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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934 For the Fiscal Year Ended May 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-11399
CINTAS CORPORATION
(Exact name of registrant as specified in its charter)
Incorporated under IRS Employer ID
the Laws of Washington No. 31-1188630
(State or other juris-
diction of incorporation 6800 Cintas Boulevard
or organization) P.O. Box 625737
Cincinnati, Ohio 45262-5737
Phone: (513) 459-1200
(Address of principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES NO
X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of Common Stock held by nonaffiliates is
$1,527,821,826 based on a closing price of $54.50 on August 16, 1996. As of
August 16, 1996, 47,376,432 shares of no par value Common Stock were issued
and outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for 1996 furnished
to the Commission pursuant to Rule 14a-3(b) and portions of the Registrant's
Proxy Statement to be filed with the Commission for its 1996 annual meeting
are incorporated by reference in Parts I, II and III as specified.
CINTAS CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page
Part I
Item 1 - Business 3
Item 2 - Properties 4
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of Security Holders 6
Part II
Item 5 - Market for Registrant's Common Equity and Related 6
Stockholder Matters
Item 6 - Selected Financial Data 6
Item 7 - Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Item 8 - Financial Statements and Supplementary Data 7
Item 9 - Changes in and Disagreements with Accountants on 7
Accounting and Financial Disclosure
Part III
Item 10 - Directors and Executive Officers of the Registrant 7
Item 11 - Executive Compensation 7
Item 12 - Security Ownership of Certain Beneficial Owners and 7
Management
Item 13 - Certain Relationships and Related Transactions 7
Part IV
Item 14 - Exhibits, Financial Statement Schedules and 7
Reports on Form 8-K
-2-
PART I
ITEM 1.
BUSINESS
The business discussion found on pages 2 through 9 of the Registrant's Annual
Report to Shareholders for 1996 is incorporated herein by reference.
Information regarding revenues from products and services, the number of
employees and competition are listed or described below:
The table sets forth the revenues derived from each service provided by
Cintas.
Year Ended May 31
1996 1995 1994
(in thousands)
Uniform Rental $492,369 $415,035 $351,495
Uniform Sales 81,373 69,825 58,294
Non-Uniform Rentals 148,652 124,045 108,360
Other 7,736 6,193 5,067
$730,130 $615,098 $523,216
The Company began business in 1929 as an Ohio Corporation and changed its
state of incorporation to Washington in 1986. At May 31, 1996, the Company
employed 10,803 employees of which 88 are represented by labor unions. The
Company considers its relationship with its employees to be satisfactory.
Cintas provides a highly specialized service to businesses of all types - from
small service companies to major corporations that employ thousands of people.
The Company designs, manufactures and implements corporate identity uniform
programs throughout the United States.
The rental markets served by the Company are highly fragmented and competition
for this business varies at each of the Company's locations. There are other
companies in the uniform rental business which have financial resources
comparable to those of the Company, although much of the competition consists
of smaller local and regional firms. In certain instances, local competitors
may also have financial resources comparable to those deployed by the Company
in a particular market.
The service provided to the rental markets served by the Company principally
consists of the rental and cleaning of uniforms as well as providing on-going
uniform upgrades to each customer. The Company also offers ancillary products
which includes the rental or sale of walk-off mats, fender covers, towels,
mops and linen products.
Due to its diverse customer base and average account size, the loss of one
account would not have a significant financial impact on the Company.
In its sale of customized uniforms, Cintas competes on a national basis with
other uniform suppliers and manufacturers, some of which have financial
resources comparable to the Company's.
The Company operates four manufacturing facilities which provide for a
substantial amount of its standard uniform needs. Additional products are
purchased from several outside suppliers. Because of the Company's ability to
manufacture much of its own uniform needs, the loss of one vendor would not
have a significant effect on the Company. In regard to the availability of
fabric for the manufacturing process, the Company purchases fabric from
several suppliers. The Company is not aware of any circumstances which would
hinder its ability to obtain these materials.
The Company does not anticipate any material capital expenditures for
environmental controls that would have a material effect on its financial
condition. The Company is not aware of any material non-compliance with
environmental laws.
The Company believes that the primary competitive factors that affect its
operations are quality, service, design and price, in that order.
-3-
ITEM 2.
PROPERTIES
The Company currently occupies 124 facilities located in 118 cities.
The corporate offices provide centrally located administrative functions
including accounting, finance, marketing and data processing. The Company
operates processing plants that house administrative, sales and service
personnel and the necessary equipment involved in the cleaning of uniforms and
bulk items. Branch operations provide administrative, sales and service
functions. Cintas operates three distribution facilities and has four
manufacturing plants, two of which produce uniform trousers and two producing
uniform shirts. The Company considers the facilities it operates to be
adequate for their intended use. The Company owns or leases 2,765 vehicles.
The following chart provides additional information concerning Cintas'
facilities:
Location Type of Facility
Cincinnati, Ohio Corporate Offices, National Account Division,
Distribution Center
Alexandria, Louisiana Branch *
Asheville, North Carolina Branch *
Ashland, Kentucky Processing Plant
Atlanta, Georgia Processing Plant
Augusta, Georgia Processing Plant
Austin, Texas Processing Plant
Baltimore, Maryland Processing Plant
Baton Rouge (South), Louisiana Processing Plant
Baton Rouge (North), Louisiana Processing Plant
Beaumont, Texas Processing Plant
Birmingham, Alabama Branch*
Boston, Massachusetts Processing Plant
Branford, Connecticut Processing Plant
Brownsville, Texas Branch*
Buffalo, New York Processing Plant
Charlotte, North Carolina Processing Plant
Chattanooga, Tennessee Branch*
Chicago (South), Illinois Processing Plant
Chicago (North), Illinois Processing Plant
Cincinnati, Ohio Processing Plant
Clay City, Kentucky Manufacturing Facility*
Cleveland (West), Ohio Processing Plant
Cleveland (East), Ohio Processing Plant
Colorado Springs, Colorado Branch*
Columbia, South Carolina Processing Plant*
Columbus, Ohio Processing Plant
Corpus Christi, Texas Branch*
Dallas, Texas Processing Plant
Dayton, Ohio Processing Plant
Decatur, Georgia Processing Plant
Denver, Colorado Processing Plant*
Detroit, Michigan Processing Plant
Etobicoke, Ontario (Canada) Processing Plant
Evansville, Indiana Branch*
Everett, Washington Branch
Flint, Michigan Branch*
Fort Meyers, Florida Branch*
Fort Smith, Arkansas Processing Plant*
Fort Wayne, Indiana Branch*
Grand Rapids, Michigan Branch*
Greenville, South Carolina Processing Plant
Greenwood, Mississippi Branch*
Gulfport, Mississippi Branch*
Hammond, Louisiana Branch
Harrison, Arkansas Branch*
-4-
Hazard, Kentucky Manufacturing Facility*
Houston, Texas Processing Plant
Indianapolis, Indiana Branch*
Jackson, Mississippi Branch*
Jacksonville, Florida Branch*
Joplin, Missouri Branch*
Kansas City, Kansas Processing Plant
Knoxville, Tennessee Branch*
Lafayette, Louisiana Branch
Lake Charles, Louisiana Processing Plant
Lake Station, Indiana Branch*
Laredo, Texas Branch*
Las Vegas, Nevada Processing Plant
Lexington, Kentucky Processing Plant
Little Rock, Arkansas Processing Plant
Long Island, New York Branch*
Los Angeles, California Processing Plant
Louisville, Kentucky Processing Plant
Lufkin, Texas Branch
Madison, Alabama Branch*
Madison, Wisconsin Processing Plant
Memphis, Tennessee Processing Plant
Miami, Florida Processing Plant
Milwaukee, Wisconsin Branch*
Minneapolis, Minnesota Processing Plant*
Mobile, Alabama Branch*
Montgomery, Alabama Distribution Center*
Montgomery, Alabama Branch*
Mt. Vernon, Kentucky Manufacturing Facility*
Nashville, Tennessee Processing Plant
Natchez, Mississippi Branch*
New Orleans, Louisiana Processing Plant
North Canton, Ohio Processing Plant
Oklahoma City, Oklahoma Processing Plant
Orange, California Branch*
Orlando, Florida Processing Plant
Owingsville, Kentucky Manufacturing Facility*
Pensacola, Florida Branch*
Philadelphia, Pennsylvania Processing Plant
Phoenix, Arizona Processing Plant
Piscataway, New Jersey Processing Plant
Pittsburgh, Pennsylvania Processing Plant
Portland, Maine Branch
Portland, Oregon Processing Plant
Raleigh-Durham, North Carolina Branch*
Reno, Nevada Distribution Center*
Richmond, Virginia Processing Plant
Sacramento, California Branch*
San Angelo, Texas Branch*
San Antonio, Texas Processing Plant
San Diego, California Processing Plant
Sandusky, Ohio Branch*
San Francisco(West), California Branch*
San Francisco (East), California Processing Plant*
San Jose, California Processing Plant
Seattle, Washington Processing Plant*
Shreveport, Louisiana Processing Plant
Springdale, Arkansas Processing Plant
Springfield, Missouri Branch*
St. Louis, Missouri Processing Plant*
Tacoma, Washington Branch*
Tampa, Florida Processing Plant
Taunton, Massachusetts Branch*
-5-
Thibodaux, Louisiana Processing Plant
Toronto, Ontario (Canada) Processing Plant
Tulsa, Oklahoma Processing Plant
Tuscaloosa, Alabama Processing Plant
Tyler, Texas Branch*
Victoria, Texas Processing Plant
Vidalia, Georgia Processing Plant
Virginia Beach, Virginia Branch*
Walden, New York Branch*
Washington, D.C. Processing Plant
Westland, Michigan Processing Plant
West Palm Beach, Florida Branch*
Wichita, Kansas Branch*
Winston-Salem, North Carolina Processing Plant
Youngstown, Ohio Branch*
*Leased for various terms ranging from monthly to 2006. The Company
expects that it will be able to renew its leases on satisfactory terms. All
other properties are owned.
ITEM 3.
LEGAL PROCEEDINGS
In December 1992, the Company was served with an "Imminent and
Substantial Endangerment and Remedial Action Order" (the "Order") by the
California Department of Toxic Substances Control relating to the facility
leased by the Company in San Leandro, California. The Order requires Cintas
and three other allegedly responsible parties to respond to alleged soil and
groundwater contamination at and around the San Leandro facility. It is not
possible at this time to estimate the loss or range of loss associated with
the claim. Based on information that has been made available to the Company,
however, it is not believed that the matter will have a material adverse
effect on the Company's financial condition or results of its operations.
The Company is also a party to incidental litigation brought in the
ordinary course of business, none of which individually or in the aggregate,
is considered to be material to its operations or financial condition. Cintas
maintains insurance coverage against certain liabilities that it may incur in
its operations from time to time.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in the fourth quarter of fiscal 1996.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
"Market for Registrant's Common Stock" and "Security Holder
Information" on page 25 of the Registrant's Annual Report to Shareholders for
1996 is incorporated herein by reference. Dividend information is
incorporated by reference to the Consolidated Statements of Shareholders'
Equity on page 13. Dividends on the outstanding Common Stock are paid
annually and amounted to $.25 and $.20 per share in fiscal 1996 and 1995,
respectively.
ITEM 6.
SELECTED FINANCIAL DATA
The "Eleven Year Financial Summary" on page 10 of the Registrant's
Annual Report to Shareholders for 1996 is incorporated herein by reference.
-6-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" commencing on page 22 of the Registrant's Annual Report
to Shareholders for 1996 is incorporated herein by reference.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Registrant shown on pages
11 through 21 of its Annual Report to Shareholders for 1996 are incorporated
herein by reference:
Consolidated Balance Sheets as of May 31, 1996 and 1995
Consolidated Statements of Income for the years ended May 31, 1996, 1995
and 1994
Consolidated Statements of Shareholders' Equity for the years ended May
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended May 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Items 10., 11., 12., and 13. of Part III are incorporated by reference
to the Registrant's Proxy Statement for its 1996 Annual Shareholders' Meeting
to be filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
(a) (1) Financial Statements. All financial statements required to be
filed by Item 8. of this Form and included in this report are listed in Item
8. No additional financial statements are filed because the requirements for
paragraph (d) under Item 14 are not applicable to the Company.
(a) (2) Financial Statement Schedule:
For each of the three years in the period ended May 31, 1996.
Schedule II: Valuation and Qualifying Accounts and Reserves.
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements or Notes thereto.
-7-
(a) (3) Exhibits.
Exhibit
Number Description of Exhibit Filing Status
3.1 Restated Articles of Incorporation (1)
3.3 Bylaws (1)
Management Compensatory Contracts (Exhibits 10.1-10.5)
10.1 Incentive Stock Option Plan (2)
10.2 Partners' Plan, as Amended (3)
10.3 1990 Directors' Stock Option Plan (4)
10.4 1992 Employee Stock Option Plan, as Amended (5)
10.5 1994 Directors' Stock Option Plan (6)
11 Statement re computation of filed herewith
per share earnings
13 1996 Annual Report to Shareholders filed herewith
21 Subsidiaries of the Registrant filed herewith
23 Consent of Independent Auditors filed herewith
27 Financial Data Schedule filed herewith
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended May 31, 1989.
(2) Incorporated by reference to the Company's Registration Statement No.
33-23228 on Form S-8 filed under the Securities Act of 1933.
(3) Incorporated by reference to the Company's Registration Statement No.
33-56623 on Form S-8 filed under the Securities Act of 1933.
(4) Incorporated by reference to the Company's Registration Statement No.
33-71124 on Form S-8 filed under the Securities Act of 1933.
(5) Incorporated by reference to the Company's Proxy Statement for its 1995
Annual Shareholders' Meeting.
(6) Incorporated by reference to the Company's Proxy Statement for its 1994
Annual Shareholders' Meeting.
-8-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CINTAS CORPORATION
DATE SIGNED: August 26, 1996 /s/ Robert J. Kohlhepp
By: Robert J. Kohlhepp
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
/s/ Richard T. Farmer Chairman of the Board
Richard T. Farmer of Directors August 26, 1996
/s/ Robert J. Kohlhepp President, Chief Executive
Robert J. Kohlhepp Officer and Director August 26, 1996
/s/ Scott D. Farmer Vice President and
Scott D. Farmer Director August 26, 1996
/s/ James J. Gardner Director August 26, 1996
James J. Gardner
/s/ Donald P. Klekamp Director August 26, 1996
Donald P. Klekamp
/s/ William C. Gale Vice President-
William C. Gale Finance (Principal
Financial and Accounting
Officer) August 26, 1996
-9-
CINTAS CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves
(In Thousands)
Additions
(1) (2)
Balance At Charged to Charged to Balance At
Beginning of Costs and Other End of
Description Year Expenses Accounts Deductions Year
May 31, 1994:
Allowance for
Doubtful Accounts $ 1,976 $998 $209 $1,180 (A) $ 2,003
Accumulated
Amortization of
Customer Service
Contracts 18,049 5,608 2,134 (B) 21,523
Accumulated
Amortization of
Non-Compete
Agreements &
Consulting 13,755 4,706 1,446 (B) 17,015
Accumulated
Amortization
of Debt Issue
and Organization
Costs 453 254 284 (B) 423
Accumulated
Amortization of
Goodwill 92 222 314
$32,349 $ 10,790 $3,864 $39,275
May 31, 1995:
Allowance for
Doubtful
Accounts $2,003 $ 1,465 ($325) $1,114 (A) $2,029
Accumulated
Amortization of
Customer Service
Contracts 21,523 5,967 70 (B) 27,420
Accumulated
Amortization of
Non-Compete
Agreements &
Consulting 17,015 4,675 1,085 (B) 20,605
Accumulated
Amortization of
Debt Issue &
Organization Costs 423 263 83 (B) 603
Accumulated
Amortization of
Goodwill 314 622 936
$39,275 $11,527 $1,238 $49,564
-10-
CINTAS CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves
(In Thousands)
Additions
(1) (2)
Balance At Charged to Charged to Balance At
Beginning of Costs and Other End of
Description Year Expenses Accounts Deductions Year
May 31, 1996:
Allowance for
Doubtful
Accounts $2,029 $1,178 $175 $1,424 (A) $1,958
Accumulated
Amortization of
Customer Service
Contracts 27,420 6,161 4,866 (B) 28,715
Accumulated
Amortization of
Non-Compete
Agreements &
Consulting 20,605 4,667 1,515 (B) 23,757
Accumulated
Amortization of
Debt Issue &
Organization
Costs 603 250 71 (B) 782
Accumulated
Amortization of
Goodwill 936 1,440 --- 2,376
$49,564 $12,518 $6,452 $55,630
(A) Uncollectible Accounts Charged-off, Net of Recoveries.
(B) Elimination of Fully Amortized Amounts.
-11-
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share data)
A. Weighted average shares outstanding basis:
Fiscal year ended May 31
1996 1995 1994
Net income $75,183 $62,743 $52,170
Weighted average
shares outstanding 47,099 46,891 46,706
Earnings per share $1.596 $1.338 $1.117
B. Primary basis:
Fiscal year ended May 31
1996 1995 1994
Net income $75,183 $62,743 $52,170
Weighted average
shares outstanding 47,099 46,891 46,706
Plus - net shares to be
issued upon exercise
of dilutive stock options
after applying treasury
stock method 752 773 778
47,851 47,664 47,484
Earnings per share $1.571 $1.316 $1.099
-12-
C. Fully diluted basis:
Fiscal year ended May 31
1996 1995 1994
Net income $75,183 $62,743 $52,170
Weighted average
shares outstanding 47,099 46,891 46,706
Plus - net shares to be
issued upon exercise of
dilutive stock options
after applying treasury
stock method 905 859 838
48,004 47,750 47,544
Earnings per share $1.566 $1.314 $1.097
Note: Reported earnings per share for each year was based upon weighted
average shares outstanding since neither the primary nor fully diluted amounts
of per share earnings resulted in a reduction of 3% or more.
-13-
Financial Highlights
Years Ended May 31
(In thousands except per share data)
%
1996 1995 Change
Operating Results
Net Revenues $730,130 $615,098 18.7%
Net Income 75,183 62,743 19.8%
Return on Average Equity 18.9% 18.6% 1.6%
Financial Condition
Shareholders' Equity $429,497 $364,344 17.9%
Working Capital 194,908 146,410 33.1%
Current Ratio 2.90:1 2.54:1 14.2%
Per Share Data
Net Income $1.60 $1.34 19.4%
Shareholders' Equity
(book value) 9.10 7.75 17.4%
Dividends 0.25 0.20 25.0%
-14-
TO OUR SHAREHOLDERS AND FRIENDS
Fiscal year 1996 marks our twenty-seventh consecutive year of uninterrupted
growth in sales and profits. During these twenty-seven years, our sales have
grown at a compound annual rate of 24% and profits have grown at a compound
annual rate of 34%. Our dedication to customer satisfaction, attention
to detail and commitment to improved quality are the keys to our continued
success. These, along with our outstanding team of dedicated working
partners, have produced a company that truly is the answer to customer and
shareholder satisfaction.
Revenues for fiscal year 1996 totaled $730.1 million, a 19% increase from
last year. Pretax income of $122.2 million increased 21% from $101.0 million
last year, while net income of $75.2 million increased 20% over fiscal 1995.
Our earnings per share increased 19% to $1.60 per share from $1.34 last year.
When Cintas went public in August 1983, we were comparable in size to the
other public companies in our industry. Since then, Cintas has grown at a
faster rate and now is the largest public company - almost twice as large as
the next largest company in the industry. This chart conveys the progress we
have made:
Fiscal 1983 Fiscal 1996
Revenues $62.8 million $730.1 million
Net Income $ 5.5 million $75.2 million
Earnings Per Share $.17 $1.60
Uniform Rental Locations 23 117
Manufacturing Plants 1 4
Distribution Centers 2 3
Business Customers 14,000 166,000
Individuals in Uniform 200,000 1.7 million
Market Share 3.5% 17.0%
Market Value $111 million (IPO) $2.5 billion
Our successful track record, corporate culture and reputation enable us to
attract a special group of talented people who are united in a common cause
and enjoy what they do. Recently, three of our key partners were promoted.
Jim Critchfield, with eighteen years at Cintas, has been promoted to Vice
President - North Central Region, after serving as a General Manager of our
Schaumburg, Illinois, operation. Larry Harmon, a thirteen-year veteran, has
been promoted to Vice President - Human Resources after serving as Vice
President - Western Region. Jim Krupansky, having served Cintas for fifteen
years in various positions, has been promoted to Vice President - Western
Region. His most recent position was General Manager of our Detroit,
Michigan, operation.
These seasoned managers have proven track records in sales, service and
operations. Their skills are many - but they are masters at building teams
and motivating our partners to be the best they can be. They are highly
qualified and well prepared for their new positions.
-15-
With the highest customer satisfaction in the industry, Cintas is poised
for the future. We are the largest, fastest growing and most profitable
public company in the business. We have excellent financial resources, we have
modern, productive plants, and we believe we can continue our successful track
record because of our great ownership-driven team. We thank you for your
continued support and interest.
Sincerely yours,
Richard T. Farmer
Chairman of the Board
Robert J. Kohlhepp
President and Chief Executive Officer
-16-
FISCAL 1996 IN REVIEW
Leadership? Cintas is the answer.
The dictionary defines a leader as one who shows the way, or directs the
course, by going before another. Cintas is the leader in the uniform rental
industry.
We are the largest public company in our industry.
We have the highest long-term growth rates in sales and profits.
We have a 17% share of the $4.3 billion market and 5% share of a $13.5
billion potential market.
In the last five years, we expanded our service to more than 70 new cities;
13 in the year that just ended.
We have an outstanding management team, most of whom have been with our
Company for many years.
We are ownership-driven. The majority of our management team's personal
net worth is invested in Cintas.
We do extensive market research to identify new and better ways to satisfy
our customers.
We are the innovator of new products and services for our customers.
We have an excellent reputation that attracts new partners and new
customers.
Productivity? Cintas is the answer.
We continue to be the leader in the industry in building modern and productive
facilities. Cintas has a research and development team that works closely
with our operations and our suppliers to determine the most cost effective and
efficient processes for every facility we build or renovate. In fiscal 1996
alone we spent approximately $5 million in research and development, testing
new technology and processes to improve our productivity.
Expanding Capacity? Cintas is the answer.
We constantly expand capacity to keep pace with our growth. Fiscal 1996 was
no exception. We completed two new plants - one in Las Vegas, Nevada, and the
other in Denver, Colorado - and renovated or expanded three additional plants.
Currently, new plants are under construction in Indianapolis, Indiana;
Austin, Texas; Ontario, California; and Boston, Massachusetts. We also
expanded our Mason, Ohio, Distribution Center in order to increase capacity
and more effectively service the Company's continued growth in the Midwest, on
the East Coast, and in Canada. A third distribution center, in Montgomery,
Alabama, was opened to service operations in the South, Southeast, and
Southwest regions of the United States.
Acquisitions? Cintas is the answer.
There are currently more than 700 mostly family-owned companies serving the
uniform rental market in the United States. The industry has been in a
consolidation phase for many years. Since going public in 1983, Cintas has
made more than 80 acquisitions, which account for approximately a third of our
total growth. Acquisitions will continue to play a major role in the growth
of our Company going forward.
Financial Resources? Cintas is the answer.
The Company has strong financial resources to continue our track record into
the future. Total cash and marketable securities of $82.5 million increased
81% from $45.5 million last year. Operating cash flow per share was $2.39 for
fiscal 1996, a 49% increase over last year. Our current ratio improved from
2.54:1 to 2.90:1. Our debt to total capital stands at 22.5%, which provides
significant additional borrowing capacity for acquisitions and internal
growth. We are well positioned to take advantage of the many opportunities we
have for continued outstanding growth.
-17-
Dedicated, Hardworking Team? Cintas is the answer.
At Cintas, we consider each other partners and we call each other "partner".
We applaud all of our partners and continue to dedicate resources to education
in all areas of our Company. Education is an everyday occurrence at Cintas.
In fiscal 1996, we invested approximately 425,000 hours in formalized
classroom training - imparting more knowledge in sales skills, world-class
service, human relations, motivation skills, productivity and quality.
Leading the Way to World-Class Service? Cintas is the answer.
Our goal of achieving world-class service is clearly the most important
objective we have as a Company. Our customers expect good service, but "good"
is never good enough. We must provide exceptional service, and we do. Take
Avis for example: since 1983, we have been providing industrial uniforms
to their employees who work "behind the scenes," cleaning and preparing the
vehicles for their customers. Our performance won the coveted "Avis Total
Quality Award," given to top suppliers. Avis recently chose Cintas to
provide the tailored uniform service to the rest of their employees - those
who have a higher level of customer contact, such as their rental sales agents
and managers. Quality pays off and our insistence on excellence will fuel our
future growth. As a result, our partners can count on rewarding careers and
our shareholders will have an attractive return.
-18-
ELEVEN YEAR FINANCIAL SUMMARY
Years Ended May 31
(In thousands except per share data)
1986 1987 1988 1989 1990 1991
Net Revenues $144,621 185,101 228,091 269,260 311,776 352,480
Net Income $ 12,318 14,737 18,550 23,101 27,994 31,339
Earnings Per
Share $ 0.30 0.35 0.44 0.52 0.62 0.69
Dividends Per
Share $ 0.02 0.03 0.04 0.05 0.07 0.09
Total Assets $165,474 194,847 213,958 228,000 274,103 326,752
Shareholders'
Equity $ 72,961 86,646 104,710 138,079 163,026 191,124
Return on
Average Equity 18.3% 18.5% 19.4% 19.0% 18.6% 17.7%
Long-Term Debt $ 62,797 70,757 65,490 43,303 54,079 68,974
10 Year
Compd
1992 1993 1994 1995 1996 Growth
Net Revenues $401,563 452,722 523,216 615,098 730,130 17.6%
Net Income $ 39,195 44,873 52,170 62,743 75,183 19.8%
Earnings Per
Share $ 0.85(a) 0.97 1.12 1.34 1.60 18.2%
Dividends Per
Share $ 0.11 0.14 0.17 0.20 0.25 28.7%
Total Assets $361,261 454,165 501,632 596,181 668,762 15.0%
Shareholders'
Equity $225,864 264,914 309,652 364,344 429,497 19.4%
Return on
Average Equity 18.8% 18.3% 18.2% 18.6% 18.9%
Long-Term Debt $ 67,790 103,611 84,184 120,275 117,924
(a) Includes earnings of $.06 per share due to the adoption of SFAS No. 96.
Note: Results prior to October 1, 1991, have been restated to include Rental
Uniform Service of Greenville, S.C., Inc.
-19-
Cintas Corporation
CONSOLIDATED STATEMENTS OF INCOME
Years Ended May 31
(In thousands except per share data)
1996 1995 1994
Revenues:
Net rentals $648,616 $545,267 $464,922
Net sales 81,514 69,831 58,294
730,130 615,098 523,216
Costs and expenses (income):
Cost of rentals 369,386 312,313 264,477
Cost of sales 67,424 58,952 48,868
Selling and administrative expenses 164,471 137,675 119,446
Interest income (2,454) (2,148) (1,690)
Interest expense 9,073 7,345 6,664
607,900 514,137 437,765
Income before income taxes 122,230 100,961 85,451
Income taxes 47,047 38,218 33,281
Net income $75,183 $62,743 $52,170
Weighted average number of shares outstanding 47,099 46,891 46,706
Earnings per share $1.60 $1.34 $1.12
Dividends per share $0.25 $0.20 $0.17
See accompanying notes.
-20-
Cintas Corporation
CONSOLIDATED BALANCE SHEETS
As of May 31
(In thousands except share data)
1996 1995
Assets
Current assets:
Cash and cash equivalents $9,066 $6,685
Marketable securities 73,477 38,797
Accounts receivable, principally trade,
less allowance of $1,958 and $2,029,
respectively 78,244 69,032
Inventories 34,678 36,883
Uniforms and other rental items in service 100,307 88,670
Prepaid expenses 1,730 1,355
Total current assets 297,502 241,422
Property, plant and equipment, at cost, net 252,597 227,997
Other assets 118,663 126,762
$668,762 $596,181
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $19,363 $17,265
Accrued liabilities 49,168 42,158
Income taxes:
Current --- 2,191
Deferred 27,471 23,368
Long-term debt due within one year 6,592 10,030
Total current liabilities 102,594 95,012
Long-term debt due after one year 117,924 120,275
Deferred income taxes 18,747 16,550
Shareholders' equity:
Preferred stock, no par value;
100,000 shares authorized, none
outstanding --- ---
Common stock, no par value;
120,000,000 shares authorized,
47,199,299 and 47,005,340 shares issued
and outstanding, respectively 43,657 42,035
Retained earnings 386,673 323,284
Foreign currency translation adjustment (833) (975)
Total shareholders' equity 429,497 364,344
$668,762 $596,181
See accompanying notes.
-21-
Cintas Corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Foreign
Currency Total
Common Stock Retained Translation Shareholders'
Shares Amount Earnings Adjustment Equity
Balance at
May 31, 1993 46,579 $39,869 $225,722 $(677) $264,914
Net income --- --- 52,170 --- 52,170
Dividends --- --- (7,953) --- (7,953)
Stock options
exercised net
of shares
surrendered 222 750 --- --- 750
Tax benefit
resulting from
exercise of
employee stock
options --- 320 --- --- 320
Foreign currency
translation
adjustment --- --- --- (549) (549)
Balance at
May 31, 1994 46,801 40,939 269,939 (1,226) 309,652
Net income --- --- 62,743 --- 62,743
Dividends --- --- (9,398) --- (9,398)
Stock options
exercised net
of shares
surrendered 204 906 --- --- 906
Tax benefit
resulting from
exercise of
employee stock
options --- 190 --- --- 190
Foreign currency
translation
adjustment --- --- --- 251 251
Balance at
May 31, 1995 47,005 42,035 323,284 (975) 364,344
Net income --- --- 75,183 --- 75,183
Dividends --- --- (11,794) --- (11,794)
Stock options
exercised net
of shares
surrended 194 768 --- --- 768
Tax benefit
resulting from
exercise of
employee stock
options --- 854 --- --- 854
Foreign currency
translation
adjustment --- --- --- 142 142
Balance at
May 31, 1996 47,199 $43,657 $386,673 $(833) $429,497
See accompanying notes.
-22-
Cintas Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 31
(In thousands)
1996 1995 1994
Cash flows from operating activities:
Net income $75,183 $62,743 $52,170
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 30,586 26,179 24,271
Amortization of deferred charges 12,518 11,527 10,789
Deferred income taxes 6,300 2,162 7,184
Equity in earnings of affiliate --- (428) (347)
Change in current assets and
liabilities, net of
acquisitions of businesses:
Accounts receivable (9,171) (10,180) (7,055)
Inventories (9,432) (21,400) (19,777)
Prepaid expenses (375) (3) 503
Accounts payable 2,098 (2,162) (1,842)
Accrued liabilities 6,910 6,628 4,850
Income taxes payable (2,191) 184 684
Net cash provided by operating activities 112,426 75,250 71,430
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 1,715 2,333 1,326
Capital expenditures (56,780) (58,879) (37,164)
Proceeds from sale or redemption of
marketable securities 74,220 196,204 47,053
Purchase of marketable securities (108,900) (182,668) (58,609)
Acquisitions of businesses, net of
cash acquired (2,307) (50,095) (11,796)
Other (2,173) 1,126 (2,753)
Net cash used by investing activities (94,225) (91,979) (61,943)
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 424 52,208 63
Repayment of long-term debt (6,213) (21,829) (8,410)
Issuance of common stock 768 906 750
Repurchase of common stock --- (7,112) ---
Dividends paid (11,794) (9,398) (7,953)
Other 995 190 320
Net cash provided by (used in)
financing activities (15,820) 14,965 (15,230)
Net increase (decrease) in cash and
cash equivalents 2,381 (1,764) (5,743)
Cash and cash equivalents at beginning
of year 6,685 8,449 14,192
Cash and cash equivalents at end of year $9,066 $6,685 $8,449
See accompanying notes.
-23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share and share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Business description. Cintas designs, manufactures and implements corporate
identity uniform programs which it rents or sells to customers throughout the
United States and Canada. The Company provides this highly specialized service
to businesses of all types--from small service companies to major corporations
that employ thousands of people.
Principles of consolidation. The consolidated financial statements include
the accounts of Cintas Corporation and its subsidiaries, all of which are
wholly-owned. Intercompany balances and transactions have been eliminated.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.
Cash flows. For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of three months or
less, at date of purchase, to be cash equivalents.
Inventories. Inventories are valued at the lower of cost (first-in,
first-out) or market. Substantially all inventories represent finished goods.
Uniforms and other rental items in service. These items are valued at cost
less amortization, calculated using the straight-line method generally over
periods of eight to eighteen months.
Depreciation. The Company calculates depreciation using the straight-line
method over the estimated useful lives of the assets.
Other assets. Other assets consist primarily of service contracts and
non-compete or consulting agreements obtained through the acquisition of
businesses, which are amortized by use of the straight-line method over the
estimated lives of the agreements which are generally five to ten years, and
goodwill, which is amortized using the straight-line method over forty years.
Stock options. The Company grants stock options to certain employees at the
fair market value of the underlying common stock on the date of the grant.
The stock option grants are accounted for in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees, and accordingly no compensation
expense is recorded for the stock option grants.
Earnings per share. Earnings per share is calculated on the basis of the
weighted average number of shares of common stock outstanding during the year,
including the dilutive effect, if any, of assumed conversion of common stock
equivalents.
2. MARKETABLE SECURITIES
All marketable equity securities and debt securities are classified as
available-for-sale. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value determined to be other than temporary on
available-for-sale securities are included in investment income. The cost of
the securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in
investment income.
The following is a summary of marketable securities at May 31, 1996 and 1995:
1996 1995
Estimated Estimated
Cost Fair Value Cost Fair Value
Obligations of state
and political
subdivisions $57,318 $57,249 $26,434 $26,130
U.S. Treasury securities
and obligations of U.S.
government agencies 6,142 6,077 5,306 5,317
Other debt securities 10,017 10,053 7,057 7,036
$73,477 $73,379 $38,797 $38,483
The gross realized gains on sales of available-for-sale securities totaled
$77, $154 and $42 for the years ended May 31, 1996, 1995 and 1994, and the
gross realized losses totaled $127, $203 and $78, respectively. Net
unrealized losses are $98 and $314 at May 31, 1996 and 1995, respectively.
Marketable securities are carried at cost which approximates market.
The amortized cost and estimated fair value of debt and marketable equity
securities at May 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay the obligations without
prepayment penalties.
-24-
Estimated
Cost Fair Value
Due in one year or less $50,167 $50,208
Due after one year through three years 19,603 19,526
Due After three years 3,707 3,645
$73,477 $73,379
3. PROPERTY, PLANT AND EQUIPMENT
1996 1995
Land $24,458 $22,526
Buildings and improvements 124,590 119,109
Equipment 198,384 175,858
Leasehold improvements 1,016 1,035
Construction in progress 18,030 14,862
366,478 333,390
Less accumulated depreciation 113,881 105,393
$252,597 $227,997
4. OTHER ASSETS 1996 1995
Goodwill $57,962 $56,562
Service contracts 61,329 64,171
Non-compete and consulting agreements 47,175 48,452
166,466 169,185
Less accumulated amortization 55,630 49,564
110,836 119,621
Other 7,827 7,141
$118,663 $126,762
5. LONG-TERM DEBT 1996 1995
Secured term notes due through 2003 at an average rate
of 7.99% $37,351 $39,756
Unsecured term notes due through 2002 at an average
rate of 7.48% 38,571 40,000
Unsecured notes due through 2009 at an average rate
of 5.87% 29,055 29,819
Unsecured revolving note due in 2000 at a rate of 5.94% 10,000 10,000
Industrial development revenue bonds due through 2003 at
an average rate of 5.17% 7,202 8,236
Other long-term obligations 2,337 2,494
124,516 130,305
Less amounts due within one year 6,592 10,030
$117,924 $120,275
Debt in the amount of $46,712 is secured by assets with a carrying value
of $43,475 at May 31, 1996, and letters of credit in the amount of $11,116 .
Maturities of long-term debt during the five years ending May 31, 2001, are:
$6,592, $6,733, $33,821, $33,705 and $5,379, respectively. At May 31, 1996,
the fair value of the Company's outstanding debt approximates its carrying
value.
Interest expense is net of capitalization of $435, $638 and $449 for the
years ended May 31, 1996, 1995 and 1994, respectively. Interest paid, net of
the amount capitalized, was $9,532, $7,453 and $7,008 for the years ended May
31, 1996, 1995 and 1994, respectively.
-25-
6. LEASES
The Company conducts certain operations from leased facilities and leases
certain equipment. Most leases contain renewal options for periods from one
to ten years. The lease agreements provide for increases in rentals if the
options are exercised, based on increases in certain price level factors or
prearranged increases. The minimum rental payments for the five years ending
May 31, 2001, are: $3,442, $3,106, $2,666, $2,243 and $1,992, respectively.
Rent expense under operating leases during the years ended May 31, 1996, 1995
and 1994, was approximately $5,572, $5,369 and $4,258, respectively.
7. INCOME TAXES 1996 1995 1994
Income taxes consist of the following components:
Current:
Federal $35,001 $29,787 $21,900
State and local 5,746 5,389 4,197
40,747 35,176 26,097
Deferred 6,300 3,042 7,184
$47,047 $38,218 $33,281
Reconciliation of income tax expense using
the statutory rate and actual income tax
expense is as follows:
Income taxes at the U.S. federal
statutory rate $42,781 $35,336 $29,908
State and local income taxes, net of
federal benefit 4,239 3,659 3,412
Non-taxable income earned (599) (599) (554)
Tax credits (216) (395) (602)
Effect of tax rate changes on tax
liabilities -- -- 1,064
Other 842 217 53
$47,047 $38,218 $33,281
The components of deferred income taxes included on the balance sheets at
May 31, 1996, 1995, and 1994, are as follows:
1996 1995 1994
Deferred tax assets:
Employee benefits $6,936 $6,450 $4,272
Allowance for bad debts and other 5,821 6,009 2,667
12,757 12,459 6,939
Deferred tax liabilities:
In-service inventory 36,348 32,627 27,575
Depreciation 17,682 15,104 13,509
Other 4,945 4,646 3,326
58,975 52,377 44,410
Net deferred tax liability $46,218 $39,918 $37,471
Income taxes paid were $40,817, $35,362 and $29,741 for the years ended May
31, 1996, 1995 and 1994, respectively.
8. ACQUISITIONS
Information relating to the acquisitions of uniform rental businesses which
were accounted for as purchases is as follows:
1996 1995 1994
Number of acquisitions 3 12 8
Fair value of assets acquired $2,407 $52,684 $11,996
Liabilities assumed and incurred 100 2,589 200
Total cash paid for acquisitions $2,307 $50,095 $11,796
-26-
On February 13, 1995, the Company acquired 80% of the outstanding stock of
Cadet Uniform Services, Ltd., a uniform rental company in Toronto, Ontario,
for approximately $41 million which was financed through borrowings. The
purchase increased the Company's ownership from 20% to 100%.
In addition to the acquisitions reflected in the table, the Company acquired
one business in fiscal 1995 by reissuing 219,765 treasury shares and accounted
for the acquisition as a purchase.
The results of operations from the acquired businesses are included in the
consolidated statements of income from the dates of acquisition. The
unaudited pro forma results of operations for the years ended May 31, 1996 and
1995, assuming the acquisitions had occurred on June 1 of each respective
year, would be approximately as follows:
1996 1995
Revenues $731,319 $637,497
Net income $75,223 $64,058
Earnings per share $1.60 $1.37
The unaudited pro forma results of operations are not necessarily indicative
of the actual operating results that would have occurred had the acquisitions
been consummated on June 1 of each respective fiscal year or of future
operating results of the combined companies.
9. CINTAS PARTNERS' PLAN
The Cintas Partners' Plan (the Plan) is a non-contributory profit sharing
plan and ESOP for the benefit of Company employees who have completed one year
of service. The Plan also includes a 401(k) savings feature covering
substantially all employees. The amount of contributions to the profit
sharing plan and ESOP and the matching contribution to the 401(k) are at the
discretion of the Company. Total contributions, including the Company's
matching contributions, were $6,188, $4,956 and $4,300 for the years ended
May 31, 1996, 1995 and 1994, respectively.
10. STOCK OPTIONS
Under a stock option plan adopted by the Company in fiscal 1993, the Company
may grant officers and key employees incentive stock options and/or
non-qualified stock options to purchase an aggregate of 2,300,000 shares of
the Company's common stock. Options are generally granted at the fair market
value of the underlying common stock on the date of grant and generally become
exercisable at the rate of 20% per year commencing five years after grant, so
long as the holder remains an employee of the Company.
The information presented in the table relates to incentive stock options
granted and outstanding under either the plan adopted in fiscal 1993 or under
a similar plan which expired in June 1993.
Stock Option
Shares Price Range
Outstanding May 31, 1993(297,654 shares
exercisable) 1,317,476 $2.67-$28.75
Granted 193,750 26.50-27.50
Cancelled (48,710) 5.92-28.25
Exercised (226,682) 2.67-12.17
Outstanding May 31, 1994 (246,551 shares
exercisable) 1,235,834 3.46-28.75
Granted 237,200 31.88-38.38
Cancelled (88,950) 5.92-31.88
Exercised (219,515) 3.46-12.17
Outstanding May 31, 1995 (167,109 shares
exercisable) 1,164,569 5.92-38.38
Granted 225,250 34.75-52.50
Cancelled (28,420) 7.96-43.25
Exercised (159,923) 5.92-13.33
Outstanding May 31, 1996 (123,706 shares
exercisable) 1,201,476 $7.96-$52.50
-27-
In addition to the outstanding incentive stock options reflected in the
table, there were 210,970, 205,170 and 188,750 outstanding non-qualified stock
options at May 31, 1996, 1995 and 1994, respectively. During fiscal 1996,
88,500 non-qualified stock options were granted and 82,700 were exercised. At
May 31, 1996, the exercise prices of these outstanding options ranged from
$7.96 to $43.25 per share, and 74,300 of these outstanding options were
exercisable.
At May 31, 1996, 3,792,000 shares of common stock are reserved for future
issuance.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the results of operations for each of the
quarters within the years ended May 31, 1996 and 1995:
First Second Third Fourth
May 31, 1996 Quarter Quarter Quarter Quarter
Revenues from rentals and sales $170,343 182,369 182,977 194,441
Gross profit $69,256 72,959 73,122 77,983
Net income $16,288 18,847 18,524 21,524
Earnings per share $0.35 0.40 0.39 0.46
Weighted average number of shares
outstanding 47,033 47,053 47,122 47,190
May 31, 1995
Revenues from rentals and sales $142,037 151,591 151,217 170,253
Gross profit $57,481 59,502 59,359 67,491
Net income $13,760 15,756 15,315 17,912
Earnings per share $0.29 0.34 0.33 0.38
Weighted average number of shares
outstanding 46,805 46,829 46,932 47,000
-28-
REPORT OF AUDIT COMMITTEE
The Audit Committee (the Committee) of the Board of Directors is composed of
three independent directors. The Committee, which held two audit meetings
during fiscal 1996, oversees the Company's financial reporting process
on behalf of the Board of Directors.
In fulfilling its responsibility, the Committee recommended to the Board of
Directors the selection of the Company's independent auditors. The Committee
discussed with the independent auditors the overall scope and specific plan
for their audits. The Committee also discussed the Company's consolidated
financial statements and the adequacy of the Company's system of internal
control.
The Committee meets with the Company's independent auditors, without
management present, to discuss the results of their audits, their evaluation
of the system of internal control and the overall quality of the Company's
financial reporting. The meetings also are designed to facilitate any private
communications with the Committee desired by the independent auditors.
Roger L. Howe, Chairman
Audit Committee
July 8, 1996
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors
Cintas Corporation
We have audited the accompanying consolidated balance sheets of Cintas
Corporation as of May 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended May 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cintas
Corporation at May 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
May 31, 1996, in conformity with generally accepted accounting principles.
Cincinnati, Ohio Ernst & Young LLP
July 8, 1996
-29-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Fiscal 1996 marked another year of uninterrupted growth for the Company.
Total revenues were $730 million, an increase of 19% over fiscal 1995. Net
income of $75 million and earnings per share of $1.60 represented increases
of 20% and 19%, respectively, over the prior fiscal year. Net rental
revenues increased 19%; revenues in existing rental operations increased 15%,
while acquisitions accounted for the remaining growth. Net sales revenues
increased 17%. Return on equity of 19% was comparable with the prior year.
Income before taxes increased 21% to $122 million. Net interest expense
increased $1 million primarily due to an increase in the amount of long-term
debt associated with the acquisition of Cadet Uniform Services, Ltd. in fiscal
1995. The Company's effective tax rate was 38% in both 1996 and 1995.
Cash, cash equivalents and marketable securities increased by $37 million,
primarily due to strong cash flow from operations. The cash, cash equivalents
and marketable securities will be used to finance future acquisitions and
capital expenditures. Marketable securities consist primarily of municipal
bonds and federal government securities.
Inventories decreased $2 million as the Company focused on improving the
efficiency of its distribution operations while still maintaining service
levels for anticipated growth.
Net property, plant and equipment increased by $25 million. In fiscal 1996,
the Company constructed two new uniform rental facilities to accommodate
growth in rental operations.
FISCAL 1995 COMPARED TO FISCAL 1994
During fiscal 1995, total revenues were $615 million, net income was $63
million and earnings per share was $1.34, increasing 18%, 20% and 20%,
respectively. Net rental revenues increased 17%. Revenues in existing rental
operations increased 14%, while acquisitions accounted for the remaining
growth. Net sales revenues increased 20% due to new business and expansion of
business within existing national accounts. Return on equity of 19% was
comparable with the prior year.
Income before taxes increased 18% to $101 million. The Company's effective
tax rate decreased from 39% to 38%. In fiscal 1994, the Company recorded a
one-time charge for the retroactive impact (to January 1, 1993) of an
increase in corporate marginal tax rates due to the enactment of the Omnibus
Budget Reconciliation Act of 1993.
In fiscal 1995, the Company acquired 80% of the outstanding stock of Cadet
Uniform Services, Ltd., for approximately $41 million which was financed
through borrowings. The purchase increased the Company's ownership from 20%
to 100%.
Cash, cash equivalents and marketable securities decreased by $15 million
due to capital expenditures and acquisitions, which was partially offset by
strong cash flow from operations. The cash, cash equivalents and marketable
securities will be used to finance future acquisitions and capital
expenditures. Inventories increased $8 million as the Company added products
for the catalog program and proprietary products in the rental line.
Net property, plant and equipment increased by $35 million. In fiscal 1995,
the Company constructed five new uniform rental facilities to accommodate
growth in rental operations. Other assets increased by $39 million,
reflecting goodwill, service contracts, and non-compete and consulting
agreements obtained through the acquisition of uniform businesses.
-30-
FINANCIAL CONDITION
At May 31, 1996, the Company had $83 million in cash, cash equivalents and
marketable securities. The Company's investment policy pertaining to
marketable securities is conservative. Preservation of principal while
earning an attractive yield are the criteria used in making investments.
Working capital increased $49 million to $195 million due primarily to the
increase in cash, cash equivalents and marketable securities.
Capital expenditures for fiscal 1996 totaled $57 million. The Company
continues to reinvest profits into land, buildings and equipment in order to
expand capacity for future growth. The Company anticipates that capital
expenditures for fiscal 1997 will approximate $62 million.
The Company's percentage of debt to total capitalization was 22% at May 31,
1996, versus 26% at May 31, 1995.
During the year, the Company paid dividends of $12 million or $0.25 per
share. This dividend is an increase of 25% over that paid in fiscal 1995.
INFLATION AND CHANGING PRICES
Management believes inflation has not had a material impact on the Company's
financial condition or a negative effect on operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," in March 1995. The statement established standards for
recording impairment losses on long-lived assets used in operations, as well
as long-lived assets that are expected to be disposed. The Company will adopt
Statement No. 121 in the first quarter of fiscal 1997 and does not believe the
effect of adoption will be material.
-31-
Directors and Officers
Board of Directors Officers
Gerald V. Dirvin Robert R. Buck Carl W. Kettenacker
Retired Executive Vice President Senior Vice President Vice President
and Director of The Procter &
Gamble Company Bruce L. Burgess Robert J. Kohlhepp
Vice President President and Chief
Richard T. Farmer Executive Officer
Chairman of the Board Karen L. Carnahan
Treasurer James J. Krupansky
Scott D. Farmer Vice President
Vice President of the Corporation James (Jay) Case
Vice President Robert A. Oswald
James J. Gardner Vice President
Retired Vice President James V. Critchfield
of the Corporation Vice President David Pollak, Jr.
Vice President
Roger L. Howe Richard T. Farmer
Chairman of the Board Chairman of the Board William L. Pratt
of U.S. Precision Lens, Inc. Vice President
Scott D. Farmer
Donald P. Klekamp Vice President Rodger V. Reed
Senior Partner of Keating, Muething Vice President
and Klekamp William C. Gale
Vice President, Finance Bruce E. Rotte
Robert J. Kohlhepp Vice President
President and Chief Executive Larry A. Harmon
Officer of the Corporation Vice President G. Thomas Thornley
Vice President
John S. Lillard David T. Jeanmougin
Retired Chairman-Founder of JMB Senior Vice President
Institutional Realty Corporation
John S. Kean III
Senior Vice President
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Shareholder Information
EXECUTIVE OFFICES 10-K REPORT
Cintas Corporation A copy of the Form 10-K annual report
6800 Cintas Boulevard filed with the Securities and Exchange
P.O. Box 625737 Commission for the year ended May 31,
Cincinnati, Ohio 45262-5737 1996, is available at no charge
to shareholders. Direct requests in
writing for this report or
other information to:
AUDITORS William C. Gale
Vice President, Finance
Ernst & Young LLP Cintas Corporation
1300 Chiquita Center 6800 Cintas Boulevard
250 East Fifth Street P.O. Box 625737
Cincinnati, Ohio 45202 Cincinnati, Ohio 45262-5737
(513) 459-1200
MARKET FOR REGISTRANT'S COMMON STOCK
Cintas Corporation Common Stock is SECURITY HOLDER INFORMATION
traded on the NASDAQ National Market At May 31, 1996, there were
System. The symbol is CTAS. approximately 1,700 stockholders of
record of the Corporation's Common
Stock. The Company believes that this
represents approximately 13,000
beneficial owners.
REGISTRAR AND TRANSFER AGENT
The Fifth Third Bank
38 Fountain Square Plaza The following table shows the high and
Cincinnati, Ohio 45263 low closing prices by quarter during the
(513) 579-5300 last two fiscal years.
ANNUAL MEETING Fiscal 1996 Fiscal 1995
October 10, 1996 Quarter ended High Low Quarter ended High Low
Cintas Corporate Office May 1996 56 47 May 1995 40-1/4 33-3/4
6800 Cintas Boulevard Feb.1996 50-1/2 41-3/4 Feb.1995 38-3/4 33-1/2
Cincinnati, Ohio Nov.1995 48 37-1/2 Nov.1994 36-1/4 31-3/4
10:00 a.m. Aug.1995 40-3/8 33-1/2 Aug.1994 33-1/4 29-3/4
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EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
STATE/PROVINCE OF
NAME INCORPORATION
Cintas Corporation - East Coast Massachusetts
Cintas Corporation - Ohio Ohio
Cintas Corporation No. 1 Ohio
Cintas Corp. No. 5 Michigan
Cintas Corp. No. 13 Pennsylvania
Cintas Corporation No. 41 Maryland
Cintas Sales Corporation Ohio
Cintas Corp. No. 45 North Carolina
Corporate Business Services, Inc. Illinois
Cintas - R.U.S., Inc. South Carolina
Cintas Cleaning Services, Inc. Ohio
Cintas Executive Services, Inc. Nevada
Cadet Uniform Services Limited Ontario, Canada
Cintas Investment Corp. Ontario, Canada
910946 Ontario, Inc. Ontario, Canada
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Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form
10-K of Cintas Corporation of our report dated July 8, 1996, included in the
1996 Annual Report to Shareholders of Cintas Corporation.
Our audits also included the financial statement schedule of Cintas
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statement Number 33-56623 on Form S-8 pertaining to the Partners' Plan, the
Registration Statement Number 33-23228 on Form S-8 pertaining to the Incentive
Stock Option Plan and Registration Statement Number 33-71124 on Form S-8
pertaining to the 1990 Directors Plan and 1992 Stock Option Plan, of our
report dated July 8, 1996, with respect to the financial statements and
schedule of Cintas Corporation incorporated by reference in this Annual Report
on Form 10-K for the year ended May 31, 1996.
Ernst & Young LLP
Cincinnati, Ohio
August 20, 1996
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