Cintas Corporation 10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2005


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 incorporation or organization)		(I.R.S. Employer 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 check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act). Yes þ No o

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

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


Class		Outstanding September 30, 2005

Common Stock, no par value		167,961,160

CINTAS CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands except share data)


	August 31, 2005			May 31, 2005
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	43,437		$	43,196
Marketable securities		214,310			266,232
Accounts receivable, net		337,930			326,896
Inventories, net		222,030			216,412
Uniforms and other rental items in service		308,768			305,450
Prepaid expenses		10,032			8,358


Total current assets		1,136,507			1,166,544

Property and equipment, at cost, net		823,678			817,198
Goodwill		903,356			889,538
Service contracts, net		144,424			146,596
Other assets, net		34,761			39,868


	$	3,042,726		$	3,059,744


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	65,781		$	69,296
Accrued compensation and related liabilities		37,441			38,710
Accrued liabilities		97,483			166,428
Income taxes:
Current		38,265			32,864
Deferred		59,370			41,883
Long-term debt due within one year		7,258			7,300


Total current liabilities		305,598			356,481

Long-term debt due after one year		510,572			465,291

Deferred income taxes		133,735			133,837

Shareholders’ equity:
Preferred stock, no par value:
100,000 shares authorized, none outstanding		—			—
Common stock, no par value:
425,000,000 shares authorized,
FY 2006: 172,306,726 issued and 168,234,196 outstanding
FY 2005: 172,127,502 issued and 170,658,601 outstanding		117,356			114,171
Retained earnings		2,115,527			2,035,992
Treasury stock:
FY 2006: 4,072,530 shares
FY 2005: 1,468,901 shares		(160,461	)		(58,204	)
Other accumulated comprehensive income (loss):
Foreign currency translation		21,657			13,507
Unrealized loss on derivatives		(1,258	)		(1,331	)

Total shareholders’ equity		2,092,821			2,104,135

	$	3,042,726		$	3,059,744

See accompanying notes.

CINTAS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended
	August 31,
	2005			2004
Cash flows from operating activities:

Net income	$	79,535		$	72,666
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		30,579			29,699
Amortization of deferred charges		7,774			6,729
Deferred income taxes		17,385			21,815
Change in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable		(11,258	)		(4,776	)
Inventories		(5,610	)		(1,548	)
Uniforms and other rental items in service		(3,318	)		(3,567	)
Prepaid expenses		(1,664	)		(4,935	)
Accounts payable		(3,529	)		1,875
Accrued compensation and related liabilities		(1,269	)		(1,272	)
Accrued liabilities		(66,996	)		(67,420	)
Income taxes payable		5,401			3,569

Net cash provided by operating activities		47,030			52,835

Cash flows from investing activities:

Capital expenditures		(36,144	)		(35,336	)
Proceeds from sale or redemption of marketable securities		54,047			9,240
Purchase of marketable securities		(2,125	)		(24,304	)
Acquisitions of businesses, net of cash acquired		(20,968	)		(14,574	)
Other		3,487			1,183

Net cash used in investing activities		(1,703	)		(63,791	)

Cash flows from financing activities:

Proceeds from issuance of debt		46,000			—
Repayment of debt		(237	)		(182	)
Stock options exercised		2,996			1,514
Repurchase of common stock		(102,257	)		—
Other		8,412			4,216

Net cash (used in) provided by financing activities		(45,086	)		5,548


Net increase (decrease) in cash and cash equivalents		241			(5,408	)

Cash and cash equivalents at beginning of period		43,196			87,357


Cash and cash equivalents at end of period	$	43,437		$	81,949

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 included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles 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 financial statements and notes included in our most recent annual report for the fiscal year ended May 31, 2005. A summary of our significant accounting policies is presented on page 30 of our most recent annual 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 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 Standard

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (revised 2004), Share-Based Payment, (Statement 123R), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Generally, the approach in Statement 123R is similar to the approach described in Statement 123. However, Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective for public entities (excluding small business issuers) no later than the beginning of the first fiscal year beginning after June 15, 2005. Cintas will adopt this Statement no later than the first quarter of fiscal 2007. Cintas is in the process of determining the impact that the adoption of this Statement will have on its financial position and results of operations.

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
	August 31,
	2005		2004
Numerator:
Net income	$	79,535	$	72,666


Denominator:
Denominator for basic earnings per share — weighted average shares		168,939		171,449


Effect of dilutive securities-employee stock options		625		1,211


Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversions		169,564		172,660


Basic earnings per share	$	.47	$	.42


Diluted earnings per share	$	.47	$	.42

4. Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill and service contracts for the three months ended August 31, 2005, by operating segment, are as follows:


			Other
	Rentals		Services		Total
Goodwill
Balance as of June 1, 2005	$	701,422	$	188,116	$	889,538

Goodwill acquired		5,870		7,031		12,901

Foreign currency translation		821		96		917


Balance as of August 31, 2005	$	708,113	$	195,243	$	903,356

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


				Other
	Rentals			Services			Total
Service Contracts
Balance as of June 1, 2005	$	118,350		$	28,246		$	146,596

Service contracts acquired		1,568			1,935			3,503

Service contracts amortization		(5,468	)		(1,441	)		(6,909	)

Foreign currency translation		1,205			29			1,234


Balance as of August 31, 2005	$	115,655		$	28,769		$	144,424

Information regarding Cintas’ service contracts and other assets follows:


	As of August 31, 2005
	Carrying		Accumulated
	Amount		Amortization		Net
Service contracts	$	240,917	$	96,493	$	144,424

Noncompete and consulting agreements	$	38,298	$	18,883	$	19,415
Other		18,375		3,029		15,346

Total	$	56,673	$	21,912	$	34,761


	As of May 31, 2005
	Carrying		Accumulated
	Amount		Amortization		Net
Service contracts	$	236,179	$	89,583	$	146,596

Noncompete and consulting agreements	$	36,158	$	17,163	$	18,995
Other		23,671		2,798		20,873


Total	$	59,829	$	19,961	$	39,868

Amortization expense was $7,774 and $6,729 for the three months ended August 31, 2005 and August 31, 2004, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $29,680, $27,796, $25,196, $22,710 and $19,568, respectively.

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

5. Debt, Derivatives and Hedging Activities

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.

From time to time, Cintas will use derivatives for both cash flow hedging and fair value hedging purposes. For derivative instruments that hedge the exposure of variability in short-term interest rates, designated as cash flow hedges, 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. For the ineffective portion of the hedge, gains or losses are charged to earnings in the current period. For derivative instruments that hedge the exposure to changes in the fair value of certain fixed rate debt, designated as fair value hedges, the effective portion of the net gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate debt attributable to the hedged risk, are recorded in current period earnings.

From time to time, Cintas uses interest rate swap and lock agreements as hedges against 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. Cintas uses the Hypothetical Derivative Method for assessing the effectiveness of these swaps. There are no interest rate swap agreements outstanding as of August 31, 2005. When outstanding, the effectiveness of these swaps is reviewed at least every fiscal quarter. Cintas also uses reverse interest rate swap agreements to convert a portion of fixed rate debt to a floating rate basis, thus hedging for changes in the fair value of the fixed rate debt being hedged. These agreements involve the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreements without an exchange of underlying principal amount. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations are equal and recorded as offsetting gains and losses in current period earnings. Cintas has determined that the current reverse interest rate swap agreements, designated as fair value hedges, qualify for treatment under the short-cut method of measuring effectiveness. Under the provisions of SFAS 133, these hedges are determined to be perfectly effective and there is no requirement to periodically evaluate effectiveness.

Cintas entered into two lock agreements as part of the Omni acquisition in fiscal 2002. The amortization of the cash flow hedge, pertaining to these lock agreements, resulted in a credit to other comprehensive income of $73 for the three months ended August 31, 2005. The reverse interest rate swap agreements are fair value hedges that convert $225 million of fixed rate debt to a floating rate. These agreements expire in 2007 and allow Cintas to receive an effective interest rate of 5.13% and pay an interest rate based on LIBOR. Because these fair value hedges are 100% effective, the net $500 unfavorable change in the fair value of these hedges for the three months ended August 31, 2005, was directly offset by a decrease in the fair value of the debt, reflecting increased floating interest rates over the prior fiscal year. (See Note 10 entitled Subsequent Events.)

Cintas has certain significant 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. Cintas is in compliance with all of the significant debt covenants for all periods presented. Were a default of a significant covenant to occur, the default could result in an acceleration of indebtedness, impair liquidity and limit the ability to raise future capital. Cintas’ debt, net of cash and marketable securities, is $260 million. For the three months ended August 31, 2005, net cash provided by operating activities was $47 million. Capital expenditures were approximately $36 million for the same period.

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

6. Stock-Based Compensation

Cintas follows the disclosure requirements of FASB Statement No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, but continues to apply Accounting Principles Board Opinion No. 25 as the method used to account for stock-based employee compensation arrangements. See Note 2 entitled New Accounting Standard regarding a new accounting standard for share-based payments, which Cintas will adopt no later than the first quarter of fiscal 2007. The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.


	Three Months Ended
	August 31,
	2005		2004
Net income, as reported	$	79,535	$	72,666

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		1,113		2,056


Pro forma net income	$	78,422	$	70,610


Earnings per share:
Basic — as reported	$	.47	$	.42

Basic — pro forma	$	.46	$	.41


Diluted — as reported	$	.47	$	.42

Diluted — pro forma	$	.46	$	.41

During the third quarter of fiscal 2005, Cintas vested certain employee stock options whose exercise price was greater than current market value.

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 earnings. For Cintas, the only components of total comprehensive income are the change in cumulative foreign currency translation adjustments and the change in the fair value of the forecasted cash flows associated with a derivative accounted for as a cash flow hedge. The components of comprehensive income for the three month periods ended August 31, 2005 and August 31, 2004 are as follows:


	Three Months Ended
	August 31,
	2005		2004
Net income	$	79,535	$	72,666

Other comprehensive income:
Foreign currency translation adjustment		8,150		4,090
Net unrealized income on cash flow hedges		73		73

Comprehensive income	$	87,758	$	76,829

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

8. Segment Information

Cintas classifies its businesses into two operating segments: Rentals and Other Services. The Rentals operating segment designs and manufactures corporate identity uniforms, which it rents to its customers. Other items, including entrance mats, shop towels and restroom supplies, are also rented or sold to its customers. The Other Services operating segment involves the design, manufacture and direct sale of uniforms to customers, as well as the sale of ancillary products and services. These ancillary products and services include first aid, safety and fire protection products and services, document management services and cleanroom supplies. These services are provided throughout the United States and Canada to businesses of all types — from small service and manufacturing companies to major corporations that employ thousands of people.

Information as to the operations of Cintas’ different business segments is set forth below based on the distribution of products and services offered. Cintas evaluates performances based on several factors of which the primary financial measures are business segment revenue and income before income taxes.


			Other
	Rentals		Services		Corporate			Total
As of and for the three months ended August 31, 2005
Revenue	$	628,008	$	195,467	$	—		$	823,475

Income (loss) before income taxes	$	116,008	$	16,043	$	(5,634	)	$	126,417

Total assets	$	2,273,375	$	511,604	$	257,747		$	3,042,726


As of and for the three months ended August 31, 2004
Revenue	$	581,659	$	164,297	$	—		$	745,956

Income (loss) before income taxes	$	106,957	$	13,072	$	(4,711	)	$	115,318

Total assets	$	2,207,850	$	375,187	$	263,977		$	2,847,014

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.

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, Maine, Massachusetts, Minnesota, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington and West Virginia. The plaintiffs are seeking unspecified monetary damages, injunctive relief or both. Cintas denies these claims and is defending the plaintiffs’ allegations. The court ordered arbitration for all potential plaintiffs except for those that fall into one of four narrowly defined exceptions. As a result, Cintas believes that a majority of the potential plaintiffs will be required to arbitrate their claims. 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

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

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 is also a defendant in a purported class action lawsuit, Robert Ramirez, et al., v. Cintas Corporation, filed on January 20, 2004, and pending in the United States District Court, Northern District of California, San Francisco Division. The case was brought on behalf of all past and present female, African-American and Hispanic employees of Cintas and its subsidiaries. The complaint alleges that Cintas has engaged in a pattern and practice of discriminating against women and minorities in recruitment, hiring, promotions, transfers, job assignments and pay. The complaint seeks injunctive relief, compensatory damages, punitive damages and attorney’s fees, among other things. Cintas denies these claims and is defending the plaintiffs’ allegations. The court ordered arbitration as to three of the ten named plaintiffs. On April 27, 2005, the United States Equal Employment Opportunity Commission (EEOC) filed a motion to intervene in order to participate in this lawsuit. No filings or determination has been made in regard to the lawsuit 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. Several related proceedings with similar allegations and seeking similar relief damages and fees are pending, including an EEOC charge filed on April 17, 2000, by Mirna Serrano with the EEOC Detroit District office on behalf of female service sales representative job applicants at all Cintas locations in Michigan, a class action lawsuit, Mirna E. Serrano, et al., v. Cintas Corporation, filed on May 10, 2004, in the United States District Court for the Eastern District of Michigan, Southern Division on behalf of the same female service sales representative job applicants in the EEOC charge. On September 6, 2005, a Magistrate Judge granted Plaintiffs’ motion for leave to file a second amended complaint to expand the claim to a nationwide class. The EEOC’s processing of the administrative action filed on December 15, 2004, by James Morgan with the EEOC Washington, D.C. office and the California Department of Fair Employment and Housing alleging racial discrimination in compensation and training opportunities was terminated on July 15, 2005, and a right to sue letter was issued. On August 3, 2005, Morgan joined the Ramirez lawsuit. In addition, a class action lawsuit, Larry Houston, et al., v. Cintas Corporation, 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. If there is an adverse verdict or a negotiated settlement 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.

Several other similar administrative proceedings are pending including: (i) two charges filed on November 30, 2004, by an EEOC Commissioner with the EEOC Systemic Litigation Unit alleging failure to hire and assign females to production job positions, and failing to hire females, African-Americans and Hispanics into the Management Trainee program, (ii) a charge filed on January 24, 2005, by Jennifer Fargo on behalf of herself and a similarly situated class with the Augusta Human Relations Commission and the EEOC Detroit District office alleging gender and equal pay discrimination against female sales representatives and sales associates, (iii) a charge filed on March 23, 2005, by Clifton Cooper on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race, (iv) a charge filed on March 28, 2005, by Lorelei Reynolds on behalf of herself and a similarly situated class with the EEOC Birmingham District alleging discriminatory pay and treatment due to race and gender, (v) a charge filed on April 25, 2005, by Melissa Schulz on behalf of herself and a similarly situated class with the EEOC Systemic Litigation Unit and the Oregon Bureau of Labor and Industries, Civil Rights Division alleging discriminatory pay and treatment due to race and gender, (vi) a charge filed on May 6, 2005, by Anthony Jones on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race and (vii) a charge filed on June 10, 2005, by Mattie Cooper on behalf of herself and a similarly situated class

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

with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race and gender. The investigations of these allegations are pending and no determinations have been made.

Cintas is also a defendant in a lawsuit, J. Lester Alexander, III vs. Cintas Corp., et al., which was originally filed on October 25, 2004, and is currently pending in the United States Bankruptcy Court for the Middle District of Alabama, Eastern Division. 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 their intention to perform their obligations in those agreements and acted as alter egos of the bankrupt TMC and are therefore liable for all of TMC’s debts. The Trustee is seeking $50 million in compensatory damages and $100 million in punitive damages. Cintas denies these claims and is vigorously defending itself against all claims in the complaint. If there is an adverse verdict on the merits or in the event of a negotiated settlement of this lawsuit, the resulting liability could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable at this time.

During fiscal 2001, the State of Connecticut filed suit against Cintas in the Superior Court District of Hartford alleging various violations of state environmental laws and alleging that Cintas violated certain wastewater discharge and hazardous waste violations. This suit was settled in August, 2005, for approximately $350 thousand. The reserve that had been established for this liability offset this charge.

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

10. Subsequent Events

In the first quarter of fiscal 2006, Cintas continued its stock repurchase program that the Board of Directors had authorized and announced in May 2005. Subsequent to August 31, 2005, Cintas purchased approximately 285,000 additional shares of Cintas stock at an average price of $41.31 per share for a total purchase price of approximately $12 million. From the inception of the stock repurchase program through September 30, 2005, Cintas has purchased approximately 4.4 million shares of Cintas stock at an average price of $39.53 per share for a total purchase price of approximately $172 million. The Board did not specify an expiration date for this program.

In addition, given the current interest rate environment, Cintas terminated its reverse interest rate swap agreements on September 1, 2005, thereby converting $225 million in long-term debt back to fixed rate debt with an effective interest rate of 5.13%.

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

11. Supplemental Guarantor Information

Effective June 1, 2000, Cintas reorganized its legal structure and created Cintas Corporation No. 2 (Corp. 2) as its indirectly, wholly-owned principal operating subsidiary. Cintas and its wholly-owned, direct and indirect domestic subsidiaries, other than Corp. 2, unconditionally guaranteed, jointly and severally, debt of Corp. 2.

On May 13, 2002, Cintas completed the acquisition of Omni Services, Inc. (Omni). A portion of the purchase price for Omni was funded with $450,000 in long-term notes. Corp. 2 was the issuer of the long-term notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and the subsidiary guarantors.

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’ financial statements. The condensed consolidating financial statements should be read in conjunction with the 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 below:

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 31, 2005


															Cintas
	Cintas					Subsidiary									Corporation
	Corporation			Corp. 2		Guarantors			Non-Guarantors			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	—		$	18,818	$	7,145		$	17,474		$	—		$	43,437
Marketable securities		—			182,702		—			31,608			—			214,310
Accounts receivable, net		—			240,959		96,999			11,286			(11,314	)		337,930
Inventories, net		—			201,778		23,639			8,578			(11,965	)		222,030
Uniforms and other rental items in service		—			251,388		76,463			17,235			(36,318	)		308,768
Prepaid expenses		—			7,386		2,275			371			—			10,032

Total current assets		—			903,031		206,521			86,552			(59,597	)		1,136,507

Property and equipment, at cost, net		—			597,444		182,390			43,844			—			823,678

Goodwill		—			146,276		737,907			19,173			—			903,356
Service contracts, net		—			93,258		43,334			7,832			—			144,424
Other assets, net		1,607,175			39,573		930,099			178,875			(2,720,961	)		34,761

	$	1,607,175		$	1,779,582	$	2,100,251		$	336,276		$	(2,780,558	)	$	3,042,726


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	(465,247	)	$	7,633	$	492,520		$	(7,138	)	$	38,013		$	65,781
Accrued compensation and related liabilities		—			25,842		9,706			1,893			—			37,441
Accrued liabilities		—			178,558		(85,936	)		4,906			(45	)		97,483
Income taxes:
Current		—			4,986		33,028			280			(29	)		38,265
Deferred		—			—		58,050			1,320			—			59,370
Long-term debt due within one year		—			6,601		829			—			(172	)		7,258

Total current liabilities		(465,247	)		223,620		508,197			1,261			37,767			305,598

Long-term debt due after one year		—			517,031		(55,870	)		83,297			(33,886	)		510,572
Deferred income taxes		—			10,222		118,857			4,656			—			133,735
Total shareholders’ equity		2,072,422			1,028,709		1,529,067			247,062			(2,784,439	)		2,092,821

	$	1,607,175		$	1,779,582	$	2,100,251		$	336,276		$	(2,780,558	)	$	3,042,726

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 31, 2005


															Cintas
	Cintas						Subsidiary								Corporation
	Corporation			Corp. 2			Guarantors			Non-Guarantors		Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	—		$	13,259		$	12,570		$	17,367	$	—		$	43,196
Marketable securities		—			226,658			—			39,574		—			266,232
Accounts receivable, net		—			237,152			93,109			9,025		(12,390	)		326,896
Inventories, net		—			199,236			24,120			9,087		(16,031	)		216,412
Uniforms and other rental items in service		—			250,222			74,887			16,584		(36,243	)		305,450
Prepaid expenses		—			5,781			1,989			588		—			8,358

Total current assets		—			932,308			206,675			92,225		(64,664	)		1,166,544

Property and equipment, at cost, net		—			599,757			176,648			40,793		—			817,198

Goodwill		—			140,405			734,113			15,020		—			889,538
Service contracts, net		—			95,560			43,727			7,309		—			146,596
Other assets, net		1,626,712			44,757			829,890			164,544		(2,626,035	)		39,868

	$	1,626,712		$	1,812,787		$	1,991,053		$	319,891	$	(2,690,699	)	$	3,059,744


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	(465,247	)	$	91,255		$	402,657		$	2,618	$	38,013		$	69,296
Accrued compensation and related liabilities		—			28,287			8,523			1,900		—			38,710
Accrued liabilities		—			191,123			(28,212	)		4,479		(962	)		166,428
Income taxes:
Current		—			(640	)		32,232			1,301		(29	)		32,864
Deferred		—			—			40,635			1,248		—			41,883
Long-term debt due within one year		—			6,588			871			—		(159	)		7,300

Total current liabilities		(465,247	)		316,613			456,706			11,546		36,863			356,481

Long-term debt due after one year		—			471,750			(52,413	)		78,778		(32,824	)		465,291
Deferred income taxes		—			10,222			119,212			4,403		—			133,837
Total shareholders’ equity		2,091,959			1,014,202			1,467,548			225,164		(2,694,738	)		2,104,135

	$	1,626,712		$	1,812,787		$	1,991,053		$	319,891	$	(2,690,699	)	$	3,059,744

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 2005


																Cintas
	Cintas						Subsidiary			Non-						Corporation
	Corporation			Corp. 2			Guarantors			Guarantors			Eliminations			Consolidated

Cash flows from operating activities:
Net income	$	79,535		$	12,776		$	58,336		$	4,433		$	(75,545	)	$	79,535
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		—			18,978			10,108			1,493			—			30,579
Amortization of deferred charges		—			4,494			2,596			684			—			7,774
Deferred income taxes		—			—			17,060			325			—			17,385
Changes in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable		—			(4,119	)		(3,802	)		(2,261	)		(1,076	)		(11,258	)
Inventories		—			(2,542	)		489			509			(4,066	)		(5,610	)
Uniforms and other rental items in service		—			(1,166	)		(1,576	)		(651	)		75			(3,318	)
Prepaid expenses		—			(1,605	)		(276	)		217			—			(1,664	)
Accounts payable		—			(81,965	)		88,206			(9,770	)		—			(3,529	)
Accrued compensation and related liabilities		—			(2,445	)		1,183			(7	)		—			(1,269	)
Accrued liabilities		—			(12,433	)		(55,748	)		268			917			(66,996	)
Income taxes payable		—			5,626			796			(1,021	)		—			5,401


Net cash provided by (used in) operating activities		79,535			(64,401	)		117,372			(5,781	)		(79,695	)		47,030

Cash flows from investing activities:
Capital expenditures		—			(16,756	)		(15,119	)		(4,269	)		—			(36,144	)
Proceeds from sale or redemption of marketable securities		—			44,253			—			9,794			—			54,047
Purchase of marketable securities		—			(297	)		—			(1,828	)		—			(2,125	)
Acquisitions of businesses, net of cash acquired		—			(7,774	)		(8,625	)		(4,569	)		—			(20,968	)
Other		19,537			4,642			(95,552	)		(5,910	)		80,770			3,487


Net cash provided by (used in) investing activities		19,537			24,068			(119,296	)		(6,782	)		80,770			(1,703	)

Cash flows from financing activities:
Proceeds from issuance of debt		—			46,000			—			—			—			46,000
Repayment of debt		—			(181	)		(3,501	)		4,520			(1,075	)		(237	)
Stock options exercised		2,996			—			—			—			—			2,996
Repurchase of common stock		(102,257	)		—			—			—			—			(102,257	)
Other		189			73			—			8,150			—			8,412


Net cash (used in) provided by financing activities		(99,072	)		45,892			(3,501	)		12,670			(1,075	)		(45,086	)


Net increase (decrease) in cash and cash equivalents		—			5,559			(5,425	)		107			—			241
Cash and cash equivalents at beginning of period		—			13,259			12,570			17,367			—			43,196

Cash and cash equivalents at end of period	$	—		$	18,818		$	7,145		$	17,474		$	—		$	43,437

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 2004


																Cintas
	Cintas						Subsidiary			Non-						Corporation
	Corporation			Corp. 2			Guarantors			Guarantors			Eliminations			Consolidated

Cash flows from operating activities:
Net income	$	72,666		$	12,755		$	58,524		$	4,926		$	(76,205	)	$	72,666
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		—			18,838			9,426			1,435			—			29,699
Amortization of deferred charges		—			4,439			1,738			552			—			6,729
Deferred income taxes		—			—			21,632			183			—			21,815
Changes in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable		—			(1,896	)		(1,456	)		(335	)		(1,089	)		(4,776	)
Inventories		—			(5,626	)		57			(1,124	)		5,145			(1,548	)
Uniforms and other rental items in service		—			(645	)		(1,634	)		317			(1,605	)		(3,567	)
Prepaid expenses		—			(4,173	)		(7	)		(755	)		—			(4,935	)
Accounts payable		—			4,921			(5,461	)		2,415			—			1,875
Accrued compensation and related liabilities		—			(1,538	)		648			(382	)		—			(1,272	)
Accrued liabilities		—			(3,276	)		(65,197	)		123			930			(67,420	)
Income taxes payable		—			5,206			(2,174	)		537			—			3,569


Net cash provided by (used in) operating activities		72,666			29,005			16,096			7,892			(72,824	)		52,835

Cash flows from investing activities:
Capital expenditures		—			(23,547	)		(9,539	)		(2,250	)		—			(35,336	)
Proceeds from sale or redemption of marketable securities		—			9,240			—			—			—			9,240
Purchase of marketable securities		—			(19,600	)		—			(4,704	)		—			(24,304	)
Acquisitions of businesses, net of cash acquired		—			(4,509	)		(10,065	)		—			—			(14,574	)
Other		(74,233	)		348			5,323			(3,680	)		73,425			1,183


Net cash (used in) provided by investing activities		(74,233	)		(38,068	)		(14,281	)		(10,634	)		73,425			(63,791	)

Cash flows from financing activities:
Repayment of debt		—			(179	)		(2,187	)		2,785			(601	)		(182	)
Stock options exercised		1,514			—			—			—			—			1,514
Other		53			73			—			4,090			—			4,216


Net cash provided by (used in) financing activities		1,567			(106	)		(2,187	)		6,875			(601	)		5,548


Net (decrease) increase in cash and cash equivalents		—			(9,169	)		(372	)		4,133			—			(5,408	)
Cash and cash equivalents at beginning of period		—			56,455			8,057			22,845			—			87,357


Cash and cash equivalents at end of period	$	—		$	47,286		$	7,685		$	26,978		$	—		$	81,949

CINTAS CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

BUSINESS STRATEGY

We are North America’s leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom products and services, first aid, safety and fire protection products and services, document management services and cleanroom services. Our services are designed to enhance our customers’ images and to provide additional safety and protection in the workplace.

Our business strategy is to increase our market share of the uniform rental and sales business in North America through the sale of new uniform programs and to provide our customers with all of the products and services we offer. We will also continue to identify additional product and service opportunities to provide to our current and future customers. Our long-term goal is to provide a product or service to every business in North America.

To pursue this strategy, we focus on the development of a highly talented and diverse team of employees (who we call partners) — a team that is properly trained and motivated to service our customers. We support our partners’ service efforts by providing superior products with distinct competitive advantages and we embrace technological advances.

Continuous cost containment and product and process innovation are considered hallmarks of our organization. In order to sustain these efforts, we have implemented a Six Sigma effort within Cintas. Six Sigma is an analytical process that assists companies in improving quality and customer satisfaction while reducing cycle time and operating costs. We are pleased with our progress in this endeavor and are optimistic about the improved efficiencies that this process will continue to yield to Cintas.

We continue to leverage our size and core competencies to become a more valued business service provider to our current and future customers. We will also continue to supplement our internal growth with strategic acquisitions and the cultivation of new businesses.

RESULTS OF OPERATIONS

Cintas classifies its businesses into two operating segments: Rentals and Other Services. The Rentals operating segment designs and manufactures corporate identity uniforms, which it rents to its customers. Other items, including entrance mats, shop towels and restroom supplies, are also rented or sold to its customers. The Other Services operating segment involves the design, manufacture and direct sale of uniforms to customers, as well as the sale of ancillary products and services. These ancillary products and services include first aid, safety and fire protection products and services, document management services and cleanroom supplies. These services are provided throughout the United States and Canada to businesses of all types - from small service and manufacturing companies to major corporations that employ thousands of people.

Three Months Ended August 2005 Compared to Three Months Ended August 2004

Revenue, Expenses and Income

Revenue Comparison

Total revenue increased 10.4% for the three months ended August 31, 2005, over the same period in fiscal 2005. Internal growth for this period was 8.4%. The remaining 2.0% represents external growth derived mainly through the acquisitions of first aid, safety and fire protection businesses and document management businesses within our Other Services segment.

Net Rentals revenue increased 8.0% for the three months ended August 31, 2005, over the same period in the prior fiscal year. Rentals operating segment internal growth for the first quarter of fiscal 2006 was 7.5% as compared to the three months ended August 31, 2004. This increase is primarily due to the sale of new rental programs to customers, offset by lost business. Cintas estimates that hurricane Katrina reduced this internal growth of 7.5% by approximately 0.2%.

Other Services revenue increased 19.0% for the three months ended August 31, 2005, over the same period in the prior year. Other Services operating segment internal growth for the first quarter of fiscal 2006 was 11.4% as compared to the three months ended August 31, 2004. This internal growth was generated primarily through the increased direct sale of uniforms to national customers and increased sales of first aid and safety products and services and document management services to customers. External growth of 7.6% was generated through a combination of acquisitions of first aid, safety and fire protection businesses and document management businesses.

Expense Comparison

Cost of rentals consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other rental items. Cost of rentals increased 6.8% for the three months ended August 31, 2005, as compared to the three months ended August 31, 2004, which corresponds to the growth in Rentals revenue. Energy costs were approximately $21 million for the three months ended August 31, 2005, versus approximately $17.5 million for the same period in the prior year, a 20% increase. Various operational efficiencies offset this increase, which provided a decrease in cost of rentals as a percent to Rentals revenue from 54.6% for the three months ended August 31, 2004, to 54.0% for the three months ended August 31, 2005.

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses. Cost of other services increased 17.6% for the three months ended August 31, 2005, as compared to the three months ended August 31, 2004. This increase was mainly due to increased sales in this segment. Gross margin within this segment will fluctuate depending on the type of product or service sold, as products which require additional services generate higher gross margins. Generally, the gross margin for Other Services is in the 30% to 35% range. The current quarter’s gross margin is 34.2%, which is at the upper end of that general range, mainly due to product mix.

Selling and administrative expenses increased 12.4% for the three months ended August 31, 2005, as compared to the three months ended August 31, 2004. Selling and administrative expenses increased mainly due to higher selling expenses. In order to accelerate revenue growth, we continue to increase our sales force, marketing plans and sales promotions. These measures combined to increase our selling costs by approximately $6 million over the prior year. Selling expenses were consistent quarter to quarter on a percent to sales basis. The cost of providing medical benefits to our employees increased $5 million, representing a 22.5% increase over the prior year. In addition, administrative expenses increased by $4 million as a result of an increase in the bad debt reserve and an increase in professional services relating to the outsourcing of certain human resource functions.

We anticipate a continued rise in energy and labor-related costs. Recent increases in fuel costs will continue to negatively impact our operating results in coming quarters, except to the extent we are able to offset such costs with price increases and increased operating efficiencies. We are assessing the impact of hurricanes Katrina and Rita on our operations. While physical damage to our facilities appears, at this point, to be minimal, the impact on our employee-partners and customers in the affected areas continues to be a major concern to Cintas. We are assisting our employee-partners at our operations in New Orleans and Gulfport through salary continuation and other financial assistance. The ultimate cost of this assistance, combined with lower business volume at the affected operations, will have an impact on our results. We are also evaluating our insurance coverage and related claims in association with these events.

Net interest expense (interest expense less interest income) was $5.6 million for the three months ended August 31, 2005, compared to $4.7 million for the same period in the prior fiscal year. This increase in net interest expense is due to increased borrowing to fund the stock repurchase program.

Cintas’ effective tax rate increased slightly to 37.1% for the three months ended August 31, 2005 as compared to 37.0% for the three months ended August 31, 2004. This increase is due to changes in state tax laws.

Income Comparison

Net income increased 9.5% for the three months ended August 31, 2005, over the same period in fiscal 2005, primarily due to revenue growth. Diluted earnings per share increased 11.9% for the three months ended August 31, 2005, over the same period in the prior fiscal year.

Financial Condition

At August 31, 2005, there was $258 million in cash, cash equivalents and marketable securities, a decrease of $52 million from May 31, 2005. This decrease was primarily due to prefunding of employee medical costs and the continued repurchasing of our company stock, as discussed below. Capital expenditures were approximately $36 million for the three months ended August 31, 2005. We expect capital expenditures for the year to be between $140 and $160 million. Cash, cash equivalents and marketable securities will be used to finance future acquisitions, capital expenditures, expansion and additional repurchases under the stock repurchase program as detailed below. We believe that our current cash position, funds generated from operations and the strength of our banking relationships are sufficient to meet our anticipated operational and capital requirements.

Net property and equipment increased by $6 million from May 31, 2005 to August 31, 2005, due to continued investment in rental facilities and equipment. At the end of the first quarter of fiscal 2006, Cintas had three uniform rental facilities in various stages of construction.

In the first quarter of fiscal 2006, Cintas continued its stock repurchase program that the Board of Directors had authorized and announced in May 2005. For the three months ended August 31, 2005, Cintas purchased approximately 2.6 million shares of Cintas stock at an average price of $39.27 per share for a total purchase price of approximately $102 million. From the inception of the stock repurchase program through September 30, 2005, Cintas has purchased approximately 4.4 million shares of Cintas stock at an average price of $39.53 per share for a total purchase price of approximately $172 million. The Board did not specify an expiration date for this program.

Also during the first quarter of fiscal 2006, Cintas borrowed $46 million under the $300 million commercial paper program for short-term cash requirements. This financing decision was made in order to allow certain marketable securities to reach maturity rather than Cintas incurring a penalty for early redemption.

Following is information regarding Cintas’ long-term contractual obligations and other commitments outstanding as of August 31, 2005. Subsequent to August 31, 2005, Cintas terminated its reverse interest rate swap agreements on September 1, 2005, thereby converting $225 million in long-term debt back to fixed rate debt with an effective interest rate of 5.13%. This conversion has not been reflected in the table below, as this information is based on long-term contractual obligations and other commitments outstanding as of August 31, 2005. See Note 10 entitled Subsequent Events of “Notes to Consolidated Condensed Financial Statements”.


(In thousands)	Payments Due by Period
							Two to
				One year			three			Four to		After five
Long-term contractual obligations	Total			or less			years			five years		Years

Long-term debt (1)	$	515,017		$	6,688		$	277,501		$	880	$	229,948
Capital lease obligations (2)		2,813			570			1,225			538		480
Operating leases (3)		56,910			17,615			24,167			9,234		5,894
Interest payments (4)		120,270			28,409			39,427			27,657		24,777
Interest swap agreements (5)		(1,683	)		(399	)		(1,284	)		—		—
Unconditional purchase obligations		—			—			—			—		—

Total contractual cash obligations	$	693,327		$	52,883		$	341,036		$	38,309	$	261,099

Cintas also makes payments to defined contribution plans. The amounts of contributions made to the plans are made at the discretion of Cintas. Future contributions are assumed to increase 15% annually. Assuming this 15% increase, payments due in one year or less would be $29,092, two to three years would be $71,929 and four to five years would be $95,126. Payments for years thereafter are assumed to continue increasing by 15% each year.


(1)		Long-term debt primarily consists of $450,000 in long-term notes related to the Omni acquisition.

(2)		Capital lease obligations are classified as long-term debt on the balance sheet.

(3)		Operating leases consist primarily of building leases and synthetic leases on two corporate jets.

(4)		Interest payments include interest on both fixed and variable rate debt. Rates have been assumed to increase 75 basis points for the remainder of fiscal 2006, an additional 75 basis points in fiscal 2007 and then remain constant in future years. Subsequent to the termination of the reverse interest rate swap agreements (as discussed above and in Note 10 entitled Subsequent Events of “Notes to Consolidated Condensed Financial Statements”), total interest payments are now as follows: $116,904 in total; $27,611 due in one year or less; $36,859 due in two to three years; $27,657 due in four to five years; and $24,777 due after five years.

(5)		Reference Note 5 entitled Debt, Derivatives and Hedging Activities of “Notes to Consolidated Condensed Financial Statements” for a detailed discussion of interest swap agreements. Subsequent to the termination of the reverse interest rate swap agreements (as discussed above and in Note 10 entitled Subsequent Events of “Notes to Consolidated Condensed Financial Statements”), total interest payments now and in the future will be $0.


(In thousands)	Amount of Commitment Expiration Per Period
					Two to
			One year		three		Four to		After five
Other commercial commitments	Total		or less		years		five years		Years

Lines of credit (1)	$	300,000	$	—	$	—	$	300,000	$	—
Standby letter of credit (2)		60,163		60,163		—		—		—
Guarantees		—		—		—		—		—
Standby repurchase obligations		—		—		—		—		—
Other commercial commitments		—		—		—		—		—

Total commercial commitments	$	360,163	$	60,163	$	—	$	300,000	$	—


(1)		Back-up facility for the commercial paper program.

(2)		Support certain outstanding debt and self-insured workers’ compensation and general liability insurance programs.

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

Litigation and Other Contingencies

Cintas is also a defendant in a purported class action lawsuit, Robert Ramirez, et al., v. Cintas Corporation, filed on January 20, 2004, and pending in the United States District Court, Northern District of California, San Francisco Division. The case was brought on behalf of all past and present female, African-American and Hispanic employees of Cintas and its subsidiaries. The complaint alleges that Cintas has engaged in a pattern and practice of discriminating against women and minorities in recruitment, hiring, promotions, transfers, job assignments and pay. The complaint seeks injunctive relief, compensatory damages, punitive damages and attorney’s fees, among other things. Cintas denies these claims and is defending the plaintiffs’ allegations. The court ordered arbitration as to three of the ten named plaintiffs. On April 27, 2005, the United States Equal Employment Opportunity Commission (EEOC) filed a motion to intervene in order to participate in this lawsuit. No filings or determination has been made in regard to the lawsuit 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. Several related proceedings with similar allegations and seeking similar relief damages and fees are pending, including an EEOC charge filed on April 17, 2000, by Mirna Serrano with the EEOC Detroit District office on behalf of female service sales representative job applicants at all Cintas locations in Michigan, a class action lawsuit, Mirna E. Serrano, et al., v. Cintas Corporation, filed on May 10, 2004, in the United States District Court for the Eastern District of Michigan, Southern Division on behalf of the same female service sales representative job applicants in the EEOC charge. On September 6, 2005, a Magistrate Judge granted Plaintiffs’ motion for leave to file a second amended complaint to expand the claim to a nationwide class. The EEOC’s processing of the administrative action filed on December 15, 2004, by James Morgan with the EEOC Washington, D.C. office and the California Department of Fair Employment and Housing alleging racial discrimination in compensation and training opportunities was terminated on July 15, 2005 and a right to sue letter was issued. On August 3, 2005, Morgan joined the Ramirez lawsuit. In addition, a class action lawsuit, Larry Houston, et al., v. Cintas Corporation, 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. If there is an adverse verdict or a negotiated

settlement 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.

Outlook

As we look forward in fiscal 2006, our outlook remains positive, but guarded. As the economy has strengthened and employment rates have improved, our total internal growth rate has also continued to improve. Based on our marketing data, we have a relatively low 7% market share of a $42.5 billion estimated potential market. As such, we see upside potential for all of our business units. The effects of hurricanes Katrina and Rita on the gulf coast regions of the country, as well as increased fuel costs, will have a downward impact on our results. Although difficult to predict, we anticipate continued growth in all of our business units. Overall performance will be largely driven by external market conditions.

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

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

Like most other companies, we experienced, and anticipate continuing to experience, increased costs for wages and benefits, including medical benefits. Changes in oil and fuel costs and changes in federal and state tax laws also have the potential to impact our results.

Cintas continues to be the target of a corporate unionization campaign by UNITE HERE and the Teamsters unions. These unions are attempting to pressure Cintas into surrendering our employees’ rights to a government-supervised election and unilaterally accept union representation. This is unacceptable. Cintas’ philosophy in regard to unions is straightforward: We believe that employees have the right to say yes to union representation and the freedom to say no. This campaign could be materially disruptive to our business and could materially adversely affect results of operations. We will continue to vigorously oppose this campaign and to defend our employees’ rights.

We believe that the high level of customer service provided by our partners and supported by our infrastructure, quality products, financial resources and corporate culture will provide for continued business success. However, a number of factors influence future revenue, margins and profit which make forecasting difficult.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In our normal operations, Cintas has market risk exposure to interest rates. This market risk exposure to interest rates has been previously disclosed on page 64 of our most recent annual report. The exposure to variable interest rates has been mitigated through the termination of the interest rate swap agreements on September 1, 2005.

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

ITEM 4.
CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

With the participation of Cintas’ management, including Cintas’ Chief Executive Officer and President, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of August 31, 2005. Based on such evaluation, Cintas’ management, including Cintas’ Chief Executive Officer and President, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas’ disclosure controls and procedures were effective in ensuring (i) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is accumulated and communicated to Cintas’ management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

There were no changes in Cintas’ internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended August 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. See “Management’s Report on Internal Control over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” on pages 53 and 54 of our most recent annual report.

Forward-Looking Statements

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

CINTAS CORPORATION

Part II. Other Information

Item 1. Legal Proceedings

I. Supplemental Information: We discuss certain legal proceedings pending against us in Part I of this quarterly report on Form 10-Q under the caption “Item 1. Financial Statements,” in Note 9 to our financial statements, which is captioned “Litigation and Other Contingencies,” and refer you to that discussion for important information concerning those legal proceedings, including the basis for such actions and, where known, the relief sought. We provide the following additional information concerning those legal proceedings which sets forth the name of the lawsuit, the court in which the lawsuit is pending and the date on which the petition commencing the lawsuit was filed.

Wage and Hour Litigation: Paul Veliz, et al., v. Cintas Corporation, United States District Court, Northern District of California, Oakland Division, March 19, 2003. On August 23, 2005, an amended complaint was filed alleging additional state law wage and hour claims under the following state laws: Arkansas, Kansas, Maine, Massachusetts, Minnesota, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington and West Virginia.

Race and Gender Litigation and Related Charges: Robert Ramirez, et al., v. Cintas Corporation, United States District Court, Northern District of California, San Francisco Division, January 20, 2004; Mirna E. Serrano, et al., v. Cintas Corporation, United States District Court for the Eastern District of Michigan, Southern Division, May 10, 2004; Larry Houston, et al., v. Cintas Corporation, United States District Court for the Northern District of California, August 3, 2005; EEOC charge filed by Mirna Serrano on April 17, 2000 with the EEOC Detroit District; EEOC charge filed by an EEOC Commissioner on November 30, 2004 with the EEOC Systemic Litigation Unit; EEOC charge filed by Jennifer Fargo on January 24, 2005 with the Augusta Human Relations Commission and the EEOC Detroit District; EEOC charge filed by Clifton Cooper on March 23, 2005 with the EEOC Systemic Litigation Unit; EEOC charge filed by Lorelei Reynolds on March 28, 2005 with the EEOC Birmingham District; EEOC charge filed by Melissa Schulz on April 25, 2005 with the EEOC Systemic Litigation Unit and the Oregon Bureau of Labor and Industries, Civil Rights Division; EEOC charge filed by Anthony Jones on May 6, 2005 with the EEOC Systemic Litigation Unit and EEOC charge filed by Mattie Cooper on June 10, 2005 with the EEOC Systemic Litigation Unit. A previously disclosed EEOC charge filed by James Morgan on December 15, 2004, with the EEOC Washington, D.C. office and the California Department of Fair Employment and Housing was terminated on July 15, 2005, and a right to sue letter was issued. On August 3, 2005, Morgan joined the Ramirez lawsuit.

Breach of Fiduciary Duties: J. Lester Alexander, III vs. Cintas Corp., et al., United States Bankruptcy Court for the Middle District of Alabama, Eastern Division, October 25, 2004.

II. Environmental Matters: Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters. The following matters are disclosed in accordance with that requirement:

During fiscal 2001, the State of Connecticut filed suit against Cintas in the Superior Court District of Hartford alleging various violations of state environmental laws and alleging that Cintas violated certain wastewater discharge and hazardous waste violations. This suit was settled in August, 2005, for approximately $350,000. The reserve that had been established for this liability offset this charge.

Item 2(c). Issuer Purchases of Equity Securities

On May 2, 2005, Cintas announced that the Board of Directors authorized a $500 million stock repurchase program at market prices. The Board did not specify an expiration date for this program.


							Maximum
					Total number of		approximate dollar
					shares purchased		value of shares that
	Total number		Average		as part of the		may yet be
	of shares		price paid		publicly announced		purchased under
Period	purchased		per share		plan		the plan

June 2005		1,725,800	$	39.33		1,725,800	$	373,912,821
July 2005		730,529	$	38.59		730,529	$	345,719,798
August 2005		147,300	$	41.95		147,300	$	339,540,144

Total		2,603,629	$	39.27		2,603,629	$	339,540,144

In the first quarter of fiscal 2006, Cintas continued its stock repurchase program that the Board of Directors had authorized and announced in May 2005. For the three months ended August 31, 2005, Cintas purchased approximately 2.6 million shares of Cintas stock at an average price of $39.27 per share for a total purchase price of approximately $102 million. Subsequent to August 31, 2005, Cintas has purchased an additional 288,400 shares of Cintas stock at an average price of $41.31 per share for a purchase price of approximately $12 million. As such, from the inception of the stock repurchase program through September 30, 2005, Cintas has purchased a total of approximately 4.4 million shares of Cintas stock at an average price of $39.53 per share for a total purchase price of approximately $172 million. The maximum approximate dollar value of shares that may yet be purchased under the plan as of September 30, 2005, is $327,625,757.

During the first quarter of fiscal 2006, Cintas also acquired 25,397 shares as payment received from employees upon the exercise of options under the stock option plan.

Item 6. Exhibits

	31.1		Certification of Principal Executive Officer required by Rule 13a-14(a)

	31.2		Certification of Principal Financial Officer required by Rule 13a-14(a)

	32.1		Section 1350 Certification of Chief Executive Officer

	32.2		Section 1350 Certification of Chief Financial Officer


	Page No.
Part I. Financial Information

Item 1. Financial Statements.

Consolidated Condensed Statements of Income - Three Months Ended August 31, 2005 and 2004		3

Consolidated Condensed Balance Sheets - August 31, 2005 and May 31, 2005		4

Consolidated Condensed Statements of Cash Flows - Three Months Ended August 31, 2005 and 2004		5

Notes to Consolidated Condensed Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		27

Item 4. Controls and Procedures.		28

Part II. Other Information		29

Item 1. Legal Proceedings.		29

Item 2(c). Issuer Purchases of Equity Securities		30

Item 6. Exhibits		30

Signatures		31

Certifications		32

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


															Cintas
	Cintas					Subsidiary									Corporation
	Corporation		Corp. 2			Guarantors			Non-Guarantors			Eliminations			Consolidated

Revenue:
Rentals	$	—	$	461,948		$	130,007		$	36,179		$	(126	)	$	628,008
Other services		—		296,571			98,956			13,053			(213,113	)		195,467
Equity in net income of affiliates		79,535		—			—			—			(79,535	)		—

		79,535		758,519			228,963			49,232			(292,774	)		823,475

Costs and expenses (income):
Cost of rentals		—		285,787			75,683			21,306			(43,351	)		339,425
Cost of other services		—		223,756			69,570			8,410			(173,174	)		128,562
Selling and administrative expenses		—		222,205			(10,127	)		12,063			(704	)		223,437
Interest income		—		(1,335	)		(91	)		(276	)		—			(1,702	)
Interest expense		—		7,314			(1,007	)		1,029			—			7,336

		—		737,727			134,028			42,532			(217,229	)		697,058


Income before income taxes		79,535		20,792			94,935			6,700			(75,545	)		126,417
Income taxes		—		8,016			36,599			2,267			—			46,882

Net income	$	79,535	$	12,776		$	58,336		$	4,433		$	(75,545	)	$	79,535


															Cintas
	Cintas					Subsidiary									Corporation
	Corporation		Corp. 2			Guarantors			Non-Guarantors			Eliminations			Consolidated

Revenue:
Rentals	$	—	$	432,791		$	117,959		$	30,980		$	(71	)	$	581,659
Other services		—		177,673			78,324			7,272			(98,972	)		164,297
Equity in net income of affiliates		72,666		—			—			—			(72,666	)		—

		72,666		610,464			196,283			38,252			(171,709	)		745,956

Costs and expenses (income):
Cost of rentals		—		263,439			70,852			17,993			(34,530	)		317,754
Cost of other services		—		136,561			38,343			4,371			(69,911	)		109,364
Selling and administrative expenses		—		185,687			(3,987	)		8,172			8,937			198,809
Interest income		—		(939	)		(3	)		(180	)		—			(1,122	)
Interest expense		—		5,691			(799	)		941			—			5,833

		—		590,439			104,406			31,297			(95,504	)		630,638


Income before income taxes		72,666		20,025			91,877			6,955			(76,205	)		115,318
Income taxes		—		7,270			33,353			2,029			—			42,652

Net income	$	72,666	$	12,755		$	58,524		$	4,926		$	(76,205	)	$	72,666


		CINTAS CORPORATION
		(Registrant)

Date: October 10, 2005		William C. Gale

		William C. Gale
		Senior Vice President and Chief Financial Officer
		(Chief Accounting Officer)

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