Edgar Filing: CINTAS CORP

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

( ) 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

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.

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.

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.

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 Taxes – an 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.

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

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.

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.

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:

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.

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

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.

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

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:

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

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

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

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

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