form10q022908.htm
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

( X )             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2008

OR

(    )            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________

Commission file number 0-11399

CINTAS CORPORATION
(Exact name of Registrant as specified in its charter)

WASHINGTON
 
31-1188630
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

6800 CINTAS BOULEVARD
P.O. BOX 625737
CINCINNATI, OHIO 45262-5737
(Address of principal executive offices)
(Zip Code)

(513) 459-1200
(Registrant's telephone number, including area code)

Indicate by checkmark 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ü  No ___

Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

    Large Accelerated Filer þ                  Accelerated Filer o
            Non-Accelerated Filer   o      (Do not check if a smaller reporting company)       Smaller reporting company o

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ___ No     ü  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding March 31, 2008
Common Stock, no par value
 
153,683,603










CINTAS CORPORATION
TABLE OF CONTENTS

 

   
Page No.
Part I.
Financial Information
 
       
 
Item 1.
Financial Statements.
 
       
   
Consolidated Condensed Statements of Income -
  Three Months and Nine Months Ended February 29, 2008
  and February 28, 2007
3
       
   
Consolidated Condensed Balance Sheets -
  February 29, 2008 and May 31, 2007
4
       
   
Consolidated Condensed Statements of Cash Flows -
  Nine Months Ended February 29, 2008 and February 28, 2007 
5
       
   
Notes to Consolidated Condensed Financial Statements
6
       
 
Item 2.
Management's Discussion and Analysis of Financial
  Condition and Results of Operations.
24
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
35
       
 
Item 4.
Controls and Procedures.
35
       
Part II.
Other Information
37
       
 
Item 1.
Legal Proceedings.
37
       
 
Item 1A.
Risk Factors.
38
       
 
Item 5.
Other Information.
38
       
 
Item 6.
Exhibits.
38
       
Signatures
 
39
       
Certifications
 
 


2
 
 

 

CINTAS CORPORATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)

   
Three Months Ended
   
Nine Months Ended
 
   
February 29,
2008
   
February 28,
2007
   
February 29,
2008
   
February 28,
2007
 
                         
Revenue:
                       
  Rental uniforms and ancillary products
  $ 703,641     $ 665,647     $ 2,122,840     $ 2,037,796  
  Other services
    272,311       239,751       806,105       705,029  
      975,952       905,398       2,928,945       2,742,825  
                                 
Costs and expenses (income):
                               
  Cost of rental uniforms and ancillary products
    398,318       371,185       1,182,019       1,129,500  
  Cost of other services
    166,409       148,386       497,761       445,944  
  Selling and administrative expenses
    273,194       253,128       825,029       745,884  
  Interest income
    (1,510 )     (1,339 )     (4,768 )     (4,488 )
  Interest expense
    13,622       11,584       39,452       36,499  
      850,033       782,944       2,539,493       2,353,339  
                                 
Income before income taxes
    125,919       122,454       389,452       389,486  
                                 
Income taxes
    44,091       45,727       143,708       145,270  
                                 
Net income
  $ 81,828     $ 76,727     $ 245,744     $ 244,216  
                                 
Basic earnings per share
  $ 0.53     $ 0.48     $ 1.57     $ 1.52  
                                 
Diluted earnings per share
  $ 0.53     $ 0.48     $ 1.57     $ 1.52  
                                 
Dividends declared per share
                  $ 0.46     $ 0.39  


See accompanying notes.
 
 
3
 
 

 

CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
 (In thousands except share data)

   
February 29, 2008
   
May 31,
 2007
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
  Cash and cash equivalents
  $ 55,675     $ 35,360  
  Marketable securities
    107,971       120,053  
  Accounts receivable, net
    413,781       408,870  
  Inventories, net
    241,326       231,741  
  Uniforms and other rental items in service
    365,396       344,931  
  Deferred income tax asset
    39,971       ----  
  Prepaid expenses
    14,698       15,781  
                 
        Total current assets
    1,238,818       1,156,736  
                 
Property and equipment, at cost, net
    968,584       920,243  
                 
Goodwill
    1,311,089       1,245,877  
Service contracts, net
    158,515       171,361  
Other assets, net
    85,272       76,263  
                 
    $ 3,762,278     $ 3,570,480  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Current liabilities:
               
  Accounts payable
  $ 64,472     $ 64,622  
  Accrued compensation and related liabilities
    51,316       62,826  
  Accrued liabilities
    253,604       200,686  
  Income taxes:
               
    Current
    21,941       18,584  
    Deferred
    ----       52,179  
  Long-term debt due within one year
    1,342       4,141  
                 
        Total current liabilities
    392,675       403,038  
                 
Long-term liabilities:
               
  Long-term debt due after one year
    964,065       877,074  
  Deferred income taxes
    122,726       122,630  
  Accrued liabilities
    117,349       ----  
                 
        Total long-term liabilities
    1,204,140       999,704  
                 
Shareholders' equity:
               
  Preferred stock, no par value:
    100,000 shares authorized, none outstanding
    ----       ----  
  Common stock, no par value:
    425,000,000 shares authorized,
    FY 2008:  173,075,926 issued and 153,683,603 outstanding
    FY 2007:  172,874,195 issued and 158,676,872 outstanding
    128,841       120,811  
  Paid-in capital
    60,471       56,909  
  Retained earnings
    2,694,630       2,533,459  
  Treasury stock:
    FY 2008:  19,392,323 shares, FY 2007: 14,197,323 shares
    (772,041 )     (580,562 )
  Other accumulated comprehensive income
    53,562       37,121  
        Total shareholders' equity
    2,165,463       2,167,738  
    $ 3,762,278     $ 3,570,480  
See accompanying notes.
 
4
 
 

 

CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

   
Nine Months Ended
 
     February 29,      February 28,  
   
2008
   
2007
 
Cash flows from operating activities:
           
             
  Net income
  $ 245,744     $ 244,216  
  Adjustments to reconcile net income to net cash provided by operating activities:
               
    Depreciation
    110,076       100,036  
    Amortization of deferred charges
    32,371       30,015  
    Stock-based compensation
    7,406       2,746  
    Deferred income taxes
    (456 )     (19,062 )
    Change in current assets and liabilities, net of acquisitions of businesses:
               
      Accounts receivable, net
    862       911  
      Inventories, net
    (8,925 )     (28,176 )
      Uniforms and other rental items in service
    (18,628 )     (1,595 )
      Prepaid expenses
    1,177       (3,676 )
      Accounts payable
    (448 )     (2,070 )
      Accrued compensation and related liabilities
    (11,730 )     6,880  
      Accrued liabilities and other
    (6,114 )     (15,511 )
      Income taxes payable
    17,886       7,363  
Net cash provided by operating activities
    369,221       322,077  
                 
Cash flows from investing activities:
               
                 
  Capital expenditures
    (144,848 )     (128,636 )
  Proceeds from sale or redemption of marketable securities
    42,393       102,871  
  Purchase of marketable securities and investments
    (32,434 )     (41,621 )
  Acquisitions of businesses, net of cash acquired
    (102,103 )     (135,011 )
  Other
    (1,202 )     417  
Net cash used in investing activities
    (238,194 )     (201,980 )
                 
Cash flows from financing activities:
               
                 
  Proceeds from issuance of debt
    313,000       252,460  
  Repayment of debt
    (228,808 )     (167,687 )
  Stock options exercised
    8,030       9,529  
  Repurchase of common stock
    (191,479 )     (198,949 )
  Other
    (11,455 )     (22,806 )
Net cash used in financing activities
    (110,712 )     (127,453 )
                 
Net increase (decrease) in cash and cash equivalents
    20,315       (7,356 )
                 
Cash and cash equivalents at beginning of period
    35,360       38,914  
                 
Cash and cash equivalents at end of period
  $ 55,675     $ 31,558  

See accompanying notes.
 
 
5
 
 

 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands except per share data)

1.
Basis of Presentation

The consolidated condensed financial statements of Cintas Corporation (Cintas) included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations.  While we believe that the disclosures are adequately presented, it is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes included in our most recent Form 10-K for the fiscal year ended May 31, 2007.  A summary of our significant accounting policies is presented on page 36 of that report.  There have been no material changes in the accounting policies followed by Cintas during the fiscal year, with the exception of the new accounting standard discussed in Note 2 below.

Interim results are subject to variations and are not necessarily indicative of the results of operations for a full fiscal year.  In the opinion of management, adjustments (which include only normal recurring adjustments) necessary for a fair statement of the consolidated results of the interim periods shown have been made.

Certain prior year amounts have been reclassified to conform to current year presentation.


2.
New Accounting Standards

As of June 1, 2007, Cintas adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FAS 109), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FAS 109, Accounting for Income Taxes.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  As a result of the implementation of FIN 48, Cintas recorded a decrease to retained earnings as of June 1, 2007, of $13,731.  Cintas’ adoption of FIN 48 is more fully described in Note 6.
 
FASB Statement No. 157, Fair Value Measurements (FAS 157), defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  FAS 157 is effective for fiscal years beginning after November 15, 2007. Cintas is currently assessing the impact of FAS 157 on its consolidated financial statements and will adopt this pronouncement on June 1, 2008.
 
FASB Statement No. 159, Fair Value Option for Financial Assets and Financial Liabilities (FAS 159), allows for voluntary measurement of many financial assets and financial liabilities at fair value.  FAS 159 is effective for fiscal years beginning after November 7, 2007. Cintas is currently assessing the impact of FAS 159 on its consolidated financial statements and whether this pronouncement will be voluntarily adopted.



6
 
 

 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)

3.
Earnings per Share

The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective periods:

   
Three Months Ended
   
Nine Months Ended
 
   
February 29,
2008
   
February 28,
2007
   
February 29,
2008
   
February 28,
2007
 
                         
Numerator:
                       
Net income
  $ 81,828     $ 76,727     $ 245,744     $ 244,216  
                                 
Denominator:
                               
Denominator for basic earnings per
  share-weighted average shares (000’s)
    153,679       159,311       156,346       160,144  
                                 
Effect of dilutive securities-
  employee stock options (000’s)
    203       388       287       406  
                                 
Denominator for diluted earnings per
  share-adjusted weighted average
  shares and assuming conversions (000’s)
    153,882       159,699       156,633       160,550  
                                 
Basic earnings per share
  $ 0.53     $ 0.48     $ 1.57     $ 1.52  
                                 
Diluted earnings per share
  $ 0.53     $ 0.48     $ 1.57     $ 1.52  


4.
Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill and service contracts for the nine months ended February 29, 2008, by operating segment, are as follows:

   
Rental
Uniforms &
Ancillary
Products
   
Uniform
Direct
Sales
   
First Aid,
Safety &
Fire
Protection
   
Document
Management
   
Total
 
Goodwill
                             
Balance as of June 1, 2007
  $ 863,319     $ 23,883     $ 162,021     $ 196,654     $ 1,245,877  
                                         
Goodwill (adjustment) acquired
    (1,034 )     ---       1,027       62,660       62,653  
                                         
Foreign currency translation
    1,454       89       ---       1,016       2,559  
                                         
Balance as of February 29, 2008
  $ 863,739     $ 23,972     $ 163,048     $ 260,330     $ 1,311,089  

 

 

7
 
 
 

 


CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)

   
Rental
Uniforms &
Ancillary
Products
   
Uniform
Direct
Sales
   
First Aid,
Safety &
Fire
Protection
   
Document
Management
   
Total
 
Service Contracts
                             
Balance as of June 1, 2007
  $ 104,285     $ 699     $ 45,352     $ 21,025     $ 171,361  
                                         
Service contracts (adjustment) acquired
    (30 )     ---       652       10,736       11,358  
                                         
Service contracts amortization
    (16,918 )     (313 )     (4,552 )     (4,660 )     (26,443 )
                                         
Foreign currency translation
    2,038       34       ---       167       2,239  
                                         
Balance as of February 29, 2008
  $ 89,375     $ 420     $ 41,452     $ 27,268     $ 158,515  


Information regarding Cintas' service contracts and other assets are as follows:

   
As of February 29, 2008
 
   
Carrying
Amount
   
Accumulated
Amortization
   
Net
 
                   
Service contracts
  $ 331,240     $ 172,725     $ 158,515  
Noncompete and consulting agreements
  $ 63,447     $ 31,933     $ 31,514  
Investments
    45,452       ----       45,452  
Other
    10,825       2,519       8,306  
                         
Total
  $ 119,724     $ 34,452     $ 85,272  
                         
 
   
As of May 31, 2007
 
   
Carrying
Amount
   
Accumulated
Amortization
   
Net
 
                   
Service contracts
  $ 317,644     $ 146,283     $ 171,361  
Noncompete and consulting agreements
  $ 58,218     $ 24,123     $ 34,095  
Investments
    35,264       ----       35,264  
Other
    8,967       2,063       6,904  
                         
Total
  $ 102,449     $ 26,186     $ 76,263  

Amortization expense was $32,371 and $30,015 for the nine months ended February 29, 2008 and February 28, 2007, respectively.  Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $42,983, $40,829, $37,702, $33,957 and $27,893, respectively.


 
 
8
 
 

 



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)

5.
Debt, Derivatives and Hedging Activities

During the third quarter of fiscal 2008, Cintas issued $300,000 of senior notes due 2017.  These senior notes bear an interest rate of 6.125%, paid semi-annually beginning June 1, 2008.  The proceeds generated from the offering were used to reduce borrowings under our commercial paper program.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas’ ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas’ assets. These covenants also require Cintas to maintain certain debt to capitalization and interest coverage ratios. Cross default provisions exist between certain debt instruments.  If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital.  Cintas is in compliance with all significant debt covenants for all periods presented. Cintas’ debt, net of cash and marketable securities, is $801,761 as of February 29, 2008. For the nine months ended February 29, 2008, net cash provided by operating activities was $369,221.  Capital expenditures were $144,848 for the same period.

Cintas formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Cintas’ hedging activities are transacted only with highly-rated institutions, reducing the exposure to credit risk in the event of nonperformance.

Cintas uses cash flow hedges to hedge the exposure of variability in short-term interest rates. These agreements effectively convert a portion of the floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The effective portion of the net gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains or losses on the ineffective portion of the hedge are charged to earnings in the current period. When outstanding, the effectiveness of these derivative instruments is reviewed at least every fiscal quarter. Examples of cash flow hedging instruments that Cintas may use are interest rate swaps, lock agreements and forward starting swaps.  No cash flow hedging instruments were outstanding as of February 29, 2008.

Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2002, fiscal 2007 and fiscal 2008. The amortization of the cash flow hedges resulted in a credit to other comprehensive income of $192 and $104 for the three months ended February 29, 2008 and February 28, 2007, respectively, and $330 and $281 for the nine months ended February 29, 2008 and February 28, 2007, respectively.


6.
Income Taxes

As noted in Note 2 entitled New Accounting Standards, Cintas adopted FIN 48 in fiscal 2008.  FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under FIN 48, companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.  FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
 
 
 
 
9

 
 

 



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)


As a result of the adoption of FIN 48, Cintas recorded a decrease to retained earnings as of June 1, 2007, and a corresponding increase in long-term accrued liabilities of $13,731, inclusive of associated interest and penalties.

As of June 1, 2007, there was $27,580 in total unrecognized tax benefits, which if recognized, would favorably impact Cintas’ effective tax rate.   Cintas recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods.  The total amount accrued for interest and penalties as of June 1, 2007, was $15,173.  Cintas records the tax liability under FIN 48 in both current and long-term accrued liabilities on the consolidated balance sheets. The total gross unrecognized tax benefits as of June 1, 2007, were $129,576.

In the normal course of business, Cintas provides for uncertain tax positions and the related interest, and adjusts its unrecognized tax benefits and accrued interest accordingly.  During the third quarter of fiscal 2008, unrecognized tax benefits related to continuing operations decreased by approximately $211 and accrued interest decreased by approximately $3,444.

Cintas’ operations are predominantly in the United States and Canada.  Cintas is required to file federal income tax returns as well as state income tax returns in a majority of the domestic states and also in the Canadian provinces of Quebec, Alberta, British Columbia and Ontario.  At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas’ accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results of operations in any given period.

All U.S. federal income tax returns are closed to audit through fiscal 2004.  Cintas is currently in advanced stages of audits in certain foreign jurisdictions and certain domestic states. The years under audit cover fiscal years back to 1999.  Based on the resolution of the various audits, it is reasonably possible that the balance of unrecognized tax benefits could decrease by $2,817 for the fiscal year ended May 31, 2008.


7.
Comprehensive Income

Total comprehensive income represents the net change in shareholders' equity during a period from sources other than transactions with shareholders and, as such, includes net income.  For Cintas, the only components of total comprehensive income are the change in cumulative foreign currency translation adjustments, the change in the fair value of derivatives and the change in the fair value of available-for-sale securities.  The components of comprehensive income for the three and nine month periods ended February 29, 2008 and February 28, 2007 are as follows:
 
 
 
 
10

 
 

 



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)

   
Three Months Ended
   
Nine Months Ended
 
   
February 29,
2008
   
February 28,
2007
   
February 29,
2008
   
February 28,
2007
 
                         
Net income
  $ 81,828     $ 76,727     $ 245,744     $ 244,216  
                                 
Other comprehensive income:
                               
  Foreign currency translation adjustment
    4,840       (4,575 )     20,791       (11,669 )
  Change in fair value of derivatives*
    (851 )     3,358       (4,586 )     (13,330 )
  Change in fair value of available for-sale securities**
    84       229       236       869  
Comprehensive income
  $ 85,901     $ 75,739     $ 262,185     $ 220,086  

  *
Net of $620 and ($1,911) of tax for the three months ended February 29, 2008 and February 28, 2007, respectively.  Net of $2,924 and $7,994 of tax for the nine months ended February 29, 2008 and February 28, 2007, respectively.

 **
Net of $47 and $130 of tax for the three months ended February 29, 2008 and February 28, 2007, respectively.  Net of $138 and $505 of tax for the nine months ended February 29, 2008 and February 28, 2007, respectively.


8.
Litigation and Other Contingencies

Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims.  In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions, will not have a material adverse effect on the financial position or results of operations of Cintas.  Cintas is party to additional litigation not considered in the ordinary course of business, including the litigation discussed below.

Cintas is a defendant in a purported class action lawsuit, Paul Veliz, et al. v. Cintas Corporation, filed on March 19, 2003, in the United States District Court, Northern District of California, Oakland Division, alleging that Cintas violated certain federal and state wage and hour laws applicable to its service sales representatives, whom Cintas considers exempt employees, and asserting additional related ERISA claims.  On August 23, 2005, an amended complaint was filed alleging additional state law wage and hour claims under the following state laws: Arkansas, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington, West Virginia and Wisconsin.  The plaintiffs are seeking unspecified monetary damages, injunctive relief or both.  Cintas denies these claims and is defending the plaintiffs’ allegations.  On February 14, 2006, the court ordered a majority of the opt-in plaintiffs to arbitrate their claims in accordance with the terms of their Cintas employment agreement.  On February 14, 2006, the court also permitted plaintiffs to file a second amended complaint alleging state law claims in the 15 states listed above only with respect to the putative class members that may litigate their claims in court.  No determination has been made by the court or an arbitrator regarding class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  If a court or arbitrator certifies a class in this action and there is an adverse verdict on the merits, or in the event of a negotiated settlement of the action, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas.  Any estimated liability relating to this lawsuit is not determinable at this time.
 
 
 
 

11
 
 

 



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)

Cintas also is a defendant in a purported class action lawsuit, Mirna E. Serrano, et al. v. Cintas Corporation (Serrano), filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division.  Serrano alleges that Cintas discriminated against women in hiring into various service sales representative positions across all divisions of Cintas throughout the United States.  On November 15, 2005, the Equal Employment Opportunity Commission (EEOC) intervened in the Serrano lawsuit.  The Serrano plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  Cintas is a defendant in another purported class action lawsuit, Nelly Blanca Avalos, et al. v. Cintas Corporation (Avalos), currently pending in the United States District Court, Eastern District of Michigan, Southern Division.  Avalos alleges that Cintas discriminated against women, African-Americans and Hispanics in hiring into various service sales representative positions in Cintas’ Rental division only throughout the United States.  On April 27, 2005, the EEOC intervened in the claims asserted in Avalos.  The Avalos plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  The claims in Avalos originally were brought in the previously disclosed lawsuit captioned Robert Ramirez, et al. v. Cintas Corporation (Ramirez), filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division.  On May 11, 2006, however, those claims were severed from Ramirez and transferred to the Eastern District of Michigan, Southern Division, where the case was re-named Avalos.  On July 10, 2006, Avalos and Serrano were consolidated for all pretrial purposes, including proceedings on class certification.  The consolidated case is known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos), and remains pending in the United States District Court, Eastern District of Michigan, Southern Division.  No filings or determinations have been made in Serrano/Avalos as to class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  The non-service sales representative hiring claims in the previously disclosed Ramirez case that have not been dismissed remain pending in the Northern District of California, San Francisco Division, but were ordered to arbitration and stayed pending the completion of arbitration.  The Ramirez purported class action claims currently in arbitration include allegations that Cintas failed to promote Hispanics into supervisory positions, discriminated against African-Americans and Hispanics in service sales representative route assignments and discriminated against African-Americans in hourly pay in Cintas’ Rental division only throughout the United States.  The Ramirez plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  No filings or determinations have been made in Ramirez as to class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  On February 20, 2007, the plaintiffs Colleen Grindle et al. filed a separate lawsuit in the Court of Common Pleas, Wood County, Ohio, captioned Colleen Grindle, et al. v. Cintas Corporation (Grindle), on behalf of a class of female employees at Cintas’ Perrysburg, Ohio location who allegedly were denied hire, promotion or transfer to service sales representative positions on the basis of their gender.  The Grindle plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  No filings or determinations have been made in Grindle as to class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  In addition, a class action lawsuit, Larry Houston, et al. v. Cintas Corporation (Houston), was filed on August 3, 2005, in the United States District Court for the Northern District of California on behalf of African-American managers alleging racial discrimination.  On November 22, 2005, the court entered an order requiring the named plaintiffs in the Houston lawsuit to arbitrate all of their claims for monetary damages.  If there is an adverse verdict or a negotiated settlement of all or any of these actions, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas.  Any estimated liability relating to these proceedings is not determinable at this time.

Other similar administrative proceedings are pending including two charges filed on November 30, 2004, by an EEOC Commissioner with the EEOC Systemic Litigation Unit alleging:  (i) failure to hire and assign females to production job positions; and (ii) failure to hire females, African-Americans and Hispanics into the Management Trainee program.  The investigations of these allegations are pending and no
 
 
 
 
12
 
 

 



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)


determinations have been made.  On August 29, 2006, the EEOC Indianapolis District Office issued a dismissal and notice of rights and closed its file on the Clifton Cooper charge served on Cintas on March 23, 2005, by Mr. Cooper on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race.  Mr. Cooper’s claims are now part of the Houston arbitration matter disclosed hereinabove.
 
Cintas is also a defendant in a lawsuit, J. Lester Alexander, III v. Cintas Corporation, et al., which was originally filed on October 25, 2004, and is currently pending in the Circuit Court of Randolph County, Alabama.  The case was brought by J. Lester Alexander, III, the Chapter 7 Trustee (the Trustee) of Terry Manufacturing Company, Inc. (TMC) and Terry Uniform Company, LLC (TUC), against Cintas in Randolph County, Alabama.  The Trustee seeks damages against Cintas for allegedly breaching fiduciary duties to TMC and TUC and for allegedly aiding and abetting breaches of fiduciary duties by others to those entities.  The complaint also includes allegations that Cintas breached certain limited liability company agreements, or alternatively, misrepresented its intention to perform its obligations in those agreements and acted as alter egos of the bankrupt TMC and is therefore liable for all of TMC's debts.  The Trustee is seeking $50,000 in compensatory damages and $100,000 in punitive damages.  Cintas denies these claims and is vigorously defending itself against all claims in the complaint.   If there is an adverse verdict on the merits or in the event of a negotiated settlement of this lawsuit, the resulting liability could be material to Cintas.  Any estimated liability relating to this lawsuit is not determinable at this time.

The litigation discussed above, if decided adversely to or settled by Cintas, may, individually or in the aggregate, result in liability material to Cintas’ financial condition or consolidated results of operations.  Cintas may enter into discussions regarding settlement of these and other lawsuits, and may enter into settlement agreements if it believes such settlement is in the best interest of Cintas’ shareholders.


9.
Segment Information

Cintas historically classified its businesses into two operating segments, Rentals and Other Services.  The Rentals operating segment reflects the rental and servicing of uniforms and other garments, mats, mops and shop towels and other ancillary items.  In addition to these rental items, restroom and hygiene products and services are also provided within this segment.  Effective June 1, 2007, this operating segment has been renamed Rental Uniforms and Ancillary Products.

The Other Services operating segment historically consisted of the direct sale of uniforms and related items, first aid, safety and fire protection products and services, document management services and branded promotional products.  Effective June 1, 2007, the Other Services operating segment was separated into three reportable operating segments – Uniform Direct Sales operating segment, First Aid, Safety and Fire Protection Services operating segment and Document Management Services operating segment.  This change provides more visibility to these operating segments as they continue to grow and have a larger impact on Cintas’ consolidated results of operations.  The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items and branded promotional products.  The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services.  The Document Management Services operating segment consists of document destruction and document retention services.

Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment revenue and income before income taxes.  The accounting policies of the operating segments are the same as those described in Note 1.  Information as to the operations of Cintas’ operating segments is set forth below.  The information for the three month and nine month periods ended February 28, 2007, have been restated to reflect the changes in the reportable operating segments described above.

 
 
 
13
 
 

 



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)


   
Rental
Uniforms &
Ancillary
Products
   
Uniform
Direct
Sales
   
First Aid,
Safety &
Fire
Protection
   
Document
Management
   
Corporate
   
Total
 
For the three months ended February 29, 2008
                                   
Revenue
  $ 703,641     $ 125,277     $ 97,594     $ 49,440     $ ----     $ 975,952  
Income (loss) before income taxes
  $ 106,486     $ 16,186     $ 7,327     $ 8,032     $ (12,112 )   $ 125,919  
                                                 
For the three months ended February 28, 2007
                                               
Revenue
  $ 665,647     $ 124,214     $ 87,107     $ 28,430     $ ----     $ 905,398  
Income (loss) before income taxes
  $ 105,179     $ 17,830     $ 8,597     $ 1,093     $ (10,245 )   $ 122,454  
                                                 
As of and for the nine months ended February 29, 2008
                                               
Revenue
  $ 2,122,840     $ 378,537     $ 299,003     $ 128,565     $ ----     $ 2,928,945  
Income (loss) before income taxes
  $ 339,278     $ 43,063     $ 25,294     $ 16,501     $ (34,684 )   $ 389,452  
Total assets
  $ 2,621,696     $ 191,715     $ 342,033     $ 443,188     $ 163,646     $ 3,762,278  
                                                 
As of and for the nine months ended February 28, 2007
                                               
Revenue
  $ 2,037,796     $ 369,179     $ 262,911     $ 72,939     $ ----     $ 2,742,825  
Income (loss) before income taxes
  $ 347,056     $ 45,259     $ 26,538     $ 2,644     $ (32,011 )   $ 389,486  
Total assets
  $ 2,525,832     $ 174,538     $ 323,726     $ 325,900     $ 157,493     $ 3,507,489  















14
 
 

 



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)


10.
Supplemental Guarantor Information

Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas.  Corp. 2 is the issuer of the $775,000 of long-term notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.

As allowed by SEC rules, the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements of the guarantors.  Each of the subsidiaries presented in the condensed consolidating financial statements has been fully consolidated in Cintas' consolidated financial statements.  The condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of Cintas and notes thereto of which this note is an integral part.

Effective June 1, 2007, Cintas reorganized its legal structure to provide better alignment with the organizational structure of Cintas.  The impact of this change is that certain subsidiary guarantor locations and their balances have moved into Corp. 2 and certain Corp. 2 locations are now subsidiary guarantors.  The effect of this change is shown in the column entitled “Effect of Legal Restructure” on the May 31, 2007 consolidated balance sheet as shown below.

Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages:




 
 
 
 
 
15
 
 

 



CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 29, 2008



   
Cintas Corporation
   
Corp. 2
   
Subsidiary Guarantors
     
Non-Guarantors
   
Eliminations
   
Cintas Corporation Consolidated
 
 
Revenue:
                               
    Rental uniforms and ancillary products
  $ ---     $ 509,064     $ 143,124     $ 51,774     $ (321 )   $ 703,641  
    Other services
    ----       342,152       131,522       16,191       (217,554 )     272,311  
    Equity in net income of affiliates
    81,828       ----       ----       ----       (81,828 )     ----  
      81,828       851,216       274,646       67,965       (299,703 )     975,952  
                                                 
Costs and expenses (income):
                                                 
    Cost of rental uniforms and ancillary products
----       320,595       86,270       30,167       (38,714 )     398,318  
    Cost of other services
    ----       226,617       109,144       10,137       (179,489 )     166,409  
    Selling and administrative expenses
    ----       219,289       40,934       14,813       (1,842 )     273,194  
    Interest income
    ----       ----       (358 )     (1,152 )     ----       (1,510 )
    Interest expense (income)
    ----       14,087       (2,049 )     1,584       ----       13,622  
      ----       780,588       233,941       55,549       (220,045 )     850,033  
                                                 
Income before income taxes
    81,828       70,628       40,705       12,416       (79,658 )     125,919  
Income taxes
    ----       25,108       14,682       4,301       ----       44,091  
Net income
  $ 81,828     $ 45,520     $ 26,023     $ 8,115     $ (79,658 )   $ 81,828  

 
 
 
 
 
 
 
 
 
 
16
 
 

 




CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 28, 2007


   
Cintas
Corporation
   
Corp. 2
   
Subsidiary
Guarantors
   
Non-
Guarantors
   
Eliminations
   
Cintas
Corporation
Consolidated
 
Revenue:
                                   
  Rental uniforms and ancillary products
  $ ----     $ 489,272     $ 135,225     $ 41,335     $ (185 )   $ 665,647  
  Other services
    ----       326,636       131,720       12,932       (231,537 )     239,751  
  Equity in net income of affiliates
    76,727       ----       ----       ----       (76,727 )     ----  
      76,727       815,908       266,945       54,267       (308,449 )     905,398  
                                                 
Costs and expenses (income):
                                               
  Cost of rental uniforms and ancillary products
  ----       310,904       75,122       24,863       (39,704 )     371,185  
  Cost of other services
    ----       243,769       85,554       7,866       (188,803 )     148,386  
  Selling and administrative expenses
    ----       230,570       12,460       12,151       (2,053 )     253,128  
  Interest income
    ----       (526 )     (3 )     (810 )     ----       (1,339 )
  Interest expense (income)
    ----       11,915       (1,614 )     1,283       ----       11,584  
      ----       796,632       171,519       45,353       (230,560 )     782,944  
                                                 
Income before income taxes
    76,727       19,276       95,426       8,914       (77,889 )     122,454  
Income taxes
    ----       7,134       35,473       3,120       ----       45,727  
Net income
  $ 76,727     $ 12,142     $ 59,953     $ 5,794     $ (77,889 )   $ 76,727  
 
 
 
 
 
 
 
 
 
 
 
17
 
 

 



CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 29, 2008


   
Cintas
Corporation
   
Corp. 2
   
Subsidiary
Guarantors
     
Non-
Guarantors
   
Eliminations
   
Cintas
Corporation
Consolidated
 
 
Revenue:
                               
  Rental uniforms and ancillary products
  $ ----     $ 1,540,356     $ 432,819     $ 150,494     $ (829 )   $ 2,122,840  
  Other services
    ----       1,045,347       413,216       46,614       (699,072 )     806,105  
  Equity in net income of affiliates
    245,744       ----       ----       ----       (245,744 )     ----  
      245,744       2,585,703       846,035       197,108       (945,645 )     2,928,945  
                                                 
Costs and expenses (income):
                                                 
  Cost of rental uniforms and ancillary products
  ----       959,923       260,506       87,698       (126,108 )     1,182,019  
  Cost of other services
    ----       694,245       347,782       29,532       (573,798 )     497,761  
  Selling and administrative expenses
    ----       654,446       132,678       42,388       (4,483 )     825,029  
  Interest income
    ----       ----       (1,191 )     (3,577 )     ----       (4,768 )
  Interest expense (income)
    ----       39,954       (5,162 )     4,660       ----       39,452  
      ----       2,348,568       734,613       160,701       (704,389 )     2,539,493  
                                                 
Income before income taxes
    245,744       237,135       111,422       36,407       (241,256 )     389,452  
Income taxes
    ----       88,971       41,805       12,932       ----       143,708  
Net income
  $ 245,744     $ 148,164     $ 69,617     $ 23,475     $ (241,256 )   $ 245,744  

 
 
 
 
 
 
 
 
 
 
 
 
 
18


 
 

 

CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 28, 2007


   
Cintas
Corporation
   
Corp. 2
   
Subsidiary
Guarantors
   
Non-
Guarantors
   
Eliminations
   
Cintas
Corporation
Consolidated
 
Revenue:
                                   
  Rental uniforms and ancillary products
  $ ----     $ 1,497,418     $ 413,096     $ 127,771     $ (489 )   $ 2,037,796  
  Other services
    ----       989,396       392,224       41,978       (718,569 )     705,029  
  Equity in net income of affiliates
    244,216       ----       ----       ----       (244,216 )     ----  
      244,216       2,486,814       805,320       169,749       (963,274 )     2,742,825  
                                                 
Costs and expenses (income):
                                               
  Cost of rental uniforms and ancillary products
  ----       943,530       236,004       75,556       (125,590 )     1,129,500  
  Cost of other services
    ----       753,131       255,545       25,583       (588,315 )     445,944  
  Selling and administrative expenses
    ----       683,734       32,139       35,630       (5,619 )     745,884  
  Interest income
    ----       (2,220 )     (8 )     (2,260 )     ----       (4,488 )
  Interest expense (income)
    ----       36,893       (4,448 )     4,054       ----       36,499  
      ----       2,415,068       519,232       138,563       (719,524 )     2,353,339  
                                                 
Income before income taxes
    244,216       71,746       286,088       31,186       (243,750 )     389,486  
Income taxes
    ----       26,993       107,634       10,643       ----       145,270  
Net income
  $ 244,216     $ 44,753     $ 178,454     $ 20,543     $ (243,750 )   $ 244,216  
 
 
 
 
 
 
 
 
 
 
 
 
 
19
 

 

 
 

 



CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 29, 2008

   
Cintas
Corporation
   
Corp. 2
   
Subsidiary
Guarantors
   
Non-Guarantors
   
Eliminations
   
Cintas
Corporation
Consolidated
 
Assets
                                   
Current assets:
                                   
  Cash and cash equivalents
  $ ----     $ 34,156     $ (10,544 )   $ 32,063     $ ----     $ 55,675  
  Marketable securities
    ----       ----       3,096       104,875       ----       107,971  
  Accounts receivable, net
    ----       303,696       106,565       27,462       (23,942 )     413,781  
  Inventories, net
    ----       219,343       18,361       9,218       (5,596 )     241,326  
  Uniforms and other rental items in service
    ----       286,262       84,850       24,230       (29,946 )     365,396  
  Deferred income tax asset
    ----       ----       42,151       (2,180 )     ----       39,971  
  Prepaid expenses
    ----       5,453       8,363       882       ----       14,698  
Total current assets
    ----       848,910       252,842       196,550       (59,484 )     1,238,818  
                                                 
Property and equipment, at cost, net
    ----       669,855       235,130       63,599       ----       968,584  
                                                 
Goodwill
    ----       ----       1,275,810       35,279       ----       1,311,089  
Service contracts, net
    ----       150,143       2,863       5,509       ----       158,515  
Other assets, net
    1,646,654       83,236       1,571,013       243,177       (3,458,808 )     85,272  
    $ 1,646,654     $ 1,752,144     $ 3,337,658     $ 544,114     $ (3,518,292 )   $ 3,762,278  
                                                 
Liabilities and Shareholders' Equity
                                               
Current liabilities:
                                               
  Accounts payable
  $ (465,247 )   $ (2,082,445 )   $ 2,585,500     $ 1,638     $ 25,026     $ 64,472  
  Accrued compensation and related liabilities
    ----       40,390       8,674       2,252       ----       51,316  
  Accrued liabilities
    ----       16,104       230,337       7,208       (45 )     253,604  
  Current income taxes
    ----       9,456       11,871       614       ----       21,941  
  Long-term debt due within one year
    ----       864       680       ----       (202 )     1,342  
Total current liabilities
    (465,247 )     (2,015,631 )     2,837,062       11,712       24,779       392,675  
                                                 
Long-term liabilities:
                                               
  Long-term debt due after one year
    ----       973,906       (72,110 )     100,449       (38,180 )     964,065  
  Deferred income taxes
    ----       ----       117,135       5,591       ----       122,726  
  Accrued liabilities
    ----       ----       117,349       ----       ----       117,349  
Total long-term liabilities
    ----       973,906       162,374       106,040       (38,180 )     1,204,140  
                                                 
Total shareholders’ equity
    2,111,901       2,793,869       338,222       426,362       (3,504,891 )     2,165,463  
    $ 1,646,654     $ 1,752,144     $ 3,337,658     $ 544,114     $ (3,518,292 )   $ 3,762,278  

 
 
 
 
 
 
 
 
 
20
 
 

 


CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 31, 2007

   
Cintas
Corporation
   
Corp. 2
   
Effect of
Legal
Restructure*
   
Subsidiary
Guarantors
   
Non-
Guarantors
   
Eliminations
   
Cintas
Corporation
Consolidated
 
Assets
                                         
Current assets:
                                         
  Cash and cash equivalents
  $ ----     $ 1,327     $ 32,622     $ (24,835 )   $ 26,246     $ ----     $ 35,360  
  Marketable securities
    ----       36,664       (36,664 )     36,664       83,389       ----       120,053  
  Accounts receivable, net
    ----       271,868       26,974       109,375       24,252       (23,599 )     408,870  
  Inventories, net
    ----       204,164       4,032       23,350       7,775       (7,580 )     231,741  
  Uniforms and other rental items
     in service
    ----       273,246       33       82,621       21,482       (32,451 )     344,931  
  Prepaid expenses
    ----       11,486       (6,115 )     9,506       904       ----       15,781  
Total current assets
    ----       798,755       20,882       236,681       164,048       (63,630 )     1,156,736  
                                                         
Property and equipment, at cost, net
  ----       619,691       25,787       218,903       55,862       ----       920,243  
                                                         
Goodwill
    ----       347,516       (347,516 )     1,223,896       21,981       ----       1,245,877  
Service contracts, net
    ----       102,574       60,387       3,724       4,676       ----       171,361  
Other assets, net
    1,665,370       72,191       10,721       1,363,667       194,142       (3,229,828 )     76,263  
    $ 1,665,370     $ 1,940,727     $ (229,739 )   $ 3,046,871     $ 440,709     $ (3,293,458 )   $ 3,570,480  
                                                         
Liabilities and Shareholders'
  Equity
                                                       
Current liabilities:
                                                       
  Accounts payable
  $ (465,247 )   $ (423,711 )   $ (1,387,144 )   $ 2,312,352     $ 1,926     $ 26,446     $ 64,622  
  Accrued compensation and
    related liabilities
    ----       42,152       5,478       12,189       3,007       ----       62,826  
  Accrued liabilities
    ----       196,158       (151,805 )     150,790       6,477       (934 )     200,686  
  Income taxes:
                                                       
    Current
    ----       586       (23 )     16,206       1,815       ----       18,584  
    Deferred
    ----       ----       ----       50,237       1,942       ----       52,179  
  Long-term debt due within one
    year
    ----       3,228       222,586       (221,486 )     ----       (187 )     4,141  
Total current liabilities
    (465,247 )     (181,587 )     (1,310,908 )     2,320,288       15,167       25,325       403,038  
                                                         
Long-term debt due after one year
    ----       882,921       (221,352 )     159,255       92,448       (36,198 )     877,074  
Deferred income taxes
    ----       ----       ----       117,485       5,145       ----       122,630  
Total shareholders’ equity
    2,130,617       1,239,393       1,302,521       449,843       327,949       (3,282,585 )     2,167,738  
    $ 1,665,370     $ 1,940,727     $ (229,739 )   $ 3,046,871     $ 440,709     $ (3,293,458 )   $ 3,570,480  

* The amounts in this column represent the net transfer of balances between subsidiary guarantors and Corp. 2 caused by the legal restructure as described above.  The subsidiary guarantor column has been changed to reflect the new legal structure as of June 1, 2007.  The combination of the Corp. 2 amounts and this column represents the restructured Corp. 2 as of June 1, 2007.

 
 
 
 
 
 
 
 
 
21
 
 

 
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 29, 2008

   
Cintas
Corporation
   
Corp. 2
   
Subsidiary
Guarantors
   
Non-
Guarantors
    Eliminations    
Cintas
Corporation
Consolidated
 
Cash flows from operating activities:
                                   
  Net income
  $ 245,744     $ 148,164     $ 69,617     $ 23,475     $ (241,256 )   $ 245,744  
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
                                               
        Depreciation
    ----       68,920       34,872       6,284       ----       110,076  
        Amortization of deferred charges
    ----       29,780       1,004       1,587       ----       32,371  
        Stock-based compensation
    7,406       ----       ----       ----       ----       7,406  
        Deferred income taxes
    ----       ----       (456 )     ----       ----       (456 )
        Changes in current assets and liabilities,
        net of acquisitions of business:
                                               
            Accounts receivable, net
    ----       (1,894 )     2,808       (395 )     343       862  
            Inventories, net
    ----       (11,052 )     5,041       (930 )     (1,984 )     (8,925 )
            Uniforms and other rental items in
              service
    ----       (12,983 )     (2,280 )     (860 )     (2,505 )     (18,628 )
            Prepaid expenses
    ----       (90 )     1,143       124       ----       1,177  
            Accounts payable
    ----       (215,887 )     203,504       13,355       (1,420 )     (448 )
            Accrued compensation and related
              liabilities
    ----       (7,240 )     (3,515 )     (975 )     ----       (11,730 )
            Accrued liabilities and other
    ----       (16,671 )     9,117       551       889       (6,114 )
            Income taxes payable
    ----       8,893       10,307       (1,314 )     ----       17,886  
                                                 
Net cash provided by (used in) operating activities
    253,150       (10,060 )     331,162       40,902       (245,933 )     369,221  
                                                 
Cash flows from investing activities:
                                               
  Capital expenditures
    ----       (88,397 )     (50,875 )     (5,576 )     ----       (144,848 )
  Proceeds from sale or redemption of marketable
   securities
    ----       ----       34,559       7,834       ----       42,393  
  Purchase of marketable securities and investments
    ----       (3,065 )     (65,284 )     (21,445 )     57,360       (32,434 )
  Acquisitions of businesses, net of cash acquired
    ----       (86,314 )     ----       (15,789 )     ----       (102,103 )
  Other
    (65,857 )     108,166       (234,074 )     (7 )     190,570       (1,202 )
                                                 
Net cash (used in) provided by investing activities
    (65,857 )     (69,610 )     (315,674 )     (34,983 )     247,930       (238,194 )
                                                 
Cash flows from financing activities:
                                               
  Proceeds from issuance of debt
    ----       313,000       ----       ----       ----       313,000  
  Repayment of debt
    ----       (225,613 )     (1,198 )     ----       (1,997 )     (228,808 )
  Stock options exercised
    8,030       ----       ----       ----       ----       8,030  
  Repurchase of common stock
    (191,479 )     ----       ----       ----       ----       (191,479 )
  Other
    (3,844 )     (7,510 )     ----       (101 )     ----       (11,455 )
                                                 
Net cash (used in) provided by financing activities
    (187,293 )     79,877       (1,198 )     (101 )     (1,997 )     (110,712 )
                                                 
Net increase in cash and cash equivalents
    ----       207       14,290       5,818       ----       20,315  
Cash and cash equivalents at beginning of period
    ----       33,949       (24,834 )     26,245       ----       35,360  
Cash and cash equivalents at end of period
  $ ----     $ 34,156     $ (10,544 )   $ 32,063     $ ----     $ 55,675  

 
 
 
22
 
 

 



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 2007
 
 
   
Cintas
Corporation
   
Corp. 2
   
Subsidiary
Guarantors
   
Non-
Guarantors
   
Eliminations
   
Cintas
Corporation
Consolidated
 
Cash flows from operating activities:
                                   
  Net income
  $ 244,216     $ 44,753     $ 178,454     $ 20,543     $ (243,750 )   $ 244,216  
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
                                               
        Depreciation
    ----       61,491       33,621       4,924       ----       100,036  
        Amortization of deferred charges
    ----       17,250       10,913       1,852       ----       30,015  
        Stock-based compensation
    2,746       ----       ----       ----       ----       2,746  
        Deferred income taxes
    ----       ----       (18,707 )     (355 )     ----       (19,062 )
        Changes in current assets and liabilities,
          net of acquisitions of businesses:
                                               
           Accounts receivable, net
    ----       (1,689 )     (4,825 )     617       6,808       911  
           Inventories, net
    ----       (30,706 )     1,637       649       244       (28,176 )
           Uniforms and other rental items in
              service
    ----       2,036       (3,723 )     803       (711 )     (1,595 )
           Prepaid expenses
    ----       (1,571 )     (1,746 )     (359 )     ----       (3,676 )
           Accounts payable
    ----       (192,584 )     185,476       12,922       (7,884 )     (2,070 )
           Accrued compensation and related
          liabilities
    ----       582       6,573       (275 )     ----       6,880  
           Accrued liabilities and other
    ----       224       (14,859 )     (1,780 )     904       (15,511 )
           Income taxes payable
    ----       6,927       1,940       (1,504 )     ----       7,363  
                                                 
Net cash provided by (used in) operating activities
    246,962       (93,287 )     374,754       38,037       (244,389 )     322,077  
                                                 
Cash flows from investing activities:
                                               
  Capital expenditures
    ----       (62,138 )     (61,576 )     (4,922 )     ----       (128,636 )
  Proceeds from sale or redemption of marketable
   securities
    ----       99,475       ----       3,396       ----       102,871  
  Purchase of marketable securities and investments
    ----       (10,625 )     (3,298 )     (14,877 )     (12,821 )     (41,621 )
  Acquisitions of businesses, net of cash acquired
    ----       (63,240 )     (71,736 )     (35 )     ----       (135,011 )
  Other
    (52,091 )     43,935       (244,888 )     (2,146 )     255,607       417  
                                                 
Net cash (used in) provided by investing activities
    (52,091 )     7,407       (381,498 )     (18,584 )     242,786       (201,980 )
                                                 
Cash flows from financing activities:
                                               
  Proceeds from issuance of debt
    ----       250,000       2,460       ----       ----       252,460  
  Repayment of debt
    ----       (167,033 )     2,984       (5,241 )     1,603       (167,687 )
  Stock options exercised
    9,529       ----       ----       ----       ----       9,529  
  Repurchase of common stock
    (198,949 )     ----       ----       ----       ----       (198,949 )
  Other
    (5,451 )     (5,695 )     ----       (11,660 )     ----       (22,806 )
                                                 
Net cash (used in) provided by financing activities
    (194,871 )     77,272       5,444       (16,901 )     1,603       (127,453 )
                                                 
Net (decrease) increase in cash and cash equivalents
    ----       (8,608 )     (1,300 )     2,552       ----       (7,356 )
Cash and cash equivalents at beginning of period
    ----       9,461       8,674       20,779       ----       38,914  
Cash and cash equivalents at end of period
  $ ----     $ 853     $ 7,374     $ 23,331     $ ----     $ 31,558  
 
 
 
 
 
 
23
 
 

 

 CINTAS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



BUSINESS STRATEGY

Cintas provides highly specialized products and services to businesses of all types throughout the United States and Canada.  We refer to ourselves as “The Service Professionals.”  We bring value to our customers by helping them provide a cleaner, safer, more pleasant atmosphere for their customers and employees.  Our products and services are designed to improve our customers’ image.  We also help our customers protect their employees and their company by enhancing workplace safety and helping to ensure legal compliance in key areas of their business.

We are North America's leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom products and services, first aid, safety and fire protection products and services, document management services and branded promotional products.

Our business strategy is to achieve revenue growth for all of our products and services by increasing our penetration at existing customers and by broadening our customer base to include business segments to which Cintas has not historically served.  We will also continue to identify additional product and service opportunities for our current and future customers.  Our long-term goal is to provide a product or service to every business in North America.

To pursue the strategy of increasing penetration, we have a highly talented and diverse team of service professionals visiting our customers on a regular basis.  This frequent contact with our customers enables us to develop close personal relationships.  The combination of our distribution system and these strong customer relationships provides a platform from which we launch additional products and services.

We pursue the strategy of broadening our customer base in a few ways.  Cintas has a national sales organization introducing all of our products and services to prospects in all business segments.  Our ever expanding range of products and services allows our sales organization to consider any type of business a prospect.  We also broaden our customer base through geographic expansion, especially in our emerging businesses of first aid, safety and fire protection and document management.  We continue to evaluate strategic acquisitions as opportunities arise.


RESULTS OF OPERATIONS

Cintas historically classified its businesses into two operating segments, Rentals and Other Services.  The Rentals operating segment reflects the rental and servicing of uniforms and other garments, mats, mops and shop towels and other ancillary items.  In addition to these rental items, restroom and hygiene products and services are also provided within this segment.  Effective June 1, 2007, this operating segment has been renamed Rental Uniforms and Ancillary Products.

The Other Services operating segment historically consisted of the direct sale of uniforms and related items, first aid, safety and fire protection products and services, document management services and branded promotional products.  Effective June 1, 2007, the Other Services operating segment was separated into three reportable operating segments – Uniform Direct Sales operating segment, First Aid, Safety and Fire Protection Services operating segment and Document Management Services operating segment.  This change provides more visibility to these operating segments as they continue to grow and have a larger impact on Cintas’ consolidated results of operations.  The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items and branded promotional products.  The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services.  The Document Management Services operating segment consists of document destruction and document retention services.  Revenue and income before income taxes for each of these operating segments for the three and nine month periods ended February 29, 2008 and February 28, 2007, are presented in Note 9 entitled Segment Information of “Notes to Consolidated Condensed Financial Statements.”
 
 
 
 
 

24
 
 

 
 
New Accounting Pronouncement

As of June 1, 2007, Cintas adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FAS 109), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FAS 109, Accounting for Income Taxes.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  As a result of the implementation of FIN 48, Cintas recorded a decrease to retained earnings as of June 1, 2007, of $13.7 million.  Cintas’ adoption of FIN 48 is more fully described in Note 6 entitled Income Taxes of “Notes to Consolidated Condensed Financial Statements.”
 
FASB Statement No. 157, Fair Value Measurements (FAS 157), defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  FAS 157 is effective for fiscal years beginning after November 15, 2007. Cintas is currently assessing the impact of FAS 157 on its consolidated financial statements and will adopt this pronouncement on June 1, 2008.
 
FASB Statement No. 159, Fair Value Option for Financial Assets and Financial Liabilities (FAS 159), allows for voluntary measurement of many financial assets and financial liabilities at fair value.  FAS 159 is effective for fiscal years beginning after November 7, 2007. Cintas is currently assessing the impact of FAS 159 on its consolidated financial statements and whether this pronouncement will be voluntarily adopted.


Three Months Ended February 29, 2008 Compared to Three Months Ended February 28, 2007

Total revenue increased 7.8% for the three months ended February 29, 2008, over the same period in the prior fiscal year.  The three month period ended February 29, 2008, included 65 workdays, which is one more than last fiscal year’s third quarter.  On a same workday basis, total revenue increased 6.1%.  Internal growth accounted for 4.5% of this increase. The remaining 1.6% represents growth derived through acquisitions in our Rental Uniforms and Ancillary Products operating segment, our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment.

Rental Uniforms and Ancillary Products revenue increased 4.1% on a same workday basis for the three months ended February 29, 2008, over the same period in the prior fiscal year.  Internal growth accounted for 3.8% of this increase.  Internal growth was primarily due to the sale of new rental programs to customers, offset by lost business.  The remaining growth was generated through the acquisition of uniform and mat rental businesses.

Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, increased 11.8% on a same workday basis for the three months ended February 29, 2008, over the same period in the prior fiscal year.  Internal growth accounted for 6.4% of this increase.  Internal growth was generated primarily through the increased sales of first aid, safety and fire protection products and services and document management services to customers. The additional growth was generated through a combination of acquisitions of document management businesses and first aid, safety and fire protection businesses.

Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other rental items.  Cost of rental uniforms and ancillary products increased $27.1 million, or 7.3%, for the three months ended February 29, 2008, as compared to the three months ended February 28, 2007.  This increase was mainly due to increased Rental Uniforms and Ancillary Products operating segment revenue and increased energy related costs.
 
 
 
 
 
 
 
 
25
 
 

 

 

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment.  Cost of other services increased $18.0 million, or 12.1%, for the three months ended February 29, 2008, as compared to the three months ended February 28, 2007.  This increase was mainly due to increased Other Services sales volume and increased energy related costs.

Selling and administrative expenses increased 7.9% for the three months ended February 29, 2008, as compared to the three months ended February 28, 2007.  Selling costs increased by $11.9 million over the prior fiscal year reflecting the continued investment in our selling organization.  In addition, real estate and property taxes increased by $1.6 million, and the cost of legal and professional services increased by $1.0 million.

Net interest expense (interest expense less interest income) was $12.1 million for the three months ended February 29, 2008, compared to $10.2 million for the same period in the prior fiscal year.  This increase in net interest expense is primarily due to the increased level of borrowing used to fund acquisitions and to fund the share buyback program.

Cintas’ effective tax rate was 35.0% for the three months ended February 29, 2008, and 37.3% for the three months ended February 28, 2007.  This decrease is due to the third quarter impact of FIN 48 and the closing of certain tax years due to expiration of statutes of limitations.

Net income increased 6.6% for the three months ended February 29, 2008, from the same period in the prior fiscal year.  Diluted earnings per share increased 10.4% for the three months ended February 29, 2008, from the same period in the prior fiscal year.  This increase is greater than the net income increase of 6.6% due to the impact of the share buyback program, which is discussed in more detail in the Financial Condition section below.


Nine Months Ended February 29, 2008 Compared to Nine Months Ended February 28, 2007

Total revenue increased 6.8% for the nine months ended February 29, 2008, over the same period in the prior fiscal year.  The nine month period ended February 29, 2008, included one more workday than in the same period of last fiscal year.  On a same workday basis, total revenue increased 6.2%.  Internal growth accounted for 4.5% of this increase. The remaining 1.7% represents growth derived mainly through acquisitions in our Rental Uniforms and Ancillary Products operating segment, our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment.

Rental Uniforms and Ancillary Products revenue increased 3.6% on a same workday basis for the nine months ended February 29, 2008, over the same period in the prior fiscal year.  Internal growth accounted for 3.3% of this increase.  Internal growth was primarily due to the sale of new rental programs to customers, offset by lost business.  The remaining growth was generated through the acquisition of uniform and mat rental businesses.

Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, increased 13.8% on a same workday basis for the nine months ended February 29, 2008, over the same period in the prior fiscal year.  Internal growth accounted for 7.8% of this increase.  Internal growth was generated primarily through the increased sales of first aid, safety and fire protection products and services and document management services to customers. The additional growth was generated through a combination of acquisitions of document management businesses and first aid, safety and fire protection businesses.
 
 
 
 
 
 
 
26
 
 

 

Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other rental items.  Cost of rental uniforms and ancillary products increased $52.5 million, or 4.6%, for the nine months ended February 29, 2008, as compared to the nine months ended February 28, 2007.  This increase was mainly due to increased Rental Uniforms and Ancillary Products operating segment revenue and increased energy related costs.

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment.  Cost of other services increased $51.8 million, or 11.6%, for the nine months ended February 29, 2008, as compared to the nine months ended February 28, 2007.  This increase was mainly due to increased Other Services sales volume and increased energy related costs.

Selling and administrative expenses increased 10.6% for the nine months ended February 29, 2008, as compared to the nine months ended February 28, 2007.  In order to accelerate revenue growth, we continue to invest in our sales organization and continue to increase our marketing efforts and sales promotions.  These measures combined to increase our selling costs by $45.5 million over the prior fiscal year.  Share-based compensation expense was $7.4 million for the nine months ended February 29, 2008, which was an increase of $4.7 million over the same period in the prior fiscal year.  The share-based compensation expense for the nine months ended February 28, 2007, of $2.7 million included a cumulative catch-up adjustment credit of $2.2 million due to a change in estimated forfeitures for certain equity awards.  In addition, administrative expenses increased by $10.1 million as a result of an increase in legal and other professional services.

Net interest expense (interest expense less interest income) was $34.7 million for the nine months ended February 29, 2008, compared to $32.0 million for the same period in the prior fiscal year.  This increase in net interest expense is primarily due to the increased level of borrowing used to fund acquisitions and to fund the share buyback program.

Cintas’ effective tax rate was 36.9% for the nine months ended February 29, 2008, and 37.3% for the nine months ended February 28, 2007.  This decrease is due to the third quarter impact of FIN 48 and the closing of certain tax years due to expiration of statutes of limitations.

Net income increased 0.6% for the nine months ended February 29, 2008, from the same period in the prior fiscal year.  This increase is lower than the revenue increase for the same period primarily due to the increased investment in our sales organization and increases in our marketing efforts and sales promotions as described above.  Diluted earnings per share increased 3.3% for the nine months ended February 29, 2008, from the same period in the prior fiscal year.  The diluted earnings per share include the impact of the share buyback program, which is discussed in more detail in the Financial Condition section below.


Rental Uniforms and Ancillary Products Operating Segment Results

Three Months Ended February 29, 2008 Compared to Three Months Ended February 28, 2007

As discussed above, Rental Uniforms and Ancillary Products revenue increased $38.0 million, or 4.1% on a same workday basis, and the cost of rental uniforms and ancillary products increased $27.1 million, or 7.3%.  The operating segment’s gross margin was $305.3 million, or 43.4% of revenue.  This gross margin percent to sales of 43.4% was lower than last year’s third quarter of 44.2% mainly due to increased energy costs.

Selling and administrative expenses in the Rental Uniforms and Ancillary Products operating segment as a percent to sales, at 28.3%, decreased 10 basis points from 28.4% compared to the third quarter of the prior fiscal year.  This decrease was due to a reduction in medical expenses offset by an increase in selling costs.
 
 
 
 
 
 
 
 
 
27
 
 

 

Income before income taxes increased $1.3 million to $106.5 million for the Rental Uniforms and Ancillary Products operating segment for the period compared to the same period last fiscal year.  Income before income taxes was 15.1% of the operating segment’s revenue, which is a 70 basis point decrease compared to the third quarter of the prior fiscal year.  This is primarily due to the increased energy costs indicated above.

Nine Months Ended February 29, 2008 Compared to Nine Months Ended February 28, 2007

As discussed above, Rental Uniforms and Ancillary Products revenue increased $85.0 million, or 3.6% on a same workday basis, and the cost of rental uniforms and ancillary products increased $52.5 million, or 4.6%.  The operating segment’s gross margin was $940.8 million, or 44.3% of revenue.  This gross margin percent of revenue of 44.3% decreased 30 basis points as compared to the 44.6% for the nine months ended February 28, 2007, due to an increase in energy costs.

Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment as a percent to sales, at 28.3%, increased 80 basis points compared to the first nine months in the prior fiscal year.  This increase was due to the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Income before income taxes decreased $7.8 million to $339.3 million for the Rental Uniforms and Ancillary Products operating segment for the period compared to the same period in the prior fiscal year.  Income before income taxes was 16.0% of this operating segment’s revenue, which is a 100 basis point decrease compared to the same period in the prior fiscal year primarily as a result of the increased investment in our sales organization and increases in our marketing efforts and sales promotions.


Uniform Direct Sales Operating Segment

Three Months Ended February 29, 2008 Compared to Three Months Ended February 28, 2007

Uniform Direct Sales operating segment revenue increased $1.1 million, or 0.9%, for the three months ended February 29, 2008, over the same period in the prior fiscal year.  On a same workday basis, though, Uniform Direct Sales operating segment revenue decreased by 0.7%.  There were no acquisitions in the Uniform Direct Sales operating segment during the three months ended February 29, 2008.

Cost of uniform direct sales increased $2.4 million, or 2.9%, for the three months ended February 29, 2008, due to increased Uniform Direct Sales volume.  The gross margin as a percent to revenue was 32.1% for the quarter ended February 29, 2008, which was a 130 basis point decrease over the same period in the prior fiscal year.  This decrease is due to lower than expected revenues, a greater mix of lower margin catalog products sold during the period, holiday promotions and inventory clearance sales.

Selling and administrative expenses as a percent to revenue, at 19.2%, increased 10 basis points compared to the third quarter of the prior fiscal year.  This increase is in part due to the catalog costs associated with the introduction of the new “Uniform Book” and new healthcare catalog.

Income before income taxes decreased $1.6 million to $16.2 million for the Uniform Direct Sales operating segment for the period compared to the same period in the prior fiscal year.  Income before income taxes was 12.9% of the operating segment’s revenue, which is a 150 basis point decrease compared to the prior fiscal year.  This decrease is primarily due to the gross margin decrease discussed above.

Nine Months Ended February 29, 2008 Compared to Nine Months Ended February 28, 2007

Uniform Direct Sales operating segment revenue increased $9.4 million, or 2.0% on a same workday basis for the nine months ended February 29, 2008, over the same period in fiscal 2007.  There were no acquisitions in the Uniform Direct Sales operating segment during the nine months ended February 29, 2008.
 
 
 
 
 
 
 
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Cost of uniform direct sales increased $6.8 million, or 2.7%, for the nine months ended February 29, 2008, due to increased Uniform Direct Sales volume.  The gross margin as a percent to revenue was 31.7% for the nine months ended February 29, 2008, which was a 10 basis point decrease over the same period in the prior fiscal year.  This decrease is due to lower than expected revenues, a greater mix of lower margin catalog products sold during the period, holiday promotions and inventory clearance sales.

Selling and administrative expenses as a percent to revenue, at 20.3%, increased 70 basis points compared to the nine months ended February 28, 2007.  This increase is in part due to the catalog costs associated with the introduction of the new “Uniform Book” and new healthcare catalog.

Income before income taxes decreased $2.2 million to $43.1 million for the Uniform Direct Sales operating segment for the period compared to the same period in the prior fiscal year.  Income before income taxes was 11.4% of the operating segment’s revenue, which is a 90 basis point decrease compared to the same period in the prior fiscal year.  This decrease reflects both the lower gross margin discussed above and the additional catalog costs discussed above.


First Aid, Safety and Fire Protection Services Operating Segment

Three Months Ended February 29, 2008 Compared to Three Months Ended February 28, 2007

First Aid, Safety and Fire Protection Services operating segment revenue increased $10.5 million, or 10.3% on a same workday basis for the three months ended February 29, 2008.  This operating segment’s internal growth for the period was 5.3% over the same period last fiscal year.  The remaining growth was generated through the acquisition of first aid, safety and fire protection businesses.

Cost of first aid, safety and fire protection services increased $7.6 million, or 14.6%, for the three months ended February 29, 2008, due to increased First Aid, Safety and Fire Protection Services volume.   Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenues less cost of goods, warehouse expenses, service expenses and training expenses.  The gross margin as a percent to revenue was 39.2% for the quarter ended February 29, 2008, which is a 140 basis point decrease compared to the gross margin percentage in the third quarter of the prior fiscal year.  This decline is due to lower than anticipated Fire Protection Services revenue and higher energy costs.  The lower Fire Protection Services revenue was in both the fire services business and the fire suppression system installation business.  Although we have added route and installation capacity this year to support revenue growth, the Fire Protection Services business has been adversely affected by challenging economic conditions.

Selling and administrative expenses as a percent to revenue, at 31.7%, increased 100 basis points compared to the third quarter of the prior fiscal year.  This increase was due to the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment decreased $1.3 million to $7.3 million for the period compared to the same period of the prior fiscal year.  Income before income taxes was 7.5% of the operating segment’s revenue, which is a 240 basis point decrease compared to the third quarter of the prior fiscal year as a result of the lower gross margin discussed above and the increased selling costs discussed above.

Nine Months Ended February 29, 2008 Compared to Nine Months Ended February 28, 2007

First Aid, Safety and Fire Protection Services operating segment revenue increased $36.1 million, or 13.1% on a same workday basis for the nine months ended February 29, 2008.  This operating segment’s internal growth for the period was 6.4% over the same period in the prior fiscal year.  The remaining growth was generated through the acquisition of first aid, safety and fire protection businesses.
 
 
 
 
 
 
 
 
 
 
29

 
 

 


Cost of first aid, safety and fire protection services increased $22.2 million, or 14.0%, for the nine months ended February 29, 2008, due to increased First Aid, Safety and Fire Protection Services volume.  Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses.  The gross margin as a percent to revenue was 39.6% for the nine months ended February 29, 2008, which is a 20 basis point decrease over the gross margin percentage for the nine months ended February 28, 2007.  This decrease is primarily due to an increase in energy costs.

Selling and administrative expenses as a percent to sales, at 31.2%, increased 150 basis points compared to the nine months ended February 28, 2007.  This increase was due to the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment decreased $1.2 million, or 4.7% for the period compared to the same period in the prior fiscal year.  Income before income taxes was 8.5% of the operating segment’s revenue, which is a 160 basis point decrease compared to the same period last fiscal year primarily as a result of the increased investment in our sales organization and increases in our marketing efforts and sales promotions.


Document Management Services Operating Segment

Three Months Ended February 29, 2008 Compared to Three Months Ended February 28, 2007

Document Management Services operating segment revenue increased $21.0 million, or 71.2% on a same workday basis for the three months ended February 29, 2008, over the same period in the prior fiscal year.  This operating segment’s internal growth for the period was 40.7% over the same period in the prior fiscal year.  The internal growth was primarily due to the sale of shredding services to new customers and favorable recycled paper prices relative to last fiscal year.  The remaining growth was generated through the acquisition of document management businesses.

Cost of document management services increased $8.1 million, or 58.2%, for the three months ended February 29, 2008, due to increased Document Management Services operating segment sales volume.  Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs.  The gross margin as a percent to revenue was 55.5% for the quarter ended February 29, 2008, which is a 440 basis point increase over the gross margin percentage in the third quarter of the prior fiscal year.  This improvement was made despite increased energy related costs and was primarily due to the segment’s increased sales volume and favorable recycled paper prices relative to last fiscal year.

Selling and administrative expenses as a percent to revenue, at 39.3%, decreased 790 basis points compared to the third quarter of the prior fiscal year.  This decrease is due to improved scale of administrative functions resulting from the operating segment’s increased sales volume, offset by the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Income before income taxes for the Document Management Services operating segment increased $6.9 million to $8.0 million for the period compared to the same period in the prior fiscal year.  Income before income taxes was 16.2% of the operating segment’s revenue, which is a significant improvement over the 3.8% of the operating segment’s revenue for the same period last fiscal year, primarily as a result of the operating segment’s increased sales volume.
 
 
 
 
 
 
 
 
30
 
 

 


Nine Months Ended February 29, 2008 Compared to Nine Months Ended February 28, 2007

Document Management Services operating segment revenue increased $55.6 million, or 75.4% on a same workday basis, for the nine months ended February 29, 2008, over the same period in the prior fiscal year.  This operating segment’s internal growth for the period was 42.2% over the same period in the prior fiscal year.  The internal growth was primarily due to the sale of shredding services to new customers and favorable recycled paper prices relative to last fiscal year.  The remaining growth was generated through the acquisition of document management businesses.

Cost of document management services increased $22.8 million, or 63.6%, for the nine months ended February 29, 2008, due to increased Document Management Services operating segment sales volume.  Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs.  The gross margin as a percent to revenue was 54.3% for the nine months ended February 29, 2008, which is a 350 basis point increase over the gross margin percentage in the first nine months of the prior fiscal year.  This improvement was made despite increased energy related costs and was primarily due to the segment’s increased sales volume and favorable recycled paper prices relative to last fiscal year.

Selling and administrative expenses as a percent to revenue, at 41.5%, decreased 570 basis points compared to the nine months ended February 28, 2007.  This decrease is due to improved scale of administrative functions resulting from the operating segment’s increased sales volume, offset by the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Income before income taxes for the Document Management Services operating segment increased $13.9 million for the period compared to the same period in the prior fiscal year.  Income before income taxes was 12.8% of the operating segment’s revenue, which is a 920 basis point increase compared to the prior fiscal year primarily as a result of the operating segment’s increased sales volume.


Liquidity and Capital Resources

At February 29, 2008, Cintas had $163.6 million in cash, cash equivalents and marketable securities which is comparable to the $155.4 million at May 31, 2007.  Capital expenditures were $144.8 million for the nine months ended February 29, 2008.  We expect capital expenditures for the year to be approximately $190.0 million.  Cash, cash equivalents and marketable securities are expected to be used to finance future acquisitions, capital expenditures, expansion and additional purchases under the share buyback program as detailed below.  We believe that our current cash position, funds generated from operations and the strength of our banking relationships provides sufficient means to meet our anticipated operational and capital requirements.

Net property and equipment increased by $48.3 million from May 31, 2007 to February 29, 2008, due to our continued investment in rental facilities and equipment and our document management services fleet.  Cintas opened one new rental facility in the third quarter of fiscal 2008 and had an additional six uniform rental facilities under construction.

During the third quarter of fiscal 2008, Cintas issued $300.0 million of senior notes due 2017.  These senior notes bear an interest rate of 6.125%, paid semi-annually beginning June 1, 2008.  The proceeds generated from the offering were used to reduce borrowings under our commercial paper program.
 
 
 
 
 
 
31
 
 

 


In May 2005, Cintas announced that the Board of Directors authorized a $500.0 million share buyback program at market prices.  In July 2006, Cintas announced that the Board of Directors approved the expansion of its share buyback program by an additional $500.0 million.  From the inception of the share buyback program through March 31, 2008, Cintas has purchased a total of approximately 19.4 million shares of Cintas common stock, or approximately 11% of the total shares outstanding at the beginning of the program, at an average price of $39.81 per share for a total purchase price of approximately $772.0 million.  The maximum approximate dollar value of shares that may yet be purchased under the plan as of March 31, 2008, is $228.0 million.  The Board of Directors did not specify an expiration date for this program.

Following is information regarding Cintas' long-term contractual obligations and other commitments outstanding as of February 29, 2008:

(In thousands)
 
Payments Due by Period
 
Long-term contractual obligations  
Total
   
One year
or less
   
Two to
three
years
   
Four to
five years
   
After five
Years
 
                               
Long-term debt (1)
  $ 964,138     $ 701     $ 182,336     $ 226,271     $ 554,830  
Capital lease obligations (2)
    1,269       641       268       240       120  
Operating leases (3)
    59,006       18,890       24,565       10,609       4,942  
Interest payments (4)
    522,791       33,732       67,089       48,306       373,664  
Interest swap agreements (5)
    ----       ----       ----       ----       ----  
Unconditional purchase obligations
    ----       ----       ----       ----       ----  
Total contractual cash obligations
  $ 1,547,204     $ 53,964     $ 274,258     $ 285,426     $ 933,556  

Cintas also makes payments to defined contribution plans.  The amounts of contributions made to the plans are made at the discretion of Cintas.  Future contributions are assumed to increase 10% annually.  Assuming this 10% increase, payments due in one year or less would be $31,986, two to three years would be $73,887 and four to five years would be $89,404.  Payments for years thereafter are assumed to continue increasing by 10% each year.

(1)
Long-term debt primarily consists of $775,000 in long-term notes and $181,000 in commercial paper.
(2)
Capital lease obligations are classified as debt on the consolidated balance sheets.
(3)
Operating leases consist primarily of building leases and a synthetic lease on a corporate jet.
(4)
Interest payments include interest on both fixed and variable rate debt.  Rates have been assumed to remain constant for the remainder of fiscal 2008 and during fiscal 2009, increase 25 basis points each year in fiscal 2010 and fiscal 2011, and increase 50 basis points each year in fiscal 2012 and fiscal 2013.
(5)
Reference Note 5 entitled Debt, Derivatives and Hedging Activities of “Notes to Consolidated Condensed Financial Statements” for a detailed discussion of interest swap agreements.
 
 
 
 
 
 
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(In thousands)
 
Amount of Commitment Expiration Per Period
 
 
Other commercial commitments
 
Total
   
One year
or less
   
Two to
three
years
   
Four to
five years
   
After five
Years
 
                               
Lines of credit (1)
  $ 600,000     $ ----     $ 600,000     $ ----     $ ----  
Standby letter of credit (2)
    77,823       77,806       17       ----       ----  
Guarantees
    ----       ----       ----       ----       ----  
Standby repurchase obligations
    ----       ----       ----       ----       ----  
Other commercial commitments
    ----       ----       ----       ----       ----  
Total commercial commitments
  $ 677,823     $ 77,806     $ 600,017     $ ----     $ ----  

(1)
Back-up facility for the commercial paper program.
(2)
Support certain outstanding long-term debt and self-insured workers' compensation and general liability insurance programs.

Cintas has no off-balance sheet arrangements other than a synthetic lease on a corporate jet.  The synthetic lease on the aircraft does not currently have, and is not reasonably likely to have, a current or future material effect on Cintas’ financial condition, changes in Cintas’ financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Litigation and Other Contingencies

Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims.  In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions, will not have a material adverse effect on the financial position or results of operations of Cintas.  Cintas is party to additional litigation not considered in the ordinary course of business, including the litigation discussed below.

Cintas is a defendant in a purported class action lawsuit, Paul Veliz, et al. v. Cintas Corporation, filed on March 19, 2003, in the United States District Court, Northern District of California, Oakland Division, alleging that Cintas violated certain federal and state wage and hour laws applicable to its service sales representatives, whom Cintas considers exempt employees, and asserting additional related ERISA claims.  On August 23, 2005, an amended complaint was filed alleging additional state law wage and hour claims under the following state laws: Arkansas, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington, West Virginia and Wisconsin.  The plaintiffs are seeking unspecified monetary damages, injunctive relief or both.  Cintas denies these claims and is defending the plaintiffs’ allegations.  On February 14, 2006, the court ordered a majority of the opt-in plaintiffs to arbitrate their claims in accordance with the terms of their Cintas employment agreement.  On February 14, 2006, the court also permitted plaintiffs to file a second amended complaint alleging state law claims in the 15 states listed above only with respect to the putative class members that may litigate their claims in court.  No determination has been made by the court or an arbitrator regarding class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  If a court or arbitrator certifies a class in this action and there is an adverse verdict on the merits, or in the event of a negotiated settlement of the action, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas.  Any estimated liability relating to this lawsuit is not determinable at this time.

Cintas also is a defendant in a purported class action lawsuit, Mirna E. Serrano, et al. v. Cintas Corporation (Serrano), filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division.  Serrano alleges that Cintas discriminated against women in hiring into various service sales representative positions across all divisions of Cintas throughout the United States.  On November 15, 2005, the Equal Employment Opportunity Commission (EEOC) intervened in the Serrano lawsuit.  The Serrano plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  Cintas is a defendant in
 
 
 
 
 
33

another purported class action lawsuit, Nelly Blanca Avalos, et al. v. Cintas Corporation (Avalos), currently pending in the United States District Court, Eastern District of Michigan, Southern Division.  Avalos alleges that Cintas discriminated against women, African-Americans and Hispanics in hiring into various service sales representative  positions in Cintas’ Rental division only throughout the United States.  On April 27, 2005, the EEOC intervened in the claims asserted in Avalos.  The Avalos plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  The claims in Avalos originally were brought in the previously disclosed lawsuit captioned Robert Ramirez, et al. v. Cintas Corporation (Ramirez), filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division.  On May 11, 2006, however, those claims were severed from Ramirez and transferred to the Eastern District of Michigan, Southern Division, where the case was re-named Avalos.  On July 10, 2006, Avalos and Serrano were consolidated for all pretrial purposes, including proceedings on class certification.  The consolidated case is known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos), and remains pending in the United States District Court, Eastern District of Michigan, Southern Division.  No filings or determinations have been made in Serrano/Avalos as to class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  The non-service sales representative hiring claims in the previously disclosed Ramirez case that have not been dismissed remain pending in the Northern District of California, San Francisco Division, but were ordered to arbitration and stayed pending the completion of arbitration.  The Ramirez purported class action claims currently in arbitration include allegations that Cintas failed to promote Hispanics into supervisory positions, discriminated against African-Americans and Hispanics in service sales representative route assignments and discriminated against African-Americans in hourly pay in Cintas’ Rental division only throughout the United States.  The Ramirez plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  No filings or determinations have been made in Ramirez as to class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  On February 20, 2007, the plaintiffs Colleen Grindle et al. filed a separate lawsuit in the Court of Common Pleas, Wood County, Ohio, captioned Colleen Grindle, et al. v. Cintas Corporation (Grindle), on behalf of a class of female employees at Cintas’ Perrysburg, Ohio location who allegedly were denied hire, promotion or transfer to service sales representative positions on the basis of their gender.  The Grindle plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  No filings or determinations have been made in Grindle as to class certification.  There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class.  In addition, a class action lawsuit, Larry Houston, et al. v. Cintas Corporation (Houston), was filed on August 3, 2005, in the United States District Court for the Northern District of California on behalf of African-American managers alleging racial discrimination.  On November 22, 2005, the court entered an order requiring the named plaintiffs in the Houston lawsuit to arbitrate all of their claims for monetary damages.  If there is an adverse verdict or a negotiated settlement of all or any of these actions, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas.  Any estimated liability relating to these proceedings is not determinable at this time.

Other similar administrative proceedings are pending including two charges filed on November 30, 2004, by an EEOC Commissioner with the EEOC Systemic Litigation Unit alleging:  (i) failure to hire and assign females to production job positions; and (ii) failure to hire females, African-Americans and Hispanics into the Management Trainee program.  The investigations of these allegations are pending and no determinations have been made.  On August 29, 2006, the EEOC Indianapolis District Office issued a dismissal and notice of rights and closed its file on the Clifton Cooper charge served on Cintas on March 23, 2005, by Mr. Cooper on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race.  Mr. Cooper’s claims are now part of the Houston arbitration matter disclosed hereinabove.
 
Cintas is also a defendant in a lawsuit, J. Lester Alexander, III v. Cintas Corporation, et al., which was originally filed on October 25, 2004, and is currently pending in the Circuit Court of Randolph County, Alabama.  The case was brought by J. Lester Alexander, III, the Chapter 7 Trustee (the Trustee) of Terry Manufacturing Company, Inc. (TMC) and Terry Uniform Company, LLC (TUC), against Cintas in Randolph County, Alabama.  The Trustee seeks damages against Cintas for allegedly breaching fiduciary duties to TMC and TUC and for allegedly aiding and abetting breaches of fiduciary duties by others to those entities.  The complaint also includes allegations that Cintas breached certain limited liability company agreements, or alternatively, misrepresented its intention to perform its obligations in those agreements and acted as alter egos of the bankrupt TMC and is therefore liable for all of TMC's debts.  The Trustee is seeking $50 million in compensatory damages and $100 million in punitive damages.  Cintas denies these claims and is vigorously defending itself against all claims in the complaint.   If there is an adverse verdict on the merits or in the event of a negotiated settlement of this lawsuit, the resulting liability could be material to Cintas.  Any estimated liability relating to this lawsuit is not determinable at this time.

The litigation discussed above, if decided adversely to or settled by Cintas, may, individually or in the aggregate, result in liability material to Cintas’ financial condition or results of operations.  Cintas may enter into discussions regarding settlement of these and other lawsuits, and may enter into settlement agreements if it believes such settlement is in the best interest of Cintas’ shareholders.
 
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Outlook

External market conditions have deteriorated in our third quarter of fiscal 2008, and we expect these conditions to continue into the fourth quarter.  These challenging conditions negatively affect our existing customer base and our existing cost structure, especially our exposure to energy costs.  While these challenging economic conditions will put pressure on our revenue growth and margins, we are aggressively challenging our cost structure in order to maintain our margins during the remainder of fiscal 2008.

We will continue searching out additional products and services to become an even more valuable resource for our customers.  We believe that the high level of customer service provided by our employee-partners and supported by our infrastructure, quality products, financial resources and corporate culture will provide for continued business success.  As such, we see upside potential for all of our business units.  Although difficult to predict, we anticipate growth in all of our operating segments.

In the marketplace, competition and related pricing pressure will continue; however, we believe cost containment initiatives, technological advances and continued leverage of our infrastructure will soften or offset any impact.

When appropriate opportunities arise, we will supplement our internal growth with strategic acquisitions.

Like most other companies, we experienced, and anticipate continuing to experience, increased costs for energy, wages and benefits.  Changes in federal and state tax laws also impact our results.

Cintas’ effective tax rate was 35.0% for the three months ended February 29, 2008, and was 36.9% for the nine months ended February 29, 2008.  For the full fiscal year 2008, we expect our effective tax rate to be approximately 37.1%.

Cintas continues to be the target of a corporate unionization campaign by Unite Here and the Teamsters unions.  These unions are attempting to pressure Cintas into surrendering our employees' rights to a government-supervised election and unilaterally accept union representation.  Cintas' philosophy in regard to unions is straightforward:  We believe that employees have the right to say yes to union representation and the freedom to say no through secret ballot elections.  This campaign could be materially disruptive to our business and could materially adversely affect results of operations.  We will continue to vigorously oppose this campaign and to defend our employees' rights.
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In our normal operations, Cintas has market risk exposure to interest rates.  This market risk exposure to interest rates has been previously disclosed on page 28 of our most recent Form 10-K.

Through its foreign operations, Cintas is exposed to foreign currency risk.  Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenue and profit translated into U.S. dollars.  The primary foreign currency to which Cintas is exposed is the Canadian dollar.  Cintas does not currently use forward exchange contracts to limit potential losses in earnings or cash flows from foreign currency exchange rate movements.

ITEM 4.
CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

With the participation of Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of February 29, 2008.  Based on such evaluation, Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas’ disclosure controls and procedures were effective as of February 29, 2008, in ensuring (i) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is accumulated and communicated to Cintas’ management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 
 
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Internal Control over Financial Reporting
 
There were no changes in Cintas’ internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended February 29, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. See “Management’s Report on Internal Control over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” on pages 29 and 30 of our most recent Form 10-K.
 
Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements.  Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar expressions and by the context in which they are used.  Such statements are based upon current expectations of Cintas and speak only as of the date made.  We cannot guarantee that any forward-looking statement will be realized.  These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ from those set forth in or implied by this Quarterly Report.  Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, the initiation or outcome of litigation, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic events, changes in federal and state tax and labor laws and the reactions of competitors in terms of price and service.  Cintas undertakes no obligation to update any forward-looking statements whether as a result of new information or to reflect events or circumstances arising after the date on which they are made.

Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses in Part II, Item 1A, of this Quarterly Report and in our Annual Report on Form 10-K for the year ended May 31, 2007. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.  Consequently, you should not consider the risk factors identified in Part II, Item 1A, in this Quarterly Report and in our Form 10-K for the year ended May 31, 2007, to be a complete discussion of all potential risks or uncertainties.
 
 
 
 
 
 

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CINTAS CORPORATION

Part II.  Other Information
 
      Item 1.  Legal Proceedings
 
I.   Supplemental Information:  We discuss certain legal proceedings pending against us in Part I of this Quarterly Report on Form 10-Q under the caption “Item 1. Financial Statements,” in Note 8 entitled Litigation and Other Contingencies of “Notes to Consolidated Condensed Financial Statements,” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Litigation and Other Contingencies.”  We refer you to those discussions for important information concerning those legal proceedings, including the basis for such actions and, where known, the relief sought.  We provide the following additional information concerning those legal proceedings which sets forth the name of the lawsuit, the court in which the lawsuit is pending and the date on which the petition commencing the lawsuit was filed.

Wage and Hour Litigation: Paul Veliz, et al. v. Cintas Corporation, United States District Court, Northern District of California, Oakland Division, March 19, 2003.  On August 23, 2005, an amended complaint was filed alleging additional state law wage and hour claims under the following state laws: Arkansas, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington, West Virginia and Wisconsin.  On February 14, 2006, the court permitted plaintiffs to file a second amended complaint alleging state law claims in the 15 states listed above only with respect to the putative class members that may litigate their claims in court.

Race and Gender Litigation and Related Charges: Robert Ramirez, et al. v. Cintas Corporation (Ramirez), United States District Court, Northern District of California, San Francisco Division, January 20, 2004, alleging class action claims of race, national origin and gender discrimination in hiring, promotion and pay; On April 27, 2005, the Equal Employment Opportunity Commission (EEOC) intervened in Ramirez; Mirna E. Serrano, et al. v. Cintas Corporation (Serrano), United States District Court for the Eastern District of Michigan, Southern Division, May 10, 2004, alleging class action claims of gender discrimination in hiring into service sales representative positions; On November 15, 2005, the EEOC intervened in Serrano; On May 11, 2006, the Ramirez African-American, Hispanic and female failure to hire into service sales representative positions claims and the EEOC’s intervention were transferred to the Serrano case, the remaining claims in Ramirez were dismissed or compelled to arbitration; Colleen Grindle, et al. v. Cintas Corporation, Court of Common Pleas, Wood County, Ohio, February 20, 2007, alleging class action claims on behalf of female employees at Cintas’ Perrysburg, Ohio rental location who allegedly were denied hire, promotion or transfer into service sales representative positions; Larry Houston, et al. v. Cintas Corporation (Houston), United States District Court for the Northern District of California, August 3, 2005; On November 22, 2005, the named plaintiffs in Houston were ordered to arbitration; EEOC charge filed by Clifton Cooper on March 23, 2005, with the EEOC Systemic Litigation Unit; Mr. Cooper’s claims are now part of the Houston arbitration matter; EEOC Commissioner’s charge filed on November 30, 2004, with the EEOC Systemic Litigation Unit alleging:  (i) failure to hire and assign females to production job positions; and (ii) failure to hire females, African-Americans and Hispanics into the Management Trainee program.
 
Breach of Fiduciary Duties:  J. Lester Alexander, III v. Cintas Corp., et. al., Circuit Court, Randolph County, Alabama, October 25, 2004.
 









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    Item 1A.      Risk Factors

The risks described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended May 31, 2007, describe risks that could materially and adversely affect our business, financial condition and results of operations and the trading price of our debt or equity securities could decline.  These risks are not the only risks that we face.  Our business, financial condition and results of operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations.
 
    Item 5.        Other Information

On January 15, 2008, Cintas declared an annual cash dividend of $0.46 per share on outstanding common stock, an 18 percent increase over the dividends paid in the prior year.  The dividend was paid on March 12, 2008, to shareholders of record as of February 6, 2008.
 
    Item 6.        Exhibits

 
31.1
Certification of Principal Executive Officer required by Rule 13a-14(a)
 
31.2
Certification of Principal Financial Officer required by Rule 13a-14(a)
 
32.1
Section 1350 Certification of Chief Executive Officer
 
32.2
Section 1350 Certification of Chief Financial Officer

 
 
 
 

 
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Signatures


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
CINTAS CORPORATION 
            (Registrant)
 
       
       
Date:  April 4, 2008
By:
/s/ William C. Gale  
    William C. Gale  
    Senior Vice President and Chief Financial Officer  
    (Chief Accounting Officer)  

 














 
 
 
 

 
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