-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V8RkPNG6ijaLSi16HUpWdQRBesxDe7/4CSwMR32IthHMAXa5cJgjI3rVpF6VJsF8 wiRibPijL0qlZ+unpnddig== 0000723254-96-000007.txt : 19960829 0000723254-96-000007.hdr.sgml : 19960829 ACCESSION NUMBER: 0000723254-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960828 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: 96621702 BUSINESS ADDRESS: STREET 1: 6800 CINTAS BLVD STREET 2: P O BOX 625737 CITY: CINCINNATI STATE: OH ZIP: 45262 BUSINESS PHONE: 5135734016 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, 1996 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 6800 Cintas Boulevard or organization) 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 $1,527,821,826 based on a closing price of $54.50 on August 16, 1996. As of August 16, 1996, 47,376,432 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 1996 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 1996 annual meeting are incorporated by reference in Parts I, II and III as specified. 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 6 Stockholder Matters Item 6 - Selected Financial Data 6 Item 7 - Management's Discussion and Analysis of Financial 7 Condition and Results of Operations Item 8 - Financial Statements and Supplementary Data 7 Item 9 - Changes in and Disagreements with Accountants on 7 Accounting and Financial Disclosure 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 7 Management Item 13 - Certain Relationships and Related Transactions 7 Part IV Item 14 - Exhibits, Financial Statement Schedules and 7 Reports on Form 8-K -2- PART I ITEM 1. BUSINESS The business discussion found on pages 2 through 9 of the Registrant's Annual Report to Shareholders for 1996 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 1996 1995 1994 (in thousands) Uniform Rental $492,369 $415,035 $351,495 Uniform Sales 81,373 69,825 58,294 Non-Uniform Rentals 148,652 124,045 108,360 Other 7,736 6,193 5,067 $730,130 $615,098 $523,216
The Company began business in 1929 as an Ohio Corporation and changed its state of incorporation to Washington in 1986. At May 31, 1996, the Company employed 10,803 employees of which 88 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 its standard uniform needs. Additional products are purchased from 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 124 facilities located in 118 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 three 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 2,765 vehicles. The following chart provides additional information concerning Cintas' facilities:
Location Type of Facility Cincinnati, Ohio Corporate Offices, National Account Division, Distribution Center Alexandria, Louisiana Branch * Asheville, North Carolina Branch * Ashland, Kentucky Processing Plant Atlanta, Georgia Processing Plant Augusta, Georgia Processing Plant Austin, Texas Processing Plant Baltimore, Maryland Processing Plant Baton Rouge (South), Louisiana Processing Plant Baton Rouge (North), Louisiana Processing Plant Beaumont, Texas Processing Plant Birmingham, Alabama Branch* Boston, Massachusetts Processing Plant Branford, Connecticut Processing Plant Brownsville, Texas Branch* Buffalo, New York Processing Plant Charlotte, North Carolina Processing Plant 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 Etobicoke, Ontario (Canada) Processing Plant Evansville, Indiana Branch* Everett, Washington Branch Flint, Michigan Branch* Fort Meyers, Florida 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* -4- Hazard, Kentucky Manufacturing Facility* Houston, Texas Processing Plant Indianapolis, Indiana Branch* Jackson, Mississippi Branch* Jacksonville, Florida Branch* Joplin, Missouri Branch* Kansas City, Kansas Processing Plant Knoxville, Tennessee Branch* Lafayette, Louisiana Branch Lake Charles, Louisiana Processing Plant Lake Station, Indiana Branch* Laredo, Texas Branch* Las Vegas, Nevada Processing Plant Lexington, Kentucky Processing Plant Little Rock, Arkansas Processing Plant 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 Processing Plant Miami, Florida Processing Plant Milwaukee, Wisconsin Branch* Minneapolis, Minnesota Processing Plant* Mobile, Alabama Branch* Montgomery, Alabama Distribution Center* Montgomery, Alabama Branch* Mt. Vernon, Kentucky Manufacturing Facility* Nashville, Tennessee Processing Plant Natchez, Mississippi Branch* New Orleans, Louisiana Processing Plant North Canton, Ohio Processing Plant Oklahoma City, Oklahoma Processing Plant Orange, California Branch* Orlando, Florida Processing Plant Owingsville, Kentucky Manufacturing Facility* Pensacola, Florida Branch* 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 Taunton, Massachusetts Branch* -5- Thibodaux, Louisiana Processing Plant Toronto, 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* 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 2006. 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. 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 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS "Market for Registrant's Common Stock" and "Security Holder Information" on page 25 of the Registrant's Annual Report to Shareholders for 1996 is incorporated herein by reference. Dividend information is incorporated by reference to the Consolidated Statements of Shareholders' Equity on page 13. Dividends on the outstanding Common Stock are paid annually and amounted to $.25 and $.20 per share in fiscal 1996 and 1995, respectively. ITEM 6. SELECTED FINANCIAL DATA The "Eleven Year Financial Summary" on page 10 of the Registrant's Annual Report to Shareholders for 1996 is incorporated herein by reference. -6- 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 1996 is incorporated herein by reference. 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 1996 are incorporated herein by reference: Consolidated Balance Sheets as of May 31, 1996 and 1995 Consolidated Statements of Income for the years ended May 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended May 31, 1996, 1995 and 1994 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 1996 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 are listed in Item 8. No additional financial statements are filed because 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, 1996. 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) Management Compensatory Contracts (Exhibits 10.1-10.5) 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 1996 Annual Report to Shareholders filed herewith 21 Subsidiaries of the Registrant filed herewith 23 Consent of Independent Auditors filed herewith 27 Financial Data Schedule 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 the Company's Registration Statement No. 33-23228 on Form S-8 filed under the Securities Act of 1933. (3) Incorporated by reference to the Company's Registration Statement No. 33-56623 on Form S-8 filed under the Securities Act of 1933. (4) Incorporated by reference to the Company's Registration Statement No. 33-71124 on Form S-8 filed under the Securities Act of 1933. (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 26, 1996 /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 26, 1996 /s/ Robert J. Kohlhepp President, Chief Executive Robert J. Kohlhepp Officer and Director August 26, 1996 /s/ Scott D. Farmer Vice President and Scott D. Farmer Director August 26, 1996 /s/ James J. Gardner Director August 26, 1996 James J. Gardner /s/ Donald P. Klekamp Director August 26, 1996 Donald P. Klekamp /s/ William C. Gale Vice President- William C. Gale Finance (Principal Financial and Accounting Officer) August 26, 1996 -9-
CINTAS CORPORATION Schedule II - Valuation and Qualifying Accounts and Reserves (In Thousands) Additions (1) (2) Balance At Charged to Charged to Balance At Beginning of Costs and Other End of Description Year Expenses Accounts Deductions Year May 31, 1994: Allowance for Doubtful Accounts $ 1,976 $998 $209 $1,180 (A) $ 2,003 Accumulated Amortization of Customer Service Contracts 18,049 5,608 2,134 (B) 21,523 Accumulated Amortization of Non-Compete Agreements & Consulting 13,755 4,706 1,446 (B) 17,015 Accumulated Amortization of Debt Issue and Organization Costs 453 254 284 (B) 423 Accumulated Amortization of Goodwill 92 222 314 $32,349 $ 10,790 $3,864 $39,275 May 31, 1995: Allowance for Doubtful Accounts $2,003 $ 1,465 ($325) $1,114 (A) $2,029 Accumulated Amortization of Customer Service Contracts 21,523 5,967 70 (B) 27,420 Accumulated Amortization of Non-Compete Agreements & Consulting 17,015 4,675 1,085 (B) 20,605 Accumulated Amortization of Debt Issue & Organization Costs 423 263 83 (B) 603 Accumulated Amortization of Goodwill 314 622 936 $39,275 $11,527 $1,238 $49,564
-10- CINTAS CORPORATION Schedule II - Valuation and Qualifying Accounts and Reserves (In Thousands)
Additions (1) (2) Balance At Charged to Charged to Balance At Beginning of Costs and Other End of Description Year Expenses Accounts Deductions Year May 31, 1996: Allowance for Doubtful Accounts $2,029 $1,178 $175 $1,424 (A) $1,958 Accumulated Amortization of Customer Service Contracts 27,420 6,161 4,866 (B) 28,715 Accumulated Amortization of Non-Compete Agreements & Consulting 20,605 4,667 1,515 (B) 23,757 Accumulated Amortization of Debt Issue & Organization Costs 603 250 71 (B) 782 Accumulated Amortization of Goodwill 936 1,440 --- 2,376 $49,564 $12,518 $6,452 $55,630
(A) Uncollectible Accounts Charged-off, Net of Recoveries. (B) Elimination of Fully Amortized Amounts. -11-
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (in thousands except per share data) A. Weighted average shares outstanding basis: Fiscal year ended May 31 1996 1995 1994 Net income $75,183 $62,743 $52,170 Weighted average shares outstanding 47,099 46,891 46,706 Earnings per share $1.596 $1.338 $1.117 B. Primary basis: Fiscal year ended May 31 1996 1995 1994 Net income $75,183 $62,743 $52,170 Weighted average shares outstanding 47,099 46,891 46,706 Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 752 773 778 47,851 47,664 47,484 Earnings per share $1.571 $1.316 $1.099 -12- C. Fully diluted basis: Fiscal year ended May 31 1996 1995 1994 Net income $75,183 $62,743 $52,170 Weighted average shares outstanding 47,099 46,891 46,706 Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 905 859 838 48,004 47,750 47,544 Earnings per share $1.566 $1.314 $1.097
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)
% 1996 1995 Change Operating Results Net Revenues $730,130 $615,098 18.7% Net Income 75,183 62,743 19.8% Return on Average Equity 18.9% 18.6% 1.6% Financial Condition Shareholders' Equity $429,497 $364,344 17.9% Working Capital 194,908 146,410 33.1% Current Ratio 2.90:1 2.54:1 14.2% Per Share Data Net Income $1.60 $1.34 19.4% Shareholders' Equity (book value) 9.10 7.75 17.4% Dividends 0.25 0.20 25.0% -14- TO OUR SHAREHOLDERS AND FRIENDS Fiscal year 1996 marks our twenty-seventh consecutive year of uninterrupted growth in sales and profits. During these twenty-seven years, our sales have grown at a compound annual rate of 24% and profits have grown at a compound annual rate of 34%. Our dedication to customer satisfaction, attention to detail and commitment to improved quality are the keys to our continued success. These, along with our outstanding team of dedicated working partners, have produced a company that truly is the answer to customer and shareholder satisfaction. Revenues for fiscal year 1996 totaled $730.1 million, a 19% increase from last year. Pretax income of $122.2 million increased 21% from $101.0 million last year, while net income of $75.2 million increased 20% over fiscal 1995. Our earnings per share increased 19% to $1.60 per share from $1.34 last year. When Cintas went public in August 1983, we were comparable in size to the other public companies in our industry. Since then, Cintas has grown at a faster rate and now is the largest public company - almost twice as large as the next largest company in the industry. This chart conveys the progress we have made:
Fiscal 1983 Fiscal 1996 Revenues $62.8 million $730.1 million Net Income $ 5.5 million $75.2 million Earnings Per Share $.17 $1.60 Uniform Rental Locations 23 117 Manufacturing Plants 1 4 Distribution Centers 2 3 Business Customers 14,000 166,000 Individuals in Uniform 200,000 1.7 million Market Share 3.5% 17.0% Market Value $111 million (IPO) $2.5 billion
Our successful track record, corporate culture and reputation enable us to attract a special group of talented people who are united in a common cause and enjoy what they do. Recently, three of our key partners were promoted. Jim Critchfield, with eighteen years at Cintas, has been promoted to Vice President - North Central Region, after serving as a General Manager of our Schaumburg, Illinois, operation. Larry Harmon, a thirteen-year veteran, has been promoted to Vice President - Human Resources after serving as Vice President - Western Region. Jim Krupansky, having served Cintas for fifteen years in various positions, has been promoted to Vice President - Western Region. His most recent position was General Manager of our Detroit, Michigan, operation. These seasoned managers have proven track records in sales, service and operations. Their skills are many - but they are masters at building teams and motivating our partners to be the best they can be. They are highly qualified and well prepared for their new positions. -15- With the highest customer satisfaction in the industry, Cintas is poised for the future. We are the largest, fastest growing and most profitable public company in the business. We have excellent financial resources, we have modern, productive plants, and we believe we can continue our successful track record because of our great ownership-driven team. We thank you for your continued support and interest. Sincerely yours, Richard T. Farmer Chairman of the Board Robert J. Kohlhepp President and Chief Executive Officer -16- FISCAL 1996 IN REVIEW Leadership? Cintas is the answer. The dictionary defines a leader as one who shows the way, or directs the course, by going before another. Cintas is the leader in the uniform rental industry. We are the largest public company in our industry. We have the highest long-term growth rates in sales and profits. We have a 17% share of the $4.3 billion market and 5% share of a $13.5 billion potential market. In the last five years, we expanded our service to more than 70 new cities; 13 in the year that just ended. We have an outstanding management team, most of whom have been with our Company for many years. We are ownership-driven. The majority of our management team's personal net worth is invested in Cintas. We do extensive market research to identify new and better ways to satisfy our customers. We are the innovator of new products and services for our customers. We have an excellent reputation that attracts new partners and new customers. Productivity? Cintas is the answer. We continue to be the leader in the industry in building modern and productive facilities. Cintas has a research and development team that works closely with our operations and our suppliers to determine the most cost effective and efficient processes for every facility we build or renovate. In fiscal 1996 alone we spent approximately $5 million in research and development, testing new technology and processes to improve our productivity. Expanding Capacity? Cintas is the answer. We constantly expand capacity to keep pace with our growth. Fiscal 1996 was no exception. We completed two new plants - one in Las Vegas, Nevada, and the other in Denver, Colorado - and renovated or expanded three additional plants. Currently, new plants are under construction in Indianapolis, Indiana; Austin, Texas; Ontario, California; and Boston, Massachusetts. We also expanded our Mason, Ohio, Distribution Center in order to increase capacity and more effectively service the Company's continued growth in the Midwest, on the East Coast, and in Canada. A third distribution center, in Montgomery, Alabama, was opened to service operations in the South, Southeast, and Southwest regions of the United States. Acquisitions? Cintas is the answer. There are currently more than 700 mostly family-owned companies serving the uniform rental market in the United States. The industry has been in a consolidation phase for many years. Since going public in 1983, Cintas has made more than 80 acquisitions, which account for approximately a third of our total growth. Acquisitions will continue to play a major role in the growth of our Company going forward. Financial Resources? Cintas is the answer. The Company has strong financial resources to continue our track record into the future. Total cash and marketable securities of $82.5 million increased 81% from $45.5 million last year. Operating cash flow per share was $2.39 for fiscal 1996, a 49% increase over last year. Our current ratio improved from 2.54:1 to 2.90:1. Our debt to total capital stands at 22.5%, which provides significant additional borrowing capacity for acquisitions and internal growth. We are well positioned to take advantage of the many opportunities we have for continued outstanding growth. -17- Dedicated, Hardworking Team? Cintas is the answer. At Cintas, we consider each other partners and we call each other "partner". We applaud all of our partners and continue to dedicate resources to education in all areas of our Company. Education is an everyday occurrence at Cintas. In fiscal 1996, we invested approximately 425,000 hours in formalized classroom training - imparting more knowledge in sales skills, world-class service, human relations, motivation skills, productivity and quality. Leading the Way to World-Class Service? Cintas is the answer. Our goal of achieving world-class service is clearly the most important objective we have as a Company. Our customers expect good service, but "good" is never good enough. We must provide exceptional service, and we do. Take Avis for example: since 1983, we have been providing industrial uniforms to their employees who work "behind the scenes," cleaning and preparing the vehicles for their customers. Our performance won the coveted "Avis Total Quality Award," given to top suppliers. Avis recently chose Cintas to provide the tailored uniform service to the rest of their employees - those who have a higher level of customer contact, such as their rental sales agents and managers. Quality pays off and our insistence on excellence will fuel our future growth. As a result, our partners can count on rewarding careers and our shareholders will have an attractive return. -18- ELEVEN YEAR FINANCIAL SUMMARY Years Ended May 31 (In thousands except per share data)
1986 1987 1988 1989 1990 1991 Net Revenues $144,621 185,101 228,091 269,260 311,776 352,480 Net Income $ 12,318 14,737 18,550 23,101 27,994 31,339 Earnings Per Share $ 0.30 0.35 0.44 0.52 0.62 0.69 Dividends Per Share $ 0.02 0.03 0.04 0.05 0.07 0.09 Total Assets $165,474 194,847 213,958 228,000 274,103 326,752 Shareholders' Equity $ 72,961 86,646 104,710 138,079 163,026 191,124 Return on Average Equity 18.3% 18.5% 19.4% 19.0% 18.6% 17.7% Long-Term Debt $ 62,797 70,757 65,490 43,303 54,079 68,974 10 Year Compd 1992 1993 1994 1995 1996 Growth Net Revenues $401,563 452,722 523,216 615,098 730,130 17.6% Net Income $ 39,195 44,873 52,170 62,743 75,183 19.8% Earnings Per Share $ 0.85(a) 0.97 1.12 1.34 1.60 18.2% Dividends Per Share $ 0.11 0.14 0.17 0.20 0.25 28.7% Total Assets $361,261 454,165 501,632 596,181 668,762 15.0% Shareholders' Equity $225,864 264,914 309,652 364,344 429,497 19.4% Return on Average Equity 18.8% 18.3% 18.2% 18.6% 18.9% Long-Term Debt $ 67,790 103,611 84,184 120,275 117,924
(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. -19- Cintas Corporation CONSOLIDATED STATEMENTS OF INCOME Years Ended May 31 (In thousands except per share data)
1996 1995 1994 Revenues: Net rentals $648,616 $545,267 $464,922 Net sales 81,514 69,831 58,294 730,130 615,098 523,216 Costs and expenses (income): Cost of rentals 369,386 312,313 264,477 Cost of sales 67,424 58,952 48,868 Selling and administrative expenses 164,471 137,675 119,446 Interest income (2,454) (2,148) (1,690) Interest expense 9,073 7,345 6,664 607,900 514,137 437,765 Income before income taxes 122,230 100,961 85,451 Income taxes 47,047 38,218 33,281 Net income $75,183 $62,743 $52,170 Weighted average number of shares outstanding 47,099 46,891 46,706 Earnings per share $1.60 $1.34 $1.12 Dividends per share $0.25 $0.20 $0.17
See accompanying notes. -20- Cintas Corporation CONSOLIDATED BALANCE SHEETS As of May 31 (In thousands except share data)
1996 1995 Assets Current assets: Cash and cash equivalents $9,066 $6,685 Marketable securities 73,477 38,797 Accounts receivable, principally trade, less allowance of $1,958 and $2,029, respectively 78,244 69,032 Inventories 34,678 36,883 Uniforms and other rental items in service 100,307 88,670 Prepaid expenses 1,730 1,355 Total current assets 297,502 241,422 Property, plant and equipment, at cost, net 252,597 227,997 Other assets 118,663 126,762 $668,762 $596,181 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $19,363 $17,265 Accrued liabilities 49,168 42,158 Income taxes: Current --- 2,191 Deferred 27,471 23,368 Long-term debt due within one year 6,592 10,030 Total current liabilities 102,594 95,012 Long-term debt due after one year 117,924 120,275 Deferred income taxes 18,747 16,550 Shareholders' equity: Preferred stock, no par value; 100,000 shares authorized, none outstanding --- --- Common stock, no par value; 120,000,000 shares authorized, 47,199,299 and 47,005,340 shares issued and outstanding, respectively 43,657 42,035 Retained earnings 386,673 323,284 Foreign currency translation adjustment (833) (975) Total shareholders' equity 429,497 364,344 $668,762 $596,181
See accompanying notes. -21- Cintas Corporation CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
Foreign Currency Total Common Stock Retained Translation Shareholders' Shares Amount Earnings Adjustment Equity 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 Foreign currency 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 Foreign currency translation adjustment --- --- --- 251 251 Balance at May 31, 1995 47,005 42,035 323,284 (975) 364,344 Net income --- --- 75,183 --- 75,183 Dividends --- --- (11,794) --- (11,794) Stock options exercised net of shares surrended 194 768 --- --- 768 Tax benefit resulting from exercise of employee stock options --- 854 --- --- 854 Foreign currency translation adjustment --- --- --- 142 142 Balance at May 31, 1996 47,199 $43,657 $386,673 $(833) $429,497
See accompanying notes. -22- Cintas Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended May 31 (In thousands)
1996 1995 1994 Cash flows from operating activities: Net income $75,183 $62,743 $52,170 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 30,586 26,179 24,271 Amortization of deferred charges 12,518 11,527 10,789 Deferred income taxes 6,300 2,162 7,184 Equity in earnings of affiliate --- (428) (347) Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (9,171) (10,180) (7,055) Inventories (9,432) (21,400) (19,777) Prepaid expenses (375) (3) 503 Accounts payable 2,098 (2,162) (1,842) Accrued liabilities 6,910 6,628 4,850 Income taxes payable (2,191) 184 684 Net cash provided by operating activities 112,426 75,250 71,430 Cash flows from investing activities: Proceeds from sale of property, plant and equipment 1,715 2,333 1,326 Capital expenditures (56,780) (58,879) (37,164) Proceeds from sale or redemption of marketable securities 74,220 196,204 47,053 Purchase of marketable securities (108,900) (182,668) (58,609) Acquisitions of businesses, net of cash acquired (2,307) (50,095) (11,796) Other (2,173) 1,126 (2,753) Net cash used by investing activities (94,225) (91,979) (61,943) Cash flows from financing activities: Proceeds from issuance of long-term debt 424 52,208 63 Repayment of long-term debt (6,213) (21,829) (8,410) Issuance of common stock 768 906 750 Repurchase of common stock --- (7,112) --- Dividends paid (11,794) (9,398) (7,953) Other 995 190 320 Net cash provided by (used in) financing activities (15,820) 14,965 (15,230) Net increase (decrease) in cash and cash equivalents 2,381 (1,764) (5,743) Cash and cash equivalents at beginning of year 6,685 8,449 14,192 Cash and cash equivalents at end of year $9,066 $6,685 $8,449
See accompanying notes. -23- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share and share data) 1. SIGNIFICANT ACCOUNTING POLICIES Business description. Cintas designs, manufactures and implements corporate identity uniform programs which it rents or sells to customers throughout the United States and Canada. The Company provides this highly specialized service to businesses of all types--from small service companies to major corporations that employ thousands of people. 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. Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. 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. 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. These items are valued at cost less amortization, calculated using the straight-line method generally over periods of eight to eighteen months. Depreciation. The Company calculates depreciation using the straight-line method over the estimated useful lives of the assets. Other 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. Stock options. The Company grants stock options to certain employees at the fair market value of the underlying common stock on the date of the grant. The stock option grants are accounted for in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly no compensation expense is recorded for the stock option grants. Earnings per share. 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. 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, 1996 and 1995:
1996 1995 Estimated Estimated Cost Fair Value Cost Fair Value Obligations of state and political subdivisions $57,318 $57,249 $26,434 $26,130 U.S. Treasury securities and obligations of U.S. government agencies 6,142 6,077 5,306 5,317 Other debt securities 10,017 10,053 7,057 7,036 $73,477 $73,379 $38,797 $38,483
The gross realized gains on sales of available-for-sale securities totaled $77, $154 and $42 for the years ended May 31, 1996, 1995 and 1994, and the gross realized losses totaled $127, $203 and $78, respectively. Net unrealized losses are $98 and $314 at May 31, 1996 and 1995, respectively. 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, 1996, 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. -24-
Estimated Cost Fair Value Due in one year or less $50,167 $50,208 Due after one year through three years 19,603 19,526 Due After three years 3,707 3,645 $73,477 $73,379 3. PROPERTY, PLANT AND EQUIPMENT 1996 1995 Land $24,458 $22,526 Buildings and improvements 124,590 119,109 Equipment 198,384 175,858 Leasehold improvements 1,016 1,035 Construction in progress 18,030 14,862 366,478 333,390 Less accumulated depreciation 113,881 105,393 $252,597 $227,997 4. OTHER ASSETS 1996 1995 Goodwill $57,962 $56,562 Service contracts 61,329 64,171 Non-compete and consulting agreements 47,175 48,452 166,466 169,185 Less accumulated amortization 55,630 49,564 110,836 119,621 Other 7,827 7,141 $118,663 $126,762 5. LONG-TERM DEBT 1996 1995 Secured term notes due through 2003 at an average rate of 7.99% $37,351 $39,756 Unsecured term notes due through 2002 at an average rate of 7.48% 38,571 40,000 Unsecured notes due through 2009 at an average rate of 5.87% 29,055 29,819 Unsecured revolving note due in 2000 at a rate of 5.94% 10,000 10,000 Industrial development revenue bonds due through 2003 at an average rate of 5.17% 7,202 8,236 Other long-term obligations 2,337 2,494 124,516 130,305 Less amounts due within one year 6,592 10,030 $117,924 $120,275
Debt in the amount of $46,712 is secured by assets with a carrying value of $43,475 at May 31, 1996, and letters of credit in the amount of $11,116 . Maturities of long-term debt during the five years ending May 31, 2001, are: $6,592, $6,733, $33,821, $33,705 and $5,379, respectively. At May 31, 1996, the fair value of the Company's outstanding debt approximates its carrying value. Interest expense is net of capitalization of $435, $638 and $449 for the years ended May 31, 1996, 1995 and 1994, respectively. Interest paid, net of the amount capitalized, was $9,532, $7,453 and $7,008 for the years ended May 31, 1996, 1995 and 1994, respectively. -25- 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, 2001, are: $3,442, $3,106, $2,666, $2,243 and $1,992, respectively. Rent expense under operating leases during the years ended May 31, 1996, 1995 and 1994, was approximately $5,572, $5,369 and $4,258, respectively.
7. INCOME TAXES 1996 1995 1994 Income taxes consist of the following components: Current: Federal $35,001 $29,787 $21,900 State and local 5,746 5,389 4,197 40,747 35,176 26,097 Deferred 6,300 3,042 7,184 $47,047 $38,218 $33,281 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 $42,781 $35,336 $29,908 State and local income taxes, net of federal benefit 4,239 3,659 3,412 Non-taxable income earned (599) (599) (554) Tax credits (216) (395) (602) Effect of tax rate changes on tax liabilities -- -- 1,064 Other 842 217 53 $47,047 $38,218 $33,281
The components of deferred income taxes included on the balance sheets at May 31, 1996, 1995, and 1994, are as follows:
1996 1995 1994 Deferred tax assets: Employee benefits $6,936 $6,450 $4,272 Allowance for bad debts and other 5,821 6,009 2,667 12,757 12,459 6,939 Deferred tax liabilities: In-service inventory 36,348 32,627 27,575 Depreciation 17,682 15,104 13,509 Other 4,945 4,646 3,326 58,975 52,377 44,410 Net deferred tax liability $46,218 $39,918 $37,471
Income taxes paid were $40,817, $35,362 and $29,741 for the years ended May 31, 1996, 1995 and 1994, respectively. 8. ACQUISITIONS Information relating to the acquisitions of uniform rental businesses which were accounted for as purchases is as follows:
1996 1995 1994 Number of acquisitions 3 12 8 Fair value of assets acquired $2,407 $52,684 $11,996 Liabilities assumed and incurred 100 2,589 200 Total cash paid for acquisitions $2,307 $50,095 $11,796
-26- On February 13, 1995, the Company acquired 80% of the outstanding stock of Cadet Uniform Services, Ltd., a 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%. 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 results of operations from the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The unaudited pro forma results of operations for the years ended May 31, 1996 and 1995, assuming the acquisitions had occurred on June 1 of each respective year, would be approximately as follows:
1996 1995 Revenues $731,319 $637,497 Net income $75,223 $64,058 Earnings per share $1.60 $1.37
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 fiscal year or of future operating results of the combined companies. 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. The Plan also includes a 401(k) savings feature covering substantially all employees. The amount of contributions to the profit sharing plan and ESOP and the matching contribution to the 401(k) are at the discretion of the Company. Total contributions, including the Company's matching contributions, were $6,188, $4,956 and $4,300 for the years ended May 31, 1996, 1995 and 1994, 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 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, 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 Granted 225,250 34.75-52.50 Cancelled (28,420) 7.96-43.25 Exercised (159,923) 5.92-13.33 Outstanding May 31, 1996 (123,706 shares exercisable) 1,201,476 $7.96-$52.50
-27- In addition to the outstanding incentive stock options reflected in the table, there were 210,970, 205,170 and 188,750 outstanding non-qualified stock options at May 31, 1996, 1995 and 1994, respectively. During fiscal 1996, 88,500 non-qualified stock options were granted and 82,700 were exercised. At May 31, 1996, the exercise prices of these outstanding options ranged from $7.96 to $43.25 per share, and 74,300 of these outstanding options were exercisable. At May 31, 1996, 3,792,000 shares of common stock are reserved for future issuance. 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, 1996 and 1995:
First Second Third Fourth May 31, 1996 Quarter Quarter Quarter Quarter Revenues from rentals and sales $170,343 182,369 182,977 194,441 Gross profit $69,256 72,959 73,122 77,983 Net income $16,288 18,847 18,524 21,524 Earnings per share $0.35 0.40 0.39 0.46 Weighted average number of shares outstanding 47,033 47,053 47,122 47,190 May 31, 1995 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
-28- 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 1996, 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 8, 1996 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 1996. 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, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1996, in conformity with generally accepted accounting principles. Cincinnati, Ohio Ernst & Young LLP July 8, 1996 -29- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1996 COMPARED TO FISCAL 1995 Fiscal 1996 marked another year of uninterrupted growth for the Company. Total revenues were $730 million, an increase of 19% over fiscal 1995. Net income of $75 million and earnings per share of $1.60 represented increases of 20% and 19%, respectively, over the prior fiscal year. Net rental revenues increased 19%; revenues in existing rental operations increased 15%, while acquisitions accounted for the remaining growth. Net sales revenues increased 17%. Return on equity of 19% was comparable with the prior year. Income before taxes increased 21% to $122 million. Net interest expense increased $1 million primarily due to an increase in the amount of long-term debt associated with the acquisition of Cadet Uniform Services, Ltd. in fiscal 1995. The Company's effective tax rate was 38% in both 1996 and 1995. Cash, cash equivalents and marketable securities increased by $37 million, primarily due to 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 municipal bonds and federal government securities. Inventories decreased $2 million as the Company focused on improving the efficiency of its distribution operations while still maintaining service levels for anticipated growth. Net property, plant and equipment increased by $25 million. In fiscal 1996, the Company constructed two new uniform rental facilities to accommodate growth in rental operations. FISCAL 1995 COMPARED TO FISCAL 1994 During fiscal 1995, total revenues were $615 million, net income was $63 million and earnings per share was $1.34, 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%. 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. Inventories increased $8 million as the Company added products for the catalog program and proprietary products in the rental line. 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. -30- FINANCIAL CONDITION At May 31, 1996, the Company had $83 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 $49 million to $195 million due primarily to the increase in cash, cash equivalents and marketable securities. Capital expenditures for fiscal 1996 totaled $57 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 1997 will approximate $62 million. The Company's percentage of debt to total capitalization was 22% at May 31, 1996, versus 26% at May 31, 1995. During the year, the Company paid dividends of $12 million or $0.25 per share. This dividend is an increase of 25% over that paid in fiscal 1995. 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. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March 1995. The statement established standards for recording impairment losses on long-lived assets used in operations, as well as long-lived assets that are expected to be disposed. The Company will adopt Statement No. 121 in the first quarter of fiscal 1997 and does not believe the effect of adoption will be material. -31-
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 Richard T. Farmer Executive Officer Chairman of the Board Karen L. Carnahan Treasurer James J. Krupansky Scott D. Farmer Vice President Vice President of the Corporation James (Jay) Case Vice President Robert A. Oswald James J. Gardner Vice President Retired Vice President James V. Critchfield of the Corporation Vice President David Pollak, Jr. Vice President Roger L. Howe Richard T. Farmer Chairman of the Board Chairman of the Board William L. Pratt of U.S. Precision Lens, Inc. Vice President Scott D. Farmer Donald P. Klekamp Vice President Rodger V. Reed Senior Partner of Keating, Muething Vice President and Klekamp William C. Gale Vice President, Finance Bruce E. Rotte Robert J. Kohlhepp Vice President President and Chief Executive Larry A. Harmon Officer of the Corporation Vice President G. Thomas Thornley Vice President John S. Lillard David T. Jeanmougin Retired Chairman-Founder of JMB Senior Vice President Institutional Realty Corporation John S. Kean III Senior Vice President
-32- Shareholder Information
EXECUTIVE OFFICES 10-K REPORT Cintas Corporation A copy of the Form 10-K annual report 6800 Cintas Boulevard filed with the Securities and Exchange P.O. Box 625737 Commission for the year ended May 31, Cincinnati, Ohio 45262-5737 1996, is 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 East Fifth Street P.O. Box 625737 Cincinnati, Ohio 45202 Cincinnati, Ohio 45262-5737 (513) 459-1200 MARKET FOR REGISTRANT'S COMMON STOCK Cintas Corporation Common Stock is SECURITY HOLDER INFORMATION traded on the NASDAQ National Market At May 31, 1996, there were System. The symbol is CTAS. approximately 1,700 stockholders of record of the Corporation's Common Stock. The Company believes that this represents approximately 13,000 beneficial owners. REGISTRAR AND TRANSFER AGENT The Fifth Third Bank 38 Fountain Square Plaza The following table shows the high and Cincinnati, Ohio 45263 low closing prices by quarter during the (513) 579-5300 last two fiscal years.
ANNUAL MEETING Fiscal 1996 Fiscal 1995 October 10, 1996 Quarter ended High Low Quarter ended High Low Cintas Corporate Office May 1996 56 47 May 1995 40-1/4 33-3/4 6800 Cintas Boulevard Feb.1996 50-1/2 41-3/4 Feb.1995 38-3/4 33-1/2 Cincinnati, Ohio Nov.1995 48 37-1/2 Nov.1994 36-1/4 31-3/4 10:00 a.m. Aug.1995 40-3/8 33-1/2 Aug.1994 33-1/4 29-3/4
-33- 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 910946 Ontario, Inc. Ontario, Canada -34- 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 8, 1996, included in the 1996 Annual Report to Shareholders of Cintas Corporation. Our audits also included the financial statement schedule of Cintas Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements as a whole, presents 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 8, 1996, with respect to the financial statements and schedule of Cintas Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended May 31, 1996. Ernst & Young LLP Cincinnati, Ohio August 20, 1996 -35- EX-27 2
5 YEAR MAY-31-1996 MAY-31-1996 9,066,000 73,477,000 80,202,000 1,958,000 134,985,000 297,502,000 366,478,000 113,881,000 668,762,000 102,594,000 0 0 0 43,657,000 385,840,000 668,762,000 81,514,000 730,130,000 67,424,000 436,810,000 0 0 9,073,000 122,230,000 47,047,000 0 0 0 0 75,183,000 1.60 0
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