Edgar Filing: CINTAS CORP

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United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2010

o 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 x No o

Indicate by a checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o

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

Large Accelerated Filer x		Accelerated Filer o

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

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

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

Class		Outstanding December 31, 2010
Common Stock, no par value		145,301,073

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CINTAS CORPORATION

TABLE OF CONTENTS

			Page No.
Part I.	Financial Information

Item 1.		Financial Statements.

		Consolidated Condensed Statements of Income — Three Months and Six Months Ended November 30, 2010 and 2009	3

		Consolidated Condensed Balance Sheets — November 30, 2010 and May 31, 2010	4

		Consolidated Condensed Statements of Cash Flows — Six Months Ended November 30, 2010 and 2009	5

		Notes to Consolidated Condensed Financial Statements	6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.	25

Item 3.		Quantitative and Qualitative Disclosures About Market Risk.	35

Item 4.		Controls and Procedures.	36

Part II.	Other Information

Item 1.		Legal Proceedings.	37

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.	37

Item 5.		Other Information.	37

Item 6.		Exhibits.	37

Signatures			38

Exhibits

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CINTAS CORPORATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

(In thousands except per share data)

	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2010			2009			2010			2009

Revenue:
Rental uniforms and ancillary products	$	657,847		$	643,597		$	1,315,411		$	1,299,235
Other services	278,719			240,912			545,059			476,843
	936,566			884,509			1,860,470			1,776,078

Costs and expenses:
Cost of rental uniforms and ancillary products	377,471			363,728			748,986			726,657
Cost of other services	168,447			150,934			327,165			296,779
Selling and administrative expenses	288,304			259,406			581,729			523,833
Legal settlements, net of insurance proceeds	—			4,052			—			23,529

Operating income	102,344			106,389			202,590			205,280

Interest income	(394		)	(314		)	(972		)	(673		)
Interest expense	12,161			12,579			24,435			24,617

Income before income taxes	90,577			94,124			179,127			181,336

Income taxes	34,711			36,948			61,984			70,176

Net income	$	55,866		$	57,176		$	117,143		$	111,160

Basic earnings per share	$	0.38		$	0.37		$	0.78		$	0.72

Diluted earnings per share	$	0.38		$	0.37		$	0.78		$	0.72

Dividends declared per share	$	0.49		$	—		$	0.49		$	—

See accompanying notes.

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CINTAS CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands except share data)

	November 30, 2010			May 31, 2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	260,953		$	411,281
Marketable securities	23,624			154,806
Accounts receivable, net	402,369			366,301
Inventories, net	208,380			169,484
Uniforms and other rental items in service	364,556			332,106
Income taxes, current	13,765			15,691
Deferred income tax asset	53,346			52,415
Prepaid expenses and other	27,853			22,860

Total current assets	1,354,846			1,524,944

Property and equipment, at cost, net	923,535			894,522

Goodwill	1,435,352			1,356,925
Service contracts, net	104,751			103,445
Other assets, net	109,811			89,900

	$	3,928,295		$	3,969,736

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	92,206		$	71,747
Accrued compensation and related liabilities	53,563			66,924
Accrued liabilities	321,209			244,402
Long-term debt due within one year	1,817			609

Total current liabilities	468,795			383,682

Long-term liabilities:
Long-term debt due after one year	785,222			785,444
Deferred income taxes	145,079			150,560
Accrued liabilities	134,086			116,021

Total long-term liabilities	1,064,387			1,052,025

Shareholders’ equity:
Preferred stock, no par value:
100,000 shares authorized, none outstanding	—			—
Common stock, no par value:
425,000,000 shares authorized,
FY 2011: 173,341,299 issued and 145,301,073 outstanding
FY 2010: 173,207,493 issued and 152,869,848 outstanding	135,254			132,058
Paid-in capital	87,219			84,616
Retained earnings	3,125,411			3,080,079
Treasury stock:
FY 2011: 28,040,226 shares
FY 2010: 20,337,645 shares	(1,002,064		)	(798,857		)
Other accumulated comprehensive income	49,293			36,133
Total shareholders’ equity	2,395,113			2,534,029
	$	3,928,295		$	3,969,736

See accompanying notes.

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CINTAS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended
	November 30, 2010			November 30, 2009
Cash flows from operating activities:

Net income	$	117,143		$	111,160
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	74,563			75,899
Amortization of deferred charges	21,182			20,568
Stock-based compensation	5,799			7,571
Deferred income taxes	(6,277		)	4,777
Change in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	(27,774		)	(12,843		)
Inventories, net	(38,838		)	34,874
Uniforms and other rental items in service	(30,639		)	5,495
Prepaid expenses and other	(4,526		)	(568		)
Accounts payable	19,765			6,914
Accrued compensation and related liabilities	(13,458		)	(1,646		)
Accrued liabilities	(10,066		)	25,246
Income taxes payable	2,355			16,728
Net cash provided by operating activities	109,229			294,175

Cash flows from investing activities:

Capital expenditures	(88,134		)	(48,092		)
Proceeds from redemption of marketable securities	135,283			25,852
Purchase of marketable securities and investments	(12,472		)	(53,060		)
Acquisitions of businesses, net of cash acquired	(88,799		)	(6,601		)
Other, net	(6,858		)	1,053
Net cash used in investing activities	(60,980		)	(80,848		)

Cash flows from financing activities:

Proceeds from issuance of debt	1,781			—
Repayment of debt	(794		)	(321		)
Repurchase of common stock	(203,207		)	(959		)
Other, net	1,699			(717		)
Net cash used in financing activities	(200,521		)	(1,997		)

Effect of exchange rate changes on cash and cash equivalents	1,944			939

Net (decrease) increase in cash and cash equivalents	(150,328		)	212,269

Cash and cash equivalents at beginning of period	411,281			129,745

Cash and cash equivalents at end of period	$	260,953		$	342,014

See accompanying notes.

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The consolidated condensed financial statements of Cintas Corporation (Cintas, the Company, we, us or our) 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 Form 10-K for the fiscal year ended May 31, 2010. A summary of our significant accounting policies is presented beginning on page 39 of that report. There have been no material changes in the accounting policies followed by Cintas during the current fiscal year.

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.

2. Fair Value Measurements

Financial Accounting Standards Board Accounting Standard Codification Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 —	Quoted prices in active markets for identical assets or liabilities.

Level 2 —	Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 —	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Cintas’ assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

All financial instruments that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated condensed balance sheet date.

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

These financial instruments measured at fair value on a recurring basis are summarized below (in thousands):

	As of November 30, 2010
	Level 1		Level 2		Level 3		Fair Value

Cash and cash equivalents	$	260,953	$	—	$	—	$	260,953
Marketable securities:
U.S. municipal bonds	—		941		—		941
Canadian treasury securities	22,184		499		—		22,683
Accounts receivable, net	—		19		—		19
Total assets at fair value	$	283,137	$	1,459	$	—	$	284,596

Current Accrued Liabilities	$	—	$	12	$	—	$	12
Total Liabilities	$	—	$	12	$	—	$	12

	As of May 31, 2010
	Level 1		Level 2		Level 3		Fair Value

Cash and cash equivalents	$	411,281	$	—	$	—	$	411,281
Marketable securities:
U.S. municipal bonds	—		21,954		—		21,954
Canadian treasury securities	97,791		35,061		—		132,852
Accounts receivable, net	—		450		—		450
Total assets at fair value	$	509,072	$	57,465	$	—	$	566,537

Current accrued liabilities	$	—	$	64	$	—	$	64
Total liabilities at fair value	$	—	$	64	$	—	$	64

Cintas’ cash and cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Cintas does not adjust the quoted market price for such financial instruments.

The funds invested in Canadian marketable securities are not expected to be repatriated, but instead are expected to be invested indefinitely in foreign subsidiaries. Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of the securities sold is based on the specific identification method. The amortized cost basis of the marketable securities as of November 30, 2010 and May 31, 2010, is $23.6 million and $154.9 million, respectively. All contractual maturities are due within one year.

Accounts receivable, net and current accrued liabilities include foreign currency average rate options. The fair value of Cintas’ foreign currency average rate options are based on similar exchange traded derivatives and are, therefore, included within Level 2 of the fair value hierarchy.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Cintas believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated condensed balance sheet date.

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

3. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Cintas’ common shares (in thousands except per share data):

	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2010			2009		2010		2009

Basic Earnings per Share	$	55,866		$	57,176	$	117,143	$	111,160
Net income

Less dividends to:
Common shares	$	71,197		$	—	$	71,197	$	—
Unvested shares	683			—		683		—
Total dividends	$	71,880		$	—	$	71,880	$	—

Undistributed net (loss) income	$	(16,014	)	$	57,176	$	45,263	$	111,160

Less: net (loss) income allocated to participating unvested securities	(74		)	226		204		362

Net (loss) income available to common shareholders	$	(15,940	)	$	56,950	$	45,059	$	110,798

Basic weighted average common shares outstanding	145,511			152,866		148,856		152,847

Basic earnings per share:
Common shares — distributed earnings	$	0.49		$	0.00	$	0.49	$	0.00
Common shares — undistributed earnings	(0.11		)	0.37		0.29		0.72
Total common shares	$	0.38		$	0.37	$	0.78	$	0.72

Unvested shares - distributed earnings	$	0.49		$	0.00	$	0.49	$	0.00
Unvested shares - undistributed earnings	(0.11		)	0.37		0.29		0.72
Total unvested shares	$	0.38		$	0.37	$	0.78	$	0.72

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(In thousands except per share data)

	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2010			2009		2010		2009

Diluted Earnings per Share
Net income	$	55,866		$	57,176	$	117,143	$	111,160

Less dividends to:
Common shares	$	71,197		$	—	$	71,197	$	—
Unvested shares	683			—		683		—
Total dividends	$	71,880		$	—	$	71,880	$	—

Undistributed net (loss) income	$	(16,014	)	$	57,176	$	45,263	$	111,160

Less: net (loss) income allocated to participating unvested securities	(74		)	226		204		362

Net (loss) income available to common shareholders	$	(15,940	)	$	56,950	$	45,059	$	110,798

Basic weighted average common shares outstanding	145,511			152,866		148,856		152,847

Effect of dilutive securities — employee stock options	—			—		—		—

Diluted weighted average common shares outstanding	145,511			152,866		148,856		152,847

Diluted earnings per share:
Common shares — distributed earnings	$	0.49		$	0.00	$	0.48	$	0.00
Common shares — undistributed earnings	(0.11		)	0.37		0.29		0.72
Total common shares	$	0.38		$	0.37	$	0.78	$	0.72

Unvested shares - distributed earnings	$	0.48		$	0.00	$	0.48	$	0.00
Unvested shares - undistributed earnings	(0.11		)	0.37		0.29		0.72
Total unvested shares	$	0.38		$	0.37	$	0.78	$	0.72

During the six months ended November 30, 2010, Cintas purchased 7,656,193 shares of Cintas common stock under a share buyback program authorized by the Board of Directors on May 2, 2005, and expanded in July 2006.

For the three months ended November 30, 2010 and 2009, 3.5 million and 3.6 million options granted to purchase shares of Cintas common stock were excluded from the computation of diluted earnings per share. For the six months ended November 30, 2010 and 2009, 3.9 million and 4.4 million options granted to purchase shares of Cintas common stock were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common shares (anti-dilutive).

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

4. Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill and service contracts for the six months ended November 30, 2010, by operating segment, are as follows (in thousands):

	Rental				First Aid,
	Uniforms &		Uniform		Safety &
	Ancillary		Direct		Fire		Document
	Products		Sales		Protection		Management		Total
Goodwill
Balance as of June 1, 2010	$	861,117	$	23,928	$	181,967	$	289,913	$	1,356,925

Goodwill acquired	23,443		—		17,997		34,904		76,344

Foreign currency translation	577		30		—		1,476		2,083

Balance as of November 30, 2010	$	885,137	$	23,958	$	199,964	$	326,293	$	1,435,352

	Rental					First Aid,
	Uniforms &			Uniform		Safety &
	Ancillary			Direct		Fire			Document
	Products			Sales		Protection			Management			Total
Service Contracts
Balance as of June 1, 2010	$	48,711		$	—	$	35,599		$	19,135		$	103,445

Service contracts acquired	3,664			—		7,327			6,038			17,029

Service contracts amortization	(9,363		)	—		(3,376		)	(4,026		)	(16,765		)

Foreign currency translation	809			—		—			233			1,042

Balance as of November 30, 2010	$	43,821		$	—	$	39,550		$	21,380		$	104,751

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Information regarding Cintas’ service contracts and other assets is as follows (in thousands):

	As of November 30, 2010
	Carrying		Accumulated
	Amount		Amortization		Net

Service contracts	$	364,653	$	259,902	$	104,751
Noncompete and consulting agreements	$	73,770	$	58,701	$	15,069
Investments(1)	80,302		—		80,302
Other	19,110		4,670		14,440

Total	$	173,182	$	63,371	$	109,811

	As of May 31, 2010
	Carrying		Accumulated
	Amount		Amortization		Net

Service contracts	$	346,569	$	243,124	$	103,445
Noncompete and consulting agreements	$	68,435	$	53,425	$	15,010
Investments(1)	68,616		—		68,616
Other	10,516		4,242		6,274

Total	$	147,567	$	57,667	$	89,900

(1) Investments at November 30, 2010, include the cash surrender value of insurance policies of $46.0 million, equity method investments of $30.0 million and cost method investments of $4.3 million. Investments at May 31, 2010, include the cash surrender value of insurance policies of $34.3 million, equity method investments of $30.0 million and cost method investments of $4.3 million.

Amortization expense was $21.2 million and $20.6 million for the six months ended November 30, 2010 and 2009, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $40.0 million, $33.7 million, $17.1 million, $13.9 million and $11.2 million, respectively.

Investments recorded using the cost method are evaluated for impairment on an annual basis or when indicators of impairment are identified. For the six months ended November 30, 2010 and 2009, no losses due to impairment were recorded.

5. Debt, Derivatives and Hedging Activities

As of August 31, 2010, Cintas had a commercial paper program with availability of $600.0 million that was fully supported by a backup revolving credit facility through a credit agreement with its banking group. The revolving credit facility had an expiration date of February, 2011. This revolving credit facility was renewed on September 27, 2010, with reduced availability of $300.0 million, an accordion feature that allows for a maximum borrowing capacity of $450.0 million and an expiration date of September 26, 2014. As of November 30, 2010 and May 31, 2010, Cintas had no commercial paper outstanding.

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

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 interest rate lock agreements resulted in an increase to other comprehensive income of $0.2 million for both of the three months ended November 30, 2010 and November 30, 2009, respectively, and $0.4 million for both of the six months ended November 30, 2010 and November 30, 2009, respectively.

To hedge the exposure of movements in the foreign currency rates, Cintas at times uses foreign currency hedges. These hedges would reduce the impact on cash flows from movements in the foreign currency exchange rates. Examples of foreign currency hedge instruments that Cintas may use are average rate options and forward contracts. Cintas had average rate options included in accounts receivable, net of less than $0.1 million and $0.5 million as of November 30, 2010 and May 31, 2010, respectively. Cintas also had average rate options included in current accrued liabilities of less than $0.1 million and $0.1 million as of November 30, 2010 and May 31, 2010, respectively. The average rate options that settled during the second quarter decreased foreign currency exchange costs by less than $0.1 million during the three months ended November 30, 2010, and increased foreign currency exchange costs by $0.1 million during the three months ended November 30, 2009. The average rate options decreased foreign currency exchange costs by less than $0.1 million during the six months ended November 30, 2010, and increased foreign currency exchange costs by $0.1 million during the six months ended November 30, 2009.

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. As of November 30, 2010, Cintas was in compliance with all significant debt covenants.

6. Income Taxes

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 three months ended November 30, 2010, unrecognized tax benefits increased by approximately $1.2 million and accrued interest increased by approximately $0.9 million due to the accrual of additional tax and interest. During the six months ended November 30, 2010, unrecognized tax benefits increased by approximately $2.5 million and accrued interest decreased by approximately $7.9 million due to the expiration of certain statutes.

All U.S. federal income tax returns are closed to audit through fiscal 2008. 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 2000. Based on the resolution of the various audits, it is reasonably possible that the balance of unrecognized tax benefits could decrease by $4.3 million for the fiscal year ending May 31, 2011.

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CINTAS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

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, the amortization of interest rate lock agreements and the change in the fair value of available-for-sale securities. The components of comprehensive income for the three and six month periods ended November 30, 2010 and November 30, 2009, are as follows (in thousands):

	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2010			2009			2010			2009

Net income	$	55,866		$	57,176		$	117,143		$	111,160

Other comprehensive income:
Foreign currency translation adjustment	10,025			9,797			13,374			10,526
Change in fair value of derivatives*	(19		)	(92		)	(625		)	(23		)
Amortization of interest rate lock agreements	191			191			383			383
Change in fair value of available-for-sale securities**	1			31			28			18
Comprehensive income	$	66,064		$	67,103		$	130,303		$	122,064

* Net of less than $0.1 million of tax benefit for both the three months ended November 30, 2010 and November 30, 2009. Net of $0.4 million of tax benefit and net of less than $0.1 million of tax benefit for the six months ending November 30, 2010 and November 30, 2009, respectively.

** Net of less than $0.1 million of tax expense for both the three months ended November 30, 2010 and November 30, 2009. Net of less than $0.1 million of tax expense for the six months ended November 30, 2010 and November 30, 2009, respectively.

8. Litigation and Other Contingencies

Cintas is subject to legal proceedings, insurance receipts, legal settlements 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 operation 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, 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. The Serrano plaintiffs alleged that Cintas discriminated against women in hiring into various service sales representative positions across all divisions of Cintas. 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

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

other remedies. On October 27, 2008, the United States District Court in the Eastern District of Michigan granted summary judgment in favor of Cintas limiting the scope of the putative class in the Serrano lawsuit to female applicants for service sales representative positions at Cintas locations within the state of Michigan. Consequently, all claims brought by female applicants for service sales representative positions outside of the state of Michigan were dismissed. Similarly, any claims brought by the EEOC on behalf of similarly situated female applicants outside of the state of Michigan have also been dismissed from the Serrano lawsuit. Cintas is a defendant in another purported class action lawsuit, Blanca Nelly Avalos, et al. v. Cintas Corporation (Avalos), which was filed in the United States District Court, Eastern District of Michigan, Southern Division. The Avalos plaintiffs alleged 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. The Avalos plaintiffs sought injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. The claims in Avalos originally were brought in the 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, the Ramirez and Avalos African-American, Hispanic and female failure to hire into service sales representative positions claims and the EEOC’s intervention were consolidated for pretrial purposes with the Serrano case and transferred to the United States District Court for the Eastern District of Michigan, Southern Division. The consolidated case was known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos). On March 31, 2009, the United States District Court, Eastern District of Michigan, Southern Division entered an order denying class certification to all plaintiffs in the Serrano/Avalos lawsuits. Following denial of class certification, the Court permitted the individual Avalos and Serrano plaintiffs to proceed separately. In the Avalos case, the court dismissed the remaining claims of the individual plaintiffs who remained in that case after the denial of class certification. On May 11, 2010, Plaintiff Tanesha Davis, on behalf of all similarly situated plaintiffs in the Avalos case, filed a notice of appeal of the District Court’s summary judgment order in the United States Court of Appeals for the Sixth Circuit. The Appellate Court has made no determination regarding the merits of Davis’ appeal. In September 2010, the Court in Serrano dismissed all private individual claims and all claims of the EEOC and the 13 individuals it claimed to represent. The time for appeal has not yet expired on these Serrano dismissals, but, as of the date of this disclosure, no appeal has been taken.

The litigation discussed above, if decided or settled adversely to Cintas, may, individually or in the aggregate, result in liability material to Cintas’ consolidated financial condition or results of operation and could increase costs of operations on an ongoing basis. Any estimated liability relating to these proceedings is not determinable at this time. 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.

Cintas is a defendant in a purported class action lawsuit, Paul Veliz, et al. v. Cintas Corporation (Veliz), 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 April 5, 2004 and February 14, 2006, the Court stayed the claims of all plaintiffs with valid arbitration agreements pending arbitration of those claims. Claims made in the Veliz action, therefore, are pending before the United States District Court, Northern District of California and Judge Bruce Meyerson (Ret.), an Arbitrator selected by the parties. On August 5, 2009, the parties in the Veliz action reached a settlement in principle. When the settlement is fully documented and approved by the Court, the settlement will resolve all claims now pending or that could have been brought relating to the subject matter of the case before the Court and the Arbitrator. The principal terms of the settlement provide for an aggregate cash payment of approximately $24.0 million, which is accrued in current accrued liabilities at November 30, 2010. The pre-tax impact, net of insurance proceeds, was $19.5 million.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

During the second quarter of fiscal 2010, Cintas had legal settlements that totaled $4.1 million, net of insurance proceeds. None of these settlements were significant individually. These settlements included litigation related to multiple subjects including employment practices and insurance coverage.

9. Segment Information

Cintas classifies its businesses into four operating segments. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and tile and carpet cleaning services are also provided within this operating segment. 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, document imaging 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 entitled Basis of Presentation. Information related to the operations of Cintas’ operating segments is set forth below (in thousands):

	Rental				First Aid,
	Uniforms &		Uniform		Safety &
	Ancillary		Direct		Fire		Document
	Products		Sales		Protection		Management		Corporate			Total
For the three months ended November 30, 2010
Revenue	$	657,847	$	108,789	$	93,315	$	76,615	$	—		$	936,566
Income (loss) before income taxes	$	78,112	$	13,279	$	5,107	$	5,846	$	(11,767	)	$	90,577

For the three months ended November 30, 2009
Revenue	$	643,597	$	99,434	$	81,557	$	59,921	$	—		$	884,509
Income (loss) before income taxes	$	91,881	$	10,475	$	3,018	$	5,067	$	(16,317	)	$	94,124

As of and for the six months ended November 30, 2010
Revenue	$	1,315,411	$	207,569	$	186,849	$	150,641	$	—		$	1,860,470
Income (loss) before income taxes	$	156,330	$	23,126	$	8,885	$	14,249	$	(23,463	)	$	179,127
Total assets	$	2,434,313	$	262,810	$	360,908	$	585,687	$	284,577		$	3,928,295

As of and for the six months ended November 30, 2009
Revenue	$	1,299,235	$	188,735	$	171,558	$	116,550	$	—		$	1,776,078
Income (loss) before income taxes	$	194,334	$	18,564	$	8,805	$	7,106	$	(47,473	)	$	181,336
Total assets	$	2,475,877	$	141,920	$	311,870	$	476,441	$	480,240		$	3,886,348

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

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 $775.0 million of long-term notes, which are unconditionally guaranteed, jointly and severally, by Cintas 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.

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

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CONDENSED CONSOLIDATING INCOME STATEMENT

THREE MONTHS ENDED NOVEMBER 30, 2010

(In thousands)

															Cintas
	Cintas					Subsidiary			Non-						Corporation
	Corporation		Corp. 2			Guarantors			Guarantors			Eliminations			Consolidated
Revenue:
Rental uniforms and ancillary products	$	—	$	505,557		$	131,978		$	47,427		$	(27,115	)	$	657,847
Other services	—		341,415			136,664			28,737			(228,097		)	278,719
Equity in net income of affiliates	55,866		—			—			—			(55,866		)	—
	55,866		846,972			268,642			76,164			(311,078		)	936,566

Costs and expenses (income):
Cost of rental uniforms and ancillary products	—		329,017			76,972			32,738			(61,256		)	377,471
Cost of other services	—		225,797			115,067			17,317			(189,734		)	168,447
Selling and administrative expenses	—		251,458			16,374			21,860			(1,388		)	288,304

Operating income	55,866		40,700			60,229			4,249			(58,700		)	102,344

Interest income	—		(159		)	(189		)	(46		)	—			(394		)
Interest expense (income)	—		12,813			(668		)	16			—			12,161

Income before income taxes	55,866		28,046			61,086			4,279			(58,700		)	90,577
Income taxes	—		9,661			23,843			1,209			(2		)	34,711
Net income	$	55,866	$	18,385		$	37,243		$	3,070		$	(58,698	)	$	55,866

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CONDENSED CONSOLIDATING INCOME STATEMENT

THREE MONTHS ENDED NOVEMBER 30, 2009

(In thousands)

															Cintas
	Cintas					Subsidiary			Non-						Corporation
	Corporation		Corp. 2			Guarantors			Guarantors			Eliminations			Consolidated
Revenue:
Rental uniforms and ancillary products	$	—	$	494,833		$	130,484		$	45,283		$	(27,003	)	$	643,597
Other services	—		302,077			81,362			16,173			(158,700		)	240,912
Equity in net income of affiliates	57,176		—			—			—			(57,176		)	—
	57,176		796,910			211,846			61,456			(242,879		)	884,509

Costs and expenses (income):
Cost of rental uniforms and ancillary products	—		336,163			79,385			27,500			(79,320		)	363,728
Cost of other services	—		177,729			69,720			10,545			(107,060		)	150,934
Selling and administrative expenses	—		346,099			(101,836		)	15,405			(262		)	259,406
Legal settlements, net of insurance proceeds	—		—			4,052			—			—			4,052

Operating income	57,176		(63,081		)	160,525			8,006			(56,237		)	106,389

Interest income	—		—			(248		)	(66		)	—			(314		)
Interest expense (income)	—		12,763			(200		)	16			—			12,579

Income before income taxes	57,176		(75,844		)	160,973			8,056			(56,237		)	94,124
Income taxes	—		(35,690		)	69,889			2,749			—			36,948
Net income	$	57,176	$	(40,154	)	$	91,084		$	5,307		$	(56,237	)	$	57,176

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CONDENSED CONSOLIDATING INCOME STATEMENT

SIX MONTHS ENDED NOVEMBER 30, 2010

(In thousands)

												Cintas
	Cintas				Subsidiary		Non-					Corporation
	Corporation		Corp. 2		Guarantors		Guarantors		Eliminations			Consolidated
Revenue:
Rental uniforms and ancillary products	$	—	$	1,012,908	$	264,212	$	93,807	$	(55,516	)	$	1,315,411
Other services	—		672,360		258,574		51,517		(437,392		)	545,059
Equity in net income of affiliates	117,143		—		—		—		(117,143		)	—
	117,143		1,685,268		522,786		145,324		(610,051		)	1,860,470

Costs and expenses (income):
Cost of rental uniforms and ancillary products	—		652,149		156,553		62,558		(122,274		)	748,986
Cost of other services	—		439,511		217,859		31,517		(361,722		)	327,165
Selling and administrative expenses	—		525,667		16,752		41,847		(2,537		)	581,729

Operating income	117,143		67,941		131,622		9,402		(123,518		)	202,590

Interest income