**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-K**

 

| **ý** | ** ** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**    |
|------------|------------|-----------------------------------------------------------------------------------------------|
|       |       |                                                                                          |
| ** ** | ** ** | **for  the Fiscal Year Ended May 31, 2005**                                                   |
|       |       |                                                                                          |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Commission File No. 0-11399**

 

**CINTAS CORPORATION**

(Exact name of registrant as specified in its charter)

 
| **Incorporated under  the Laws of Washington**                     |   | **6800 Cintas Boulevard  P.O. Box 625737  Cincinnati, Ohio  45262-5737** |   | **No. 31-1188630** |
|--------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|--------------------|
| (State or other juris-  diction of incorporation  or organization) |   | (Address of principal executive offices)                                      |   | IRS Employer ID    |

 

**Phone:  (513) 459-1200**

(Telephonenumber of principal executive offices)

 

Securities Registered Pursuant to Section 12(b) of the Act:

**None**

 

Securities Registered Pursuant to Section 12(g) of the Act:

**Common Stock, No Par Value**

(Title of class)

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to such filingrequirements for the past 90 days.

 
| YES    | NO     |
|--------|--------|
|   |   |
| ý | o      |

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be containedto the best of the Registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to the Form 10-K. ý

 

Indicated by check mark whether the Registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2).

 
| YES    | NO     |
|--------|--------|
|   |   |
| ý | o      |

 

The aggregate market value of the Common Stock held by non-affiliatesas of November 30, 2004, was $7,677,965,352 based on a closing sale price of$44.72 per share.  As of July 31, 2005, 172,249,416shares of Common Stock were issued and 168,324,186 shares were outstanding.

 

Documents Incorporated by Reference

 

Portions of the Registrant’s Proxy Statement to be filed with theCommission for its 2005 Annual Meeting are incorporated by reference in Part IIand Part III as specified.

 

 

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CINTAS CORPORATION

INDEX TO ANNUAL REPORT

ON FORM 10-K

 
| Part I    |      |   |                                                                                        |   |
|-----------|-----------|--------|---------------------------------------------------------------------------------------------|--------|
|      |      |   |                                                                                        |   |
|      | Item 1.   | -      | Business.                                                                                   |   |
|      | Item 2.   | -      | Properties.                                                                                 |   |
|      | Item 3.   | -      | Legal Proceedings.                                                                          |   |
|      | Item 4.   | -      | Submission of Matters to a Vote of Security  Holders.                                       |   |
|      |      |   |                                                                                        |   |
| Part II   |      |   |                                                                                        |   |
|      |      |   |                                                                                        |   |
|      | Item 5.   | -      | Market for Registrant’s Common Equity,  Related                                        |   |
|      |      |   | Stockholder  Matters and Issuer Purchases of  Equity Securities.                            |   |
|      | Item 6.   | -      | Selected Financial Data.                                                                    |   |
|      | Item 7.   | -      | Management’s Discussion and Analysis of FinancialCondition and Results of  Operations. |   |
|      | Item 7A.  | -      | Quantitative and Qualitative Disclosure  About Market Risk.                                 |   |
|      | Item 8.   | -      | Financial Statements and Supplementary  Data.                                               |   |
|      | Item  9.  | -      | Changes  in and Disagreements with Accountants on                                           |   |
|      |      |   | Accounting  and Financial Disclosure.                                                       |   |
|      | Item  9A. | -      | Controls  and Procedures.                                                                   |   |
|      | Item  9B. | -      | Other  Information.                                                                         |   |
|      |      |   |                                                                                        |   |
| Part  III |      |   |                                                                                        |   |
|      |      |   |                                                                                        |   |
|      | Item 10.  | -      | Directors and Executive Officers of the Registrant.                                         |   |
|      | Item 11.  | -      | Executive Compensation.                                                                     |   |
|      | Item 12.  | -      | Security Ownership of Certain Beneficial Owners and                                         |   |
|      |      |   | Management and Related Stockholder Matters.                                                 |   |
|      | Item 13.  | -      | Certain Relationships and Related Transactions.                                             |   |
|      | Item 14.  | -      | Principal Accountant Fees and Services.                                                     |   |
|      |      |   |                                                                                        |   |
| Part  IV  |      |   |                                                                                        |   |
|      |      |   |                                                                                        |   |
|      | Item  15. | -      | Exhibits  and Financial Statement Schedules.                                                |   |

 

FORWARD-LOOKING STATEMENTS

 

*The Private Securities Litigation Reform Act of 1995 provides a safeharbor from civil litigation for forward-looking statements.  Forward-looking statements may be identifiedby words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,”“believes,” “seeks,” “could,” “should,” “may” and “will” or the negativeversions thereof and similar expressions and by the context in which they areused.  Such statements are based uponcurrent expectations of Cintas and speak only as of the date made.  These statements are subject to variousrisks, uncertainties and other factors that could cause actual results todiffer 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 operatingcosts, lower sales volumes, the performance and costs of integration ofacquisitions, fluctuations in costs of materials and labor including increasedmedical costs, costs and possible effects of union organizing activities,uncertainties regarding any existing or newly-discovered expenses andliabilities related to environmental compliance and remediation, the cost,results and timely completion of assessment and remediation of internalcontrols for financial reporting required by the Sarbanes-Oxley Act of 2002,the initiation or outcome of litigation, higher assumed sourcing ordistribution costs of products, changes in federal and state tax laws and thereactions of competitors in terms of price and service.  Cintas undertakes no obligation to update anyforward-looking statements to reflect the events or circumstances arising afterthe date on which they are made.*

 

2

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PART I

ITEM 1.

##### BUSINESS

 

Cintas Corporation, a Washingtoncorporation, provides highly specialized services to businesses of all typesthroughout the United States and Canada. Cintas designs, manufactures and implements corporate identity uniformprograms, provides entrance mats, shop towels, restroom supplies, promotionalproducts, first aid, safety and fire protection products and services anddocument management services for over 700,000 businesses.  Cintas was founded in 1968 by Richard T.Farmer, Chairman of the Board, when he left his family’s industrial laundrybusiness in order to develop uniform programs using an exclusive newfabric.  In the early 1970’s, Cintasacquired the family industrial laundry business.

 

Cintas classifies its businesses into twooperating segments: Rentals and Other Services. The Rentals operating segment designs and manufactures corporateidentity uniforms which it rents to its customers.  Other items, including entrance mats, shoptowels and restroom supplies, are also rented or sold to its customers.  The Other Services operating segment involvesthe design, manufacture and direct sale of uniforms to its customers as well asthe sale of ancillary products and services. These ancillary products and services include first aid, safety and fireprotection products and services, document management services and cleanroomsupplies.

 

The primary markets served by Cintas are local in nature and highlyfragmented.  Competition for thisbusiness varies at each of Cintas’ locations. There are other companies in the uniform rental business which havefinancial resources comparable to those of Cintas, although much of thecompetition consists of smaller local and regional firms. In certain instances,local competitors may also have financial resources comparable to those of Cintasin a particular market.  Cintas believesthat the primary competitive factors that affect these operations are product,quality, service, design and price.

 

Cintas serves these markets principally through the rental and cleaningof uniforms as well as providing ongoing uniform replacements as required toeach customer.  Cintas also providesancillary products and services which include the rental or sale of entrancemats, shop towels, mops, linen and restroom products and first aid, safety andfire protection products and services and document management services.

 

Due to its diverse customer base and average account size, the loss ofone account would not have a significant financial impact on Cintas.  No individual customer accounts for greaterthan one percent of Cintas’ total revenues.

 

In its sale of customized uniforms, Cintas competes on a national basiswith other uniform suppliers and manufacturers. Cintas believes that the primary competitive factors that affect theseoperations are design, service and price.

 

Cintas operates fourteen manufacturing facilities, which provide for asubstantial amount of its standard uniform needs.  Additional products are purchased fromnumerous outside suppliers. Because of Cintas’ ability to manufacture much ofits own uniform needs, the loss of one vendor would not have a significantimpact on Cintas.  Cintas purchasesfabric, used in its manufacturing process, from several suppliers.  Cintas is not aware of any circumstances thatwould hinder its ability to obtain these materials.

 

Cintas is subject to various environmental laws and regulations, as areother companies in the industry.  Whileenvironmental compliance is not a material component of our costs, Cintas mustincur capital expenditures and associated operating costs, primarily for watertreatment and waste removal, on a regular basis.  Environmental spending related to watertreatment and waste removal was approximately $14 million in fiscal 2005 and approximately$12 million in fiscal 2004.  Capital expendituresto limit or monitor hazardous substances were $4 million in fiscal 2005 and $3million in fiscal 2004.  Theseexpenditures were primarily related to the purchase of water treatment systems,which are depreciated over a useful life of ten years.  Cintas does not expect a material change inthe cost of environmental compliance on a percent to sale basis and is notaware of any material non-compliance with environmental laws.

 

At May 31, 2005, Cintas employed approximately 30,000 employees ofwhich approximately 450 were represented by labor unions.  Since January 2003, Cintas has been thetarget of a corporate unionization campaign by UNITE HERE and the Teamstersunions.  These unions are attempting topressure Cintas

 

3

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into surrendering its employees’ rights to a government-supervisedelection and unilaterally accept union representation.  This is unacceptable.  Cintas’ philosophy in regard to unions isstraightforward:  We believe thatemployees have the right to say yes to union representation and the freedom tosay no.  This campaign could bematerially disruptive to our business and could materially adversely affectresults of operations.  We will continueto vigorously oppose this campaign and to defend our employees’ rights.  Cintas considers its relationships with itsemployees to be satisfactory.

 

Cintas files annual and quarterly reports and proxy materials with theSecurities and Exchange Commission.  Thepublic may copy these materials at the SEC’s Public Reference Room at 100 FStreet, N.E., Room 1580 Washington, D.C. 20549 and may obtain further information concerning the operation of thePublic Reference Room by calling the SEC at (202) 551-8090.  The SEC maintains an internet site that containsthe same information regarding Cintas that is filed electronically with theSEC.  The address of that site is:http://www.sec.gov.  Cintas’ AnnualReport on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form8-K and amendments to those reports are posted on its website, www.cintas.com,as soon as practicable after filing with the SEC.

 

The following table sets forth the revenues derived from each servicesegment provided by Cintas.

 
| ** **     | ** ** | **Year Ended May 31** | ** ** |
|----------------|------------|-----------------------|------------|
| ** **     | ** ** | **(in thousands)**    | ** ** |
| ** **     | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
|           |       |                  |       |   |   |   |   |
| Rentals        |       | $                     | 2,363,397  |   | $ | 2,201,405 |   | $ | 2,101,785 |   |
| Other Services |       | 703,886               |       | 612,654 |   | 584,800 |   |
|           |       | $                     | 3,067,283  |   | $ | 2,814,059 |   | $ | 2,686,585 |   |

 

See Note 13 entitled Segment Information in “Notes to ConsolidatedFinancial Statements.”

 

4

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ITEM 2.

PROPERTIES

 

Cintas occupies 377 facilities located in 280 cities, of which 193facilities are leased for various terms ranging from monthly to the year2015.  Cintas expects that it will be ableto renew its leases on satisfactory terms. Of the fourteen manufacturing facilities listed below, Cintas controlsthe operations of four of these manufacturing plants, but does not own or leasethe real estate related to these operations. All other properties are owned. The corporate offices provide centrally located administrative functionsincluding accounting, finance, marketing and computer system development andsupport. Cintas operates processing plants that house administrative, sales andservice personnel and the necessary equipment involved in the cleaning ofuniforms and bulk items, such as entrance mats and shop towels.  Branch operations provide administrative,sales and service functions. Cintas operates seven distribution centers and fourteenmanufacturing plants.  Cintas alsooperates first aid, safety and fire protection and document managementfacilities and direct sales offices. Cintas considers the facilities it operates to be adequate for theirintended use. Cintas owns or leases 10,725 vehicles.

 

The following chart provides additional information concerning Cintas’facilities:

 

| **Type of Facility**                              | ** ** | **# of Facilities** | ** ** |
|---------------------------------------------------|------------|---------------------|------------|
|                                              |       |                |       |
| Rental Processing Plants                          |       | 168                 |       |
|                                              |       |                |       |
| Rental Branches                                   |       | 79                  |       |
|                                              |       |                |       |
| First Aid, Safety and Fire Protection  Facilities |       | 57                  |       |
|                                              |       |                |       |
| Document Management Facilities                    |       | 23                  |       |
|                                              |       |                |       |
| Distribution Centers                              |       | 7                   | *          |
|                                              |       |                |       |
| Manufacturing Facilities                          |       | 14                  |       |
|                                              |       |                |       |
| Direct Sales Offices                              |       | 29                  |       |
|                                              |       |                |       |
| Total                                             |       | 377                 |       |

 

Rental processing plants, rental branches, distribution centers andmanufacturing facilities are used in Cintas’ Rentals segment.  Rental processing plants, rental branches,first aid facilities, document management facilities, distribution centers,manufacturing facilities and direct sale offices are all used in the OtherServices segment.

 

----

* Includes the Corporate office, which is attached to the distributioncenter in Cincinnati, OH.

 

5

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ITEM 3.

LEGAL PROCEEDINGS

 

I. Supplemental Information:  Wediscuss certain legal proceedings pending against us in Part II of this AnnualReport on Form 10-K under the caption “Item 8. Financial Statements andSupplementary Data,” in Note 12 to our consolidated financial statements, whichis captioned “Litigation and Other Contingencies,” and “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” under“Litigation and Other Contingencies,” and refer you to those discussions forimportant information concerning those legal proceedings, including the basis forsuch actions and, where known, the relief sought.  We provide the following additionalinformation concerning those legal proceedings which sets forth the name of thelawsuit, the court in which the lawsuit is pending and the date on which thepetition commencing the lawsuit was filed.

 

Wage and Hour Litigation:  *Paul Veliz, et al., v.Cintas Corporation*, United States District Court, Northern Districtof California, Oakland Division, March 19, 2003*.*

 

Race and Gender Litigation and RelatedCharges:  *RobertRamirez, et al., v. Cintas Corporation*, United States DistrictCourt, 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, SouthernDivision, May 10, 2004; *Larry Houston, et al., v.Cintas Corporation*, United States District Court for the NorthernDistrict of California, August 3, 2005; EEOC charge filed by Mirna Serrano onApril 17, 2000 with the EEOC Detroit District; EEOC charge filed by JamesMorgan on December 15, 2004 with the EEOC Washington, D.C. office and theCalifornia Department of Fair Employment and Housing; EEOC charge filed by anEEOC Commissioner on November 30, 2004 with the EEOC Systemic Litigation Unit;EEOC charge filed by Jennifer Fargo on January 24, 2005 with the Augusta HumanRelations Commission and the EEOC Detroit District; EEOC charge filed byClifton Cooper on March 23, 2005 with the EEOC Systemic Litigation Unit; EEOCcharge filed by Lorelei Reynolds on March 28, 2005 with the EEOC BirminghamDistrict; EEOC charge filed by Melissa Schulz on April 25, 2005 with the EEOCSystemic Litigation Unit and the Oregon Bureau of Labor and Industries, CivilRights Division; EEOC charge filed by Anthony Jones on May 6, 2005 with theEEOC Systemic Litigation Unit and EEOC charge filed by Mattie Cooper on June10, 2005 with the EEOC Systemic Litigation Unit.

 

Breach of Fiduciary Duties:  *J. Lester Alexander, IIIvs. Cintas Corp., et al.,*United States Bankruptcy Court for theMiddle District of Alabama, Eastern Division, October 25, 2004.

 

II. Environmental Matters:  Item103 of SEC Regulation S-K requires disclosure of certain environmentalmatters.  The following matters aredisclosed in accordance with that requirement:

 

During fiscal 2001, the State of Connecticut filed suit against Cintasin the Superior Court District of Hartford alleging various violations of stateenvironmental laws and alleging that Cintas violated certain wastewaterdischarge and hazardous waste violations. While this proceeding is not considered material to the business orfinancial condition of the registrant, management reasonably believes that theproceedings will result in monetary sanctions in excess of $100,000.  A reserve has been established for theestimated liability related to these allegations.

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

 

None in the fourth quarter of fiscal 2005.

 

6

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY,

RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Cintas Corporation’sCommon Stock is traded on the NASDAQ National Market System under the symbol “CTAS”.  The following table shows the high and lowclosing prices by quarter during the last two fiscal years. 

 

| **Fiscal 2005**   | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------|------------|------------|------------|------------|------------|
| **Quarter Ended** | ** ** | **High**   | ** ** | **Low**    | ** ** |
|              |       |       |       |       |       |
| May 2005          |       | $          | 44.55      |       | $          | 37.89 |   |
| February 2005     |       | 46.87      |       | 41.77      |       |
| November 2004     |       | 45.91      |       | 40.38      |       |
| August 2004       |       | 48.06      |       | 39.51      |       |
|                   |            |            |            |            |            |  |  |

 

| **Fiscal 2004**   | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------|------------|------------|------------|------------|------------|
| **Quarter Ended** | ** ** | **High**   | ** ** | **Low**    | ** ** |
|              |       |       |       |       |       |
| May 2004          |       | $          | 47.92      |       | $          | 40.20 |   |
| February 2004     |       | 50.68      |       | 42.21      |       |
| November 2003     |       | 47.59      |       | 36.80      |       |
| August 2003       |       | 41.87      |       | 34.55      |       |
|                   |            |            |            |            |            |  |  |

 

Holders

 

At May 31, 2005, therewere approximately 2,000 shareholders of record of Cintas’ Common Stock.  Cintas believes that this representsapproximately 65,000 beneficial owners.

 

Dividends

 

Dividends on theoutstanding Common Stock are paid annually and amounted to $0.32 per share,$0.29 per share and $0.27 per share in fiscal 2005, fiscal 2004 and fiscal2003, respectively.

 

Equity Compensation PlanInformation

 
| ** **                                             | ** ** | ** **              | ** ** | ** **              | ** ** | **Number of shares**    | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **Number of shares**    | ** ** | ** **              | ** ** | **remaining available** | ** ** |
| ** **                                             | ** ** | **to be issued**        | ** ** | **Weighted average**    | ** ** | **for future issuance** | ** ** |
| ** **                                             | ** ** | **upon exercise of**    | ** ** | **exercise price of**   | ** ** | **under equity**        | ** ** |
| **Plan category**                                      | ** ** | **outstanding options** | ** ** | **outstanding options** | ** ** | **compensation plans**  | ** ** |
|                                                   |       |                    |       |                    |       |                    |       |
| Equity compensation plans approved by shareholders     |       | 6,441,885               |       | $                       | 37.92      |                    | 4,438,875  |   |
|                                                   |       |                    |       |                    |       |                    |       |
| Equity compensation plans not approved by shareholders |       | —                  |       | —                  |       | —                  |       |
|                                                   |       |                    |       |                    |       |                    |       |
| Total                                                  |       | 6,441,885               |       | $                       | 37.92      |                    | 4,438,875  |   |

 

7

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Recent Sales ofUnregistered Securities

 

None in the fourthquarter of fiscal 2005.

 

Issuer Purchases ofEquity Securities

 

On May 2, 2005, Cintas announced that the Board of Directors authorizeda $500 million stock repurchase program at market prices.  During fiscal 2005, we purchasedapproximately 1.5 million shares of Cintas stock at an average price of $39.62per share, for a total purchase price of approximately $58 million.  The Board did not specify an expiration datefor this program.

 
| **Period** | ** ** | **Total number  of shares  purchased** | ** ** | **Average  price paid  per share** | ** ** | **Total number of  shares purchased  as part of the  publicly announced  plan** | ** ** | **Maximum  approximate dollar  value of shares that  may yet be  purchased under  the plan** | ** ** |
|------------|------------|----------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| March 2005 |       | —                                 |       | $                                  | —     |                                                                            | —     |                                                                                         | $          | — |   |
|       |       |                                   |       |                               |       |                                                                            |       |                                                                                         |       |
| April 2005 |       | —                                 |       | —                             |       | —                                                                          |       | —                                                                                       |       |
|       |       |                                   |       |                               |       |                                                                            |       |                                                                                         |       |
| May 2005   |       | 1,468,901                              |       | 39.62                              |       | 1,468,901                                                                       |       | 441,796,359                                                                                  |       |
|       |       |                                   |       |                               |       |                                                                            |       |                                                                                         |       |
| Total      |       | 1,468,901                              |       | $                                  | 39.62      |                                                                            | 1,468,901  |                                                                                         | $          | 441,796,359 |   |

 

In fiscal 2005, Cintas also acquired 100,921 shares as payment receivedfrom employees upon the exercise of options under the stock option plan.

 

In addition to the purchases made in fiscal 2005, as provided in thetable above, Cintas has subsequently purchased 2.4 million shares ofCintas stock at an average price of $39.08 per share for a purchase price ofapproximately $96 million. As such, from the inception of the stock repurchaseprogram through July 22, 2005, Cintas has purchased a total ofapproximately 3.9 million shares of Cintas stock at an average price of$39.27 per share for a total purchase price of approximately $154 million.The maximum approximate dollar value of shares that may yet be purchased underthe plan as of July 22, 2005, is $345,856,218.

 

8

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ITEM 6.

SELECTED FINANCIAL DATA

 

**Eleven Year Financial Summary**

(In thousands except per share and percentage data)

 
| **Years Ended  May 31**       | ** ** | **1995** | ** ** | **1996** | ** ** | **1997** | ** ** | **1998** | ** ** | **1999** | ** ** | **2000** | ** ** | **2001** | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **10-Year  Compd  Growth** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------------------|------------|
|                          |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Revenue                       |       | $        | 929,534    |     | 1,103,492  |     | 1,261,899  |     | 1,476,945  |     | 1,751,568  |     | 1,901,991  |     | 2,160,700  |     | 2,271,052  |     | 2,686,585  |     | 2,814,059  |     | 3,067,283  |                       | 12.7       | %(3) |
| Net Income                    |       | $        | 85,413     |     | 98,956     |     | 118,557    |     | 133,654    |     | 138,939    |     | 193,387    |     | 222,451    |     | 234,251    |     | 249,253    |     | 272,205    |     | 300,518    |                       | 13.4       | % |
| Pro Forma Net  Income (1)     |       | $        | 80,752     |     | 94,151     |     | 112,763    |     | 128,704    |     | 138,939    |     | 193,387    |     | 222,451    |     | 234,251    |     | 249,253    |     | 272,205    |     | 300,518    |                       | 14.0       | % |
| Basic EPS                     |       | $        | 0.55       |     | 0.64       |     | 0.75       |     | 0.83       |     | 0.84       |     | 1.16       |     | 1.32       |     | 1.38       |     | 1.46       |     | 1.59       |     | 1.75       |                       | 12.3       | % |
| Diluted EPS                   |       | $        | 0.55       |     | 0.63       |     | 0.75       |     | 0.82       |     | 0.82       |     | 1.14       |     | 1.30       |     | 1.36       |     | 1.45       |     | 1.58       |     | 1.74       |                       | 12.2       | % |
| Pro Forma Basic  EPS (1)      |       | $        | 0.52       |     | 0.61       |     | 0.72       |     | 0.80       |     | 0.84       |     | 1.16       |     | 1.32       |     | 1.38       |     | 1.46       |     | 1.59       |     | 1.75       |                       | 12.9       | % |
| Pro Forma Diluted  EPS (1)    |       | $        | 0.51       |     | 0.60       |     | 0.71       |     | 0.79       |     | 0.82       |     | 1.14       |     | 1.30       |     | 1.36       |     | 1.45       |     | 1.58       |     | 1.74       |                       | 13.1       | % |
| Dividends Per  Share          |       | $        | 0.07       |     | 0.09       |     | 0.10       |     | 0.12       |     | 0.15       |     | 0.19       |     | 0.22       |     | 0.25       |     | 0.27       |     | 0.29       |     | 0.32       |                       | 16.4       | % |
| Total Assets                  |       | $        | 816,508    |     | 996,046    |     | 1,101,182  |     | 1,305,400  |     | 1,407,818  |     | 1,581,342  |     | 1,752,224  |     | 2,519,234  |     | 2,582,946  |     | 2,810,297  |     | 3,059,744  |                       | 14.1       | % |
| Shareholders’  Equity    |       | $        | 481,654    |     | 553,701    |     | 650,603    |     | 756,795    |     | 871,423    |     | 1,042,876  |     | 1,231,315  |     | 1,423,759  |     | 1,646,332  |     | 1,887,969  |     | 2,104,135  |                       | 15.9       | % |
| Return on Average  Equity (2) |       | 18.1     | %          | 18.2     | %          | 18.7     | %          | 18.3     | %          | 17.1     | %          | 20.2     | %          | 19.6     | %          | 17.6     | %          | 16.2     | %          | 15.4     | %          | 15.1     | %          |                       |       |
| Long-Term Debt                |       | $        | 164,332    |     | 237,550    |     | 227,799    |     | 307,633    |     | 283,581    |     | 254,378    |     | 220,940    |     | 703,250    |     | 534,763    |     | 473,685    |     | 465,291    |                       |       |   |

 

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Note:      Resultsprior to March 24, 1999, have been restated to include Unitog Company. Resultsprior to April 8, 1998, have also been restated to include Uniforms To YouCompanies.

 

(1)   Resultsfor 1998 and prior years were adjusted on a pro forma basis to reflect the truetax impact of Uniforms To You as if it had been reported as a C Corporationprior to the merger with Cintas.

 

(2)   Returnon average equity using pro forma net income.

 

(3)   Representsthe 10-year compound annual growth rate based on revenue as restated forpooling of interests transactions noted above.

 

9

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

BUSINESS STRATEGY

 

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

 

Our business strategy is to increase our market share of the uniformrental and sales business in North America through the sale of new uniformprograms and to provide our customers with all of the products and services weoffer.  We will also continue to identifyadditional product and service opportunities for our current and futurecustomers.  Our long-term goal is toprovide a product or service to every business in North America.

 

To pursue this strategy, we focus on the development of a highlytalented and diverse team of employees (who we call partners) – a team that isproperly trained and motivated to service our customers.  We support our partners’ service efforts byproviding superior products with distinct competitive advantages, and weembrace technological advances.

 

Continuous cost containment and product and process innovation areconsidered hallmarks of our organization. In order to sustain these efforts, we have implemented a Six Sigmaeffort within Cintas.  Six Sigma is ananalytical process that assists companies in improving quality and customersatisfaction while reducing cycle time and operating costs.  We are pleased with our progress in thisendeavor and are optimistic about the improved efficiencies that this processwill yield to Cintas.

 

We continue to leverage our size and core competencies to become a morevalued business service provider to our current and future customers.  We will also continue to supplement ourinternal growth with strategic acquisitions and the cultivation of newbusinesses.

 

RESULTS OF OPERATIONS

 

Fiscal 2005 marked the 36th consecutive year ofuninterrupted growth in sales and profits for Cintas.  In addition to achieving this milestone,Cintas experienced healthy improvements in profitability, cash flow and balancesheet strength.

 

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

 

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The following table sets forth certain consolidated statements of incomedata as a percentage of revenue by reporting segment and in total for theperiods indicated:

 
| ** **                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenue:                            |       |     |       |     |       |     |       |
| Rentals                             |       | 77.1     | %          | 78.2     | %          | 78.2     | %          |
| Other services                      |       | 22.9     | %          | 21.8     | %          | 21.8     | %          |
|                                |       |     |       |     |       |     |       |
| Total revenue                       |       | 100.0    | %          | 100.0    | %          | 100.0    | %          |
|                                |       |     |       |     |       |     |       |
| Cost of sales:                      |       |     |       |     |       |     |       |
| Rentals                             |       | 54.8     | %          | 55.5     | %          | 55.8     | %          |
| Other services                      |       | 66.3     | %          | 66.1     | %          | 67.3     | %          |
|                                |       |     |       |     |       |     |       |
| Total cost of sales                 |       | 57.5     | %          | 57.8     | %          | 58.3     | %          |
|                                |       |     |       |     |       |     |       |
| Gross margin:                       |       |     |       |     |       |     |       |
| Rentals                             |       | 45.2     | %          | 44.5     | %          | 44.2     | %          |
| Other services                      |       | 33.7     | %          | 33.9     | %          | 32.7     | %          |
|                                |       |     |       |     |       |     |       |
| Total gross margin                  |       | 42.5     | %          | 42.2     | %          | 41.7     | %          |
|                                |       |     |       |     |       |     |       |
| Selling and administrative expenses |       | 26.4     | %          | 25.9     | %          | 25.9     | %          |
| Interest income                     |       | -0.2     | %          | -0.1     | %          | -0.1     | %          |
| Interest expense                    |       | 0.8      | %          | 0.9      | %          | 1.2      | %          |
| Write-off of loan receivable        |       | —   |       | 0.1      | %          | —   |       |
|                                |       |     |       |     |       |     |       |
| Income before income taxes          |       | 15.5     | %          | 15.4     | %          | 14.7     | %          |

 

As evidenced above, our revenue growth has been higher in OtherServices versus Rentals during fiscal 2005, resulting in a moderate shift inthe percentage of revenue between our reporting segments.  This shift was mainly driven by theacquisitions of first aid, safety and fire protection businesses and documentmanagement businesses.  Informationrelated to acquisitions is discussed in Note 8 entitled Acquisitions of “Notesto Consolidated Financial Statements.”

 

FISCAL 2005 COMPARED TO FISCAL 2004

 

Fiscal 2005 total revenue was $3.1 billion, an increase of 9.0% overfiscal 2004.  Internal growth improvedthroughout fiscal 2005 and was 6.3% for the year.  As the economy continued to strengthen andemployment rates improved, our internal growth rates improved.  Internal growth by quarter is shown in thetable below.  Internal growth percentageshave been adjusted for the appropriate number of workdays, by quarter and forthe year, where applicable.

 
| ** **                              | ** ** | **Total Company  Internal Growth** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|
|                                    |       |                               |       |
| First Quarter Ending August 31, 2004    |       | 5.6                                | %          |
| Second Quarter Ending November 30, 2004 |       | 5.0                                | %          |
| Third Quarter Ending February 28, 2005  |       | 7.1                                | %          |
| Fourth Quarter Ending May 31, 2005      |       | 7.5                                | %          |
|                                    |       |                               |       |
| For the Year Ending May 31, 2005        |       | 6.3                                | %          |

 

Historically, increases in our internal growth rate have lagged aneconomic upturn as customers add individuals to existing rental or salesprograms or enter into new rental or sales programs.  Our internal growth continues to be generatedmainly through the continued sale of uniform rental programs to new customersand the increased penetration of ancillary products to our existing customerbase.  The remaining growth in totalrevenue was generated predominantly through acquisitions of first aid, safetyand fire protection service businesses and document management businesses.  Information related to acquisitions isdiscussed in Note 8 entitled Acquisitions of “Notes to Consolidated FinancialStatements.”

 

11

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Rentals operating segment revenues consist predominantly of revenuesderived from the rental and/or sale of corporate identity uniforms, mats, shoptowels, restroom supplies and other rental services.  Revenue from the Rentals segment increased7.4% over fiscal 2004.  Internal revenuegrowth for the Rentals segment was 6.8% in fiscal 2005 compared to 4.2% infiscal 2004.  The 0.6% of remaininggrowth in fiscal 2005 resulted from the acquisition of rental volume. 

 

The increase in Rentals revenue was primarily due to growth in thecustomer base as well as the continued penetration of ancillary products intoour existing customer base.  New businessremained healthy as we experienced continued success in selling uniform rentalprograms to new customers.  We alsocontinued to expand our rental market, with over half of our new business beingcomprised of customers who were first time users of uniform rentalprograms.  Rentals revenue growth waspartially offset by lost business of approximately 7.0%.

 

Other Services operating segment revenues are predominantly derivedfrom the design, manufacture and direct sale of uniforms to our customers andthe sale of other direct sale products and services.  Other direct sale products and servicesinclude cleanroom supplies, first aid, safety and fire protection products andservices and document management services. Other Services revenue increased 14.9% over fiscal 2004, primarily dueto acquisitions of first aid, safety and fire protection businesses anddocument management businesses.

 

Internal revenue growth in the Other Services segment was 4.4% for theyear.  This increase was mainly driven bythe growth of the sale of first aid, safety and fire protection products andservices and document management services. Growth in these areas continues to be through an increase in thecustomer base and through further penetration of additional products andservices into our existing customer base.

 

Cost of rentals increased 6.0% over fiscal 2004.  Cost of rentals consists primarily ofproduction expenses, delivery expenses and the amortization of in serviceinventory, including uniforms, mats, shop towels and other rental items.  The cost increase over fiscal 2004 wasprimarily driven by the growth in Rentals segment revenues.  Rising oil and fuel costs also contributed tothis increase.  Various cost containmentinitiatives implemented throughout the year provided a decrease in cost ofrentals as a percent to Rentals revenue from 55.5% in fiscal 2004 to 54.8% infiscal 2005.

 

Cost of other services increased 15.2% over fiscal 2004.  Cost of other services consists primarily ofcost of goods sold (predominantly uniforms and first aid products), deliveryexpenses and distribution expenses.  Theincrease over fiscal 2004 was due to the growth in Other Services revenue,derived through a combination of internal growth and acquisitions.  Gross margin within this segment generallyfluctuates between 30% to 35%, depending on the type of product or servicesold.  Products which require additionalservices generate higher gross margins. The gross margin for fiscal 2005 is 33.7%, which is in the upper portionof that general range, mainly due to a shift in the product mix.

 

Selling and administrative expenses increased 11.4% over fiscal2004.  Selling and administrativeexpenses increased mainly due to higher selling expenses.  In order to accelerate revenue growth, wehave increased our sales force, marketing plans and sales promotions.  These measures combined to increase ourselling costs by approximately $36 million over the prior fiscal year.  The cost of providing medical benefits to ouremployees also increased approximately $15 million.  The costs of providing medical benefits areanticipated to continue to rise.

 

Net interest expense decreased $5 million from the prior fiscalyear.  This decrease was primarily aresult of increased interest income due to higher levels of cash and marketablesecurities throughout the entire year and an increase in the interest rateenvironment.

 

Pre-tax income was $477 million, a 10.4% increase over fiscal2004.  Pre-tax income from the Rentalssegment increased 9.2% over the prior year due to higher rental revenue andvarious cost containment initiatives, which more than offset the increases inselling expenses and medical costs. Pre-tax income for the Other Services segment decreased 1.4% from theprior year mainly due to increased selling expenses and medical costs.

 

Cintas’ effective tax rate was 37.0% for both fiscal 2005 and fiscal2004 (see also Note 7 entitled Income Taxes of “Notes to Consolidated FinancialStatements” and the Outlook section below).

 

Net income for fiscal 2005 of $301 million was a 10.4% increase overfiscal 2004 and diluted earnings per share of $1.74 was a 10.1% increase overfiscal 2004, both of which are consistent with the increases in pre-taxincome.  Return on average equity wasapproximately 15% in both fiscal 2005 and 2004. Return on average equity is computed as net income divided by the averageof shareholders’ equity.

 

Cash, cash equivalents and marketable securities increased by $55million in fiscal 2005, or 21.7%, primarily due to increased revenues.  Cash, cash equivalents and marketablesecurities will be used to finance future acquisitions, capital

 

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expenditures, expansion andpossible stock repurchases.  Marketablesecurities consist primarily of municipal bonds and federal governmentsecurities.

 

Accounts receivable increased $41 million due to increased revenues.Accounts receivable also increased due to a loan to an affiliated company.  During the fourth quarter of fiscal 2005, theBoard of Directors approved and Cintas provided a $10 million loan to anaffiliated company with specific repayment terms over the next threeyears.  This affiliated companymanufactures a significant portion of Cintas’ mats.  A dividend of $5 million was subsequentlyreceived by Cintas from this affiliate in the first quarter of fiscal 2006.

 

Inventories increased $28 million mainly due to increasedrevenues.  Other contributing factorsinclude the continued increase in international sourcing of product, a currentconversion of our comfort pant to a new fabric and style, and additionalinventory requirements for our Uniform Book, a large catalog used for thedirect sale of uniforms and accessories.

 

Net property and equipment increased by $32 million due to continuedinvestment in rental facilities and equipment and real estate purchased inconjunction with the acquisitions of first aid, safety and fire protection anddocument management businesses.  Capitalexpenditures exceeded depreciation expense by $21 million.   During the year, Cintas completedconstruction of five new uniform rental facilities and has an additional threeuniform rental facilities in various stages of construction to accommodategrowth in rental operations.

 

Total debt decreased $12 million through repayment of certain debt, netof the change in fair market value of the debt (see Note 5 entitled Long-TermDebt of “Notes to Consolidated Financial Statements”).

 

FISCAL 2004 COMPARED TO FISCAL 2003

 

Fiscal 2004 total revenue was $2.8 billion, an increase of 4.7% overfiscal 2003.  This growth was achieveddespite the difficult economic environment that existed for much of theyear.  Internal growth for fiscal 2004,when adjusted for the additional workday in fiscal 2004 as compared to fiscal2003, was 3.0%.  Weakness in employmentnumbers through the first half of our fiscal year directly affected ourbusiness, mainly through reduced uniform wearers and usage of related products,and caused our internal growth rate to be lower than our stated objective.  As employment numbers strengthened over thesecond half of the year, our internal growth rates improved.  Internal growth by quarter is shown in thetable below.  Internal growth percentageshave been adjusted for the appropriate number of workdays, by quarter and forthe year, where applicable.

 
| ** **                              | ** ** | **Total Company  Internal Growth** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|
|                                    |       |                               |       |
| First Quarter Ending August 31, 2003    |       | 1.1                                | %          |
| Second Quarter Ending November 30, 2003 |       | 2.3                                | %          |
| Third Quarter Ending February 29, 2004  |       | 3.7                                | %          |
| Fourth Quarter Ending May 31, 2004      |       | 5.0                                | %          |
|                                    |       |                               |       |
| For the Year Ending May 31, 2004        |       | 3.0                                | %          |

 

Historically, increases in our internal growth rate have lagged aneconomic upturn as customers add individuals to existing rental or salesprograms or enter into new rental or sales programs.  Our internal growth continues to be generatedmainly through the continued sale of uniform rental programs to new customersand the increased penetration of ancillary products to our existing customerbase.

 

The remaining growth in total revenue was generated predominantlythrough acquisitions of first aid and safety service businesses and documentmanagement businesses.  Informationrelated to acquisitions is discussed in Note 8 entitled Acquisitions of “Notesto Consolidated Financial Statements.”

 

Rentals operating segment revenues consist predominantly of revenuesderived from the rental and/or sale of corporate identity uniforms, mats, shoptowels, restroom supplies and other rental services.  Revenue from the Rentals segment increased4.3%, when adjusted for the extra workday that occurred in fiscal 2004 ascompared to fiscal 2003.  Internal revenuegrowth for the Rentals segment was 4.2%, adjusted for the additionalworkday.  The amount of acquired rentalvolume was insignificant for the year ending May 31, 2004.

 

The increase in Rentals revenue was primarily due to growth in thecustomer base as well as the continued penetration of ancillary products intoour existing customer base.  New businessremained healthy as we experienced continued

 

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success in selling uniform rental programs to new customers.  We continue to expand our rental market, withover half of our new business being comprised of customers who were first timeusers of uniform rental programs.  Rentalsrevenue growth was mitigated by lost business and reductions in existing businessattributable to the sluggish economy, especially during the first half of theyear.

 

Other Services operating segment revenues are predominantly derivedfrom the design, manufacture and direct sale of uniforms to our customers andthe sale of other direct sale products and services.  Other direct sale products and servicesinclude cleanroom supplies, first aid and safety products and services anddocument management services.  OtherServices revenue increased 4.4%, when adjusted for the extra workday thatoccurred in fiscal 2004 as compared to fiscal 2003, primarily due toacquisitions of first aid and safety services and document managementbusinesses.

 

Internal revenue in the Other Services segment, adjusted for theadditional workday in fiscal 2004, decreased by 1.3% for the year.  This decrease was mainly due to the continueddifficulty experienced by our uniform direct sale customers in the hospitalityand airline industries.  Weakness in thehospitality sector and delayed purchases by large national account customers havecontinued to impact our direct sales effort. Partially offsetting this internal revenue decrease in uniform directsale revenues were increased revenues from the sale of first aid products andservices and document management services.

 

Cost of rentals increased 4.2% over fiscal 2003.  Cost of rentals consists primarily ofproduction expenses, delivery expenses and the amortization of in serviceinventory, including uniforms and other rental items.  The cost increase over fiscal 2003 wasprimarily driven by the growth in Rentals segment revenues.  An increase in fuel and energy costs and arise in labor delivery costs also contributed to this increase.  Further assimilation of operations obtainedthrough the Omni acquisition and various cost containment initiativesimplemented throughout the year mitigated the increased fuel, energy anddelivery costs.

 

Cost of other services increased 2.8% over fiscal 2003.  Cost of other services consists primarily ofcost of goods sold (predominantly uniforms and first aid products), deliveryexpenses and distribution expenses.  Theincrease over fiscal 2003 was due to the growth in Other Services revenue,derived predominantly through acquisitions. The increased volume afforded additional overhead coverage, therebyproviding a decrease in cost of other services as a percent to Other Servicesrevenue from 67.3% in fiscal 2003 to 66.1% in fiscal 2004.  Sourcing and manufacturing efficiencies andother cost containment initiatives, including Six Sigma initiatives,implemented throughout the year supported this reduction in cost of otherservices as a percent to Other Services revenue.

 

Selling and administrative expenses increased 4.6% over fiscal 2003,primarily due to increased revenues.  Thecontinued rise in medical costs and increased legal expenses contributed to theincrease.

 

Net interest expense decreased $6 million from the prior year.  This decrease was primarily a result of lowerdebt outstanding.  Total outstanding debtdecreased $79 million from May 31, 2003 to May 31, 2004, as cash fromoperations was used to reduce debt which had been incurred predominantly duringthe acquisition of Omni in May 2002 (see the Liquidity and Capital Resourcessection below and Note 5 entitled Long-Term Debt of “Notes to ConsolidatedFinancial Statements”).

 

A write-off of a loan receivable from a garment manufacturer isincluded in net income as a pre-tax charge of $4.3 million.  Due to developments concerning the supplier’sviability to remain as a going concern, the collectibility of the receivablewas doubtful.  As such, the receivablewas completely written off.

 

Pre-tax income was $432 million, a 9.2% increase over fiscal 2003.  Pre-tax income from the Rentals segmentincreased 6.7% over the prior year due to higher rental revenue, increasedefficiencies obtained from the assimilation of operations obtained from theOmni acquisition and various cost containment initiatives.  Pre-tax income for the Other Services segmentincreased 19.6% from the prior year, due to increased sales volume, thecontinued leveraging of fixed costs and sourcing and cost containmentinitiatives.

 

Cintas’ effective tax rate was 37.0% for both fiscal 2004 and fiscal2003 (see also Note 7 entitled Income Taxes of “Notes to Consolidated FinancialStatements”).

 

Net income for fiscal 2004 of $272 million was a 9.2% increase overfiscal 2003 and diluted earnings per share of $1.58 was a 9.0% increase overfiscal 2003.  Return on average equitywas 15.4% in fiscal 2004 and 16.2% in fiscal 2003.  Return on average equity is computed as netincome divided by the average of shareholders’ equity.

 

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Cash, cash equivalents and marketable securities increased by $197million in fiscal 2004, or 341.1%, primarily due to increased revenues, areduction in inventory levels and, to a lesser extent, a reduction in uniformand other rental items in service levels. Cash, cash equivalents and marketable securities will be used to financefuture acquisitions, capital expenditures and expansion.  Marketable securities consist primarily ofmunicipal bonds and federal government securities.

 

Accounts receivable increased $7 million due to increasedrevenues.  Aggressive collection effortsprovided for a lower sequential increase in accounts receivable as compared tototal revenue growth.

 

Inventories decreased $43 million due to improved processes andmanagement systems, including cycle time reductions and other processimprovements initiated primarily through our Six Sigma process.  The completion of the Omni product lineconsolidation also contributed to this decrease in inventory levels.

 

Net property and equipment increased by $8 million due to real estatepurchased in conjunction with the acquisitions of first aid and safety servicesand document management businesses. Depreciation expense exceeded capital expenditures by $4 million asCintas continued to consolidate operations obtained from the Omni acquisitionin May of 2002.  In addition, due toexcess plant capacity and a sluggish economy, Cintas slowed the pace of newplant construction.  During the year,Cintas completed construction of four new uniform rental facilities and has anadditional eight uniform rental facilities in various stages of construction toaccommodate growth in rental operations.

 

Total debt decreased $79 million through repayment of certain debtrelated to the purchase of Omni, net of the change in fair market value of thedebt (see Note 5 entitled Long-Term Debt of “Notes to Consolidated FinancialStatements”).  This significant debtreduction was possible due to strong cash flows being generated by operations.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At May 31, 2005, Cintas had $309 million in cash, cash equivalents andmarketable securities, representing an increase of $55 million from May 31,2004.  This increase is primarily due to increasednet income.   Cash generated fromoperations was $414 million in fiscal 2005 as compared to $510 milliongenerated in fiscal 2004.  This $96 milliondecrease was primarily due to increased accounts receivable and inventorylevels.  Significant uses of cash infiscal 2005 were capital expenditures of $141 million, acquisitions of $109million (net of cash acquired), common stock repurchases of $58 million anddividends of $55 million.

 

Cintas’ investment policy pertaining to marketable securities isconservative.  Preservation of principal,while earning an attractive yield, is the criteria used in making investmentdecisions.

 

Working capital increased $102 million to $810 million in fiscal2005.  This increase is primarily theresult of increased cash and marketable securities and accounts receivable.

 

Capital expenditures for fiscal 2005 totaled $141 million, including$118 million for the Rentals segment and $23 million for Other Services.  Cintas continues to reinvest in land,buildings and equipment in an effort to expand capacity for future growth.  Cintas anticipates that capital expendituresfor fiscal 2006 will be between $150 and $170 million.

 

On May 13, 2002, Cintas completed the acquisition of Omni Services,Inc.  This acquisition, coupled withsmaller acquisitions in both the Rentals and Other Services segments, wasfinanced with a combination of cash, long-term notes and commercial paper.  As a result of this additional debt, thetotal debt to total capitalization ratio was 33.6% at May 31, 2002.  Significant debt repayments have occurredsince that time, including $11 million in fiscal 2005 and $69 million in fiscal2004.  The total debt to totalcapitalization ratio has decreased to 18.3% at May 31, 2005.

 

The long-term notes total $500 million and consist of $225 million withfive-year maturities at a rate of 5.125% and $225 million with ten-yearmaturities at a rate of 6.0%.  Cintas hasearned credit ratings on these notes of “A” from Standard & Poor’s and “A2”from Moody’s.  Cintas also utilizes a$300 million commercial paper program, on which it has earned credit ratings of“A-1” from Standard & Poor’s and “Prime-1” from Moody’s.  According to Standard & Poor’s and Moody’s,these ratings reflect Cintas’ commitment to conservative financial policies,strong financial management and a disciplined integration strategy foracquisitions.  The commercial paperprogram is fully supported by a long-term credit facility that matures in2009.  As of May 31, 2005, there is nocommercial paper outstanding.  Subsequentto May 31, 2005, Cintas borrowed $64 million under the $300 million commercialpaper program for short-term cash requirements. This financing decision was made in order to allow certain marketablesecurities to reach maturity rather than Cintas incurring a penalty for earlyredemption.

 

During the year, Cintas paid dividends of $55 million, or $0.32 pershare.  On a per share basis, thisdividend is an increase of 10.3% over the dividend paid in fiscal 2004.  This marks the 22nd consecutiveyear that Cintas has increased

 

15

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its annual dividend since going public in 1983.

 

On May 2, 2005, Cintas announced that the Board of Directors authorizeda $500 million stock repurchase program at market prices.  During fiscal 2005, we purchasedapproximately 1.5 million shares of Cintas stock at an average price of $39.62per share, for a total purchase price of approximately $58 million.  Due to the stock being purchased late infiscal 2005, the amount of purchased shares did not change fiscal 2005 earningsper share. Subsequent to May 31, 2005, Cintas purchased approximately 2.4million additional shares of Cintas stock at an average price of $39.08 pershare for a total purchase price of approximately $96 million.  As such, from the inception of the stockrepurchase program through July 22, 2005, Cintas has purchased approximately3.9 million shares of Cintas stock at an average price of $39.27 per share fora total purchase price of approximately $154 million.  The Board did not specify an expiration datefor this program.

 

Following is information regarding Cintas’ long-term contractualobligations and other commitments outstanding as of May 31, 2005:

 

LONG-TERM CONTRACTUAL OBLIGATIONS

 
| ** **                         | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** | **Two to** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | ** **                 | ** ** | **One year** | ** ** | **three** | ** ** | **Four to** | ** ** | **After five** | ** ** |
| **(In thousands)**                 | ** ** | **Total**                  | ** ** | **or less** | ** ** | **years** | ** ** | **five years** | ** ** | **years** | ** ** |
|                               |       |                       |       |   |   |   |   |   |   |   |   |
| Long-term debt (1)                 |       | $                          | 469,668    |   | $ | 6,731 |   | $ | 232,033 |   | $ | 872 |   | $ | 230,032 |   |
| Capital lease obligations (2)      |       | 2,923                      |       | 569 |   | 1,213 |   | 661 |   | 480 |   |
| Operating leases (3)               |       | 61,814                     |       | 18,572 |   | 25,819 |   | 10,863 |   | 6,560 |   |
| Interest payments (4)              |       | 125,345                    |       | 26,225 |   | 43,147 |   | 27,708 |   | 28,265 |   |
| Interest swap agreements (5)       |       | (1,719                     | )          | (101 | ) | (1,618 | ) | — |   | — |   |
| Unconditional purchase obligations |       | —                     |       | — |   | — |   | — |   | — |   |
| Total contractual cash obligations |       | $                          | 658,031    |   | $ | 51,996 |   | $ | 300,594 |   | $ | 40,104 |   | $ | 265,337 |   |

 

Cintas also makes payments to defined contribution plans.  The amounts of contributions made to theplans are made at the discretion of Cintas. Future contributions are expected to increase 15% annually.  Assuming this 15% increase, payments due inone year or less would be $29,397, two to three years would be $72,685 and fourto five years would be $96,126.  Paymentsfor years thereafter are expected to continue increasing by 15% each year.

 

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(1)   Long-termdebt primarily consists of $450,000 in long-term notes related to the Omniacquisition.  Reference Note 5 entitledLong-Term Debt of “Notes to Consolidated Financial Statements” for a detaileddiscussion of long-term debt.

(2)   Capitallease obligations are included in long-term debt detailed in Note 5 entitledLong-Term Debt of “Notes to Consolidated Financial Statements.”

(3)   Operatingleases consist primarily of building leases and synthetic leases on twocorporate jets.

(4)   Interestpayments include interest on both fixed and variable rate debt.  Rates have been assumed to increase 100 basispoints for fiscal 2006, an additional 50 basis points in fiscal 2007 and thenremain constant in future years.

(5)   ReferenceNote 5 entitled Long-Term Debt of “Notes to Consolidated Financial Statements”for a detailed discussion of interest swap agreements.

 

OTHER COMMITMENTS

 

 
| ** **                     | ** ** | **Amount of Commitment Expiration Per Period** | ** ** |
|--------------------------------|------------|------------------------------------------------|------------|
| ** **                     | ** ** | ** **                                     | ** ** | ** ** | ** ** | **Two to** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                     | ** ** | ** **                                     | ** ** | **One year** | ** ** | **three** | ** ** | **Four to** | ** ** | **After five** | ** ** |
| **(In thousands)**             | ** ** | **Total**                                      | ** ** | **or less** | ** ** | **years** | ** ** | **five years** | ** ** | **Years** | ** ** |
|                           |       |                                           |       |   |   |   |   |   |   |   |   |
| Lines of credit (1)            |       | $                                              | 300,000    |   | $ | — |   | $ | — |   | $ | 300,000 |   | $ | — |   |
| Standby letters of credit (2)  |       | 43,662                                         |       | 43,662 |   | — |   | — |   | — |   |
| Guarantees                     |       | —                                         |       | — |   | — |   | — |   | — |   |
| Standby repurchase obligations |       | —                                         |       | — |   | — |   | — |   | — |   |
| Other commercial commitments   |       | —                                         |       | — |   | — |   | — |   | — |   |
| Total commercial commitments   |       | $                                              | 343,662    |   | $ | 43,662 |   | $ | — |   | $ | 300,000 |   | $ | — |   |

 

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(1)   Back-upfacility for the commercial paper program (reference Note 5 entitled Long-TermDebt of “Notes to Consolidated Financial Statements” for further discussion).

 

16

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(2)   Supportcertain outstanding debt (reference Note 5 entitled Long-Term Debt of “Notes toConsolidated Financial Statements”), self-insured workers’ compensation andgeneral liability insurance programs.

 

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

 

INFLATION AND CHANGING PRICES

 

Changes in wages, benefits and oil and fuel costs have the potential tomaterially impact Cintas’ financial results. Medical benefits and oil and fuel costs, in particular, continue torise.  Medical benefit costs haveincreased due to a combination of rising healthcare costs and an increase inthe number of covered participants. Medical benefits were 3.1% of total revenues in fiscal 2005 and 2.9% oftotal revenues in fiscal 2004.  Oil andfuel costs were 2.8% of total revenues in fiscal 2005 and 2.5% of totalrevenues in fiscal 2004.

 

Management believes inflation has not had a material impact on Cintas’financial condition or a negative impact on operations.

 

LITIGATION AND OTHER CONTINGENCIES

 

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

 

Cintas is a defendant in a purported class action lawsuit, *Paul Veliz, et al., v. Cintas Corporation*, filed on March19, 2003, in the United States District Court, Northern District of California,Oakland Division, alleging that Cintas violated certain federal and state wageand hour laws applicable to its service sales representatives, whom Cintasconsiders exempt employees, and asserting additional related ERISA claims.  The plaintiffs are seeking unspecifiedmonetary damages, injunctive relief or both. Cintas denies these claims and is defending the plaintiffs’allegations.  The court orderedarbitration for all potential plaintiffs except for those that fall into one offour narrowly defined exceptions.  As aresult, Cintas believes that a majority of the potential plaintiffs will berequired to arbitrate their claims.  Nodetermination has been made by the court or an arbitrator regarding classcertification.  There can be no assuranceas to whether a class will be certified or, if a class is certified, as to thegeographic or other scope of such class. If a court or arbitrator certifies a class in this action and there isan adverse verdict on the merits, or in the event of a negotiated settlement ofthe action, the resulting liability and/or any increased costs of operations onan ongoing basis could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable atthis time.

 

Cintas is also a defendant in a purported class action lawsuit, *Robert Ramirez, et al., v. Cintas Corporation*, filed onJanuary 20, 2004, and pending in the United States District Court, NorthernDistrict 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 engagedin a pattern and practice of discriminating against women and minorities inrecruitment, hiring, promotions, transfers, job assignments and pay.  The complaint seeks injunctive relief,compensatory damages, punitive damages and attorney’s fees, among otherthings.  Cintas denies these claims andis defending the plaintiffs’ allegations. The court ordered arbitration as to three of the ten namedplaintiffs.  On April 27, 2005, theUnited States Equal Employment Opportunity Commission (EEOC) filed a motion tointervene in order to participate in this lawsuit.  No filings or determination has been made inregard to the lawsuit as to class certification.  There can be no assurance as to whether aclass will be certified or, if a class is certified, as to the geographic orother scope of such class.  Severalrelated proceedings with similar allegations and seeking similar relief damagesand fees are pending, including an EEOC charge filed on April 17, 2000, byMirna Serrano with the EEOC Detroit District office on behalf of female servicesales representative job applicants at all Cintas locations in Michigan, aclass action lawsuit, *Mirna E. Serrano, et al.,v. Cintas Corporation*, filed on May 10, 2004, in the United StatesDistrict Court for the Eastern District of Michigan, Southern Division on behalfof the same female service sales representative job applicants in the EEOCcharge, and an administrative action filed on December 15, 2004, by JamesMorgan with the EEOC Washington, D.C. office and the California Department ofFair Employment and Housing alleging racial discrimination in compensation andtraining opportunities.  In addition, aclass action lawsuit, *Larry Houston, et al., v.Cintas Corporation*, was filed on August 3, 2005, in the UnitedStates District Court for the Northern District of California on behalf ofAfrican-American managers alleging racial discrimination. If there is anadverse verdict or a negotiated settlement of these actions, the resultingliability and/or any increased costs of operations on an ongoing basis could bematerial to Cintas.  Any estimatedliability relating to these proceedings is not determinable at this time.

 

17

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Several other similar administrative proceedings are pending including:(i) two charges filed on November 30, 2004, by an EEOC Commissioner with theEEOC Systemic Litigation Unit alleging failure to hire and assign females toproduction job positions, and, failing to hire females, African-Americans andHispanics into the Management Trainee program, (ii) a charge filed on January24, 2005, by Jennifer Fargo on behalf of herself and a similarly situated classwith the Augusta Human Relations Commission and the EEOC Detroit Districtoffice alleging gender and equal pay discrimination against female sales representativesand sales associates, (iii) a charge filed on March 23, 2005, by Clifton Cooperon behalf of himself and a similarly situated class with the EEOC SystemicLitigation Unit alleging discriminatory pay and treatment due to race, (iv) acharge filed on March 28, 2005, by Lorelei Reynolds on behalf of herself and asimilarly situated class with the EEOC Birmingham District allegingdiscriminatory pay and treatment due to race and gender, (v) a charge filed onApril 25, 2005, by Melissa Schulz on behalf of herself and a similarly situatedclass with the EEOC Systemic Litigation Unit and the Oregon Bureau of Labor andIndustries, Civil Rights Division alleging discriminatory pay and treatment dueto race and gender, (vi) a charge filed on May 6, 2005, by Anthony Jones onbehalf of himself and a similarly situated class with the EEOC SystemicLitigation 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 asimilarly situated class with the EEOC Systemic Litigation Unit allegingdiscriminatory pay and treatment due to race and gender.  The investigations of these allegations arepending and no determinations have been made.

 

Cintas is also a defendant in a lawsuit, *J. LesterAlexander, III vs. Cintas Corp., et al*., which was originally filedon October 25, 2004, and is currently pending in the United States BankruptcyCourt for the Middle District of Alabama, Eastern Division.  The case wasbrought by J. Lester Alexander, III, the Chapter 7 Trustee (the “Trustee”) ofTerry Manufacturing Company, Inc. (“TMC”) and Terry Uniform Company, LLC (“TUC”),against Cintas in Randolph County, Alabama.  The Trustee seeks damagesagainst Cintas for allegedly breaching fiduciary duties to TMC and TUC and forallegedly aiding and abetting breaches of fiduciary duties by others to thoseentities.  The complaint also includes allegations that Cintas breachedcertain limited liability company agreements, or alternatively, misrepresentedtheir intention to perform their obligations in those agreements and acted asalter egos of the bankrupt TMC and are therefore liable for all of TMC’sdebts.  The Trustee is seeking $50 million in compensatory damages and$100 million in punitive damages.  Cintas denies these claims and isvigorously defending itself against all claims in the complaint.   Ifthere is an adverse verdict on the merits or in the event of a negotiatedsettlement of this lawsuit, the resulting liability could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable at thistime.

 

During fiscal 2001, the State of Connecticut filed suit against Cintasin the Superior Court District of Hartford alleging various violations of stateenvironmental laws and alleging that Cintas violated certain wastewaterdischarge and hazardous waste violations. While this proceeding is not considered material to the business orfinancial condition of the registrant, management reasonably believes that theproceedings will result in monetary sanctions in excess of $100 thousand.  A reserve has been established for theestimated liability related to these allegations.

 

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

 

Cintas is subject to various environmental laws and regulations, as areother companies in the industry.  Whileenvironmental compliance is not a material component of our costs, Cintas mustincur capital expenditures and associated operating costs, primarily for watertreatment and waste removal, on a regular basis.  Environmental spending related to watertreatment and waste removal was approximately $14 million in fiscal 2005 andapproximately $12 million in fiscal 2004. Capital expenditures to limit or monitor hazardous substances were $4million in fiscal 2005 and $3 million in fiscal 2004.  These expenditures were primarily related tothe purchase of water treatment systems, which are depreciated over a usefullife of ten years.  Cintas does notexpect a material change in the cost of environmental compliance on a percentto sale basis and is not aware of any material non-compliance withenvironmental laws.

 

NEW ACCOUNTING STANDARDS

 

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 issimilar to the approach described in Statement 123.  However, Statement123R requires all share-based payments to employees, including grants ofemployee stock options, to be recognized in the income statement based on theirfair values.  Pro forma disclosure is nolonger an alternative.  The new standardwill be effective for public entities (excluding small business issuers) nolater than the beginning of the first fiscal year beginning after June 15, 2005.  Cintas will adopt this Statement no laterthan the first quarter of fiscal 2007. Cintas is in the process of determiningthe impact that the adoption of this Statement will have on its financialposition and results of operations.

 

18

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CRITICAL ACCOUNTING POLICIES

 

The preparation of Cintas’ consolidated financial statements inconformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and judgments that have a significant effect onthe amounts reported in the financial statements and accompanying notes.  These critical accounting policies should beread in conjunction with Note 1 entitled Significant Accounting Policies of “Notesto Consolidated Financial Statements.” Significant changes, estimates or assumptions related to any of thefollowing critical accounting policies could possibly have a material impact onthe financial statements.

 

*Revenue recognition*

* *

Rental revenue is recognized when services are performed and otherservices revenue is recognized either when services are performed or whenproducts are shipped and the title and risks of ownership pass to thecustomer.  Cintas establishes anallowance for uncollectible accounts. This allowance is an estimate based on historical rates of collectibility.  An uncollectible accounts provision isrecorded for overdue amounts, beginning with a nominal percentage andincreasing substantially as the account ages. The amount provided as the account ages will differ slightly between theRentals and Other Services segments, because of differences in customers servedand the nature of each business segment.

 

*Inventories*

 

Inventories are valued at the lower of cost (first-in, first-out) ormarket.  Substantially all inventoriesrepresent finished goods.  Cintas appliesa commonly accepted practice of using inventory turns to apply variancesbetween actual to standard costs to the inventory balances.  The judgments and estimates used to calculateinventory turns will have an impact on the valuation of inventory at the lowerof cost or market.  Inventoryobsolescence is determined by specific identification, as well as an estimatebased on historical rates of obsolescence.

 

*Uniforms and other rental items in service*

 

Uniform and other rental items in service are valued at cost lessamortization, calculated using the straight-line method.  Uniforms in service (other than cleanroom andflame resistant garments) are amortized over their useful life of eighteenmonths.  Other rental items includingshop towels, mats, cleanroom garments, flame resistant garments, linens andrestroom dispensers are amortized over their useful lives of eight toforty-eight months.  The amortizationrates used are based on industry experience, Cintas’ experience and wear testsperformed by Cintas.  These factors arecritical to determining the amount of in service inventory that is presented inthe financial statements.

 

*Property and equipment*

 

Depreciation is calculated using the straight-line method over theestimated useful lives of the assets, which is typically thirty to forty yearsfor buildings, five to twenty years for building improvements, three to tenyears for equipment and two to five years for leasehold improvements.  When events or circumstances indicate thatthe carrying amount of long-lived assets may not be recoverable, the estimatedfuture cash flows (undiscounted) are compared to the carrying amount of theassets.  If the estimated future cashflows are less than the carrying amount of the assets, an impairment loss is recorded.  The impairment loss is measured by comparingthe fair value of the assets with their carrying amounts.  Fair value is determined by discounted cashflows or appraised values, as appropriate. Long-lived assets that are held for disposal are reported at the lowerof the carrying amount or the fair value, less estimated costs related todisposition.

 

*Goodwill and impairment*

* *

Goodwill, primarily obtained throughacquisitions of businesses, is valued at cost less any impairment.  Cintas performs annual impairment tests bysegment.  These tests include comparisonsto current market values, where available, and discounted cash flowanalyses.  Significant assumptionsinclude growth rates based on historical trends and margin improvementleveraged from such growth.  Based on theresults of the impairment tests, Cintas has not recognized an impairment ofgoodwill for the years ended May 31, 2005, 2004 or 2003.

 

*Service contracts and other assets*

 

Service contracts and other assets, which consist primarily of noncompeteand consulting agreements obtained through acquisitions of businesses, areamortized by use of the straight-line method over the estimated lives of theagreements, which are generally five to ten years.  Certain noncompete agreements, as well as allservice contracts, require that a valuation be determined using a discountedcash flow model.  The assumptions andjudgments used in these models

 

19

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involve estimates of cash flows and discount rates, among otherfactors.  Because of the assumptions usedto value these intangible assets, actual results over time could vary fromoriginal estimates.  Impairment ofservice contracts and other assets is through specific identification.  No impairment has been recognized by Cintasfor the years ended May 31, 2005, 2004 or 2003.

 

*Environmental matters and related litigation*

 

Cintas is subject to legal proceedings and claims related toenvironmental matters arising from the ordinary course of business.  U.S. generally accepted accounting principlesrequire that a liability for contingencies be recorded when it is probable thata liability has occurred and the amount of the liability can be reasonablyestimated.  Significant judgment isrequired to determine the existence of a liability, as well as the amount to berecorded.  Cintas regularly consults withattorneys to ensure that all of the relevant facts and circumstances areconsidered before a contingent liability is recorded.  While a significant change in assumptions andjudgments could have a material impact on the amounts recorded for contingentliabilities, Cintas does not believe that they will result in a materialadverse effect on the financial statements. A detailed discussion of litigation matters is discussed above in thesection entitled Litigation and Other Contingencies.

 

*Income taxes*

 

Deferred tax assets and liabilities are determined by the differencesbetween the financial statement carrying amounts and the tax basis of assetsand liabilities.  Please reference Note 7entitled Income Taxes of “Notes to Consolidated Financial Statements” for thetypes of items that give rise to significant deferred income tax assets andliabilities.  Deferred income taxes areclassified as assets or liabilities based on the classification of the relatedasset or liability for financial reporting purposes.  Deferred income taxes that are not related toan asset or liability for financial reporting are classified according to theexpected reversal date.  Cintas regularlyreviews deferred tax assets for recoverability based upon projected futuretaxable income and the expected timing of the reversals of existing temporarydifferences.  As a result of this review,Cintas has not established a valuation allowance against the deferred taxassets.

 

Cintas is periodically reviewed by domestic and foreign tax authoritiesregarding the amount of taxes due.  Thesereviews include questions regarding the timing and amount of deductions and theallocation of income among various tax jurisdictions.  In evaluating the exposure associated withvarious filing positions, Cintas records reserves for probable exposures.  Based on Cintas’ evaluation of current taxpositions, Cintas believes it has appropriately accrued for probable exposures.

 

OUTLOOK

 

As we look forward to fiscal 2006, our outlook remains positive, butguarded.  As the economy has strengthenedand employment rates have improved, our internal growth rates have alsocontinued to improve.  Based on ourmarketing data, we have a relatively low 7% market share of a $42.5 billionestimated potential market.  As such, wesee upside potential for all of our business units.  Although difficult to predict, we anticipatecontinued growth in all of our business units. Overall performance will be largely driven by external marketconditions.

 

In the marketplace, competition and related pricing pressure willcontinue; however, we believe cost containment initiatives, technologicaladvances and continued leverage of our infrastructure will soften or offset anyimpact.

 

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

 

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

 

Cintas continues to be the target of a corporate unionization campaignby UNITE HERE and the Teamsters unions. These unions are attempting to pressure Cintas into surrendering ouremployees’ rights to a government-supervised election and unilaterally acceptunion representation.  This isunacceptable.  Cintas’ philosophy inregard to unions is straightforward:  Webelieve that employees have the right to say yes to union representation andthe freedom to say no.  This campaigncould be materially disruptive to our business and could materially adverselyaffect results of operations.  We willcontinue to vigorously oppose this campaign and to defend our employees’rights.

 

We believe that the high level of customer service provided by ourpartners and supported by our infrastructure, quality products, financialresources and corporate culture will provide for continued businesssuccess.  However, a number of factorsinfluence future revenue, margins and profit which make forecasting difficult.

 

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ITEM7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE

# ABOUT MARKET RISK

 

Cintas manages interest rate risk by using a combination of variableand fixed rate debt, marketable securities and interest rate swapagreements.  Earnings are affected bychanges in short-term interest rates due to the use of variable rate notes andrevolving credit facilities amounting to approximately $230 million, with anaverage interest rate of 4.6%.  Thisexposure is limited by the purchase of marketable securities and interest rateswap agreements as a hedge against variability in short-term rates.  If short-term rates change by one-halfpercent (or 50 basis points), Cintas’ income before taxes would change byapproximately $1 million.  This estimatedexposure considers the mitigating effects of marketable securities and swapagreements on the change in the cost of variable rate debt.  This analysis does not consider the effectsof a change in economic activity or a change in Cintas’ capital structure.

 

Through its foreign operations, Cintas is exposed to foreign currencyrisk.  Foreign currency exposures arisefrom transactions denominated in a currency other than the functional currencyand from foreign denominated revenue and profit translated into U.S.dollars.  The primary foreign currency towhich Cintas is exposed is the Canadian dollar. Cintas does not currently use forward exchange contracts to limitpotential losses in earnings or cash flows from foreign currency exchange ratemovements.

 

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index to Consolidated FinancialStatements

 
| Audited  Consolidated Financial Statements for the Years Ended May 31, 2005, 2004 and  2003 |   |
|---------------------------------------------------------------------------------------------|--------|
|                                                                                        |   |
| Management’s  Report on Internal Control over Financial Reporting                      |   |
|                                                                                        |   |
| Reports of  Ernst & Young LLP, Independent Registered Public Accounting Firm            |   |
|                                                                                        |   |
| Consolidated  Statements of Income                                                          |   |
|                                                                                        |   |
| Consolidated  Balance Sheets                                                                |   |
|                                                                                        |   |
| Consolidated  Statements of Shareholders’ Equity                                       |   |
|                                                                                        |   |
| Consolidated  Statements of Cash Flows                                                      |   |
|                                                                                        |   |
| Notes to Consolidated Financial Statements                                                  |   |

 

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Management’s Report on Internal Control overFinancial Reporting

 

To the Shareholders of Cintas Corporation:

 

Our management is responsible for establishing and maintaining adequateinternal control over financial reporting (as defined in Rule 13a-15(f) underthe Securities Exchange Act of 1934) to provide reasonable assurance regardingthe reliability of our financial reporting and the preparation of financialstatements for external purposes in accordance with accounting principlesgenerally accepted in the United States. Internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the company’sassets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.  Accordingly, even an effective system ofinternal control over financial reporting will provide only reasonableassurance with respect to financial statement preparation.

 

With the supervision of our President and Chief Executive Officer andour Chief Financial Officer, management assessed our internal control overfinancial reporting as of May 31, 2005. Management based its assessment oncriteria established in *Internal Control -Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).  Management’s assessment included evaluationof such elements as the design and operating effectiveness of key financialreporting controls, process documentation, accounting policies and our overallcontrol environment. This assessment is supported by testing and monitoringperformed by our internal audit function.

 

Based on our assessment, management has concluded that our internalcontrol over financial reporting was effective as of May 31, 2005, to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external reporting purposes inaccordance with accounting principles generally accepted in the United States.

 

We reviewed the results of management’s assessment with the AuditCommittee of our Board of Directors. Additionally, our independent registeredpublic accounting firm, Ernst & Young LLP, audited management’s assessmentand independently assessed the effectiveness of Cintas’ internal control overfinancial reporting. Ernst & Young has issued an attestation report, whichis included in this Annual Report.

 
|   | /s/ Scott D. Farmer                               |   |
|--------|---------------------------------------------------|--------|
|   | Scott D. Farmer                                   |
|   | President and Chief Executive Officer             |
|   |                                              |
|   |                                              |
|   | /s/ William C. Gale                               |   |
|   | William C. Gale                                   |
|   | Senior Vice President and Chief Financial Officer |
|   |                                              |

 

 

23

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Report of Independent Registered PublicAccounting Firm

 

To the Board of Directors and Shareholders of

Cintas Corporation:

 

We have auditedmanagement’s assessment, included in the accompanying Management’s Report onInternal Controls over Financial Reporting, that Cintas Corporation maintainedeffective internal control over financial reporting as of May 31, 2005, basedon criteria established in *Internal Control — Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (the COSOcriteria). Cintas Corporation’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the company’s internal control over financialreporting based on our audit.

 

We conducted our auditin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects. Our auditincluded obtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing suchother procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.

 

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

 

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In our opinion, management’s assessment that Cintas Corporationmaintained effective internal control over financial reporting as of May 31,2005, is fairly stated, in all material respects, based on the COSOcriteria.  Also, in our opinion, CintasCorporation maintained, in all material respects, effective internal controlover financial reporting as of May 31, 2005, based on****the COSO criteria**.**

 

We also have audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the consolidated balancesheets of Cintas Corporation as of May 31, 2005 and 2004, and the relatedconsolidated statements of income, shareholders’ equity and cash flows for eachof the three years in the period ended May 31, 2005 of Cintas Corporation, andour report dated July 22, 2005, expressed an unqualified opinion thereon.

 

 
|   | /s/ ERNST & YOUNG LLP |   |
|--------|---------------------------|--------|

 

Cincinnati, Ohio

July 22, 2005

 

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Report of Independent Registered PublicAccounting Firm

 

To the Board of Directors and Shareholders of

Cintas Corporation:

 

We have audited the accompanyingconsolidated balance sheets of Cintas Corporation as of May 31, 2005 and 2004,and the related consolidated statements of income, shareholders’ equity, andcash flows for each of the three years in the period ended May 31, 2005. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the financialstatements referred to above present fairly, in all material respects, theconsolidated financial position of Cintas Corporation at May 31, 2005 and 2004,and the consolidated results of its operations and its cash flows for each ofthe three years in the period ended May 31, 2005, in conformity with U.S.generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the effectiveness of CintasCorporation’s internal control over financial reporting as of May 31, 2005,based on criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission, and our report dated July 22, 2005,expressed an unqualified opinion thereon.

 

 
|   | /s/ ERNST & YOUNG LLP |   |
|--------|---------------------------|--------|

 

Cincinnati, Ohio

July 22, 2005

 

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CINTAS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Years Ended May 31

(In thousands except per share data)

 
| ** **                            | ** ** | **2005**  | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|---------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Revenue:                              |       |      |       |      |       |      |       |
| Rentals                               |       | $         | 2,363,397  |      | $          | 2,201,405 |       | $ | 2,101,785 |   |
| Other services                        |       | 703,886   |       | 612,654   |       | 584,800   |       |
|                                  |       | 3,067,283 |       | 2,814,059 |       | 2,686,585 |       |
|                                  |       |      |       |      |       |      |       |
| Costs and expenses (income):          |       |      |       |      |       |      |       |
| Cost of rentals                       |       | 1,295,992 |       | 1,222,638 |       | 1,173,666 |       |
| Cost of other services                |       | 466,532   |       | 404,929   |       | 393,711   |       |
| Selling and administrative expenses   |       | 810,232   |       | 727,618   |       | 695,437   |       |
| Interest income                       |       | (6,914    | )          | (2,650    | )          | (2,905    | )          |
| Interest expense                      |       | 24,448    |       | 25,101    |       | 30,917    |       |
| Write-off of loan receivable          |       | —    |       | 4,343     |       | —    |       |
|                                  |       | 2,590,290 |       | 2,381,979 |       | 2,290,826 |       |
|                                  |       |      |       |      |       |      |       |
| Income before income taxes            |       | 476,993   |       | 432,080   |       | 395,759   |       |
| Income taxes                          |       | 176,475   |       | 159,875   |       | 146,506   |       |
| Net income                            |       | $         | 300,518    |      | $          | 272,205   |       | $ | 249,253 |   |
|                                  |       |      |       |      |       |      |       |
| Basic earnings per share              |       | $         | 1.75       |      | $          | 1.59      |       | $ | 1.46 |   |
|                                  |       |      |       |      |       |      |       |
| Diluted earnings per share            |       | $         | 1.74       |      | $          | 1.58      |       | $ | 1.45 |   |
|                                  |       |      |       |      |       |      |       |
| Dividends declared and paid per share |       | $         | .32        |      | $          | .29       |       | $ | .27 |   |

 

See accompanying notes.

 

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CINTAS CORPORATION

CONSOLIDATED BALANCE SHEETS

As of May 31

(In thousands except share data)

 
| ** **                                                                                 | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                                       |       |      |       |      |       |
| **Assets**                                                                                 |       |      |       |      |       |
| Current assets:                                                                            |       |      |       |      |       |
| Cash and cash equivalents                                                                  |       | $         | 43,196     |      | $          | 87,357 |   |
| Marketable securities                                                                      |       | 266,232   |       | 166,964   |       |
| Accounts receivable, principally trade,  less allowance of $9,891 and $8,354, respectively |       | 326,896   |       | 285,592   |       |
| Inventories, net                                                                           |       | 216,412   |       | 188,688   |       |
| Uniforms and other rental items in service                                                 |       | 305,450   |       | 298,247   |       |
| Prepaid expenses                                                                           |       | 8,358     |       | 7,395     |       |
| Total current assets                                                                       |       | 1,166,544 |       | 1,034,243 |       |
|                                                                                       |       |      |       |      |       |
| Property and equipment, at cost, net                                                       |       | 817,198   |       | 785,310   |       |
|                                                                                       |       |      |       |      |       |
| Goodwill                                                                                   |       | 889,538   |       | 805,441   |       |
| Service contracts, net                                                                     |       | 146,596   |       | 144,664   |       |
| Other assets, net                                                                          |       | 39,868    |       | 40,639    |       |
|                                                                                       |       | $         | 3,059,744  |      | $          | 2,810,297 |   |
|                                                                                       |       |      |       |      |       |
| **Liabilities and Shareholders’ Equity**                                              |       |      |       |      |       |
| Current liabilities:                                                                       |       |      |       |      |       |
| Accounts payable                                                                           |       | $         | 69,296     |      | $          | 53,451 |   |
| Accrued compensation and related liabilities                                               |       | 38,710    |       | 31,804    |       |
| Accrued liabilities                                                                        |       | 166,428   |       | 146,226   |       |
| Income taxes:                                                                              |       |      |       |      |       |
| Current                                                                                    |       | 32,864    |       | 36,640    |       |
| Deferred                                                                                   |       | 41,883    |       | 47,042    |       |
| Long-term debt due within one year                                                         |       | 7,300     |       | 10,523    |       |
| Total current liabilities                                                                  |       | 356,481   |       | 325,686   |       |
|                                                                                       |       |      |       |      |       |
| Long-term debt due after one year                                                          |       | 465,291   |       | 473,685   |       |
|                                                                                       |       |      |       |      |       |
| Deferred income taxes                                                                      |       | 133,837   |       | 122,957   |       |
|                                                                                       |       |      |       |      |       |
| Shareholders’ equity:                                                                 |       |      |       |      |       |
| Preferred stock, no par value:                                                             |       |      |       |      |       |
| 100,000 shares authorized, none outstanding                                                |       | —    |       | —    |       |
| Common stock, no par value:                                                                |       |      |       |      |       |
| 425,000,000 shares authorized                                                              |       |      |       |      |       |
| 2005: 172,127,502 shares issued and  170,658,601 shares outstanding                        |       |      |       |      |       |
| 2004: 171,377,679 shares issued and  outstanding                                           |       | 114,171   |       | 94,569    |       |
| Retained earnings                                                                          |       | 2,035,992 |       | 1,790,547 |       |
| Treasury stock:                                                                            |       |      |       |      |       |
| 2005: 1,468,901 shares                                                                     |       |      |       |      |       |
| 2004: 0 shares                                                                             |       | (58,204   | )          | —    |       |
| Other accumulated comprehensive income  (loss):                                            |       |      |       |      |       |
| Foreign currency translation                                                               |       | 13,507    |       | 4,474     |       |
| Unrealized loss on derivatives                                                             |       | (1,331    | )          | (1,621    | )          |
| Total shareholders’ equity                                                            |       | 2,104,135 |       | 1,887,969 |       |
|                                                                                       |       | $         | 3,059,744  |      | $          | 2,810,297 |   |
|                                                                                            |            |           |            |           |            |  |  |  |  |

 

See accompanying notes.

 

27

----

 

CINTAS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’EQUITY

(In thousands)

 
| ** **                                                    | ** ** | ** **       | ** ** | ** **   | ** ** | ** **        | ** ** | **Other**          | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|--------------|------------|-------------------|------------|--------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **                                                    | ** ** | ** **       | ** ** | ** **   | ** ** | ** **        | ** ** | **Accumulated**    | ** ** | ** **             | ** ** | ** ** | ** ** | **Total**  | ** ** |
| ** **                                                    | ** ** | **Common Stock** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Treasury Stock** | ** ** | **Shareholders’** | ** ** |
| ** **                                                    | ** ** | **Shares**       | ** ** | **Amount**   | ** ** | **Earnings**      | ** ** | **Income (Loss)**  | ** ** | **Shares**             | ** ** | **Amount** | ** ** | **Equity** | ** ** |
| Balance at May 31, 2002                                       |       | 169,930          |       | $            | 66,508     |              | $          | 1,365,136          |       | $                      | (7,885     | )          | —     |       | $          | — |   | $ | 1,423,759 |   |
|                                                          |       |             |       |         |       |              |       |               |       |                   |       |       |       |       |       |
| Net income                                                    |       | —           |       | —       |       | 249,253           |       | —             |       | —                 |       | —     |       | 249,253    |       |
| Equity adjustment for foreign currency translation            |       | —           |       | —       |       | —            |       | 9,290              |       | —                 |       | —     |       | 9,290      |       |
| Change in fair value of derivatives                           |       | —           |       | —       |       | —            |       | 732                |       | —                 |       | —     |       | 732        |       |
| Comprehensive income, net of tax                              |       |             |       |         |       |              |       |               |       |                   |       |       |       | 259,275    |       |
| Dividends                                                     |       | —           |       | —       |       | (46,003           | )          | —             |       | —                 |       | —     |       | (46,003    | )          |
| Effects of acquisitions                                       |       | 74               |       | 2,800        |       | (315              | )          | —             |       | —                 |       | —     |       | 2,485      |       |
| Stock options exercised net of shares surrendered             |       | 596              |       | 5,699        |       | —            |       | —             |       | —                 |       | —     |       | 5,699      |       |
| Tax benefit resulting from exercise of employee stock options |       | —           |       | 1,117        |       | —            |       | —             |       | —                 |       | —     |       | 1,117      |       |
| Balance at May 31, 2003                                       |       | 170,600          |       | 76,124       |       | 1,568,071         |       | 2,137              |       | —                 |       | —     |       | 1,646,332  |       |
|                                                          |       |             |       |         |       |              |       |               |       |                   |       |       |       |       |       |
| Net income                                                    |       | —           |       | —       |       | 272,205           |       | —             |       | —                 |       | —     |       | 272,205    |       |
| Equity adjustment for foreign currency translation            |       | —           |       | —       |       | —            |       | 47                 |       | —                 |       | —     |       | 47         |       |
| Change in fair value of derivatives                           |       | —           |       | —       |       | —            |       | 669                |       | —                 |       | —     |       | 669        |       |
| Comprehensive income, net of tax                              |       |             |       |         |       |              |       |               |       |                   |       |       |       | 272,921    |       |
| Dividends                                                     |       | —           |       | —       |       | (49,634           | )          | —             |       | —                 |       | —     |       | (49,634    | )          |
| Effects of acquisitions                                       |       | 274              |       | 11,550       |       | (95               | )          | —             |       | —                 |       | —     |       | 11,455     |       |
| Stock options exercised net of shares surrendered             |       | 504              |       | 5,868        |       | —            |       | —             |       | —                 |       | —     |       | 5,868      |       |
| Tax benefit resulting from exercise of employee stock options |       | —           |       | 1,027        |       | —            |       | —             |       | —                 |       | —     |       | 1,027      |       |
| Balance at May 31, 2004                                       |       | 171,378          |       | 94,569       |       | 1,790,547         |       | 2,853              |       | —                 |       | —     |       | 1,887,969  |       |
|                                                          |       |             |       |         |       |              |       |               |       |                   |       |       |       |       |       |
| Net income                                                    |       | —           |       | —       |       | 300,518           |       | —             |       | —                 |       | —     |       | 300,518    |       |
| Equity adjustment for foreign currency translation            |       | —           |       | —       |       | —            |       | 9,033              |       | —                 |       | —     |       | 9,033      |       |
| Change in fair value of derivatives                           |       | —           |       | —       |       | —            |       | 290                |       | —                 |       | —     |       | 290        |       |
| Comprehensive income, net of tax                              |       |             |       |         |       |              |       |               |       |                   |       |       |       | 309,841    |       |
| Dividends                                                     |       | —           |       | —       |       | (54,968           | )          | —             |       | —                 |       | —     |       | (54,968    | )          |
| Effects of acquisitions                                       |       | 289              |       | 12,818       |       | (105              | )          | —             |       | —                 |       | —     |       | 12,713     |       |
| Stock options exercised net of shares surrendered             |       | 461              |       | 4,621        |       | —            |       | —             |       |                   |       |       |       | 4,621      |       |
| Tax benefit resulting from exercise of employee stock options |       | —           |       | 2,163        |       | —            |       | —             |       | —                 |       | —     |       | 2,163      |       |
| Stock repurchases                                             |       | —           |       | —       |       | —            |       | —             |       | (1,469                 | )          | (58,204    | )          | (58,204    | )          |
| Balance at May 31, 2005                                       |       | 172,128          |       | $            | 114,171    |              | $          | 2,035,992          |       | $                      | 12,176     |       | (1,469     | )          | $          | (58,204 | ) | $ | 2,104,135 |   |

 

See accompanying notes.

 

28

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CINTAS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended May 31

(In thousands)

 
| ** **                                                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from operating activities:                                              |       |     |       |     |       |     |       |
| Net income                                                                         |       | $        | 300,518    |     | $          | 272,205  |       | $ | 249,253 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |     |       |     |       |     |       |
| Depreciation                                                                       |       | 119,813  |       | 117,285  |       | 115,320  |       |
| Amortization of deferred charges                                                   |       | 28,362   |       | 25,974   |       | 27,741   |       |
| Deferred income taxes                                                              |       | 4,191    |       | 15,839   |       | 7,648    |       |
| Change in current assets and liabilities, net  of acquisitions of businesses:      |       |     |       |     |       |     |       |
| Accounts receivable                                                                |       | (36,317  | )          | (488     | )          | 4,044    |       |
| Inventories                                                                        |       | (26,321  | )          | 48,033   |       | (36,406  | )          |
| Uniforms and other rental items in service                                         |       | (7,168   | )          | 2,744    |       | (24,013  | )          |
| Prepaid expenses                                                                   |       | (892     | )          | 246      |       | 2,597    |       |
| Accounts payable                                                                   |       | 15,727   |       | (3,223   | )          | (6,648   | )          |
| Accrued compensation and related  liabilities                                      |       | 6,906    |       | 6,552    |       | (3,734   | )          |
| Accrued liabilities                                                                |       | 12,444   |       | 4,429    |       | (9,851   | )          |
| Income taxes payable                                                               |       | (3,050   | )          | 20,113   |       | 4,736    |       |
| Net cash provided by operating activities                                          |       | 414,213  |       | 509,709  |       | 330,687  |       |
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from investing activities:                                              |       |     |       |     |       |     |       |
| Capital expenditures                                                               |       | (140,727 | )          | (112,888 | )          | (115,019 | )          |
| Proceeds from sale or redemption of marketable  securities                         |       | 102,997  |       | 48,078   |       | 23,790   |       |
| Purchase of marketable securities                                                  |       | (202,265 | )          | (189,622 | )          | (4,752   | )          |
| Acquisitions of businesses, net of cash  acquired                                  |       | (109,076 | )          | (101,654 | )          | (37,173  | )          |
| Other                                                                              |       | (1,663   | )          | 12,282   |       | (3,068   | )          |
| Net cash used in investing activities                                              |       | (350,734 | )          | (343,804 | )          | (136,222 | )          |
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from financing activities:                                              |       |     |       |     |       |     |       |
| Repayment of long-term debt                                                        |       | (10,575  | )          | (68,764  | )          | (172,891 | )          |
| Stock options exercised                                                            |       | 4,621    |       | 5,868    |       | 5,699    |       |
| Dividends paid                                                                     |       | (54,968  | )          | (49,634  | )          | (46,003  | )          |
| Repurchase of common stock                                                         |       | (58,204  | )          | —   |       | —   |       |
| Other                                                                              |       | 11,486   |       | 1,743    |       | 10,341   |       |
| Net cash used in financing activities                                              |       | (107,640 | )          | (110,787 | )          | (202,854 | )          |
|                                                                               |       |     |       |     |       |     |       |
| Net (decrease) increase in cash and cash  equivalents                              |       | (44,161  | )          | 55,118   |       | (8,389   | )          |
| Cash and cash equivalents at beginning of  year                                    |       | 87,357   |       | 32,239   |       | 40,628   |       |
| Cash and cash equivalents at end of year                                           |       | $        | 43,196     |     | $          | 87,357   |       | $ | 32,239 |   |

 

See accompanying notes.

 

29

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CINTAS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share andshare data)

 

1.     SIGNIFICANTACCOUNTING POLICIES

 

*Business description.*  Cintas Corporation (Cintas) provides highlyspecialized services to businesses of all types throughout North America.  Cintas designs, manufactures and implementscorporate identity uniform programs, provides entrance mats, shop towels,restroom supplies, promotional products, first aid, safety and fire protectionproducts and services and document management services for over 700,000businesses.

 

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

 

*Principles of consolidation.*  The consolidated financial statements includethe accounts of Cintas and its subsidiaries. Intercompany balances and transactions have been eliminated.

 

*Use of estimates.*  The preparation of financial statements inconformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes.  Financial results could differ from thoseestimates.

 

*Revenue recognition.*  Rental revenue is recognized when servicesare performed and other services revenue is recognized either when services areperformed or when products are shipped and the title and risks of ownershippass to the customer.  Cintas alsoestablishes an estimate of allowances for uncollectible accounts when revenueis recorded.

 

*Cost of rentals.*  Cost of rentals consists primarily ofproduction expenses, delivery expenses and the amortization of in serviceinventory, including uniforms, mats, shop towels and other rental items.  The Rentals segment inbound freight charges,purchasing and receiving costs, inspection costs, warehousing costs and othercosts of distribution are included in the cost of rentals.

 

*Cost of other services.*  Cost of other services consists primarily ofcost of goods sold (predominantly uniforms and first aid products), delivery expensesand distribution expenses.  The OtherServices segment inbound freight charges, purchasing and receiving costs,inspection costs, warehousing costs and other costs of distribution areincluded in the cost of other services.

 

*Selling and administrative expense.** *Selling and administrative expense consistsprimarily of sales labor and commissions, management labor, payroll taxes,medical expense, insurance expense, legal costs and amortization ofintangibles.

 

*Cash and cash equivalents.*  Cintas considers all highly liquidinvestments with a maturity of three months or less, at date of purchase, to becash equivalents.

 

*Marketable securities.*  All marketable securities are comprised ofdebt securities and classified as available-for-sale.  The majority of these debt securities areobligations of state and political subdivisions.

 

*Accounts receivable.*  Accounts receivable are comprised of amountsowed through product shipments and are presented net of an allowance foruncollectible accounts.  This allowanceis an estimate based on historical rates of collectibility.  An uncollectible accounts provision isrecorded for overdue amounts, beginning with a nominal percentage andincreasing substantially as the account ages. The amount provided as the account ages will differ slightly between theRentals and Other Services segments because of differences in customers servedand the nature of each business segment. When an account is considereduncollectible, it is written off against this allowance.

 

*Inventories.*  Inventories are valued at the lower of cost(first-in, first-out) or market. Substantially all inventories represent finished goods.

 

*Uniforms and other rental items in service.*  These items are valued at cost lessamortization, calculated using the straight-line method.  Uniforms in service (other than cleanroom andflame resistant garments) are amortized over their useful life

 

30

----

 

of eighteen months.  Other rental items including shop towels,mats, cleanroom garments, flame resistant garments, linens and restroomdispensers are amortized over their useful lives of eight to forty-eightmonths.

 

*Property and equipment.*  Depreciation is calculated using thestraight-line method primarily over the following estimated useful lives, inyears:

 
| Buildings              |   | 30 to 40 |   |
|------------------------|--------|----------|--------|
| Building improvements  |   | 5 to 20  |   |
| Equipment              |   | 3 to 10  |   |
| Leasehold improvements |   | 2 to 5   |   |

 

*Long-lived assets.*  When events or circumstances indicate thatthe carrying amount of long-lived assets may not be recoverable, the estimatedfuture cash flows (undiscounted) are compared to the carrying amount of theassets.  If the estimated future cashflows are less than the carrying amount of the assets, an impairment loss isrecorded.  The impairment loss ismeasured by comparing the fair value of the assets with their carrying amounts.Fair value is determined by discounted cash flows or appraised values, asappropriate.  Long-lived assets that areheld for disposal are reported at the lower of the carrying amount or the fairvalue, less estimated costs related to disposition.

 

*Goodwill.*  As required under Statement of FinancialAccounting Standards No. 142 (SFAS 142), *Goodwilland Other Intangible Assets,* goodwill is separately disclosed fromother intangible assets on the balance sheet and no longer amortized, but istested for impairment on at least an annual basis.  Cintas completed an annual goodwillimpairment test for the years ended May 31, 2005, 2004 and 2003, asrequired by SFAS 142.  Based on theresults of the impairment tests, Cintas was not required to recognize animpairment of goodwill in any of these years. Cintas will continue to perform future impairment tests as required bySFAS 142 as of March 1 in future years, or when indicators of impairmentare noted.

 

*Service contracts and other assets.*  Service contracts and other assets, whichconsist primarily of noncompete and consulting agreements obtained throughacquisitions of businesses, are amortized by use of the straight-line method overthe estimated lives of the agreements, which are generally five to ten years.

 

*Accrued liabilities.*  Accrued liabilities consist primarily ofinsurance, medical and profit sharing obligations and legal and environmentalcontingencies.  These are recorded whenit is probable that a liability has occurred and the amount of the liabilitycan be reasonably estimated.

 

*Stock options.*  Cintas applies the provisions of AccountingPrinciples Board Opinion No. 25 (APB 25), *Accountingfor Stock Issued to Employees.* Accordingly, no compensation expense has been reflected in the financialstatements as the exercise price of options granted to employees is equal tothe fair market value of Cintas’ common stock on the date of grant.  Cintas has adopted the disclosure-onlyprovisions of Statement of Financial Accounting Standards No. 123 (SFAS123), *Accounting for Stock-BasedCompensation.*

* *

In December 2002, the Financial Accounting Standards Board (FASB)issued Statement of Financial Accounting Standards No. 148 (SFAS 148), *Accounting for Stock-Based Compensation - Transitionand Disclosure.*  ThisStatement amends SFAS 123 to provide alternative methods of transition for avoluntary change to the fair value based method of accounting for stock-basedemployee compensation.  In addition, thisStatement amends the disclosures in both annual and interim financialstatements regarding the method of accounting for stock-based employeecompensation and the effect of the method used on reported results.  Cintas continues to apply APB 25 for themethod used to account for stock-based employee compensation arrangements,where applicable, but adopted the disclosure requirements of SFAS 148 duringfiscal 2003.

 

31

----

 

For purposes of pro forma disclosure, the estimated fair value ofCintas’ stock options is amortized to expense over the options’ vestingperiod.  Pro forma results as if Cintasaccounted for its stock-based employee compensation using the fair value basedalternative appear below:

 
| ** **                                                                                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                                                          |       |     |       |     |       |     |       |
| Net income, as reported                                                                                                                       |       | $        | 300,518    |     | $          | 272,205  |       | $ | 249,253 |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |       | (7,971   | )          | (7,127   | )          | (6,062   | )          |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Pro forma net income                                                                                                                          |       | $        | 292,547    |     | $          | 265,078  |       | $ | 243,191 |   |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Earnings per share:                                                                                                                           |       |     |       |     |       |     |       |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Basic – as reported                                                                                                                      |       | $        | 1.75       |     | $          | 1.59     |       | $ | 1.46 |   |
| Basic – pro forma                                                                                                                        |       | $        | 1.70       |     | $          | 1.55     |       | $ | 1.43 |   |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Diluted – as reported                                                                                                                    |       | $        | 1.74       |     | $          | 1.58     |       | $ | 1.45 |   |
| Diluted – pro forma                                                                                                                      |       | $        | 1.69       |     | $          | 1.54     |       | $ | 1.41 |   |
|                                                                                                                                               |            |          |            |          |            |          |            |  |  |  |  |  |

 

The effects of providing pro forma disclosure are not representative ofearnings to be reported for future years.

 

During fiscal 2005, Cintas vested certain employee stock options whoseexercise price was greater than current market value.  This vesting will have an impact on basic proforma and diluted pro forma earnings per share in future years.

 

*Derivatives and hedging activities.*  Derivatives and hedging activities arepresented in accordance with Statement of Financial Accounting Standards No. 133(SFAS 133), *Accounting for Derivatives andHedging Activities,* as amended. This Standard requires the recognition of all derivatives on the balancesheet at fair value and recognition of the resulting gains or losses asadjustments to earnings or other comprehensive income.

 

Cintas formally documents all relationships between hedging instrumentsand hedged items, as well as its risk management objective and strategy forundertaking various hedge transactions. Cintas’ hedging activities are transacted only with highly ratedinstitutions, reducing the exposure to credit risk in the event ofnonperformance.

 

From time to time, Cintas will use derivatives for both cash flowhedging and fair value hedging purposes. For derivative instruments that hedge the exposure of variability inshort-term interest rates, designated as cash flow hedges, the effectiveportion of the net gain or loss on the derivative instrument is reported as acomponent of other comprehensive income and reclassified into earnings in thesame period or periods during which the hedged transaction affectsearnings.  For the ineffective portion ofthe hedge, gains or losses are charged to earnings in the current period.  For derivative instruments that hedge theexposure to changes in the fair value of certain fixed rate debt, designated asfair value hedges, the effective portion of the net gain or loss on the derivativeinstrument, as well as the offsetting gain or loss on the fixed rate debtattributable to the hedged risk, are recorded in current period earnings.

 

Cintas uses interest rate swap and lock agreements, from time to time,to hedge against variability in short-term interest rates.  These agreements effectively convert aportion of the floating rate debt to a fixed rate basis, thus reducing theimpact of interest rate changes on future interest expense.  Cintas uses the Hypothetical DerivativeMethod for assessing the effectiveness of these swaps.  The effectiveness of these swaps is reviewedat least every fiscal quarter.  Cintasalso uses reverse interest rate swap agreements to convert a portion of fixedrate debt to a floating rate basis, thus hedging for changes in the fair valueof the fixed rate debt being hedged. Cintas has determined that the interest rate swap agreements referencedin Note 5, entitled Long-Term Debt, designated as fair value hedges, qualifyfor treatment under the short-cut method of measuring effectiveness.  Under the provisions of SFAS 133, thesehedges are determined to be perfectly effective and there is no requirement toperiodically evaluate effectiveness.

 

32

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*Fair value of financial instruments.*  The following methods and assumptions wereused by Cintas in estimating the fair value of financial instruments:

 

*Cash andcash equivalents*.  The amounts reported approximate marketvalue.

 

*Marketablesecurities.* The amounts reported are at cost, which approximates market value.  Market values are based on quoted marketprices.

 

*Long-termdebt.* The amounts reported are at a carrying value which approximates marketvalue.  Market values are determinedusing similar debt instruments currently available to Cintas that are consistentwith the terms, interest rates and maturities.

 

*Reclassification.*  Certain prior year amounts have beenreclassified to conform to current year presentation.

 

*Other accounting pronouncements*.On December 16, 2004, FASB issued Statement No. 123 (revised 2004), *Share-Based Payment*, (Statement 123R), which is a revisionof SFAS 123, *Accounting for Stock-Based Compensation*. Generally, the approach in Statement 123R is similar to the approachdescribed in SFAS 123.  However, Statement 123R requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the income statement based on their fair values. Pro formadisclosure is no longer an alternative. The new standard will be effective forpublic entities (excluding small business issuers) no later than the beginningof the first fiscal year beginning after June 15, 2005. Cintas will adoptthis Statement no later than the first quarter of fiscal 2007. Cintas is in theprocess of determining the impact that the adoption of this Statement will haveon its financial position and results of operations.

 

2.     MARKETABLESECURITIES

 

All marketable securities are comprised of debt securities andclassified as available-for-sale. Realized gains and losses and declines in value determined to be otherthan temporary on available-for-sale securities are included in interestincome.  The cost of the securities soldis based on the specific identification method. Interest on securities classified as available-for-sale is included ininterest income.

 

The following is a summary of marketable securities:

 
| ** **                                                            | ** ** | **2005**   | ** ** | **2004**       | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                                            | ** ** | ** ** | ** ** | **Estimated**  | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **                                                            | ** ** | **Cost**   | ** ** | **Fair Value** | ** ** | **Cost** | ** ** | **Fair Value** | ** ** |
|                                                                  |       |       |       |           |       |   |   |   |   |
| Obligations of state and political  subdivisions                      |       | $          | 163,168    |           | $          | 161,258 |   | $ | 134,921 |   | $ | 133,888 |   |
| U.S. Treasury securities and obligations of  U.S. government agencies |       | 55,143     |       | 54,583         |       | 112 |   | 109 |   |
| Other debt securities                                                 |       | 47,921     |       | 47,846         |       | 31,931 |   | 31,799 |   |
|                                                                  |       | $          | 266,232    |           | $          | 263,687 |   | $ | 166,964 |   | $ | 165,796 |   |

 

The gross realized gains on sales of available-for-sale securitiestotaled $23, $19 and $105 for the years ended May 31, 2005, 2004 and 2003,and the gross realized losses totaled $19, $0 and $10, respectively.  Net unrealized losses are $2,545 and $1,168at May 31, 2005 and 2004, respectively.

 

The cost and estimated fair value of debt securities at May 31,2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because theissuers of the securities may have the right to prepay the obligations withoutprepayment penalties.

 
| ** **                             | ** ** | ** ** | ** ** | **Estimated**  | ** ** |
|----------------------------------------|------------|------------|------------|----------------|------------|
| ** **                             | ** ** | **Cost**   | ** ** | **Fair Value** | ** ** |
|                                   |       |       |       |           |       |
| Due in one year or less                |       | $          | 77,809     |           | $          | 77,576 |   |
| Due after one year through three years |       | 188,423    |       | 186,111        |       |
|                                   |       | $          | 266,232    |           | $          | 263,687 |   |

 

33

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3.     PROPERTYAND EQUIPMENT

 
| ** **                     | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|--------------------------------|------------|-----------|------------|-----------|------------|
|                           |       |      |       |      |       |
| Land                           |       | $         | 72,663     |      | $          | 67,360 |   |
| Buildings and improvements     |       | 431,746   |       | 411,878   |       |
| Equipment                      |       | 783,244   |       | 741,740   |       |
| Leasehold improvements         |       | 10,735    |       | 10,577    |       |
| Construction in progress       |       | 72,487    |       | 59,250    |       |
|                           |       | 1,370,875 |       | 1,290,805 |       |
| Less: accumulated depreciation |       | 553,677   |       | 505,495   |       |
|                           |       | $         | 817,198    |      | $          | 785,310 |   |

 

4.     GOODWILL,SERVICE CONTRACTS AND OTHER ASSETS

 

Changes in the carrying amount of goodwill and service contracts forthe years ended May 31, 2005 and 2004, by operating segment, are asfollows:

 
| ** **                      | ** ** | ** **  | ** ** | **Other**    | ** ** | ** ** | ** ** |
|---------------------------------|------------|-------------|------------|--------------|------------|------------|------------|
| ** **                      | ** ** | **Rentals** | ** ** | **Services** | ** ** | **Total**  | ** ** |
|                            |       |        |       |         |       |       |       |
| Goodwill                        |       |        |       |         |       |       |       |
| Balance as of June 1, 2003 |       | $           | 671,955    |         | $          | 49,900     |       | $ | 721,855 |   |
| Goodwill acquired               |       | 13,269      |       | 70,260       |       | 83,529     |       |
| Foreign currency translation    |       | 37          |       | 20           |       | 57         |       |
| Balance as of May 31, 2004 |       | 685,261     |       | 120,180      |       | 805,441    |       |
| Goodwill acquired               |       | 15,082      |       | 67,873       |       | 82,955     |       |
| Foreign currency translation    |       | 1,079       |       | 63           |       | 1,142      |       |
| Balance as of May 31, 2005 |       | $           | 701,422    |         | $          | 188,116    |       | $ | 889,538 |   |

 
| ** **                      | ** ** | ** **  | ** ** | **Other**    | ** ** | ** ** | ** ** |
|---------------------------------|------------|-------------|------------|--------------|------------|------------|------------|
| ** **                      | ** ** | **Rentals** | ** ** | **Services** | ** ** | **Total**  | ** ** |
|                            |       |        |       |         |       |       |       |
| Service Contracts               |       |        |       |         |       |       |       |
| Balance as of June 1, 2003 |       | $           | 136,118    |         | $          | 8,781      |       | $ | 144,899 |   |
| Service contracts acquired      |       | 3,641       |       | 16,827       |       | 20,468     |       |
| Service contracts amortization  |       | (8,161      | )          | (12,608      | )          | (20,769    | )          |
| Foreign currency translation    |       | 65          |       | 1            |       | 66         |       |
| Balance as of May 31, 2004 |       | 131,663     |       | 13,001       |       | 144,664    |       |
| Service contracts acquired      |       | 4,473       |       | 19,423       |       | 23,896     |       |
| Service contracts amortization  |       | (19,466     | )          | (4,204       | )          | (23,670    | )          |
| Foreign currency translation    |       | 1,680       |       | 26           |       | 1,706      |       |
| Balance as of May 31, 2005 |       | $           | 118,350    |         | $          | 28,246     |       | $ | 146,596 |   |

 

Information regarding Cintas’ service contracts and other assetsfollows:

 
| ** **                           | ** ** | **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 |   |

 

34

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| ** **                           | ** ** | **As of May 31, 2004** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **Carrying**                | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **Amount**                  | ** ** | **Amortization** | ** ** | **Net** | ** ** |
|                                 |       |                        |       |   |   |   |   |
| Service contracts                    |       | $                           | 216,997    |   | $ | 72,333 |   | $ | 144,664 |   |
|                                 |       |                        |       |   |   |   |   |
| Noncompete and consulting agreements |       | $                           | 33,720     |   | $ | 19,665 |   | $ | 14,055 |   |
| Other                                |       | 29,100                      |       | 2,516 |   | 26,584 |   |
| Total                                |       | $                           | 62,820     |   | $ | 22,181 |   | $ | 40,639 |   |

 

Amortization expense was $28,362, $25,974 and $27,741 for the yearsended May 31, 2005, 2004 and 2003, respectively.  Estimated amortization expense, excluding anyfuture acquisitions, for each of the next five years is $28,845, $27,001,$24,582, $22,118 and $18,977, respectively.

 

5.     LONG-TERMDEBT

 
| ** **                                                                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Unsecured term notes due through 2017 at an  average rate of 5.35%                 |       | $        | 456,640    |     | $          | 464,368 |   |
| Unsecured notes due through 2009 at an average  rate of 7.11%                      |       | 8,594    |       | 11,489   |       |
| Industrial development revenue bonds due through  2015 at an average rate of 3.67% |       | 4,434    |       | 4,884    |       |
| Other                                                                              |       | 2,923    |       | 3,467    |       |
|                                                                               |       | 472,591  |       | 484,208  |       |
| Less: amounts due within one year                                                  |       | 7,300    |       | 10,523   |       |
|                                                                               |       | $        | 465,291    |     | $          | 473,685 |   |

 

Debt in the amount of $7,357 is secured by assets with a carrying valueof $8,475 at May 31, 2005.  Cintashas letters of credit outstanding at May 31, 2005, approximating$43,662.  Maturities of long-term debtduring each of the next five years are $7,300, $4,287, $228,959, $990 and $543,respectively.

 

Interest expense is net of capitalized interest of $749, $521 and $186for the years ended May 31, 2005, 2004 and 2003, respectively.  Interest paid, net of amount capitalized, was $23,163, $25,825 and $20,766 for the years ended May 31,2005, 2004 and 2003, respectively.

 

Cintas has a commercial paper program supported by a $300 millionlong-term credit facility.  As of May 31,2005, there is no commercial paper outstanding.

 

From time to time, Cintas uses interest rate swap and lock agreementsas hedges against variability in short-term interest rates.  These agreements effectively convert aportion of floating rate debt to a fixed rate basis, thus reducing the impactof interest rate changes on future interest expense.  Cintas uses the Hypothetical DerivativeMethod for assessing the effectiveness of these swaps.  There were no interest rate swap agreementsoutstanding as of May 31, 2005. When outstanding, the effectiveness of these swaps is reviewed at leastevery fiscal quarter.  Cintas also usesreverse interest rate swap agreements to convert a portion of fixed rate debtto a floating rate basis, thus hedging for changes in the fair value of thefixed rate debt being hedged.  Theseagreements involve the receipt of fixed rate amounts in exchange for floatingrate interest payments over the life of the agreements without an exchange ofunderlying principal amount.  Themark-to-market values of both the fair value hedging instruments and the underlyingdebt obligations are equal and recorded as offsetting gains and losses incurrent period earnings.  Cintas hasdetermined that the current interest rate swap agreements, designated as fairvalue hedges, qualify for treatment under the short-cut method of measuringeffectiveness.  Under the provisions ofSFAS 133, these hedges are determined to be perfectly effective and there is norequirement to periodically evaluate effectiveness.

 

Cintas entered into two lock agreements as part of the Omni acquisitionin fiscal 2002.  The amortization of thecash flow hedge, pertaining to these lock agreements, and the change in thefair value of the cash flow hedge, pertaining to the interest rate swapagreements, resulted in a credit to other comprehensive income of $290 and $669for the years ended May 31, 2005 and 2004, respectively.  The reverse interest rate swap agreements arefair value hedges that convert $225 million of fixed rate debt to a floatingrate.  These agreements expire in 2007and allow Cintas to receive an effective

 

35

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interest rate of 5.13% and pay an interestrate based on LIBOR.  Because these fairvalue hedges are 100% effective, the net $4 million unfavorable change forfiscal 2005 and the net $10 million unfavorable change for fiscal 2004 weredirectly offset by a decrease in the fair value of the debt, reflectingincreased floating interest rates over the prior fiscal years.

 

Cintas has certain significant covenants related to debt agreements.  These covenants limit Cintas’ ability toincur 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 tomaintain certain debt to capitalization and interest coverage ratios.  Cross default provisions exist betweencertain debt instruments.  Cintas is incompliance with all of the significant debt covenants for all periodspresented.  Were a default of asignificant covenant to occur, the default could result in an acceleration ofindebtedness, impair liquidity and limit the ability to raise futurecapital.  Cintas’ debt, net of cash andmarketable securities, is $163 million. For fiscal 2005, net cash provided by operating activities was $414million.  Capital expenditures wereapproximately $141 million for the same period.

 

6.     LEASES

 

Cintas conducts certain operations from leased facilities and leasescertain equipment.  Most leases containrenewal options for periods from one to ten years.  The lease agreements provide for increases inrentals if the options are exercised based on increases in certain price levelfactors or other prearranged factors. Step rent provisions, escalation clauses, capital improvements fundingand other lease concessions are taken into account in computing minimum leasepayments.  Minimum lease payments arerecognized on a straight-line basis over the minimum lease term.  Lease payments are not dependent on anexisting index or rate and are not included in minimum lease payments.  It is anticipated that expiring leases willbe renewed or replaced.

 

The minimum rental payments under noncancelable lease arrangements foreach of the next five years and thereafter are $18,572, $14,638, $11,181,$7,412, $3,451 and $6,560, respectively. Rent expense under operating leases during the years ended May 31,2005, 2004 and 2003, was $25,280, $22,675 and $25,083, respectively.

 

7.     INCOMETAXES

 
| ** **                                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Earnings before income taxes consist of the  following components: |       |     |       |     |       |     |       |
| U.S. operations                                                    |       | $        | 447,965    |     | $          | 411,091  |       | $ | 384,288 |   |
| Foreign operations                                                 |       | 29,028   |       | 20,989   |       | 11,471   |       |
|                                                               |       | $        | 476,993    |     | $          | 432,080  |       | $ | 395,759 |   |

 
| ** **                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income taxes consist of the following  components: |       |     |       |     |       |     |       |
| Current:                                           |       |     |       |     |       |     |       |
| Federal                                            |       | $        | 155,987    |     | $          | 132,105  |       | $ | 128,198 |   |
| State and local                                    |       | 18,043   |       | 12,291   |       | 13,136   |       |
|                                               |       | 174,030  |       | 144,396  |       | 141,334  |       |
| Deferred                                           |       | 2,445    |       | 15,479   |       | 5,172    |       |
|                                               |       | $        | 176,475    |     | $          | 159,875  |       | $ | 146,506 |   |

 
| ** **                                                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Reconciliation of income tax expense using  the statutory rate and actual income tax expense is as follows: |       |     |       |     |       |     |       |
| Income taxes at the U.S. federal statutory  rate                                                            |       | $        | 166,947    |     | $          | 151,228  |       | $ | 138,515 |   |
| State and local income taxes, net of  federal benefit                                                       |       | 12,050   |       | 8,939    |       | 9,160    |       |
| Other                                                                                                       |       | (2,522   | )          | (292     | )          | (1,169   | )          |
|                                                                                                        |       | $        | 176,475    |     | $          | 159,875  |       | $ | 146,506 |   |

 

36

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The components of deferred income taxes included on the balance sheetsare as follows:

 
| ** **                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:        |       |     |       |     |       |
| Employee benefits           |       | $        | 4,462      |     | $          | 1,964 |   |
| Allowance for bad debts     |       | 3,357    |       | 2,883    |       |
| Inventory obsolescence      |       | 11,238   |       | 11,266   |       |
| Insurance and contingencies |       | 10,222   |       | 10,250   |       |
| Other                       |       | 9,532    |       | 7,348    |       |
|                        |       | 38,811   |       | 33,711   |       |
|                        |       |     |       |     |       |
| Deferred tax liabilities:   |       |     |       |     |       |
| In service inventory        |       | 82,883   |       | 83,840   |       |
| Property                    |       | 87,491   |       | 81,768   |       |
| Intangibles                 |       | 30,296   |       | 27,205   |       |
| State taxes                 |       | 13,861   |       | 10,897   |       |
|                        |       | 214,531  |       | 203,710  |       |
|                        |       |     |       |     |       |
| Net deferred tax liability  |       | $        | 175,720    |     | $          | 169,999 |   |

 

Income taxes paid were $151,243, $118,125 and $139,794 for the yearsended May 31, 2005, 2004 and 2003, respectively.

 

The American Jobs Creation Act of 2004 (the Act) created a temporaryincentive for U.S. corporations to repatriate accumulated income earned inforeign jurisdictions by providing an 85% dividends-received deduction forcertain dividends from controlled foreign corporations. Cintas has reviewedthis provision and determined that no foreign earnings will be repatriatedunder the Act.

 

U.S. income taxes of $3,119, net of foreign tax credits, have not beenprovided for on a cumulative total of approximately $70,323 of undistributedearnings for certain non-U.S. subsidiaries as of May 31, 2005.  Cintas intends to reinvest these earningsindefinitely in operations outside the United States.

 

8.     ACQUISITIONS

 

For all acquisitions accounted for as purchases, includinginsignificant acquisitions, the purchase price paid for each has been allocatedto the fair value of the assets acquired and liabilities assumed.  During fiscal 2005, Cintas acquired 10Rentals businesses and 27 Other Services businesses.  During fiscal 2004, Cintas acquired 8 Rentalsbusinesses and 29 Other Services businesses. The following summarizes the aggregate purchase price for all businessesacquired:

 
| ** **                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Fair value of tangible assets acquired          |       | $        | 18,811     |     | $          | 25,642 |   |
| Fair value of goodwill acquired                 |       | 81,245   |       | 83,194   |       |
| Fair value of service contracts acquired        |       | 24,008   |       | 20,457   |       |
| Fair value of other intangibles acquired        |       | 10,082   |       | 2,554    |       |
| Total fair value of assets acquired             |       | 134,146  |       | 131,847  |       |
| Fair value of liabilities assumed and  incurred |       | 12,219   |       | 18,535   |       |
| Total cash paid for acquisitions                |       | $        | 121,927    |     | $          | 113,312 |   |

 

The results of operations for the acquired businesses are included inthe consolidated statements of income from the dates of acquisition.  The pro forma revenue, net income andearnings per share information relating to acquired businesses are notpresented because they are not significant.

 

9.     DEFINEDCONTRIBUTION PLANS

 

Cintas’ Partners’ Plan is a non-contributory profit sharing plan andESOP for the benefit of substantially all U.S. Cintas employees who havecompleted one year of service.  The planalso includes a 401(k) savings feature covering substantially allemployees.  The amounts of contributionsto the profit sharing plan and ESOP, as well as the matching contribution tothe 401(k), are made at the discretion of Cintas.  Total contributions, including Cintas’matching contributions, were $24,400, $22,160 and $20,100 for the years ended May 31,2005, 2004 and 2003, respectively.

 

Cintas also has a non-contributory deferred profit sharing plan (DPSP),which covers substantially all Canadian employees.  In addition, a registered retirement savingsplan (RRSP) is offered to those employees. The amounts of contributions to the DPSP, as well as the matchingcontribution to the RRSP, are made at the discretion of Cintas.  Total contributions were $897, $774 and $628for the years ended May 31, 2005, 2004 and 2003, respectively.

 

37

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10.   EARNINGSPER SHARE

 

Earnings per share are computed in accordance with Statement ofFinancial Accounting Standards No. 128, *Earningsper Share.*  The basiccomputations are computed based on the weighted average number of common sharesoutstanding during each period.  Thediluted computations reflect the potential dilution that could occur if stockoptions were exercised into common stock, under certain circumstances, thatthen would share in the earnings of Cintas.

 

The following table represents a reconciliation of the shares used tocalculate basic and diluted earnings per share for the respective years:

 
| ** **                                                                                                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Numerator:                                                                                                               |       |     |       |     |       |     |       |
| Net income                                                                                                               |       | $        | 300,518    |     | $          | 272,205  |       | $ | 249,253 |   |
|                                                                                                                     |       |     |       |     |       |     |       |
| Denominator:                                                                                                             |       |     |       |     |       |     |       |
| Denominator for basic earnings per share –  weighted average shares (000’s)                                    |       | 171,679  |       | 170,960  |       | 170,262  |       |
| Effect of dilutive securities – employee  stock options (000’s)                                                |       | 970      |       | 1,412    |       | 1,775    |       |
| Denominator for diluted earnings per share –  adjusted weighted average shares and assumed conversions (000’s) |       | 172,649  |       | 172,372  |       | 172,037  |       |
|                                                                                                                     |       |     |       |     |       |     |       |
| Basic earnings per share                                                                                                 |       | $        | 1.75       |     | $          | 1.59     |       | $ | 1.46 |   |
| Diluted earnings per share                                                                                               |       | $        | 1.74       |     | $          | 1.58     |       | $ | 1.45 |   |
|                                                                                                                          |            |          |            |          |            |          |            |  |  |  |  |

 

11.   STOCKBASED COMPENSATION

 

Under the stock option plan adopted by Cintas in fiscal 2000, Cintasmay grant officers and key employees incentive stockoptions and/or non-qualified stock options to purchase an aggregate of9,000,000 shares of Cintas’ common stock. Options are granted at the fair market value of the underlying commonstock on the date of grant and generally vest and become exercisable at therate of 20% per year commencing five years after grant, so long as the holderremains an employee of Cintas.

 

The information presented in the following table relates primarily tostock options granted and outstanding under either the plan adopted in fiscal2000 or under similar plans:

 
| ** **                                                    | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** |
|                                                          |       |       |       |                 |       |
| Outstanding May 31, 2002 (674,595 shares  exercisable)   |       | 5,861,097  |       | $                    | 28.31      |   |
| Granted                                                       |       | 1,226,800  |       | 40.60                |       |
| Cancelled                                                     |       | (426,967   | )          | 33.77                |       |
| Exercised                                                     |       | (681,697   | )          | 13.60                |       |
| Outstanding May 31, 2003 (753,916  shares exercisable)   |       | 5,979,233  |       | 32.12                |       |
| Granted                                                       |       | 1,214,800  |       | 39.73                |       |
| Cancelled                                                     |       | (650,734   | )          | 35.52                |       |
| Exercised                                                     |       | (606,740   | )          | 16.44                |       |
| Outstanding May 31, 2004 (811,700  shares exercisable)   |       | 5,936,559  |       | 34.90                |       |
| Granted                                                       |       | 1,509,400  |       | 42.12                |       |
| Cancelled                                                     |       | (441,186   | )          | 39.66                |       |
| Exercised                                                     |       | (562,888   | )          | 16.08                |       |
| Outstanding May 31, 2005 (3,086,485  shares exercisable) |       | 6,441,885  |       | $                    | 37.92      |   |

 

38

----

 

The following table summarizes the information related to stock optionsoutstanding at May 31, 2005:

 
| ** **                 | ** ** | ** **      | ** ** | **Outstanding Options** | ** ** | **Exercisable Options** | ** ** |
|----------------------------|------------|-----------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                 | ** ** | ** **      | ** ** | **Average**             | ** ** | **Weighted**            | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                 | ** ** | ** **      | ** ** | **Remaining**           | ** ** | **Average**             | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Range  of**              | ** ** | **Number**      | ** ** | **Option**              | ** ** | **Exercise**            | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Exercise  Prices**       | ** ** | **Outstanding** | ** ** | **Life**                | ** ** | **Price**               | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $ 12.92 –  38.59 |       |            | 1,684,339  |                    | 2.94       |                    | $          | 24.92 |   | 748,239 |   | $ | 21.66 |   |
| 38.75 –  41.65        |       |            | 1,679,075  |                    | 7.74       |                    | 40.31      |   | 675,425 |   | 41.63 |   |
| 41.72 –  42.06        |       |            | 1,692,852  |                    | 7.89       |                    | 42.03      |   | 432,002 |   | 41.96 |   |
| 42.19 –  53.19        |       |            | 1,385,619  |                    | 6.34       |                    | 45.38      |   | 1,230,819 |   | 45.57 |   |
| $ 12.92 –  53.19 |       |            | 6,441,885  |                    | 6.22       |                    | $          | 37.92 |   | 3,086,485 |   | $ | 38.40 |   |

 

At May 31, 2005, 4,441,875 shares of common stock are reserved forfuture issuance under the 2000 plan.

 

Pro forma information regarding earnings and earnings per share isrequired by SFAS 123 and has been determined as if Cintas had accounted for itsstock options granted subsequent to May 31, 1995, under the fair valuemethod of SFAS 123.  The weighted averagefair value of stock options granted during fiscal 2005, 2004 and 2003 was$19.80, $18.43 and $19.43, respectively. The fair value of these options was estimated at the date of grant usinga Black-Scholes option-pricing model with the following weighted-averageassumptions:

 
| ** **                                       | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |     |       |
| Risk free interest rate                          |       | 4.00     | %          | 4.00     | %          | 4.00     | %          |
| Dividend yield                                   |       | .50      | %          | .50      | %          | .50      | %          |
| Expected volatility of Cintas’ common stock |       | 35       | %          | 35       | %          | 34       | %          |
| Expected life of the option in years             |       | 9        |       | 9        |       | 9        |       |

 

The Black-Scholes option-pricing model was developed for use inestimating the fair value of traded options which have no vesting restrictionsand are freely transferable.  Inaddition, option valuation models require the input of highly subjectiveassumptions including the expected stock price volatility.  Because Cintas’ options have characteristicssignificantly different from those of traded options and because changes in thesubjective input assumptions can materially affect the fair value estimate, inCintas’ opinion, existing models do not necessarily provide a reliable singlemeasure of the fair value of its stock options.

 

During fiscal 2005, Cintas vested certain employee stock options whoseexercise price was greater than current market value.  This vesting will have an impact on basic proforma and diluted pro forma earnings per share in future years.

 

12.   LITIGATIONAND OTHER CONTINGENCIES

 

Cintas is subject to legal proceedings and claims arising from theordinary course of its business, including personal injury, customer contract,environmental and employment claims.  Inthe opinion of management, the aggregate liability, if any, with respect tosuch ordinary course of business actions, will nothave a material adverse effect on the financial position or results ofoperations of Cintas.  Cintas is party toadditional 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 wageand hour laws applicable to its service sales representatives, whom Cintasconsiders exempt employees, and asserting additional related ERISA claims.  The plaintiffs are seeking unspecifiedmonetary damages, injunctive relief or both. Cintas denies these claims and is defending the plaintiffs’allegations.  The court orderedarbitration for all potential plaintiffs except for those that fall into one offour narrowly defined exceptions.  As aresult, Cintas believes that a majority of the potential plaintiffs will berequired to arbitrate their claims.  Nodetermination has been made by the court or an arbitrator regarding classcertification.  There can be no assuranceas to whether a class will be certified or, if a class is certified, as to thegeographic or other scope of such class. If a court or arbitrator certifies a class in this action and there isan adverse verdict on the merits, or in the event of a negotiated settlement ofthe action, the resulting liability and/or any increased costs of operations onan ongoing basis could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable atthis time.

 

39

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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 ofCalifornia, San Francisco Division.  The case was brought on behalf of all past andpresent female, African-American and Hispanic employees of Cintas and itssubsidiaries.  The complaint alleges thatCintas has engaged in a pattern and practice of discriminating against womenand minorities in recruitment, hiring, promotions, transfers, job assignmentsand pay.  The complaint seeks injunctiverelief, compensatory damages, punitive damages and attorney’s fees, among otherthings.  Cintas denies these claims andis defending the plaintiffs’ allegations. The court ordered arbitration as to three of the ten namedplaintiffs.  On April 27, 2005, theUnited States Equal Employment Opportunity Commission (EEOC) filed a motion tointervene in order to participate in this lawsuit.  No filings or determination has been made inregard to the lawsuit as to class certification.  There can be no assurance as to whether aclass will be certified or, if a class is certified, as to the geographic orother scope of such class.  Severalrelated proceedings with similar allegations and seeking similar relief damagesand fees are pending, including an EEOC charge filed on April 17, 2000, byMirna Serrano with the EEOC Detroit District office on behalf of female servicesales representative job applicants at all Cintas locations in Michigan, aclass action lawsuit, *Mirna E. Serrano, et al.,v. Cintas Corporation*, filed on May 10, 2004, in the UnitedStates District Court for the Eastern District of Michigan, Southern Divisionon behalf of the same female service sales representative job applicants in theEEOC charge and an administrative action filed on December 15, 2004, byJames Morgan with the EEOC Washington, D.C. office and the CaliforniaDepartment of Fair Employment and Housing alleging racial discrimination incompensation and training opportunities. In addition, a class action lawsuit, *Larry Houston, et al., v.Cintas Corporation*, was filed on August 3, 2005, in the UnitedStates District Court for the Northern District of California on behalf ofAfrican-American managers alleging racial discrimination.  If there is an adverse verdict or anegotiated settlement of these actions, the resulting liability and/or anyincreased costs of operations on an ongoing basis could be material toCintas.  Any estimated liability relatingto 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 Commissionerwith the EEOC Systemic Litigation Unit alleging failure to hire and assignfemales to production job positions, and failing to hire females, African-Americansand 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 classwith the Augusta Human Relations Commission and the EEOC Detroit Districtoffice alleging gender and equal pay discrimination against female sales representativesand sales associates, (iii) a charge filed on March 23, 2005, byClifton Cooper on behalf of himself and a similarly situated class with theEEOC Systemic Litigation Unit alleging discriminatory pay and treatment due torace, (iv) a charge filed on March 28, 2005, by Lorelei Reynolds onbehalf of herself and a similarly situated class with the EEOC BirminghamDistrict alleging discriminatory pay and treatment due to race and gender, (v) acharge filed on April 25, 2005, by Melissa Schulz on behalf of herself anda similarly situated class with the EEOC Systemic Litigation Unit and theOregon Bureau of Labor and Industries, Civil Rights Division allegingdiscriminatory pay and treatment due to race and gender, (vi) a chargefiled on May 6, 2005, by Anthony Jones on behalf of himself and asimilarly situated class with the EEOC Systemic Litigation Unit allegingdiscriminatory 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 withthe EEOC Systemic Litigation Unit alleging discriminatory pay and treatment dueto race and gender.  The investigationsof these allegations are pending and no determinations have been made.

 

Cintas is also a defendant in a lawsuit, *J. LesterAlexander, III vs. Cintas Corp., et al*., which was originallyfiled on October 25, 2004, and is currently pending in the United StatesBankruptcy 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 TerryUniform Company, LLC (“TUC”), against Cintas in Randolph County, Alabama. The Trustee seeks damages against Cintas for allegedly breaching fiduciaryduties to TMC and TUC and for allegedly aiding and abetting breaches offiduciary duties by others to those entities.  The complaint also includesallegations that Cintas breached certain limited liability company agreements,or alternatively, misrepresented their intention to perform their obligationsin those agreements and acted as alter egos of the bankrupt TMC and aretherefore liable for all of TMC’s debts.  The Trustee is seeking $50million in compensatory damages and $100 million in punitive damages. Cintas denies these claims and is vigorously defending itself against allclaims in the complaint.  If there is anadverse verdict on the merits or in the event of a negotiated settlement ofthis lawsuit, the resulting liability could be material to Cintas.  Anyestimated liability relating to this lawsuit is not determinable at this time.

 

During fiscal 2001, the State of Connecticut filed suit against Cintasin the Superior Court District of Hartford alleging various violations of stateenvironmental laws and alleging that Cintas violated certain wastewaterdischarge and hazardous waste violations. While this proceeding is not considered material to the business orfinancial condition of the registrant, management reasonably believes that theproceedings will result in monetary sanctions in excess of $100 thousand.  A reserve has been established for theestimated liability related to these allegations.

 

The litigation discussed above, if decided adversely to or settled byCintas, may, individually or in the aggregate, resultin liability material to Cintas’ financial condition or results ofoperations.  Cintas may enter into discussionsregarding settlement of these and other lawsuits, and may enter into settlementagreements if it believes such settlement is in the best interests of Cintas’shareholders.

 

40

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13.   SEGMENTINFORMATION

 

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

 

The $4,343 write-off of the loan receivable in the first quarter offiscal 2004 has been included in the Corporatesegment.

 

Information as to the operations of Cintas’ different business segmentsis set forth below based on the distribution of products and servicesoffered.  Cintas evaluates performancesbased on several factors of which the primary financial measures are business segmentrevenue and income before income taxes. The accounting policies of the business segments are the same as thosedescribed in Note 1 entitled Significant Accounting Policies.

 
| ** **                          | ** ** | ** **  | ** ** | **Other**    | ** ** | ** **    | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-------------|------------|--------------|------------|---------------|------------|------------|------------|
| ** **                          | ** ** | **Rentals** | ** ** | **Services** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|                                |       |        |       |         |       |          |       |       |       |
| May 31, 2005                   |       |        |       |         |       |          |       |       |       |
| Revenue                             |       | $           | 2,363,397  |         | $          | 703,886       |       | $          | —     |   | $ | 3,067,283 |   |
|                                |       |        |       |         |       |          |       |       |       |
| Gross margin                        |       | $           | 1,067,405  |         | $          | 237,354       |       | $          | —     |   | $ | 1,304,759 |   |
| Selling and administrative expenses |       | 633,488     |       | 176,744      |       | —        |       | 810,232    |       |
| Interest income                     |       | —      |       | —       |       | (6,914        | )          | (6,914     | )          |
| Interest expense                    |       | —      |       | —       |       | 24,448        |       | 24,448     |       |
| Income before income taxes          |       | $           | 433,917    |         | $          | 60,610        |       | $          | (17,534    | ) | $ | 476,993 |   |
| Depreciation and amortization       |       | $           | 125,946    |         | $          | 22,229        |       | $          | —     |   | $ | 148,175 |   |
| Capital expenditures                |       | $           | 117,377    |         | $          | 23,350        |       | $          | —     |   | $ | 140,727 |   |
| Total assets                        |       | $           | 2,245,600  |         | $          | 504,716       |       | $          | 309,428    |   | $ | 3,059,744 |   |
|                                |       |        |       |         |       |          |       |       |       |
| May 31, 2004                   |       |        |       |         |       |          |       |       |       |
| Revenue                             |       | $           | 2,201,405  |         | $          | 612,654       |       | $          | —     |   | $ | 2,814,059 |   |
|                                |       |        |       |         |       |          |       |       |       |
| Gross margin                        |       | $           | 978,767    |         | $          | 207,725       |       | $          | —     |   | $ | 1,186,492 |   |
| Selling and administrative expenses |       | 581,380     |       | 146,238      |       | —        |       | 727,618    |       |
| Interest income                     |       | —      |       | —       |       | (2,650        | )          | (2,650     | )          |
| Interest expense                    |       | —      |       | —       |       | 25,101        |       | 25,101     |       |
| Write-off of loan receivable        |       | —      |       | —       |       | 4,343         |       | 4,343      |       |
| Income before income taxes          |       | $           | 397,387    |         | $          | 61,487        |       | $          | (26,794    | ) | $ | 432,080 |   |
| Depreciation and amortization       |       | $           | 126,210    |         | $          | 17,049        |       | $          | —     |   | $ | 143,259 |   |
| Capital expenditures                |       | $           | 93,428     |         | $          | 19,460        |       | $          | —     |   | $ | 112,888 |   |
| Total assets                        |       | $           | 2,194,817  |         | $          | 361,159       |       | $          | 254,321    |   | $ | 2,810,297 |   |
|                                |       |        |       |         |       |          |       |       |       |
| May 31, 2003                   |       |        |       |         |       |          |       |       |       |
| Revenue                             |       | $           | 2,101,785  |         | $          | 584,800       |       | $          | —     |   | $ | 2,686,585 |   |
|                                |       |        |       |         |       |          |       |       |       |
| Gross margin                        |       | $           | 928,119    |         | $          | 191,089       |       | $          | —     |   | $ | 1,119,208 |   |
| Selling and administrative expenses |       | 555,748     |       | 139,689      |       | —        |       | 695,437    |       |
| Interest income                     |       | —      |       | —       |       | (2,905        | )          | (2,905     | )          |
| Interest expense                    |       | —      |       | —       |       | 30,917        |       | 30,917     |       |
| Income before income taxes          |       | $           | 372,371    |         | $          | 51,400        |       | $          | (28,012    | ) | $ | 395,759 |   |
| Depreciation and amortization       |       | $           | 127,223    |         | $          | 15,838        |       | $          | —     |   | $ | 143,061 |   |
| Capital expenditures                |       | $           | 108,453    |         | $          | 6,566         |       | $          | —     |   | $ | 115,019 |   |
| Total assets                        |       | $           | 2,210,585  |         | $          | 314,702       |       | $          | 57,659     |   | $ | 2,582,946 |   |

 

41

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14.   SUBSEQUENTEVENTS

 

Subsequent to May 31, 2005, Cintas purchased approximately 2.4million additional shares of Cintas stock at an average price of $39.08 pershare for a total purchase price of approximately $96 million.  As such, from the inception of the stockrepurchase program through July 22, 2005, Cintas has purchasedapproximately 3.9 million shares of Cintas stock at an average price of $39.27per share for a total purchase price of approximately $154 million.  The Board did not specify an expiration datefor this program.

 

Also subsequent to May 31, 2005, Cintas borrowed $64 million underthe $300 million commercial paper program for short-term cash requirements.  This financing decision was made in order toallow certain marketable securities to reach maturity rather than Cintasincurring a penalty for early redemption.

 

15.   QUARTERLYFINANCIAL DATA (UNAUDITED)

 

The following is a summary of the results of operations for each of thequarters within the years ended May 31, 2005 and 2004:

 
| ** **                                                  | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|-------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **May 31,  2005**                                      | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|                                                        |       |        |       |        |       |        |       |        |       |
| Revenue                                                     |       | $           | 745,956    |        | $          | 756,840     |       | $           | 755,241    |   | $ | 809,246 |   |
| Gross margin                                                |       | $           | 318,838    |        | $          | 315,955     |       | $           | 321,454    |   | $ | 348,512 |   |
| Net income                                                  |       | $           | 72,666     |        | $          | 73,560      |       | $           | 71,332     |   | $ | 82,960 |   |
| Basic earnings per share                                    |       | $           | .42        |        | $          | .43         |       | $           | .42        |   | $ | .48 |   |
| Diluted earnings per share                                  |       | $           | .42        |        | $          | .43         |       | $           | .41        |   | $ | .48 |   |
| Weighted average number of shares  outstanding (000’s) |       | 171,449     |       | 171,638     |       | 171,802     |       | 171,828     |       |
|                                                             |            |             |            |             |            |             |            |             |            |  |  |  |  |  |  |  |  |

 
| ** **                                                  | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|-------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **May 31,  2004**                                      | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|                                                        |       |        |       |        |       |        |       |        |       |
| Revenue                                                     |       | $           | 677,656    |        | $          | 701,309     |       | $           | 696,940    |   | $ | 738,154 |   |
| Gross margin                                                |       | $           | 287,448    |        | $          | 293,437     |       | $           | 295,711    |   | $ | 309,896 |   |
| Net income                                                  |       | $           | 63,327     |        | $          | 69,657      |       | $           | 66,493     |   | $ | 72,728 |   |
| Basic earnings per share                                    |       | $           | .37        |        | $          | .41         |       | $           | .39        |   | $ | .42 |   |
| Diluted earnings per share                                  |       | $           | .37        |        | $          | .40         |       | $           | .39        |   | $ | .42 |   |
| Weighted average number of shares outstanding  (000’s) |       | 170,652     |       | 170,804     |       | 171,088     |       | 171,299     |       |

 

16.   SUPPLEMENTALGUARANTOR INFORMATION

 

Effective June 1, 2000, Cintas reorganized its legal structure andcreated Cintas Corporation No. 2 (Corp. 2) as itsindirectly, wholly-owned principal operating subsidiary.  Cintas and itswholly-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 pricefor Omni was funded with $450,000 in long-term notes.  Corp. 2 was the issuer of the long-termnotes, which are unconditionally guaranteed, jointly and severally, by CintasCorporation and the subsidiary guarantors.

 

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

 

Condensed consolidating financial statements for Cintas, Corp. 2, thesubsidiary guarantors and non-guarantors are presented below:

 

42

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CONDENSED CONSOLIDATING INCOME STATEMENT

YEAR ENDED MAY 31, 2005

 
| ** **                          | ** ** | ** **      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **         | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|-------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Cintas**      | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | ** **         | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                          | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenue:                            |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Rentals                             |       | $               | —     |        | $          | 1,750,109      |       | $                  | 479,868    |             | $          | 133,767          |       | $ | (347 | ) | $ | 2,363,397 |   |
| Other services                      |       | —          |       | 734,305     |       | 334,062        |       | 41,605             |       | (406,086         | )          | 703,886          |       |
| Equity in net income of affiliates  |       | 300,518         |       | —      |       | —         |       | —             |       | (300,518         | )          | —           |       |
|                                |       | 300,518         |       | 2,484,414   |       | 813,930        |       | 175,372            |       | (706,951         | )          | 3,067,283        |       |
|                                |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Costs and expenses (income):        |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Cost of rentals                     |       | —          |       | 1,051,256   |       | 300,172        |       | 79,832             |       | (135,268         | )          | 1,295,992        |       |
| Cost of other services              |       | —          |       | 510,470     |       | 221,521        |       | 26,867             |       | (292,326         | )          | 466,532          |       |
| Selling and administrative expenses |       | —          |       | 748,414     |       | (11,013        | )          | 39,448             |       | 33,383           |       | 810,232          |       |
| Interest income                     |       | —          |       | (5,691      | )          | (15            | )          | (1,208             | )          | —           |       | (6,914           | )          |
| Interest expense                    |       | —          |       | 25,467      |       | (4,799         | )          | 3,780              |       | —           |       | 24,448           |       |
|                                |       | —          |       | 2,329,916   |       | 505,866        |       | 148,719            |       | (394,211         | )          | 2,590,290        |       |
|                                |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Income before income taxes          |       | 300,518         |       | 154,498     |       | 308,064        |       | 26,653             |       | (312,740         | )          | 476,993          |       |
| Income taxes                        |       | —          |       | 56,806      |       | 113,268        |       | 6,401              |       | —           |       | 176,475          |       |
| Net income                          |       | $               | 300,518    |        | $          | 97,692         |       | $                  | 194,796    |             | $          | 20,252           |       | $ | (312,740 | ) | $ | 300,518 |   |

 

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CONDENSED CONSOLIDATING INCOME STATEMENT

YEAR ENDED MAY 31, 2004

 
| ** **                          | ** ** | ** **      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **         | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|-------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Cintas**      | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | ** **         | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                          | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenue:                            |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Rentals                             |       | $               | —     |        | $          | 1,642,663      |       | $                  | 443,817    |             | $          | 115,161          |       | $ | (236 | ) | $ | 2,201,405 |   |
| Other services                      |       | —          |       | 1,049,363   |       | 244,514        |       | 31,227             |       | (712,450         | )          | 612,654          |       |
| Equity in net income of affiliates  |       | 272,205         |       | —      |       | —         |       | —             |       | (272,205         | )          | —           |       |
|                                |       | 272,205         |       | 2,692,026   |       | 688,331        |       | 146,388            |       | (984,891         | )          | 2,814,059        |       |
|                                |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Costs and expenses (income):        |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Cost of rentals                     |       | —          |       | 1,020,448   |       | 277,529        |       | 71,213             |       | (146,552         | )          | 1,222,638        |       |
| Cost of other services              |       | —          |       | 796,749     |       | 163,525        |       | 18,429             |       | (573,774         | )          | 404,929          |       |
| Selling and administrative expenses |       | —          |       | 711,086     |       | (21,470        | )          | 36,352             |       | 1,650            |       | 727,618          |       |
| Interest income                     |       | —          |       | (2,079      | )          | (97            | )          | (474               | )          | —           |       | (2,650           | )          |
| Interest expense                    |       | —          |       | 43,040      |       | (22,137        | )          | 4,198              |       | —           |       | 25,101           |       |
| Write-off of loan receivable        |       | —          |       | —      |       | 4,343          |       | —             |       | —           |       | 4,343            |       |
|                                |       | —          |       | 2,569,244   |       | 401,693        |       | 129,718            |       | (718,676         | )          | 2,381,979        |       |
|                                |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Income before income taxes          |       | 272,205         |       | 122,782     |       | 286,638        |       | 16,670             |       | (266,215         | )          | 432,080          |       |
| Income taxes                        |       | —          |       | 45,985      |       | 107,351        |       | 6,539              |       | —           |       | 159,875          |       |
| Net income                          |       | $               | 272,205    |        | $          | 76,797         |       | $                  | 179,287    |             | $          | 10,131           |       | $ | (266,215 | ) | $ | 272,205 |   |

 

44

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CONDENSED CONSOLIDATING INCOME STATEMENT

YEAR ENDED MAY 31, 2003

 
| ** **                          | ** ** | ** **      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **         | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|-------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Cintas**      | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | ** **         | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                          | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenue:                            |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Rentals                             |       | $               | —     |        | $          | 1,583,589      |       | $                  | 422,470    |             | $          | 95,873           |       | $ | (147 | ) | $ | 2,101,785 |   |
| Other services                      |       | —          |       | 1,183,250   |       | 199,301        |       | 31,113             |       | (828,864         | )          | 584,800          |       |
| Equity in net income of affiliates  |       | 249,253         |       | —      |       | —         |       | —             |       | (249,253         | )          | —           |       |
|                                |       | 249,253         |       | 2,766,839   |       | 621,771        |       | 126,986            |       | (1,078,264       | )          | 2,686,585        |       |
|                                |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Costs and expenses (income):        |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Cost of rentals                     |       | —          |       | 1,017,510   |       | 236,648        |       | 61,074             |       | (141,566         | )          | 1,173,666        |       |
| Cost of other services              |       | —          |       | 896,668     |       | 141,277        |       | 19,074             |       | (663,308         | )          | 393,711          |       |
| Selling and administrative expenses |       | —          |       | 691,202     |       | (29,329        | )          | 34,958             |       | (1,394           | )          | 695,437          |       |
| Interest income                     |       | —          |       | (2,428      | )          | (253           | )          | (224               | )          | —           |       | (2,905           | )          |
| Interest expense                    |       | —          |       | 47,000      |       | (19,308        | )          | 3,225              |       | —           |       | 30,917           |       |
|                                |       | —          |       | 2,649,952   |       | 329,035        |       | 118,107            |       | (806,268         | )          | 2,290,826        |       |
|                                |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Income before income taxes          |       | 249,253         |       | 116,887     |       | 292,736        |       | 8,879              |       | (271,996         | )          | 395,759          |       |
| Income taxes                        |       | —          |       | 40,716      |       | 101,946        |       | 3,844              |       | —           |       | 146,506          |       |
| Net income                          |       | $               | 249,253    |        | $          | 76,171         |       | $                  | 190,790    |             | $          | 5,035            |       | $ | (271,996 | ) | $ | 249,253 |   |

 

45

----

 

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      |       | 773,343        |       | 164,544            |       | (2,569,488       | )          | 39,868           |       |
|                                           |       | $               | 1,626,712  |        | $          | 1,812,787      |       | $                  | 1,934,506  |             | $          | 319,891          |       | $ | (2,634,152 | ) | $ | 3,059,744 |   |
|                                           |       |            |       |        |       |           |       |               |       |             |       |             |       |
| **Liabilities  and Shareholders’ Equity** |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Current liabilities:                           |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Accounts payable                               |       | $               | (465,247   | )           | $          | 89,598         |       | $                  | 404,314    |             | $          | 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          |       |
| Current income taxes                           |       | —          |       | (640        | )          | 32,232         |       | 1,301              |       | (29              | )          | 32,864           |       |
| Deferred income taxes                          |       | —          |       | —      |       | 40,635         |       | 1,248              |       | —           |       | 41,883           |       |
| Long-term debt due within one year             |       | —          |       | 6,588       |       | 871            |       | —             |       | (159             | )          | 7,300            |       |
| Total current liabilities                      |       | (465,247        | )          | 314,956     |       | 458,363        |       | 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       |       | 1,015,859   |       | 1,409,344      |       | 225,164            |       | (2,638,191       | )          | 2,104,135        |       |
|                                           |       | $               | 1,626,712  |        | $          | 1,812,787      |       | $                  | 1,934,506  |             | $          | 319,891          |       | $ | (2,634,152 | ) | $ | 3,059,744 |   |

 

46

----

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MAY 31, 2004

 
| ** **                                     | ** ** | ** **      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **         | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|------------------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **Cintas**      | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | ** **         | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                                     | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                     |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Current assets:                                |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Cash and cash equivalents                      |       | $               | —     |        | $          | 56,455         |       | $                  | 8,057      |             | $          | 22,845           |       | $ | — |   | $ | 87,357 |   |
| Marketable securities                          |       | —          |       | 150,652     |       | —         |       | 16,312             |       | —           |       | 166,964          |       |
| Accounts receivable, net                       |       | —          |       | 210,026     |       | 79,425         |       | 8,703              |       | (12,562          | )          | 285,592          |       |
| Inventories, net                               |       | —          |       | 172,586     |       | 20,249         |       | 6,624              |       | (10,771          | )          | 188,688          |       |
| Uniforms and other rental items in service     |       | —          |       | 240,833     |       | 70,741         |       | 15,954             |       | (29,281          | )          | 298,247          |       |
| Prepaid expenses                               |       | —          |       | 6,006       |       | 1,011          |       | 378                |       | —           |       | 7,395            |       |
| Total current assets                           |       | —          |       | 836,558     |       | 179,483        |       | 70,816             |       | (52,614          | )          | 1,034,243        |       |
|                                           |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Property and equipment, at cost, net           |       | —          |       | 596,037     |       | 149,461        |       | 39,812             |       | —           |       | 785,310          |       |
| Goodwill                                       |       | —          |       | 124,845     |       | 667,128        |       | 13,468             |       | —           |       | 805,441          |       |
| Service contracts, net                         |       | —          |       | 106,348     |       | 29,653         |       | 8,663              |       | —           |       | 144,664          |       |
| Other assets, net                              |       | 1,419,869       |       | 29,861      |       | 769,746        |       | 141,897            |       | (2,320,734       | )          | 40,639           |       |
|                                           |       | $               | 1,419,869  |        | $          | 1,693,649      |       | $                  | 1,795,471  |             | $          | 274,656          |       | $ | (2,373,348 | ) | $ | 2,810,297 |   |
|                                           |       |            |       |        |       |           |       |               |       |             |       |             |       |
| **Liabilities  and Shareholders’ Equity** |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Current liabilities:                           |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Accounts payable                               |       | $               | (465,247   | )           | $          | 207,254        |       | $                  | 259,676    |             | $          | 13,755           |       | $ | 38,013 |   | $ | 53,451 |   |
| Accrued compensation and related  liabilities  |       | —          |       | 23,863      |       | 6,307          |       | 1,634              |       | —           |       | 31,804           |       |
| Accrued liabilities                            |       | —          |       | 179,525     |       | (36,472        | )          | 4,148              |       | (975             | )          | 146,226          |       |
| Current income taxes                           |       | —          |       | (33,638     | )          | 69,796         |       | 511                |       | (29              | )          | 36,640           |       |
| Deferred income taxes                          |       | —          |       | 601         |       | 44,630         |       | 1,811              |       | —           |       | 47,042           |       |
| Long-term debt due within one year             |       | —          |       | 9,655       |       | 655            |       | 372                |       | (159             | )          | 10,523           |       |
| Total current liabilities                      |       | (465,247        | )          | 387,260     |       | 344,592        |       | 22,231             |       | 36,850           |       | 325,686          |       |
|                                           |       |            |       |        |       |           |       |               |       |             |       |             |       |
| Long-term debt due after one year              |       | —          |       | 482,360     |       | (49,928        | )          | 72,529             |       | (31,276          | )          | 473,685          |       |
| Deferred income taxes                          |       | —          |       | 9,621       |       | 108,143        |       | 5,193              |       | —           |       | 122,957          |       |
| Total shareholders’ equity                |       | 1,885,116       |       | 814,408     |       | 1,392,664      |       | 174,703            |       | (2,378,922       | )          | 1,887,969        |       |
|                                           |       | $               | 1,419,869  |        | $          | 1,693,649      |       | $                  | 1,795,471  |             | $          | 274,656          |       | $ | (2,373,348 | ) | $ | 2,810,297 |   |

 

47

----

 

CONDENSED CONSOLIDATING STATEMENT OF CASHFLOWS

YEAR ENDED MAY 31, 2005

 
| ** **                                                                                   | ** ** | ** **      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **Cintas**      | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | **Non-**       | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                                                                                   | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from operating activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net income                                                                                   |       | $               | 300,518    |        | $          | 97,692         |       | $              | 194,796    |             | $          | 20,252           |       | $ | (312,740 | ) | $ | 300,518 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Depreciation                                                                                 |       | —          |       | 89,467      |       | 24,480         |       | 5,866          |       | —           |       | 119,813          |       |
| Amortization of deferred charges                                                             |       | —          |       | 17,723      |       | 8,295          |       | 2,344          |       | —           |       | 28,362           |       |
| Deferred income taxes                                                                        |       | —          |       | —      |       | 5,544          |       | (1,353         | )          | —           |       | 4,191            |       |
| Changes in current assets and liabilities, net  of acquisitions of businesses:               |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Accounts receivable                                                                          |       | —          |       | (26,906     | )          | (8,917         | )          | (322           | )          | (172             | )          | (36,317          | )          |
| Inventories                                                                                  |       | —          |       | (29,704     | )          | 635            |       | (2,512         | )          | 5,260            |       | (26,321          | )          |
| Uniforms and other rental items in service                                                   |       | —          |       | (6,335      | )          | (7,214         | )          | (581           | )          | 6,962            |       | (7,168           | )          |
| Prepaid expenses                                                                             |       | —          |       | 225         |       | (907           | )          | (210           | )          | —           |       | (892             | )          |
| Accounts payable                                                                             |       | —          |       | (78,831     | )          | 105,695        |       | (11,137        | )          | —           |       | 15,727           |       |
| Accrued compensation and related  liabilities                                                |       | —          |       | 4,424       |       | 2,216          |       | 266            |       | —           |       | 6,906            |       |
| Accrued liabilities                                                                          |       | —          |       | 12,211      |       | (111           | )          | 331            |       | 13               |       | 12,444           |       |
| Income taxes payable                                                                         |       | —          |       | 32,998      |       | (36,838        | )          | 790            |       | —           |       | (3,050           | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash provided by (used in) operating  activities                                         |       | 300,518         |       | 112,964     |       | 287,674        |       | 13,734         |       | (300,677         | )          | 414,213          |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Cash flows from investing activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                                                         |       | —          |       | (93,901     | )          | (39,883        | )          | (6,943         | )          | —           |       | (140,727         | )          |
| Proceeds from sale or redemption of  marketable securities                                   |       | —          |       | 79,716      |       | 247            |       | 23,034         |       | —           |       | 102,997          |       |
| Purchase of marketable securities                                                            |       | —          |       | (155,721    | )          | (248           | )          | (46,296        | )          | —           |       | (202,265         | )          |
| Acquisitions of businesses, net of cash  acquired                                            |       | —          |       | (4,565      | )          | (104,096       | )          | (415           | )          | —           |       | (109,076         | )          |
| Other                                                                                        |       | (194,130        | )          | 27,676      |       | (133,932       | )          | (3,502         | )          | 302,225          |       | (1,663           | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash (used in) provided by investing  activities                                         |       | (194,130        | )          | (146,795    | )          | (277,912       | )          | (34,122        | )          | 302,225          |       | (350,734         | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Cash flows from financing activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Repayment of long-term debt                                                                  |       | —          |       | (9,655      | )          | (5,249         | )          | 5,877          |       | (1,548           | )          | (10,575          | )          |
| Stock options exercised                                                                      |       | 4,621           |       | —      |       | —         |       | —         |       | —           |       | 4,621            |       |
| Dividends paid                                                                               |       | (54,968         | )          | —      |       | —         |       | —         |       | —           |       | (54,968          | )          |
| Repurchase of common stock                                                                   |       | (58,204         | )          | —      |       | —         |       | —         |       | —           |       | (58,204          | )          |
| Other                                                                                        |       | 2,163           |       | 290         |       | —         |       | 9,033          |       | —           |       | 11,486           |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash (used in) provided by financing  activities                                         |       | (106,388        | )          | (9,365      | )          | (5,249         | )          | 14,910         |       | (1,548           | )          | (107,640         | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net (decrease) increase in cash and cash  equivalents                                        |       | —          |       | (43,196     | )          | 4,513          |       | (5,478         | )          | —           |       | (44,161          | )          |
| Cash and cash equivalents at beginning of  period                                            |       | —          |       | 56,455      |       | 8,057          |       | 22,845         |       | —           |       | 87,357           |       |
| Cash and cash equivalents at end of period                                                   |       | $               | —     |        | $          | 13,259         |       | $              | 12,570     |             | $          | 17,367           |       | $ | — |   | $ | 43,196 |   |

 

48

----

 

CONDENSED CONSOLIDATING STATEMENT OF CASHFLOWS

YEAR ENDED MAY 31, 2004

 
| ** **                                                                                   | ** ** | ** **      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **Cintas**      | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | **Non-**       | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                                                                                   | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from operating activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net income                                                                                   |       | $               | 272,205    |        | $          | 76,797         |       | $              | 179,287    |             | $          | 10,131           |       | $ | (266,215 | ) | $ | 272,205 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Depreciation                                                                                 |       | —          |       | 89,294      |       | 22,237         |       | 5,754          |       | —           |       | 117,285          |       |
| Amortization of deferred charges                                                             |       | —          |       | 18,013      |       | 5,754          |       | 2,207          |       | —           |       | 25,974           |       |
| Deferred income taxes                                                                        |       | —          |       | 591         |       | 15,020         |       | 228            |       | —           |       | 15,839           |       |
| Changes in current assets and liabilities, net  of acquisitions of businesses:               |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Accounts receivable                                                                          |       | —          |       | (5,689      | )          | 7,265          |       | (691           | )          | (1,373           | )          | (488             | )          |
| Inventories                                                                                  |       | —          |       | 50,518      |       | (893           | )          | 189            |       | (1,781           | )          | 48,033           |       |
| Uniforms and other rental items in service                                                   |       | —          |       | 5,545       |       | 682            |       | 726            |       | (4,209           | )          | 2,744            |       |
| Prepaid expenses                                                                             |       | —          |       | (1,141      | )          | 835            |       | 552            |       | —           |       | 246              |       |
| Accounts payable                                                                             |       | —          |       | 65,802      |       | (79,932        | )          | 10,907         |       | —           |       | (3,223           | )          |
| Accrued compensation and related  liabilities                                                |       | —          |       | 4,412       |       | 1,939          |       | 201            |       | —           |       | 6,552            |       |
| Accrued liabilities                                                                          |       | —          |       | (2,552      | )          | 7,473          |       | (509           | )          | 17               |       | 4,429            |       |
| Income taxes payable                                                                         |       | —          |       | (585        | )          | 18,955         |       | 1,743          |       | —           |       | 20,113           |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash provided by (used in) operating  activities                                         |       | 272,205         |       | 301,005     |       | 178,622        |       | 31,438         |       | (273,561         | )          | 509,709          |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Cash flows from investing activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                                                         |       | —          |       | (81,638     | )          | (28,452        | )          | (2,798         | )          | —           |       | (112,888         | )          |
| Proceeds from sale or redemption of  marketable securities                                   |       | —          |       | 46,185      |       | 1,185          |       | 708            |       | —           |       | 48,078           |       |
| Purchase of marketable securities                                                            |       | —          |       | (172,903    | )          | (1,185         | )          | (15,534        | )          | —           |       | (189,622         | )          |
| Acquisitions of businesses, net of cash  acquired                                            |       | —          |       | (18,251     | )          | (83,246        | )          | (157           | )          | —           |       | (101,654         | )          |
| Other                                                                                        |       | (229,466        | )          | 33,109      |       | (63,234        | )          | (406           | )          | 272,279          |       | 12,282           |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash (used in) provided by investing  activities                                         |       | (229,466        | )          | (193,498    | )          | (174,932       | )          | (18,187        | )          | 272,279          |       | (343,804         | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Cash flows from financing activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Repayment of long-term debt                                                                  |       | —          |       | (68,313     | )          | (799           | )          | 218            |       | 130              |       | (68,764          | )          |
| Stock options exercised                                                                      |       | 5,868           |       | —      |       | —         |       | —         |       | —           |       | 5,868            |       |
| Dividends paid                                                                               |       | (49,634         | )          | —      |       | —         |       | —         |       | —           |       | (49,634          | )          |
| Other                                                                                        |       | 1,027           |       | 669         |       | —         |       | 47             |       | —           |       | 1,743            |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash (used in) provided by financing  activities                                         |       | (42,739         | )          | (67,644     | )          | (799           | )          | 265            |       | 130              |       | (110,787         | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net increase (decrease) in cash and cash  equivalents                                        |       | —          |       | 39,863      |       | 2,891          |       | 13,516         |       | (1,152           | )          | 55,118           |       |
| Cash and cash equivalents at beginning of  period                                            |       | —          |       | 16,592      |       | 5,166          |       | 9,329          |       | 1,152            |       | 32,239           |       |
| Cash and cash equivalents at end of period                                                   |       | $               | —     |        | $          | 56,455         |       | $              | 8,057      |             | $          | 22,845           |       | $ | — |   | $ | 87,357 |   |

 

49

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CONDENSED CONSOLIDATING STATEMENT OF CASHFLOWS

YEAR ENDED MAY 31, 2003

 
| ** **                                                                                   | ** ** | ** **      | ** ** | ** **  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **Cintas**      | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | **Non-**       | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                                                                                   | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from operating activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net income                                                                                   |       | $               | 249,253    |        | $          | 76,171         |       | $              | 190,790    |             | $          | 5,035            |       | $ | (271,996 | ) | $ | 249,253 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Depreciation                                                                                 |       | —          |       | 88,110      |       | 22,027         |       | 5,183          |       | —           |       | 115,320          |       |
| Amortization of deferred charges                                                             |       | —          |       | 16,915      |       | 8,843          |       | 1,983          |       | —           |       | 27,741           |       |
| Deferred income taxes                                                                        |       | —          |       | (1,492      | )          | 6,080          |       | 3,060          |       | —           |       | 7,648            |       |
| Changes in current assets and liabilities, net  of acquisitions of businesses:               |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Accounts receivable                                                                          |       | —          |       | 22,307      |       | (11,121        | )          | (7,445         | )          | 303              |       | 4,044            |       |
| Inventories                                                                                  |       | —          |       | (36,196     | )          | (1,430         | )          | (1,857         | )          | 3,077            |       | (36,406          | )          |
| Uniforms and other rental items in service                                                   |       | —          |       | (39,941     | )          | (158           | )          | (3,579         | )          | 19,665           |       | (24,013          | )          |
| Prepaid expenses                                                                             |       | —          |       | 2,556       |       | 201            |       | (157           | )          | (3               | )          | 2,597            |       |
| Accounts payable                                                                             |       | —          |       | 57,958      |       | (52,963        | )          | (11,675        | )          | 32               |       | (6,648           | )          |
| Accrued compensation and related  liabilities                                                |       | —          |       | (3,990      | )          | (140           | )          | 396            |       | —           |       | (3,734           | )          |
| Accrued liabilities                                                                          |       | —          |       | 6,840       |       | (17,061        | )          | 355            |       | 15               |       | (9,851           | )          |
| Income taxes payable                                                                         |       | —          |       | 1,836       |       | 6,757          |       | (3,857         | )          | —           |       | 4,736            |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash provided by (used in) operating  activities                                         |       | 249,253         |       | 191,074     |       | 151,825        |       | (12,558        | )          | (248,907         | )          | 330,687          |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Cash flows from investing activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                                                         |       | —          |       | (48,196     | )          | (51,621        | )          | (15,202        | )          | —           |       | (115,019         | )          |
| Proceeds from sale or redemption of  marketable securities                                   |       | —          |       | 19,241      |       | (222           | )          | 4,771          |       | —           |       | 23,790           |       |
| Purchase of marketable securities                                                            |       | —          |       | (702        | )          | 221            |       | (4,271         | )          | —           |       | (4,752           | )          |
| Acquisitions of businesses, net of cash  acquired                                            |       | —          |       | (8,829      | )          | (22,255        | )          | (6,089         | )          | —           |       | (37,173          | )          |
| Other                                                                                        |       | (210,066        | )          | 11,793      |       | (50,206        | )          | (3,934         | )          | 249,345          |       | (3,068           | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash (used in) provided by investing  activities                                         |       | (210,066        | )          | (26,693     | )          | (124,083       | )          | (24,725        | )          | 249,345          |       | (136,222         | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Cash flows from financing activities:                                                        |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Repayment of long-term debt                                                                  |       | —          |       | (170,961    | )          | (27,587        | )          | 24,943         |       | 714              |       | (172,891         | )          |
| Stock options exercised                                                                      |       | 5,699           |       | —      |       | —         |       | —         |       | —           |       | 5,699            |       |
| Dividends paid                                                                               |       | (46,003         | )          | —      |       | —         |       | —         |       | —           |       | (46,003          | )          |
| Other                                                                                        |       | 1,117           |       | 732         |       | —         |       | 8,492          |       | —           |       | 10,341           |       |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net cash (used in) provided by financing  activities                                         |       | (39,187         | )          | (170,229    | )          | (27,587        | )          | 33,435         |       | 714              |       | (202,854         | )          |
|                                                                                         |       |            |       |        |       |           |       |           |       |             |       |             |       |
| Net (decrease) increase in cash and cash  equivalents                                        |       | —          |       | (5,848      | )          | 155            |       | (3,848         | )          | 1,152            |       | (8,389           | )          |
| Cash and cash equivalents at beginning of  period                                            |       | —          |       | 22,440      |       | 5,011          |       | 13,177         |       | —           |       | 40,628           |       |
| Cash and cash equivalents at end of period                                                   |       | $               | —     |        | $          | 16,592         |       | $              | 5,166      |             | $          | 9,329            |       | $ | 1,152 |   | $ | 32,239 |   |

 

50

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Nothing to report.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

With the participation of Cintas’ management, including Cintas’ ChiefExecutive Officer, Chief Financial Officer, President, General Counsel andControllers, Cintas has evaluated the effectiveness of the disclosure controlsand procedures (as defined inRule 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934) as of May 31, 2005.  Basedon such evaluation, Cintas’ management, including Cintas’ Chief ExecutiveOfficer, Chief Financial Officer, President, General Counsel and Controllers,have concluded that Cintas’ disclosure controls and procedures were effectivein ensuring (i) information required to be disclosed by Cintas inthe reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported, within the time periods specified in theSEC’s rules and forms and (ii) information required to be disclosedby Cintas in the reports that it files or submits under the Exchange Act isaccumulated and communicated to Cintas’ management, including its principalexecutive and principal financial officers, or persons performing similarfunctions, as appropriate to allow timely decisions regarding requireddisclosure.

 

Internal Control over Financial Reporting

 

There were no changes in Cintas’ internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the fiscal quarter ended May 31, 2005, that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting. See “Management’s Report on InternalControl over Financial Reporting” and “Report of Independent Registered PublicAccounting Firm” in Item 8 preceding Cintas’ financial statements.

 

ITEM 9B.

OTHER INFORMATION

 

On May 2, 2005, Cintas announced that theBoard of Directors authorized a $500 million stock repurchase program at marketprices.  Pursuant to that authorization,on August 12, 2005, as part of this share repurchase program, theregistrant entered into a Rule 10B5-1 trading plan for the period beginningAugust 15, 2005 through September 23, 2005, unless earlierterminated.

 

PART III

 

Items 10, 11, 12, 13 and 14 of Part III are incorporated byreference to the Registrant’s Proxy Statement for its 2005 Annual Shareholders’Meeting to be filed with the Commission pursuant to Regulation 14A.

 

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENTSCHEDULES

 

(a) (1) Financial Statements. All financial statements required to be filed by Item 8 of this Form andincluded in this report are listed in Item 8. No additional financial statements are filed because the requirementsfor paragraph (d) under Item 14 are not applicable to Cintas.

 

(a) (2) Financial StatementSchedule:

 

For each of the three years in the period ended May 31, 2005.

 

Schedule II: Valuation and Qualifying Accounts and Reserves.

 

All other schedules are omitted because they are not applicable, or notrequired, or because the required information is included in the ConsolidatedFinancial Statements or Notes thereto.

 

(a) (3) Exhibits.

 

51

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| **Exhibit  Number** | ** ** | **Description of Exhibit** | ** **                                                                                                                                                                                                       | **Filing  Status** |
|---------------------|------------|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| ** **          | ** ** | ** **                 | ** **                                                                                                                                                                                                       | ** **         |
| 3                   | .1         |                       | Restated Articles of  Incorporation                                                                                                                                                                              |               | (1) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 3                   | .2         |                       | By-laws                                                                                                                                                                                                          |               | (1) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 3                   | .3         |                       | Amendments to the Articles of  Incorporation of Cintas Corporation                                                                                                                                               |               | (2) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 4                   | .1         |                       | Indenture dated as of May 28,  2002 among Cintas Corporation No. 2, as issuer, Cintas Corporation, as parent  guarantor, the subsidiary guarantors thereto and Wachovia Bank, National Association,  as trustee  |               | (17) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 4                   | .2         |                       | Form of 5-1/8% Senior Note due  2007                                                                                                                                                                             |               | (17) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 4                   | .3         |                       | Form of 6% Senior Note due  2012                                                                                                                                                                                 |               | (17) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .1*        |                       | Incentive Stock Option Plan                                                                                                                                                                                      |               | (3) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .2*        |                       | Partners’ Plan, as Amended                                                                                                                                                                                  |               | (4) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .4*        |                       | 1994 Directors’ Stock Option  Plan                                                                                                                                                                          |               | (5) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .5         |                       | Agreement and Plan of Merger  dated January 9, 1999 by and among Unitog Company, Cintas Image Acquisition  Company and Cintas Corporation                                                                        |               | (6) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .6         |                       | Amendment No. 1 to Agreement  and Plan of Merger dated March 23, 1999 by and among Unitog Company, Cintas  Image Acquisition Company and Cintas Corporation                                                      |               | (7) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .7         |                       | Unitog Company 1992 Stock  Option Plan                                                                                                                                                                           |               | (8) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .8*        |                       | Amendment No. 1 to Unitog  Company 1992 Stock Option Plan                                                                                                                                                        |               | (9) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .9*        |                       | Unitog Company 1997 Stock  Option Plan                                                                                                                                                                           |               | (10) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .10*       |                       | 1999 Cintas Corporation Stock  Option Plan                                                                                                                                                                       |               | (11) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .11*       |                       | Directors’ Deferred  Compensation Plan                                                                                                                                                                      |               | (12) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .13*       |                       | Stock purchase agreement  between Cintas Corporation and Filuxel SA dated as of March 15, 2002                                                                                                                   |               | (13) |
|                |       |                       |                                                                                                                                                                                                             |               |   |
| 10                  | .14        |                       | Bridge loan agreement dated  May 8, 2002 among Cintas Corporation No. 2, as borrower, Cintas Corporation  as a guarantor, the lenders, Bank One, NA, as agent, and Merrill Lynch Bank  USA, as syndication agent |               | (14) |

 

52

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| 10     | .15    |   | Purchase Agreement dated as of  May 28, 2002 among Cintas Corporation No. 2, as issuer, Cintas Corporation as  parent guarantor, the subsidiary guarantors named therein and the initial  purchasers named therein |   | (15)           |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|   |   |   |                                                                                                                                                                                                               |   |           |
| 10     | .16*   |   | Amended and Restated 2003  Directors’ Stock Option Plan                                                                                                                                                       |   | (16)           |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 10     | .17*   |   | Form of agreement signed by  Officers, General/Branch Managers, Professionals and Key Managers, including  Executive Officers                                                                                      |   | (17)           |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 10     | .18*   |   | President and CEO Executive  Compensation Plan                                                                                                                                                                     |   | filed herewith |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 10     | .19*   |   | 2006 Executive Incentive Plan                                                                                                                                                                                      |   | filed herewith |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 14     |   |   | Code of Ethics                                                                                                                                                                                                     |   | (16)           |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 21     |   |   | Subsidiaries of the Registrant                                                                                                                                                                                     |   | filed herewith |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 23     |   |   | Consent of Independent  Registered Public Accounting Firm                                                                                                                                                          |   | filed herewith |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 31     | .1     |   | Certification of Principal  Executive Officer, Pursuant to Rule 13a – 14(a) of the Securities Exchange  Act of 1934                                                                                           |   | filed herewith |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 31     | .2     |   | Certification of Principal  Financial Officer, Pursuant to Rule 13a – 14(a) of the Securities Exchange  Act of 1934                                                                                           |   | filed herewith |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 32     | .1     |   | Certification of Chief  Executive Officer, Pursuant to 18 U.S.C. § 1350                                                                                                                                  |   | filed herewith |
|   |   |   |                                                                                                                                                                                                               |   |           |
| 32     | .2     |   | Certification of Chief  Financial Officer, Pursuant to 18 U.S.C. § 1350                                                                                                                                  |   | filed herewith |

 

----

| * Management Compensatory  Contracts |   |   |
|--------------------------------------|--------|--------|

 

Incorporated by reference to: 

 

(1)           Cintas’ Annual Report on Form 10-K for the year ended May 31, 1989.

 

(2)           Cintas’ 1994 Proxy Statement.

 

(3)           Cintas’ Registration Statement No. 33-23228 on FormS-8 filed under the Securities Act of 1933.

 

(4)           Cintas’ Registration Statement No. 33-56623 on FormS-8 filed under the Securities Act of 1933.

 

(5)           Cintas’ Proxy Statement for its 1994 Annual Shareholders’ Meeting.

 

(6)           the Unitog Company’s Form 8-K dated January 9, 1999.

 

(7)           Cintas’ Form 8-K dated March 24, 1999.

 

(8)           the Unitog Company’s Form 10-K for the fiscal year ended January 26, 1992.

 

(9)           the Unitog Company’s Form 10-K for the fiscal year ended January 30, 1994.

 

(10)         the Unitog Company’s 1997 Proxy Statement.

 

53

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(11)         Cintas’ Form 10-Q for the quarter ended November 30, 2000.

 

(12)         Cintas’ Form 10-Q for the quarter ended November 30, 2001.

 

(13)         Cintas’ Form 10-Q for the quarter ended February 28, 2002.

 

(14)         Cintas’ Form 8-K dated May 13, 2002.

 

(15)         Cintas’ Form 10-K dated May 31, 2002.

 

(16)         Cintas’ Form 10-K dated May 31, 2004.

 

(17)         Cintas’ Form 10-Q for the quarter ended February 28, 2005.

 

(b)           A Form 8-K was filed on May 13, 2002 to report the acquisition of thestock of Omni Services, Inc.

 

54

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
| CINTAS CORPORATION           |                |
|------------------------------|---------------------|
|                         |                |
| DATE SIGNED: August 15, 2005 | /s/ Scott D. Farmer |   |
| By: Scott D. Farmer          |                |
| Chief Executive Officer      |                |

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report has been signed by thefollowing persons on behalf of the Registrant and in the capacities and on thedates indicated.

 
| **Signature**      | ** **         | **Capacity**                                                           | ** ** | **Date**                  |
|--------------------|--------------------|------------------------------------------------------------------------|------------|---------------------------|
|               |               |                                                                   |       |                      |   |
| /s/                | Richard T. Farmer  |                                                                   |       | Chairman of the Board     |   |   |
| Richard T. Farmer  |               | of Directors                                                           |       | August 15, 2005           |
|               |               |                                                                   |       |                      |   |
|               |               |                                                                   |       |                      |   |
| /s/                | Robert J. Kohlhepp |                                                                   |       | Vice Chairman of the      |   |   |
| Robert J. Kohlhepp |               | Board and Director                                                     |       | August 15, 2005           |
|               |               |                                                                   |       |                      |   |
|               |               |                                                                   |       |                      |   |
| /s/                | Scott D. Farmer    |                                                                   |       | Chief Executive Officer,  |   |   |
| Scott D. Farmer    |               | President and Director                                                 |       | August 15, 2005           |
|               |               |                                                                   |       |                      |   |
|               |               |                                                                   |       |                      |   |
| /s/                | Roger L. Howe      |                                                                   |       | Director                  |   | August 15, 2005 |
| Roger L. Howe      |               |                                                                   |       |                      |
|               |               |                                                                   |       |                      |
|               |               |                                                                   |       |                      |   |
| /s/                | Paul R. Carter     |                                                                   |       | Director                  |   | August 15, 2005 |
| Paul R. Carter     |               |                                                                   |       |                      |
|               |               |                                                                   |       |                      |
|               |               |                                                                   |       |                      |   |
| /s/                | David C. Phillips  |                                                                   |       | Director                  |   | August 15, 2005 |
| David C. Phillips  |               |                                                                   |       |                      |
|               |               |                                                                   |       |                      |
|               |               |                                                                   |       |                      |   |
| /s/                | William C. Gale    |                                                                   |       | Senior Vice President and |   |   |
| William C. Gale    |               | Chief Financial Officer  (Principal Financial and  Accounting Officer) |       | August 15, 2005           |

 

55

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CINTAS CORPORATION

 

Schedule II - Valuation and QualifyingAccounts and Reserves

(In Thousands)

 
| ** **                      | ** ** | ** **                         | ** ** | **Additions**                            | ** ** | ** **                           | ** ** | ** **          | ** ** |
|---------------------------------|------------|------------------------------------|------------|------------------------------------------|------------|--------------------------------------|------------|---------------------|------------|
| **Description**                 | ** ** | **Balance At  Beginning of  Year** | ** ** | **(1)  Charged to  Costs and  Expenses** | ** ** | **(2)  Charged to  Other  Accounts** | ** ** | **(3)  Deductions** | ** ** | **Balance at  End of Year** | ** ** |
| Allowance for Doubtful Accounts |       |                               |       |                                     |       |                                 |       |                |       |   |   |
|                            |       |                               |       |                                     |       |                                 |       |                |       |   |   |
| May 31, 2003                    |       | $                                  | 9,229      |                                     | $          | 2,237                                |       | $                   | 1,677      |   | $ | 5,406 |   | $ | 7,737 |   |
| May 31, 2004                    |       | $                                  | 7,737      |                                     | $          | 1,456                                |       | $                   | 2,943      |   | $ | 3,782 |   | $ | 8,354 |   |
| May 31, 2005                    |       | $                                  | 8,354      |                                     | $          | 3,870                                |       | $                   | 1,993      |   | $ | 4,326 |   | $ | 9,891 |   |
|                            |       |                               |       |                                     |       |                                 |       |                |       |   |   |
| Reserve for Obsolete Inventory  |       |                               |       |                                     |       |                                 |       |                |       |   |   |
|                            |       |                               |       |                                     |       |                                 |       |                |       |   |   |
| May 31, 2003                    |       | $                                  | 18,858     |                                     | $          | 4,745                                |       | $                   | 5,455      |   | $ | 3,622 |   | $ | 25,436 |   |
| May 31, 2004                    |       | $                                  | 25,436     |                                     | $          | 3,229                                |       | $                   | 626        |   | $ | 3,326 |   | $ | 25,965 |   |
| May 31, 2005                    |       | $                                  | 25,965     |                                     | $          | 3,055                                |       | $                   | 407        |   | $ | 4,139 |   | $ | 25,288 |   |

 

----

(1)   Representsamounts charged to expense to increase reserve for estimated future bad debtsor to increase reserve for obsolete inventory.  Amounts related to inventory are computed byperforming a thorough analysis of future marketability by specific inventoryitem.

(2)   Represents achange in the appropriate balance sheet reserve due to acquisitions during therespective period.

(3)   Representsreductions in the balance sheet reserve due to the actual write-off ofnon-collectible accounts receivable or the physical disposal of obsoleteinventory items.  These amounts do notimpact Cintas’ income statement.

 

56

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