10-K 1 a10-k.txt 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES X EXCHANGE ACT OF 1934 For the Fiscal Year Ended May 31, 2000 --- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-11399 CINTAS CORPORATION (Exact name of registrant as specified in its charter) Incorporated under IRS Employer ID the Laws of Washington No. 31-1188630 (State or other juris- diction of incorporation 6800 Cintas Boulevard or organization) P.O. Box 625737 Cincinnati, Ohio 45262-5737 Phone: (513) 459-1200 (Address of principal executive offices) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES NO --- -- X --- -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. The aggregate market value of Common Stock held by nonaffiliates is $7,108,872,271 based on a closing price of $42.1875 on August 24, 2000. As of August 24, 2000, 168,506,602 shares of no par value Common Stock were issued and outstanding. Documents Incorporated by Reference Portions of the Registrant's Annual Report to Shareholders for 2000 furnished to the Commission pursuant to Rule 14a-3(b) and portions of the Registrant's Proxy Statement to be filed with the Commission for its 2000 annual meeting are incorporated by reference in Parts II and III as specified. -1- CINTAS CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K

PAGE ---- Part I Item 1. - Business. 3 Item 2. - Properties. 4 Item 3. - Legal Proceedings. 5 Item 4. - Submission of Matters to a Vote of Security Holders. 5 Part II Item 5. - Market for Registrant's Common Equity and Related Stockholder Matters. 6 Item 6. - Selected Financial Data. 6 Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations. 6 Item 7A. - Quantitative and Qualitative Disclosure About Market Risk. 6 Item 8. - Financial Statements and Supplementary Data. 6 Item 9. - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 6 Part III Item 10. - Directors and Executive Officers of the Registrant. 7 Item 11. - Executive Compensation. 7 Item 12. - Security Ownership of Certain Beneficial Owners and Management. 7 Item 13. - Certain Relationships and Related Transactions. 7 Part IV Item 14. - Exhibits, Financial Statement Schedules and Reports on Form 8-K. 7

-2- PART I ITEM 1. BUSINESS Cintas Corporation is a publicly held company, and is primarily a corporate identity uniform company which also provides ancillary services as discussed below. The Company was founded in 1968 by Richard T. Farmer, Chairman of the Board, when he left his family's industrial laundry business in order to develop uniform programs using an exclusive new fabric. In the early 1970's, Cintas acquired the family industrial laundry business. Cintas provides a highly specialized service to businesses of all types - from small service and manufacturing companies to major corporations that employ thousands of people. The Company classifies its businesses into two operating segments: Rentals and Other Services. The Rentals operating segment designs and manufactures corporate identity uniforms which it rents, along with other items, to its customers. The Other Services operating segment involves the design, manufacture and direct sale of uniforms to its customers as well as the sale of ancillary services including sanitation supplies, first aid and safety products and services and cleanroom supplies. The rental markets served by the Company are highly fragmented and competition for this business varies at each of the Company's locations. There are other companies in the uniform rental business which have financial resources comparable to those of the Company, although much of the competition consists of smaller local and regional firms. In certain instances, local competitors may also have financial resources comparable to those of the Company in a particular market. The Company believes that the primary competitive factors that affect its operations are quality, service, design and price, in that order. The service provided to the rental markets served by the Company principally consists of the rental and cleaning of uniforms as well as providing on-going uniform replacements as required to each customer. The Company also offers ancillary products which includes the rental or sale of entrance mats, fender covers, towels, mops, linen products and first aid and safety products and services. Due to its diverse customer base and average account size, the loss of one account would not have a significant financial impact on the Company. In its sale of customized uniforms, Cintas competes on a national basis with other uniform suppliers and manufacturers. The Company operates fourteen manufacturing facilities, which provide for a substantial amount of its standard uniform needs. Additional products are purchased from several outside suppliers. Because of the Company's ability to manufacture much of its own uniform needs, the loss of one vendor would not have a significant impact on the Company. The Company purchases fabric, used in its manufacturing process, from several suppliers. The Company is not aware of any circumstances that would hinder its ability to obtain these materials. The Company does not anticipate any material capital expenditures for environmental remediation that would have a material effect on its financial condition. The Company is not aware of any material non-compliance with environmental laws. At May 31, 2000, the Company employed approximately 22,500 employees of which approximately 900 were represented by labor unions. The Company considers its relationship with its employees to be satisfactory. -3- The table sets forth the revenues derived from each service provided by Cintas.

Year Ended May 31 2000 1999 1998 ---- ---- ---- (in thousands) Rentals $ 1,424,892 $ 1,297,248 $ 1,090,577 Other Services 477,099 454,320 386,368 ----------------- -------------- -------------- $ 1,901,991 $ 1,751,568 $ 1,476,945 ================= ============== ==============

ITEM 2. PROPERTIES The Company occupies 269 facilities located in 207 cities, of which 106 facilities are leased for various terms ranging from monthly to the year 2019. The Company expects that it will be able to renew its leases on satisfactory terms. All other properties are owned. The corporate offices provide centrally located administrative functions including accounting, finance, marketing and computer system development and support. The Company operates processing plants that house administrative, sales and service personnel and the necessary equipment involved in the cleaning of uniforms and bulk items. Branch operations provide administrative, sales and service functions. Cintas operates six distribution facilities and has fourteen manufacturing plants. The Company also operates facilities that distribute first aid products. The Company considers the facilities it operates to be adequate for their intended use. The Company owns or leases 5,918 vehicles. The following chart provides additional information concerning Cintas' facilities:

Type of Facility # of Facilities ---------------- --------------- Processing Plant 131 Branch 70 First Aid Facility 38 Distribution Center 6 Manufacturing Facility 14 Direct Sales Office 10 ------------ Total 269

-4- ITEM 3. LEGAL PROCEEDINGS In December 1992, the Company was served with an "Imminent and Substantial Endangerment and Remedial Action Order" (the "Order") by the California Department of Toxic Substances Control relating to the facility leased by the Company in San Leandro, California. The Order requires Cintas and three other allegedly responsible parties to respond to alleged soil and groundwater contamination at and around the San Leandro facility. It is not possible at this time to estimate the loss or range of loss associated with the claim. Based on information that has been made available to the Company, however, it is not believed that the matter will have a material adverse effect on the Company's financial condition or results of its operations. In acquiring Unitog in March 1999, the Company became a potentially responsible party, and thus faces the possibility of joint and several liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) in connection with alleged environmental contamination in an area near a rental facility in Tempe, Arizona. This facility, located near the South Indian Bend Wash Federal Superfund (SIBW) site, has been tested for soil and groundwater contamination. Soil testing at the Company's facility detected volatile organic compounds, and the Company immediately took action to remediate such contamination. Groundwater testing in the area of the Company's property has detected a very low level of volatile organic compound contamination. The United States Environmental Protection Agency (EPA) in March 1999 issued a Record of Decision to the effect that groundwater contamination in the vicinity of the Company's plant does not warrant remediation at this time. Instead, the low levels of groundwater contamination near the Company's facility will be monitored and allowed to attenuate naturally. The Record of Decision requires active groundwater remediation in other parts of the SIBW site, which are believed to be unrelated to the Company. According to the Record of Decision, the EPA estimates that the 30 year net present value of costs to be incurred to remediate and monitor groundwater contamination at the SIBW site is $22 million. It is possible that the EPA will attempt to recover from the potentially responsible parties the costs it has incurred to date with respect to the SIBW site as well as the costs it expects to incur going forward. As part of the Agreement and Plan of Merger between Unitog Company and the Company, the Company performed environmental testing at nine previously untested Unitog laundry facilities. The testing resulted in the discovery of soil and groundwater contamination at certain of these sites. As a result of all of the environmental matters noted above, the Company recorded a charge to operating expense of $5 million during the third quarter of fiscal 1999 to reflect its current estimate of the additional costs to be incurred relative to these sites. At May 31, 2000, the Company has an undiscounted liability of $5.2 million for environmental matters. The Company is also a party to incidental litigation brought in the ordinary course of business, none of which individually or in the aggregate, is considered to be material to its operations or financial condition. Cintas maintains insurance coverage against certain liabilities that it may incur in its operations from time to time. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None in the fourth quarter of fiscal 2000. -5- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS "Market for Registrant's Common Stock and Security Holder Information" on page 39 of the Registrant's Annual Report to Shareholders for 2000 is incorporated herein by reference. Dividend information is incorporated by reference to the Consolidated Statements of Shareholders' Equity on page 20. Dividends on the outstanding Common Stock are paid annually and amounted to $.19 and $.15 per share in fiscal 2000 and 1999, respectively. During the quarterly period ended May 31, 2000, the Registrant issued 40,509 shares of Common Stock as the result of an adjustment to the consideration payable in connection with the acquisition of a company in April 1998. The issuance occurred in a transaction separate from the 1998 closing and the securities were issued to a total of 21 selling shareholders. These issuances were exempt from the registration requirements of the Securities Act of 1933 as private offerings pursuant to Section 4(2) of the Act. ITEM 6. SELECTED FINANCIAL DATA The "Eleven Year Financial Summary" on page 17 of the Registrant's Annual Report to Shareholders for 2000 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" commencing on page 35 of the Registrant's Annual Report to Shareholders for 2000 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK "Quantitative and Qualitative Disclosure About Market Risk" on page 37 of the Registrant's Annual Report to Shareholders for 2000 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Financial Statements of the Registrant shown on pages 18 through 34 of its Annual Report to Shareholders for 2000 are incorporated herein by reference: Consolidated Statements of Income for the years ended May 31, 2000, 1999 and 1998 Consolidated Balance Sheets as of May 31, 2000 and 1999 Consolidated Statements of Shareholders' Equity for the years ended May 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended May 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Report of Independent Auditors ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -6- PART III Items 10., 11., 12., and 13. of Part III are incorporated by reference to the Registrant's Proxy Statement for its 2000 Annual Shareholders' Meeting to be filed with the Commission pursuant to Regulation 14A. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K (a) (1) Financial Statements. All financial statements required to be filed by Item 8 of this Form and included in this report are listed in Item 8. No additional financial statements are filed because the requirements for paragraph (d) under Item 14 are not applicable to the Company. (a) (2) Financial Statement Schedule: For each of the three years in the period ended May 31, 2000. Schedule II: Valuation and Qualifying Accounts and Reserves. All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or Notes thereto. (a)(3) Exhibits. Exhibit Filing Number Description of Exhibit Status ------- ---------------------- ------ 3.1 Restated Articles of Incorporation (1) 3.2 By-laws (1) 3.3 Amendments to the Articles of Incorporation of Cintas Corporation (2) Management Compensatory Contracts (Exhibits 10.1-10.11) 10.1 Incentive Stock Option Plan (3) 10.2 Partners' Plan, as Amended (4) 10.3 1990 Directors' Stock Option Plan (5) 10.4 1994 Directors' Stock Option Plan (6) 10.5 Agreement and Plan of Merger and Reorganization (7) dated January 12, 1998 by and among Uniforms To You and Company, Cintas Merger Sub, Inc. - Illinois, other acquired companies, certain shareholders and Cintas Corporation -7- 10.6 Agreement and Plan of Merger dated January 9,1999 (8) by and among Unitog Company, Cintas Image Acquisition Company and Cintas Corporation 10.7 Amendment No. 1 to Agreement and Plan of Merger (9) dated March 23, 1999 by and among Unitog Company, Cintas Image Acquisition Company and Cintas Corporation 10.8 Unitog Company 1992 Stock Option Plan (10) 10.9 Amendment No. 1 to Unitog Company 1992 Stock Option Plan (11) 10.10 Unitog Company 1997 Stock Option Plan (12) 10.11 2000 Employee Stock Option Plan (13) 13 2000 Annual Report to Shareholders (a) filed herewith 21 Subsidiaries of the Registrant filed herewith 23 Consent of Independent Auditors filed herewith 27 Financial Data Schedule - Twelve Months Ended May 2000 filed herewith (a) Only portions of the 2000 Annual Report to Shareholders specifically incorporated by reference are filed herewith. A supplemental paper copy of this report will be provided to the SEC for informational purposes. (1) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1989. (2) Incorporated by reference to the Company's 1994 Proxy Statement. (3) Incorporated by reference to the Company's Registration Statement No. 33-23228 on Form S-8 filed under the Securities Act of 1933. (4) Incorporated by reference to the Company's Registration Statement No. 33-56623 on Form S-8 filed under the Securities Act of 1933. (5) Incorporated by reference to the Company's Registration Statement No. 33-71124 on Form S-8 filed under the Securities Act of 1933. (6) Incorporated by reference to the Company's Proxy Statement for its 1994 Annual Shareholders Meeting. (7) Incorporated by reference to the Company's Form 8-K dated April 8, 1998. (8) Incorporated by reference to the Unitog Company's Form 8-K dated January 9, 1999. (9) Incorporated by reference to the Company's Form 8-K dated March 24, 1999. -8- (10) Incorporated by reference to the Unitog Company's Form 10-K for the fiscal year ended January 26, 1992. (11) Incorporated by reference to the Unitog Company's Form 10-K for the fiscal year ended January 30, 1994. (12) Incorporated by reference to the Unitog Company's 1997 Proxy Statement. (13) Incorporated by reference to the Company's Form 10-Q for the quarter ended November 30, 1999. -9- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CINTAS CORPORATION DATE SIGNED: August 28, 2000 /s/ Robert J. Kohlhepp By: Robert J. Kohlhepp ------------------ Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Capacity Date --------- -------- ---- /s/ Richard T. Farmer Chairman of the Board ----------------------- of Directors August 28, 2000 Richard T. Farmer /s/ Robert J. Kohlhepp Chief Executive ----------------------- Officer and Director August 28, 2000 Robert J. Kohlhepp /s/ Scott D. Farmer President, Chief Operating ----------------------- Officer and Director August 28, 2000 Scott D. Farmer /s/ James J. Gardner Director August 28, 2000 ----------------------- James J. Gardner /s/ Donald P. Klekamp Director August 28, 2000 ----------------------- Donald P. Klekamp /s/ William C. Gale Vice President and Chief ----------------------- Financial Officer (Principal William C. Gale Financial and Accounting Officer) August 28, 2000

-10- CINTAS CORPORATION Schedule II - Valuation and Qualifying Accounts and Reserves (In Thousands)

ADDITIONS ---------------------------- (1) (2) (3) BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END OF DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR ----------- -------------------------------------------------------------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS May 31, 1998 $6,745 $3,206 $960 $2,933 $7,978 ========================================================================= May 31, 1999 $7,978 $3,576 $1,447 $4,247 $8,754 ========================================================================= May 31, 2000 $8,754 $1,994 $1,123 $4,507 $7,364 ========================================================================= RESERVE FOR OBSOLETE INVENTORY May 31, 1998 $18,738 $6,899 $1,033 $3,348 $23,322 ========================================================================= May 31, 1999 $23,322 $13,104 $1,930 $6,503 $31,853 ========================================================================= May 31, 2000 $31,853 $1,220 (4) $821 $11,590 (5) $22,304 =========================================================================

(1) Represents amounts charged to expense to increase reserve for estimated future bad debts or to increase reserve for obsolete inventory. Amounts related to inventory are computed by performing a thorough analysis of future marketability by specific inventory item. (2) Represents an increase in the appropriate balance sheet reserve due to acquisitions during the respective period, excluding Uniforms To You and Unitog Company. (3) Represents reductions in the balance sheet reserve due to the actual write-off of non-collectible accounts receivable or the physical disposal of obsolete inventory items. These amounts do not impact the Company's income statement. (4) In the years ended May 31, 1998 and 1999, Cintas acquired several new businesses resulting in a broader and more complex product line. The amount recorded in the year ended May 31, 2000 was significantly less than in the prior years due to the extensive improvements made in product development, forecasting, distribution and sourcing for these acquired operations. Such improvements have resulted in significantly reducing the exposure to obsolete inventory. (5) Represents inventory values either contributed to charitable organizations or destroyed. A reserve for obsolescence was recognized as an expense in prior periods. Most of these amounts were attributed to inventories from acquired companies. -11-