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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, 2000
- ---
- --- 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.
The aggregate market value of Common Stock held by nonaffiliates is
$7,108,872,271 based on a closing price of $42.1875 on August 24, 2000. As of
August 24, 2000, 168,506,602 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 2000 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 2000 annual meeting are
incorporated by reference in Parts II and III as specified.
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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. 5
Item 4. - Submission of Matters to a Vote of Security Holders. 5
Part II
Item 5. - Market for Registrant's Common Equity and Related
Stockholder Matters. 6
Item 6. - Selected Financial Data. 6
Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6
Item 7A. - Quantitative and Qualitative Disclosure About
Market Risk. 6
Item 8. - Financial Statements and Supplementary Data. 6
Item 9. - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 6
Part III
Item 10. - Directors and Executive Officers of the Registrant. 7
Item 11. - Executive Compensation. 7
Item 12. - Security Ownership of Certain Beneficial Owners
and Management. 7
Item 13. - Certain Relationships and Related Transactions. 7
Part IV
Item 14. - Exhibits, Financial Statement Schedules and
Reports on Form 8-K. 7
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PART I
ITEM 1.
BUSINESS
Cintas Corporation is a publicly held company, and is primarily a corporate
identity uniform company which also provides ancillary services as discussed
below. 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 Rentals 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 and safety 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 replacements as required 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 and safety 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 competes on a national basis with
other uniform suppliers and manufacturers.
The Company operates fourteen 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 impact on the Company. The Company purchases fabric, used
in its manufacturing process, from several suppliers. The Company is not
aware of any circumstances that would hinder its ability to obtain these
materials.
The Company does not anticipate any material capital expenditures for
environmental remediation 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, 2000, the Company employed approximately 22,500 employees of which
approximately 900 were represented by labor unions. The Company considers its
relationship with its employees to be satisfactory.
-3-
The table sets forth the revenues derived from each service provided by Cintas.
Year Ended May 31
2000 1999 1998
---- ---- ----
(in thousands)
Rentals $ 1,424,892 $ 1,297,248 $ 1,090,577
Other Services 477,099 454,320 386,368
----------------- -------------- --------------
$ 1,901,991 $ 1,751,568 $ 1,476,945
================= ============== ==============
ITEM 2.
PROPERTIES
The Company occupies 269 facilities located in 207 cities, of which 106
facilities are leased for various terms ranging from monthly to the year
2019. The Company expects that it will be able to renew its leases on
satisfactory terms. All other properties are owned. The corporate offices
provide centrally located administrative functions including accounting,
finance, marketing and computer system development and support. 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 six distribution facilities and has fourteen
manufacturing plants. The Company also operates facilities that distribute
first aid products. The Company considers the facilities it operates to be
adequate for their intended use. The Company owns or leases 5,918 vehicles.
The following chart provides additional information concerning Cintas'
facilities:
Type of Facility # of Facilities
---------------- ---------------
Processing Plant 131
Branch 70
First Aid Facility 38
Distribution Center 6
Manufacturing Facility 14
Direct Sales Office 10
------------
Total 269
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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. Soil testing at the Company's facility detected volatile organic
compounds, and the Company immediately took action to remediate such
contamination. Groundwater testing in the area of the Company's property has
detected a very low level of volatile organic compound 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, 2000, the Company has an
undiscounted liability of $5.2 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 2000.
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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
39 of the Registrant's Annual Report to Shareholders for 2000 is incorporated
herein by reference. Dividend information is incorporated by reference to the
Consolidated Statements of Shareholders' Equity on page 20. Dividends on the
outstanding Common Stock are paid annually and amounted to $.19 and $.15 per
share in fiscal 2000 and 1999, respectively.
During the quarterly period ended May 31, 2000, the Registrant issued 40,509
shares of Common Stock as the result of an adjustment to the consideration
payable in connection with the acquisition of a company in April 1998. The
issuance occurred in a transaction separate from the 1998 closing and the
securities were issued to a total of 21 selling shareholders. 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 17 of the Registrant's Annual Report
to Shareholders for 2000 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 35 of the Registrant's Annual Report to
Shareholders for 2000 is incorporated herein by reference.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
"Quantitative and Qualitative Disclosure About Market Risk" on page 37 of the
Registrant's Annual Report to Shareholders for 2000 is incorporated herein by
reference.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Registrant shown on pages 18 through
34 of its Annual Report to Shareholders for 2000 are incorporated herein by
reference:
Consolidated Statements of Income for the years ended May 31, 2000, 1999 and
1998
Consolidated Balance Sheets as of May 31, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the years ended May 31,
2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended May 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements Report of Independent Auditors
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
Items 10., 11., 12., and 13. of Part III are incorporated by reference to the
Registrant's Proxy Statement for its 2000 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, 2000.
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 Filing
Number Description of Exhibit Status
------- ---------------------- ------
3.1 Restated Articles of Incorporation (1)
3.2 By-laws (1)
3.3 Amendments to the Articles of Incorporation of
Cintas Corporation (2)
Management Compensatory Contracts (Exhibits 10.1-10.11)
10.1 Incentive Stock Option Plan (3)
10.2 Partners' Plan, as Amended (4)
10.3 1990 Directors' Stock Option Plan (5)
10.4 1994 Directors' Stock Option Plan (6)
10.5 Agreement and Plan of Merger and Reorganization (7)
dated January 12, 1998 by and among Uniforms To
You and Company, Cintas Merger Sub, Inc. -
Illinois, other acquired companies, certain
shareholders and Cintas Corporation
-7-
10.6 Agreement and Plan of Merger dated January 9,1999 (8)
by and among Unitog Company, Cintas Image
Acquisition Company and Cintas Corporation
10.7 Amendment No. 1 to Agreement and Plan of Merger (9)
dated March 23, 1999 by and among Unitog
Company, Cintas Image Acquisition Company and
Cintas Corporation
10.8 Unitog Company 1992 Stock Option Plan (10)
10.9 Amendment No. 1 to Unitog Company 1992 Stock Option
Plan (11)
10.10 Unitog Company 1997 Stock Option Plan (12)
10.11 2000 Employee Stock Option Plan (13)
13 2000 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 May 2000 filed herewith
(a) Only portions of the 2000 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 1994 Proxy Statement.
(3) Incorporated by reference to the Company's Registration Statement No.
33-23228 on Form S-8 filed under the Securities Act of 1933.
(4) Incorporated by reference to the Company's Registration Statement No.
33-56623 on Form S-8 filed under the Securities Act of 1933.
(5) Incorporated by reference to the Company's Registration Statement No.
33-71124 on Form S-8 filed under the Securities Act of 1933.
(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.
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(10) Incorporated by reference to the Unitog Company's Form 10-K for the fiscal
year ended January 26, 1992.
(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 Form 10-Q for the quarter ended
November 30, 1999.
-9-
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 28, 2000 /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 28, 2000
Richard T. Farmer
/s/ Robert J. Kohlhepp Chief Executive
- ----------------------- Officer and Director August 28, 2000
Robert J. Kohlhepp
/s/ Scott D. Farmer President, Chief Operating
- ----------------------- Officer and Director August 28, 2000
Scott D. Farmer
/s/ James J. Gardner Director August 28, 2000
- -----------------------
James J. Gardner
/s/ Donald P. Klekamp Director August 28, 2000
- -----------------------
Donald P. Klekamp
/s/ William C. Gale Vice President and Chief
- ----------------------- Financial Officer (Principal
William C. Gale Financial and Accounting
Officer) August 28, 2000
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CINTAS CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves
(In Thousands)
ADDITIONS
----------------------------
(1) (2) (3)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
----------- --------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
May 31, 1998 $6,745 $3,206 $960 $2,933 $7,978
=========================================================================
May 31, 1999 $7,978 $3,576 $1,447 $4,247 $8,754
=========================================================================
May 31, 2000 $8,754 $1,994 $1,123 $4,507 $7,364
=========================================================================
RESERVE FOR OBSOLETE INVENTORY
May 31, 1998 $18,738 $6,899 $1,033 $3,348 $23,322
=========================================================================
May 31, 1999 $23,322 $13,104 $1,930 $6,503 $31,853
=========================================================================
May 31, 2000 $31,853 $1,220 (4) $821 $11,590 (5) $22,304
=========================================================================
(1) Represents amounts charged to expense to increase reserve for estimated
future bad debts or to increase reserve for obsolete inventory. Amounts
related to inventory are computed by performing a thorough analysis of
future marketability by specific inventory item.
(2) Represents an increase in the appropriate balance sheet reserve due to
acquisitions during the respective period, excluding Uniforms To You and
Unitog Company.
(3) Represents reductions in the balance sheet reserve due to the actual
write-off of non-collectible accounts receivable or the physical disposal
of obsolete inventory items. These amounts do not impact the Company's
income statement.
(4) In the years ended May 31, 1998 and 1999, Cintas acquired several new
businesses resulting in a broader and more complex product line. The amount
recorded in the year ended May 31, 2000 was significantly less than in the
prior years due to the extensive improvements made in product development,
forecasting, distribution and sourcing for these acquired operations. Such
improvements have resulted in significantly reducing the exposure to
obsolete inventory.
(5) Represents inventory values either contributed to charitable organizations
or destroyed. A reserve for obsolescence was recognized as an expense in
prior periods. Most of these amounts were attributed to inventories from
acquired companies.
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