the plan adopted in fiscal 1993, or under a similar plan which expired in June 1993.
Stock Option Shares Price Range Outstanding May 31, 1992 (278,170 shares exercisable) 1,449,324 $2.67-$28.25 Granted 121,950 25.25-28.75 Cancelled (54,120) 3.46-28.25 Exercised (199,678) 2.67-9.42 Outstanding May 31, 1993 (297,654 shares exercisable) 1,317,476 2.67-28.75 Granted 193,750 26.50-27.50 Cancelled (48,710) 5.92-28.25 Exercised (226,682) 2.67-12.17 Outstanding May 31, 1994 (246,551 shares exercisable) 1,235,834 3.46-28.75 Granted 237,200 31.88-38.38 Cancelled (88,950) 5.92-31.88 Exercised (219,515) 3.46-12.17 Outstanding May 31, 1995 (167,109 shares exercisable) 1,164,569 $5.92-$38.38
In addition to the outstanding incentive stock options reflected in the table there were 205,170, 188,750 and 188,750 outstanding non-qualified stock options at May 31, 1995, 1994 and 1993, respectively. During fiscal 1995, 16,420 non-qualified stock options were granted and none were exercised. At May 31, 1995, the exercise prices of these outstanding options ranged from $7.96 to $36.75 and 113,500 of these outstanding options were exercisable. At May 31, 1995, 4,037,000 shares of common stock are reserved for future issuance. -29- 11. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the results of operations for each of the quarters within the years ended May 31, 1995 and 1994:
First Second Third Fourth May 31, 1995 Quarter Quarter Quarter Quarter Revenues from rentals and sales $142,037 151,591 151,217 170,253 Gross profit $57,481 59,502 59,359 67,491 Net income $13,760 15,756 15,315 17,912 Earnings per share $0.29 0.34 0.33 0.38 Weighted average number of shares outstanding 46,805 46,829 46,932 47,000 May 31, 1994 Revenues from rentals and sales $122,224 129,783 129,385 141,824 Gross profit $50,217 53,079 51,824 54,751 Net Income $10,543 13,580 13,061 14,986 Earnings per share $0.23 0.29 0.28 0.32 Weighted average number of shares outstanding 46,637 46,680 46,717 46,790
REPORT OF AUDIT COMMITTEE The Audit Committee (the Committee) of the Board of Directors is composed of three independent directors. The Committee, which held two audit meetings during fiscal 1995, oversees the Company's financial reporting process on behalf of the Board of Directors. In fulfilling its responsibility, the Committee recommended to the Board of Directors the selection of the Company's independent auditors. The Committee discussed with the independent auditors the overall scope and specific plan for their audits. The Committee also discussed the Company's consolidated financial statements and the adequacy of the Company's system of internal control. The Committee meets with the Company's independent auditors, without management present, to discuss the results of their audits, their evaluation of the system of internal control and the overall quality of the Company's financial reporting. The meetings also are designed to facilitate any private communications with the Committee desired by the independent auditors. Roger L. Howe, Chairman Audit Committee July 17, 1995 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Cintas Corporation We have audited the accompanying consolidated balance sheets of Cintas Corporation as of May 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cintas Corporation at May 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Cincinnati, Ohio July 17, 1995 -31- CINTAS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994 Fiscal 1995 was another record year for the Company. Total revenues of $615 million, net income of $63 million and earnings per share of $1.34 were all records, increasing 18%, 20% and 20%, respectively. Net rental revenues increased 17%. Revenues in existing rental operations increased 14% while acquisitions accounted for the remaining growth. Net sales revenues increased 20% due to new business and expansion of business within existing national accounts. Return on equity of 19% was comparable with the prior year. Income before taxes increased 18% to $101 million The Company's effective tax rate decreased from 39% to 38%. In fiscal 1994, the Company recorded a one-time charge for the retroactive impact (to January 1, 1993) of an increase in corporate marginal tax rates due to the enactment of the Omnibus Budget Reconciliation Act of 1993. In fiscal 1995, the Company acquired 80% of the outstanding stock of Cadet Uniform Services, Ltd., for approximately $41 million which was financed through borrowings. The purchase increased the Company's ownership from 20% to 100%. Cadet has annual sales volume of approximately $22 million. The Company expects this acquisition to be mildly additive to future earnings. Cash, cash equivalents and marketable securities decreased by $15 million due to capital expenditures and acquisitions which was partially offset by strong cash flow from operations. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Marketable securities consist primarily of industrial revenue bonds and federal government securities. Inventories increased $8 million as the Company added products for the catalog program and proprietary products in the rental line. The higher level of inventory positions the Company to maintain service levels for anticipated growth. Net property, plant and equipment increased by $35 million. In fiscal 1995, the Company constructed five new uniform rental facilities to accommodate growth in rental operations. Other assets increased by $39 million, reflecting goodwill, service contracts and non-compete and consulting agreements obtained through the acquisition of uniform businesses. FISCAL 1994 COMPARED TO FISCAL 1993 Total revenues for fiscal 1994 increased 16% to $523 million. Net rental revenues increased 15%. Revenues in existing rental operations increased 10% while acquisitions accounted for the remaining growth. Net sales revenue increased 22%. The increase was attributed to the implementation of new uniform programs for several large national accounts and the conversion of existing accounts to newly designed uniform programs. Income before income taxes increased 20% to $85 million. Net interest expense decreased $1 million reflecting the repayment of $8 million in debt and an increase in interest income. The Company's effective tax rate increased from 37% to 39% as a result of an increase in the -32- federal tax rate. Return on equity of 18% was comparable with the prior year. Cash, cash equivalents and marketable securities increased by $6 million due to strong cash flow from internal operations. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Inventories increased $8 million in order to provide service to recent acquisitions and to increase the service level to existing locations. Net property, plant and equipment increased by $12 million. In fiscal 1994, the Company constructed three new uniform facilities to accommodate growth in rental operations. The current portion of long-term debt increased $11 million, which was in line with the scheduled maturities of long-term debt. FINANCIAL CONDITION At May 31, 1995, the Company had $45 million in cash, cash equivalents and marketable securities. The Company's investment policy pertaining to marketable securities is conservative. Preservation of principal while earning an attractive yield are the criteria used in making investments. Working capital increased $16 million to $146 million due primarily to an increase in inventories. Capital expenditures for fiscal 1995 totaled $59 million. The Company continues to reinvest profits into land, buildings and equipment in order to expand capacity for future growth. The Company anticipates that capital expenditures for fiscal 1996 will approximate $55 million. The Company's percentage of debt to total capitalization was 26% at May 31, 1995, versus 24% at May 31, 1994, due to acquisitions made during the year. During the year, the Company paid dividends of $9 million or $0.20 per share. This dividend is an increase of 18% over that paid in fiscal 1994. INFLATION AND CHANGING PRICES Management believes inflation has not had a material impact on the Company's financial condition or a negative effect on operations. Management has been able to control pricing pressures through vendor negotiations, alternative sourcing methods and conservation. -33- Directors and Officers Board of Directors Officers Gerald V. Dirvin Robert R. Buck Carl W. Kettenacker Retired Executive Vice President Senior Vice President Vice President and Director of The Procter & Gamble Company Bruce L. Burgess Robert J. Kohlhepp Vice President President and Chief Executive Officer Richard T. Farmer Karen L. Carnahan Chairman of the Board Treasurer Robert A. Oswald of the Corporation Vice President Scott D. Farmer James (Jay) Case David Pollak, Jr. Vice President of Vice President Vice President the Corporation James J. Gardner Richard T. Farmer William L. Pratt Retired Vice Chairman of the Board Vice President President of the Corporation Roger L. Howe William C. Gale Bruce E. Rotte Chairman of the Vice President, Vice President Board of U.S. Finance Precision Lens, Inc. Donald P. Klekamp Larry A. Harmon G. Thomas Thornley Senior Partner of Vice President Vice President Keating, Muething and Klekamp Robert J. Kohlhepp David T. Jeanmougin President and Chief Senior Vice President Executive Officer of the Corporation John S. Lillard John S. Kean III Chairman-Founder of Senior Vice President JMB Institutional Realty Corporation -34- Shareholder Information EXECUTIVE OFFICES 10-K REPORT Cintas Corporation A copy of the Form 10-K annual 6800 Cintas Boulevard report filed with the Securities P.O. Box 625737 and Exchange Commission for the Cincinnati, Ohio year ended May 31, 1995, is 45262-5737 available at no charge to shareholders. Direct requests in writing for this report or other information to: AUDITORS William C. Gale Vice President, Finance Ernst & Young LLP Cintas Corporation 1300 Chiquita Center 6800 Cintas Boulevard 250 E. Fifth Street P.O. Box 625737 Cincinnati, Ohio 45202 Cincinnati, Ohio 45262-5737 (513) 459-1200 MARKET FOR REGISTRANT'S SECURITY HOLDER INFORMATION COMMON STOCK At May 31, 1995, there were Cintas Corporation Common approximately 1,700 stockholders Stock is traded on the of record of the Corporation's NASDAQ National Market Common Stock.The Company System. The symbol is CTAS. believes that this represents approximately 12,000 beneficial owners. REGISTRAR AND TRANSFER AGENT The Fifth Third Bank 38 Fountain Square Plaza Cincinnati, Ohio 45263 (513) 579-5300 ANNUAL MEETING October 19, 1995 Cintas Corporate Office 6800 Cintas Boulevard Cincinnati, Ohio 10:00 a.m. The following table shows the high and low closing prices by quarter during the last two fiscal years. Fiscal 1995 Fiscal 1994 Quarter ended High Low Quarter ended High Low May 1995 40 1/4 33 3/4 May 1994 32 7/8 29 3/4 February 1995 38 3/4 33 1/2 February 1994 34 1/2 28 1/2 November 1994 36 1/4 31 3/4 November 1993 31 1/2 25 August 1994 33 1/4 29 3/4 August 1993 29 1/4 24 3/4 -35- EXHIBIT 21 SUBSIDIARIES OF REGISTRANT STATE/PROVINCE OF NAME INCORPORATION Cintas Corporation - East Coast Massachusetts Cintas Corporation - Ohio Ohio Cintas Corporation No. 1 Ohio Cintas Corp. No. 5 Michigan Cintas Corp. No. 13 Pennsylvania Cintas Corporation No. 41 Maryland Cintas Sales Corporation Ohio Cintas Corp. No. 45 North Carolina Corporate Business Services, Inc. Illinois Cintas - R.U.S., Inc. South Carolina Cintas Cleaning Services, Inc. Ohio Cintas Executive Services, Inc. Nevada Cadet Uniform Services Limited Ontario, Canada Cintas Investment Corp. Ontario, Canada 117561 Ontario, Inc. Ontario, Canada 910946 Ontario, Inc. Ontario, Canada -36- Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Cintas Corporation of our report dated July 17, 1995, included in the 1995 Annual Report to Shareholders of Cintas Corporation. Our audits also included the financial statement schedules of Cintas Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement Number 33-56623 on Form S-8 pertaining to the Partners' Plan, the Registration Statement Number 33-23228 on Form S-8 pertaining to the Incentive Stock Option Plan and Registration Statement Number 33-71124 on Form S-8 pertaining to the 1990 Directors Plan and 1992 Stock Option Plan, of our report dated July 17, 1995, with respect to the financial statements and schedules of Cintas Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended May 31, 1995. Ernst & Young LLP Cincinnati, Ohio August 23, 1995 -37- EX-27 2
5 YEAR MAY-31-1995 MAY-31-1995 6,685,000 38,797,000 71,061,000 2,029,000 125,553,000 241,422,000 333,390,000 105,393,000 596,181,000 95,012,000 0 42,035,000 0 0 322,309,000 596,181,000 69,831,000 615,098,000 58,952,000 371,265,000 0 0 7,345,000 100,961,000 38,218,000 0 0 0 0 62,743,000 1.34 0
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