-----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, Sd8ZBdSfMoVk6XekfRZlaMGCH2OKMrSSS4T8jQr4Lux08DdJXYy+ydOf6edr+NuG BF3rlBcJkpSfu+bDgVBQVQ== 0000950152-99-007187.txt : 19990830 0000950152-99-007187.hdr.sgml : 19990830 ACCESSION NUMBER: 0000950152-99-007187 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990827 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: SEC FILE NUMBER: 000-11399 FILM NUMBER: 99701007 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 CINTAS CORPORATION FORM 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, 1999 [ ] 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. [ ] The aggregate market value of Common Stock held by nonaffiliates is $6,198,306,303 based on a closing price of $55.8125 on August 20, 1999. As of August 20, 1999, 111,055,880 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 1999 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 1999 annual meeting are incorporated by reference in Parts II and III as specified. -1- 2 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. 9 Item 4. - Submission of Matters to a Vote of Security Holders. 9 Part II Item 5. - Market for Registrant's Common Equity and Related 10 Stockholder Matters. Item 6. - Selected Financial Data. 10 Item 7. - Management's Discussion and Analysis of Financial 10 Condition and Results of Operations. Item 7A. - Quantitative and Qualitative Disclosure About Market Risk. 10 Item 8. - Financial Statements and Supplementary Data. 10 Item 9. - Changes in and Disagreements with Accountants on 10 Accounting and Financial Disclosure. Part III Item 10. - Directors and Executive Officers of the Registrant. 11 Item 11. - Executive Compensation. 11 Item 12. - Security Ownership of Certain Beneficial Owners and 11 Management. Item 13. - Certain Relationships and Related Transactions. 11 Part IV Item 14. - Exhibits, Financial Statement Schedules and 11 Reports on Form 8-K.
-2- 3 PART I ITEM 1. BUSINESS -------- Cintas Corporation is a publicly held company in the uniform rental and sales business. The Company was founded in 1968 by Richard T. Farmer, Chairman of the Board when he left his family's industrial laundry business in order to develop uniform programs using an exclusive new fabric. In the early 1970's, Cintas acquired the family industrial laundry business. Cintas provides a highly specialized service to businesses of all types - from small service and manufacturing companies to major corporations that employ thousands of people. The Company classifies its businesses into two operating segments: Rentals and Other Services. The Rental operating segment designs and manufactures corporate identity uniforms which it rents, along with other items, to its customers. The Other Services operating segment involves the design, manufacture and direct sale of uniforms to its customers as well as the sale of ancillary services including sanitation supplies, first aid products and services and cleanroom supplies. 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 of the Company in a particular market. The Company believes that the primary competitive factors that affect its operations are quality, service, design and price, in that order. 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 entrance mats, fender covers, towels, mops, linen products and first aid products and services. 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 and its subsidiary Uniforms To You, compete on a national basis with other uniform suppliers and manufacturers. The Company operates thirteen wholly owned 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. The Company purchases fabric, used in its manufacturing process, from several suppliers. The Company is not aware of any circumstances which would hinder its ability to obtain these materials. In March 1999, the Company acquired Unitog Company (Unitog), a rental and direct sale uniform provider. The Company exchanged 5,072,124 shares of its common stock for all the outstanding stock of Unitog. Unitog had annual revenues of $280 million for their fiscal year ended, January 31, 1999, and uniform rental operations in 20 states and the province of Ontario, Canada. 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. At May 31, 1999, the Company employed approximately 22,000 employees of which approximately 2,000 were represented by labor unions. The Company considers its relationship with its employees to be satisfactory. -3- 4 The table sets forth the revenues derived from each service provided by Cintas.
Year Ended May 31 1999 1998 1997 ---- ---- ---- (in thousands) Rentals $1,297,248 $1,090,577 $946,923 Other Services 454,320 386,368 314,976 ----------------------------------------------------------------------------- $1,751,568 $1,476,945 $1,261,899 -----------------------------------------------------------------------------
ITEM 2. PROPERTIES ---------- The Company occupies 265 facilities located in 199 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 eight distribution facilities and has thirteen manufacturing plants. The Company also operates facilities which distribute first aid products. The Company considers the facilities it operates to be adequate for their intended use. The Company owns or leases 5,928 vehicles. The following chart provides additional information concerning Cintas' facilities: Location Type of Facility -------- ---------------- Cincinnati, Ohio Corporate Offices, National Account Division, Distribution Center, Manufacturing Facility Abbotsford, Vancouver (Canada) Processing Plant Akron, Ohio Processing Plant Albuquerque, New Mexico First Aid Facility Alexandria, Louisiana Branch* Allentown, Pennsylvania Branch* Amarillo, Texas Branch* Angola, Indiana Branch Asheville, North Carolina Branch* Ashland, Kentucky Processing Plant Aston, Pennsylvania Processing Plant Atlanta, Georgia Processing Plant Atlanta, Georgia First Aid Facility Atlanta, Georgia Processing Plant Augusta, Georgia Processing Plant Austin, Texas Processing Plant Baltimore, Maryland Processing Plant Baltimore, Maryland First Aid Facility Barrie, Ontario (Canada) Processing Plant Baton Rouge (North), Louisiana Processing Plant Baton Rouge (South), Louisiana Processing Plant Baton Rouge, Louisiana First Aid Facility Battle Creek, Michigan Processing Plant Battle Creek, Michigan Branch Bay City, Michigan Branch* Beaumont, Texas Processing Plant Bethlehem, Pennsylvania Processing Plant Birmingham, Alabama Branch* Birmingham, Alabama First Aid Facility Birmingham, Alabama Processing Plant -4- 5 Bloomington, Indiana Branch* Boston, Massachusetts Processing Plant Branford, Connecticut Processing Plant Bristol, Pennsylvania Processing Plant Buffalo, New York Processing Plant Burton, Michigan Branch* Cedar Rapids, Iowa Branch* Charles City, Iowa Branch* Charleston, South Carolina Branch* Charlotte, North Carolina First Aid Facility* Charlotte, North Carolina Processing Plant Chattanooga, Tennessee Branch* Chicago (North), Illinois Processing Plant Chicago (South), Illinois Processing Plant Chicago (West), Illinois Processing Plant Chicago, Illinois First Aid Facility Chicago, Illinois Distribution Center Chicago, Illinois Manufacturing Facility Cincinnati, Ohio Processing Plant Cincinnati, Ohio Processing Plant Cincinnati, Ohio First Aid Facility Clay City, Kentucky Manufacturing Facility* Cleveland (East), Ohio Processing Plant Cleveland (West), Ohio Processing Plant Cleveland, Ohio First Aid Facility* Colorado Springs, Colorado Branch* Columbia, South Carolina Processing Plant* Columbus, Ohio Processing Plant Columbus, Ohio Processing Plant Corpus Christi, Texas Processing Plant Dallas, Texas Processing Plant* Dallas, Texas First Aid Facility* Dallas, Texas First Aid Facility Dallas, Texas Processing Plant Davenport, Iowa Branch* Dayton, Ohio Processing Plant Decatur, Alabama Processing Plant* Decatur, Georgia Processing Plant Denver, Colorado Processing Plant Denver, Colorado First Aid Facility* Denver, Colorado First Aid Facility Des Moines, Iowa Branch* Detroit, Michigan First Aid Facility* Detroit, Michigan Processing Plant Detroit, Michigan Processing Plant Eagan, Minnesota Processing Plant Etobicoke, Ontario (Canada) Processing Plant Eugene, Oregon Branch* Evansville, Indiana Processing Plant* Evansville, Indiana Branch* Exton, Pennsylvania Processing Plant Flint, Michigan Branch* Flint, Michigan Branch Fort Meyers, Florida Branch* Fort Smith, Arkansas Processing Plant* Fort Smith, Arkansas Manufacturing Facility Fort Wayne, Indiana Processing Plant Fort Wayne, Indiana Branch Forth Worth, Texas Processing Plant Freeport, Illinois Branch* -5- 6 Gadsen, Alabama Branch* Gaylord, Michigan Processing Plant Glenwood, Iowa Processing Plant Goshen, Indiana Processing Plant* Grand Rapids, Michigan Processing Plant Grand Rapids, Michigan First Aid Facility Grand Rapids, Michigan Processing Plant* Greeley, Colorado Processing Plant Greenville, South Carolina Processing Plant Greenville, South Carolina Processing Plant Greenwood, Mississippi Branch* Griffith, Indiana Branch* Gulfport, Mississippi Branch* Hammond, Louisiana Branch Harligen, Texas Branch* Harrisburg, Pennsylvania Branch* Harrison, Arkansas Branch* Hartford, Connecticut First Aid Facility Hazard, Kentucky Manufacturing Facility* Hazelton, Pennsylvania Branch* Hoisington, Kansas Processing Plant* Houston, Texas First Aid Facility* Houston, Texas Processing Plant Houston, Texas Processing Plant Huntsville, Alabama Branch* Irapuato, Mexico Manufacturing Facility Indianapolis, Indiana Processing Plant Indianapolis, Indiana Processing Plant Indianapolis, Indiana Processing Plant Indianapolis, Indiana Branch* Jackson, Mississippi Branch* Jacksonville, Florida Branch* Jacksonville, Florida First Aid Facility Joplin, Missouri Branch* Kansas City, Kansas Processing Plant Kansas City, Kansas First Aid Facility Kansas City, Kansas First Aid Facility Kansas City, Missouri Processing Plant Kansas City, Missouri Direct Sales Office Kelowna, British Columbia (Canada) Processing Plant Knoxville, Tennessee Branch* Knoxville, Tennessee First Aid Facility* Kokomo, Indiana Processing Plant La Cieba, Honduras Manufacturing Facility Lafayette, Indiana Processing Plant Lafayette, Louisiana Branch Lake Charles, Louisiana Processing Plant Lansing, Michigan Branch* Laredo, Texas Branch* Las Vegas, Nevada Processing Plant Las Vegas, Nevada Processing Plant Lexington, Kentucky Processing Plant Lima, Ohio Branch* Lindsay, Ontario (Canada) Processing Plant Little Rock, Arkansas Processing Plant London, Ontario (Canada) Branch* Long Beach, California Processing Plant Long Island, New York Processing Plant Los Angeles, California Processing Plant Louisville, Kentucky Processing Plant -6- 7 Louisville, Kentucky Processing Plant Louisville, Kentucky First Aid Facility* Lufkin, Texas Branch Madison, Wisconsin Processing Plant Memphis, Tennessee Processing Plant* Meridian, Mississippi First Aid Facility Mexico City, Mexico Manufacturing Facility* Miami, Florida Processing Plant Midland, Michigan Processing Plant Milwaukee, Wisconsin Branch* Milwaukee, Wisconsin First Aid Facility* Minneapolis, Minnesota First Aid Facility* Minneapolis, Minnesota Processing Plant* Minneapolis, Minnesota Processing Plant Mississauga, Ontario (Canada) Processing Plant Mobile, Alabama Branch* Montgomery, Alabama Distribution Center* Montgomery, Alabama Branch* Mt. Vernon, Kentucky Manufacturing Facility* Munice, Indiana Processing Plant N. Hollywood, California Branch Napanee, Ontario (Canada) Processing Plant Nashville, Tennessee Processing Plant Natchez, Mississippi Branch* New Orleans, Louisiana Processing Plant Newark, New Jersey Processing Plant* Newburgh, New York Processing Plant Oakland, California Processing Plant* Oklahoma City, Oklahoma Processing Plant Ontario, California Processing Plant Ontario, California Branch, Distribution Center Orange, California Branch* Orange, California First Aid Facility Orlando, Florida Processing Plant Owingsville, Kentucky Manufacturing Facility Pensacola, Florida Branch* Philadelphia, Pennsylvania Processing Plant Philadelphia, Pennsylvania First Aid Facility Phoenix, Arizona Processing Plant Phoenix, Arizona First Aid Facility* Piscataway, New Jersey Processing Plant Pittsburgh, Pennsylvania Processing Plant Port Huron, Michigan Branch* Portal, Georgia Manufacturing Facility Portland, Maine Branch Portland, Oregon Processing Plant Portland, Oregon First Aid Facility* Queens, New York Branch* Raleigh-Durham, North Carolina Branch* Rancho Santa Margarita, California Direct Sales Office Reno, Nevada Distribution Center* Richmond, Indiana Processing Plant* Richmond, Virginia Processing Plant Rochester, New York Branch* Rockford, Illinois Branch* Sacramento, California Processing Plant Sacramento, California First Aid Facility Salt Lake City, Utah Processing Plant* San Antonio, Texas Processing Plant San Buenaventura, Mexico Manufacturing Facility -7- 8 San Diego, California Processing Plant San Diego, California Processing Plant San Fernando, California Branch* San Francisco, California Branch* San Jose, California Processing Plant San Jose, California Processing Plant San Jose, Costa Rica Manufacturing Facility San Leandro, California First Aid Facility* Sandusky, Ohio Branch* Savannah, Georgia Branch* Scranton, Pennsylvania First Aid Facility* Scranton, Pennsylvania Distribution Center Seattle, Washington Processing Plant Shreveport, Louisiana Processing Plant South Bend, Indiana Processing Plant Springdale, Arkansas Processing Plant Springfield, Missouri Processing Plant Springfield, Ohio Branch* St. Louis, Missouri First Aid Facility* St. Louis, Missouri Processing Plant* St. Louis, Missouri Processing Plant Stevenson, Alabama Distribution Center Stratham, New Hampshire First Aid Facility Sunrise, Florida First Aid Facility Tacoma, Washington Branch* Tampa, Florida Processing Plant Taunton, Massachusetts Branch* Tempe, Arizona Processing Plant Terrre Haute, Indiana Processing Plant Thibodaux, Louisiana Processing Plant Toledo, Ohio Branch* Toledo, Ohio Branch* Toronto, Ontario (Canada) Processing Plant Toronto, Ontario (Canada) Distribution Center Traverse City, Michigan Branch* Tulsa, Oklahoma Processing Plant Tuscaloosa, Alabama Processing Plant Tyler, Texas Branch* Union City, California Processing Plant* Victoria, Texas Processing Plant Victoria, Texas First Aid Facility Vidalia, Georgia Processing Plant Villa Park, Illinois Branch Virginia Beach, Virginia Branch* Warsaw, Indiana Branch* Washington, D.C. Processing Plant West Chester, New York Branch* West Palm Beach, Florida Processing Plant West Valley City, Utah First Aid Facility* Westland, Michigan Processing Plant Whittier, California Processing Plant Wichita, Kansas Branch* Willmar, Minnesota Branch* Winston-Salem, North Carolina Processing Plant Youngstown, Ohio Branch* *Leased for various terms ranging from monthly to 2009. The Company expects that it will be able to renew its leases on satisfactory terms. All other properties are owned. -8- 9 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. In acquiring Unitog in March 1999, the Company became a potentially responsible party, and thus faces the possibility of joint and several liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) in connection with alleged environmental contamination in an area near a rental facility in Tempe, Arizona. This facility, located near the South Indian Bend Wash Federal Superfund (SIBW) site, has been tested for soil and groundwater contamination. The soil testing at the Company's facility detected volatile organic compounds, and the Company immediately took action to remediate such contamination. The United States Environmental Protection Agency (EPA) in March 1999 issued a Record of Decision to the effect that groundwater contamination in the vicinity of the Company's plant does not warrant remediation at this time. Instead, the low levels of groundwater contamination near the Company's facility will be monitored and allowed to attenuate naturally. The Record of Decision requires active groundwater remediation in other parts of the SIBW site, which are believed to be unrelated to the Company. According to the Record of Decision, the EPA estimates that the 30 year net present value of costs to be incurred to remediate and monitor groundwater contamination at the SIBW site is $22 million. It is possible that the EPA will attempt to recover from the potentially responsible parties the costs it has incurred to date with respect to the SIBW site as well as the costs it expects to incur going forward. As part of the Agreement and Plan of Merger between Unitog Company and the Company, the Company performed environmental testing at nine previously untested Unitog laundry facilities. The testing resulted in the discovery of soil and groundwater contamination at certain of these sites. As a result of all of the environmental matters noted above, the Company recorded a charge to operating expense of $5 million during the third quarter of fiscal 1999 to reflect its current estimate of the additional costs to be incurred relative to these sites. At May 31, 1999, the Company has an undiscounted liability of $5.6 million for environmental matters. 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 1999. -9- 10 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 45 of the Registrant's Annual Report to Shareholders for 1999 is incorporated herein by reference. Dividend information is incorporated by reference to the Consolidated Statements of Shareholders' Equity on page 25. Dividends on the outstanding Common Stock are paid annually and amounted to $.22 and $.18 per share in fiscal 1999 and 1998, respectively. During the quarterly period ended May 31, 1999, the Registrant issued 124,876 shares of Common Stock for companies being acquired in 6 separate transactions to the 11 owners of those companies. These issuances were exempt from the registration requirements of the Securities Act of 1933 as private offerings pursuant to Section 4(2) of the Act. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The "Eleven Year Financial Summary" on page 22 of the Registrant's Annual Report to Shareholders for 1999 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 41 of the Registrant's Annual Report to Shareholders for 1999 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ----------------- "Quantitative and Qualitative Disclosure About Market Risk" on page 43 of the Registrant's Annual Report to Shareholders for 1999 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The following Financial Statements of the Registrant shown on pages 23 through 40 of its Annual Report to Shareholders for 1999 are incorporated herein by reference: Consolidated Statements of Income for the years ended May 31, 1999, 1998 and 1997 Consolidated Balance Sheets as of May 31, 1999 and 1998 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended May 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Report of Independent Auditors ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------- None. -10- 11 PART III Items 10., 11., 12., and 13. of Part III are incorporated by reference to the Registrant's Proxy Statement for its 1999 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, 1999. 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. (a) (3) Exhibits. Exhibit Number Description of Exhibit Status Filing ------ ----------------------------- ------ 3.1 Restated Articles of Incorporation (1) 3.2 By-laws (1) Management Compensatory Contracts (Exhibits 10.1-10.12) 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) 10.6 Agreement and Plan of Merger and Reorganization dated (7) January 12, 1998 by and among Uniforms To You and Company, Cintas Merger Sub, Inc. - Illinois, other acquired companies, certain shareholders and Cintas Corporation 10.7 Agreement and Plan of Merger dated January 9,1999 by and (8) among Unitog Company, Cintas Image Acquisition Company and Cintas Corporation -11- 12 10.8 Amendment No. 1 to Agreement and Plan of Merger dated (9) March 23, 1999 by and among Unitog Company, Cintas Image Acquisition Company and Cintas Corporation 10.9 Unitog Company 1992 Stock Option Plan (10) 10.10 Amendment No. 1 to Unitog Company 1992 Stock Option Plan (11) 10.11 Unitog Company 1997 Stock Option Plan (12) 10.12 Amendments to the Articles of Incorporation of Cintas Corporation (13) 13 1999 Annual Report to Shareholders (a) filed herewith 21 Subsidiaries of the Registrant filed herewith 23 Consent of Independent Auditors filed herewith 27 Financial Data Schedule - Twelve Months Ended filed herewith May 1999 (a) Only portions of the 1999 Annual Report to Shareholders specifically incorporated by reference are filed herewith. A supplemental paper copy of this report will be provided to the SEC for informational purposes. (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. (7) Incorporated by reference to the Company's Form 8-K dated April 8, 1998. (8) Incorporated by reference to the Unitog Company's Form 8-K dated January 9, 1999. (9) Incorporated by reference to the Company's Form 8-K dated March 24, 1999. (10) Incorporated by reference to the Unitog Company's Form 10-K for the fiscal year ended January 26, 1992. -12- 13 (11) Incorporated by reference to the Unitog Company's Form 10-K for the fiscal year ended January 30, 1994. (12) Incorporated by reference to the Unitog Company's 1997 Proxy Statement. (13) Incorporated by reference to the Company's 1994 Proxy Statement. -13- 14 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, 1999 /s/ Robert J. Kohlhepp By: Robert J. Kohlhepp ------------------ 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 ------------------- of Directors August 26, 1999 Richard T. Farmer /s/ Robert J. Kohlhepp Chief Executive ------------------- Officer and Director August 26, 1999 Robert J. Kohlhepp /s/ Scott D. Farmer President, Chief Operating ------------------- Officer and Director August 26, 1999 Scott D. Farmer /s/ James J. Gardner Director August 26, 1999 ------------------- James J. Gardner /s/ Donald P. Klekamp Director August 26, 1999 ------------------- Donald P. Klekamp /s/ William C. Gale Vice President and Chief ------------------- Financial Officer (Principal William C. Gale Financial and Accounting Officer) August 26, 1999 -14- 15 CINTAS CORPORATION Schedule II - Valuation and Qualifying Accounts and Reserves (In Thousands)
ADDITIONS ------------------------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING OF COSTS AND OTHER AT END OF DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR ----------- -------------------------------------------------------------------- May 31, 1997: Allowance for Doubtful Accounts $ 4,550 $ 4,272 $ 530 $ 2,607 $ 6,745 ======= ======= ======= ======= ======= Reserve for Obsolete Inventory $17,541 $ 4,813 $ 13 $ 3,629 $18,738 ======= ======= ======= ======= ======= May 31, 1998 Allowance for Doubtful Accounts $ 6,745 $ 3,206 $ 960 $ 2,933 $ 7,978 ======= ======= ======= ======= ======= Reserve for Obsolete Inventory $18,738 $ 6,899 $ 1,033 $ 3,348 $23,322 ======= ======= ======= ======= ======= May 31, 1999 Allowance for Doubtful Accounts $ 7,978 $ 3,576 $ 1,447 $ 4,247 $ 8,754 ======= ======= ======= ======= ======= Reserve for Obsolete Inventory $23,322 $13,104 $ 1,930 $ 6,503 $31,853 ======= ======= ======= ======= =======
(A) Uncollectible Accounts Charged-off, Net of Recoveries. -15- EX-13 2 EXHIBIT 13 1 EXHIBIT 13 ELEVEN YEAR FINANCIAL SUMMARY - ----------------------------- Years Ended May 31 (In thousands except per share data)
1989 1990 1991 1992 1993 1994 - ---------------------------------------------------------------------------------------------------- Net Revenue $447,995 518,948 569,583 621,041 711,663 803,009 Net Income $ 30,431 33,716 35,261 45,744 54,956 67,141 Pro Forma Net Income (1) $ 28,633 32,761 34,063 45,151 53,374 64,459 Basic EPS $0.32 0.34 0.36 0.46 0.54 0.66 Diluted EPS $0.32 0.34 0.36 0.46 0.53 0.65 Pro Forma Basic EPS (1) $0.30 0.33 0.34 0.45 0.53 0.63 Pro Forma Diluted EPS (1) $0.30 0.33 0.34 0.45 0.52 0.62 Dividends Per Share $0.03 0.04 0.05 0.06 0.07 0.09 Total Assets $351,816 410,628 467,608 501,769 634,197 700,872 Shareholders' Equity $162,818 203,156 233,693 273,501 324,562 409,053 Return on Average Equity 20.1% 17.9% 15.6% 17.8% 17.8% 17.6% Long-Term Debt $99,589 116,148 130,967 122,372 158,311 132,929
10 Year Compd 1995 1996 1997 1998 1999 Growth - ---------------------------------------------------------------------------------------------------- Net Revenue 929,534 1,103,492 1,261,899 1,476,945 1,751,568 14.6% Net Income 85,413 98,956 118,557 133,654 138,939 16.4% Pro Forma Net Income (1) 80,752 94,151 112,763 128,704 138,939 17.1% Basic EPS 0.83 0.96 1.13 1.25 1.26 14.7% Diluted EPS 0.82 0.94 1.12 1.23 1.23 14.4% Pro Forma Basic EPS (1) 0.78 0.91 1.08 1.20 1.26 15.4% Pro Forma Diluted EPS (1) 0.77 0.90 1.06 1.18 1.23 15.2% Dividends Per Share 0.10 0.13 0.15 0.18 0.22 22.0% Total Assets 816,508 996,046 1,101,182 1,305,400 1,407,818 14.9% Shareholders' Equity 481,654 553,701 650,603 756,795 871,423 18.3% Return on Average Equity 18.1% 18.2% 18.7% 18.8%(2) 20.5%(2) Long-Term Debt 164,332 237,550 227,799 307,633 283,581
Note: Results prior to March 24, 1999, have been restated to include Unitog Company. Results prior to April 8, 1998, have also been restated to include Uniforms To You Companies. Results prior to October 1, 1991, have also been restated to include Rental Uniform Service of Greenville, S.C., Inc. (1) Results for 1998 and prior years were adjusted on a pro forma basis to reflect the true tax impact of Uniforms To You as if it had been reported as a C Corporation prior to the merger with Cintas. (2) Return on average equity before one-time items. Please refer to Managements Discussion and Analysis for additional information. [MAP] 2 CONSOLIDATED STATEMENTS OF INCOME --------------------------------- Years Ended May 31 (In thousands except per share data)
1999 1998 1997 (Restated) (Restated) - ------------------------------------------------------------------------------------------------------- Revenue: Rentals $ 1,297,248 $ 1,090,577 $ 946,923 Other services 454,320 386,368 314,976 ----------- ----------- ----------- 1,751,568 1,476,945 1,261,899 Costs and expenses (income): Cost of rentals 758,063 644,809 566,021 Cost of other services 308,643 261,501 214,066 Selling and administrative expenses 403,580 345,664 287,663 Acquisition-related expenses 12,088 17,116 553 Special charge 28,429 -- -- Environmental charge 5,000 -- -- Interest income (4,671) (4,825) (4,449) Interest expense 16,442 15,824 16,033 ----------- ----------- ----------- 1,527,574 1,280,089 1,079,887 ----------- ----------- ----------- Income before income taxes 223,994 196,856 182,012 Income taxes 85,055 63,202 63,455 ----------- ----------- ----------- Net income $ 138,939 $ 133,654 $ 118,557 ----------- ----------- ----------- Basic earnings per share $1.26 $1.25 $1.13 ----------- ----------- ----------- Diluted earnings per share $1.23 $1.23 $1.12 ----------- ----------- ----------- Dividends declared and paid per share $ .22 $ .18 $ .15 ----------- ----------- ----------- Net income $ 138,939 $ 133,654 $ 118,557 Pro forma adjustment for income taxes -- 4,950 5,794 ----------- ----------- ----------- Pro forma net income $ 138,939 $ 128,704 $ 112,763 ----------- ----------- ----------- Pro forma basic earnings per share $1.26 $1.20 $1.08 ----------- ----------- ----------- Pro forma diluted earnings per share $1.23 $1.18 $1.06 ----------- ----------- -----------
See accompanying notes. 3
CONSOLIDATED BALANCE SHEETS --------------------------- As of May 31 (In thousands except per share data) 1999 1998 (Restated) - -------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 15,803 $ 13,423 Marketable securities 72,315 88,154 Accounts receivable, principally trade, less allowance of $8,754 and $7,978, respectively 202,079 185,938 Inventories 137,983 129,655 Uniforms and other rental items in service 200,154 181,415 Prepaid expenses 6,151 5,524 ---------- ---------- Total current assets 634,485 604,109 Property and equipment, at cost, net 573,087 488,971 Other assets 200,246 212,320 ---------- ---------- $1,407,818 $1,305,400 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 46,783 $ 54,275 Accrued compensation and related liabilities 25,521 21,470 Accrued liabilities 83,209 70,908 Deferred income taxes 40,214 43,745 Long-term debt due within one year 16,370 11,741 ---------- ---------- Total current liabilities 212,097 202,139 Long-term debt due after one year 283,581 307,633 Deferred income taxes 40,717 38,833 Shareholders' equity: Preferred stock, no par value: 100,000 shares authorized, none outstanding -- -- Common stock, no par value: 300,000,000 shares authorized, 110,949,274 and 109,793,716 shares issued and outstanding, respectively 49,974 47,062 Retained earnings 825,268 712,249 Other accumulated comprehensive income (loss) (3,819) (2,516) ---------- ---------- Total shareholders' equity 871,423 756,795 ---------- ---------- $1,407,818 $1,305,400 ---------- ----------
See accompanying notes. 4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
Other Common stock Accumulated Total ---------------------- Retained Comprehensive Shareholders' Shares Amount Earnings Income (Loss) Equity - ------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1996 98,357 $43,917 $422,446 $ (834) $ 465,529 Adjustment for pooling of interests 5,282 96 88,076 -- 88,172 --------- --------- --------- --------- --------- Balance at May 31, 1996, as restated 103,639 44,013 510,522 (834) 553,701 Net income -- -- 118,557 -- 118,557 Equity adjustment for foreign currency translation -- -- -- (191) (191) --------- Comprehensive income 118,366 --------- Dividends -- -- (15,634) -- (15,634) Distributions to S Corporation shareholders -- -- (13,764) -- (13,764) Effects of acquisitions 1,758 -- 5,375 -- 5,375 Stock options exercised net of shares surrendered 418 1,121 1,177 -- 2,298 Tax benefit resulting from exercise of employee stock options -- 261 -- -- 261 --------- --------- --------- --------- --------- Balance at May 31, 1997, as restated 105,815 45,395 606,233 (1,025) 650,603 Net income -- -- 133,654 -- 133,654 Equity adjustment for foreign currency translation -- -- -- (1,491) (1,491) --------- Comprehensive income 132,163 --------- Dividends -- -- (19,082) -- (19,082) Distributions to S Corporation shareholders -- -- (12,423) -- (12,423) Effects of acquisitions 3,850 13 11,657 -- 11,670 Repurchase of common stock (147) -- (7,971) -- (7,971) Stock options exercised net of shares surrendered 276 897 181 -- 1,078 Tax benefit resulting from exercise of employee stock options -- 57 -- -- 757 --------- --------- --------- --------- --------- Balance at May 31, 1998, as restated 109,794 47,062 712,249 (2,516) 756,795 Net income -- -- 138,939 -- 138,939 Equity adjustment for foreign currency translation -- -- -- (1,303) (1,303) --------- Comprehensive income 137,636 --------- Adjustment to conform Unitog Company's fiscal year -- -- 689 -- 689 Dividends -- -- (24,942) -- (24,942) Effects of acquisitions 981 13 2,072 -- 2,085 Repurchase of common stock (95) -- (3,739) -- (3,739) Stock options exercised net of shares surrendered 269 2,309 -- -- 2,309 Tax benefit resulting from exercise of employee stock options -- 590 -- -- 590 --------- --------- --------- --------- --------- Balance at May 31, 1999 110,949 $49,974 $825,268 $ (3,819) $ 871,423 --------- --------- --------- --------- ---------
See accompanying notes. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Years Ended May 31 (In thousands)
1999 1998 1997 (Restated) (Restated) - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $138,939 $133,654 $ 118,557 Adjustment to conform Unitog Company's fiscal year 689 -- -- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 68,779 56,791 47,527 Amortization of deferred charges 21,449 18,542 18,828 Write down of assets 12,609 -- -- Deferred income taxes (1,356) 13,443 9,857 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (14,484) (24,227) (16,333) Inventories (5,897) (23,461) (5,684) Uniforms and other rental items in service (17,898) (25,632) (11,546) Prepaid expenses (537) (5,447) 88 Accounts payable (15,089) (5,132) (4,179) Accrued compensation and related liabilities 3,559 5,730 1,263 Accrued liabilities 12,299 (1,586) 3,632 -------- -------- -------- Net cash provided by operating activities 203,062 142,675 162,010 Cash flows from investing activities: Capital expenditures (171,248) (128,566) (86,209) Proceeds from sale or redemption of marketable securities 235,400 117,342 49,290 Purchase of marketable securities (225,189) (116,841) (64,468) Acquisitions of businesses, net of cash acquired (15,588) (27,456) (18,981) Proceeds from divestiture of certain facilities 19,911 -- -- Other (2,785) (899) 274 -------- -------- -------- Net cash used in investing activities (159,499) (156,420) (120,094) Cash flows from financing activities: Proceeds from issuance of long-term debt 65,778 73,483 9,699 Repayment of long-term debt (85,502) (25,662) (18,148) Stock options exercised 2,309 1,078 2,298 Dividends paid (24,942) (19,082) (15,634) Distribution to S Corporation shareholders -- (12,423) (13,764) Other common stock activity (562) (5,793) -- Other 1,736 (2,065) (1,689) -------- -------- -------- Net cash (used in) provided by financing activities (41,183) 9,536 (37,238) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 2,380 (4,209) 4,678 Cash and cash equivalents at beginning of year 13,423 17,632 12,954 -------- -------- -------- Cash and cash equivalents at end of year $ 15,803 $ 13,423 $ 17,632 -------- -------- --------
See accompanying notes. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Amounts in thousands except per share and share data) 1. SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Business description. Cintas classifies its businesses into two operating segments: Rentals and Other Services. The Rental operating segment designs and manufactures corporate identity uniforms which it rents, along with other items, to its customers. The Other Services operating segment involves the design, manufacture and direct sale of uniforms to its customers as well as the sale of ancillary services including sanitation supplies, first aid products and services and cleanroom supplies. All of these services are provided throughout the United States and Canada to businesses of all types-from small service and manufacturing 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. 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. Financial results could differ from those estimates. Cash and cash equivalents. 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 thirty-six months. Property and equipment. Depreciation is calculated using the straight-line method over the following estimated useful lives, in years: Buildings and Improvements 5 to 40 Equipment 3 to 10 Leasehold Improvements 2 to 5 Long-lived assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Other assets. Other assets consist primarily of service contracts and noncompete and 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 three to twelve years, and goodwill, which is amortized using the straight-line method over twenty to forty years. Stock options. The Company applies the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been reflected in the financial statements as the exercise price of options granted to employees is equal to the fair market value of the Company's common stock on the date of grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation. Interest rate swap agreements. Periodic settlements under interest rate swap agreements are recognized as adjustments to interest expense for the relevant periods. Revenue recognition. Rental revenue is recognized when services are performed and other services revenue is recognized when products are shipped. The Company also establishes an estimate of allowances for uncollectible accounts when revenue is recorded. 7 Pro forma adjustment for income taxes. During fiscal 1998, the Company acquired Uniforms To You Companies (UTY) in a merger transaction accounted for as a pooling of interests. Prior to the merger, UTY had elected S Corporation status for income tax purposes. As a result of the merger, UTY terminated its S Corporation election. The pro forma adjustment for income taxes presents the pro forma tax expense of UTY as if UTY had been a C Corporation during the financial statement periods presented. Fair value of financial instruments. The following methods and assumptions were used by the Company in estimating the fair value of financial instruments: Cash and cash equivalents. The amounts reported approximate market value. Marketable securities. The amounts reported are at cost, which approximate market value. Market values are based on quoted market prices. Long-term debt. The amounts reported are at carrying value which approximate market value. Market values are determined using similar debt instruments currently available to the Company that are consistent with the terms, interest rates and maturities. Other accumulated comprehensive income. The Company has adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This pronouncement establishes standards for reporting items that affect shareholders' equity but are not components of reported net income. The Company's only component of comprehensive income is foreign currency translation adjustment. Other accounting pronouncements. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. This pronouncement which becomes effective in fiscal 2002 is presently being reviewed by the Company and is not expected to have a material effect on the Company's financial position or results of operations, although it may result in additional disclosures in the future. 2. MARKETABLE SECURITIES - -------------------------------------------------------------------------------- All marketable securities are comprised of debt securities and classified as available-for-sale. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income. The cost of the securities sold is based on the specific identification method. Interest on securities classified as available-for-sale is included in interest income. The following is a summary of marketable securities:
1999 1998 - ---------------------------------------------------------------------------------------------------------------- Estimated Estimated Cost Fair Value Cost Fair Value ---- ---------- ---- ---------- Obligations of state and political subdivisions $42,579 $42,616 $65,791 $65,757 U.S. Treasury securities and obligations of U.S. government agencies 3,414 3,383 4,938 4,918 Other debt securities 26,322 26,299 17,425 17,504 ------- ------- ------- ------- $72,315 $72,298 $88,154 $88,179 ======= ======= ======= =======
The gross realized gains on sales of available-for-sale securities totaled $241, $84 and $31 for the years ended May 31, 1999, 1998 and 1997, and the gross realized losses totaled $25, $25 and $96, respectively. Net unrealized (losses)/gains are $(17) and $25 at May 31, 1999 and 1998, respectively. The amortized cost and estimated fair value of debt and marketable securities at May 31, 1999, 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.
Estimated Cost Fair Value - ---------------------------------------------------------------------------------------------------------------- Due in one year or less $ 42,572 $ 42,622 Due after one year through three years 25,794 25,747 Due after three years 3,949 3,929 -------- -------- $ 72,315 $ 72,298 ======== ========
8
3. PROPERTY AND EQUIPMENT - ----------------------------------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------------- ---------- Land $ 48,868 $ 41,550 Buildings and improvements 277,176 225,313 Equipment 473,839 426,337 Leasehold improvements 9,993 8,467 Construction in progress 45,480 53,749 -------- -------- 855,356 755,416 Less: accumulated depreciation 282,269 266,445 -------- -------- $573,087 $488,971 -------- --------
4. OTHER ASSETS - ----------------------------------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------------- ---------- Goodwill $115,936 $116,027 Service contracts 109,447 103,178 Noncompete and consulting agreements 57,203 57,823 -------- -------- 282,586 277,028 Less: accumulated amortization 96,734 81,756 -------- -------- 185,852 195,272 Other 14,394 17,048 -------- -------- $200,246 $212,320 -------- --------
5. LONG-TERM DEBT - ----------------------------------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------------- ---------- Secured and unsecured term notes due through 2003 at an average rate of 9.90% $ 11,741 $ 36,257 Unsecured revolving note due in 2001 at a rate of 5.20% 10,000 10,000 Unsecured term notes due through 2026 at an average rate of 6.23% 99,299 91,429 Unsecured notes due through 2009 at an average rate of 6.10% 160,010 159,930 Industrial development revenue bonds due through 2013 at an average rate of 4.60% 15,705 19,768 Other 3,196 1,990 -------- -------- 299,951 319,374 Less: amounts due within one year 16,370 11,741 -------- -------- $283,581 $307,633 ======== ========
Debt in the amount of $20,660 is secured by assets with a carrying value of $23,759 at May 31, 1999. The Company has letters of credit outstanding at May 31, 1999 approximating $11,855. Maturities of long-term debt during each of the next five years are: $16,370, $177,104, $40,114, $18,034 and $15,506, respectively. The Company has available on a revolving basis up to $25 million due in 2001 at interest rates targeted to approximate LIBOR. The Company has entered into two interest rate swap agreements to manage its exposure to changes in short-term interest rates. The first agreement totals $10 million, expires in March 2001 and allows the Company to pay an effective interest rate of approximately 6.16%. The second agreement totals $35 million, expires in October 2000 and allows the Company to pay an effective interest rate of approximately 4.6%. Interest expense is net of capitalized interest of $2,081, $1,808 and $1,022 for the years ended May 31, 1999, 1998 and 1997, respectively. Interest paid, net of amount capitalized, was $16,586, $15,189 and $16,468 for the years ended May 31, 1999, 1998 and 1997, respectively. 9 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. It is anticipated that leases that expire will be renewed or replaced. The minimum rental payments under noncancelable lease arrangements for each of the next five years and thereafter are: $9,587, $7,491, $5,972, $5,035, $4,091 and $13,743, respectively. Rent expense under operating leases during the years ended May 31, 1999, 1998 and 1997 was $14,018, $11,390 and $9,650, respectively.
7. INCOME TAXES - -------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------- -------- -------- Income taxes consist of the following components: Current Federal $ 75,304 $ 53,856 $ 46,486 State and local 11,177 7,061 7,107 -------- -------- -------- 86,481 60,917 53,593 Deferred (1,426) 2,285 9,862 -------- -------- -------- $ 85,055 $ 63,202 $ 63,455 -------- -------- --------
1999 1998 1997 - ------------------------------------------------------------------------------------------------- -------- -------- 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 $ 78,398 $ 68,900 $ 63,704 State and local income taxes, net of federal benefit 8,156 7,073 6,123 Nontaxable income earned (793) (1,201) (1,048) Tax credits (500) (288) (206) Nontaxable items of the Company acquired in pooling of interests -- (5,050) (5,931) Deferred tax benefit arising from pooling of interests (961) (8,280) -- Other 755 2,048 813 -------- --------- -------- $ 85,055 $ 63,202 $ 63,455 ======== ========= ========= The components of deferred income taxes included on the balance sheets are as follows:
1999 1998 - ------------------------------------------------------------------------------------------------- -------- -------- Deferred tax assets: Employee benefits $ 9,179 $ 7,236 Severance and other acquisition-related items 7,275 -- Allowance for bad debts and other 16,417 13,346 -------- -------- 32,871 20,582 Deferred tax liabilities: In service inventory 71,276 63,084 Depreciation 41,149 37,353 Other 1,377 2,723 -------- -------- 113,802 103,160 -------- -------- Net deferred tax liability $ 80,931 $ 82,578 -------- --------
Income taxes paid were $77,381, $59,599 and $50,657 for the years ended May 31, 1999, 1998 and 1997, respectively. 10 8. ACQUISITIONS - -------------------------------------------------------------------------------- During the year ended May 31, 1999, the Company completed several acquisitions two of which were significant and were accounted for as a pooling of interests. During the year ended May 31, 1998, the Company completed several acquisitions nine of which were significant. Eight of these acquisitions were accounted for as a pooling of interests and one as a purchase. Pooling of Interests The impact of one of the 1999 pooling of interests transactions and seven of the 1998 pooling of interests transactions on the Company's historical consolidated financial statements were not material, consequently, prior period and current year financial statements have not been restated for these transactions. In March 1999, the Company acquired Unitog Company (Unitog), a rental and direct sale uniform provider. The Company exchanged 5,072,124 shares of its common stock for all the outstanding stock of Unitog. The acquisition was treated as a pooling of interests for accounting purposes and the accompanying consolidated financial statements were restated at that time to include the financial position and operating results of Unitog for all periods prior to the merger. In accordance with the pooling of interests method of accounting, no adjustment has been made to the historical carrying amount of assets and liabilities of Unitog. As the Company and Unitog had different year ends at the time of the acquisition, the consolidated statements combine the consolidated financial position of the Company at May 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for the fiscal years ended May 31, 1999, 1998 and 1997 with the financial position of Unitog at May 31, 1999 and April 26, 1998 and the recasted results of its operations for the fiscal years ended April 30, 1999, April 26, 1998 and April 27, 1997 and its cash flows for the periods ended May 31, 1999, April 26, 1998 and April 27, 1997. Due to the different fiscal year-ends, retained earnings includes an adjustment to record Unitog's net income for the month ended May 31, 1999, which is not included in the consolidated financial statements for any fiscal period. For this period, Unitog had revenue of $19,544, operating expenses of $17,944 including $1,424 of depreciation and amortization and net income of $689. A reconciliation of revenue, pro forma net income, and pro forma basic and diluted earnings per share of Cintas (as previously reported), Unitog, and combined is as follows:
- ------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------- ---------- ---------- Revenue: Cintas (as previously reported) $1,198,307 $ 995,207 Unitog 278,638 266,692 ---------- ---------- ---------- Combined $1,751,568 $1,476,945 $1,261,899 ---------- ---------- ---------- Pro forma net income: Cintas (as previously reported) $ 117,907 $ 100,194 Unitog 10,797 12,569 ---------- ---------- ---------- Combined $ 138,939 $ 128,704 $ 112,763 ---------- ---------- ---------- Pro forma basic earnings per share: Cintas (as previously reported) $1.16 $1.01 ---------- ---------- ---------- Combined $1.26 $1.20 $1.08 ---------- ---------- ---------- Pro forma diluted earnings per share: Cintas (as previously reported) $1.14 $.99 ---------- ---------- ---------- Combined $1.23 $1.18 $1.06 ---------- ---------- ----------
In accordance with accounting rules for pooling of interests transactions, charges to operating income for acquisition-related expenses relating to this merger approximate $11,000 ($7,000 after tax). They primarily consist of investment banking fees, a pre-established retention program for certain employees and professional service fees. The remaining acquisition-related expenses were for other acquisition activity during the year. 11 In April 1998, the Company acquired Uniforms To You (UTY), a direct sale uniform provider. The acquisition was accounted for using the pooling of interests method of accounting. The Company exchanged 3,959,262 shares of its common stock for all the outstanding stock of UTY. In accordance with the pooling of interests method of accounting, no adjustment was made to the historical carrying amount of assets and liabilities of UTY. The accompanying consolidated financial statements were restated for the year ended May 31, 1998 to include the financial position and operating results of UTY for all periods prior to the merger. In accordance with accounting rules for pooling of interests transactions, charges to operating income for acquisition-related expenses were recorded upon completion of the pooling acquisitions. These acquisition-related expenses totaled $16,000 ($11,000 after tax) for the UTY transaction and primarily consisted of a pre-established compensation program for UTY's senior executives. The remaining acquisition-related expenses were for other acquisition activity during the year. Purchases For all acquisitions accounted for as purchases, including insignificant acquisitions, the purchase price paid for each has been allocated to the fair value of the assets acquired and liabilities assumed. The following summarizes the aggregate purchase price for all businesses acquired which have been accounted for as purchases:
1999 1998 - --------------------------------------------------------------- ------- Fair value of assets acquired $18,941 $51,242 Liabilities assumed and incurred 3,756 1,787 ------- ------- Total cash paid for acquisitions $15,185 $49,455 ------- -------
The results of operations for the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The pro forma revenue, net income and earnings per share information for acquired businesses are not presented because they are not material. 9. DEFINED CONTRIBUTION PLANS - -------------------------------------------------------------------------------- The Company's Partners' Plan (the Plan) is a non-contributory profit sharing plan and ESOP for the benefit of certain 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, as well as the matching contribution to the 401(k), are made at the discretion of the Company. Total contributions, including the Company's matching contributions, were $12,100, $8,820 and $7,331 for the years ended May 31, 1999, 1998 and 1997, respectively. The Company also sponsors contributory thrift plans (thrift plans) covering certain salaried and clerical employees and certain employees subject to collective bargaining agreements. Under the provisions of these thrift plans, employees are permitted to contribute a maximum of 6% of their earnings and the Company makes matching contributions of 25% to 50%. Employees may make additional unmatched contributions to the plan of up to 9% of their earnings. The Company's contributions to these thrift plans were $1,191, $1,200 and $1,100 for the fiscal years ended May 31, 1999, 1998 and 1997, respectively. 10. EARNINGS PER SHARE - -------------------------------------------------------------------------------- Earnings per share and pro forma earnings per share are computed in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share. The basic computations are calculated based on the weighted average number of common shares outstanding during each period. The diluted computations reflect the potential dilution that could occur if stock options were exercised into common stock, under certain circumstances, that then would share in the earnings of the Company. 12 The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective years:
1999 1998 1997 - ---------------------------------------------------------------------------------------- -------- -------- Numerator: Net income $138,939 $133,654 $118,557 -------- -------- -------- Denominator: Denominator for basic earnings per share - weighted average shares (000Os) 110,402 107,025 104,528 Effect of dilutive securities - employee stock options (000Os) 2,492 1,911 1,551 Denominator for diluted earnings per share - -------- -------- ------- adjusted weighted average shares and assumed conversions (000Os) 112,894 108,936 106,079 -------- -------- -------- Basic earnings per share $1.26 $1.25 $1.13 -------- -------- -------- Diluted earnings per share $1.23 $1.23 $1.12 -------- -------- --------
On October 22, 1997, the Board of Directors approved a two-for-one common stock split effective November 18, 1997. All share and per share information has been adjusted to retroactively reflect the effect of this stock split for all periods presented. 11. STOCK BASED COMPENSATION - -------------------------------------------------------------------------------- Under the 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 4,600,000 shares of the Company's common stock. Options are 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. Options outstanding under this plan at May 31, 1999 are 3,862,107. As a result of the Unitog acquisition in March 1999, the Company retained a non-qualified stock option plan for certain of its employees. The exercise price of the options granted under this plan is the fair market value at date of grant and the options vest ratably over four years and expire ten years after the date of grant. Certain provisions of the plan require immediate vesting and a cash settlement, as opposed to the issuance of common stock, upon termination of the option holders' employment prior to March 24, 2000. The total compensation expense under this arrangement recorded during the fourth quarter of 1999 was $5,100 of which $4,300 has been paid. The information presented in the following table relates primarily to stock options granted and outstanding under either the plan adopted in fiscal 1993 or under a similar plan which expired in June 1993:
Weighted Average Shares Exercise Price - --------------------------------------------------------------------------------------------------------------------- Outstanding May 31, 1996 (540,622 shares exercisable) 3,064,870 $ 13.98 Granted 799,413 26.22 Cancelled (128,676) 15.20 Exercised (313,445) 7.09 Outstanding May 31, 1997 (505,282 shares exercisable) 3,422,162 17.44 Granted 1,163,069 36.45 Cancelled (158,005) 22.88 Exercised (297,985) 8.00 Outstanding May 31, 1998 (445,946 shares exercisable) 4,129,241 23.24 Granted 413,450 49.35 Cancelled (199,983) 30.22 Exercised (395,257) 17.58 Outstanding May 31, 1999 (415,520 shares exercisable) 3,947,451 $ 26.20
13 \ The following table summarizes the restated information related to stock options outstanding at May 31, 1999:
Outstanding Options Exercisable Options ------------------- ------------------- Average Weighted Weighted Range of Remaining Average Average Exercise Number Option Exercise Number Exercise Price Outstanding Life Price Exercisable Price ---------------- ----------- ---- ------- ----------- ------- $ 6.08 - $18.38 1,215,607 3.72 $ 13.14 284,607 $ 10.41 19.19 - 34.88 1,323,115 6.58 22.87 106,415 22.20 35.31 - 76.06 1,408,729 8.41 39.65 24,498 19.32 ----------------- ---------- ----- ------- -------- ------- $ 6.08 - $76.06 3,947,451 6.41 $ 26.20 415,520 $ 16.07 ----------------- ---------- ----- ------- -------- -------
At May 31, 1999, 974,220 shares of common stock are reserved for future issuance. Pro forma information regarding earnings and earnings per share is required by Statement No. 123 and has been determined as if the Company had accounted for its stock options granted subsequent to May 31, 1995 under the fair value method of that Statement. The weighted average fair value of stock options granted during 1999, 1998 and 1997 was $21.13, $15.09 and $11.94, respectively. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
1999 1998 1997 - ---------------------------------------------------------- ----- ----- Risk free interest rate 5.50% 5.50% 6.63% Dividend yield .32% .45% .53% Expected volatility of the Company's common stock 27% 24% 26% Expected life of the option in years 9 8 8.5 ----- ----- -----
The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are freely transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in the Company's opinion existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows:
1999 1998 1997 - ----------------------------------------------------------------------------- ----- ----- Net income: As reported $ 138,939 $ 133,654 $ 118,557 Pro forma for Statement No. 123 $ 135,506 $ 130,797 $ 117,207 Earnings per share: Pro forma basic earnings per share for Statement No. 123 $ 1.23 $ 1.22 $ 1.12 Pro forma diluted earnings per share for Statement No. 123 $ 1.20 $ 1.20 $ 1.11 --------- --------- --------- The effects of providing pro forma disclosure are not representative of earnings reported for future years.
14 12. LITIGATION AND ENVIRONMENTAL MATTERS - -------------------------------------------------------------------------------- The Company is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such actions will not materially adversely affect the financial position or results of operations of the Company. In acquiring Unitog in March 1999, the Company became a potentially responsible party, and thus faces the possibility of joint and several liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) in connection with alleged environmental contamination in an area near a rental facility in Tempe, Arizona. This facility, located near the South Indian Bend Wash Federal Superfund (SIBW) site, has been tested for soil and groundwater contamination. The soil testing at the Company's facility detected volatile organic compounds, and the Company immediately took action to remediate such contamination. The United States Environmental Protection Agency (EPA) in March 1999 issued a Record of Decision to the effect that groundwater contamination in the vicinity of the Company's plant does not warrant remediation at this time. Instead, the low levels of groundwater contamination near the Company's facility will be monitored and allowed to attenuate naturally. The Record of Decision requires active groundwater remediation in other parts of the SIBW site, which are believed to be unrelated to the Company. According to the Record of Decision, the EPA estimates that the 30 year net present value of costs to be incurred to remediate and monitor groundwater contamination at the SIBW site is $22,000. It is possible that the EPA will attempt to recover from the potentially responsible parties the costs it has incurred to date with respect to the SIBW site as well as the costs it expects to incur going forward. As part of the Agreement and Plan of Merger between Unitog Company and the Company, the Company performed environmental testing at nine previously untested Unitog laundry facilities. The testing resulted in the discovery of soil and groundwater contamination at certain of these sites. As a result of all of the environmental matters noted above, the Company recorded a charge to operating expense of $5,000 during the third quarter of fiscal 1999 to reflect its current estimate of the additional costs to be incurred relative to these sites. At May 31, 1999, the Company has an undiscounted liability of $5,600 for environmental matters. 13. SPECIAL CHARGE - -------------------------------------------------------------------------------- As a result of the acquisition of Unitog in March 1999, the Company developed a plan during the fourth quarter of fiscal 1999 to integrate Unitog into the Company and close duplicate facilities. The plan was formally approved on May 28, 1999 with the intention to position the Company to improve service to its customers and achieve higher profitability. The plan primarily relates to the decision to: (1) exit certain duplicate rental and manufacturing facilities resulting in asset write downs to estimated fair value, lease abandonments and costs to sever employees and (2) sell the Unitog headquarters in Kansas City, Missouri, resulting in asset write downs to their fair value upon sale and costs to sever employees. Accordingly, the Company recognized a special charge of $28,429, $17,626 after income taxes and $.16 per share during 1999. Details of the special charge are as follows:
Accrual at Special Charge Activity May 31, 1999 - --------------------------------------------------------------- -------- ------------ Severance $15,820 $ 9,772 $ 6,048 Asset write downs 12,609 12,609 -- ------- ------- ------- Total $28,429 $22,381 $ 6,048 ======= ======= =======
15 Asset write downs associated with the exit of certain redundant rental and manufacturing facilities relate to the consolidation of facilities in areas where the Company has sufficient capacity in existing facilities to meet anticipated requirements. The asset write down associated with the sale of the Unitog headquarters relates to the closure of the facility and relocating these business functions to the Company's headquarters in Cincinnati, Ohio. The closure of the redundant rental and manufacturing facilities is expected to be completed by the end of fiscal 2000 and the sale of the Unitog headquarters is expected to be completed by May 31, 2003. The assets are classified as held and used. In determining the asset write downs, the fair value of the assets to be held and used was determined primarily using appraised values. The carrying value of the assets to be held and used at May 31, 1999 is $32.8 million. The adjusted carrying value of the assets will be depreciated over the remaining life of the assets. Severance costs include the cost of separation payments to certain employees who have been or will be terminated. The elimination of the positions is expected to be substantially completed by the end of fiscal 2000. 14. SEGMENT INFORMATION - -------------------------------------------------------------------------------- On June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. This standard established new rules for public companies relating to the reporting of financial and descriptive information about their operating segments in financial statements. This standard did not have a material effect on the financial statements, but did affect the disclosure of segment information contained elsewhere therein. Cintas classifies its businesses into two operating segments: Rentals and Other Services. The Rental operating segment designs and manufactures corporate identity uniforms which it rents, along with other items, to its customers. The Other Services operating segment involves the design, manufacture and direct sale of uniforms to its customers as well as the sale of ancillary services including sanitation supplies, first aid products and services and cleanroom supplies. All of these services are provided throughout the United States and Canada to businesses of all types - from small service and manufacturing companies to major corporations that employ thousands of people. Information as to the operations of the Company's different business segments is set forth based on the distribution of products and services offered. The Company evaluates performance based on several factors of which the primary financial measures are business segment revenue and income before income taxes. As a result of this Statement, certain prior year amounts have been reclassified to conform to the current year presentation. The accounting policies of the business segments are the same as those described in the Significant Accounting Policies (Note 1). 16
Other Rentals services Corporate Total ------- -------- --------- ----- May 31, 1999 Revenue $ 1,297,248 $ 454,320 $ -- $ 1,751,568 ----------- ----------- ----------- ----------- Gross margin $ 539,185 $ 145,677 $ -- $ 684,862 Selling and administrative expenses 302,346 101,234 -- 403,580 Acquisition-related expenses -- -- 12,088 12,088 Special charge -- -- 28,429 28,429 Environmental charge -- -- 5,000 5,000 Interest income -- -- (4,671) (4,671) Interest expense -- -- 16,442 16,442 ----------- ----------- ----------- ----------- Income before income taxes $ 236,839 $ 44,443 $ (57,288) $ 223,994 ----------- ----------- ----------- ----------- Depreciation and amortization $ 80,550 $ 9,678 $ -- $ 90,228 ----------- ----------- ----------- ----------- Capital expenditures $ 150,007 $ 21,241 $ -- $ 171,248 ----------- ----------- ----------- ----------- Total assets $ 1,080,194 $ 239,506 $ 88,118 $ 1,407,818 ----------- ----------- ----------- ----------- May 31, 1998 Revenue $ 1,090,577 $ 386,368 $ -- $ 1,476,945 ----------- ----------- ----------- ----------- Gross margin $ 445,768 $ 124,867 $ -- $ 570,635 Selling and administrative expenses 256,098 89,566 -- 345,664 Acquisition-related expenses -- -- 17,116 17,116 Interest income -- -- (4,825) (4,825) Interest expense -- -- 15,824 15,824 ----------- ----------- ----------- ----------- Income before income taxes $ 189,670 $ 35,301 $ (28,115) $ 196,856 ----------- ----------- ----------- ----------- Depreciation and amortization $ 67,550 $ 7,783 $ -- $ 75,333 ----------- ----------- ----------- ----------- Capital expenditures $ 107,293 $ 21,273 $ -- $ 128,566 ----------- ----------- ----------- ----------- Total assets $ 994,969 $ 208,854 $ 101,577 $ 1,305,400 ----------- ----------- ----------- ----------- May 31, 1997 Revenue $ 946,923 $ 314,976 $ -- $ 1,261,899 ----------- ----------- ----------- ----------- Gross margin $ 380,902 $ 100,910 $ -- $ 481,812 Selling and administrative expenses 215,724 71,939 -- 287,663 Acquisition-related expenses -- -- 553 553 Interest income -- -- (4,449) (4,449) Interest expense -- -- 16,033 16,033 ----------- ----------- ----------- ----------- Income before income taxes $ 165,178 $ 28,971 $ (12,137) $ 182,012 ----------- ----------- ----------- ----------- Depreciation and amortization $ 60,363 $ 5,992 $ -- $ 66,355 ----------- ----------- ----------- ----------- Capital expenditures $ 79,333 $ 6,876 $ -- $ 86,209 ----------- ----------- ----------- ----------- Total assets $ 829,005 $ 165,890 $ 106,287 $ 1,101,182 ----------- ----------- ----------- -----------
17 15. 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, 1999 and 1998. The reported amounts differ from amounts previously reported in Form 10-Q due to the restatement of the accompanying consolidated financial statements which have been restated to include the financial position and operating results of Unitog, an acquisition accounted for using the pooling of interests method of accounting.
First Second Third Fourth May 31, 1999 Quarter Quarter Quarter Quarter (Restated) (Restated) (Restated) -------- -------- -------- ----------- Revenue: Cintas (as previously reported) $354,345 $367,327 $360,504 Unitog 72,085 69,171 73,165 -------- -------- -------- ----------- Combined $426,430 $436,498 $433,669 $ 454,971 ======== ======== ======== =========== Gross profits: Cintas (as previously reported) $143,024 $149,252 $149,538 Unitog 20,501 21,368 23,073 -------- -------- -------- ----------- Combined $163,525 $170,620 $172,611 $ 178,106 ======== ======== ======== =========== Pro forma net income: Cintas (as previously reported) $ 33,860 $ 39,800 $ 37,872 Unitog 2,391 4,578* 759** -------- -------- -------- ----------- Combined $ 36,251 $ 44,378 $ 38,631 $ 19,679 ======== ======== ======== =========== Basic earnings per share $ .33 $ .40 $ .35 $ .18 ======== ======== ======== =========== Diluted earnings per share $ .33 $ .39 $ .34 $ .17 ======== ======== ======== =========== Pro forma basic earnings per share $ .33 $ .40 $ .35 $ .18 ======== ======== ======== =========== Pro forma diluted earnings per share $ .33 $ .39 $ .34 $ .17 ======== ======== ======== =========== Weighted average number of shares outstanding (000Os) 109,929 110,358 110,816 110,858 ======== ======== ======== ===========
* Includes a $2,100 gain from the sale of certain facilities. **Includes a $5,000 charge relating to environmental matters. 18
First Second Third Fourth May 31, 1998 Quarter Quarter Quarter Quarter (Restated) (Restated) (Restated)(Restated) -------- -------- -------- -------- Revenue: Cintas (as previously reported) $272,805 $293,697 $301,889 $329,916 Unitog 68,671 70,088 69,544 70,335 -------- -------- -------- -------- Combined $341,476 $363,785 $371,433 $400,251 ======== ======== ======== ======== Gross profits: Cintas (as previously reported) $111,755 $118,652 $122,955 $134,699 Unitog 20,212 21,981 20,003 20,378 -------- -------- -------- -------- Combined $131,967 $140,633 $142,958 $155,077 ======== ======== ======== ======== Pro forma net income: Cintas (as previously reported) $ 26,653 $ 30,913 $ 29,289 $ 31,052 Unitog 2,362 3,997 2,722 1,716 -------- -------- -------- -------- Combined $ 29,015 $ 34,910 $ 32,011 $ 32,768 ======== ======== ======== ======== Basic earnings per share $ .29 $ .34 $ .31 $ .31 ======== ======== ======== ======== Diluted earnings per share $ .28 $ .34 $ .31 $ .30 ======== ======== ======== ======== Pro forma basic earnings per share $ .27 $ .33 $ .30 $ .30 ======== ======== ======== ======== Pro forma diluted earnings per share $ .27 $ .32 $ .29 $ .30 ======== ======== ======== ======== Weighted average number of shares outstanding (000Os) 106,094 106,757 107,107 108,133 ======== ======== ======== ========
19 REPORT OF AUDIT COMMITTEE - ------------------------- The Audit Committee (the Committee) of the Board of Directors is composed of three independent directors. The Committee, which held one meeting during fiscal 1999, oversees the Company's financial reporting process on behalf of the Board of Directors. In fulfilling its responsibilities, 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 evaluation of the system of internal control and the overall quality of the Company's financial reporting. The meetings are designed to facilitate any private communications with the Committee desired by the independent auditors. /s/ Roger L. Howe Roger L. Howe, Chairman Audit Committee July 1, 1999 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, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 1999. 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, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1999, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Cincinnati, Ohio July 1, 1999 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - --------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- FISCAL 1999 COMPARED TO FISCAL 1998 Fiscal 1999 marked another year of uninterrupted growth for the Company. Because the merger with Unitog was treated as a pooling of interests, the Company's historical financial results have been restated as if Cintas and Unitog had always been one company. Total revenue was $1.8 billion, an increase of 19% over fiscal 1998. Revenue from the rentals segment increased 19% and other services revenue increased 18%, primarily due to growth in the customer base. Revenue contributed by Unitog was flat when compared to the prior year, while Cintas revenue increased 23%. Excluding one-time charges consisting of acquisition-related expenses, a Unitog environmental charge and special charges (refer to Notes 8, 12 and 13 for additional information), pre-tax income was $270 million, an increase of 26% over fiscal 1998. Including these one-time charges, pre-tax income was $224 million, an increase of 14% over the prior fiscal year. Pre-tax income from the rentals and other services segments increased 25% and 26%, respectively, over the prior year. Acquisition-related expenses for fiscal 1999 and 1998 relate primarily to the mergers with Unitog and Uniforms To You (UTY), respectively. One-time charges of $39 million associated with the Unitog merger include acquisition-related expenses of $11 million for transaction fees (investment banking, legal and accounting fees and retention bonuses) and a special charge of $28 million related to integration costs (severance and asset write downs). As a result of the integration of Unitog and Cintas, redundant operating facilities were identified based on an evaluation of operating capacity by location. These redundant facilities will be merged into existing operations during fiscal 2000. In addition, Unitog corporate functions will be consolidated and the corporate office building will be sold. The cost to exit all corporate and operating facilities will include severance payments to affected employees of $15.8 million and an asset write down of $12.6 million. Severance-related costs include a pre-established severance plan for corporate executives and the cash settlement of stock options for terminated employees. The Company believes that these actions will improve service to the customer and reduce future operating costs. Results for 1998 were adjusted on a pro forma basis to reflect the true tax impact of UTY as if it had been reported as a C Corporation prior to the merger with Cintas. In addition, 1998 results include a one-time tax credit of $8 million to establish a deferred tax asset and $17 million in acquisition-related expenses, primarily related to a pre-established compensation program for UTY executives. Net interest expense increased $1 million over the prior year due to a higher average debt level in 1999. The Company's effective tax rate was 38% and 35% pro forma, respectively, for fiscal years 1999 and 1998. Fiscal year 1998 income taxes were offset by the $8 million credit related to the conversion of UTY from an S Corporation to a C Corporation. Excluding one-time items impacting both 1999 and 1998, pro forma net income of $167 million and pro forma basic earnings per share of $1.51 represent an increase of 27% and 23%, respectively, over fiscal 1998. Including these one-time items, pro forma net income of $139 million and pro forma basic earnings per share of $1.26 represent an 8% and 5% increase, respectively, over the 1998 fiscal year. Pro forma return on average equity is 17% compared to 18% for the prior year; however, excluding one-time items, pro forma return on average equity is 21% compared to 19% for the prior year. Cash, cash equivalents and marketable securities decreased by $13 million in 1999, primarily due to capital expenditures for new facilities and equipment to accommodate growth. 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. 21 Accounts receivable increased $16 million, primarily due to sales growth. Inventories increased $8 million reflecting growth in the Company. Because of a focused effort to improve manufacturing inventories, this increase is much lower than expected given the substantial increase in sales volume. Net property and equipment increased by $84 million. In fiscal 1999, the Company completed construction of fifteen new uniform rental facilities and had another twelve uniform rental facilities in various stages of construction to accommodate growth in rental operations. FISCAL 1998 COMPARED TO FISCAL 1997 Fiscal 1998 total revenue was $1.5 billion, net income was $134 million and basic earnings per share was $1.25, increasing 17%, 13% and 11%, respectively, over the prior year. Excluding one-time charges, pre-tax income increased $31 million, or 17% over the prior year. Including these one-time charges, pre-tax income increased $15 million, or 8% over the prior year. Revenue from the rentals segment increased 15% and other services revenue increased 23%, primarily due to growth in the customer base. Pre-tax income for the rentals and other services segments increased 15% and 22%, respectively, over the prior year. Net interest expense decreased $1 million due to a lower level of debt and improved interest rates. The Company's pro forma effective tax rate for 1998 and 1997 was 35% and 38%, respectively. The 1998 tax rate was lower due to a one-time credit of $8 million to establish a deferred tax asset for UTY. Excluding one-time charges, pro forma net income of $132 million and pro forma basic earnings per share of $1.23 increased 17% and 14%, respectively. Including one-time charges, pro forma net income of $129 million and pro forma basic earnings per share of $1.20 represent increases of 14% and 11%, respectively. Cash, cash equivalents and marketable securities decreased $5 million in 1998, primarily due to capital expenditures for new facilities and equipment to accommodate growth. 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. Accounts receivable increased $35 million due to sales growth and acquisitions made during the year. Inventories increased $30 million reflecting sales growth and acquisitions, as well as the expansion of product lines and investment in the other services segment of the business. Net property and equipment increased by $92 million. In fiscal 1998, the Company completed construction of six new uniform rental facilities and had thirteen others in various stages of completion to accommodate growth in rental operations. LIQUIDITY AND CAPITAL RESOURCES At May 31, 1999, the Company had $88 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 for fiscal year 1999 increased to $422 million, $20 million over the prior year, primarily due to the increase in accounts receivable and inventories related to sales growth in both business segments. Capital expenditures for fiscal 1999 totaled $171 million, including $150 million for the rentals segment and $21 million for other services. The Company continues to reinvest in land, buildings and equipment in an effort to expand capacity for future growth. The Company anticipates that capital expenditures for fiscal 2000 will approximate $170 million. 22 The Company's percentage of debt to total capitalization was 26% at May 31, 1999, versus 30% at May 31, 1998. During the year, the Company paid dividends of $25 million, or $.22 per share. This dividend is an increase of 22% over that paid in fiscal 1998. MARKET RISK The Company manages interest rate risk by using a combination of variable and fixed rate debt, marketable securities and interest rate swap agreements. The Company's earnings are affected by changes in short-term interest rates due to the use of variable rate notes and revolving credit facilities amounting to approximately $180 million, with an average interest rate of 5.68%. This exposure is limited by the purchase of marketable securities and interest rate swap agreements as a hedge against variability in short-term rates. If short-term rates increase by one-half percent (or 50 basis points), the Company's interest expense would increase, and income before taxes would decrease, by approximately $.5 million. Conversely, if short-term rates decrease by one-half percent (or 50 basis points), the Company's interest expense would decrease, and income before taxes would increase, by approximately $.5 million. This estimated exposure considers the mitigating effects of marketable securities and swap agreements on the change in the cost of variable rate debt. This analysis does not consider the effects of a change in economic activity or a change in the Company's capital structure. INFLATION AND CHANGING PRICES Management believes inflation has not had a material impact on the Company's financial condition or a negative impact on operations. IMPACT OF YEAR 2000 The Company has determined the changes required to ensure that all of its software, hardware and operating equipment will function properly with respect to dates in the Year 2000 and thereafter. The total cost of these changes is not material and is being expensed as incurred. The Company incurred the majority of its Year 2000 costs during fiscal 1998, with substantially all of the remaining costs expensed in fiscal 1999. Approximately $.5 million will be incurred throughout the first quarter of fiscal 2000 to complete remaining items. The Company has been proactive in addressing the Year 2000 with a strategy that consists of the following critical components: inventory, internal assessment, remediation, testing, vendor assessment and contingency planning. A complete inventory of all software and hardware was conducted in 1997 and has been updated for new acquisitions and subsequent purchases. Through a combination of testing, vendor inquiries and third party assistance, all hardware and software items requiring remediation were identified. A remediation plan was developed and implemented, with substantially all of the spending occurring in fiscal 1998 and 1999. All critical equipment used for operations and distribution has been tested and upgraded or replaced as required. The Company believes that all critical production systems are now fully compliant. A proactive disaster recovery test of data center operations will be conducted using the January 1, 2000 system date. Major suppliers were contacted to obtain certification and an assessment of their Year 2000 compliance, and all high-risk suppliers identified. Appropriate actions were taken during fiscal 1999 to mitigate this risk for all critical suppliers, and alternative sources, if practical, are being identified as required. The Company continues to monitor the progress of all major suppliers toward completion of their Year 2000 plans, and is developing contingency plans to minimize any potential risk. These contingency plans are being formalized and will address all aspects of the business. Contingency plans are expected to be in place by the end of the Company's first fiscal quarter. The Company believes that it is devoting appropriate resources to resolve any Year 2000 issues in a timely manner and believes that all internal systems will be prepared for Year 2000 processing. While the Company believes its efforts are sufficient to address any Year 2000 issues, it recognizes that failing to resolve these issues on a timely basis could adversely affect the Company's ability to manufacture and distribute products and services. 23 DIRECTORS AND OFFICERS - ----------------------- BOARD OF DIRECTORS Gerald V. Dirvin Retired Executive Vice President and Director of The Procter & Gamble Company Richard T. Farmer Chairman of the Board of the Corporation Scott D. Farmer President & Chief Operating Officer of the Corporation James J. Gardner Retired Vice President of the Corporation Roger L. Howe Retired Chairman of the Board of U.S. Precision Lens, Inc. Donald P. Klekamp Senior Partner of Keating, Muething & Klekamp Robert J. Kohlhepp Chief Executive Officer of the Corporation John S. Lillard Retired Chairman-Founder of JMB Institutional Realty Corporation CORPORATE OFFICERS Richard T. Farmer Chairman of the Board Robert J. Kohlhepp Chief Executive Officer Scott D. Farmer President & Chief Operating Officer Robert R. Buck Senior Vice President & President - Uniform Rental Division David T. Jeanmougin Senior Vice President & Secretary William C. Gale Vice President & Chief Financial Officer Karen L. Carnahan Vice President & Treasurer OPERATING, STAFF, AND SUBSIDIARY OFFICERS Bruce L. Burgess Vice President James A. Cain Vice President James J. Case Vice President Southwest Rental Group James V. Critchfield Vice President Northcentral Rental Group William L. Cronin Vice President Northeast Rental Group Michael P. DiMino President & Chief Operating Officer Uniforms To You Gregory J. Eling Vice President Central Rental Group Michael B. Frank Chairman of the Board Uniforms To You Michael P. Gaburo Vice President Cleanroom Division Arnold Gedmintas Vice President Northern Rental Group William W. Goetz Vice President Marketing & Merchandising Larry A. Harmon Vice President Great Lakes Rental Group J. Phillip Holloman Vice President Research & Development Jeffry E. Jones Vice President Northwest Rental Group John S. Kean III Senior Vice President Southcentral Rental Group James J. Krupansky Vice President Western Rental Group Glenn W. Larsen Vice President Logistics & Manufacturing John W. Milligan Vice President Midwest Rental Group Robert A. Oswald Vice President David Pollak, Jr. Vice President First Aid & Safety Division Rodger V. Reed Vice President National Account Division Bruce E. Rotte Vice President Southeast Rental Group G. Thomas Thornley Vice President & Chief Information Officer 24 EXECUTIVE OFFICES Cintas Corporation 6800 Cintas Boulevard P.O. Box 625737 Cincinnati, Ohio 45262-5737 AUDITORS Ernst & Young LLP 1300 Chiquita Center 250 East Fifth Street Cincinnati, Ohio 45202 MARKET FOR REGISTRANT'S COMMON STOCK Cintas Corporation Common Stock is traded on the NASDAQ National market System. The symbol is CTAS. REGISTRAR AND TRANSFER AGENT The Fifth Third Bank Shareholder Services Mail Drop 10AT66 38 Fountain Square Plaza Cincinnati, Ohio 45263 (513) 579-5320 (800) 837-2755 ANNUAL MEETING October 20, 1999 Cintas Corporation Corporate Headquarters 6800 Cintas Boulevard Cincinnati, Ohio 10:00 a.m. SHAREHOLDER INFORMATION - ----------------------- 10-K REPORT A copy of the Form 10-K annual report filed with the Securities and Exchange Commission for the year ended May 31, 1999, is available at no charge to shareholders. Direct requests in writing for this report or other information to: William C. Gale Vice President & Chief Financial Officer Cintas Corporation 6800 Cintas Boulevard P.O. Box 625737 Cincinnati, Ohio 45262-5737 (513) 459-1200 FINANCIAL INFORMATION For financial information visit us on the Internet at http://www.nasdaq.com or http://www.cintas-corp.com INFORMATION INTERNET ADDRESS Visit us at our web site at http://www.cintas-corp.com SECURITY HOLDER INFORMATION At May 31, 1999, there were approximately 2,250 shareholders of record of the Corporation's Common Stock. The Company believes that this represents approximately 23,000 beneficial owners. The following table shows the high and low closing prices by quarter during the last two fiscal years.
- ------------------------------------------------------------------------------- Fiscal 1999 Fiscal 1998 Quarter ended High Low Quarter ended High Low May 1999 73 3/16 60 May 1998 52- 3/4 42 3/4 February 1999 78 3/4 53 February 1998 46 36 7/8 November 1998 57 1/8 47 1/2 November 1997 40 2/3 34 11/16 August 1998 54 7/8 39 August 1997 35 7/16 30 1/4
EX-21 3 EXHIBIT 21 1 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 Cintas Canada Limited Ontario, Canada Cintas Investment Corp. Ontario, Canada Respond Industries, Incorporated Colorado American First Aid Company Maryland 1202327 Ontario, Inc. Ontario, Canada Benjamin's Uniforms, Inc. Wisconsin Petragon, Inc. Kansas Custom Uniform Service, Inc. Florida Uniforms To You and Company Illinois UTY Canada, LTD. Quebec, Canada Affirmed Medical, Inc. California NCAVANS, Inc. California SanDVans, Inc. California Mechanics Uniform Holding, Inc. Michigan Mechanics Uniform Rental Company Michigan Standard Uniform Service, Inc. New Jersey Unitog Company Delaware Unitog De Honduras, S.A. Honduras Unitog Realty Company Missouri Unitog Rental Services, Inc. California EX-23 4 EXHIBIT 23 1 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 1, 1999, included in the 1999 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 Registration Statement Number 33-56623 on Form S-8 pertaining to the Partners' Plan, Registration Statement Number 33-23228 on Form S-8 pertaining to the Incentive Stock Option Plan, Registration Statement Number 33-71124 on Form S-8 pertaining to the 1990 Directors Plan and 1992 Stock Option Plan and Registration Statement Number 333-75015 on Form S-8 pertaining to the Unitog Company 1992 and 1997 Stock Option Plans, of our report dated July 1, 1999, 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, 1999. Ernst & Young LLP Cincinnati, Ohio August 23, 1999 EX-27 5 EXHIBIT 27
5 1 U.S. DOLLARS 3-MOS MAY-31-1999 MAR-01-1999 MAY-31-1999 1 15,803,000 72,315,000 210,833,000 8,754,000 338,137,000 634,485,000 855,356,000 282,269,000 1,407,818,000 212,097,000 0 0 0 49,974,000 821,449,000 1,407,818,000 118,170,000 454,971,000 79,161,000 276,865,000 144,651,000 0 3,855,000 30,682,000 11,003,000 0 0 0 0 19,679,000 0.18 0.17
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