form10q022809.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 28, 2009

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 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   ü                            Accelerated Filer ___                                                                Smaller Reporting Company ___
Non-Accelerated Filer    __   (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 ___ 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, 2009
Common Stock, no par value
  
152,790,170







 
 
 

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 28, 2009
  and February 29, 2008
3
       
   
Consolidated Condensed Balance Sheets -
  February 28, 2009 and May 31, 2008
4
       
   
Consolidated Condensed Statements of Cash Flows -
  Nine Months Ended February 28, 2009 and February 29, 2008 
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.
34
       
 
Item 4.
Controls and Procedures.
35
       
Part II.
Other Information
 
       
 
Item 1.
Legal Proceedings.
36
       
 
Item 5.
Other Information.
36
       
 
Item 6.
Exhibits.
36
       
Signatures
  
36
       
Exhibits
  
 


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 28, 2009
    
February 29, 2008
    
February 28, 2009
    
February 29, 2008
  
Revenue:
                        
  Rental uniforms and ancillary products
   $ 674,701     $ 703,641     $ 2,107,528     $ 2,122,840  
  Other services
     233,938       272,311       788,474       806,105  
      908,639       975,952       2,896,002       2,928,945  
                                 
Costs and expenses:
                                
  Cost of rental uniforms and ancillary products
     379,466       398,318       1,188,370       1,182,019  
  Cost of other services
     152,736       166,409       491,112       497,761  
  Selling and administrative expenses
     257,129       273,194       829,032       825,029  
                                 
Operating income
     119,308       138,031       387,488       424,136  
                                 
  Interest income
     (540 )     (1,510 )     (2,435 )     (4,768 )
  Interest expense
     12,407       13,622       38,206       39,452  
                                 
Income before income taxes
     107,441       125,919       351,717       389,452  
                                 
Income taxes
     35,630       44,091       129,432       143,708  
                                 
Net income
   $ 71,811     $ 81,828     $ 222,285     $ 245,744  
                                 
Basic earnings per share
   $ 0.47     $ 0.53     $ 1.45     $ 1.57  
                                 
Diluted earnings per share
   $ 0.47     $ 0.53     $ 1.45     $ 1.57  
                                 
Dividends declared per share
                   $ 0.47     $ 0.46  
 
 
See accompanying notes.

3
 
 

CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
 (In thousands except share data)
 
   
February 28, 2009
    
May 31,
2008
  
   
(Unaudited)
        
ASSETS
            
Current assets:
            
  Cash and cash equivalents
   $ 54,251     $ 66,224  
  Marketable securities
     97,653       125,471  
  Accounts receivable, net
     384,912       430,078  
  Inventories, net
     252,483       238,669  
  Uniforms and other rental items in service
     352,032       370,416  
  Deferred income tax asset
     42,840       39,410  
  Prepaid expenses
     17,751       12,068  
                 
    Total current assets
     1,201,922       1,282,336  
                 
Property and equipment, at cost, net
     980,646       974,575  
                 
Goodwill
     1,325,377       1,315,569  
Service contracts, net
     131,288       152,757  
Other assets, net
     80,211       83,364  
                 
    $ 3,719,444     $ 3,808,601  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                
Current liabilities:
                
  Accounts payable
   $ 75,677     $ 94,755  
  Accrued compensation and related liabilities
     46,836       50,605  
  Accrued liabilities
     250,209       207,925  
  Current income taxes payable
     895       12,887  
  Long-term debt due within one year
     592       1,070  
                 
    Total current liabilities
     374,209       367,242  
                 
Long-term liabilities:
                
  Long-term debt due after one year
     786,204       942,736  
  Deferred income taxes
     135,083       124,184  
  Accrued liabilities
     103,962       120,308  
                 
    Total long-term liabilities
     1,025,249       1,187,228  
                 
Shareholders' equity:
                
  Preferred stock, no par value:
                
    100,000 shares authorized, none outstanding
     ----       ----  
  Common stock, no par value:
                
        425,000,000 shares authorized,
                
    FY 2009: 173,085,926 issued and 152,790,170 outstanding
                
    FY 2008: 173,083,426 issued and 153,691,103 outstanding
     129,215       129,182  
  Paid-in capital
     69,312       60,408  
  Retained earnings
     2,934,354       2,784,302  
  Treasury stock:
                
    FY 2009:  20,295,756 shares
                
    FY 2008:  19,392,323 shares
     (797,888 )     (772,041 )
  Other accumulated comprehensive (loss) income
     (15,007 )     52,280  
    Total shareholders' equity
     2,319,986       2,254,131  
    $ 3,719,444     $ 3,808,601  
See accompanying notes.

4
 
 

CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
   
Nine Months Ended
  
   
February 28, 2009
    
February 29, 2008
  
Cash flows from operating activities:
            
             
  Net income
   $ 222,285     $ 245,744  
  Adjustments to reconcile net income to net cash provided by operating activities:
                
    Depreciation
     118,119       110,076  
    Amortization of deferred charges
     32,023       32,371  
    Stock-based compensation
     8,904       7,406  
    Deferred income taxes
     9,052       (456 )
    Change in current assets and liabilities, net of acquisitions of businesses:
                
      Accounts receivable, net
     42,118       862  
      Inventories, net
     (16,427 )     (8,925 )
      Uniforms and other rental items in service
     12,998       (18,628 )
      Prepaid expenses
     (5,802 )     1,177  
      Accounts payable
     (22,247 )     (448 )
      Accrued compensation and related liabilities
     (3,250 )     (11,730 )
      Accrued liabilities and other
     (45,734 )     (7,405 )
      Income taxes payable
     (12,320 )     17,886  
Net cash provided by operating activities
     339,719       367,930  
                 
Cash flows from investing activities:
                
                 
  Capital expenditures
     (132,783 )     (144,848 )
  Proceeds from sale or redemption of marketable securities
     92,061       42,393  
  Purchase of marketable securities and investments
     (94,985 )     (32,434 )
  Acquisitions of businesses, net of cash acquired
     (29,381 )     (102,103 )
  Other
     (428 )     (1,202 )
Net cash used in investing activities
     (165,516 )     (238,194 )
                 
Cash flows from financing activities:
                
                 
  Proceeds from issuance of debt
     7,500       313,000  
  Repayment of debt
     (164,510 )     (228,808 )
  Stock options exercised
     ---       8,030  
  Repurchase of common stock
     (25,847 )     (191,479 )
  Other
     736       (11,455 )
Net cash used in financing activities
     (182,121 )     (110,712 )
                 
Effect of exchange rate changes on cash and cash equivalents
     (4,055 )     1,291  
                 
Net (decrease) increase in cash and cash equivalents
     (11,973 )     20,315  
                 
Cash and cash equivalents at beginning of period
     66,224       35,360  
                 
Cash and cash equivalents at end of period
   $ 54,251     $ 55,675  
 
See accompanying notes.

5 
 
 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(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, 2008.  A summary of our significant accounting policies is presented beginning on page 38 of that report.  There have been no material changes in the accounting policies followed by Cintas during the 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.
New Accounting Standards
 
Effective June 1, 2008, Cintas adopted Financial Accounting Standards Board (FASB) Statement No. 157, Fair Value Measurements (FAS 157), which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosure requirements about fair value measurements.  FASB Staff Position 157-2 delayed the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The adoption of FAS 157 for our financial assets and liabilities did not have a material impact on Cintas’ results of operations or financial condition.  Cintas’ adoption of FAS 157 is more fully described in Note 3 entitled Fair Value Measurements.
 
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations (FAS 141(R)). Under FAS 141(R), an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense.  For Cintas, FAS 141(R) is effective for acquisitions and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after May 31, 2009.  Cintas is currently evaluating the future impact and disclosures under FAS 141(R).
 
 
 

6
 
 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
3.
Fair Value Measurements
 
Effective June 1, 2008, Cintas adopted FAS 157, which 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.  FAS 157 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.
 
All financial assets 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 measurement date.  These assets measured at fair value on a recurring basis are summarized below:
 
   
As of February 28, 2009
  
   
Level 1
    
Level 2
    
Level 3
    
Fair Value
  
                         
Cash and cash equivalents
   $ 54,251     $ ----     $ ----     $ 54,251  
Marketable securities, available-for-sale
     97,653       ----       ----       97,653  
Accounts receivable, net
     ----       695       ----       695  
Other assets, net
     14,419       ----       ----       14,419  
Total assets at fair value
   $ 166,323     $ 695     $ ----     $ 167,018  
                                 
Current accrued liabilities
   $ ----     $ 381     $ ----     $ 381  
Total liabilities at fair value
   $ ----     $ 381     $ ----     $ 381  

 
Accounts receivable, net, includes foreign currency average rate options.  Other assets, net, include retirement assets.  Current accrued liabilities include foreign currency forward contracts.
 
 
 
 
 

7 
 
 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
4.
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 28, 2009
    
February 29, 2008
    
February 28, 2009
    
February 29, 2008
  
                         
Numerator:
                        
Net income
   $ 71,811     $ 81,828     $ 222,285     $ 245,744  
                                 
Denominator:
                                
Denominator for basic earnings per share - weighted average shares
     152,993       153,679       152,993       156,346  
 
                                
Effect of dilutive securities - non-vested equity compensation shares
     288       203       334       287  
                                 
 Denominator for diluted earnings per share - adjusted weighted average
  shares and assumed conversions
     153,281       153,882       153,327       156,633  
                                 
Basic earnings per share
   $ 0.47     $ 0.53     $ 1.45     $ 1.57  
                                 
Diluted earnings per share
   $ 0.47     $ 0.53     $ 1.45     $ 1.57  
 
 
5.
Goodwill, Service Contracts and Other Assets
 
Changes in the carrying amount of goodwill and service contracts for the nine months ended February 28, 2009, 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, 2008
   $ 863,581     $ 23,956     $ 165,544     $ 262,488     $ 1,315,569  
                                         
Goodwill acquired
     ---       ---       1,169       16,341       17,510  
                                         
Foreign currency translation
     (3,955 )     (185 )     ---       (3,562 )     (7,702 )
                                         
Balance as of February 28, 2009
   $ 859,626     $ 23,771     $ 166,713     $ 275,267     $ 1,325,377  


 
 
 

8 
 
 

 
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, 2008
   $ 84,574     $ 328     $ 41,944     $ 25,911     $ 152,757  
                                         
Service contracts acquired
     ---       ---       264       3,728       3,992  
                                         
Service contracts amortization
     (8,881 )     (182 )     (4,639 )     (5,560 )     (19,262 )
                                         
Foreign currency translation
     (5,546 )     (92 )     ---       (561 )     (6,199 )
                                         
Balance as of February 28, 2009
   $ 70,147     $ 54     $ 37,569     $ 23,518     $ 131,288  
 
Information regarding Cintas' service contracts and other assets are as follows:

   
As of February 28, 2009
  
   
Carrying
Amount
    
Accumulated
Amortization
    
Net
  
                   
Service contracts
   $ 331,336     $ 200,048     $ 131,288  
                         
Noncompete and consulting agreements
   $ 65,024     $ 41,673     $ 23,351  
Investments
     49,480       ----       49,480  
Other
     10,653       3,273       7,380  
                         
Total
   $ 125,157     $ 44,946     $ 80,211  
                         
   
 
As of May 31, 2008
  
   
Carrying
Amount
    
Accumulated
Amortization
    
Net
  
                         
Service contracts
   $ 333,543     $ 180,786     $ 152,757  
                         
Noncompete and consulting agreements
   $ 63,894     $ 34,625     $ 29,269  
Investments
     46,012       ----       46,012  
Other
     10,790       2,707       8,083  
                         
Total
   $ 120,696     $ 37,332     $ 83,364  

Amortization expense was $32,023 and $32,371 for the nine months ended February 28, 2009, and February 29, 2008, respectively.  Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $42,248, $39,159, $35,402, $29,272 and $13,443, respectively.
 
 

9 
 
 

 
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
6.
Debt, Derivatives and Hedging Activities
 
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 at times may use hedges to hedge its exposure to such things as movements in interest rates or movements in foreign currency rates.  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.  The impacts from the effective portion of derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The impacts of any ineffective portion of the hedges are charged to earnings in the current period. When outstanding, the effectiveness of derivative instruments is reviewed at least every fiscal quarter.
 
To hedge the exposure of variability in short-term interest rates, Cintas would use cash flow hedges. These agreements effectively convert a portion of the floating rate long-term debt to a fixed rate basis, thus reducing the impact of short-term interest rate changes on future interest expense.  Examples of cash flow hedging instruments that Cintas may use are interest rate swaps, interest rate lock agreements and forward starting interest rate swaps.  No such instruments were outstanding as of February 28, 2009.
 
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 a credit to other comprehensive income of $192 and $192 for the three months ended February 28, 2009 and February 29, 2008, respectively, and $575 and $330 for the nine months ended February 28, 2009 and February 29, 2008, respectively.
 
To hedge the exposure of movements in the foreign currency rates, Cintas 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.  At February 28, 2009, Cintas had $695 in average rate options included in accounts receivable, net and $381 in forward contracts included in current accrued liabilities.  These instruments reduced foreign currency exchange loss by $456 and $700 during the three months and nine months ended February 28, 2009, respectively.
 
 
7.
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 February 28, 2009, unrecognized tax benefits decreased by approximately $13,134 and accrued interest decreased by approximately $3,748.
 
 
 

10 
 
 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
 
All U.S. federal income tax returns are closed to audit through fiscal 2005.  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 2001.  Based on the resolution of the various audits, it is reasonably possible that the balance of unrecognized tax benefits could decrease by $98 for the fiscal year ended May 31, 2009.
 
 
8.
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 nine month periods ended February 28, 2009, and February 29, 2008, are as follows:
 
   
Three Months Ended
    
Nine Months Ended
  
   
February 28, 2009
    
February 29, 2008
    
February 28, 2009
    
February 29, 2008
  
                         
Net income
   $ 71,811     $ 81,828     $ 222,285     $ 245,744  
                                 
Other comprehensive income:
                                
  Foreign currency translation adjustment
     (6,367 )     4,840       (68,042 )     20,791  
  Change in fair value of derivatives*
     (117 )     (1,043 )     97       (4,916 )
  Amortization of interest rate lock agreements     192       192       575       330  
  Change in fair value of available-for-sale securities**
     (73 )     84       83       236  
Comprehensive income
   $ 65,446     $ 85,901     $ 154,998     $ 262,185  
 
  *
Net of $(69) and $(620) of tax for the three months ended February 28, 2009 and February 29, 2008, respectively.  Net of $57 and $(2,924) of tax (benefit) for the nine months ended February 28, 2009 and February 29, 2008, respectively.
 
 **
Net of $63 and $47 of tax for the three months ended February 28, 2009 and February 29, 2008, respectively.  Net of $33 and $138 of tax for the nine months ended February 28, 2009 and February 29, 2008, respectively.
 
 
9.
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.

11 
 
 
 
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
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 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.  The Serrano plaintiffs allege 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 other remedies.  Cintas is a defendant in another purported class action lawsuit, Blanca Nelly Avalos, et al. v. Cintas Corporation (Avalos), currently pending in the United States District Court, Eastern District of Michigan, Southern Division.  Ms. Avalos’ claims have been dismissed, but her putative class complaint remains pending.  The Avalos plaintiffs allege 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 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 April 27, 2005, the EEOC intervened in the claims asserted in Ramirez.  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 is known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos).  On October 27, 2008, the United States District Court in the Eastern District of Michigan granted a 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.  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.  On February 24, 2006, a motion to intervene in Serrano was filed by intervening plaintiffs Colleen Grindle, et al., on behalf of a subclass of female employees at Cintas’ Perrysburg, Ohio, rental location who allegedly were denied hire, promotion, or transfer to service sales representative positions.  On March 24, 2006, the plaintiffs Colleen Grindle, et al., withdrew their motion to intervene without prejudice.  On February 20, 2007, the plaintiffs Colleen Grindle, et al., filed a separate lawsuit in the Court of Common Pleas, Wood County,
 
 

12 
 
 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
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.  The Grindle case is stayed pending the class certification proceedings in Serrano.  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.  The non-service sales representative hiring claims in the previously disclosed Ramirez case had been ordered by the United States District Court for the Northern District of California, San Francisco Division to arbitration and their claims had been stayed pending the completion of arbitration.  The Ramirez purported class action claims included 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 sought injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. 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 consolidating Houston with Ramirez and ordered the named plaintiffs in Houston to arbitrate all of their claims for monetary damages with the previously filed Ramirez arbitration. On March 16, 2009, the plaintiffs in Ramirez and Houston agreed to voluntarily dismiss all class claims in the case with prejudice and the arbitrator entered an order dismissing all class claims in the consolidated arbitration.  On April 3, 2009, the United States District Court for the Northern District of California entered an order affirming the arbitrator’s decision to dismiss the class claims in Ramirez and Houston with prejudice, and thereby relinquished his jurisdiction over the individual plaintiffs’ class claims.

On July 17, 2008, Manville Personal Injury Settlement Trust filed a purported shareholder derivative lawsuit in the Court of Common Pleas, Hamilton County, Ohio, captioned Manville Personal Injury Settlement Trust v. Richard T. Farmer, et al., A0806822 against certain directors and officers, alleging that they breached their fiduciary duties to Cintas by consciously failing to cause Cintas to comply with worker safety and employment-related laws and regulations.  Cintas is named as a nominal defendant in the case.  The complaint contends that, as a consequence of such alleged breach of duty, Cintas suffered substantial monetary losses and other injuries and seeks, among other things, an award of compensatory damages, other non-monetary remedies and expenses.

The litigation discussed above, if decided or settled adversely to Cintas, may, individually or in the aggregate, result in liability material to Cintas’ financial condition or results of operations 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.
 
10.
Segment Information
 
Cintas classifies its businesses into four operating segments in accordance with the criteria set forth in FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information.  The Rental Uniforms and Ancillary Products 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

13 
 
 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
items, restroom and hygiene products and 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.  Information related to the operations of Cintas’ operating segments is set forth below.

 
   
Rental
Uniforms &
Ancillary
Products
    
Uniform
Direct
Sales
    
First Aid,
Safety &
Fire
Protection
    
Document
Management
    
Corporate
    
Total
  
For the three months ended February 28, 2009
                                    
                                     
Revenue
   $ 674,701     $ 97,010     $ 86,037     $ 50,891     $ ----     $ 908,639  
Income (loss) before income taxes
   $ 110,447     $ 803     $ 4,141     $ 3,917     $ (11,867 )   $ 107,441  
                                                 
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  
                                                 
As of and for the nine months ended February 28, 2009
                                                
Revenue
   $ 2,107,528     $ 334,528     $ 295,059     $ 158,887     $ ----     $ 2,896,002  
Income (loss) before income taxes
   $ 325,876     $ 22,043     $ 23,159     $ 16,410     $ (35,771 )   $ 351,717  
Total assets
   $ 2,595,144     $ 165,976     $ 338,509     $ 467,911     $ 151,904     $ 3,719,444  
                                                 
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  
 
 

 
14 
 
 

CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
 
 
11.
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 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:
 
 
 
 

15 
 
 

 
 
CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 28, 2009
(In thousands)
 

   
Cintas
Corporation
    
Corp. 2
    
Subsidiary
Guarantors
    
Non-
Guarantors
    
Eliminations
    
Cintas
Corporation
Consolidated
  
Revenue:
                                    
  Rental uniforms and ancillary products
   $ ----     $ 514,482     $ 140,567     $ 41,818     $ (22,166 )   $ 674,701  
  Other services
     ----       294,282       89,869       12,013       (162,226 )     233,938  
  Equity in net income of affiliates
     71,811       ----       ----       ----       (71,811 )     ----  
      71,811       808,764       230,436       53,831       (256,203 )     908,639  
                                                 
Costs and expenses (income):
                                                
  Cost of rental uniforms and ancillary products
     ----       304,321       86,358       25,195       (36,408 )     379,466  
  Cost of other services
     ----       217,163       79,876       7,398       (151,701 )     152,736  
  Selling and administrative expenses
     ----       244,568       (389 )     13,443       (493 )     257,129  
                                                 
Operating income
     71,811       42,712       64,591       7,795       (67,601 )     119,308  
                                                 
  Interest income
     ----       ----       (220 )     (320 )     ----       (540 )
  Interest expense (income)
     ----       12,820       (425 )     12       ----       12,407  
                                                 
Income before income taxes
     71,811       29,892       65,236       8,103       (67,601 )     107,441  
Income taxes
     ----       8,358       24,509       2,763       ----       35,630  
Net income
   $ 71,811     $ 21,534     $ 40,727     $ 5,340     $ (67,601 )   $ 71,811  

 
 
 

16 
 
 

 
 
CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 29, 2008
(In thousands)
 

   
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  
                                                 
Operating income
     81,828       84,715       38,298       12,848       (79,658 )     138,031  
                                                 
  Interest income
     ----       ----       (358 )     (1,152 )     ----       (1,510 )
  Interest expense (income)
     ----       14,087       (2,049 )     1,584       ----       13,622  
                                                 
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  


17 
 
 

 
 
CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 28, 2009
(In thousands)
 

   
Cintas
Corporation
    
Corp. 2
    
Subsidiary
Guarantors
    
Non-
Guarantors
    
Eliminations
    
Cintas
Corporation
Consolidated
  
Revenue:
                                    
  Rental uniforms and ancillary products
   $ ----     $ 1,600,762     $ 438,888     $ 135,745     $ (67,867 )   $ 2,107,528  
  Other services
     ----       1,004,930       327,512       44,165       (588,133 )     788,474  
  Equity in net income of affiliates
     222,285       ----       ----       ----       (222,285 )     ----  
      222,285       2,605,692       766,400       179,910       (878,285 )     2,896,002  
                                                 
Costs and expenses (income):
                                                
  Cost of rental uniforms and ancillary products
     ----       960,159       266,138       82,068       (119,995 )     1,188,370  
  Cost of other services
     ----       720,896       288,509       27,372       (545,665 )     491,112  
  Selling and administrative expenses
     ----       782,461       3,734       44,147       (1,310 )     829,032  
                                                 
Operating income
     222,285       142,176       208,019       26,323       (211,315 )     387,488  
                                                 
  Interest income
     ----       ----       (661 )     (1,774 )     ----       (2,435 )
  Interest expense (income)
     ----       39,588       (1,397 )     15       ----       38,206  
                                                 
Income before income taxes
     222,285       102,588       210,077       28,082       (211,315 )     351,717  
Income taxes
     ----       33,734       86,964       8,734       ----       129,432  
Net income
   $ 222,285     $ 68,854     $ 123,113     $ 19,348     $ (211,315 )   $ 222,285  
 
 
 

18 
 
 

 
 
CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 29, 2008
(In thousands)
 
 
   
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
     ----