Annual Report (Form 10-K), fiscal year 1994

ITEM 1.
BUSINESS
The business discussion found on pages 2 through 9 of the Registrant's Annual Report to Shareholders for 1994 is incorporated herein by reference. Information regarding revenues from products and services, the number of employees and competition are listed or described below:
The table sets forth the revenues derived from each service provided by Cintas.
Year Ended May 31, 1994 1993 1992 (Amount in Thousands)
Uniform Rental $351,495 $307,904 $274,639 Uniform Sales 58,294 47,853 48,400 Non-Uniform Rentals 108,360 92,368 74,772 Other 5,067 4,597 3,752 -------- -------- -------- $523,216 $452,722 $401,563
======== ======== ======= The Company was organized as an Ohio corporation in 1929 and changed its state of incorporation to Washington in 1986. At May 31, 1994, the Company employed 8,581 employees of which 111 are represented by labor unions. The Company considers its relationship with its employees to be satisfactory.
Cintas provides a highly specialized service to businesses of all types - from small service companies to major corporations that employ thousands of people. The Company designs, manufactures and implements corporate identity uniform programs throughout the United States.
The rental markets served by the Company are highly fragmented and competition for this business varies at each of the Company's locations. There are other companies in the uniform rental business which have financial resources comparable to those of the Company, although much of the competition consists of smaller local and regional firms. In certain instances, local competitors may also have financial resources comparable to those deployed by the Company in a particular market.
The service provided to the rental markets served by the Company principally consists of the rental and cleaning of uniforms as well as providing on-going uniform upgrades to each customer. The Company also offers ancillary products which includes the rental or sale of walk-off mats, fender covers, towels, mops and linen products.
Due to its diverse customer base and average size account, the loss of one account would not have a significant financial impact on the Company.
In its sale of customized uniforms, Cintas competes on a national basis with other uniform suppliers and manufacturers, some of which have financial resources comparable to the Company's.
The Company operates four manufacturing facilities which provide for a substantial amount of standard uniform needs. Additional products needed are purchased from one of 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 is not aware of any non-compliances with environmental laws or any material capital expenditures for environmental controls that have a material effect on its financial condition.
The Company believes that the primary competitive factors that affect its operations are quality, service, design and price, in that order.
ITEM 2.



ITEM 2.
PROPERTIES
The Company currently occupies 102 facilities located in 96 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 two distribution facilities and has four manufacturing plants, two of which produce uniform trousers and two producing uniform shirts. The Company considers the facilities it operates to be adequate for their intended use. The Company owns or leases 2,150 vehicles.
The following chart provides additional information concerning Cintas' facilities:
Location Type of Facility -------- ---------------- Cincinnati, Ohio Corporate Offices, National Account Division, Distribution Center Akron, Ohio Processing Plant Ashland, Kentucky Processing Plant Atlanta, Georgia Processing Plant Augusta, Georgia Processing Plant Austin, Texas Processing Plant Baltimore, Maryland Processing Plant Baton Rouge, Louisiana Processing Plant Beaumont, Texas Processing Plant Birmingham, Alabama Branch* Boston, Massachusetts Processing Plant Buffalo, New York Processing Plant* Charlotte, North Carolina Branch* Chicago(South), Illinois Processing Plant Chicago(North), Illinois Processing Plant Cincinnati, Ohio Processing Plant Clay City, Kentucky Manufacturing Facility* Cleveland (West), Ohio Processing Plant Cleveland (East), Ohio Processing Plant Colorado Springs, Colorado Branch* Columbia, South Carolina Processing Plant* Columbus, Ohio Processing Plant Corpus Christi, Texas Branch* Dallas, Texas Processing Plant Dayton, Ohio Processing Plant Decatur, Georgia Processing Plant Denver, Colorado Processing Plant* Detroit, Michigan Processing Plant Evansville, Indiana Branch* Everett, Washington Branch Flint, Michigan Branch* Fort Smith, Arkansas Processing Plant* Grand Rapids, Michigan Branch* Greenville, South Carolina Processing Plant Greenwood, Mississippi Branch* Gulfport, Mississippi Branch* Hammond, Louisiana Branch Harrison, Arkansas Branch* Houston, Texas Processing Plant Indianapolis, Indiana Branch* Jackson, Mississippi Branch* Kansas City, Kansas Processing Plant Lafayette, Louisiana Branch Lake Charles, Louisiana Processing Plant
Las Vegas, Nevada Processing Plant Lexington, Kentucky Processing Plant Little Rock, Arkansas Branch* Long Island, New York Branch* Los Angeles, California Processing Plant Louisville, Kentucky Processing Plant Lufkin, Texas Branch Madison, Alabama Branch* Madison, Wisconsin Processing Plant McAllen, Texas Branch* Memphis, Tennessee Branch* Miami, Florida Processing Plant Milwaukee, Wisconsin Branch* Mobile, Alabama Branch* Mt. Vernon, Kentucky Manufacturing Facility* Nashville, Tennessee Processing Plant New Haven, Connecticut Processing Plant New Orleans, Louisiana Processing Plant Oklahoma City, Oklahoma Processing Plant Orange, California Branch* Orlando, Florida Processing Plant Owingsville, Kentucky Manufacturing Facility* Perry, Kentucky Manufacturing Facility* Philadelphia, Pennsylvania Processing Plant Phoenix, Arizona Branch* Piscataway, New Jersey Processing Plant Pittsburgh, Pennsylvania Processing Plant Portland, Maine Branch Portland, Oregon Branch* Portland, Oregon Processing Plant Reno, Nevada Distribution Center* Richmond, Virginia Processing Plant Sacramento, California Branch* San Antonio, Texas Processing Plant San Diego, California Processing Plant San Francisco(West), California Branch* San Francisco (East), California Processing Plant* San Jose, California Processing Plant Seattle, Washington Processing Plant* Shreveport, Louisiana Processing Plant Springdale, Arkansas Processing Plant Springfield, Missouri Branch* Tacoma, Washington Branch* Tampa, Florida Processing Plant Thibodaux, Louisiana Processing Plant Tulsa (North), Oklahoma Processing Plant Tulsa (South), Oklahoma Processing Plant Tuscaloosa, Alabama Processing Plant Tyler, Texas Branch* Victoria, Texas Processing Plant Vidalia, Georgia Processing Plant Walden, New York Branch* Washington, D.C. Processing Plant Westland, Michigan Processing Plant West Palm Beach, Florida Branch* Wichita, Kansas Branch* Winston-Salem, North Carolina Processing Plant Youngstown, Ohio Branch*
*Leased for various terms ranging from monthly to 2019. The Company expects that it will be able to renew its leases on satisfactory terms. All other properties are owned.
ITEM 3.

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. Details surrounding the claim are not yet known, and 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 affect 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.

ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in the fourth quarter of fiscal 1994.
PART II
ITEM 5.

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
"Market for Registrant's Common Stock and Related Security Holder Matters" on page 25 of the Registrant's Annual Report to Shareholders for 1994 is incorporated herein by reference. Dividend information is incorporated by reference to the Consolidated Statement of Shareholders' Equity on page 13. Dividends on the outstanding Common Stock are paid annually and amounted to $.17 and $.14 per share in fiscal 1994 and 1993, respectively.
ITEM 6.

ITEM 6.
SELECTED FINANCIAL DATA
The "Eleven Year Financial Summary" on page 1 of the Registrant's Annual Report to Shareholders for 1994 is incorporated herein by reference.
ITEM 7.

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of Operations" commencing on page 22 of the Registrant's Annual Report to Shareholders for 1994 is incorporated herein by reference.
ITEM 8.


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Registrant shown on pages 11 through 21 of its Annual Report to Shareholders for 1994 are incorporated herein by reference:
Consolidated Balance Sheets as of May 31, 1994 and 1993. Consolidated Statements of Income for the years ended May 31, 1994, 1993,and 1992. Consolidated Statements of Shareholders' Equity for the years ended May 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flows for the years ended May 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements. Report of Independent Auditors.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Items 10., 11., 12., and 13. of Part III are incorporated by reference to the Registrant's Proxy Statement for its 1994 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 have been listed previously on page 7. No additional financial statements are being filed since the requirements for paragraph (d) under Item 14 are not applicable to the Company.
(a) (2) Financial Statement Schedules.
At May 31, 1994:
Schedule I. Marketable Securities - Other Investments
For each of the three years in the period ended May 31, 1994
Schedule V. Property, Plant and Equipment
Schedule VI. Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment
Schedule VIII. Valuation and Qualifying Accounts and Reserves
Schedule X. Supplementary Income Statement Information
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. PAGE
(a) (3) Exhibits.
Exhibit Number Description of Exhibit Filing Status
3.1 Restated Articles of Incorporation *
3.3 Bylaws *
10.1 Incentive Stock Option Plan * *
10.2 Partners' Plan * * *
10.3 1990 Directors' Stock Option Plan * * * *
10.4 1992 Incentive Stock Option Plan * * * * *
11 Statement re computation of filed herewith per share earnings
13 1994 Annual Report to Shareholders filed herewith
21 Subsidiaries of the Registrant filed herewith
23 Consent of Independent Auditors filed herewith
* Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1989.
** Incorporated by reference to Registration Statement No. 33- 23228 filed under the Securities Act of 1933.
***Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1993.
****Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1991.
*****Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1992. PAGE
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 22, 1994 /s/ Robert J. Kohlhepp
By: Robert J. Kohlhepp President
Pursuant to the requirements of the Securities Exchange Act of 19 34, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
/s/Richard T. Farmer Chairman of the Board Richard T. Farmer of Directors and Chief Executive Officer August 22, 1994
/s/Robert J. Kohlhepp President, Secretary Robert J. Kohlhepp and Director August 22, 1994
/s/James J. Gardner Director August 22, 1994 James J. Gardner
/s/Donald P. Klekamp Director August 22, 1994 Donald P. Klekamp
/s/David T. Jeanmougin Senior Vice President- David T. Jeanmougin Finance (Principal Financial and Accounting Officer) August 22, 1994
Depreciation and Amortization Annual depreciation and amortization provisions have been computed on a straight-line basis in accordance with the following ranges in asset lives: Item Years Buildings and Improvements 40-new; 20-used Equipment 2-10 Leasehold Improvements lesser of term of lease plus one renewal period or expected life of asset
(A) Transferred from Construction in Progress. (B) Transferred to capital asset accounts.
(A)Uncollectible Accounts Charged-off, Net of Recoveries. (B) Elimination of Fully Amortized Amounts.
Amounts for taxes other than payroll and income taxes, and royalties are not presented as such amounts are less than 1% of total sales and revenues.
EXHIBIT INDEX
The following is a list of exhibits filed with this Form 10-K:
Exhibit Page No. In Sequential Number Description of Exhibit Numbering System
11 Statement re-computation of per share earnings 20
13 Annual Report to Shareholders 22
21 Subsidiaries of Registrant 47
23 Consent of Independent Auditors 48
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EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
A. Weighted average shares outstanding basis:
Fiscal year ended May 31 1994 1993 1992
Net income $52,170,000 $44,873,000 $39,195,000
Weighted average shares outstanding$46,705,656 46,410,860 46,145,026
Earnings per share $1.117 $.967 $.849
B. Primary basis:
Fiscal year ended May 31 1994 1993 1992
Net income $52,170,000 $44,873,000 $39,195,000
Weighted average shares outstanding46,705,656 46,410,860 46,145,026
Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 778,466 899,884 1,014,799
47,484,122 47,310,744 47,159,825
Earnings per share $1.099 $.948 $.831
C. Fully diluted basis:
Fiscal year ended May 31 1994 1993 1992
Net income $52,170,000 $44,873,000 $39,195,000
Weighted average shares outstanding 46,705,656 46,410,860 46,145,026
Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 838,043 902,991 1,083,894
47,543,699 47,313,851 47,228,920
Earnings per share $1.097 $.948 $.830
Note: Reported earnings per share for each year was based upon weighted average shares outstanding since neither the primary nor fully diluted amounts of per share earnings resulted in a reduction of 3% or more.
All share data and earnings per share amounts have been adjusted to reflect a two-for-one stock split effective April 2, 1992.
(a) Includes earnings of $.06 per share due to the adoption of SFAS No. 96. Note: Results prior to October 1, 1991, have been restated to include Rental Uniform Service of Greenville, S.C., Inc.
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TO OUR SHAREHOLDERS AND FRIENDS,
This annual report celebrates our twenty-fifth consecutive year of uninterrupted growth in sales and profits. We have reached significant milestones over these 25 years and have highlighted some of them in this report. During this 25-year period, our sales have grown at a compound rate of 25% and profits have grown at a compound rate of 35%.
Our vision for the future is bigger and broader than our vision of 25 years ago. With sales of over a half billion dollars and substantial management and financial resources, we are poised to take advantage of the great opportunities available to us.
There's hardly a business or an industry that doesn't use or need a uniform service of some kind. Cintas is in an excellent position to fill that need. We have grown to become the largest public company specializing in the uniform service business. We are one of the few companies with a national presence and an infrastructure which consists of design and manufacturing capabilities, along with a national distribution system and management structure.
Cintas has only 13% of the served market and 5% of the potential market which is estimated to be over $10 billion, so the opportunity for continued growth is excellent. We've become quite adept at converting non-users to our service at a rapid rate. In fact, in fiscal 1994, 67% of our new customers were first-time users.
Acquisitions will continue to play an important role in our future. The industry is highly fragmented and most companies in the business are smaller, family-owned and operated companies, with limited financial and management resources. New technology and government regulations are making it more and more difficult for these smaller companies to compete with larger, better financed and managed firms. Therefore, the reasons for them to merge with or sell to these larger companies are more tangible today than they have ever been.
And so, the future looks quite promising. The opportunities are fantastic and Cintas is well positioned to take advantage of them.
Our founding principle has been, and continues to be: To maximize the long-term value of Cintas for our shareholders and working partners by exceeding our customers' expectations. That's more than just a slogan at Cintas - it's an overriding objective that is the single,
most important aspect of our corporate culture. We also want everyone at Cintas to be an owner - and everyone who has been with the Company for more than one year shares in the ownership.
The net worth of our top executives consists primarily of Cintas stock. Unlike many public companies where management is motivated more by salaries and bonuses, Cintas people are owners and focus on maximizing the long-term value of the Company.
Our philosophy of sharing ownership has enabled us to attract a special group of talented people who are united in a common cause and enjoy what they do...people like Larry Harmon and Carl Kettenacker, great sources of strength and energy, will help lead us into the future.
Larry Harmon, a 12-year partner, has been promoted to Vice President of our Western Region after serving as the General Manager of our Los Angeles operation. Carl Kettenacker, who was Vice President of the Western Region, is now the Vice President of a newly created Research and Development Group, an organization expected to accelerate the implementation of technological innovations to enhance our quality and improve our costs. With 23 years of experience, Carl is highly qualified for this key position.
In addition to these senior executives, we have a core of younger talented people who came to us through a management trainee program that we instituted back in 1981. That first class of young, talented college graduates consisted of several bright, ambitious people, most of whom continue to serve Cintas in exciting positions today. They make substantial contributions to our Company in high level positions at early ages...people like Scott Farmer, our youngest corporate officer, and other executives including Todd Gregory, Jim Trucksess, Pete Gilreath, Steve Kling, Steve Mitrione and Jeff Jones. Their grass roots knowledge and understanding of our business enabled them to take on important management assignments, as well as serve as mentors for all of the management trainees we've brought into our Company since then.
The opportunities for continued growth are exciting, our management team is stronger than it's ever been, and our financial resources are substantial. Therefore, we are confident that we can maintain outstanding growth rates in the future as we have in the past.
Sincerely yours,
Richard T. Farmer Robert J. Kohlhepp Chairman of the Board President Chief Executive Officer Chief Operating Officer
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ENHANCING THE IMAGE OF WORKING AMERICA
Fiscal 1994 sales of $523.2 million increased 15.6% from $452.7 million last year. Pretax income of $85.5 million increased 19.8% from $71.3 million last year, while net income of $52.2 million increased 16.3% over $44.9 million in fiscal 1993. Earnings per share increased 15.5% to $1.12 versus $.97 last year.
We have broken out pretax income and net income separately to highlight the impact of the new tax law which involved retroactive taxes and some minor tax credits. In the first quarter we recorded a one-time tax expense of approximately $1.1 million or $.02 per share. Without this expense, our net income and earnings per share increases would have been more in line with the increase in pretax income.
Our uniform rental operations, which represent approximately 90% of our business, extended service to five new markets. The Company also completed construction of uniform rental facilities in Kansas City, Kansas; Baton Rouge, Louisiana; and Akron, Ohio, with facilities currently under construction in Portland, Oregon; Phoenix, Arizona; Seattle, Washington; and Charlotte, North
Carolina. These new facilities are all scheduled to open in fiscal 1995. Sites in other cities have also been purchased for the construction of additional plants. The plans for these additional facilities are currently being finalized and they will be fully operational in fiscal 1996. Our impressive growth over the past 25 years has been both exciting and rewarding. We now have 100 uniform rental operations in 33 states, serving 91 of the top 100 U.S. markets.
The National Account Division continues to expand, posting a dramatic increase in sales in fiscal 1994. This increase is attributable to existing customers converting to newly- designed uniform programs and to the addition of many new customers to the already impressive list of regional and national companies. The ability to implement major programs of this type is evidence of Cintas' unique capabilities. For example, during the fourth quarter, we efficiently implemented newly-designed uniform programs for three major national accounts and expanded the product line for two other large customers. As a result, our National Account Division had a 41% increase in sales compared to the fourth quarter
of fiscal 1993. This is an example of how our systems are able to accommodate demand in a relatively short period of time.
National presence and distribution capabilities are vital competitive advantages, and are also key reasons for the success of our catalog program. This program was created to provide customers and prospects with a convenient, user-friendly method to order uniforms and any accessory that a person might need on the job, including rain gear, caps, gloves, long underwear, socks and work shoes. When the catalog program first began, sales of these types of products through the rental operations were quite small. However, over the three years since it began, sales have grown dramatically and we anticipate this program becoming a significant contributor to our growth over the next three to five years.
Acquisitions continue to play an important role in the Company's continued growth. Two acquisitions in fiscal 1994 helped Cintas strengthen its market position in Pittsburgh and Baltimore. A third acquisition, the tailored uniform division of Palm Beach Company, moves us in the direction of becoming a full
uniform supplier for some of our customers who previously bought their tailored uniforms and rented our line of industrial work clothes. The number of acquisitions made in fiscal 1994 was relatively small compared to recent years. For example, in fiscal 1993, the Company made 17 acquisitions, which exhausted our list of prospects at that time. Cintas will continue to devote significant resources to identifying, evaluating and discussing acquisition opportunities with many new prospects and we expect acquisitions to continue to play a key role in the future growth of our Company.
As the economic recovery continues, employment levels are rebounding. The improving economy and the fact that we have increased the size of our sales force during the year should enable us to increase our rate of internal growth in fiscal 1995.
In fiscal 1994 we continued to innovate and improve our products by building new style and comfort into a diversified line of uniforms. Our fourth manufacturing facility came on stream late in the year and will enable us to sustain growth by increasing our manufacturing capacity. Innovation and product
improvement continue to distinguish us from our competitors and play an important role in our pursuit of new customers. Our quality process and our new training programs have enhanced our already impressive customer retention. As a matter of fact, our customer retention improved substantially in a very competitive market during fiscal 1994.
Cintas continues to be successful in convincing companies to adopt a uniform program for the first time. In fiscal 1994, 67% of our new customers were companies that had never had a uniform program before. We began to focus on this undeveloped potential four years ago and the percentage of new business generated from this segment has increased each year since then. We are encouraged by our success in this area and will continue to pursue this strategy.
Cintas has grown to become the largest public company in this business and one of the few with a national presence. However, we have never given up our "close to the customer" approach to doing business. Cintas is large - but the Company consists of 100 small, local operations. Each operation concentrates on providing personal customer service
in their community. Serving customers is a daily mission carried out by 1,350 service sales representatives - Cintas ambassadors who have close, personal relationships with their customers. These ambassadors are Cintas' most important people. They know their customers' needs and expectations and fully understand that superior service is the only way to guarantee life-time customers.
We continue to dedicate ourselves to training our front-line people. Training programs are constantly being evaluated, updated, expanded and implemented to meet the ever-changing needs of our customers. In addition, Cintas employs exciting new technology to improve quality and efficiency, giving our front- line people the necessary tools they need to deliver superior service.
We are proud of our past and excited about the prospects for our future. We continue to set new records in revenues and net income year after year. Our dedication to customer satisfaction, attention to detail and commitment to improved quality is the key to our continued success as the country's preferred uniform provider. PAGE
See accompanying notes. PAGE
See accompanying notes.
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See accompanying notes.
See accompanying notes.
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CINTAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share and share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Business description. Cintas provides a highly specialized service to businesses of all types--from small service companies to major corporations that employ thousands of people. The Company designs, manufactures and implements corporate identity uniform programs which it sells or rents to customers throughout the United States. Principles of consolidation. The consolidated financial statements include the accounts of Cintas Corporation and its subsidiaries, all of which are wholly-owned. Intercompany balances and transactions have been eliminated. Earnings per share is calculated on the basis of the weighted average number of shares of common stock outstanding during the year, including the dilutive effect, if any, of assumed conversion of common stock equivalents. Cash flows. For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less, at date of purchase, to be cash equivalents. Marketable securities, which consist primarily of industrial revenue bonds and securities issued by the federal government, are carried at cost which approximates market. Inventories are valued at the lower of cost (first-in, first- out) or market. Inventories primarily represent finished goods. Uniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method generally over periods of eight to eighteen months. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Service contracts are obtained through the acquisition of businesses and are amortized using the straight-line method over periods of five to ten years. Other assets consist primarily of non-compete or consulting agreements obtained through the acquisition of businesses, which are amortized by use of the straight-line method over the estimated lives of the agreements which are generally five to ten years. Other assets also include the excess of purchase price over the fair market value of net assets acquired which are amortized using the straight-line method over forty years.
Debt in the amount of $38,887 is secured by assets with a carrying value of $38,742 at May 31, 1994 and letters of credit in the amount of $19,757. Maturities of long-term debt during the five years ending May 31, 1999 are: $15,742, $24,536, $18,622, $5,977 and $5,771, respectively. At May 31, 1994, the fair value of the Company's outstanding debt approximates its carrying value.
Interest expense is net of capitalization of $449, $415 and $545 for the years ended May 31, 1994, 1993 and 1992, respectively. Interest paid, net of amount capitalized, was $7,008, $6,917 and $5,483 for the years ended May 31, 1994, 1993 and 1992, respectively.
5. LEASES
The Company conducts operations from several leased facilities and leases certain equipment. Most leases contain renewal options for periods from one to ten years. The lease agreements provide for increases in rentals if the options are exercised based on increases in certain price level factors or prearranged increases. The minimum rental payments for the five years ending May 31, 1999 are: $3,245, $2,807, $2,286, $2,229 and $2,071, respectively. Rent expense under operating leases during the years ended May 31, 1994, 1993 and 1992 was approximately $4,258, $3,823 and $3,000, respectively.
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In fiscal 1992, the Company recorded a $2.7 million ($.06 per share) cumulative credit to earnings upon adoption of SFAS No. 96, Accounting for Income Taxes. SFAS No. 109, Accounting for Income Taxes, which superseded SFAS No. 96, was adopted by the Company effective June 1, 1993, without restatement of prior period financial statements or recording of a cumulative adjustment. The adoption of SFAS No. 109 resulted primarily in the reclassification of certain deferred tax balances.
The components of deferred income taxes included on the balance sheet at May 31, 1994 and 1993 are as follows:
1994 1993 Deferred tax assets: Employee benefits $4,272 $3,333 Allowance for bad debts and other 2,667 2,447 6,939 5,780
Deferred tax liabilities: In-service inventory 27,575 22,827 Depreciation 13,509 11,380 Other 3,326 1,860 44,410 36,067
Net deferred tax liability $37,471 $30,287
The enactment of the Omnibus Budget Reconciliation Act of 1993 (the Act) on August 10, 1993, resulted in increases to corporate marginal tax rates, retroactive to January 1, 1993. In the first quarter of fiscal 1994, in accordance with the requirements of SFAS No. 109, the Company recorded a charge to earnings of $1,064 and adjusted current and deferred tax liabilities to reflect the change in tax rates. The Act also reinstated jobs tax credits retroactive to July, 1992. This reinstatement amounted to $201, which partially offset the one- time tax rate adjustment.
Income taxes paid were $29,741, $20,938 and $17,924 for the years ended May 31, 1994, 1993 and 1992, respectively.
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7. ACQUISITIONS
During fiscal 1994, 1993 and 1992, the Company acquired eight, seventeen and eight uniform rental businesses, respectively.
Information relating to the acquisitions of uniform rental businesses which were accounted for as purchases is as follows:
1994 1993 1992 Number of acquisitions 8 16 7 Fair value of assets acquired $11,996 $47,264 $14,058 Liabilities assumed and incurred 200 4,880 --- Total cash paid for acquisitions $11,796 $42,384 $14,058
The results of operations from the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The unaudited pro-forma results of operations for the years ended May 31, 1994, 1993, and 1992, assuming the acquisitions had occurred on June 1 of each respective fiscal year would be approximately as follows:
1994 1993 1992 Revenues $529,322 $483,819 $457,102 Net income 52,614 45,517 39,867 Earnings per share 1.13 .98 .86
The unaudited pro forma results of operations are not necessarily indicative of the actual operating results that would have occurred had the acquisitions been consummated on June 1 of each respective fiscal year or of future operating results of the combined companies.
The Company acquired one business in fiscal 1993 in exchange for 180,383 shares of common stock. This acquisition was accounted for as a pooling of interests. The accompanying prior year consolidated financial statements were not restated as the results of operations of this acquisition were not material.
In fiscal 1992, the Company acquired Rental Uniform Service of Greenville, S.C., Inc. in exchange for 2,616,230 shares of common stock.
8. 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. Contributions to the Plan are determined at the discretion of the Company. Effective June 1, 1993, the Company added a defined contribution feature to the Plan covering substantially all employees. A maximum 20% matching contribution to the Plan may be made at the Company's discretion. Total contributions, including the Company's matching contribution during fiscal 1994, were $4,300, $3,700 and $3,200 for the years ended May 31, 1994, 1993 and 1992, respectively.
9. SHAREHOLDERS' EQUITY
On February 24, 1992, the Board of Directors approved a two- for-one common stock split, effective April 2, 1992. All per share data and other stock related disclosures appearing in these consolidated financial statements have been adjusted to reflect all stock splits.
10. STOCK OPTIONS
Under a stock option plan adopted by the Company in fiscal 1993, the Company may grant officers and key employees incentive stock options and/or non-qualified stock options to purchase an aggregate of 2,300,000 shares of the Company's common stock. Options are generally granted at the fair market value of the underlying common stock on the date of grant and generally become exercisable at the rate of 20% per year commencing five years after grant, so long as the holder remains an employee of the Company.
The information presented in the table relates to incentive stock options granted and outstanding under either the plan adopted in fiscal 1993, or under a similar plan which expired in June 1993.
Stock Option Shares Price Range
Outstanding May 31, 1991 (163,320 shares exercisable) 1,422,120 $2.67-$15.21
Granted 199,730 21.38-28.25 Cancelled (41,400) 3.46-23.50 Exercised (131,126) 2.67-7.96 Outstanding May 31, 1992 (278,170 shares exercisable) 1,449,324 2.67-28.25
Granted 121,950 25.25-28.75 Cancelled (54,120) 3.46-28.25 Exercised (199,678) 2.67-9.42 Outstanding May 31, 1993 (297,654 shares exercisable) 1,317,476 2.67-28.75 Granted 193,750 26.50-27.50 Cancelled (48,710) 5.92-28.25 Exercised (226,682) 2.67-12.17 Outstanding May 31, 1994 (246,551 shares exercisable) 1,235,834 $3.46-$28.75
In addition to the outstanding incentive stock options reflected in the table, there were 188,750, 188,750 and 237,750 outstanding non-qualified stock options at May 31, 1994, 1993 and 1992, respectively. During fiscal 1994, 18,000 non-qualified stock options were granted and 18,000 were exercised. At May 31, 1994, the exercise prices of these outstanding options range from $5.92 to $26.50 and 117,120 of these outstanding options were exercisable.
At May 31, 1994, 4,257,000 shares of common stock are reserved for future issuance.
11. QUARTERLY FINANCIAL DATA (UNAUDITED) (Amounts in thousands except per share data)
Following is a summary of the results of operations for each of the quarters within the years ended May 31, 1994 and 1993:
REPORT OF AUDIT COMMITTEE
The Audit Committee (the Committee) of the Board of Directors is composed of three independent directors. The Committee, which held two audit meetings during fiscal year 1994, oversees the Company's financial reporting process on behalf of the Board of Directors.
In fulfilling its responsibility, the Committee recommended to the Board of Directors the selection of the Company's independent auditors. The Committee discussed with the independent auditors the overall scope and specific plan for their audits. The Committee also discussed the Company's consolidated financial statements and the adequacy of the Company's system of internal control.
The Committee meets with the Company's independent auditors, without management present, to discuss the results of their audits, their evaluation of the system of internal control and the overall quality of the Company's financial reporting. The meetings also are designed to facilitate any private communications with the Committee desired by the independent auditors.
Roger L. Howe, Chairman Audit Committee July 15, 1994
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, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 1994. 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, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, the Company has given effect to the changes in accounting for income taxes pursuant to Standards promulgated by the Financial Accounting Standards Board.
Ernst & Young LLP Cincinnati, Ohio July 15, 1994 PAGE
CINTAS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO FISCAL 1993
Total revenues for fiscal 1994 increased 15.6% to $523.2 million. Net rental revenues increased 14.8%. Revenues in existing rental operations increased 9.5% while acquisitions accounted for the remaining growth. Net sales revenues increased 21.8%. The increase was attributable to the implementation of new uniform programs for several large national accounts and the conversion of existing accounts to newly-designed uniform programs. Income before taxes increased 19.8% to $85.5 million. Pre-tax margins improved during the year from 15.7% in fiscal 1993 to 16.3% in fiscal 1994. Margins were impacted favorably primarily by decreases in medical benefits costs and workers compensation as the company continues to focus on cost control measures in these areas. Net interest expense decreased by $.6 million reflecting the repayment of $8.4 million in debt and an increase in interest income. The Company's effective tax rate increased from 37.1% to 38.9% as a result of an increase in the federal tax rate. Return on equity of 18.2% was comparable with the prior year. Cash, cash equivalents and marketable securities increased by $5.8 million due to strong cash flow from internal operations. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Marketable securities consist primarily of industrial revenue bonds and federal government securities. Inventories increased $7.6 million in order to provide service to recent acquisitions and to increase the service level to existing locations. Net property, plant and equipment increased by $11.7 million. In fiscal 1994, the Company constructed three new uniform rental facilities to accommodate growth in rental operations. The current portion of long-term debt increased $11.3 million, in line with the scheduled maturities of long-term debt. All other changes in balance sheet accounts correlate with the change in the Company's revenues.
FISCAL 1993 COMPARED TO FISCAL 1992
On December 28, 1992, the Company purchased Maryatt Industries for approximately $30 million. The Company financed a portion of this acquisition by borrowing $20 million. Prior to the acquisition, Maryatt Industries had annual sales volume of approximately $28 million and operations in 9 cities primarily in the Pacific Northwest, Arizona and California. Total revenues for fiscal year 1993 increased 12.7% to $452.7 million. Net rental revenues increased 14.6%. Revenues in existing rental operations increased 7.5% while acquisitions accounted for the remaining growth. Net sales revenue decreased 1.1%. The decrease was attributed to the significant impact on the prior year's sales from the implementation of new uniform programs for several large national companies and the conversion of two major national accounts to newly-designed uniform programs. Income before income taxes increased 22.5% to $71.3 million. Pre-tax margins improved during the year from 14.5% in fiscal 1992 to 15.7% in fiscal 1993. The margin improvement resulted from the consolidation of certain Rental Uniform Service of Greenville, S.C., Inc. operations which were in their start-up phase and were incurring substantial losses prior to the acquisition by the Company. Margins were also impacted favorably by increased efficiency due to continued investment in state-of-the-art equipment and facilities as the Company continued to improve its infrastructure. The Company's effective tax rate of 37.1% was comparable with the prior year. Return on equity of 18.3% compares to the previous year's return of 18.8%. The fiscal 1992 results reflect the impact of adoption of SFAS No. 96, a change in accounting for income taxes which resulted in a cumulative credit of $2.7 million. Excluding this credit to earnings, return on equity would have been 17.6% in fiscal 1992.
Cash, cash equivalents and marketable securities increased by $32.1 million due to strong cash flow from internal operations and $10.0 million borrowed through a private placement of notes. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Marketable securities consist primarily of industrial revenue bonds and federal government securities. Net property, plant and equipment increased by $7.9 million. In fiscal 1993, the Company constructed four new uniform facilities to accommodate growth in rental operations. Investments and other assets increased by $36.6 million or 73.8% reflecting service contracts and non-compete or consulting agreements obtained through the acquisition of other uniform businesses. All other changes in balance sheet accounts correlated with the change in the Company's revenues.
FINANCIAL CONDITION
At May 31, 1994, the Company had $60.8 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 $8.0 million to $130.0 million due primarily to an increase in cash, cash equivalents and marketable securities.
Capital expenditures for fiscal 1994 totaled $37.2 million. The Company continues to reinvest profits into land, buildings and equipment in order to expand capacity for future growth. The Company anticipates that capital expenditures for fiscal 1995 will approximate $48 million.
The Company's Board of Directors has authorized the repurchase of up to two million shares of the Company's common stock. The stock may be purchased from time to time as market conditions dictate.
The Company believes that its current cash position, funds anticipated to be generated from operations and the strength of its banking relationships is sufficient to meet its anticipated financing requirements in the foreseeable future.
The Company's percentage of debt to total capitalization was 24.4% at May 31, 1994, vs. 29.0% at May 31, 1993.
During the fiscal year, the Company paid a dividend of $.17 per share. This dividend is an increase of 21%over that paid in fiscal 1993.
INFLATION
Management believes inflation has not had a material impact on the Company's financial condition or a negative effect on operations.
Shareholder Information
EXECUTIVE OFFICES 10-K REPORT
Cintas Corporation A copy of the Form 10-K annual 6800 Cintas Boulevard report filed with the Securities P.O. Box 625737 and Exchange Commission for the Cincinnati, Ohio 45262-5737 year ended May 31, 1994, is available at no charge to shareholders. Direct requests in writing for this report or other information to:
AUDITORS David T. Jeanmougin Senior Vice President, Finance Ernst & Young LLP Cintas Corporation 250 E. Fifth Street 6800 Cintas Boulevard 1300 Chiquita Center P.O. Box 625737 Cincinnati, Ohio 45202 Cincinnati, Ohio 45262-5737 (513) 459-1200
STOCK LISTING MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Cintas Corporation Common Stock is traded on the The Common Stock of Cintas NASDAQ National Market Corporation is traded System. The symbol is CTAS. in the over-the-counter market (NASDAQ National Market System, symbol: CTAS). At May 31, 1994, there were approximately 1,600 stockholders of record of the Corporation's Common Stock. The REGISTRAR AND TRANSFER AGENT Company believes that this represents approximately The Fifth Third Bank 10,000 beneficial owners. 38 Fountain Square Plaza The following table shows the high Cincinnati, Ohio 45263 and low closing prices by quarter during the last two fiscal (513) 579-5300 years.
ANNUAL MEETING Fiscal 1994 Fiscal 1993







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 have been listed previously on page 7. No additional financial statements are being filed since the requirements for paragraph (d) under Item 14 are not applicable to the Company.
(a) (2) Financial Statement Schedules.
At May 31, 1994:
Schedule I. Marketable Securities - Other Investments
For each of the three years in the period ended May 31, 1994
Schedule V. Property, Plant and Equipment
Schedule VI. Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment
Schedule VIII. Valuation and Qualifying Accounts and Reserves
Schedule X. Supplementary Income Statement Information
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. PAGE
(a) (3) Exhibits.
Exhibit Number Description of Exhibit Filing Status
3.1 Restated Articles of Incorporation *
3.3 Bylaws *
10.1 Incentive Stock Option Plan * *
10.2 Partners' Plan * * *
10.3 1990 Directors' Stock Option Plan * * * *
10.4 1992 Incentive Stock Option Plan * * * * *
11 Statement re computation of filed herewith per share earnings
13 1994 Annual Report to Shareholders filed herewith
21 Subsidiaries of the Registrant filed herewith
23 Consent of Independent Auditors filed herewith
* Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1989.
** Incorporated by reference to Registration Statement No. 33- 23228 filed under the Securities Act of 1933.
***Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1993.
****Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1991.
*****Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1992. PAGE
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 22, 1994 /s/ Robert J. Kohlhepp
By: Robert J. Kohlhepp President
Pursuant to the requirements of the Securities Exchange Act of 19 34, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
/s/Richard T. Farmer Chairman of the Board Richard T. Farmer of Directors and Chief Executive Officer August 22, 1994
/s/Robert J. Kohlhepp President, Secretary Robert J. Kohlhepp and Director August 22, 1994
/s/James J. Gardner Director August 22, 1994 James J. Gardner
/s/Donald P. Klekamp Director August 22, 1994 Donald P. Klekamp
/s/David T. Jeanmougin Senior Vice President- David T. Jeanmougin Finance (Principal Financial and Accounting Officer) August 22, 1994
Depreciation and Amortization Annual depreciation and amortization provisions have been computed on a straight-line basis in accordance with the following ranges in asset lives: Item Years Buildings and Improvements 40-new; 20-used Equipment 2-10 Leasehold Improvements lesser of term of lease plus one renewal period or expected life of asset
(A) Transferred from Construction in Progress. (B) Transferred to capital asset accounts.
(A)Uncollectible Accounts Charged-off, Net of Recoveries. (B) Elimination of Fully Amortized Amounts.
Amounts for taxes other than payroll and income taxes, and royalties are not presented as such amounts are less than 1% of total sales and revenues.
EXHIBIT INDEX
The following is a list of exhibits filed with this Form 10-K:
Exhibit Page No. In Sequential Number Description of Exhibit Numbering System
11 Statement re-computation of per share earnings 20
13 Annual Report to Shareholders 22
21 Subsidiaries of Registrant 47
23 Consent of Independent Auditors 48
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EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
A. Weighted average shares outstanding basis:
Fiscal year ended May 31 1994 1993 1992
Net income $52,170,000 $44,873,000 $39,195,000
Weighted average shares outstanding$46,705,656 46,410,860 46,145,026
Earnings per share $1.117 $.967 $.849
B. Primary basis:
Fiscal year ended May 31 1994 1993 1992
Net income $52,170,000 $44,873,000 $39,195,000
Weighted average shares outstanding46,705,656 46,410,860 46,145,026
Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 778,466 899,884 1,014,799
47,484,122 47,310,744 47,159,825
Earnings per share $1.099 $.948 $.831
C. Fully diluted basis:
Fiscal year ended May 31 1994 1993 1992
Net income $52,170,000 $44,873,000 $39,195,000
Weighted average shares outstanding 46,705,656 46,410,860 46,145,026
Plus - net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 838,043 902,991 1,083,894
47,543,699 47,313,851 47,228,920
Earnings per share $1.097 $.948 $.830
Note: Reported earnings per share for each year was based upon weighted average shares outstanding since neither the primary nor fully diluted amounts of per share earnings resulted in a reduction of 3% or more.
All share data and earnings per share amounts have been adjusted to reflect a two-for-one stock split effective April 2, 1992.
(a) Includes earnings of $.06 per share due to the adoption of SFAS No. 96. Note: Results prior to October 1, 1991, have been restated to include Rental Uniform Service of Greenville, S.C., Inc.
PAGE
TO OUR SHAREHOLDERS AND FRIENDS,
This annual report celebrates our twenty-fifth consecutive year of uninterrupted growth in sales and profits. We have reached significant milestones over these 25 years and have highlighted some of them in this report. During this 25-year period, our sales have grown at a compound rate of 25% and profits have grown at a compound rate of 35%.
Our vision for the future is bigger and broader than our vision of 25 years ago. With sales of over a half billion dollars and substantial management and financial resources, we are poised to take advantage of the great opportunities available to us.
There's hardly a business or an industry that doesn't use or need a uniform service of some kind. Cintas is in an excellent position to fill that need. We have grown to become the largest public company specializing in the uniform service business. We are one of the few companies with a national presence and an infrastructure which consists of design and manufacturing capabilities, along with a national distribution system and management structure.
Cintas has only 13% of the served market and 5% of the potential market which is estimated to be over $10 billion, so the opportunity for continued growth is excellent. We've become quite adept at converting non-users to our service at a rapid rate. In fact, in fiscal 1994, 67% of our new customers were first-time users.
Acquisitions will continue to play an important role in our future. The industry is highly fragmented and most companies in the business are smaller, family-owned and operated companies, with limited financial and management resources. New technology and government regulations are making it more and more difficult for these smaller companies to compete with larger, better financed and managed firms. Therefore, the reasons for them to merge with or sell to these larger companies are more tangible today than they have ever been.
And so, the future looks quite promising. The opportunities are fantastic and Cintas is well positioned to take advantage of them.
Our founding principle has been, and continues to be: To maximize the long-term value of Cintas for our shareholders and working partners by exceeding our customers' expectations. That's more than just a slogan at Cintas - it's an overriding objective that is the single,
most important aspect of our corporate culture. We also want everyone at Cintas to be an owner - and everyone who has been with the Company for more than one year shares in the ownership.
The net worth of our top executives consists primarily of Cintas stock. Unlike many public companies where management is motivated more by salaries and bonuses, Cintas people are owners and focus on maximizing the long-term value of the Company.
Our philosophy of sharing ownership has enabled us to attract a special group of talented people who are united in a common cause and enjoy what they do...people like Larry Harmon and Carl Kettenacker, great sources of strength and energy, will help lead us into the future.
Larry Harmon, a 12-year partner, has been promoted to Vice President of our Western Region after serving as the General Manager of our Los Angeles operation. Carl Kettenacker, who was Vice President of the Western Region, is now the Vice President of a newly created Research and Development Group, an organization expected to accelerate the implementation of technological innovations to enhance our quality and improve our costs. With 23 years of experience, Carl is highly qualified for this key position.
In addition to these senior executives, we have a core of younger talented people who came to us through a management trainee program that we instituted back in 1981. That first class of young, talented college graduates consisted of several bright, ambitious people, most of whom continue to serve Cintas in exciting positions today. They make substantial contributions to our Company in high level positions at early ages...people like Scott Farmer, our youngest corporate officer, and other executives including Todd Gregory, Jim Trucksess, Pete Gilreath, Steve Kling, Steve Mitrione and Jeff Jones. Their grass roots knowledge and understanding of our business enabled them to take on important management assignments, as well as serve as mentors for all of the management trainees we've brought into our Company since then.
The opportunities for continued growth are exciting, our management team is stronger than it's ever been, and our financial resources are substantial. Therefore, we are confident that we can maintain outstanding growth rates in the future as we have in the past.
Sincerely yours,
Richard T. Farmer Robert J. Kohlhepp Chairman of the Board President Chief Executive Officer Chief Operating Officer
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ENHANCING THE IMAGE OF WORKING AMERICA
Fiscal 1994 sales of $523.2 million increased 15.6% from $452.7 million last year. Pretax income of $85.5 million increased 19.8% from $71.3 million last year, while net income of $52.2 million increased 16.3% over $44.9 million in fiscal 1993. Earnings per share increased 15.5% to $1.12 versus $.97 last year.
We have broken out pretax income and net income separately to highlight the impact of the new tax law which involved retroactive taxes and some minor tax credits. In the first quarter we recorded a one-time tax expense of approximately $1.1 million or $.02 per share. Without this expense, our net income and earnings per share increases would have been more in line with the increase in pretax income.
Our uniform rental operations, which represent approximately 90% of our business, extended service to five new markets. The Company also completed construction of uniform rental facilities in Kansas City, Kansas; Baton Rouge, Louisiana; and Akron, Ohio, with facilities currently under construction in Portland, Oregon; Phoenix, Arizona; Seattle, Washington; and Charlotte, North
Carolina. These new facilities are all scheduled to open in fiscal 1995. Sites in other cities have also been purchased for the construction of additional plants. The plans for these additional facilities are currently being finalized and they will be fully operational in fiscal 1996. Our impressive growth over the past 25 years has been both exciting and rewarding. We now have 100 uniform rental operations in 33 states, serving 91 of the top 100 U.S. markets.
The National Account Division continues to expand, posting a dramatic increase in sales in fiscal 1994. This increase is attributable to existing customers converting to newly- designed uniform programs and to the addition of many new customers to the already impressive list of regional and national companies. The ability to implement major programs of this type is evidence of Cintas' unique capabilities. For example, during the fourth quarter, we efficiently implemented newly-designed uniform programs for three major national accounts and expanded the product line for two other large customers. As a result, our National Account Division had a 41% increase in sales compared to the fourth quarter
of fiscal 1993. This is an example of how our systems are able to accommodate demand in a relatively short period of time.
National presence and distribution capabilities are vital competitive advantages, and are also key reasons for the success of our catalog program. This program was created to provide customers and prospects with a convenient, user-friendly method to order uniforms and any accessory that a person might need on the job, including rain gear, caps, gloves, long underwear, socks and work shoes. When the catalog program first began, sales of these types of products through the rental operations were quite small. However, over the three years since it began, sales have grown dramatically and we anticipate this program becoming a significant contributor to our growth over the next three to five years.
Acquisitions continue to play an important role in the Company's continued growth. Two acquisitions in fiscal 1994 helped Cintas strengthen its market position in Pittsburgh and Baltimore. A third acquisition, the tailored uniform division of Palm Beach Company, moves us in the direction of becoming a full
uniform supplier for some of our customers who previously bought their tailored uniforms and rented our line of industrial work clothes. The number of acquisitions made in fiscal 1994 was relatively small compared to recent years. For example, in fiscal 1993, the Company made 17 acquisitions, which exhausted our list of prospects at that time. Cintas will continue to devote significant resources to identifying, evaluating and discussing acquisition opportunities with many new prospects and we expect acquisitions to continue to play a key role in the future growth of our Company.
As the economic recovery continues, employment levels are rebounding. The improving economy and the fact that we have increased the size of our sales force during the year should enable us to increase our rate of internal growth in fiscal 1995.
In fiscal 1994 we continued to innovate and improve our products by building new style and comfort into a diversified line of uniforms. Our fourth manufacturing facility came on stream late in the year and will enable us to sustain growth by increasing our manufacturing capacity. Innovation and product
improvement continue to distinguish us from our competitors and play an important role in our pursuit of new customers. Our quality process and our new training programs have enhanced our already impressive customer retention. As a matter of fact, our customer retention improved substantially in a very competitive market during fiscal 1994.
Cintas continues to be successful in convincing companies to adopt a uniform program for the first time. In fiscal 1994, 67% of our new customers were companies that had never had a uniform program before. We began to focus on this undeveloped potential four years ago and the percentage of new business generated from this segment has increased each year since then. We are encouraged by our success in this area and will continue to pursue this strategy.
Cintas has grown to become the largest public company in this business and one of the few with a national presence. However, we have never given up our "close to the customer" approach to doing business. Cintas is large - but the Company consists of 100 small, local operations. Each operation concentrates on providing personal customer service
in their community. Serving customers is a daily mission carried out by 1,350 service sales representatives - Cintas ambassadors who have close, personal relationships with their customers. These ambassadors are Cintas' most important people. They know their customers' needs and expectations and fully understand that superior service is the only way to guarantee life-time customers.
We continue to dedicate ourselves to training our front-line people. Training programs are constantly being evaluated, updated, expanded and implemented to meet the ever-changing needs of our customers. In addition, Cintas employs exciting new technology to improve quality and efficiency, giving our front- line people the necessary tools they need to deliver superior service.
We are proud of our past and excited about the prospects for our future. We continue to set new records in revenues and net income year after year. Our dedication to customer satisfaction, attention to detail and commitment to improved quality is the key to our continued success as the country's preferred uniform provider. PAGE
See accompanying notes. PAGE
See accompanying notes.
PAGE
See accompanying notes.
See accompanying notes.
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CINTAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share and share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Business description. Cintas provides a highly specialized service to businesses of all types--from small service companies to major corporations that employ thousands of people. The Company designs, manufactures and implements corporate identity uniform programs which it sells or rents to customers throughout the United States. Principles of consolidation. The consolidated financial statements include the accounts of Cintas Corporation and its subsidiaries, all of which are wholly-owned. Intercompany balances and transactions have been eliminated. Earnings per share is calculated on the basis of the weighted average number of shares of common stock outstanding during the year, including the dilutive effect, if any, of assumed conversion of common stock equivalents. Cash flows. For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less, at date of purchase, to be cash equivalents. Marketable securities, which consist primarily of industrial revenue bonds and securities issued by the federal government, are carried at cost which approximates market. Inventories are valued at the lower of cost (first-in, first- out) or market. Inventories primarily represent finished goods. Uniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method generally over periods of eight to eighteen months. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Service contracts are obtained through the acquisition of businesses and are amortized using the straight-line method over periods of five to ten years. Other assets consist primarily of non-compete or consulting agreements obtained through the acquisition of businesses, which are amortized by use of the straight-line method over the estimated lives of the agreements which are generally five to ten years. Other assets also include the excess of purchase price over the fair market value of net assets acquired which are amortized using the straight-line method over forty years.
Debt in the amount of $38,887 is secured by assets with a carrying value of $38,742 at May 31, 1994 and letters of credit in the amount of $19,757. Maturities of long-term debt during the five years ending May 31, 1999 are: $15,742, $24,536, $18,622, $5,977 and $5,771, respectively. At May 31, 1994, the fair value of the Company's outstanding debt approximates its carrying value.
Interest expense is net of capitalization of $449, $415 and $545 for the years ended May 31, 1994, 1993 and 1992, respectively. Interest paid, net of amount capitalized, was $7,008, $6,917 and $5,483 for the years ended May 31, 1994, 1993 and 1992, respectively.
5. LEASES
The Company conducts operations from several leased facilities and leases certain equipment. Most leases contain renewal options for periods from one to ten years. The lease agreements provide for increases in rentals if the options are exercised based on increases in certain price level factors or prearranged increases. The minimum rental payments for the five years ending May 31, 1999 are: $3,245, $2,807, $2,286, $2,229 and $2,071, respectively. Rent expense under operating leases during the years ended May 31, 1994, 1993 and 1992 was approximately $4,258, $3,823 and $3,000, respectively.
PAGE
In fiscal 1992, the Company recorded a $2.7 million ($.06 per share) cumulative credit to earnings upon adoption of SFAS No. 96, Accounting for Income Taxes. SFAS No. 109, Accounting for Income Taxes, which superseded SFAS No. 96, was adopted by the Company effective June 1, 1993, without restatement of prior period financial statements or recording of a cumulative adjustment. The adoption of SFAS No. 109 resulted primarily in the reclassification of certain deferred tax balances.
The components of deferred income taxes included on the balance sheet at May 31, 1994 and 1993 are as follows:
1994 1993 Deferred tax assets: Employee benefits $4,272 $3,333 Allowance for bad debts and other 2,667 2,447 6,939 5,780
Deferred tax liabilities: In-service inventory 27,575 22,827 Depreciation 13,509 11,380 Other 3,326 1,860 44,410 36,067
Net deferred tax liability $37,471 $30,287
The enactment of the Omnibus Budget Reconciliation Act of 1993 (the Act) on August 10, 1993, resulted in increases to corporate marginal tax rates, retroactive to January 1, 1993. In the first quarter of fiscal 1994, in accordance with the requirements of SFAS No. 109, the Company recorded a charge to earnings of $1,064 and adjusted current and deferred tax liabilities to reflect the change in tax rates. The Act also reinstated jobs tax credits retroactive to July, 1992. This reinstatement amounted to $201, which partially offset the one- time tax rate adjustment.
Income taxes paid were $29,741, $20,938 and $17,924 for the years ended May 31, 1994, 1993 and 1992, respectively.
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7. ACQUISITIONS
During fiscal 1994, 1993 and 1992, the Company acquired eight, seventeen and eight uniform rental businesses, respectively.
Information relating to the acquisitions of uniform rental businesses which were accounted for as purchases is as follows:
1994 1993 1992 Number of acquisitions 8 16 7 Fair value of assets acquired $11,996 $47,264 $14,058 Liabilities assumed and incurred 200 4,880 --- Total cash paid for acquisitions $11,796 $42,384 $14,058
The results of operations from the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The unaudited pro-forma results of operations for the years ended May 31, 1994, 1993, and 1992, assuming the acquisitions had occurred on June 1 of each respective fiscal year would be approximately as follows:
1994 1993 1992 Revenues $529,322 $483,819 $457,102 Net income 52,614 45,517 39,867 Earnings per share 1.13 .98 .86
The unaudited pro forma results of operations are not necessarily indicative of the actual operating results that would have occurred had the acquisitions been consummated on June 1 of each respective fiscal year or of future operating results of the combined companies.
The Company acquired one business in fiscal 1993 in exchange for 180,383 shares of common stock. This acquisition was accounted for as a pooling of interests. The accompanying prior year consolidated financial statements were not restated as the results of operations of this acquisition were not material.
In fiscal 1992, the Company acquired Rental Uniform Service of Greenville, S.C., Inc. in exchange for 2,616,230 shares of common stock.
8. 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. Contributions to the Plan are determined at the discretion of the Company. Effective June 1, 1993, the Company added a defined contribution feature to the Plan covering substantially all employees. A maximum 20% matching contribution to the Plan may be made at the Company's discretion. Total contributions, including the Company's matching contribution during fiscal 1994, were $4,300, $3,700 and $3,200 for the years ended May 31, 1994, 1993 and 1992, respectively.
9. SHAREHOLDERS' EQUITY
On February 24, 1992, the Board of Directors approved a two- for-one common stock split, effective April 2, 1992. All per share data and other stock related disclosures appearing in these consolidated financial statements have been adjusted to reflect all stock splits.
10. STOCK OPTIONS
Under a stock option plan adopted by the Company in fiscal 1993, the Company may grant officers and key employees incentive stock options and/or non-qualified stock options to purchase an aggregate of 2,300,000 shares of the Company's common stock. Options are generally granted at the fair market value of the underlying common stock on the date of grant and generally become exercisable at the rate of 20% per year commencing five years after grant, so long as the holder remains an employee of the Company.
The information presented in the table relates to incentive stock options granted and outstanding under either the plan adopted in fiscal 1993, or under a similar plan which expired in June 1993.
Stock Option Shares Price Range
Outstanding May 31, 1991 (163,320 shares exercisable) 1,422,120 $2.67-$15.21
Granted 199,730 21.38-28.25 Cancelled (41,400) 3.46-23.50 Exercised (131,126) 2.67-7.96 Outstanding May 31, 1992 (278,170 shares exercisable) 1,449,324 2.67-28.25
Granted 121,950 25.25-28.75 Cancelled (54,120) 3.46-28.25 Exercised (199,678) 2.67-9.42 Outstanding May 31, 1993 (297,654 shares exercisable) 1,317,476 2.67-28.75 Granted 193,750 26.50-27.50 Cancelled (48,710) 5.92-28.25 Exercised (226,682) 2.67-12.17 Outstanding May 31, 1994 (246,551 shares exercisable) 1,235,834 $3.46-$28.75
In addition to the outstanding incentive stock options reflected in the table, there were 188,750, 188,750 and 237,750 outstanding non-qualified stock options at May 31, 1994, 1993 and 1992, respectively. During fiscal 1994, 18,000 non-qualified stock options were granted and 18,000 were exercised. At May 31, 1994, the exercise prices of these outstanding options range from $5.92 to $26.50 and 117,120 of these outstanding options were exercisable.
At May 31, 1994, 4,257,000 shares of common stock are reserved for future issuance.
11. QUARTERLY FINANCIAL DATA (UNAUDITED) (Amounts in thousands except per share data)
Following is a summary of the results of operations for each of the quarters within the years ended May 31, 1994 and 1993:
REPORT OF AUDIT COMMITTEE
The Audit Committee (the Committee) of the Board of Directors is composed of three independent directors. The Committee, which held two audit meetings during fiscal year 1994, oversees the Company's financial reporting process on behalf of the Board of Directors.
In fulfilling its responsibility, the Committee recommended to the Board of Directors the selection of the Company's independent auditors. The Committee discussed with the independent auditors the overall scope and specific plan for their audits. The Committee also discussed the Company's consolidated financial statements and the adequacy of the Company's system of internal control.
The Committee meets with the Company's independent auditors, without management present, to discuss the results of their audits, their evaluation of the system of internal control and the overall quality of the Company's financial reporting. The meetings also are designed to facilitate any private communications with the Committee desired by the independent auditors.
Roger L. Howe, Chairman Audit Committee July 15, 1994
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, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 1994. 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, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, the Company has given effect to the changes in accounting for income taxes pursuant to Standards promulgated by the Financial Accounting Standards Board.
Ernst & Young LLP Cincinnati, Ohio July 15, 1994 PAGE
CINTAS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO FISCAL 1993
Total revenues for fiscal 1994 increased 15.6% to $523.2 million. Net rental revenues increased 14.8%. Revenues in existing rental operations increased 9.5% while acquisitions accounted for the remaining growth. Net sales revenues increased 21.8%. The increase was attributable to the implementation of new uniform programs for several large national accounts and the conversion of existing accounts to newly-designed uniform programs. Income before taxes increased 19.8% to $85.5 million. Pre-tax margins improved during the year from 15.7% in fiscal 1993 to 16.3% in fiscal 1994. Margins were impacted favorably primarily by decreases in medical benefits costs and workers compensation as the company continues to focus on cost control measures in these areas. Net interest expense decreased by $.6 million reflecting the repayment of $8.4 million in debt and an increase in interest income. The Company's effective tax rate increased from 37.1% to 38.9% as a result of an increase in the federal tax rate. Return on equity of 18.2% was comparable with the prior year. Cash, cash equivalents and marketable securities increased by $5.8 million due to strong cash flow from internal operations. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Marketable securities consist primarily of industrial revenue bonds and federal government securities. Inventories increased $7.6 million in order to provide service to recent acquisitions and to increase the service level to existing locations. Net property, plant and equipment increased by $11.7 million. In fiscal 1994, the Company constructed three new uniform rental facilities to accommodate growth in rental operations. The current portion of long-term debt increased $11.3 million, in line with the scheduled maturities of long-term debt. All other changes in balance sheet accounts correlate with the change in the Company's revenues.
FISCAL 1993 COMPARED TO FISCAL 1992
On December 28, 1992, the Company purchased Maryatt Industries for approximately $30 million. The Company financed a portion of this acquisition by borrowing $20 million. Prior to the acquisition, Maryatt Industries had annual sales volume of approximately $28 million and operations in 9 cities primarily in the Pacific Northwest, Arizona and California. Total revenues for fiscal year 1993 increased 12.7% to $452.7 million. Net rental revenues increased 14.6%. Revenues in existing rental operations increased 7.5% while acquisitions accounted for the remaining growth. Net sales revenue decreased 1.1%. The decrease was attributed to the significant impact on the prior year's sales from the implementation of new uniform programs for several large national companies and the conversion of two major national accounts to newly-designed uniform programs. Income before income taxes increased 22.5% to $71.3 million. Pre-tax margins improved during the year from 14.5% in fiscal 1992 to 15.7% in fiscal 1993. The margin improvement resulted from the consolidation of certain Rental Uniform Service of Greenville, S.C., Inc. operations which were in their start-up phase and were incurring substantial losses prior to the acquisition by the Company. Margins were also impacted favorably by increased efficiency due to continued investment in state-of-the-art equipment and facilities as the Company continued to improve its infrastructure. The Company's effective tax rate of 37.1% was comparable with the prior year. Return on equity of 18.3% compares to the previous year's return of 18.8%. The fiscal 1992 results reflect the impact of adoption of SFAS No. 96, a change in accounting for income taxes which resulted in a cumulative credit of $2.7 million. Excluding this credit to earnings, return on equity would have been 17.6% in fiscal 1992.
Cash, cash equivalents and marketable securities increased by $32.1 million due to strong cash flow from internal operations and $10.0 million borrowed through a private placement of notes. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Marketable securities consist primarily of industrial revenue bonds and federal government securities. Net property, plant and equipment increased by $7.9 million. In fiscal 1993, the Company constructed four new uniform facilities to accommodate growth in rental operations. Investments and other assets increased by $36.6 million or 73.8% reflecting service contracts and non-compete or consulting agreements obtained through the acquisition of other uniform businesses. All other changes in balance sheet accounts correlated with the change in the Company's revenues.
FINANCIAL CONDITION
At May 31, 1994, the Company had $60.8 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 $8.0 million to $130.0 million due primarily to an increase in cash, cash equivalents and marketable securities.
Capital expenditures for fiscal 1994 totaled $37.2 million. The Company continues to reinvest profits into land, buildings and equipment in order to expand capacity for future growth. The Company anticipates that capital expenditures for fiscal 1995 will approximate $48 million.
The Company's Board of Directors has authorized the repurchase of up to two million shares of the Company's common stock. The stock may be purchased from time to time as market conditions dictate.
The Company believes that its current cash position, funds anticipated to be generated from operations and the strength of its banking relationships is sufficient to meet its anticipated financing requirements in the foreseeable future.
The Company's percentage of debt to total capitalization was 24.4% at May 31, 1994, vs. 29.0% at May 31, 1993.
During the fiscal year, the Company paid a dividend of $.17 per share. This dividend is an increase of 21%over that paid in fiscal 1993.
INFLATION
Management believes inflation has not had a material impact on the Company's financial condition or a negative effect on operations.
Shareholder Information
EXECUTIVE OFFICES 10-K REPORT
Cintas Corporation A copy of the Form 10-K annual 6800 Cintas Boulevard report filed with the Securities P.O. Box 625737 and Exchange Commission for the Cincinnati, Ohio 45262-5737 year ended May 31, 1994, is available at no charge to shareholders. Direct requests in writing for this report or other information to:
AUDITORS David T. Jeanmougin Senior Vice President, Finance Ernst & Young LLP Cintas Corporation 250 E. Fifth Street 6800 Cintas Boulevard 1300 Chiquita Center P.O. Box 625737 Cincinnati, Ohio 45202 Cincinnati, Ohio 45262-5737 (513) 459-1200
STOCK LISTING MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Cintas Corporation Common Stock is traded on the The Common Stock of Cintas NASDAQ National Market Corporation is traded System. The symbol is CTAS. in the over-the-counter market (NASDAQ National Market System, symbol: CTAS). At May 31, 1994, there were approximately 1,600 stockholders of record of the Corporation's Common Stock. The REGISTRAR AND TRANSFER AGENT Company believes that this represents approximately The Fifth Third Bank 10,000 beneficial owners. 38 Fountain Square Plaza The following table shows the high Cincinnati, Ohio 45263 and low closing prices by quarter during the last two fiscal (513) 579-5300 years.
ANNUAL MEETING Fiscal 1994 Fiscal 1993