<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 24, 1999
CINTAS CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 0-11399 31-1188630
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6800 Cintas Boulevard, P.O. Box 625737, Cincinnati, Ohio 45262-5737
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (513) 459-1200
-----------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
This report amends the Form 8-K filed on April 7, 1999 to report the
acquisition of Unitog Company by the Registrant under Items 2 and 7(c).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
-------------------------------------------------------------------
Supplemental Financial Statements
Report of Ernst & Young LLP, Independent Auditors to
Cintas Corporation
Supplemental Consolidated Statements of Income of Cintas
Corporation-for the Three Years Ended May 31, 1998
Supplemental Consolidated Balance Sheets of Cintas
Corporation-May 31, 1998 and 1997
Supplemental Consolidated Statements of Shareholders' Equity
of Cintas Corporation-for the Three Years Ended
May 31, 1998
Supplemental Consolidated Statements of Cash Flows of Cintas
Corporation-for the Three Years Ended May 31, 1998
Notes to Supplemental Consolidated Financial Statements of
Cintas Corporation
Supplemental Consolidated Condensed Statements of Income of
Cintas Corporation-for the three months and nine months
ended February 28, 1999 and 1998
Supplemental Consolidated Condensed Balance Sheets of Cintas
Corporation-February 28, 1999 and May 31, 1998
Supplemental Consolidated Condensed Statements of Cash Flows
of Cintas Corporation-for the Nine Months Ended February
28, 1999 and 1998
Notes to Supplemental Consolidated Condensed Financial
Statements of Cintas Corporation
Exhibits
23 Consent of Independent Auditors
27.1 FDS (For SEC use only)
27.2 FDS (For SEC use only)
27.3 FDS (For SEC use only)
- 2 -
<PAGE> 3
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Cintas Corporation
We have audited the accompanying supplemental consolidated balance sheets of
Cintas Corporation as of May 31, 1998 and 1997, and the related supplemental
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended May 31, 1998 (restated for the 1999
business combination which has been accounted for as a pooling of interests, as
described in Note 8). These supplemental financial statements give retroactive
effect to the merger with Unitog Company on March 24, 1999. These supplemental
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 supplemental 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, after giving retroactive effect to the merger with Unitog Company
as described in Note 8, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Cincinnati, Ohio
April 30, 1999
<PAGE> 4
2
Cintas Corporation
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
Years Ended May 31
(In thousands except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
(Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Net rentals......................................... $ 1,095,911 $ 948,588 $ 819,150
Other service revenue............................... 381,034 313,311 284,342
----------------------------------------------------
1,476,945 1,261,899 1,103,492
Costs and expenses (income):
Cost of rentals..................................... 647,099 566,744 494,322
Cost of other service revenue....................... 259,211 213,343 194,629
Selling and administrative expenses................. 345,664 287,663 250,112
Acquisition-related expenses........................ 17,116 553 56
Interest income..................................... (4,825) (4,449) (2,685)
Interest expense.................................... 15,824 16,033 14,258
----------------------------------------------------
1,280,089 1,079,887 950,692
----------------------------------------------------
Income before income taxes............................. 196,856 182,012 152,800
Income taxes........................................... 63,202 63,455 53,845
----------------------------------------------------
Net income............................................. $ 133,654 $ 118,557 $ 98,955
====================================================
Basic earnings per share............................... $ 1.25 $ 1.13 $ 0.96
====================================================
Diluted earnings per share............................. $ 1.23 $ 1.12 $ 0.94
====================================================
Dividends declared and paid per share.................. $ .18 $ .15 $ .13
====================================================
Net income as reported................................. $ 133,654 $ 118,557 $ 98,955
Pro forma adjustment for income taxes.................. 4,950 5,794 4,805
----------------------------------------------------
Pro forma net income................................... $ 128,704 $ 112,763 $ 94,150
====================================================
Pro forma basic earnings per share..................... $ 1.20 $ 1.08 $ 0.91
====================================================
Pro forma diluted earnings per share................... $ 1.18 $ 1.06 $ 0.90
====================================================
</TABLE>
See accompanying notes.
<PAGE> 5
3
Cintas Corporation
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
As of May 31
(In thousands except share data)
<TABLE>
<CAPTION>
1998 1997
(Restated) (Restated)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 13,423 $ 17,632
Marketable securities.................................................... 88,154 88,655
Accounts receivable, principally trade, less
allowance of $7,978 and $6,586, respectively........................... 185,938 150,860
Inventories.............................................................. 129,655 99,447
Uniforms and other rental items in service............................... 181,415 152,580
Prepaid expenses......................................................... 5,524 3,331
-----------------------------------
Total current assets........................................................ 604,109 512,505
Property, plant and equipment, at cost, net................................. 488,971 397,150
Other assets................................................................ 212,320 191,527
-----------------------------------
$ 1,305,400 $ 1,101,182
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 54,275 $ 46,842
Accrued compensation and related liabilities............................. 21,470 15,007
Accrued liabilities...................................................... 70,908 70,266
Deferred income taxes.................................................... 43,745 44,906
Long-term debt due within one year....................................... 11,741 10,372
-----------------------------------
Total current liabilities................................................... 202,139 187,393
Long-term debt due after one year........................................... 307,633 227,799
Deferred income taxes....................................................... 38,833 35,387
Shareholders' equity:
Preferred stock, no par value:
100,000 shares authorized, none outstanding............................ -- --
Common stock, no par value:
300,000,000 shares authorized, 109,793,716
and 105,814,822 shares issued and outstanding,
respectively........................................................... 47,062 45,395
Retained earnings........................................................ 712,249 606,233
Other accumulated comprehensive income (loss)............................ (2,516) (1,025)
-----------------------------------
Total shareholders' equity.................................................. 756,795 650,603
-----------------------------------
$ 1,305,400 $ 1,101,182
===================================
</TABLE>
See accompanying notes.
<PAGE> 6
4
Cintas Corporation
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Other
Accumulated Total
Common Stock Retained Comprehensive Shareholders'
------------------------------
Shares Amount Earnings Income (Loss) Equity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 31,
1995 .............. 97,969 $ 42,295 $ 363,399 $ (950) $ 404,744
Adjustment for
pooling of
interests....... 5,116 93 76,817 -- 76,910
--------------------------------------------------------------------------------------
Balance at May
31, 1995, as
restated........... 103,085 42,388 440,216 (950) 481,654
Net income......... -- -- 98,955 -- 98,955
Equity
adjustment
for foreign
currency
translation..... -- -- -- 116 116
-------------------
Comprehensive
income.......... 99,071
-------------------
Dividends.......... -- -- (12,722) -- (12,722)
Distributions
to S
Corporation
shareholders.... -- -- (16,903) -- (16,903)
Effects of
acquisitions.... 147 3 503 -- 506
Stock options
exercised net
of shares
surrendered..... 407 768 473 -- 1,241
Tax benefit
resulting
from exercise
of employee
stock options... -- 854 -- -- 854
--------------------------------------------------------------------------------------
Balance at May
31, 1996, as
restated........ 103,639 44,013 510,522 (834) 553,701
</TABLE>
<PAGE> 7
5
<TABLE>
<CAPTION>
Other
Accumulated Total
Common Stock Retained Comprehensive Shareholders'
------------------------------
Shares Amount Earnings Income (Loss) Equity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income......... -- -- 118,557 -- 118,557
Equity
adjustment
for foreign
currency
translation..... -- -- -- (191) (191)
-------------------
Comprehensive
income.......... 118,366
-------------------
Dividends.......... -- -- (15,634) -- (15,634)
Distributions
to S
Corporation
shareholders.... -- -- (13,764) -- (13,764)
Effects of
acquisitions.... 1,758 -- 5,375 -- 5,375
Stock options
exercised net
of shares
surrendered..... 418 1,121 1,177 -- 2,298
Tax benefit
resulting
from exercise
of employee
stock options... -- 261 -- -- 261
--------------------------------------------------------------------------------------
Balance at May
31, 1997, as
restated........... 105,815 45,395 606,233 (1,025) 650,603
Net income......... -- -- 133,654 -- 133,654
Equity
adjustment
for foreign
currency
translation..... -- -- -- (1,491) (1,491)
-------------------
Comprehensive
income.......... 132,163
-------------------
Dividends.......... -- -- (19,082) -- (19,082)
Distributions
to S
Corporation
shareholders.... -- -- (12,423) -- (12,423)
Effects of
acquisitions.... 3,850 13 9,479 -- 9,492
Repurchase of
common stock.... (147) -- (5,793) -- (5,793)
Stock options
exercised
net of
shares
surrendered..... 276 897 181 -- 1,078
Tax benefit
resulting
from exercise
of employee
stock...........
</TABLE>
<PAGE> 8
6
<TABLE>
<S> <C> <C> <C> <C> <C>
options......... -- 757 -- -- 757
------------ ------------- ------------- --------------- ===============
Balance at May
31, 1998, as
restated........... 109,794 $ 47,062 $ 712,249 $ (2,516) $ 756,795
============ ============= ============= =============== ===============
</TABLE>
See accompanying notes.
<PAGE> 9
7
Cintas Corporation
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 31
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
(Restated) (Restated) (Restated)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 133,654 $ 118,557 $ 98,955
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation........................................ 56,791 47,527 39,874
Amortization of deferred charges.................... 18,542 18,828 17,249
Deferred income taxes............................... 13,443 9,857 8,323
Change in current assets and
liabilities, net of acquisitions
of businesses:
Accounts receivable............................. (24,227) (16,333) (16,610)
Inventories..................................... (23,461) (5,684) (3,008)
Uniforms and other rental
items in service............................. (25,632) (11,546) (14,378)
Prepaid expenses................................ (5,447) 88 (177)
Accounts payable................................ (5,132) (4,179) 11,584
Accrued compensation and
related liabilities.......................... 5,730 1,263 (1,428)
Accrued liabilities............................. (1,586) 3,632 6,535
---------------------------------------------------
Net cash provided by operating
activities.............................................. 142,675 162,010 146,919
Cash flows from investing activities:
Capital expenditures.................................... (128,566) (86,209) (83,677)
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......................................... (27,456) (18,981) (52,866)
Other................................................... (899) 274 (1,841)
---------------------------------------------------
Net cash used in investing activities...................... (156,420) (120,094) (173,064)
Cash flows from financing activities:
Proceeds from issuance of long-term debt................ 73,483 9,699 78,478
Repayment of long-term debt............................. (25,662) (18,148) (25,012)
Issuance of common stock................................ 1,078 2,298 1,241
Dividends paid.......................................... (19,082) (15,634) (12,722)
Distributions to S Corporation
shareholders.......................................... (12,423) (13,764) (16,903)
Repurchase of common stock.............................. (5,793) -- --
Other................................................... (2,065) (1,689) 1,473
---------------------------------------------------
Net cash provided by (used in)
financing activities.................................... 9,536 (37,238) 26,555
---------------------------------------------------
Net (decrease) increase in cash and
cash equivalents........................................ (4,209) 4,678 410
Cash and cash equivalents at
beginning of year....................................... 17,632 12,954 12,544
---------------------------------------------------
Cash and cash equivalents at end of year................... $ 13,423 $ 17,632 $ 12,954
===================================================
</TABLE>
<PAGE> 10
8
See accompanying notes.
<PAGE> 11
9
CINTAS CORPORATION NOTES TO
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share and share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Restatement. The accompanying supplemental consolidated financial statements of
Cintas Corporation include the financial position and operating results of
Unitog Company (Unitog), acquired on March 24, 1999. The acquisition was treated
as a pooling of interests for accounting purposes and all Cintas financial
statements for all periods prior to the merger have been restated. The
restatement includes the consolidated financial position of Cintas at May 31,
1998 and 1997, and the consolidated results of its operations and its cash flows
for the three years ended May 31, 1998, 1997 and 1996 and the financial position
of Unitog at April 26, 1998 and April 27, 1997 and the recasted results of its
operations and its cash flows for the three fiscal years ended April 26, 1998,
April 27, 1997 and April 28, 1996. Unitog previously had a fiscal year ending on
the last Sunday in January.
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 supplemental consolidated financial statements
include the accounts of Cintas Corporation and its subsidiaries. Intercompany
balances and transactions have been eliminated.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Financial results could differ from those estimates.
Cash and cash equivalents. The Company considers all highly liquid investments
with a maturity of three months or less, at date of purchase, to be cash
equivalents.
Inventories. Inventories are valued at the lower of cost (first-in, first-out)
or market. Substantially all inventories represent finished goods.
Uniforms and other rental items in service. These items are valued at cost less
amortization, calculated using the straight-line method generally over periods
of eight to thirty-six months.
Property, 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. 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.
<PAGE> 12
10
Other assets. Other assets consist primarily of service contracts and
non-compete or consulting agreements obtained through the acquisition of
businesses, which are amortized by use of the straight-line method over the
estimated lives of the agreements which are generally three to twelve years, and
goodwill, which is amortized using the straight-line method over twenty to forty
years.
Stock options. The Company applies the provisions of Accounting Principles Board
No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation
expense has been reflected in the financial statements as the exercise price of
options granted to employees is equal to the fair market value of the Company's
common stock on the date of grant. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation.
Interest rate swap agreements. Periodic settlements under interest rate swap
agreements are recognized as adjustments to interest expense for the relevant
periods.
Revenue recognition. Rental revenue is recognized when services are performed
and other service 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. The pro forma adjustment for income taxes presents the pro
forma tax expense of UTY as if UTY had been a C Corporation during the financial
statement periods presented.
Fair value of financial instruments. The following methods and assumptions were
used by the Company in estimating the fair value of financial instruments:
Cash and cash equivalents. The amounts reported approximate
market value.
Marketable securities. The amounts reported are at cost, which
approximate market value. Market values are based on quoted
market prices.
Long-term debt. The amounts reported are at carrying value
which approximate market value. Market values are determined
using similar debt instruments currently available to the
Company that are consistent with the terms, interest rates and
maturities.
Other Accumulated Comprehensive Income. The Company has adopted Statement of
Financial Accounting Standard No. 130, Reporting Comprehensive Income. This
pronouncement establishes standards for reporting items that affect
shareholders' equity but are not components of reported net income. The
Company's only component of comprehensive income is foreign currency translation
adjustment.
Other accounting pronouncements. The Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131, Disclosures about Segments
of an Enterprise and Related Information. Also, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 133,
Accounting for Derivative Instruments and Hedging Activities. These
pronouncements which become effective in fiscal 1999 and 2000, respectively,
<PAGE> 13
11
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.
<PAGE> 14
12
2. MARKETABLE SECURITIES
All marketable securities are comprised of debt securities and classified as
available-for-sale. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value determined to be other than temporary on available-for-sale
securities are included in interest income. The cost of the securities sold is
based on the specific identification method. Interest on securities classified
as available-for-sale is included in interest income.
The following is a summary of marketable securities at May 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
=====================================================================
</TABLE>
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.
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
-----------------------------------
<S> <C> <C>
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
===================================
</TABLE>
<PAGE> 15
13
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Land.............................................. $ 41,550 $ 34,991
Buildings and improvements........................ 225,313 192,595
Equipment......................................... 426,337 346,298
Leasehold improvements............................ 8,467 6,153
Construction in progress.......................... 53,749 35,459
-----------------------------------
755,416 615,496
Less: accumulated depreciation................... 266,445 218,346
-----------------------------------
$ 488,971 $ 397,150
===================================
<CAPTION>
4. OTHER ASSETS
1998 1997
- ----------------------------------------------------------------------------------------
Goodwill.......................................... $ 116,027 $ 97,499
Service contracts................................. 103,178 94,307
Noncompete and consulting agreements.............. 57,823 59,519
-----------------------------------
277,028 251,325
Less: accumulated depreciation................... 81,756 72,589
----------------- -----------------
195,272 178,736
Other............................................. 17,048 12,791
----------------- -----------------
$ 212,320 $ 191,527
===================================
</TABLE>
<PAGE> 16
14
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Secured and unsecured term notes due through 2003
at an average rate of 6.99%.............................................. $ 36,257 $ 35,390
Unsecured revolving note due in 2000 at a
rate of 6.05%............................................................ 10,000 20,880
Unsecured bank agreement due in 2001 at an
average rate of 6.20%.................................................... 62,024 33,832
Unsecured term notes due through 2003 at an
average rate of 7.08%.................................................... 32,967 35,714
Unsecured senior notes due in 2003 at a rate
of 5.79%................................................................. 18,462 20,000
Unsecured senior notes due in 2005 at a rate
of 6.88%................................................................. 40,000 40,000
Unsecured notes due through 2009 at an
average rate of 6.25%.................................................... 97,906 30,884
Industrial development revenue bonds due
through 2013 at an average rate of 5.18%................................. 10,879 10,888
Industrial revenue bonds due through 2020
at an average rate of 3.60%.............................................. 8,889 9,134
Other ..................................................................... 1,990 1,449
-----------------------------------
319,374 238,171
Less: amounts due within one year........................................... 11,741 10,372
===================================
$ 307,633 $ 227,799
===================================
</TABLE>
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 approximating $12,000. Maturities
of long-term debt during each of the next five years are: $11,741, $96,969,
$20,972, $38,713 and $15,095, respectively.
As a result of the merger with Unitog in March 1999, the Company repaid the Bank
Agreement using a new financing arrangement. This new financing arrangement
provides the Company on a revolving basis up to $50 million at interest rates
targeted to approximate LIBOR.
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
million, expires in March 2001 and allows the Company to pay an effective
interest rate of approximately 6.16%. In October 1998, the Company entered into
an additional agreement which totals $35 million, expires in October 2000 and
allows the Company to pay an effective interest rate of approximately 4.6%.
Interest expense is net of capitalized interest of $1,808, $1,022 and $567 for
the years ended May 31, 1998, 1997 and 1996, respectively. Interest paid, net of
amount capitalized, was $15,189, $16,468 and $14,288 for the years ended May 31,
1998, 1997 and 1996, respectively.
<PAGE> 17
15
6. LEASES
The Company conducts certain operations from leased facilities and leases
certain equipment. Most leases contain renewal options for periods from one to
ten years. The lease agreements provide for increases in rentals if the options
are exercised based on increases in certain price level factors or prearranged
increases. It is anticipated that leases that expire will be renewed or
replaced. The minimum rental payments under noncancelable lease arrangements for
each of the next five years ending May 31, 2003, and thereafter are: $7,776,
$6,089, $4,689, $3,788, $3,188 and $10,532, respectively. Rent expense under
operating leases during the years ended May 31, 1998, 1997 and 1996 was $11,390,
$9,650 and $8,026, respectively.
7. INCOME TAXES
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes consist of the following components:
Current:
Federal......................................... $ 53,856 $ 48,486 $ 37,919
State and local................................. 7,061 7,107 6,394
----------------------------------------------------
60,917 53,593 44,313
Deferred......................................... 2,285 9,862 9,532
----------------------------------------------------
$ 63,202 $ 63,455 $ 53,845
====================================================
</TABLE>
<PAGE> 18
16
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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................................ $ 68,900 $ 63,704 $ 53,480
State and local income taxes,
net of federal benefit........................ 7,073 6,123 5,296
Nontaxable income earned........................ (1,201) (1,048) (599)
Tax credits..................................... (288) (206) (216)
Nontaxable items of the Company
acquired in pooling of
interests..................................... (5,050) (5,931) (4,958)
Deferred tax benefit arising
from pooling of interests..................... (8,280) - -
Other........................................... 2,048 813 842
----------------------------------------------------
$ 63,202 $ 63,455 $ 53,845
====================================================
</TABLE>
The components of deferred income taxes included on the balance sheets at May
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Employee benefits................................... $ 7,236 $ 7,209
Allowance for bad debts and other................... 13,346 7,496
-----------------------------------
20,582 14,705
Deferred tax liabilities:
In service inventory................................ 63,084 54,059
Depreciation........................................ 37,353 31,917
Other............................................... 2,723 9,022
-----------------------------------
103,160 94,998
-----------------------------------
Net deferred tax liability $ 82,578 $ 80,293
===================================
</TABLE>
Income taxes paid were $59,599, $50,657 and $46,294 for the years ended May 31,
1998, 1997 and 1996, respectively.
<PAGE> 19
17
8. ACQUISITIONS
Unitog, acquired in March 1999, is a rental and direct sale uniform provider.
The Company exchanged 5,072,124 shares of its common stock for all the
outstanding stock of Unitog. In accordance with the pooling of interests method
of accounting, no adjustment has been made to the historical carrying amount of
assets and liabilities of Unitog.
In accordance with accounting rules for pooling of interest transactions,
charges to operating income for acquisition-related expenses relating to this
merger approximate $11 million. They primarily consist of investment banking
fees, a pre-established retention program for certain employees and professional
service fees. The Company continues to evaluate and integrate the operations of
Unitog.
A reconciliation of revenue, pro forma net income, and pro forma basic and
diluted earnings per share of Cintas (as previously reported), Unitog, and
combined is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Cintas (as previously reported)..................... $ 1,198,307 $ 995,207 $ 875,833
Unitog.............................................. 278,638 266,692 227,659
-----------------------------------------------------------
Combined............................................ $ 1,476,945 $ 1,261,899 $ 1,103,492
===========================================================
Pro forma net income:
Cintas (as previously reported)..................... $ 117,907 $ 100,194 $ 82,939
Unitog.............................................. 10,797 12,569 11,211
-----------------------------------------------------------
Combined............................................ $ 128,704 $ 112,763 $ 94,150
===========================================================
Pro forma basic earnings per share:
Cintas (as previously reported)..................... $ 1.16 $ 1.01 $ .84
===========================================================
Combined............................................ $ 1.20 $ 1.08 $ .91
===========================================================
Pro forma diluted earnings per share
Cintas (as previously reported)..................... $ 1.14 $ .99 $ .83
===========================================================
Combined............................................ $ 1.18 $ 1.06 $ .90
===========================================================
</TABLE>
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.
During the year ended May 31, 1997, the Company completed eight significant
acquisitions (excluding insignificant acquisitions). Four of these acquisitions
were accounted for as a pooling of interests and four as purchases.
<PAGE> 20
18
POOLING OF INTERESTS
The impact of seven of the 1998 pooling of interests transactions and four of
the 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 supplemental
consolidated financial statements were restated at that time to include the
financial position and operating results of UTY for all periods prior to the
merger.
In accordance with accounting rules for pooling of interests transactions,
charges to operating income for acquisition-related expenses were recorded upon
completion of the pooling acquisitions. These acquisition-related expenses
totaled $16,000 ($11,000 after tax) for the UTY transaction and primarily
consisted of a pre-established compensation program for UTY's senior executives.
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:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Fair value of assets acquired......... $ 51,242 $ 22,766
Liabilities assumed and incurred...... 1,787 2,499
-----------------------------------------
Total cash paid for acquisitions...... $ 49,455 $ 20,267
=========================================
</TABLE>
The results of operations for the acquired businesses are included in the
supplemental consolidated statements of income from the dates of acquisition.
The pro forma revenue, net income and earnings per share information for
acquired businesses are not presented because they are not material.
9. DEFINED CONTRIBUTION PLANS
The Company's Partners' Plan (the Plan) is a non-contributory profit sharing
plan and ESOP for the benefit of certain Company employees who have completed
one year of service. The Plan also includes a 401(k) savings feature covering
substantially all employees. The amount of contributions to the profit sharing
plan and ESOP, as well as the matching contribution to the 401(k), are made at
the discretion of the Company. Total contributions, including the Company's
matching contributions, were $8,820, $7,331 and $6,188 for the years ended May
31, 1998, 1997 and 1996, respectively.
<PAGE> 21
19
The Company also sponsors contributory thrift plans (thrift plans) covering
certain salaried and clerical employees and certain employees subject to
collective bargaining agreements. Under the provisions of these thrift plans,
employees are permitted to contribute a maximum of 6% of their earnings and the
Company makes matching contributions of 25% to 50%. Employees may make
additional unmatched contributions to the plan of up to 9% of their earnings.
The Company's contribution to these thrift plans were $1,200, $1,100 and $1,100
for the fiscal 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:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income.......................................... $ 133,654 $ 118,557 $ 98,955
===========================================================
Denominator:
Denominator for basic earnings per
share - weighted average shares
(000's)........................................... 107,025 104,528 103,283
Effect of dilutive securities -
employee stock options (000's).................... 1,911 1,551 1,561
-----------------------------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions (000's)............................... 108,936 106,079 104,844
===========================================================
Basic earnings per share............................... $ 1.25 $ 1.13 $ .96
===========================================================
Diluted earnings per share............................. $ 1.23 $ 1.12 $ .94
===========================================================
</TABLE>
On October 22, 1997, the Board of Directors approved a two-for-one common stock
split effective November 18, 1997. All share and per share information has been
adjusted to retroactively reflect the effect of this stock split for all periods
presented.
<PAGE> 22
20
11. STOCK BASED COMPENSATION
Under the stock option plan adopted by the Company in fiscal 1993, the Company
may grant officers and key employees incentive stock options and/or
non-qualified stock options to purchase an aggregate of 4,600,000 shares of the
Company's common stock. Options are granted at the fair market value of the
underlying common stock on the date of grant and generally become exercisable at
the rate of 20% per year commencing five years after grant, so long as the
holder remains an employee of the Company. Options outstanding under this plan
at May 31, 1998 are 3,886,917.
As a result of the Unitog acquisition in March 1999, the Company retained a
non-qualified stock option plan for certain of its employees. The exercise price
of the options granted under this plan is the fair market value at date of grant
and the options vest ratably over four years and expire ten years after the date
of grant. Certain provisions of the plan require immediate vesting and a cash
settlement, as opposed to the issuance of common stock, upon termination of the
option holders' employment prior to March 24, 2000. The maximum total cash
settlement and compensation expense under this arrangement could amount to $5.6
million.
The information presented in the following table relates primarily to stock
options granted and outstanding under either the plan adopted in fiscal 1993 or
under a similar plan, which expired in June 1993:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------------------------------------------------
<S> <C> <C>
Outstanding May 31, 1995 (731,189 shares
exercisable).................................................. 2,960,612 $ 11.17
Granted.......................................................... 669,382 21.25
Cancelled........................................................ (62,807) 13.88
Exercised........................................................ (502,317) 7.07
------------------------------------------------
Outstanding May 31, 1996 (540,622 shares
exercisable).................................................. 3,064,870 13.98
Granted.......................................................... 799,413 26.22
Cancelled........................................................ (128,676) 15.20
Exercised........................................................ (313,445) 7.09
------------------------------------------------
Outstanding May 31, 1997 (505,282 shares
exercisable).................................................. 3,422,162 17.44
Granted.......................................................... 1,163,069 36.45
Cancelled........................................................ (158,005) 22.88
Exercised........................................................ (297,985) 8.00
------------------------------------------------
Outstanding May 31, 1998 (445,946 shares
exercisable).................................................. 4,129,241 $ 23.24
================================================
</TABLE>
<PAGE> 23
21
The following table summarizes the restated information about stock options
outstanding at May 31, 1998:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------------------------------------
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Option Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.50 - $13.80 1,030,317 3.59 $ 10.91 274,717 $ 8.61
13.88 - 24.38 1,120,030 6.38 18.26 82,448 19.94
25.25 - 31.00 807,959 8.02 26.27 62,702 29.21
34.88 - 50.25 1,170,935 9.09 36.76 26,079 41.12
- --------------------------------------------------------------------------------------------------------------------
$ 5.50 - $50.25 4,129,241 6.77 $ 23.24 445,946 $ 15.50
====================================================================================================================
</TABLE>
At May 31, 1998, 1,210,700 shares of common stock are reserved for future
issuance.
<PAGE> 24
22
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:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported....................................... $ 133,654 $ 118,557 $ 98,955
Pro forma for Statement No. 123................... $ 130,797 $ 117,207 $ 98,428
Earnings per share:
Pro forma basic earnings per share
for Statement No. 123........................... $ 1.22 $ 1.12 $ .95
Pro forma diluted earnings per
share for Statement No. 123..................... $ 1.20 $ 1.11 $ .94
</TABLE>
The effects of providing pro forma disclosure are not representative of earnings
reported for future years.
<PAGE> 25
23
12. ENVIRONMENTAL MATTERS
In acquiring Unitog in March 1999, the Company became a potentially responsible
party, and thus faces the possibility of joint and several liability under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) in
connection with alleged environmental contamination in an area near a rental
facility in Tempe, Arizona. This facility, located near the South Indian Bend
Wash Federal Superfund (SIBW) site, has been tested for soil and groundwater
contamination. The soil testing at the Company's facility detected volatile
organic compounds, and the Company is now in the process of remediating the
soil. Groundwater testing at 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 dated January 9, 1999 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 has
recorded an undiscounted liability and 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.
<PAGE> 26
24
13. 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. The accompanying supplemental
consolidated financial statements have been restated to include the financial
position and operating results of Unitog, an acquisition accounted for using the
pooling of interests method of accounting.
<TABLE>
<CAPTION>
First Second Third Fourth
May 31, 1998 Quarter Quarter Quarter Quarter
(Restated) (Restated) (Restated) (Restated)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Cintas(as previously reported).............. $ 272,805 $ 293,697 $ 301,889 $ 329,916
Unitog...................................... 68,671 70,088 69,544 70,335
--------------------------------------------------------------------
Combined.................................... $ 341,476 $ 363,785 $ 371,433 $ 400,251
====================================================================
Gross profits:
Cintas(as previously reported).............. $ 111,755 $ 118,652 $ 122,955 $ 134,699
Unitog...................................... 20,212 21,981 20,003 20,378
--------------------------------------------------------------------
Combined.................................... $ 131,967 $ 140,633 $ 142,958 $ 155,077
====================================================================
Pro forma net income:
Cintas(as previously reported).............. $ 26,653 $ 30,913 $ 29,289 $ 31,052
Unitog...................................... 2,362 3,997* 2,722 1,716
--------------------------------------------------------------------
Combined.................................... $ 29,015 $ 34,910 $ 32,011 $ 32,768
====================================================================
Basic earnings per share $ .29 $ .34 $ .31 $ .31
====================================================================
Diluted earnings per share $ .28 $ .34 $ .31 $ .30
====================================================================
Pro forma basic earnings per
share $ .27 $ .33 $ .30 $ .30
====================================================================
Pro forma diluted earnings per
share $ .27 $ .32 $ .29 $ .30
====================================================================
Weighted average number of
shares outstanding (000's) 106,094 106,757 107,107 108,133
====================================================================
</TABLE>
* Includes a $2.1 million gain from the sale of certain facilities.
<PAGE> 27
25
<TABLE>
<CAPTION>
First Second Third Fourth
May 31, 1997 Quarter Quarter Quarter Quarter
(Restated) (Restated) (Restated) (Restated)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Cintas(as previously reported).............. $ 234,474 $ 250,256 $ 244,455 $ 266,022
Unitog...................................... 65,240 66,080 66,462 68,910
--------------------------------------------------------------------
Combined.................................... $ 299,714 $ 316,336 $ 310,917 $ 334,932
====================================================================
Gross profits:
Cintas(as previously reported).............. $ 93,672 $ 99,304 $ 99,668 $ 108,908
Unitog...................................... 19,166 20,694 19,657 20,743
--------------------------------------------------------------------
Combined.................................... $ 112,838 $ 119,998 $ 119,325 $ 129,651
====================================================================
Pro forma net income:
Cintas(as previously reported).............. $ 22,563 $ 25,564 $ 23,799 $ 28,268
Unitog...................................... 3,151 3,353 3,272 2,793
--------------------------------------------------------------------
Combined.................................... $ 25,714 $ 28,917 $ 27,071 $ 31,061
====================================================================
Basic earnings per share $ .26 $ .29 $ .27 $ .31
====================================================================
Diluted earnings per share $ .26 $ .29 $ .27 $ .30
====================================================================
Pro forma basic earnings per
share $ .25 $ .28 $ .26 $ .29
====================================================================
Pro forma diluted earnings per
share $ .24 $ .27 $ .26 $ .29
====================================================================
Weighted average number of
shares outstanding (000's) 103,759 104,116 104,448 105,797
====================================================================
</TABLE>
14. IMPACT OF YEAR 2000 (UNAUDITED)
The company has completed an assessment of all of its software systems and has
determined the changes that 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 are being
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. These expenses will
be funded through existing cash resources and future operating cash flows. All
of the Company's critical production systems are now fully compliant; and
therefore, the Company has developed no contingency plans for its systems. The
Company has contacted its major suppliers to obtain certification of their
systems Year 2000 compliance in order to identify any high-risk vendors. The
Company is now evaluating the responses from these vendors and is developing a
strategy to minimize their risk. During 1999, the Company will follow up with
all of its major suppliers to ensure that they meet their target dates.
Strategies will include contingency plans such as alternative suppliers or
alternative processes.
The Company believes it is devoting appropriate resources to resolve any Year
2000 issues in a timely manner and believes that all internal systems will be
prepared for Year 2000 processing. Based upon the work performed to date, the
Company presently believes that the likelihood of the Year 2000 having a
material result on its operations, liquidity or financial position is remote.
<PAGE> 28
26
Cintas Corporation
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28 February 28
1999 1998 1999 1998
(Restated) (Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net rentals..................................... $ 324,207 $ 273,632 $ 964,546 $ 799,690
Other service revenue........................... 109,462 97,801 332,051 277,004
---------------------------------------------------------------------
433,669 371,433 1,296,597 1,076,694
Costs and expenses (income):
Cost of rentals................................. 182,331 162,362 556,667 472,630
Cost of other service revenue................... 73,727 66,114 228,174 188,506
Selling and administrative expenses............. 107,863 88,859 304,349 253,467
Environmental charge............................ 5,000 - 5,000 -
Interest income................................. (1,112) (1,266) (3,492) (3,645)
Interest expense................................ 3,710 3,687 12,587 11,241
---------------------------------------------------------------------
371,519 319,756 1,103,285 922,199
---------------------------------------------------------------------
Income before income taxes......................... 62,150 51,677 193,312 154,495
Income taxes....................................... 23,519 18,665 74,052 54,132
---------------------------------------------------------------------
Net income......................................... $ 38,631 $ 33,012 $ 119,260 $ 100,363
=====================================================================
Basic earnings per share........................... $ 0.35 $ .31 $ 1.08 $ .94
=====================================================================
Diluted earnings per share......................... $ 0.34 $ .30 $ 1.06 $ .93
=====================================================================
Net income as reported............................. $ 38,631 $ 33,012 $ 119,260 $ 100,363
Pro forma adjustment for income taxes.............. -- 1,001 -- 4,427
---------------------------------------------------------------------
Pro forma net income............................... $ 38,631 $ 32,011 $ 119,260 $ 95,936
=====================================================================
Pro forma basic earnings per share...................$ 0.35 $ 0.30 $ 1.08 $ .90
=====================================================================
Pro forma diluted earnings per share.................$. 0.34 $ 0.29 $ 1.06 $ .88
=====================================================================
</TABLE>
See accompanying notes.
<PAGE> 29
27
Cintas Corporation
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
February 28 May 31
1999 1998
(Restated) (Restated)
- --------------------------------------------------------------------------------------------------------------------
(Unaudited) (See Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 30,191 $ 13,423
Marketable securities.................................................... 67,733 88,154
Accounts receivable, principally trade, less
allowance of $7,739 and $7,978, respectively........................... 200,175 185,938
Inventories.............................................................. 141,292 129,655
Uniforms and other rental items in service............................... 195,181 181,415
Prepaid expenses......................................................... 6,703 5,524
-------------------------------------
Total current assets........................................................ 641,275 604,109
Property, plant and equipment, at cost, net................................. 563,326 488,971
Other assets................................................................ 199,339 212,320
-------------------------------------
$ 1,403,940 $ 1,305,400
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 49,012 $ 54,275
Accrued compensation and related liabilities............................. 22,390 21,470
Accrued liabilities...................................................... 97,118 70,908
Deferred income taxes.................................................... 43,508 43,745
Long-term debt due within one year....................................... 12,488 11,741
-------------------------------------
Total current liabilities................................................... 224,516 202,139
Long-term debt due after one year........................................... 264,021 307,633
Deferred income taxes....................................................... 41,516 38,833
Shareholders' equity:
Preferred stock, no par value:
100,000 shares authorized, none outstanding............................ -- --
Common stock, no par value:
300,000,000 shares authorized, 110,903,076
and 109,793,716 shares issued and outstanding,
respectively........................................................... 48,783 47,062
Retained earnings........................................................ 829,497 712,249
Other accumulated comprehensive income (loss)............................ (4,393) (2,516)
-------------------------------------
Total shareholders' equity.................................................. 873,887 756,795
-------------------------------------
$ 1,403,940 $ 1,305,400
=====================================
</TABLE>
See accompanying notes.
<PAGE> 30
28
Cintas Corporation
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
February 28
1999 1998
(Restated) (Restated)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 119,260 $ 100,363
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................... 49,800 41,362
Amortization of deferred charges................ 14,504 15,072
Deferred income taxes........................... 1,734 6,741
Change in current assets and
liabilities, net of acquisitions
of businesses:
Accounts receivable......................... (9,732) (15,480)
Inventories................................. (10,282) (19,295)
Uniforms and other rental
items in service......................... (15,924) (16,025)
Prepaid expenses............................ (1,182) (1,925)
Accounts payable............................ (11,222) 10,169
Accrued compensation and
related liabilities...................... 937 702
Accrued liabilities......................... 22,226 1,286
-------------------------------------
Net cash provided by operating activities.............. 160,119 122,970
Cash flows from investing activities:
Capital expenditures................................ (128,109) (96,814)
Proceeds from sale or redemption of
marketable securities............................. 117,549 69,459
Purchase of marketable securities................... (103,130) (56,558)
Acquisitions of businesses, net of
cash acquired..................................... (9,533) (33,783)
Proceeds from divestiture of certain facilities..... 19,911 --
Other............................................... 4,842 (1,037)
-------------------------------------
Net cash used in investing activities.................. (98,470) (118,733)
Cash flows from financing activities:
Proceeds from issuance of long-term debt............ 11,859 43,506
Repayment of long-term debt......................... (55,055) (11,473)
Issuance of common stock............................ 1,482 986
Dividends paid...................................... (1,692) (19,082)
Distribution to S corporation
shareholders...................................... -- (8,285)
Repurchase of common stock.......................... (1) (7,577)
Other............................................... (1,474) (990)
-------------------------------------
Net cash used in financing activities.................. (44,881) (2,915)
-------------------------------------
Net increase in cash and
cash equivalents.................................... 16,768 1,322
Cash and cash equivalents at
beginning of period................................. 13,423 17,632
-------------------------------------
</TABLE>
<PAGE> 31
29
<TABLE>
<S> <C> <C>
Cash and cash equivalents at end of
period.............................................. $ 30,191 $ 18,954
=====================================
</TABLE>
See accompanying notes.
<PAGE> 32
30
CINTAS CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
1. The accompanying supplemental consolidated financial statements include
the financial position and operating results of Unitog Company
(Unitog), acquired on March 24, 1999. The acquisition was treated as a
pooling of interests for accounting purposes and all periods prior to
the merger have been restated. The restatement includes the
supplemental consolidated financial position of Cintas at February 28,
1999 and May 31, 1998, and the consolidated results of its operations
and its cash flows for the three and nine months ended February 28,
1999 and 1998, and the financial position of Unitog at January 31, 1999
and April 26, 1998 and the recasted results of its operations and its
cash flows for the three and nine months ended January 31, 1999 and
January 25, 1998. Unitog previously had a fiscal year ending on the
last Sunday in January.
The supplemental consolidated condensed financial statements of Cintas
Corporation (the "Company") included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. While the
Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these supplemental
consolidated condensed financial statements be read in conjunction with
the restated audited financial statements and notes for the fiscal year
ended May 31, 1998 included in this Form 8-K. A summary of the
Company's significant accounting policies is presented in Note 1 of the
"Notes to the Supplemental Consolidated Financial Statements" filed
with this form 8-K. There have been no material changes in the
accounting policies followed by the Company during fiscal year 1999.
2. Interim results are subject to variations and are not necessarily
indicative of the results of operations for a full fiscal year. In the
opinion of management, adjustments (which include only normal recurring
adjustments) necessary for a fair statement of the results of the
interim periods shown have been made.
<PAGE> 33
31
3. The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective periods:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28 February 28
1999 1998 1999 1998
(Restated) (Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income.......................... $ 38,631 $ 33,012 $ 119,260 $ 100,363
=====================================================================
Denominator:
Denominator for basic
earnings per share -
weighted average
shares (000's).................... 110,816 107,107 110,640 106,616
Effect of dilutive
securities - employee
stock options (000's)............. 2,300 1,687 2,337 1,820
---------------------------------------------------------------------
Denominator for diluted
earnings per share -
adjusted weighted
average shares and
assumed conversions
(000's)........................... 113,116 108,794 112,977 108,436
=====================================================================
Basic earnings per share............... $ .35 $ .31 $ 1.08 $ .94
=====================================================================
Diluted earnings per
share............................... $ .34 $ .30 $ 1.06 $ .93
=====================================================================
</TABLE>
The following table represents a reconciliation of the shares used to calculate
pro forma basic and diluted earnings per share for the respective periods:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28 February 28
1999 1998 1999 1998
(Restated) (Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Pro forma net income................ $ 38,631 $ 32,011 $ 119,260 $ 95,936
=====================================================================
</TABLE>
<PAGE> 34
32
<TABLE>
<S> <C> <C> <C> <C>
Denominator:
Denominator for pro
forma basic earnings
per share -
weighted average
shares (000's).................... 110,816 107,107 110,640 106,616
Effect of dilutive
securities - employee
stock options (000's)............. 2,300 1,687 2,337 1,820
---------------------------------------------------------------------
Denominator for pro
forma basic earnings
per share -
adjusted weighted average shares
and assumed conversion shares
(000's)........................... 113,116 108,794 112,977 108,436
=====================================================================
Pro forma basic
earnings per share.................. $ 35 $ .30 $ 1.08 $ .90
=====================================================================
Pro forma diluted
earnings per share.................. $ 34 $ .29 $ 1.06 $ .88
=====================================================================
</TABLE>
4. The Company has adopted Statement of Financial Accounting Standard No. 130,
Reporting Comprehensive Income. This pronouncement establishes standards
for reporting items that affect shareholders' equity but are not components
of reported net income. The Company's only component of comprehensive
income is foreign currency translation adjustment.
The components of comprehensive income for the three and nine month periods
ended February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28 February 28
1999 1998 1999 1998
(Restated) (Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income............................. $ 38,631 $ 33,012 $ 119,260 $ 100,363
Other comprehensive
income:
Foreign currency
translation
adjustment...................... 924 (310) (1,877) (994)
---------------------------------------------------------------------
Comprehensive income................... $ 39,555 $ 32,702 $ 117,383 $ 99,369
=====================================================================
</TABLE>
<PAGE> 35
33
5. Unitog, acquired in March 1999, is a rental and direct sale uniform
provider. The Company exchanged 5,072,124 shares of its common stock for
all the outstanding stock of Unitog. In accordance with the pooling of
interests method of accounting, no adjustment has been made to the
historical carrying amount of the assets and liabilities of Unitog.
In accordance with accounting rules for pooling of interest transactions,
charges to operating income for acquisition-related expenses relating to
this merger are approximate $11 million. They primarily consist of
investment banking fees, a pre-established retention program for certain
employees and professional service fees. The Company continues to evaluate
and integrate the operations of Unitog.
A reconciliation of revenue, pro forma net income, and pro forma basic and
diluted earnings per share of Cintas (as previously reported),Unitog, and
combined is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28 February 28
1999 1998 1999 1998
(Restated) (Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Cintas (as previously.............. $ 360,504 $ 301,889 $ 1,082,176 $ 868,391
reported).......................
Unitog............................. 73,165 69,544 214,421 208,303
---------------------------------------------------------------------
Combined........................... $ 433,669 $ 371,433 $ 1,296,597 $ 1,076,694
=====================================================================
Pro forma net income:
Cintas (as previously..............
reported)....................... $ 37,872 $ 29,289 $ 111,532 $ 86,855
Unitog............................. 759 2,722 7,728 9,081
---------------------------------------------------------------------
Combined........................... $ 38,631 $ 32,011 $ 119,260 $ 95,936
=====================================================================
Pro forma basic earnings Per share:
Cintas (as previously..............
reported)....................... $ .36 $ .29 $ 1.06 $ .86
---------------------------------------------------------------------
Combined $ .35 $ .30 $ 1.08 $ .90
=====================================================================
Pro forma diluted earnings per share
Cintas (as previously
reported)....................... $ .35 $ .28 $ 1.04 $ .84
---------------------------------------------------------------------
Combined $ .34 $ .29 $ 1.06 $ .88
=====================================================================
</TABLE>
<PAGE> 36
34
6. In acquiring Unitog in March 1999, the Company became a potentially
responsible party, and thus faces the possibility of joint and several
liability under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) in connection with alleged environmental contamination
in an area near a rental facility in Tempe, Arizona. This facility, located
near the South Indian Bend Wash Federal Superfund (SIBW) site has been tested
for soil and groundwater contamination. The soil testing at the Company's
facility detected volatile organic compounds, and the Company is now in the
process of remediating the soil. Groundwater testing at 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 dated January 9, 1999 between
Unitog Company and the Company (Merger Agreement), 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 the environmental matters associated with the Unitog
acquisition, the Company has recorded an undiscounted liability and 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.
7. The Company's effective tax rate on a pro forma basis of 38% is comparable to
the prior year.
8. As a result of the merger with Unitog in March 1999, the Company repaid the
Bank Agreement using a new financing arrangement. This new financing
arrangement provides the Company on a revolving basis up to $50 million at
interest rates targeted to approximate LIBOR.
<PAGE> 37
35
9. The company has completed an assessment of all of its software systems and
has determined the changes that 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 are being 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. These expenses will be funded through existing cash resources
and future operating cash flows. All of the Company's critical production
systems are now fully compliant; and therefore, the Company has developed
no contingency plans for its systems. The Company has contacted its major
suppliers to obtain certification of their systems Year 2000 compliance in
order to identify any high-risk vendors. The Company is now evaluating the
responses from these vendors and is developing a strategy to minimize their
risk. During 1999, the Company will follow up with all of its major
suppliers to ensure that they meet their target dates. Strategies will
include contingency plans such as alternative suppliers or alternative
processes.
The Company believes it is devoting appropriate resources to resolve any
Year 2000 issues in a timely manner and believes that all internal systems
will be prepared for Year 2000 processing. Based upon the work performed to
date, the Company presently believes that the likelihood of the Year 2000
having a material result on its operations, liquidity or financial position
is remote.
10. On January 19, 1999, the Company declared an annual cash dividend of $.22
per share on outstanding common stock, a 22% increase over the dividend
paid in the prior year. The dividend was payable on March 3, 1999 to
shareholders of record as of February 5, 1999.
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CINTAS CORPORATION.
Date: May 7, 1999 By: /s/ William C. Gale
-----------------------------------
William C. Gale, Vice President -
Finance and Chief Financial Officer
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Current Report on Form 8-K/A of
Cintas Corporation of our report dated April 30, 1999.
We also consent to the incorporation by reference in the following Registration
Statements and related prospectuses of Cintas Corporation of our report dated
April 30, 1999, with respect to the supplemental consolidated financial
statements included in the Current Report on Form 8-K/A.
Registration
Form Number
---- ------------
S-8 333-75015
33-56623
33-23228
33-71124
S-4 333-72457
S-3 333-72561
S-3 333-72555
S-3 333-72553
S-3 333-72559
S-3 333-68925
S-3 333-68151
/s/ Ernst & Young LLP
Cincinnati, Ohio
April 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 13,423,000
<SECURITIES> 88,154,000
<RECEIVABLES> 193,916,000
<ALLOWANCES> 7,978,000
<INVENTORY> 311,070,000
<CURRENT-ASSETS> 604,109,000
<PP&E> 755,416,000
<DEPRECIATION> 266,445,000
<TOTAL-ASSETS> 1,305,400,000
<CURRENT-LIABILITIES> 202,139,000
<BONDS> 0
0
0
<COMMON> 47,062,000
<OTHER-SE> 756,795,000
<TOTAL-LIABILITY-AND-EQUITY> 1,305,400,000
<SALES> 381,034,000
<TOTAL-REVENUES> 1,476,945,000
<CGS> 259,211,000
<TOTAL-COSTS> 906,310,000
<OTHER-EXPENSES> 362,780,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,824,000
<INCOME-PRETAX> 196,856,000
<INCOME-TAX> 63,202,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,654,000
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 17,632,000
<SECURITIES> 86,655,000
<RECEIVABLES> 157,446,000
<ALLOWANCES> 6,586,000
<INVENTORY> 252,027,000
<CURRENT-ASSETS> 512,505,000
<PP&E> 615,496,000
<DEPRECIATION> 218,346,000
<TOTAL-ASSETS> 1,101,182,000
<CURRENT-LIABILITIES> 187,393,000
<BONDS> 0
0
0
<COMMON> 45,395,000
<OTHER-SE> 650,603,000
<TOTAL-LIABILITY-AND-EQUITY> 1,101,182,000
<SALES> 313,311,000
<TOTAL-REVENUES> 1,126,899,000
<CGS> 213,343,000
<TOTAL-COSTS> 780,087,000
<OTHER-EXPENSES> 288,216,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,033,000
<INCOME-PRETAX> 182,012,000
<INCOME-TAX> 63,455,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,557,000
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 12,954,000
<SECURITIES> 73,477,000
<RECEIVABLES> 132,031,000
<ALLOWANCES> 1,757,000
<INVENTORY> 230,736,000
<CURRENT-ASSETS> 450,691,000
<PP&E> 394,939,000
<DEPRECIATION> 130,881,000
<TOTAL-ASSETS> 996,046,000
<CURRENT-LIABILITIES> 172,862,000
<BONDS> 0
0
0
<COMMON> 44,013,000
<OTHER-SE> 553,702,000
<TOTAL-LIABILITY-AND-EQUITY> 996,046,000
<SALES> 284,342,000
<TOTAL-REVENUES> 1,103,492,000
<CGS> 194,629,000
<TOTAL-COSTS> 688,951,000
<OTHER-EXPENSES> 250,168,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,258,000
<INCOME-PRETAX> 152,800,000
<INCOME-TAX> 53,845,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,955,000
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.94
</TABLE>
