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, 1998
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
$4,922,786,788 based on a closing price of $46.94 on August 21, 1998. As of
August 21, 1998, 104,879,612 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 1998 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 1998 annual meeting are
incorporated by reference in Parts II and III as specified.
<PAGE>
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. 7
Item 4. - Submission of Matters to a Vote of Security Holders. 8
Part II
Item 5. - Market for Registrant's Common Equity and Related 8
Stockholder Matters.
Item 6. - Selected Financial Data. 8
Item 7. - Management's Discussion and Analysis of Financial 8
Condition and Results of Operations.
Item 7A. - Quantitative and Qualitative Disclosure About Market Risk. 8
Item 8. - Financial Statements and Supplementary Data. 8
Item 9. - Changes in and Disagreements with Accountants on 9
Accounting and Financial Disclosure.
Part III
Item 10. - Directors and Executive Officers of the Registrant. 9
Item 11. - Executive Compensation. 9
Item 12. - Security Ownership of Certain Beneficial Owners and 9
Management.
Item 13. - Certain Relationships and Related Transactions. 9
Part IV
Item 14. - Exhibits, Financial Statement Schedules and 9
Reports on Form 8-K.
<PAGE>
PART I
ITEM 1.
BUSINESS
The Company began business in 1929 as an Ohio Corporation and changed its state
of incorporation to Washington in 1986. 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
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 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 walk-off 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, some
of which have financial resources comparable to the Company's.
The Company operates seven 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. 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.
At May 31, 1998, the Company employed 16,957 employees of which 770 were
represented by labor unions. The Company considers its relationship with its
employees to be satisfactory.
The table sets forth the revenues derived from each service provided by Cintas.
Year Ended May 31
1998 1997 1996
(in thousands)
Net Rentals $ 872,739 $739,207 $648,616
Other Service Revenue 325,568 256,000 227,217
-------- -------- -------
$1,198,307 $995,207 $875,833
========== ======== ========
<PAGE>
ITEM 2.
PROPERTIES
The Company occupies 193 facilities located in 154 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
four distribution facilities and has seven 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 3,815 vehicles.
The following chart provides additional information concerning
Cintas' facilities:
Location Type of Facility
Cincinnati, Ohio Corporate Offices, National
Account Division,
Distribution Center
Abbotsford, Vancouver (Canada) Processing Plant
Akron, Ohio Processing Plant
Alexandria, Louisiana Branch*
Allentown, Pennsylvania Branch*
Amarillo, Texas Branch*
Angola, Indiana 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
Baltimore, Maryland First Aid Facility
Barrie, Ontario (Canada) Processing Plant
Baton Rouge (South), Louisiana Processing Plant
Baton Rouge (North), Louisiana Processing Plant
Battlecreek, Michigan Processing Plant
Beaumont, Texas Processing Plant
Birmingham, Alabama Branch*
Bloomington, Indiana Branch*
Boston, Massachusetts Processing Plant
Branford, Connecticut Processing Plant
Brownsville, Texas Branch*
Buffalo, New York Processing Plant
Burton, Michigan Branch*
Charleston, South Carolina Branch*
Charlotte, North Carolina First Aid Facility*
Charlotte, North Carolina Processing Plant
Chattanooga, Tennessee Branch*
Chicago (South), Illinois Processing Plant
Chicago (North), Illinois Processing Plant
Chicago, Illinois First Aid
Chicago, Illinois Distribution Center
Chicago, Illinois Manufacturing Facility
Cincinnati, Ohio Branch*
Cincinnati, Ohio Processing Plant
Clay City, Kentucky Manufacturing Facility*
Cleveland (West), Ohio Processing Plant
<PAGE>
Cleveland (East), Ohio Processing Plant
Cleveland, Ohio First Aid Facility*
Colorado Springs, Colorado Branch*
Columbia, South Carolina Processing Plant*
Columbus, Ohio Processing Plant
Columbus, Ohio Branch*
Corpus Christi, Texas Processing Plant
Dallas, Texas Processing Plant
Dallas, Texas First Aid Facility*
Dallas, Texas First Aid Facility
Dayton, Ohio Processing Plant
Dayton, Ohio Processing Plant
Decatur, Georgia Processing Plant
Denver, Colorado Processing Plant
Denver, Colorado First Aid Facility*
Detroit, Michigan First Aid Facility*
Detroit, Michigan Processing Plant
Etobicoke, Ontario (Canada) Processing Plant
Eugene, Oregon Branch*
Evansville, Indiana Processing Plant*
Evansville, Indiana Branch*
Fairfield, California First Aid Facility*
Flint, Michigan Branch*
Fort Meyers, Florida Branch*
Fort Smith, Arkansas Processing Plant*
Fort Wayne, Indiana Branch*
Fort Wayne, Indiana Processing Plant
Gaylord, Michigan Processing Plant
Grand Rapids, Michigan Branch*
Grand Rapids, Michigan Branch*
Greenville, South Carolina Processing Plant
Greenville, South Carolina Processing Plant
Greenwood, Mississippi Branch*
Griffith, Indiana Branch*
Gulfport, Mississippi Branch*
Hammond, Louisiana Branch
Harrison, Arkansas Branch*
Hazard, Kentucky Manufacturing Facility*
Hoisington, Kansas Processing Plant*
Houston, Texas First Aid Facility*
Houston, Texas Processing Plant
Huntsville, Alabama Branch*
Indianapolis, Indiana Processing Plant
Indianapolis, Indiana Processing Plant
Indianapolis, Indiana Processing Plant
Jackson, Mississippi Branch*
Jacksonville, Florida Branch*
Joplin, Missouri Branch*
Kansas City, Kansas Processing Plant
Kansas City, Kansas First Aid Facility
Kansas City, Kansas First Aid Facility
Knoxville, Tennessee Branch*
Knoxville, Tennessee First Aid Facility*
Kokomo, Indiana Processing Plant*
Lafayette, Louisiana Branch
Lafayette, Indiana Processing Plant
<PAGE>
Lake Charles, Louisiana Processing Plant
Lake Station, Indiana Branch*
Laredo, Texas Branch*
Las Vegas, Nevada Processing Plant
Lexington, Kentucky Processing Plant
Lindsay, Ontario (Canada) Processing Plant
Little Rock, Arkansas Processing Plant
London, Ontario (Canada) Branch*
Long Island, New York Processing Plant
Los Angeles, California Processing Plant
Louisville, Kentucky Processing Plant
Louisville, Kentucky Processing Plant
Louisville, Kentucky First Aid Facility*
Lufkin, Texas Branch
Madison, Wisconsin Processing Plant
Madison, Wisconsin Direct Sales
Memphis, Tennessee Processing Plant
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*
Mobile, Alabama Branch*
Montgomery, Alabama Distribution Center*
Montgomery, Alabama Branch*
Mt. Vernon, Kentucky Manufacturing Facility*
Napanee, Ontario (Canada) Processing Plant
Nashville, Tennessee Processing Plant
Nashville, Tennessee Branch*
Natchez, Mississippi Branch*
Newburgh, New York Processing Plant
New Orleans, Louisiana Processing Plant
Oklahoma City, Oklahoma Processing Plant
Ontario, California Processing Plant
Orange, California Branch*
Orlando, Florida Processing Plant
Owingsville, Kentucky Manufacturing Facility
Pensacola, Florida Branch*
Philadelphia, Pennsylvania Processing Plant
Phoenix, Arizona Processing Plant
Phoenix, Arizona First Aid Facility*
Piscataway, New Jersey Processing Plant
Pittsburgh, Pennsylvania Processing Plant
Portal, Georgia Manufacturing Facility
Portland, Maine Branch
Portland, Oregon Processing Plant
Portland, Oregon First Aid Facility*
Raleigh-Durham, North Carolina Branch*
Rancho Santa Margarita, California Direct Sales Office
Rapid City, South Dakota First Aid Facility*
Reno, Nevada Distribution Center*
Richmond, Indiana Processing Plant*
<PAGE>
Richmond, Virginia Processing Plant
Sacramento, California Branch*
Savannah, Georgia Branch*
Salt Lake City, Utah Processing Plant*
San Angelo, Texas Branch*
San Antonio, Texas Processing Plant
San Diego, California First Aid Facility *
San Diego, California Processing Plant
Sandusky, Ohio Branch*
San Fernando, California Branch*
San Francisco(West), California Branch*
San Francisco (East), California Processing Plant*
San Jose, California Processing Plant
San Leandro, California First Aid Facility*
Seattle, Washington Processing Plant
Scranton, Pennsylvania First Aid Facility*
Shreveport, Louisiana Processing Plant
South Bend, Indiana Processing Plant
Springdale, Arkansas Processing Plant
Springfield, Missouri Processing Plant
St. Louis, Missouri First Aid Facility*
St. Louis, Missouri Processing Plant*
Tacoma, Washington Branch*
Tampa, Florida Processing Plant
Taunton, Massachusetts Branch*
Terrre Haute, Indiana Processing Plant
Thibodaux, Louisiana Processing Plant
Toledo, Ohio Branch*
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*
Warsaw, Indiana Branch
West Chester, New York Branch*
Washington, D.C. Processing Plant
Westland, Michigan Processing Plant
West Palm Beach, Florida Branch*
West Valley City, Utah First Aid Facility*
Wichita, Kansas Branch*
Winston-Salem, North Carolina Processing Plant
Youngstown, Ohio Branch*
*Leased for various terms ranging from monthly to 2008. The Company expects
that it will be able to renew its leases on satisfactory terms. All other
properties are owned.
<PAGE>
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 1998.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
"Market for Registrant's Common Stock@ and ASecurity Holder
Information" on page 35 of the Registrant's Annual Report to Shareholders for
1998 is incorporated herein by reference. Dividend information is incorporated
by reference to the Consolidated Statements of Shareholders' Equity on page 19.
Dividends on the outstanding Common Stock are paid annually and amounted to $.18
and $.15 per share in fiscal 1998 and 1997, respectively.
During the quarterly period ended May 31, 1998, the Registrant
issued 2,493,569 shares of Common Stock for companies being acquired in 11
separate transactions to the 21 owners of those companies. In addition, the
Registrant issued 3,959,262 shares of Common Stock for the acquisition of
Uniforms To You in April 1998. The issuance was to three individuals, seventeen
trusts with related trustees and a related corporation. The issuance's 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 16 of the Registrant's
Annual Report to Share holders for 1998 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 32 of the Registrant's Annual Report
to Shareholders for 1998 is incorporated herein by reference.
<PAGE>
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
Not Applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Registrant shown on pages
17 through 31 of its Annual Report to Shareholders for 1998 are incorporated
herein by reference:
Consolidated Balance Sheets as of May 31, 1998 and 1997
Consolidated Statements of Income for the years ended May 31, 1998, 1997
and 1996
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended May 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements Report of Independent
Auditors
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10., 11., 12., and 13. of Part III are incorporated by
reference to the Registrant's Proxy Statement for its 1998 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, 1998.
Schedule II: Valuation and Qualifying Accounts and Reserves.
<PAGE>
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 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)
13 1998 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 1998 filed herewith
27.1 Financial Data Schedule - Restated Nine months
ended February 1998 filed herewith
27.2 Financial Data Schedule - Restated Six Months
Ended November 1997 filed herewith
27.3 Financial Data Schedule - Restated Three Months
Ended August 1997 filed herewith
27.4 Financial Data Schedule - Restated Twelve Months
Ended May 1997 filed herewith
27.5 Financial Data Schedule - Restated Nine Months
Ended February 1997 filed herewith
27.6 Financial Data Schedule - Restated Six Months
Ended November 1996 filed herewith
27.7 Financial Data Schedule - Restated Three Months
Ended August 1996 filed herewith
<PAGE>
(a) Only portions of the 1998 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.
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, 1998 /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, 1998
Richard T. Farmer
/s/ Robert J. Kohlhepp Chief Executive
----------------------- Officer and Director August 28, 1998
Robert J. Kohlhepp
/s/ Scott D. Farmer President, Chief Operating
----------------------- Officer and Director August 28, 1998
Scott D. Farmer
<PAGE>
/s/ James J. Gardner Director August 28, 1998
-----------------------
James J. Gardner
/s/ Donald P. Klekamp Director August 28, 1998
-----------------------
Donald P. Klekamp
/s/ William C. Gale Vice President and Chief
------------------------ Financial Officer (Principal
William C. Gale Financial and Accounting
Officer) August 28, 1998
<PAGE>
CINTAS CORPORATION
<TABLE>
Schedule II - Valuation and Qualifying Accounts and Reserves
(In Thousands)
<CAPTION>
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:
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts $ 2,870 $2,168 $175 $ 2,420 (A) $ 2,793
======= ====== ==== ======= =======
Reserve for Obsolete Inventory $17,146 $ 9 $ 1 $ 2,573 $14,583
======= ====== ==== ======= =======
May 31, 1997:
Allowance for Doubtful Accounts $ 2,793 $3,881 $530 $ 2,408 (A) $ 4,796
======= ====== ==== ======= =======
Reserve for Obsolete Inventory $14,583 $4,584 $ 13 $ 3,629 $15,551
======= ====== ==== ======= =======
May 31,1998:
Allowance for Doubtful Accounts $ 4,796 $2,868 $960 $ 2,928 (A) $ 5,696
======= ====== ==== ======= =======
Reserve for Obsolete Inventory $15,551 $5,509 $681 $ 3,348 $18,393
======= ====== ==== ======= =======
</TABLE>
(A) Uncollectible Accounts Charged-off, Net of Recoveries.
<PAGE>
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
910946 Ontario, Inc. 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 Rental, Inc. Florida
Uniforms To You and Company Illinois
UTY Canada, LTD. Quebec, Canada
Affirmed Medical, Inc. California
NCAVANS, Inc. California
SanDVans, Inc. California
Phase VI Corporation Ohio
Ontario Dust Control Limited Ontario, Canada
Ontario Dust Control Corporation Ontario, Canada
Ludwig Cleaners, Ltd. Alberta, Canada
Lumont Services, Ltd. British Columbia, Canada
<PAGE>
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 2, 1998, included in the 1998
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 2,
1998, 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, 1998.
Ernst & Young LLP
Cincinnati, Ohio
August 24, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 12,717,000
<SECURITIES> 88,154,000
<RECEIVABLES> 163,299,000
<ALLOWANCES> 5,696,000
<INVENTORY> 244,885,000
<CURRENT-ASSETS> 508,601,000
<PP&E> 561,785,000
<DEPRECIATION> 194,691,000
<TOTAL-ASSETS> 1,017,836,000
<CURRENT-LIABILITIES> 158,991,000
<BONDS> 0
0
0
<COMMON> 46,965,000
<OTHER-SE> 607,527,000
<TOTAL-LIABILITY-AND-EQUITY> 1,017,836,000
<SALES> 91,118,000
<TOTAL-REVENUES> 329,916,000
<CGS> 62,173,000
<TOTAL-COSTS> 195,217,000
<OTHER-EXPENSES> 96,015,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,600,000
<INCOME-PRETAX> 37,242,000
<INCOME-TAX> 5,667,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,575,000
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 17,461,000
<SECURITIES> 75,754,000
<RECEIVABLES> 154,643,000
<ALLOWANCES> 6,168,000
<INVENTORY> 232,377,000
<CURRENT-ASSETS> 479,293,000
<PP&E> 521,033,000
<DEPRECIATION> 177,482,000
<TOTAL-ASSETS> 962,269,000
<CURRENT-LIABILITIES> 164,930,000
<BONDS> 0
0
0
<COMMON> 46,496,000
<OTHER-SE> 569,026,000
<TOTAL-LIABILITY-AND-EQUITY> 962,269,000
<SALES> 83,249,000
<TOTAL-REVENUES> 301,889,000
<CGS> 56,607,000
<TOTAL-COSTS> 178,934,000
<OTHER-EXPENSES> 74,800,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,093,000
<INCOME-PRETAX> 47,285,000
<INCOME-TAX> 16,995,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,290,000
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 18,794,000
<SECURITIES> 83,825,000
<RECEIVABLES> 149,233,000
<ALLOWANCES> 6,005,000
<INVENTORY> 217,949,000
<CURRENT-ASSETS> 468,415,000
<PP&E> 495,909,000
<DEPRECIATION> 171,889,000
<TOTAL-ASSETS> 911,757,000
<CURRENT-LIABILITIES> 150,673,000
<BONDS> 0
0
0
<COMMON> 45,920,000
<OTHER-SE> 559,083,000
<TOTAL-LIABILITY-AND-EQUITY> 911,757,000
<SALES> 81,395,000
<TOTAL-REVENUES> 293,697,000
<CGS> 56,066,000
<TOTAL-COSTS> 175,045,000
<OTHER-EXPENSES> 68,113,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,103,000
<INCOME-PRETAX> 49,652,000
<INCOME-TAX> 16,920,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,732,000
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> AUG-31-1997
<CASH> 13,626,000
<SECURITIES> 92,234,000
<RECEIVABLES> 133,784,000
<ALLOWANCES> 6,223,000
<INVENTORY> 197,218,000
<CURRENT-ASSETS> 433,728,000
<PP&E> 469,470,000
<DEPRECIATION> 160,544,000
<TOTAL-ASSETS> 862,908,000
<CURRENT-LIABILITIES> 137,059,000
<BONDS> 0
0
0
<COMMON> 45,529,000
<OTHER-SE> 527,306,000
<TOTAL-LIABILITY-AND-EQUITY> 862,908,000
<SALES> 69,806,000
<TOTAL-REVENUES> 272,805,000
<CGS> 48,379,000
<TOTAL-COSTS> 161,050,000
<OTHER-EXPENSES> 67,693,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,279,000
<INCOME-PRETAX> 42,905,000
<INCOME-TAX> 14,645,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,260,000
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 16,362,000
<SECURITIES> 88,655,000
<RECEIVABLES> 127,771,000
<ALLOWANCES> 4,796,000
<INVENTORY> 193,188,000
<CURRENT-ASSETS> 424,168,000
<PP&E> 448,969,000
<DEPRECIATION> 149,787,000
<TOTAL-ASSETS> 843,290,000
<CURRENT-LIABILITIES> 146,040,000
<BONDS> 0
0
0
<COMMON> 45,299,000
<OTHER-SE> 504,526,000
<TOTAL-LIABILITY-AND-EQUITY> 843,290,000
<SALES> 68,645,000
<TOTAL-REVENUES> 266,022,000
<CGS> 46,493,000
<TOTAL-COSTS> 157,114,000
<OTHER-EXPENSES> 61,877,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,509,000
<INCOME-PRETAX> 45,698,000
<INCOME-TAX> 16,019,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,679,000
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 10,304,000
<SECURITIES> 98,436,000
<RECEIVABLES> 118,567,000
<ALLOWANCES> 5,197,000
<INVENTORY> 189,962,000
<CURRENT-ASSETS> 415,527,000
<PP&E> 432,321,000
<DEPRECIATION> 143,346,000
<TOTAL-ASSETS> 826,792,000
<CURRENT-LIABILITIES> 138,291,000
<BONDS> 0
0
0
<COMMON> 44,966,000
<OTHER-SE> 491,649,000
<TOTAL-LIABILITY-AND-EQUITY> 826,792,000
<SALES> 59,016,000
<TOTAL-REVENUES> 244,455,000
<CGS> 39,655,000
<TOTAL-COSTS> 144,788,000
<OTHER-EXPENSES> 59,805,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,564,000
<INCOME-PRETAX> 38,493,000
<INCOME-TAX> 13,860,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,633,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 13,577,000
<SECURITIES> 86,962,000
<RECEIVABLES> 121,468,000
<ALLOWANCES> 3,952,000
<INVENTORY> 186,735,000
<CURRENT-ASSETS> 407,545,000
<PP&E> 420,367,000
<DEPRECIATION> 139,887,000
<TOTAL-ASSETS> 806,738,000
<CURRENT-LIABILITIES> 141,639,000
<BONDS> 0
0
0
<COMMON> 44,834,000
<OTHER-SE> 471,570,000
<TOTAL-LIABILITY-AND-EQUITY> 806,738,000
<SALES> 68,364,000
<TOTAL-REVENUES> 250,256,000
<CGS> 48,573,000
<TOTAL-COSTS> 150,952,000
<OTHER-EXPENSES> 56,813,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,521,000
<INCOME-PRETAX> 41,051,000
<INCOME-TAX> 13,713,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,338,000
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 13,761,000
<SECURITIES> 81,797,000
<RECEIVABLES> 111,968,000
<ALLOWANCES> 3,054,000
<INVENTORY> 180,554,000
<CURRENT-ASSETS> 387,095,000
<PP&E> 406,169,000
<DEPRECIATION> 135,531,000
<TOTAL-ASSETS> 775,830,000
<CURRENT-LIABILITIES> 127,480,000
<BONDS> 0
0
0
<COMMON> 44,195,000
<OTHER-SE> 448,854,000
<TOTAL-LIABILITY-AND-EQUITY> 775,830,000
<SALES> 59,975,000
<TOTAL-REVENUES> 234,474,000
<CGS> 42,338,000
<TOTAL-COSTS> 140,802,000
<OTHER-EXPENSES> 55,540,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,488,000
<INCOME-PRETAX> 36,524,000
<INCOME-TAX> 12,186,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,338,000
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
FINANCIAL HIGHLIGHTS
Years Ended May 31 1998 1997 % Change
In thousands except per share data)
OPERATING RESULTS
Net Revenue 1,198,307 $995,207 20%
Pro Forma Net Income 117,907 100,194 18%
Return on Average Equity 19.6% 19.7% --
FINANCIAL CONDITION
Shareholders' Equity $654,492 $549,825 19%
Working Capital 349,610 278,128 26%
Current Ratio 3.20:1 2.90:1 10%
PER SHARE DATA
Pro Forma Net Income (Basic) $1.16 $1.01 15%
Pro Forma Net Income (Diluted) 1.14 .99 15%
Shareholders' Equity (Book Value) 6.26 5.47 14%
Dividends . .18 .15 20%
<PAGE>
ELEVEN YEAR FINANCIAL SUMMARY
<TABLE>
Years Ended May(In thousands except per share data)
10 YEAR
<CAPTION>
COMPD
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 GROWTH
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenue $280,961 334,533 390,916 432,492 478,207 541,514 625,094 735,870 875,833 995,207 1,198,307 15.6%
Net Income $22,742 27,801 30,491 34,472 40,746 49,009 59,182 74,929 87,744 105,988 122,857 18.4%
Pro Forma Net
Income $21,139 26,003 29,536 33,274 40,153 47,427 56,500 70,268 82,939 100,194 117,907 18.8%
Basic EPS $0.26 0.30 0.32 0.36 0.42(a) 0.51 0.61 0.77 0.89 1.07 1.21 16.6%
Pro Forma
Basic EPS $0.24 0.28 0.31 0.35 0.42(a) 0.49 0.58 0.72 0.84 1.01 1.16 17.1%
Diluted EPS $0.26 0.30 0.32 0.36 0.42(a) 0.50 0.60 0.75 0.88 1.05 1.19 16.4%
Pro Forma
Diluted EPS $0.24 0.28 0.31 0.35 0.42(a) 0.48 0.57 0.71 0.83 0.99 1.14 16.9%
Dividends Per
Share $0.02 0.03 0.04 0.05 0.06 0.07 0.09 0.10 0.13 0.15 0.18 24.6%
Total Assets $247,306 277,289 333,211 377,454 411,814 508,361 568,667 665,236 750,762 843,290 1,017,836 15.2%
Shareholders'
Equity $118,732 153,405 178,942 208,690 243,499 288,594 344,015 404,744 465,529 549,825 654,492 18.6%
Return on
Average Equity 19.3% 19.1% 17.8% 17.2% 17.8% 17.8% 17.9% 18.8% 19.1% 19.7% 19.6%
Long-Term Debt $73,144 55,485 83,947 91,034 87,457 120,180 97,264 128,641 133,422 125,566 180,007
</TABLE>
(a) Includes earnings of $.03 per share due to the adoption of SFAS No. 96.
Note: Results prior to April 8, 1998, have 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.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended May 31
(In thousands except per share data) 1998 1997 1996
(Restated) (Restated)
- --------------------------------------------------------------------------------
Revenue:
Net rentals $872,739 $739,207 $648,616
Other service revenue $325,568 256,000 227,217
----------------------------------
1,198,307 995,207 875,833
Costs and expenses (income):
Cost of rentals 487,021 416,597 369,386
Cost of other service revenue 223,225 177,058 159,189
Selling and administrative expenses 287,155 233,481 204,826
Acquisition-related expenses 17,116 553 56
Interest income (4,719) (4,328) (2,658)
Interest expense 9,075 10,080 10,243
--------------------------------------
1,018,873 833,441 741,042
-----------------------------------
Income before income taxes 179,434 161,766 134,791
Income taxes 56,577 55,778 47,047
------------------------------------
Net income $122,857 $105,988 $87,744
----------------------------------
Basic earnings per share $1.21 $1.07 $.89
-------------------------------------
Diluted earnings per share $1.19 $1.05 $.88
-------------------------------------
Dividends declared and paid per share $ .18 $ .15 $.13
-------------------------------------
Net income as reported $122,857 $105,988 $87,744
Pro forma adjustment for income taxes 4,950 5,794 4,805
-------------------------------------
Pro forma net income . $117,907 $100,194 $82,939
----------------------------------
Pro forma basic earnings per share $1.16 $1.01 $.84
-------------------------------------
Pro forma diluted earnings per share $1.14 $ .99 $.83
-------------------------------------
See accompanying notes.
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of May 31 (In thousands except share data) 1998 1997
(Restated)
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,717 $ 16,362
Marketable securities 88,154 88,655
Accounts receivable, principally
trade, less allowance of $5,696
and $4,796, respectively 157,603 122,975
Inventories 108,226 80,344
Uniforms and other rental items
in service 136,659 112,844
Prepaid expenses 5,242 2,988
Total current assets 508,601 424,168
---------------------------------
Property, plant and equipment, at cost, net 367,094 299,182
Other assets 142,141 119,940
---------------------------------
$1,017,836 $843,290
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,801 $ 32,675
Accrued compensation and related
liabilities 16,615 10,885
Accrued liabilities 61,239 61,269
Deferred income taxes 31,219 32,889
Long-term debt due within one year 8,117 8,322
---------------------------------
Total current liabilities 158,991 146,040
Long-term debt due after one year 180,007 125,566
Deferred income taxes 24,346 21,859
Shareholders' equity:
Preferred stock, no par value;
100,000 shares authorized,
none outstanding -- --
Common stock, no par value;
120,000,000 shares authorized,
104,610,716 and 100,492,840
shares issued and outstanding,
respectively 46,965 45,299
Retained earnings 610,025 505,568
Foreign currency translation adjustment (2,498) (1,042)
------------------------------
Total shareholders' equity 654,492 549,825
----------------------------
$1,017,836 $843,290
-------------------------------
See accompanying notes.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Foreign
Currency Total
Common Stock Retained Translation Shareholders'
Shares Amount Earnings Adjustment Equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1995 94,010 $ 42,035 $ 323,284 $ (975) $ 364,344
Adjustment for
pooling of interests 3,959 260 40,115 25 40,400
------------------------------------------------------------------------------------
Balance at May 31, 1995, as restated 97,969 42,295 363,399 (950) 404,744
Net income -- -- 87,744 -- 87,744
Dividends -- -- (11,794) -- (11,794)
Distributions to S corporation
shareholders -- -- (16,903) -- (16,903)
Stock options exercised net
of shares surrendered 388 768 -- -- 768
Tax benefit resulting from
exercise of employee
stock options -- 854 -- -- 854
Foreign currency translation
adjustment -- -- -- 116 116
------------------------------------------------------------------------------------
Balance at May 31, 1996, as restated 98,357 43,917 422,446 (834) 465,529
Net income -- -- 105,988 -- 105,988
Dividends -- -- (14,477) -- (14,477)
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. 378 1,121 -- -- 1,121
Tax benefit resulting from
exercise of employee
stock options -- 261 -- -- 261
Foreign currency translation
adjustment -- -- -- (208) (208)
------------------------------------------------------------------------------------
Balance at May 31, 1997, as restated 100,493 45,299 505,568 (1,042) 549,825
549,825
Net income -- -- 122,857 -- 122,857
Dividends -- -- (17,634) -- (17,634)
Distributions to S corporation
shareholders -- -- (12,423) -- (12,423)
Effects of acquisitions 3,850 13 11,657 -- 11,670
Stock options exercised net
of shares surrendered 268 896 -- -- 896
Tax benefit resulting from
exercise of employee
stock options -- 757 -- -- 757
Foreign currency translation
adjustment -- -- -- (1,456) (1,456)
------------------------------------------------------------------------------------
Balance at May 31, 1998 104,611 $46,965 $610,025 $(2,498) $654,492
------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended May 31 (In thousands) 1998 1997 1996
(Restated) (Restated)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $122,857 $105,988 $87,744
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 45,774 38,504 32,378
Amortization of deferred charges. 11,463 11,945 12,518
Deferred income taxes 11,865 8,329 6,300
Change in current assets and
liabilities, net of acquisitions of businesses:
Accounts receivable (23,777) (14,029) (14,646)
Inventories (21,824) (4,311) (2,039)
Uniforms and other rental items in service (22,422) (12,242) (11,637)
Prepaid expenses (5,509) (363) 52
Accounts payable (3,440) (4,927) 9,167
Accrued compensation and related liabilities 5,730 1,263 (1,428)
Accrued liabilities (1,997) 5,686 9,352
-------------------------------- -----
Net cash provided by operating activities 118,720 135,843 127,761
Cash flows from investing activities:
Capital expenditures (96,964) (70,095) (59,850)
Proceeds from sale or redemption of marketable securities 117,342 49,290 74,220
Purchase of marketable securities (116,841) (64,468) (108,900)
Acquisitions of businesses, net of cash acquired (13,691) (9,060) (2,307)
Other (1,923) (979) (2,131)
----------------------------- -------
Net cash used by investing activities (112,077) (95,312) (98,968)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 47,804 -- 7,730
Repayment of long-term debt (26,950) (7,874) (6,484)
Issuance of common stock 896 1,121 768
Dividends paid (17,634) (14,477) (11,794)
Distributions to S corporation shareholders (12,423) (13,764) (16,903)
Other (1,981) (1,197) 969
----------------------------- ---
Net cash used in financing activities (10,288) (36,191) (25,714)
Net (decrease) increase in cash and cash equivalents (3,645) 4,340 3,079
----------------------------- -----
Cash and cash equivalents at beginning of year. 16,362 12,022 8,943
---------------------------- -----
Cash and cash equivalents at end of year $12,717 $16,362 $12,022
--------------------------- -------
</TABLE>
See accompanying notes.
<PAGE>
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 also provides ancillary
services including entrance mats, sanitation supplies and first aid products and
services. The Company provides these highly specialized services 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.
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, PLANT 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 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 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.
INTEREST RATE SWAP AGREEMENTS. Periodic settlements under interest rate
swap agreements are recognized as adjustments of interest expense for the
relevant periods.
REVENUE RECOGNITION. Rental revenue is recognized when services are
performed and sales revenue is recognized when products are shipped. The Company
also establishes an estimate of allowances for uncollectible accounts when
revenue is recorded.
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. 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.
<PAGE>
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
approximates market value. Market values are based on quoted market
prices.
Long-term debt. The amounts reported are at carrying value which
approximates 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 ACCOUNTING PRONOUNCEMENTS. In 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, and No. 131, Disclosures about Segments of an
Enterprise and Related Information. These new pronouncements, which become
effective in fiscal 1999, are presently being reviewed by the Company and are
not expected to have a material effect on the Company's financial position or
results of operations although they 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 are included in interest income.
The following is a summary of marketable securities at May 31, 1998 and
1997:
1998 1997
- --------------------------------------------------------------------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
(Restated) (Restated)
Obligations of state and
political subdivisions $65,791 $65,757 $63,573 $63,476
U.S. Treasury securities
and obligations of U.S.
government agencies 4,938 4,918 11,444 11,420
Other debt securities 17,425 17,504 13,638 13,621
------------------------------------------------
$88,154 $88,179 $88,655 $88,517
------------------------------------------------
The gross realized gains on sales of available-for-sale securities
totaled $84, $31 and $77 for the years ended May 31, 1998, 1997 and 1996, and
the gross realized losses totaled $25, $96 and $127, respectively. Net
unrealized gains/(losses) are $25 and $(138) at May 31, 1998 and 1997,
respectively.
The amortized cost and estimated fair value of debt and marketable
securities at May 31, 1998, 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 $ 44,669 $ 44,660
Due after one year through three years 28,478 28,562
Due after three years 15,007 14,957
-------- -------
$88,154 $88,179
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT 1998 1997
(Restated)
- -------------------------------------------------------------------------------
Land $ 31,238 $ 27,626
Buildings and improvements 160,523 144,349
Equipment 316,812 252,839
Leasehold improvements 3,956 3,446
Construction in progress 49,256 20,709
------------ ------
561,785 448,969
Less accumulated depreciation 194,691 149,787
----------- -------
$367,094 $299,182
4. OTHER ASSETS 1998 1997
(Restated)
- --------------------------------------------------------------------------------
Goodwill $ 72,544 $ 58,004
Service contracts 69,021 62,240
Noncompete and consulting agreements 39,994 42,381
----------- ------
181,559 162,625
Less accumulated amortization 56,933 53,382
----------- ------
124,626 109,243
Other 17,515 10,697
----------- ------
$142,141 $119,940
5. LONG-TERM DEBT 1998 1997
(Restated)
- -------------------------------------------------------------------------------
Secured term notes due through
2003 at an average rate of 6.99% $ 36,257 $ 35,390
Unsecured term notes due through
2003 at an average rate of 7.08%. 32,967 35,714
Unsecured notes due through 2009
at an average rate of 6.25% 97,906 30,884
Unsecured revolving note due in
2000 at a rate of 6.05% 10,000 20,880
Industrial development revenue
bonds due through 2013
at an average rate of 5.18% 10,879 10,888
Other long-term obligations 115 132
-------------------------
188,124 133,888
Less amounts due within one year 8,117 8,322
--------------------------
$180,007 $125,566
Debt in the amount of $9,804 is secured by assets with a carrying value
of $10,127 at May 31, 1998, and letters of credit in the amount of $7,558.
Maturities of long-term debt during each of the next five years are: $8,117,
$87,523, $11,542, $29,094 and $5,445, respectively.
The Company has entered into an interest rate swap agreement to manage
its exposure to swings in short-term interest rates. This agreement totals
$10,000, expires in March 2001 and allows the Company to pay an effective
interest rate of approximately 6.16%.
Interest expense is net of capitalized interest of $1,190, $551 and $435
for the years ended May 31, 1998, 1997 and 1996, respectively. Interest paid,
net of amount capitalized, was $8,648, $10,479 and $10,963 for the years ended
May 31, 1998, 1997 and 1996, respectively.
6. LEASES
- --------------------------------------------------------------------------------
The Company conducts certain operations from leased facilities and
leases certain equipment. Most leases contain renewal options for periods from
one to ten years. The lease agreements provide for increases in rentals if the
options are exercised based on increases in certain price level factors or
prearranged increases. The minimum rental payments for each of the next five
years ending May 31, 2003,
<PAGE>
and thereafter are: $5,903, $4,600, $3,551, $2,920, $2,595 and $8,845,
respectively. Rent expense under operating leases during the years ended May 31,
1998, 1997 and 1996, was $8,654, $7,189 and $5,885, respectively.
7. INCOME TAXES 1998 1997 1996
- -------------------------------------------------------------------------------
Income taxes consist of the
following components:
Current:
Federal $49,326 $41,071 $35,001
State and local 6,434 6,378 5,746
------------------------ -----
55,760 47,449 40,747
Deferred 817 8,329 6,300
------------------------ -----
$56,577 $55,778 $47,047
---------------------- -------
1998 1997 1996
(Restated) Restated)
- --------------------------------------------------------------------------------
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 $62,802 $56,619 $47,177
State and local income taxes, net
of federal benefit 6,446 5,394 4,648
Nontaxable income earned (1,201) (1,048) (599)
Tax credits (288) (206) (216)
Nontaxable income of company acquired
in pooling of interests (4,950) (5,794) (4,805)
Deferred tax benefit arising from pooling
of interests (8,280) -- --
Other 2,048 813 842
----------------------------------
$56,577 $55,778 $47,047
-----------------------------------
The components of deferred income taxes included on the balance sheets at May
31, 1998 and 1997, are as follows:
1998 1997
- ---------------------------------------------------------------------------
Deferred tax assets:
Employee benefits $ 5,719 $ 5,818
Allowance for bad debts and other 10,388 7,496
--------- -----
16,107 13,314
Deferred tax liabilities:
In-service inventory 48,321 41,022
Depreciation 24,654 21,083
Other (1,303) 5,957
---------- -----
71,672 68,062
Net deferred tax liability $55,565 $54,748
------- -------
Income taxes paid were $54,406, $45,207 and $40,817 for the years ended
May 31, 1998, 1997 and 1996, respectively.
8. ACQUISITIONS
- --------------------------------------------------------------------------------
During the year ended May 31, 1998, the Company completed nine
significant acquisitions (excluding insignificant acquisitions). Eight of these
acquisitions were accounted for as a pooling of interests and one as a purchase.
<PAGE>
During the year ended May 31, 1997, the Company completed four
significant acquisitions (excluding insignificant acquisitions). Three of these
acquisitions were accounted for as a pooling of interests and one as a purchase.
POOLING OF INTERESTS
The impact of seven of the 1998 pooling of interests transactions and
the three 1997 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 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 has been made to the
historical carrying amount of assets and liabilities of UTY. The accompanying
consolidated financial statements have been restated to include the financial
position and operating results of UTY for all periods prior to the merger.
A reconciliation of revenue, pro forma net income and pro forma basic
and diluted earnings per share of Cintas (as previously reported), UTY, and
combined, including the pro forma adjustment for income taxes for UTY, is as
follows:
1998 1997 1996
- --------------------------------------------------------------------------
Revenue:
Cintas (as previously reported) $839,949 $730,130
UTY 155,258 145,703
-----------------------------------
Combined $1,198,307 $995,207 $875,833
-----------------------------------
Pro forma net income:
Cintas (as previously reported) $90,840 $75,183
UTY 15,148 12,561
Pro forma adjustment for UTY
income taxes 5,794 4,805
-------------------------------------
Combined $ 117,907 $100,194 $82,939
------------------------------------
Pro forma basic earnings per share:
Cintas (as previously reported) $ .95 $.80
-----------------------------------
Combined $1.16 $1.01 $.84
-----------------------------------
Pro forma diluted earnings per share:
Cintas (as previously reported) $ .94 $.79
------------------------------------
Combined $1.14 $ .99 $.83
------------------------------------
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.
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:
<PAGE>
1998 1997 1996
- --------------------------------------------------------------------------------
Fair value of assets acquired $37,477 $12,845 $2,407
Liabilities assumed and incurred 1,787 2,499 100
-----------------------------------
Total cash paid for acquisitions $35,690 $10,346 $2,307
-----------------------------------
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. 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, 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 $8,820, $7,331 and $6,188 for the years ended May
31, 1998, 1997 and 1996, 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 computed 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.
The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective years:
1998 1997 1996
- -------------------------------------------------------------------------------
Numerator:
Net income $122,857 $105,988 $87,744
Denominator:
Denominator for basic earnings
per share - weighted average shares
('000's) 101,751 99,221 98,157
Effect of dilutive securities -
employee stock options ('000's) 1,872 1,504 1,504
------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions ('000's) 103,623 100,725 99,661
----------------------------------
Basic earnings per share $1.21 $1.07 $.89
------------------------------------
Diluted earnings per share $1.19 $1.05 $.88
------------------------------------
On October 22, 1997, the Board of Directors approved a 2-for-1 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
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related Interpretations, in
accounting for its stock options. The Company has adopted the disclosure-only
provision of Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation. All of the Company's stock options have been issued
with an exercise price equal to the estimated fair market value of the
underlying stock at the date of grant. Accordingly, under Opinion No. 25, no
compensation expense is recognized.
<PAGE>
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.
The information presented in the following table relates 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 AVG.
SHARES EXERCISE PRICE
Outstanding May 31, 1995
(562,718 shares exercisable) 2,739,478 $ 10.16
Granted 627,500 19.67
Cancelled (56,840) 12.15
Exercised (485,246) 6.48
--------- ----
Outstanding May 31, 1996
(396,012 shares exercisable) 2,824,892 12.86
Granted 780,100 25.89
Cancelled (126,400) 14.83
Exercised (272,060) 5.83
--------- ----
Outstanding May 31, 1997
(360,672 shares exercisable) 3,206,532 16.56
Granted 1,111,200 36.37
Cancelled (153,798) 22.52
Exercised (277,017) 6.89
--------- ----
Outstanding May 31, 1998
(334,717 shares exercisable) 3,886,917 $22.65
--------- ------
The following table summarizes information about stock options outstanding at
May 31, 1998:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Option Exercise Number Exercise
Price Outstanding Life Price Exercise Price
- --------------------------------------------------------------------------------
$5.50-$13.75 1,030,317 3.59 $10.91 274,717 $ 8.61
13.88-24.38 1,053,400 6.58 18.08 33,200 17.76
25.25-31.00 751,400 8.25 25.93 26,800 27.08
34.88-50.25 1,051,800 9.23 36.38 -- --
- --------------------------------------------------------------------------------
$ 5.50-$50.25 3,886,917 6.83 $22.65 334,717 $11.00
- --------------------------------------------------------------------------------
At May 31, 1998, 1,210,700 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 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:
1998 1997 1996
- --------------------------------------------------------------------------------
Risk free interest rate 5.50% 6.63% 6.46%
Dividend yield .45% .53% .56%
Expected volatility of the Company's
common stock 24% 26% 27%
Expected life of the option (in years) 8 8.5 9
<PAGE>
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:
1998 1997 1996
- --------------------------------------------------------------------------------
Net income:
As reported $122,857 $105,988 $87,744
Pro forma for Statement No. 123 $120,167 $104,711 $87,259
Earnings per share:
Pro forma basic earnings per share
for Statement No. 123 $1.18 $1.06 $.89
Pro forma diluted earnings per share
for Statement No. 123 $1.16 $1.04 $.88
The effects of providing pro forma disclosure are not representative of
earnings reported for future years.
- --------------------------------------------------------------------------------
<PAGE>
12. 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, 1998 and 1997. 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 UTY, an acquisition
accounted for using the pooling of interests method of accounting.
FIRST SECOND THIRD FOURTH
MAY 31, 1998 QUARTER QUARTER QUARTER QUARTER
(Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------
Revenue:
Cintas (as previously reported) $235,501 $ 251,984 $262,837
UTY 37,304 41,713 39,052
-------------------------------------------
Combined $272,805 $293,697 $301,889 $329,916
-------------------------------------------
Gross profits:
Cintas (as previously reported) $ 96,940 $102,086 $107,808
UTY 14,815 16,566 15,147
-------------------------------------------
Combined $111,755 $118,652 $122,955 $134,699
-------------------------------------------
Pro forma net income:
Cintas (as previously reported) $ 24,058 $ 27,976 $ 27,674
UTY 4,202 4,756 2,616
Pro forma adjustment for UTY
income taxes 1,607 1,819 1,001
-------------------------------------------
Combined $ 26,653 $ 30,913 $ 29,289 $31,052(1)
-------------------------------------------
Basic earnings per share $.28 $.32 $.30 $.31
---------------------------------------
Diluted earnings per share $.28 $.32 $.29 $.30
---------------------------------------
Pro forma basic earnings per share $.26 $.31 $.29 $.30
---------------------------------------
Pro forma diluted earnings per share $.26 $.30 $.28 $.30
---------------------------------------
Weighted average number of shares
outstanding ('000's) 100,771 101,431 101,840 102,957
----------------------------------------
(1) The net income of Cintas and UTY before the pro forma adjustment for UTY
income taxes, was $31,575.
<PAGE>
FIRST SECOND THIRD FOURTH
MAY 31, 1998 QUARTER QUARTER QUARTER QUARTER
(Restated) (Restated) (Restated)(Restated)
- --------------------------------------------------------------------------------
Revenue:
Cintas (as previously reported) $192,786 $208,568 $209,952 $228,643
UTY 41,688 41,688 34,503 37,379
-------------------------------------------
Combined $234,474 $250,256 $244,455 $266,022
Gross profits
Cintas (as previously reported) $ 78,239 $ 83,871 $ 84,599 92,581
UTY 15,433 15,433 15,069 16,327
--------------------------------------------
Combined $ 93,672 $ 99,304 $ 99,668 $108,908
--------------------------------------------
Pro forma net income
Cintas (as previously reported) $ 19,697 $ 22,698 $ 22,454 $ 25,991
UTY 4,641 4,641 2,178 3,688
Pro forma adjustment for UTY
income taxes 1,775 1,775 833 1,411
--------------------------------------------
Combined $ 22,563 $ 25,564 $ 23,799 $ 28,268
--------------------------------------------
Basic earnings per share $.24 $.28 $.25 $.30
--------------------------------------------
Diluted earnings per share $.24 $.27 $.25 $.29
--------------------------------------------
Pro forma basic earnings per share $.23 $.26 $.24 $.28
--------------------------------------------
Pro forma diluted earnings per share $.23 $.25 $.24 $.27
--------------------------------------------
Weighted average number of shares
outstanding ('000's) 98,490 98,798 99,128 100,475
--------------------------------------------
<PAGE>
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 meetings
during fiscal 1998, 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.
Roger L. Howe, Chairman
Audit Committee
July 2, 1998
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, 1998 and 1997, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended May 31, 1998. 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
May 31, 1998, in conformity with generally accepted accounting principles.
Cincinnati, Ohio
July 2, 1998
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Fiscal 1998 marked another year of uninterrupted growth for the Company.
The Company's historical financial results have been restated as if Cintas and
Uniforms To You (UTY) had always been one company. Total revenue was $1.2
billion, an increase of 20% over fiscal 1997. Pretax income before
acquisition-related costs of $17 million (primarily consisting of a
pre-established compensation program for UTY's senior executives) increased 21%.
Including those acquisition-related costs, pretax income of $179 million
increased 11% over the prior fiscal year. Net income increased 16% to $123
million including the acquisition-related costs which were partially offset by
establishing a deferred tax asset for the UTY acquisition. When UTY was a
privately-held company, it was an "S" Corporation, meaning that all taxes were
paid by the shareholders of the company rather than the company and as such, UTY
income did not include any tax provision. According to accounting rules for
acquisitions that are treated as pooling of interests, UTY's results were added
to the Company's historical results. Pro forma tax amounts and net income
amounts have been disclosed to reflect net income on a true after tax basis. On
a pro forma basis, net income of $118 million and basic earnings per share of
$1.16 represent increases of 18% and 15%, respectively, over the prior fiscal
year. Net rental revenue increased 18%, primarily due to growth in the customer
base. Other service revenue increased 27% due to growth in the Company's
National Account, First Aid, Catalog and UTY Divisions. Return on equity of 20%
was comparable with the prior year.
Net interest expense decreased $1 million primarily due to repayment of
debt and a favorable interest rate environment. The Company's effective pro
forma tax rate was 34% and 38%, respectively, for fiscal years 1998 and 1997.
Fiscal year 1998 income taxes were offset by an $8 million credit that
established a deferred tax asset from assets pertaining to UTY. A deferred tax
asset results from the existence of book reserves (i.e. obsolescence reserves on
inventory) which have already been expensed for book purposes but have not yet
been deducted for tax purposes.
Cash, cash equivalents and marketable securities decreased by $4
million, 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 $28 million reflecting
growth in the Company, expanding product lines and the investment in the
Company's First Aid Division.
Net property, plant and equipment increased by $68 million. In fiscal
1998, the Company completed construction on five new uniform rental facilities
and had thirteen uniform rental facilities in various stages of construction to
accommodate growth in rental operations.
FISCAL 1997 COMPARED TO FISCAL 1996
During fiscal 1997, total revenue was $995 million, net income was $106
million and basic earnings per share was $1.07, increasing 14%, 21% and 20%,
respectively. Pro forma net income of $100 million and pro forma basic earnings
per share of $1.01 represented increases of 21% and 20%, respectively. Net
rental revenue increased 14%, primarily due to growth in the customer base.
Other service revenue increased 13%.
Income before taxes increased 20% to $162 million. Net interest expense
decreased $2 million primarily due to an increase in interest income (related to
a higher level of cash and marketable securities on hand) combined with a
decrease in interest expense (related to a lower amount of long-term debt and
improved interest rates). The Company's pro forma effective tax rate was 38% in
both 1997 and 1996.
Cash, cash equivalents and marketable securities increased by $20
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.
<PAGE>
Accounts receivable increased $18 million due to sales growth and
acquisitions made during the year. Inventories increased $7 million due to new
and expanded product lines for rental and catalog customers, as well as first
aid product lines.
Net property, plant and equipment increased by $35 million. In fiscal
1997, the Company constructed five new uniform rental facilities to accommodate
growth in rental operations.
FINANCIAL CONDITION
At May 31, 1998, the Company had $101 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 $72 million to $350 million due primarily to the increase in accounts
receivable and inventories.
Capital expenditures for fiscal 1998 totaled $97 million. The Company
continues to reinvest into land, buildings and equipment in order to expand
capacity for future growth. The Company anticipates that capital expenditures
for fiscal 1999 will approximate $100 million.
The Company's percentage of debt to total capitalization was 22% at May 31,
1998, versus 20% at May 31, 1997.
During the year, the Company paid dividends of $18 million or $.18 per
share. This dividend is an increase of 20% over that paid in fiscal 1997.
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 completed an assessment of all of its software systems
and has determined what changes, if any, need to be made so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The total cost of those changes is not expected to be material and
will be expensed as incurred. The Company incurred the majority of its Year 2000
costs during fiscal 1998, and the remaining costs are expected to be expensed in
fiscal 1999 when all changes are expected to be completed. The Company is in the
process of contacting key suppliers to obtain certification of their systems
Year 2000 compliance.
<PAGE>
SHAREHOLDER INFORMATION
EXECUTIVE OFFICES 10-K REPORT
Cintas Corporation A copy of the Form 10-K annual report filed with the
6800 Cintas Boulevard Securities and Exchange Commission for the year ended
P.O. Box 625737 May 31, 1998, is available at no charge to shareholders.
Cincinnati, Ohio Direct requests in writing for this report or other
45262-5737 information to:
AUDITORS William C. Gale
Vice President & Chief Financial Officer
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 FINANCIAL INFORMATION
Cintas Corporation Common Stock is For financial information visit
traded on the NASDAQ National Market us on the internt at
System. The symbol is CTAS. http://www.nasdaq.com or
http://www.cintas-corp.com
INFORMATION INTERNET ADDRESS
REGISTRAR AND TRANSFER AGENT
Visit us at our web site at
http://www.cintas-corp.com
The Fifth Third Bank SECURITY HOLDER INFORMATION
Shareholder Services
Mail Drop 1090F5-4129 At May 31, 1998, there were
38 Fountain Square approximately 1,900
Cincinnati, Ohio 45263 shareholders of record of the
(513) 579-5320 Corporation's Common Stock.
(800) 837-2755 The Company believes that this
represents approximately
17,000 beneficial owners.
The following table shows the
high and low closing prices by
quarter during the last two
fiscal years.
ANNUAL MEETING Closing prices have
been stated to reflect a
2-for-1 stock split effective
November 1997.
October 21, 1998
The Fifth Third Bank
38 Fountain Square
Fifth Floor
Cincinnati, Ohio 45202
9:00 a.m.
FISCAL 1998 FISCAL 1997
Quarter ended High Low Quarter ended High Low
May 1998 52 7/8 42 3/4 May 1997 32 3/16 25 1/2
February 1998 46 36 3/8 February 1997 31 1/8 26 1/2
November 1997 40 3/8 34 11/16 November 1996 31 3/4 27
August 1997 35 7/16 30 3/4 August 1996 28 24 5/8
