**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-K**
| **x**      | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934 for the Fiscal Year Ended May 31, 2006** |
|------------|----------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                       |
| **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 registrantas specified in its charter)

| **Incorporated under**                             |   | IRS Employer ID    |
|----------------------------------------------------|--------|--------------------|
| **the  Laws of Washington**                        |   | No. **31-1188630** |
| (State or other  jurisdiction                      |   |               |
| of incorporation  or organization)                 |   |               |
|                                               |   |               |
| **6800  Cintas Boulevard**                         |
| **P.O.  Box 625737**                               |
| **Cincinnati,  Ohio 45262-5737**                   |
| (Address of  principal executive offices)          |
|                                               |
| **Phone:  (513) 459-1200**                         |
| (Telephone  number of principal executive offices) |

 

Securities RegisteredPursuant to Section 12(b) of the Act:

**Common Stock, No Par Value**(Title of class)

Securities RegisteredPursuant to Section 12(g) of the Act:

**None**

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months, and (2) has been subject to such filing requirements for the past 90days.
|   | YES |   | NO |   |
|--------|-----|--------|----|--------|
|   | x   |   | o  |   |

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained to the best of theRegistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to theForm 10-K.  x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer (as defined in Rule 12 b-2 of the Exchange Act).
| Large Accelerated Filer x | Accelerated  Filer o | Non-Accelerated  Filer o |
|---------------------------|----------------------|--------------------------|

 

Indicate by checkmark whether the registrant is ashell company (as defined in Rule 12 b-2 of the Exchange Act).  Yes oNo x

The aggregatemarket value of the Common Stock held by non-affiliates as of November 30,2005, was $7,512,621,962 based on a closing sale price of $44.72 pershare.  As of July 31, 2006, 172,797,254 sharesof Common Stock were issued and 160,663,118 shares were outstanding.

Documents Incorporated by Reference

Portions of theRegistrant’s Proxy Statement to be filed with the Commission for its 2006Annual Meeting are incorporated by reference in Part II and Part III asspecified.

 

----

16851-1-da-19.doc- Items10111213And14OfPartIiiAreInc_175931

CINTAS CORPORATIONINDEX TO ANNUAL REPORTON FORM 10-K
| Part I   |     |   |                                                                                                                |   |
|----------|----------|--------|---------------------------------------------------------------------------------------------------------------------|--------|
|     |     |   |                                                                                                                |   |
|     | Item 1.  | -      | Business.                                                                                                           |   |
|     | Item 1A. | -      | Risk Factors.                                                                                                       |   |
|     | 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 Financial  Condition 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.                                                                         |   |

2

----

 

PART I

ITEM 1.BUSINESS

Cintas Corporation, aWashington corporation, provides highly specialized products and services tobusinesses of all types throughout the United States and Canada.  Cintas’ products and services are designed toenhance its customers’ images and brand identification as well as provide asafe and efficient work place.  Cintaswas founded in 1968 by Richard T. Farmer, Chairman of the Board, when he lefthis family’s industrial laundry business in order to develop uniform programsusing an exclusive new fabric.  In theearly 1970s, Cintas acquired the family industrial laundry business.  Over the years, Cintas developed additionalproducts and services that complemented its core uniform business and broadenedthe scope of products and services available to its customers.

The products and servicesprovided by Cintas are as follows:

·                  Uniforms and Apparel

·                  Mats, Mops and Towels

·                  Restroom and Hygiene Service

·                  First Aid and Safety

·                  Fire Protection

·                  Branded Promotional Products

·                  Document Shredding and Storage

·                  Cleanroom Resources

·                  FlameResistant Clothing

These products andservices are provided to over 700,000 businesses of all types – from smallservice and manufacturing companies to major corporations that employ thousandsof people.  No individual customeraccounts for greater than one-half of one percent of Cintas’ totalrevenues.  As a result, the loss of oneaccount would not have a significant financial impact on Cintas.

Cintas classifies itsbusiness into two operating segments, Rentals and Other Services, based on thesimilar economic characteristics of the products and services within eachsegment. The Rentals operating segment reflects the rental and servicing ofuniforms and other garments, mats, mops and shop towels.  In addition to these rental items, we alsoprovide restroom and hygiene products and services within this segment.  The Other Services operating segment consistsof the direct sale of uniforms and related items, first aid, safety and fireprotection products and services, document management services and brandedpromotional products.

The following table setsforth the revenues derived from each operating segment provided by Cintas:
| ** **     | ** ** | **Year Ended May 31** | ** ** |
|----------------|------------|-----------------------|------------|
| ** **     | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **     | ** ** | **(in thousands)**    | ** ** |
|           |       |                  |       |   |   |   |   |
| Rentals        |       | $                     | 2,568,776  |   | $ | 2,363,397 |   | $ | 2,201,405 |   |
| Other Services |       | 834,832               |       | 703,886 |   | 612,654 |   |
|           |       | $                     | 3,403,608  |   | $ | 3,067,283 |   | $ | 2,814,059 |   |

 

See Note 13 entitledSegment Information in “Notes to Consolidated Financial Statements.”

The primary marketsserved by both Cintas operating segments are local in nature and highlyfragmented.  Cintas competes withnational, regional and local providers, and the level of competition varies ateach of Cintas’ locations.  Product,design, price, quality, service and convenience to the customer are thecompetitive elements in both operating segments.

Within the Rentals operating segment, Cintas provides its products andservices to customers via local delivery routes based out of rental processingplants and branches.  Within the OtherServices operating segment, Cintas provides its products and services via itsdistribution network and local delivery routes or

3

----

 

localrepresentatives.  In total, Cintas has approximately7,000 local delivery routes, 404 operations and 8 distribution centers.

Cintas purchases finishedproducts from many outside suppliers.  Inaddition, Cintas operates twelve manufacturing facilities which provide for asubstantial amount of its standard uniform needs.  Cintas purchases fabric, used in itsmanufacturing process, from several suppliers. Cintas is not aware of any circumstances that would hinder its abilityto continue obtaining these materials.

Cintas is subject tovarious environmental laws and regulations, as are other companies in theuniform rental 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 $16 million in fiscal 2006 andapproximately $14 million in fiscal 2005. Capital expenditures to limit or monitor hazardous substances were $2million in fiscal 2006 and $4 million in fiscal 2005.  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.

At May 31, 2006, Cintasemployed approximately 32,000 employees of whom approximately 450 wererepresented by labor unions.  SinceJanuary 2003, Cintas has been the target of a corporate unionization campaignby Unite Here and the Teamsters unions. These unions are attempting to pressure Cintas into surrendering itsemployees’ 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.  Cintas considers itsrelationships with its employees 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 (800) SEC-0330.  The SEC maintains an Internet site thatcontains the same information regarding Cintas that is filed electronicallywith the SEC.  The address of that siteis: 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.

4

----

 

ITEM 1A.RISK FACTORS

The statements in this section,as well as statements described elsewhere in this Form 10-K, or in other SECfilings, describe risks that could materially and adversely affect ourbusiness, financial condition and results of operations and the trading priceof our debt or equity securities could decline. These risks are not the only risks that we face.  Our business, financial condition and resultsof operations could also be affected by additional factors that are notpresently known to us or that we currently consider to be immaterial to ouroperations.

In addition, this sectionsets forth statements which constitute our cautionary statements under thePrivate Securities Litigation Reform Act of 1995.

FORWARD-LOOKING STATEMENTS

*ThePrivate Securities Litigation Reform Act of 1995 provides a safe harbor fromcivil litigation for forward-looking statements.  Forward-lookingstatements may be identified by words such as “estimates,” “anticipates,” “projects,”“plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may”and “will” or the negative versions thereof and similar expressions and by thecontext in which they are used.  Such statements are based upon currentexpectations of Cintas and speak only as of the date made.  Thesestatements are subject to various risks, uncertainties and other factors thatcould cause actual results to differ from those set forth in or implied by thisAnnual Report.  Factors that might cause such a difference include, butare not limited to, the possibility of greater than anticipated operating costsincluding energy costs, lower sales volumes, the performance and costs ofintegration of acquisitions, fluctuations in costs of materials and laborincluding increased medical costs, costs and possible effects of unionorganizing activities, uncertainties regarding any existing or newly-discoveredexpenses and liabilities related to environmental compliance and remediation,the cost, results and ongoing assessment of internal controls for financialreporting required by the Sarbanes-Oxley Act of 2002, the initiation or outcomeof litigation, higher assumed sourcing or distribution costs of products, thedisruption of operations from catastrophic events, changes in federal and statetax laws and the reactions of competitors in terms of price and service. Cintas undertakes no obligation to update any forward-looking statements toreflect events or circumstances arising after the date on which they are made.*

*Alsonote that we provide the following cautionary discussion of risks,uncertainties and possibly inaccurate assumptions relevant to our businesses.These are factors that, individually or in the aggregate, we think could causeour actual results to differ materially from expected and historical results.We note these factors for investors as permitted by the Private SecuritiesLitigation Reform Act of 1995. You should understand that it is not possible topredict or identify all such factors. Consequently, you should not consider thefollowing to be a complete discussion of all potential risks or uncertainties.*

*Generaleconomic factors may adversely affect our financial performance.*

General economicconditions, in North America and globally, may adversely affect our financialperformance.  Higher levels ofunemployment, inflation, tax rates and other changes in tax laws and othereconomic factors could adversely affect the demand for Cintas products andservices.  Increases in labor costsincluding healthcare and insurance costs, higher material costs for items suchas linens and textiles, higher fuel and other energy costs, higher interestrates, inflation, higher tax rates and other changes in tax laws and othereconomic factors could increase our costs of rentals and other services andselling and administrative expenses and could adversely affect our operatingresults.

*Increasedcompetition could adversely affect our financial performance.*

We operate in highly competitive industries and compete with national,regional and local providers.  Product,design, price, quality, service and convenience to the customer are thecompetitive elements in these industries. If existing or future competitors seek to gain or retain market share byreducing prices, Cintas may be required to lower prices, which would hurt ouroperating results. Cintas’ competitors also generally compete with Cintas foracquisition candidates, which can increase the price for acquisitions andreduce the number of available acquisition candidates.  In addition, our customers and prospects maydecide to perform certain services in-house instead of outsourcing theseservices to Cintas.  These competitivepressures could adversely affect our sales and operating results.

5

----

 

*Risksassociated with the suppliers from whom our products are sourced couldadversely affect our operating results.*

The products we sell aresourced from a wide variety of domestic and international suppliers. Globalsourcing of many of the products we sell is an important factor in ourfinancial performance. All of our suppliers must comply with applicable laws,including labor and environmental laws, and otherwise be certified as meetingour required supplier standards of conduct. Our ability to find qualifiedsuppliers who meet our standards, and to access products in a timely andefficient manner is a significant challenge, especially with respect tosuppliers located and goods sourced outside the United States. Political andeconomic stability in the countries in which foreign suppliers are located, thefinancial stability of suppliers, suppliers’ failure to meet our supplierstandards, labor problems experienced by our suppliers, the availability of rawmaterials to suppliers, currency exchange rates, transport availability andcost, inflation and other factors relating to the suppliers and the countriesin which they are located are beyond our control. In addition, United Statesand Canadian foreign trade policies, tariffs and other impositions on importedgoods, trade sanctions imposed on certain countries, the limitation on theimportation of certain types of goods or of goods containing certain materialsfrom other countries and other factors relating to foreign trade are beyond ourcontrol. These and other factors affecting our suppliers and our access toproducts could adversely affect our operating results.

*Aninability to open new, cost effective operating facilities may adversely affectour expansion efforts.*

We plan to expand ourpresence in existing markets and enter new markets.  The opening of new operating facilities isnecessary to gain the capacity required for this expansion.  Our ability to open new operating facilitiesdepends on our ability to identify attractive locations, negotiate leases orreal estate purchase agreements on acceptable terms, identify and obtain adequateutility and water sources, and comply with environmental regulations, zoninglaws and other similar factors.  Anyinability to effectively identify and manage these items may adversely affectour expansion efforts, and, consequently, adversely affect our financialperformance.

*Unionizationcampaigns could adversely affect our operating results.*

Cintas continues to bethe target of a corporate unionization campaign by several unions.  These unions are attempting to pressureCintas into surrendering our employees’ rights to a government-supervisedelection by unilaterally accepting union representation.  We continue to vigorously oppose thiscampaign and defend our employees’ rights to a government-supervisedelection.  This campaign could bematerially disruptive to our business and could materially adversely affect ouroperating results.

*Compliancewith environmental laws and regulations could result in significant costs thatadversely affect our operating results.*

Our operating locationsare subject to environmental laws and regulations relating to the protection ofthe environment and health and safety matters, including those governingdischarges of pollutants to the air and water, the management and disposal ofhazardous substances and wastes and the clean-up of contaminated sites. The operationof our businesses entails risks under environmental laws and regulations. Wecould incur significant costs, including clean-up costs, fines and sanctionsand claims by third parties for property damage and personal injury, as aresult of violations of or liabilities under these laws and regulations. We arecurrently involved in a limited number of remedial investigations and actionsat various locations.  While, based oninformation currently known to us, we believe that we maintain adequate reserveswith respect to these matters, our liability could exceed forecasted amounts,and the imposition of additional clean-up obligations or the discovery ofadditional contamination at these or other sites could result in additionalcosts. In addition, potentially significant expenditures could be required tocomply with environmental laws and regulations, including requirements that maybe adopted or imposed in the future.

Under environmental laws, an owner or operator of real estate may berequired to pay the costs of removing or remediating hazardous materialslocated on or emanating from property, whether or not the owner or operatorknew of or was responsible for the presence of such hazardous materials.  While Cintas regularly engages inenvironmental due diligence in connection with acquisitions, we can give noassurance that locations that have been acquired or leased have been operatedin compliance with environmental laws and regulations during prior periods orthat future uses or conditions will not make us liable under these laws orexpose us to third-party actions including tort suits.

6

----

 

*We aresubject to legal proceedings that may adversely affect our financial conditionand operating results.*

We are party to variouslitigation claims and legal proceedings. Certain of these lawsuits or potential future lawsuits, if decidedadversely to us or settled by us, may result in liability material to ourfinancial condition and operating results. We discuss these lawsuits and other litigation to which we are party ingreater detail below under the caption “Item 3. Legal Proceedings” and in Note 12to our consolidated financial statements.

*Risksassociated with our acquisition policy could adversely affect our operatingresults.*

Historically, a portionof our growth has come from acquisitions. We continue to evaluate opportunities for acquiring businesses that maysupplement our internal growth.  However,there can be no assurance that we will be able to locate and purchase suitableacquisitions.  In addition, the successof any acquisition depends in part on our ability to integrate the acquiredcompany.  The process of integratingacquired businesses may involve unforeseen difficulties and may require adisproportionate amount of our management’s attention and our financial andother resources.  Although we conduct due diligence investigations prior to eachacquisition, there can be no assurance that we will discover all materialliabilities of an acquired business for which we may be responsible as a successorowner or operator.  The failure tosuccessfully integrate these acquired businesses or to discover suchliabilities could adversely affect our operating results.

*We mayexperience difficulties in attracting and retaining competent personnel in keypositions.*

We believe that part ofour success is due to our corporate culture which has been imparted bymanagement throughout our corporate organization.  This factor, along with our entire operation,depends on our ability to attract and retain key employees.  Competitive pressures within and outside ourindustry may make it more difficult and expensive for us to attract and retainkey employees.

*Unexpectedevents could disrupt our operations and adversely affect our operating results.*

Unexpected events, includingfires or explosions at facilities, natural disasters such as hurricanes andtornados, war or terrorist activities, unplanned outages, supply disruptions,failure of equipment or systems or changes in laws and/or regulations impactingour business, could adversely affect our operating results.  These events could result in customerdisruption, physical damage to one or more key operating facilities, thetemporary closure of one or more key operating facilities or the temporarydisruption of information systems.

*Failureto achieve and maintain effective internal controls could adversely affect ourbusiness and stock price.*

Effective internal controls are necessary for us to provide reliablefinancial reports.  All internal controlsystems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined tobe effective can provide only reasonable assurance with respect to financialstatement preparation and presentation. While we continue to evaluate our internal controls, we cannot becertain that these measures will ensure that we implement and maintain adequatecontrols over our financial processes and reporting in the future.  If we fail to maintain the adequacy of ourinternal controls or if we or our independent registered public accounting firmwere to discover material weaknesses in our internal controls, as suchstandards are modified, supplemented or amended, we may not be able to ensurethat we can conclude on an ongoing basis that we have effective internal controlover financial reporting in accordance with Section 404 of theSarbanes-Oxley Act of 2002.  Failure toachieve and maintain an effective internal control environment could cause usto be unable to produce reliable financial reports or prevent fraud.  This may cause investors to lose confidencein our reported financial information, which could have a material adverseeffect on our stock price.

7

----

 

ITEM 2.PROPERTIES

Cintas occupies 412facilities located in 280 cities, of which 217 facilities are leased forvarious terms ranging from monthly to the year 2016.  Cintas expects that it will be able to renewits leases on satisfactory terms.  Of thetwelve manufacturing facilities listed below, Cintas controls the operations ofthree of these manufacturing plants, but does not own or lease the real estaterelated to these operations.  All otherproperties are owned.  The corporateoffices provide centrally located administrative functions includingaccounting, finance, marketing and computer system development and support.Cintas operates processing plants that house administrative, sales and servicepersonnel and the necessary equipment involved in the cleaning of uniforms andbulk items, such as entrance mats and shop towels.  Branch operations provide administrative,sales and service functions. Cintas operates eight distribution centers andtwelve manufacturing plants.  Cintas alsooperates first aid, safety and fire protection and document management facilitiesand direct sales offices.  Cintasconsiders the facilities it operates to be adequate for their intended use.Cintas owns or leases 12,617 vehicles.

The followingchart provides additional information concerning Cintas’ facilities:

| Type of Facility                        | ** ** | ** ** | **# of  Facilities** | ** ** |
|---------------------------------------------------|------------|------------|---------------------------|------------|
|                                              |       |       |                      |
| Rental Processing  Plants                         |       | 178        |                      |
|                                              |       |       |                      |
| Rental Branches                                   |       | 95         |                      |
|                                              |       |       |                      |
| First Aid, Safety and  Fire Protection Facilities |       | 63         |                      |
|                                              |       |       |                      |
| Document Management  Facilities                   |       | 33         |                      |
|                                              |       |       |                      |
| Distribution Centers                              |       | 8          | *                         |
|                                              |       |       |                      |
| Manufacturing  Facilities                         |       | 12         |                      |
|                                              |       |       |                      |
| Direct Sales Offices                              |       | 23         |                      |
|                                              |       |       |                      |
| Total                                             |       | 412        |                      |

 

Rental processingplants, rental branches, distribution centers and manufacturing facilities areused in Cintas’ Rentals segment.  Rentalprocessing plants, rental branches, first aid, safety and fire protectionfacilities, document management facilities, distribution centers, manufacturingfacilities and direct sale offices are all used in the Other Services segment.

----

* Includes theCorporate office, which is attached to the distribution center in Cincinnati,OH.

8

----

 

ITEM 3.

LEGAL PROCEEDINGS

We discuss certainlegal proceedings pending against us in Part II of this Annual Report on Form10-K under the caption “Item 8. Financial Statements and Supplementary Data,”in Note 12 to our consolidated financial statements, which is captioned “Litigationand Other Contingencies,” and “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” under “Litigation and OtherContingencies.”  We refer you to thosediscussions for important information concerning those legal proceedings,including the basis for such actions and, where known, the relief sought. Weprovide the following additional information concerning those legal proceedingswhich sets forth the name of the lawsuit, the court in which the lawsuit ispending and the date on which the petition commencing the lawsuit was filed.

Wage and Hour Litigation: *Paul Veliz,et al., v. Cintas Corporation*, United States District Court,Northern District of California, Oakland Division, March 19, 2003*.*On August 23, 2005, an amended complaint was filedalleging additional state law wage and hour claims under the following statelaws: Arkansas, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota,New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington, West Virginiaand Wisconsin. On February 14, 2006, the court permitted plaintiffs to file asecond amended complaint alleging state law claims in the 15 states listedabove only with respect to the putative class members that may litigate theirclaims in court.

Race and Gender Litigation and Related Charges: *Robert Ramirez, et al., v. Cintas Corporation*, United StatesDistrict Court, Northern District of California, San Francisco Division,January 20, 2004;**On April 27, 2005, the EEOC intervenedin*Ramirez; Mirna E. Serrano, et al., v. CintasCorporation*, United States District Court for the Eastern Districtof Michigan, Southern Division, May 10, 2004;**OnNovember 15, 2005, the EEOC intervened in*Serrano*; OnMay 11, 2006, the *Ramirez* African-American,Hispanic and female failure to hire into service sales representative positionclaims and the EEOC’s intervention were transferred to the *Serrano*case, the remaining claims in *Ramirez* weredismissed or compelled to arbitration; *Larry Houston, et al., v.Cintas Corporation,*United States District Court for the NorthernDistrict of California, August 3, 2005; On November 22, 2005, the namedplaintiffs in *Houston* were ordered toarbitration; EEOC charge filed by an EEOC Commissioner on November 30, 2004,with the EEOC Systemic Litigation Unit; EEOC charge filed by Jennifer Fargo onJanuary 24, 2005, with the Augusta Human Relations Commission and the EEOCDetroit District and an EEOC charge filed by Clifton Cooper on March 23, 2005,with the EEOC Systemic Litigation Unit. On May 18, 2006, the EEOC issued adismissal and notice of rights and closed its file on the previously disclosedclass action charge filed by Mattie Cooper on June 10, 2005, with the EEOCSystemic Litigation Unit. On May 26, 2006, the EEOC issued a dismissal andnotice of rights and closed its file on the previously disclosed class actioncharge filed by Melissa Schulz on April 25, 2005, with the EEOC SystemicLitigation Unit and the Oregon Bureau of Labor and Industries, Civil RightsDivision.

Breachof Fiduciary Duties:  *J. Lester Alexander, III vs. Cintas Corp., et al.,*UnitedStates

Bankruptcy Court for the Middle District of Alabama,Eastern Division, October 25, 2004.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None in the fourthquarter of fiscal 2006.

9

----

 

PART II

ITEM 5.

MARKET FORREGISTRANT’S COMMON EQUITY,

RELATEDSTOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

MarketInformation

Cintas Corporation’sCommon Stock is traded on the NASDAQ Global Select Market under the symbol “CTAS”.The following table shows the high and low closing prices by quarter during thelast two fiscal years:

 

Fiscal2006

 
| Quarter Ended | ** ** | **High** | ** ** | **Low** | ** ** |
|--------------------|------------|----------|------------|---------|------------|
|               |       |     |       |    |       |
| May 2006           |       | $        | 44.30      |    | $          | 39.90 |   |
| February 2006      |       | 45.40    |       | 39.78   |       |
| November 2005      |       | 45.17    |       | 38.31   |       |
| August 2005        |       | 45.49    |       | 37.51   |       |
|                    |            |          |            |         |            |  |  |

 

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   |       |
|                    |            |          |            |         |            |  |  |

 

Holders

AtMay 31, 2006, there were approximately 2,000 shareholders of record of Cintas’Common Stock. Cintas believes that this represents approximately 66,000beneficial owners.

Dividends

Dividendson the outstanding Common Stock have been paid annually and amounted to $0.35per share, $0.32 per share and $0.29 per share in fiscal 2006, fiscal 2005 andfiscal 2004, respectively.

SecuritiesAuthorized for Issuance Under Equity Compensation Plans

EquityCompensation Plan Information
| ** **                                              | ** ** | ** **                            | ** ** | ** **                            | ** ** | **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 (1)** | ** ** | **outstanding options (1)** | ** ** | **compensation plans**       | ** ** |
| Equity  compensation plans approved by shareholders     |       | 6,535,404                             |       | $                                     | 40.08      |                              | 13,853,250 |   |
|                                                    |       |                                  |       |                                  |       |                              |       |
| Equity  compensation plans not approved by shareholders |       | —                                |       | —                                |       | —                            |       |
|                                                    |       |                                  |       |                                  |       |                              |       |
| Total                                                   |       | 6,535,404                             |       | $                                     | 40.08      |                              | 13,853,250 |   |

----

(1)             Excludes128,075 unvested restricted stock units.

10

----

 

RecentSales of Unregistered Securities; Uses of Proceeds from Registered Securities

Nonein the fourth quarter of fiscal 2006.

Purchasesof Equity Securities by the Issuer and Affiliated Purchases

On May 2, 2005, Cintasannounced that the Board of Directors authorized a $500 million stockrepurchase program at market prices. During fiscal 2006, Cintas purchasedapproximately 7.9 million shares of Cintas stock at an average price of $40.83per share, for a total purchase price of approximately $323 million. The Boarddid not specify an expiration date for 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 2006 |       | —                                           |       | $                                            | —     |                                                                                                               | —     |                                                                                                                                 | $          | 327,625,981 |   |
|       |       |                                             |       |                                         |       |                                                                                                               |       |                                                                                                                                 |       |
| April 2006 |       | 1,773,740                                        |       | 41.78                                        |       | 6,134,674                                                                                                          |       | 253,519,157                                                                                                                          |       |
|       |       |                                             |       |                                         |       |                                                                                                               |       |                                                                                                                                 |       |
| May 2006   |       | 3,254,671                                        |       | 41.52                                        |       | 9,389,345                                                                                                          |       | 118,386,627                                                                                                                          |       |
|       |       |                                             |       |                                         |       |                                                                                                               |       |                                                                                                                                 |       |
| Total      |       | 5,028,411                                        |       | $                                            | 41.61      |                                                                                                               | 9,389,345  |                                                                                                                                 | $          | 118,386,627 |   |

 

Infiscal 2006, Cintas also acquired 73,848 shares as payment received fromemployees upon the exercise of options under the stock option plan.

In addition to thepurchases made in fiscal 2006, Cintas has subsequently purchased 2.7 millionshares of Cintas stock at an average price of $41.69 per share for a purchaseprice of approximately $114 million. From the inception of the stock repurchaseprogram through July 21, 2006, Cintas has purchased a total of approximately12.1 million shares of Cintas stock at an average price of $40.88 per share fora total purchase price of approximately $496 million. The maximum approximatedollar value of shares that may yet be purchased under the plan as of July 21,2006, is approximately $4 million.

11

----

 

ITEM 6.

SELECTED FINANCIAL DATA

**Eleven Year Financial Summary**

(In thousands except pershare and percentage data)

 
| **Years Ended  May 31**   | ** ** | **1996** | ** ** | **1997** | ** ** | **1998** | ** ** | **1999** | ** ** | **2000** | ** ** | **2001** | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **10-Year  Compd  Growth** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------------------|------------|
| Revenue                             |       | $        | 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  |     | 3,403,608  |                       | 11.9       | %(3) |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Net Income                          |       | $        | 98,956     |     | 118,557    |     | 133,654    |     | 138,939    |     | 193,387    |     | 222,451    |     | 234,251    |     | 249,253    |     | 272,205    |     | 300,518    |     | 327,178    |                       | 12.7       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Pro Forma Net  Income (1)      |       | $        | 94,151     |     | 112,763    |     | 128,704    |     | 138,939    |     | 193,387    |     | 222,451    |     | 234,251    |     | 249,253    |     | 272,205    |     | 300,518    |     | 327,178    |                       | 13.3       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Basic EPS                           |       | $        | 0.64       |     | 0.75       |     | 0.83       |     | 0.84       |     | 1.16       |     | 1.32       |     | 1.38       |     | 1.46       |     | 1.59       |     | 1.75       |     | 1.95       |                       | 11.8       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Diluted EPS                         |       | $        | 0.63       |     | 0.75       |     | 0.82       |     | 0.82       |     | 1.14       |     | 1.30       |     | 1.36       |     | 1.45       |     | 1.58       |     | 1.74       |     | 1.94       |                       | 11.9       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Pro Forma Basic  EPS  (1) |       | $        | 0.61       |     | 0.72       |     | 0.80       |     | 0.84       |     | 1.16       |     | 1.32       |     | 1.38       |     | 1.46       |     | 1.59       |     | 1.75       |     | 1.95       |                       | 12.3       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Pro Forma Diluted  EPS (1)     |       | $        | 0.60       |     | 0.71       |     | 0.79       |     | 0.82       |     | 1.14       |     | 1.30       |     | 1.36       |     | 1.45       |     | 1.58       |     | 1.74       |     | 1.94       |                       | 12.5       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Dividends Per  Share                |       | $        | 0.09       |     | 0.10       |     | 0.12       |     | 0.15       |     | 0.19       |     | 0.22       |     | 0.25       |     | 0.27       |     | 0.29       |     | 0.32       |     | 0.35       |                       | 14.5       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Total Assets                        |       | $        | 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  |     | 3,425,237  |                       | 13.1       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Shareholders’  Equity          |       | $        | 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  |     | 2,087,963  |                       | 14.2       | % |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Return on Average    Equity (2)     |       | 18.2     | %          | 18.7     | %          | 18.3     | %          | 17.1     | %          | 20.2     | %          | 19.6     | %          | 17.6     | %          | 16.2     | %          | 15.4     | %          | 15.1     | %          | 15.6     | %          |                       |       |
|                                |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |     |       |                       |       |
| Long-Term Debt                      |       | $        | 237,550    |     | 227,799    |     | 307,633    |     | 283,581    |     | 254,378    |     | 220,940    |     | 703,250    |     | 534,763    |     | 473,685    |     | 465,291    |     | 794,454    |                       |       |   |

----

Note:           Results prior to March24, 1999, have been restated to include Unitog Company. Results prior to April8, 1998, have also been restated to include Uniforms To You Companies.

(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. Return on average equity iscomputed as net income divided by the average of shareholders’ equity. Webelieve that this calculation gives management and shareholders a goodindication of Cintas’ historical performance.

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

12

----

 

ITEM 7.

MANAGEMENT’SDISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS STRATEGY

Cintas provideshighly specialized products and services to businesses of all types throughoutthe United States and Canada. We are North America’s leading provider ofcorporate identity uniforms through rental and sales programs, as well as asignificant provider of related business services, including entrance mats,restroom products and services, first aid, safety and fire protection productsand services, document management services and branded promotional products. Ourproducts and services are designed to enhance our customers’ images and toprovide additional safety and protection in the workplace.

Our businessstrategy is to increase our market share of the uniform rental and salesbusiness in North America through the sale of new uniform programs and toprovide our customers with all of the products and services we offer. We willalso continue to identify additional product and service opportunities for ourcurrent and future customers. Our long-term goal is to provide a product orservice to every business in North America.

To pursue thisstrategy, we focus on the development of a highly talented and diverse team ofemployees (whom we call partners) – a team that is properly trained andmotivated to service our customers. We support our partners’ service efforts byproviding superior products with distinct competitive advantages, and weembrace technological advances.

Continuous costcontainment and product and process innovation are considered hallmarks of ourorganization. In order to sustain these efforts, we employ a Six Sigma effortwithin Cintas. Six Sigma is an analytical process that assists companies inimproving quality and customer satisfaction while reducing cycle time andoperating costs. We are pleased with our progress in this endeavor and areoptimistic about the improved efficiencies that this process has and willcontinue to yield to Cintas.

We continue toleverage our size and core competencies to become a more valued business serviceprovider to our current and future customers. We will also continue tosupplement our internal growth with strategic acquisitions and the cultivationof new businesses.

RESULTS OFOPERATIONS

Fiscal 2006 markedthe 37th consecutive year of uninterrupted growth insales and profits for Cintas. In addition to achieving this milestone, Cintasexperienced healthy improvements in profits, cash flow and balance sheetstrength.

Cintas classifiesits businesses into two operating segments, Rentals and Other Services, basedon the similar economic characteristics of the products and services withineach segment. The Rentals operating segment reflects the rental and servicingof uniforms and other garments, mats, mops and shop towels. In addition tothese rental items, we also provide our restroom and hygiene products andservices within this segment. The Other Services operating segment consists ofthe direct sale of uniforms and related items, first aid, safety and fireprotection products and services, document management services and brandedpromotional products. Both segments provide these products and servicesthroughout the United States and Canada to businesses of all types - from smallservice and manufacturing companies to major corporations that employ thousandsof people.

13

----

 

The following table setsforth certain consolidated statements of income data as a percentage of revenueby reporting segment and in total for the periods indicated:

 

|                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenue:                             |       |     |       |     |       |     |       |
| Rentals                              |       | 75.5%    |       | 77.1%    |       | 78.2%    |       |
| Other services                       |       | 24.5%    |       | 22.9%    |       | 21.8%    |       |
|                                 |       |     |       |     |       |     |       |
| Total revenue                        |       | 100.0%   |       | 100.0%   |       | 100.0%   |       |
|                                 |       |     |       |     |       |     |       |
| Cost of sales:                       |       |     |       |     |       |     |       |
| Rentals                              |       | 54.8%    |       | 54.8%    |       | 55.5%    |       |
| Other services                       |       | 64.9%    |       | 66.3%    |       | 66.1%    |       |
|                                 |       |     |       |     |       |     |       |
| Total cost of  sales                 |       | 57.3%    |       | 57.5%    |       | 57.8%    |       |
|                                 |       |     |       |     |       |     |       |
| Gross margin:                        |       |     |       |     |       |     |       |
| Rentals                              |       | 45.2%    |       | 45.2%    |       | 44.5%    |       |
| Other services                       |       | 35.1%    |       | 33.7%    |       | 33.9%    |       |
|                                 |       |     |       |     |       |     |       |
| Total gross  margin                  |       | 42.7%    |       | 42.5%    |       | 42.2%    |       |
|                                 |       |     |       |     |       |     |       |
| Selling and  administrative expenses |       | 26.7%    |       | 26.4%    |       | 25.9%    |       |
| Interest income                      |       | -0.2%    |       | -0.2%    |       | -0.1%    |       |
| Interest expense                     |       | 0.9%     |       | 0.8%     |       | 0.9%     |       |
| Write-off of  loan receivable        |       | —   |       | —   |       | 0.1%     |       |
|                                 |       |     |       |     |       |     |       |
| Income before income  taxes          |       | 15.3%    |       | 15.5%    |       | 15.4%    |       |

 

As evidencedabove, our revenue growth was higher in Other Services versus Rentals duringfiscal 2006 and fiscal 2005, resulting in a moderate shift in the percentage ofrevenue between our reporting segments. This shift was mainly driven by theacquisitions of first aid, safety and fire protection businesses and documentmanagement businesses. Information related to acquisitions is discussed in Note8 entitled Acquisitions of “Notes to Consolidated Financial Statements.”

FISCAL 2006COMPARED TO FISCAL 2005

Fiscal 2006 totalrevenue was $3.4 billion, an increase of 11.0% over fiscal 2005. Internalgrowth improved in fiscal 2006 to 7.8%, up from 6.3% in fiscal 2005. Ourinternal growth continues to be generated mainly through the continued sale ofuniform rental programs to new customers and the increased penetration ofancillary products to our existing customer base. The remaining growth in totalrevenue was generated predominantly through acquisitions of rental, first aid,safety and fire protection service businesses and document managementbusinesses. Information related to acquisitions is discussed in Note 8 entitledAcquisitions of “Notes to Consolidated Financial Statements.”

Rentals operatingsegment revenues consist predominantly of revenues derived from the rental ofcorporate identity uniforms and other garments, and the rental and/or sale ofmats, mops, shop towels, restroom supplies and other rental services. Revenuefrom the Rentals segment increased 8.7% over fiscal 2005. The increase inRentals revenue was primarily due to growth in the customer base as well as thecontinued penetration of ancillary products into our existing customer base. Newbusiness remained healthy as we experienced continued success in selling rentalprograms to new customers. We also continued to expand our rental market, withover half of our new business being comprised of customers who were first timeusers of uniform rental programs. Internal revenue growth for the Rentalssegment was 7.3% in fiscal 2006 compared to 6.8% in fiscal 2005. We estimatethat the effects of hurricanes Katrina, Rita and Wilma negatively impacted ourRentals internal growth rate by approximately 0.3%. The 1.4% of remaininggrowth in fiscal 2006 resulted from the acquisition of rental volume.

14

----

 

Other Services operating segment revenues arepredominantly derived from the design, manufacture and direct sale of uniformsand related items, first aid, safety and fire protection products and services,document management services and branded promotional products. Other Servicesrevenue increased 18.6% over fiscal 2005, primarily due to acquisitions offirst aid, safety and fire protection businesses and document managementbusinesses.

Internal revenue in the Other Services segmentincreased 9.6% over fiscal 2005. This increase was mainly driven by the growthof the sale of first aid, safety and fire protection products and services anddocument management services. We estimate that the effects of hurricanesKatrina, Rita and Wilma negatively impacted our Other Services internal growthrate by approximately 0.4%. Growth in the Other Services segment continues tobe through an increase in the customer base and through further penetration ofadditional products and services into our existing customer base.

Cost of rentals increased 8.6% over fiscal 2005. Costof rentals consists primarily of production expenses, delivery expenses and theamortization of in service inventory, including uniforms, mats, shop towels andother rental items. The cost increase over fiscal 2005 was primarily driven bythe growth in Rentals segment revenues. However, rising energy costs alsocontributed to this increase. Rentals energy costs increased 32% in fiscal2006, from approximately $78 million in fiscal 2005 to approximately $102million in fiscal 2006. Various cost containment initiatives implementedthroughout the year helped offset the significant increase in energy costs. Asa result, cost of rentals as of percent of Rentals revenues remained at 54.8%in both fiscal 2006 and fiscal 2005.

Increases in energy costs will continue to impact ouroperating results negatively in coming quarters, except to the extent we areable to offset such costs with price increases and increased operatingefficiencies. Our New Orleans rental operation and Gulf Coast direct salebusiness continue to be impacted negatively by hurricanes Katrina, Rita andWilma. While physical damage to our facilities was minimal, many of ourcustomers in the region have yet to reopen or to return to pre-hurricane staffinglevels. This lower business volume will continue to have an impact on ourresults. We are actively pursuing recoupment of our losses related to thesehurricanes with our insurance carrier. We do not yet have a clear indication ofwhen a recoupment agreement will be resolved, nor can we be sure of the amountwe will receive.

Cost of other services increased 16.2% over fiscal2005. Cost of other services consists primarily of cost of goods sold(predominantly uniforms and first aid products), delivery expenses anddistribution expenses. The increase over fiscal 2005 was due to the growth inOther Services revenue, derived through a combination of internal growth andacquisitions. Gross margin within this segment may fluctuate depending on thetype of product or service sold, as more cost efficient sourcing is employedand as products which require additional services or specialization generatehigher gross margins. For example, tailored garments that incorporate highlevels of design and customization tend to generate higher gross margins thanwork wear and standard catalog items. The gross margin for fiscal 2006 is35.1%. The gross margin for Other Services has historically been in the 30% to35% range. However, Six Sigma and other cost containment initiatives haveallowed us to exceed this historical range. Due to the success of theseinitiatives and our continued efforts, we believe the future gross margins willbe in the 32% to 37% range.

Selling and administrative expenses increased 12.1%over fiscal 2005. Selling and administrative expenses increased mainly due tohigher selling expenses. In order to accelerate revenue growth, we haveincreased our sales force, marketing plans and sales promotions. These measurescombined to increase our selling costs by approximately $24.0 million over theprior fiscal year. The cost of providing medical and retirement benefits to ouremployees increased $17.0 million, representing a 13.9% increase over the prioryear. In addition, administrative expenses increased by $4.7 million as aresult of an increase in the bad debt reserve and by $11.8 million as a resultof an increase in professional services relating to legal and the outsourcingof certain human resource functions. Administrative expenses also increased by$5.2 million due to the amortization of intangibles, generated by newacquisitions.

Net interest expense (interest expense less interestincome) increased $7.5 million from the prior fiscal year. This increase in netinterest expense is due to increased interest rates on our outstanding debt andthe increased level of borrowing used to fund acquisitions and the stockrepurchase program.

Pre-taxincome was $522 million, a 9.4% increase over fiscal 2005. Pre-tax income fromthe Rentals segment increased 8.6% over the prior year due to higher rentalrevenue and various cost containment initiatives, which offset the increases inselling expenses, medical and energy costs. Pre-tax income for the Other Servicessegment increased 24.7% from the prior year mainly due to increased revenue andcost containment initiatives.

15

----

 

Cintas’ effective tax rate was 37.3% for fiscal 2006which is comparable to the 37.0% in fiscal 2005 (see also Note 7 entitledIncome Taxes of “Notes to Consolidated Financial Statements” and the Outlooksection below).

Net income for fiscal 2006 of $327 million was an 8.9%increase over fiscal 2005, and diluted earnings per share of $1.94 was an 11.5%increase over fiscal 2005. The increase in diluted earnings per share wasgreater than the increase in net income due to the impact of the sharerepurchase program, which is discussed in more detail in the Liquidity andCapital Resources section below. Return on average equity was 15.6% in fiscal2006 and 15.1% in fiscal 2005. Return on average equity is computed as netincome divided by the average of shareholders’ equity. We believe that thiscalculation gives management and shareholders a good indication of Cintas’historical performance.

FISCAL 2005 COMPARED TO FISCAL 2004

Fiscal 2005 total revenue was $3.1 billion, anincrease of 9.0% over fiscal 2004. Internal growth improved throughout fiscal2005 and was 6.3% for the year. As the economy continued to strengthen andemployment rates improved, our internal growth rates improved. Internal growthby quarter is shown in the table below. Internal growth percentages have beenadjusted for the appropriate number of workdays, by quarter and for the 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 ratehave lagged an economic upturn as customers add individuals to existing rentalor sales programs or enter into new rental or sales programs. Our internalgrowth continues to be generated mainly through the continued sale of uniformrental programs to new customers and the increased penetration of ancillaryproducts to our existing customer base. The remaining growth in total revenuewas generated predominantly through acquisitions of first aid, safety and fireprotection service businesses and document management businesses. Informationrelated to acquisitions is discussed in Note 8 entitled Acquisitions of “Notesto Consolidated Financial Statements.”

Rentals operating segment revenues consist predominantlyof revenues derived from the rental and/or sale of corporate identity uniforms,mats, shop towels, restroom supplies and other rental services. Revenue fromthe Rentals segment increased 7.4% over fiscal 2004. Internal revenue growthfor the Rentals segment was 6.8% in fiscal 2005 compared to 4.2% in fiscal2004. The 0.6% of remaining growth in fiscal 2005 resulted from the acquisitionof rental volume.

The increase in Rentals revenue was primarily due togrowth in the customer base as well as the continued penetration of ancillaryproducts into our existing customer base. New business remained healthy as weexperienced continued success in selling uniform rental programs to newcustomers. We also continued to expand our rental market, with over half of ournew business being comprised of customers who were first time users of uniformrental programs. Rentals revenue growth was partially offset by lost businessof approximately 7.0%.

Other Services operating segment revenues arepredominantly derived from the design, manufacture and direct sale of uniformsto our customers and the sale of other direct sale products and services. Otherdirect sale products and services include cleanroom supplies, first aid, safetyand fire protection products and services and document management services.Other Services revenue increased 14.9% over fiscal 2004, primarily due toacquisitions of first aid, safety and fire protection businesses and documentmanagement businesses.

Internalrevenue growth in the Other Services segment was 4.4% for the year. Thisincrease was mainly driven by the growth of the sale of first aid, safety andfire protection products and services and document management services. Growthin these areas continues to be through an increase in the customer base andthrough further penetration of additional products and services into ourexisting customer base.

16

----

 

Cost of rentals increased 6.0% over fiscal 2004. Costof rentals consists primarily of production expenses, delivery expenses and theamortization of in service inventory, including uniforms, mats, shop towels andother rental items. The cost increase over fiscal 2004 was primarily driven bythe growth in Rentals segment revenues. Rising energy costs also contributed tothis increase. Various cost containment initiatives implemented throughout theyear provided a decrease in cost of rentals as a percent to Rentals revenuefrom 55.5% in fiscal 2004 to 54.8% in fiscal 2005.

Cost of other services increased 15.2% over fiscal2004. Cost of other services consists primarily of cost of goods sold(predominantly uniforms and first aid products), delivery expenses anddistribution expenses. The increase over fiscal 2004 was due to the growth inOther Services revenue, derived through a combination of internal growth andacquisitions. Gross margin within this segment generally fluctuates between 30%to 35%, depending on the type of product or service sold. Products whichrequire additional services generate higher gross margins. The gross margin forfiscal 2005 is 33.7%, which is in the upper portion of that general range,mainly due to a shift in the product mix.

Selling and administrative expenses increased 11.4%over fiscal 2004. Selling and administrative expenses increased mainly due tohigher selling expenses. In order to accelerate revenue growth, we haveincreased our sales force, marketing plans and sales promotions. These measurescombined to increase our selling costs by approximately $36 million over theprior fiscal year. The cost of providing medical benefits to our employees alsoincreased approximately $15 million. The costs of providing medical benefitsare anticipated to continue to rise.

Net interest expense decreased $5 million from theprior fiscal year. This decrease was primarily a result of increased interestincome due to higher levels of cash and marketable securities throughout theentire year and an increase in the interest rate environment.

Pre-tax income was $477 million, a 10.4% increase overfiscal 2004. Pre-tax income from the Rentals segment increased 9.2% over theprior year due to higher rental revenue and various cost containmentinitiatives, which more than offset the increases in selling expenses andmedical costs. Pre-tax income for the Other Services segment decreased 1.4%from the prior year mainly due to increased selling expenses and medical costs.

Cintas’ effective tax rate was 37.0% for both fiscal2005 and fiscal 2004 (see also Note 7 entitled Income Taxes of “Notes toConsolidated Financial Statements” and the Outlook section below).

Net income for fiscal 2005 of $301 million was a 10.4%increase over fiscal 2004 and diluted earnings per share of $1.74 was a 10.1%increase over fiscal 2004, both of which are consistent with the increases inpre-tax income. Return on average equity was approximately 15% in both fiscal2005 and 2004. Return on average equity is computed as net income divided bythe average of shareholders’ equity. We believe that this calculation givesmanagement and shareholders a good indication of Cintas’ historicalperformance.

Cash, cash equivalents and marketable securitiesincreased by $55 million in fiscal 2005, or 21.7%, primarily due to increasedrevenues. Cash, cash equivalents and marketable securities will be used tofinance future acquisitions, capital expenditures, expansion and possible stockrepurchases. Marketable securities consist primarily of municipal bonds andfederal government securities.

Accounts receivable increased $41 million due toincreased revenues. Accounts receivable also increased due to a loan to anaffiliated company. During the fourth quarter of fiscal 2005, the Board ofDirectors approved and Cintas provided a $10 million loan to an affiliatedcompany with specific repayment terms over the next three years. Thisaffiliated company manufactures a significant portion of Cintas’ mats. Adividend of $5 million was subsequently received by Cintas from this affiliatein the first quarter of fiscal 2006.

Inventories increased $28 million mainly due toincreased revenues. Other contributing factors include the continued increasein international sourcing of product, a current conversion of our comfort pantto a new fabric and style, and additional inventory requirements for ourUniform Book, a large catalog used for the direct sale of uniforms andaccessories.

Netproperty and equipment increased by $32 million due to continued investment inrental facilities and equipment and real estate purchased in conjunction withthe acquisitions of first aid, safety and fire protection and documentmanagement businesses. Capital expenditures exceeded depreciation expense by$21 million. During the year, Cintas completed construction of five new uniformrental facilities and has an additional three uniform rental facilities invarious stages of construction to accommodate growth in rental operations.

17

----

 

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

LIQUIDITY AND CAPITAL RESOURCES

At May 31, 2006, Cintas had $241 million in cash, cashequivalents and marketable securities, representing a decrease of $68 millionfrom May 31, 2005, or 22%. This decrease is primarily due to acquisitions andthe share repurchase program. Cash generated from operations was $462 millionin fiscal 2006 as compared to $414 million generated in fiscal 2005. This $48million increase was primarily due to increased net income. Significant uses ofcash in fiscal 2006 were capital expenditures of $157 million, acquisitions of$346 million (net of cash acquired), common stock repurchases of $323 millionand dividends of $59 million. Cash, cash equivalents and marketable securitieswill be used to finance future acquisitions, capital expenditures, expansionand share repurchases.

Marketable securities consist primarily of municipalbonds and federal government securities. Cintas’ investment policy pertainingto marketable securities is conservative. Preservation of principal, whileearning an attractive yield, is the criteria used in making investmentdecisions.

Accounts receivable increased $63 million, primarilydue to increased revenues. The average collection period in fiscal 2006remained comparable with fiscal 2005.

Inventories decreased $18 million, or 8.5%, mainly dueto inventory management initiatives within our distribution network. We wereable to reduce inventory despite an 11% increase in revenues.

Working capital decreased $45 million to $766 millionin fiscal 2006. This decrease is primarily the result of decreased cash andmarketable securities and inventories and increased accrued liabilities, offsetby an increase in accounts receivable.

Net property and equipment increased by $47 million dueto continued investment in rental facilities and equipment and real estatepurchased in conjunction with the acquisitions of rental, first aid, safety andfire protection and document management businesses. Capital expenditures forfiscal 2006 totaled $157 million, including $125 million for the Rentalssegment and $32 million for Other Services, exceeding depreciation expense by$30 million. Cintas continues to reinvest in land, buildings and equipment inan effort to expand capacity for future growth. During the year, Cintascompleted construction of one new uniform rental facility and has an additionaltwo uniform rental facilities in various stages of construction to accommodategrowth in rental operations. Cintas anticipates that capital expenditures forfiscal 2007 will be between $150 and $170 million.

Long-term debt totaled $794.5 million at May 31, 2006.This includes $225 million with five-year maturities at a rate of 5.125% and$225 million with ten-year maturities at a rate of 6.0% which was borrowed inorder to finance the Omni acquisition in fiscal 2002. Cintas has earned creditratings on these notes of “A” from Standard & Poor’s and “A2” from Moody’s.In addition, long-term debt also includes $333.5 million in commercial paper.Cintas utilizes a $400 million commercial paper program, on which it has earnedcredit 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 anda disciplined integration strategy for acquisitions. The commercial paperprogram is fully supported by a long-term credit facility that matures in 2011.

Cintas’ total debt to capitalization ratio hasincreased from 18.3% at May 31, 2005, to 27.6% at May 31, 2006. Total debtincreased $326 million in fiscal 2006 due to the issuance of commercial paperthrough our line of credit. Cintas issued commercial paper in fiscal 2006 inorder to use the proceeds to execute the share repurchase program. Duringfiscal 2006, Cintas repurchased $323 million of Cintas stock. In addition,commercial paper proceeds were used to fund multiple acquisitions (see Note 5entitled Long-Term Debt and Note 8 entitled Acquisitions of “Notes to ConsolidatedFinancial Statements”). Subsequent to May 31, 2006, Cintas borrowed anadditional $56 million under the $400 million commercial paper program forshort-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.

Duringthe year, Cintas paid dividends of $59 million, or $0.35 per share. On a pershare basis, this dividend is an increase of 9.4% over the dividend paid infiscal 2005. This marks the 23rd consecutive year that Cintas has increased itsannual dividend since going public in 1983.

18

----

 

On May 2, 2005, Cintas announced that the Board ofDirectors authorized a $500 million stock repurchase program at market prices.During fiscal 2006, Cintas purchased approximately 7.9 million shares of Cintasstock at an average price of $40.83 per share, for a total purchase price ofapproximately $323 million. Subsequent to May 31, 2006, Cintas purchasedapproximately 2.7 million additional shares of Cintas stock at an average priceof $41.69 per share for a total purchase price of approximately $114 million.From the inception of the stock repurchase program through July 21, 2006,Cintas has purchased approximately 12.1 million shares of Cintas stock at anaverage price of $40.88 per share for a total purchase price of approximately$496 million. In July 2006, Cintas announced that the Board of Directorsapproved the expansion of its share repurchase program by an additional$500 million. The Board did not specify an expiration date for thisprogram.

Following is information regarding Cintas’ long-termcontractual obligations and other commitments outstanding as of May 31, 2006:

LONG-TERM CONTRACTUAL OBLIGATIONS

|                                     | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| **(In thousands)**             | ** ** | **Total**                                 | ** ** | **One year  or less** | ** ** | **Two to  three  years** | ** ** | **Four to  five years** | ** ** | **After five  years** | ** ** |
|                                |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt  (1)                 |       | $                                         | 796,382    |   | $ | 3,694 |   | $ | 228,757 |   | $ | 334,225 |   | $ | 229,706 |   |
| Capital lease  obligations (2)      |       | 2,360                                     |       | 594 |   | 1,152 |   | 254 |   | 360 |   |
| Operating leases  (3)               |       | 68,404                                    |       | 19,355 |   | 26,850 |   | 13,927 |   | 8,272 |   |
| Interest  payments (4)              |       | 114,716                                   |       | 44,567 |   | 27,934 |   | 27,649 |   | 14,566 |   |
| Interest swap  agreements (5)       |       | —                                    |       | — |   | — |   | — |   | — |   |
| Unconditional purchase  obligations |       | —                                    |       | — |   | — |   | — |   | — |   |
| Total contractual cash  obligations |       | $                                         | 981,862    |   | $ | 68,210 |   | $ | 284,693 |   | $ | 376,055 |   | $ | 252,904 |   |

 

Cintas also makespayments to defined contribution plans. The amounts of contributions made tothe plans are made at the discretion of Cintas. Future contributions areexpected to increase 15% annually. Assuming this 15% increase, payments due inone year or less would be $31,791, two to three years would be $78,602 and fourto five years would be $103,951. Payments for years thereafter are expected tocontinue increasing by 15% each year.

----

(1)             Long-term debtprimarily consists of $450,000 in long-term notes related to the Omniacquisition and $333,500 in commercial paper. Reference Note 5 entitledLong-Term Debt of “Notes to Consolidated Financial Statements” for a detaileddiscussion of long-term debt.

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

(3)             Operating leasesconsist primarily of building leases and a synthetic lease on a corporate jet.

(4)             Interest paymentsinclude interest on both fixed and variable rate debt. Rates have been assumedto increase 75 basis points for fiscal 2007, an additional 25 basis points infiscal 2008, an additional 25 basis points in fiscal 2009 and then remainconstant 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** | ** ** |
|---------------------------------|------------|-------------------------------------------------------------------------|------------|
| **(In thousands)**         | ** ** | **Total**                                                               | ** ** | **One year  or less** | ** ** | **Two to  three  years** | ** ** | **Four to  five years** | ** ** | **After five  years** | ** ** |
|                            |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Lines of credit  (1)            |       | $                                                                       | 400,000    |   | $ | — |   | $ | — |   | $ | 400,000 |   | $ | — |   |
| Standby letters  of credit (2)  |       | 56,950                                                                  |       | 56,950 |   | — |   | — |   | — |   |
| Guarantees                      |       | —                                                                  |       | — |   | — |   | — |   | — |   |
| Standby  repurchase obligations |       | —                                                                  |       | — |   | — |   | — |   | — |   |
| Other commercial  commitments   |       | —                                                                  |       | — |   | — |   | — |   | — |   |
| Total commercial  commitments   |       | $                                                                       | 456,950    |   | $ | 56,950 |   | $ | — |   | $ | 400,000 |   | $ | — |   |

 

19

----

 

----

(1)             Back-up facility forthe commercial paper program (reference Note 5 entitled Long-Term Debt of “Notesto Consolidated Financial Statements” for further discussion).

(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 sheet arrangements otherthan the synthetic lease on a corporate jet. The synthetic lease on theaircraft does not currently have, and is not reasonably likely to have, acurrent or future material effect on Cintas’ financial condition, changes inCintas’ financial condition, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources.

INFLATION AND CHANGING PRICES

Changes in wages, benefits and energy costs have thepotential to materially impact Cintas’ financial results. Medical benefits andenergy costs, in particular, continue to rise. Medical benefit costs haveincreased due to a combination of rising healthcare costs and an increase inthe number of covered participants. Medical benefits were 3.2% of totalrevenues in fiscal 2006 and 3.1% of total revenues in fiscal 2005. Energy costswere 3.4% of total revenues in fiscal 2006 and 2.8% of total revenues in fiscal2005.

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

LITIGATION AND OTHER CONTINGENCIES

Cintas is subject to legal proceedings and claims arisingfrom the ordinary course of its business, including personal injury, customercontract, environmental and employment claims. In the opinion of management,the aggregate liability, if any, with respect to such ordinary course ofbusiness actions, will not have a material adverse effect on the financialposition or results of operations of Cintas. Cintas is party to additionallitigation not considered in the ordinary course of business, including thelitigation discussed below.

Cintas is a defendant in a purported class actionlawsuit, *Paul Veliz, et al., v. Cintas Corporation*,filed on March 19, 2003, in the United States District Court, Northern Districtof California, Oakland Division, alleging that Cintas violated certain federaland state wage and hour laws applicable to its service sales representatives,whom Cintas considers exempt employees, and asserting additional related ERISAclaims. On August 23, 2005, an amended complaint was filed alleging additionalstate law wage and hour claims under the following state laws: Arkansas,Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Mexico, Ohio,Oregon, Pennsylvania, Rhode Island, Washington, West Virginia and Wisconsin.The plaintiffs are seeking unspecified monetary damages, injunctive relief orboth. Cintas denies these claims and is defending the plaintiffs’ allegations.On February 14, 2006, the court ordered a majority of the opt-in plaintiffs toarbitrate their claims in accordance with the terms of their Cintas employmentagreement. On February 14, 2006, the court also permitted plaintiffs to file asecond amended complaint alleging state law claims in the 15 states listedabove only with respect to the putative class members that may litigate theirclaims in court. No determination has been made by the court or an arbitratorregarding class certification. There can be no assurance as to whether a classwill be certified or, if a class is certified, as to the geographic or otherscope of such class. If a court or arbitrator certifies a class in this actionand there is an adverse verdict on the merits, or in the event of a negotiatedsettlement of the action, the resulting liability and/or any increased costs ofoperations on an ongoing basis could be material to Cintas. Any estimatedliability relating to this lawsuit is not determinable at this time.

Cintasis also a defendant in a purported class action lawsuit, *RobertRamirez, 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 pastand present female, African-American and Hispanic applicants and employees ofCintas and its subsidiaries. The complaint alleges that Cintas has engaged in apattern and practice of discriminating against females and minorities inrecruitment, hiring, promotions, transfers, job assignments and pay. Thecomplaint seeks injunctive relief, compensatory damages, punitive damages andattorneys’ fees, among other things. The claims in the complaint weresignificantly narrowed down through dismissal and transfer of claims to severalspecific claims against Cintas’ Rental Division only, including, failure tohire African-Americans, Hispanics and females into service sales representativepositions, failure to promote Hispanics to supervisory positions,discrimination against African-Americans and Hispanics in service salesrepresentative route assignment and pay claims and discrimination againstAfrican-Americans in hourly pay. On April 27, 2005, the United States EqualEmployment Opportunity Commission (EEOC) intervened in order to participate inthe failure to hire females into service sales representative positions claim.On May 11, 2006, the 

20

----

 

court signed an order transferring the class claims offailure to hire African-Americans, Hispanics and females into service salesrepresentative positions and the EEOC’s complaint in intervention to the *Mirna E. Serrano, et al., v. Cintas Corporation*, filed onMay 10, 2004, in the United States District Court for the Eastern District ofMichigan, Southern Division. All of the remaining claims in the *Ramirez* lawsuit were ordered to arbitration and stayed bythe court pending the completion of arbitration. No filings or determinations havebeen made in regard to the lawsuit or arbitration as to class certification.There can be no assurance as to whether a class will be certified or, if aclass is certified, as to the geographic or other scope of such class. Severalrelated proceedings with similar allegations and seeking similar relief damagesand fees are pending, including a class action lawsuit, *Mirna E.Serrano, et al., v. Cintas Corporation*, filed on May 10, 2004, inthe United States District Court for the Eastern District of Michigan, SouthernDivision on behalf of female service sales representative job applicants at allCintas locations in Michigan. On September 6, 2005, a Magistrate Judge granted plaintiffs’motion for leave to file a second amended complaint to expand the lawsuit to anationwide claim. On November 15, 2005, the EEOC intervened in *Serrano* to participate in the lawsuit in continuation of anEEOC charge filed on April 17, 2000, by Mirna Serrano with the EEOC DetroitDistrict office. On February 24, 2006, a motion to intervene in *Serrano*was filed by intervening plaintiffs Colleen Grindle,et al., on behalf of a nationwide subclass and an Ohio subclass of femaleemployees in Cintas’ Rental Division who were allegedly denied hire, promotionor transfer to a service sales representative position. On March 24, 2006, theGrindle plaintiffs withdrew their motion to intervene without prejudice. Inaddition, 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. On November 22, 2005,the court entered an order requiring the named plaintiffs in the *Houston*lawsuit to arbitrate all of their claims formonetary damages. If there is an adverse verdict or a negotiated settlement ofall or any of these actions, the resulting liability and/or any increased costsof operations on an ongoing basis could be material to Cintas. Any estimatedliability relating to these proceedings is not determinable at this time.

Several other similar administrative proceedings arepending including: (i) two charges filed on November 30, 2004, by an EEOCCommissioner with the EEOC Systemic Litigation Unit alleging failure to hireand assign females to production job positions, and failing to hire females,African-Americans and Hispanics into the Management Trainee program, (ii) acharge filed on January 24, 2005, by Jennifer Fargo on behalf of herself and asimilarly situated class with the Augusta Human Relations Commission and theEEOC Detroit District office alleging gender and equal pay discriminationagainst female sales representatives and sales associates, and (iii) a chargefiled on March 23, 2005, by Clifton Cooper on behalf of himself and a similarlysituated class with the EEOC Systemic Litigation Unit alleging discriminatorypay and treatment due to race. The investigations of these allegations arepending and no determinations have been made. On May 26, 2006, the EEOC issueda dismissal and notice of rights and closed its file on the Melissa Schulzcharge filed on April 25, 2005, 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, following a determination that it was unable to concludethat the information obtained established a violation of statute. On May 18, 2006,the EEOC issued a dismissal and notice of rights and closed its file on theMattie Cooper charge filed on June 10, 2005, on behalf of herself and asimilarly situated class with the EEOC Systemic Litigation Unit allegingdiscriminatory pay and treatment due to race and gender, following adetermination that it was unable to conclude that the information obtainedestablished a violation of statute.

Cintas is also a defendant in a lawsuit, *J. Lester Alexander, III vs. Cintas Corp., et al*., which wasoriginally filed on October 25, 2004, and is currently pending in the UnitedStates Bankruptcy Court for the Middle District of Alabama, EasternDivision. The case was brought by J. Lester Alexander, III, the Chapter 7Trustee (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 breachingfiduciary duties to TMC and TUC and for allegedly aiding and abetting breachesof fiduciary duties by others to those entities. The complaint alsoincludes allegations that Cintas breached certain limited liability companyagreements, or alternatively, misrepresented its intention to perform itsobligations in those agreements and acted as alter egos of the bankrupt TMC andis therefore liable for all of TMC’s debts. The Trustee is seeking $50million in compensatory damages and $100 million in punitivedamages. Cintas denies these claims and is vigorously defending itselfagainst all claims in the complaint. If there is an adverse verdict on themerits or in the event of a negotiated settlement of this lawsuit, theresulting liability could be material to Cintas. Any estimated liabilityrelating to this lawsuit is not determinable at this time.

Thelitigation discussed above, if decided adversely to or settled by Cintas, may,individually or in the aggregate, result in liability material to Cintas’financial condition or results of operations. Cintas may enter into 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.

21

----

 

Cintas is subject to various environmental laws andregulations, as are other companies in the industry. While environmentalcompliance is not a material component of our costs, Cintas must incur capitalexpenditures and associated operating costs, primarily for water treatment andwaste removal, on a regular basis. Environmental spending related to watertreatment and waste removal was approximately $16 million in fiscal 2006 andapproximately $14 million in fiscal 2005. Capital expenditures to limit ormonitor hazardous substances were $2 million in fiscal 2006 and $4 million infiscal 2005. These expenditures were primarily related to the purchase of watertreatment systems, which are depreciated over a useful life of ten years.Cintas does not expect a material change in the cost of environmentalcompliance on a percent to sale basis and is not aware of any materialnon-compliance with environmental laws.

NEW ACCOUNTING STANDARDS

On December 16, 2004, the Financial AccountingStandards Board (FASB) issued Statement No. 123 (revised 2004), *Share-Based Payment*, (Statement 123(R)), which is a revisionof FASB Statement No. 123, *Accounting for Stock-BasedCompensation*. Generally, the approach in Statement 123(R) is similarto the approach described in Statement 123. However, Statement 123(R) requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized as an expense in the statement of income based ontheir fair values. Pro forma disclosure is no longer an alternative. The newstandard is 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 on June 1, 2006. The effect of adoptionof SFAS 123(R) is currently estimated to be approximately $5 million($0.03 per share) after-tax for fiscal 2007. However, Cintas’ actualshare-based compensation expense in fiscal 2007 depends on a number of factors,including fair value of awards at the time of grant.

CRITICAL ACCOUNTING POLICIES

The preparation of Cintas’ consolidated financialstatements in conformity with U.S. generally accepted accounting principlesrequires management to make estimates and judgments that have a significanteffect on the amounts reported in the financial statements and accompanyingnotes. These critical accounting policies should be read in conjunction withNote 1 entitled Significant Accounting Policies of “Notes to ConsolidatedFinancial Statements.” Significant changes, estimates or assumptions related toany of the following critical accounting policies could possibly have amaterial impact on the financial statements.

*Revenue recognition*

Rental revenue is recognized when services areperformed 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.

*Allowance fordoubtful accounts*

Cintas establishes an allowance for uncollectibleaccounts. This allowance is an estimate based on historical rates ofcollectibility. An uncollectible accounts provision is recorded for overdueamounts, beginning with a nominal percentage and increasing substantially asthe account ages. The amount provided as the account ages will differ slightlybetween the Rentals and Other Services segments, because of differences incustomers served and the nature of each business segment.

*Inventories*

Inventories are valued at the lower of cost (first-in,first-out) or market. Substantially all inventories represent finished goods.Cintas applies a commonly accepted practice of using inventory turns to applyvariances between actual to standard costs to the inventory balances. Thejudgments and estimates used to calculate inventory turns will have an impacton the valuation of inventory at the lower of cost or market. Inventoryobsolescence is determined by specific identification, as well as an estimatebased on historical rates of obsolescence.

*Uniforms and otherrental items in service*

Uniformsand other rental items in service are valued at cost less amortization,calculated using the straight-line method. Uniforms in service (other thancleanroom and flame resistant garments) are amortized over their useful life ofeighteen months. Other rental items including shop towels, mats, cleanroomgarments, flame resistant garments, linens and restroom dispensers areamortized over their useful lives of eight to forty-eight months. The 

22

----

 

amortization rates used are based on industryexperience, Cintas’ experience and wear tests performed by Cintas. Thesefactors are critical to determining the amount of in service inventory that ispresented in the financial statements.

*Property andequipment*

Depreciation is calculated using the straight-linemethod over the estimated useful lives of the assets, which is typically thirtyto forty years for buildings, five to twenty years for building improvements,three to ten years for equipment and two to five years for leaseholdimprovements. When events or circumstances indicate that the carrying amount oflong-lived assets may not be recoverable, the estimated future cash flows(undiscounted) are compared to the carrying amount of the assets. If theestimated future cash flows are less than the carrying amount of the assets, animpairment loss is recorded. The impairment loss is measured by comparing thefair value of the assets with their carrying amounts. Fair value is determinedby discounted cash flows or appraised values, as appropriate. Long-lived assetsthat are held for disposal are reported at the lower of the carrying amount orthe fair value, less estimated costs related to disposition.

*Goodwill andimpairment*

Goodwill, obtained through acquisitions of businesses,is valued at cost less any impairment. Cintas performs annual impairment testsby segment. These tests include comparisons to current market values, whereavailable, and discounted cash flow analyses. Significant assumptions includegrowth rates based on historical trends and margin improvement leveraged fromsuch growth. Based on the results of the impairment tests, Cintas has notrecognized an impairment of goodwill for the years ended May 31, 2006, 2005 or2004.

*Service contractsand other assets*

Service contracts and other assets, which consistprimarily of noncompete and consulting agreements obtained through acquisitionsof businesses, are amortized by use of the straight-line method over theestimated lives of the agreements, which are generally five to ten years.Certain noncompete agreements, as well as all service contracts, require that avaluation be determined using a discounted cash flow model. The assumptions andjudgments used in these models involve estimates of cash flows and discountrates, among other factors. Because of the assumptions used to value theseintangible assets, actual results over time could vary from original estimates.Impairment of service contracts and other assets is through specificidentification. No impairment has been recognized by Cintas for the years endedMay 31, 2006, 2005 or 2004.

*Litigation and environmentalmatters*

Cintas is subject to legal proceedings and claimsrelated to environmental matters arising from the ordinary course of business.U.S. generally accepted accounting principles require that a liability forcontingencies be recorded when it is probable that a liability has occurred andthe amount of the liability can be reasonably estimated. Significant judgmentis required to determine the existence of a liability, as well as the amount tobe recorded. Cintas regularly consults with attorneys to ensure that all of therelevant facts and circumstances are considered before a contingent liabilityis recorded. While a significant change in assumptions and judgments could havea material impact on the amounts recorded for contingent liabilities, Cintasdoes not believe that they will result in a material adverse effect on thefinancial statements.

A detailed discussion of litigation matters isdiscussed above in the section entitled Litigation and Other Contingencies.

*Income taxes*

Deferredtax assets and liabilities are determined by the differences between thefinancial statement carrying amounts and the tax basis of assets andliabilities. Please reference Note 7 entitled Income Taxes of “Notes toConsolidated Financial Statements” for the types of items that give rise tosignificant deferred income tax assets and liabilities. Deferred income taxesare classified as assets or liabilities based on the classification of therelated asset or liability for financial reporting purposes. Deferred incometaxes that are not related to an asset or liability for financial reporting areclassified according to the expected reversal date. Cintas regularly reviewsdeferred tax assets for recoverability based upon projected future taxableincome and the expected timing of the reversals of existing temporary differences.As a result of this review, Cintas has not established a valuation allowanceagainst the deferred tax assets.

23

----

 

Cintas is periodically reviewed by domestic andforeign tax authorities regarding the amount of taxes due. These reviewsinclude questions regarding the timing and amount of deductions and theallocation of income among various tax jurisdictions. In evaluating theexposure associated with various filing positions, Cintas records reserves asdeemed appropriate. Based on Cintas’ evaluation of current tax positions,Cintas believes its accruals are appropriate.

OUTLOOK

Our outlook remains positive for fiscal 2007. In aneffort to further increase our revenue, we are reorganizing our sales effortsto become more efficient and productive. We will also continue searching outadditional products and services to become an even more valuable resource forour customers. As such, we see upside potential for all of our business units.Although difficult to predict, we anticipate continued growth in all of ourbusiness units.

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

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

Like most other companies, we experienced, andanticipate continuing to experience, increased costs for wages and benefits,including medical benefits. Changes in energy costs and changes in federal andstate tax laws also impact our results.

Cintas continues to be the target of a corporateunionization campaign by Unite Here and the Teamsters unions. These unions areattempting to pressure Cintas into surrendering our employees’ rights to agovernment-supervised election and unilaterally accept union representation.Cintas’ philosophy in regard to unions is straightforward: We believe thatemployees have the right to say yes to union representation and the freedom tosay no. This campaign could be materially disruptive to our business and couldmaterially adversely affect results of operations. We will continue tovigorously oppose this campaign and to defend our employees’ rights.

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

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSUREABOUT MARKET RISK

Cintas manages interest rate risk by using acombination of variable and fixed rate debt, marketable securities and interestrate swap agreements. Earnings are affected by changes in short-term interestrates due to the use of variable rate notes and revolving credit facilitiesamounting to approximately $338 million, with an average interest rate of 5.0%.This exposure is limited by the purchase of marketable securities and interestrate swap agreements as a hedge against variability in short-term rates. Ifshort-term rates change by one-half percent (or 50 basis points), Cintas’income before taxes would change by approximately $2 million. This estimatedexposure considers the mitigating effects of marketable securities and swapagreements on the change in the cost of variable rate debt. This analysis doesnot consider the effects of a change in economic activity or a change in Cintas’capital structure.

Through its foreign operations, Cintas is exposed toforeign currency risk. Foreign currency exposures arise from transactionsdenominated in a currency other than the functional currency and from foreigndenominated revenue and profit translated into U.S. dollars. The primaryforeign currency to which Cintas is exposed is the Canadian dollar. Cintas doesnot currently use forward exchange contracts to limit potential losses inearnings or cash flows from foreign currency exchange rate movements.

24

----

 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to ConsolidatedFinancial Statements

AuditedConsolidated Financial Statements for the Years Ended May 31, 2006, 2005 and2004
| 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                                      |   |

 

25

----

 

Management’s Report on Internal Control over FinancialReporting

To the Shareholders ofCintas Corporation:

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting (as defined inRule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) toprovide reasonable assurance regarding the reliability of our financialreporting and the preparation of financial statements for external purposes inaccordance with accounting principles generally accepted in the United States.Internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that in reasonabledetail accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate. Accordingly, even an effective system of internal control overfinancial reporting will provide only reasonable assurance with respect to financialstatement preparation.

With the supervision of our President and Chief ExecutiveOfficer and our Chief Financial Officer, management assessed our internalcontrol over financial reporting as of May 31, 2006. Management based itsassessment on criteria established in *Internal Control -Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Management’s assessmentincluded evaluation of such elements as the design and operating effectivenessof key financial reporting controls, process documentation, accounting policiesand our overall control environment. This assessment is supported by testingand monitoring performed by our internal audit function.

Based on our assessment, management has concluded thatour internal control over financial reporting was effective as of May 31, 2006,to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external reportingpurposes in accordance with accounting principles generally accepted in theUnited States.

We reviewed the resultsof management’s assessment with the Audit Committee of our Board of Directors.Additionally, our independent registered public accounting firm, Ernst &Young LLP, audited management’s assessment and independently assessed theeffectiveness of Cintas’ internal control over financial reporting. Ernst &Young has issued an attestation report, which is 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 |
|        |                     |                                                   |  |  |

 

26

----

 

Report of Independent Registered Public AccountingFirm

To the Board of Directorsand Shareholders ofCintas Corporation:

We have audited management’s assessment,included in the accompanying Management’s Report on Internal Control overFinancial Reporting, that Cintas Corporation maintained effective internalcontrol over financial reporting as of May 31, 2006, based on criteria established in *InternalControl — Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria). CintasCorporation’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express anopinion on management’s assessment and an opinion on the effectiveness of thecompany’s internal control over financial reporting based on our audit.

We conducted our audit in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control overfinancial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial 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 the companyare 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 inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion,management’s assessment that Cintas Corporation maintained effective internalcontrol over financial reporting as of May 31, 2006, is fairly stated, in allmaterial respects, based on the COSO criteria. Also, in our opinion, CintasCorporation maintained, in all material respects, effective internal controlover financial reporting as of May 31, 2006, based on****the COSO criteria**.**

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated balance sheets of CintasCorporation as of May 31, 2006 and 2005, and the related consolidatedstatements of income, shareholders’ equity and cash flows for each of the threeyears in the period ended May 31, 2006 of Cintas Corporation, and our reportdated July 21, 2006, expressed an unqualified opinion thereon.
|                  | /s/ ERNST & YOUNG LLP |   |
|------------------|---------------------------|--------|
|             |                      |
| Cincinnati, Ohio |                      |
| July 21, 2006    |                      |

 

27

----

 

Report ofIndependent Registered Public Accounting Firm

To the Board of Directorsand Shareholders ofCintas Corporation:

We have audited the accompanying consolidated balancesheets of Cintas Corporation as of May 31, 2006 and 2005, and the relatedconsolidated statements of income, shareholders’ equity, and cash flows foreach of the three years in the period ended May 31, 2006. These financialstatements 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 in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Cintas Corporation at May 31, 2006 and 2005, and the consolidatedresults of its operations and its cash flows for each of the three years in theperiod ended May 31, 2006, in conformity with U.S. generally acceptedaccounting principles.

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theeffectiveness of Cintas Corporation’s internal control over financial reportingas of May 31, 2006, based on criteria established in *InternalControl – Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission, and our report dated July 21, 2006,expressed an unqualified opinion thereon.
|                  | /s/ ERNST & YOUNG LLP |   |
|------------------|---------------------------|--------|
|             |                      |
| Cincinnati, Ohio |                      |
| July 21, 2006    |                      |

 

28

----

 

CINTAS CORPORATIONCONSOLIDATED STATEMENTS OF INCOMEYears Ended May 31(In thousands except per share data)
| ** **                            | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|---------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Revenue:                              |       |      |       |      |       |      |       |
| Rentals                               |       | $         | 2,568,776  |      | $          | 2,363,397 |       | $ | 2,201,405 |   |
| Other services                        |       | 834,832   |       | 703,886   |       | 612,654   |       |
|                                  |       | 3,403,608 |       | 3,067,283 |       | 2,814,059 |       |
|                                  |       |      |       |      |       |      |       |
| Costs and expenses  (income):         |       |      |       |      |       |      |       |
| Cost of rentals                       |       | 1,406,829 |       | 1,295,992 |       | 1,222,638 |       |
| Cost of other  services               |       | 541,987   |       | 466,532   |       | 404,929   |       |
| Selling and  administrative expenses  |       | 907,954   |       | 810,232   |       | 727,618   |       |
| Interest income                       |       | (6,759    | )          | (6,914    | )          | (2,650    | )          |
| Interest expense                      |       | 31,782    |       | 24,448    |       | 25,101    |       |
| Write-off of  loan receivable         |       | —    |       | —    |       | 4,343     |       |
|                                  |       | 2,881,793 |       | 2,590,290 |       | 2,381,979 |       |
|                                  |       |      |       |      |       |      |       |
| Income before income  taxes           |       | 521,815   |       | 476,993   |       | 432,080   |       |
| Income taxes                          |       | 194,637   |       | 176,475   |       | 159,875   |       |
| Net income                            |       | $         | 327,178    |      | $          | 300,518   |       | $ | 272,205 |   |
|                                  |       |      |       |      |       |      |       |
| Basic earnings per  share             |       | $         | 1.95       |      | $          | 1.75      |       | $ | 1.59 |   |
|                                  |       |      |       |      |       |      |       |
| Diluted earnings per  share           |       | $         | 1.94       |      | $          | 1.74      |       | $ | 1.58 |   |
|                                  |       |      |       |      |       |      |       |
| Dividends declared and paid per share |       | $         | .35        |      | $          | .32       |       | $ | .29 |   |

 

See accompanyingnotes.

29

----

 

CINTAS CORPORATIONCONSOLIDATED BALANCE SHEETSAs of May 31(In thousands except share data)
| ** **                                                                                  | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                                        |       |      |       |      |       |
| **Assets**                                                                                  |       |      |       |      |       |
| Current assets:                                                                             |       |      |       |      |       |
| Cash and cash  equivalents                                                                  |       | $         | 38,914     |      | $          | 43,196 |   |
| Marketable  securities                                                                      |       | 202,539   |       | 266,232   |       |
| Accounts  receivable, principally trade, less allowance of $15,519 and $9,891, respectively |       | 389,905   |       | 326,896   |       |
| Inventories, net                                                                            |       | 198,000   |       | 216,412   |       |
| Uniforms and  other rental items in service                                                 |       | 337,487   |       | 305,450   |       |
| Prepaid expenses                                                                            |       | 11,163    |       | 8,358     |       |
| Total current assets                                                                        |       | 1,178,008 |       | 1,166,544 |       |
|                                                                                        |       |      |       |      |       |
| Property and equipment,  at cost, net                                                       |       | 863,783   |       | 817,198   |       |
|                                                                                        |       |      |       |      |       |
| Goodwill                                                                                    |       | 1,136,175 |       | 889,538   |       |
| Service contracts, net                                                                      |       | 179,965   |       | 146,596   |       |
| Other assets, net                                                                           |       | 67,306    |       | 39,868    |       |
|                                                                                        |       | $         | 3,425,237  |      | $          | 3,059,744 |   |
|                                                                                        |       |      |       |      |       |
| **Liabilities and Shareholders’  Equity**                                              |       |      |       |      |       |
| Current liabilities:                                                                        |       |      |       |      |       |
| Accounts payable                                                                            |       | $         | 71,635     |      | $          | 69,296 |   |
| Accrued  compensation and related liabilities                                               |       | 51,615    |       | 38,710    |       |
| Accrued  liabilities                                                                        |       | 188,927   |       | 166,428   |       |
| Income taxes:                                                                               |       |      |       |      |       |
| Current                                                                                     |       | 43,694    |       | 32,864    |       |
| Deferred                                                                                    |       | 51,669    |       | 41,883    |       |
| Long-term debt  due within one year                                                         |       | 4,288     |       | 7,300     |       |
| Total current  liabilities                                                                  |       | 411,828   |       | 356,481   |       |
|                                                                                        |       |      |       |      |       |
| Long-term debt due  after one year                                                          |       | 794,454   |       | 465,291   |       |
|                                                                                        |       |      |       |      |       |
| Deferred income taxes                                                                       |       | 130,992   |       | 133,837   |       |
|                                                                                        |       |      |       |      |       |
| Shareholders’ equity:                                                                  |       |      |       |      |       |
| Preferred stock,  no par value:                                                             |       |      |       |      |       |
| 100,000 shares  authorized, none outstanding                                                |       | —    |       | —    |       |
| Common stock, no  par value:                                                                |       |      |       |      |       |
| 425,000,000  shares authorized                                                              |       |      |       |      |       |
| 2006:  172,571,083 shares issued and 163,181,738 shares outstanding                         |       |      |       |      |       |
| 2005:  172,127,502 shares issued and 170,658,601 shares outstanding                         |       | 122,912   |       | 114,171   |       |
| Retained  earnings                                                                          |       | 2,304,280 |       | 2,035,992 |       |
| Treasury stock:                                                                             |       |      |       |      |       |
| 2006: 9,389,345  shares                                                                     |       |      |       |      |       |
| 2005: 1,468,901  shares                                                                     |       | (381,613  | )          | (58,204   | )          |
| Other  accumulated comprehensive income (loss):                                             |       |      |       |      |       |
| Foreign currency  translation                                                               |       | 34,389    |       | 13,507    |       |
| Unrealized  gain/(loss) on derivatives                                                      |       | 9,150     |       | (1,331    | )          |
| Unrealized loss  on available-for-sale securities                                           |       | (1,155    | )          | —    |       |
| Total shareholders’  equity                                                            |       | 2,087,963 |       | 2,104,135 |       |
|                                                                                        |       | $         | 3,425,237  |      | $          | 3,059,744 |   |

 

See accompanyingnotes.

30

----

 

CINTAS CORPORATION

CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

 
| ** **                                                                   | ** ** | ** **            | ** ** | ** **   | ** ** | ** **   | ** ** | **Other**               | ** ** | ** **             | ** ** | ** **    | ** ** | ** **   | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------|------------|--------------|------------|--------------|------------|-------------------------|------------|------------------------|------------|---------------|------------|--------------|------------|
| ** **                                                                   | ** ** | ** **            | ** ** | ** **   | ** ** | ** **   | ** ** | **Accumulated**         | ** ** | ** **             | ** ** | ** **    | ** ** | ** **   | ** ** |
| ** **                                                                   | ** ** | ** **            | ** ** | ** **   | ** ** | ** **   | ** ** | **Compre-**             | ** ** | ** **             | ** ** | ** **    | ** ** | **Total**    | ** ** |
| ** **                                                                   | ** ** | **Common Stock** | ** ** | **Retained** | ** ** | **hensive**  | ** ** | **Treasury Stock** | ** ** | **Shareholders’** | ** ** |
| ** **                                                                   | ** ** | **Shares**            | ** ** | **Amount**   | ** ** | **Earnings** | ** ** | **Income (Loss)**  | ** ** | **Shares**             | ** ** | **Amount**    | ** ** | **Equity**   | ** ** |
| 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    |       |
|                                                                         |       |                  |       |         |       |         |       |                    |       |                   |       |          |       |         |       |
| Net income                                                                   |       | —                |       | —       |       | 327,178      |       | —                  |       | —                 |       | —        |       | 327,178      |       |
| Equity adjustment for foreign  currency translation                          |       | —                |       | —       |       | —       |       | 20,882                  |       | —                 |       | —        |       | 20,882       |       |
| Change in fair value of  derivatives, net of $5,985 of tax                   |       | —                |       | —       |       | —       |       | 10,481                  |       | —                 |       | —        |       | 10,481       |       |
| Change in fair value of  available-for-sale securities, net of ($674) of tax |       | —                |       | —       |       | —       |       | (1,155                  | )          | —                 |       | —        |       | (1,155       | )          |
| Comprehensive income, net  of tax                                            |       |                  |       |         |       |         |       |                    |       |                   |       |          |       | 357,386      |       |
| Dividends                                                                    |       | —                |       | —       |       | (58,823      | )          | —                  |       | —                 |       | —        |       | (58,823      | )          |
| Effects of acquisitions                                                      |       | —                |       | —       |       | (67          | )          | —                  |       | —                 |       | —        |       | (67          | )          |
| Stock options exercised  net of shares surrendered                           |       | 443                   |       | 7,680        |       | —       |       | —                  |       | —                 |       | —   |       | 7,680        |       |
| Tax benefit resulting  from exercise of employee stock options               |       | —                |       | 1,061        |       | —       |       | —                  |       | —                 |       | —        |       | 1,061        |       |
| Stock repurchases                                                            |       | —                |       | —       |       | —       |       | —                  |       | (7,920                 | )          | (323,409      | )          | (323,409     | )          |
| Balance at May 31, 2006                                                      |       | 172,571               |       | $            | 122,912    |         | $          | 2,304,280               |       | $                      | 42,384     |          | (9,389     | )            | ($381,613  | ) | $ | 2,087,963 |   |
|                                                                              |            |                       |            |              |            |              |            |                         |            |                        |            |               |            |              |            |  |  |  |  |  |

 

See accompanyingnotes.

31

----

 

CINTAS CORPORATION

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

Years Ended May 31

(In thousands)

 
| ** **                                                                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from  operating activities:                                             |       |     |       |     |       |     |       |
| Net income                                                                         |       | $        | 327,178    |     | $          | 300,518  |       | $ | 272,205 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |     |       |     |       |     |       |
| Depreciation                                                                       |       | 127,117  |       | 119,813  |       | 117,285  |       |
| Amortization of deferred charges                                                   |       | 33,536   |       | 28,362   |       | 25,974   |       |
| Deferred income taxes                                                              |       | 257      |       | 4,191    |       | 15,839   |       |
| Change in current assets and liabilities, net of  acquisitions of businesses:      |       |     |       |     |       |     |       |
| Accounts receivable                                                                |       | (44,154  | )          | (36,317  | )          | (488     | )          |
| Inventories                                                                        |       | 22,033   |       | (26,321  | )          | 48,033   |       |
| Uniforms and other rental items in service                                         |       | (26,683  | )          | (7,168   | )          | 2,744    |       |
| Prepaid expenses                                                                   |       | (2,305   | )          | (892     | )          | 246      |       |
| Accounts payable                                                                   |       | 2,329    |       | 15,727   |       | (3,223   | )          |
| Accrued compensation and related liabilities                                       |       | 12,905   |       | 6,906    |       | 6,552    |       |
| Accrued liabilities                                                                |       | (1,905   | )          | 12,444   |       | 4,429    |       |
| Income taxes payable                                                               |       | 11,578   |       | (3,050   | )          | 20,113   |       |
| Net cash  provided by operating activities                                         |       | 461,886  |       | 414,213  |       | 509,709  |       |
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from  investing activities:                                             |       |     |       |     |       |     |       |
| Capital expenditures                                                               |       | (156,632 | )          | (140,727 | )          | (112,888 | )          |
| Proceeds from sale or redemption of marketable  securities                         |       | 87,477   |       | 102,997  |       | 48,078   |       |
| Purchase of marketable securities                                                  |       | (25,613  | )          | (202,265 | )          | (189,622 | )          |
| Acquisitions of businesses, net of cash acquired                                   |       | (346,363 | )          | (109,076 | )          | (101,654 | )          |
| Other                                                                              |       | 1,085    |       | (1,663   | )          | 12,282   |       |
| Net cash used in  investing activities                                             |       | (440,046 | )          | (350,734 | )          | (343,804 | )          |
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from  financing activities:                                             |       |     |       |     |       |     |       |
| Proceeds from issuance of debt                                                     |       | 333,500  |       | —   |       | —   |       |
| Repayment of debt                                                                  |       | (7,303   | )          | (10,575  | )          | (68,764  | )          |
| Stock options exercised                                                            |       | 7,680    |       | 4,621    |       | 5,868    |       |
| Dividends paid                                                                     |       | (58,823  | )          | (54,968  | )          | (49,634  | )          |
| Repurchase of common stock                                                         |       | (323,409 | )          | (58,204  | )          | —   |       |
| Other                                                                              |       | 22,233   |       | 11,486   |       | 1,743    |       |
| Net cash used in  financing activities                                             |       | (26,122  | )          | (107,640 | )          | (110,787 | )          |
|                                                                               |       |     |       |     |       |     |       |
| Net (decrease)  increase in cash and cash equivalents                              |       | (4,282   | )          | (44,161  | )          | 55,118   |       |
| Cash and cash  equivalents at beginning of year                                    |       | 43,196   |       | 87,357   |       | 32,239   |       |
| Cash and cash equivalents  at end of year                                          |       | $        | 38,914     |     | $          | 43,196   |       | $ | 87,357 |   |

 

See accompanyingnotes.

32

----

 

CINTAS CORPORATION

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousandsexcept per share and share data)

 

1.               SIGNIFICANTACCOUNTING POLICIES

*Businessdescription.*  CintasCorporation (Cintas) provides highly specialized products and services tobusinesses of all types throughout the United States and Canada.  We are North America’s leading provider ofcorporate identity uniforms through rental and sales programs, as well as asignificant provider of related business services, including entrance mats,restroom products and services, first aid, safety and fire protection productsand services, document management services and branded promotional products.  Our products and services are designed toenhance our customers’ images and to provide additional safety and protectionin the workplace.

Cintas classifies itsbusinesses into two operating segments, Rentals and Other Services, based onthe similar economic characteristics of the products and services within eachsegment. The Rentals operating segment reflects the rental and servicing ofuniforms and other garments, mats, mops and shop towels.  In addition to these rental items, we alsoprovide our restroom and hygiene products and services within thissegment.  The Other Services operatingsegment consists of the direct sale of uniforms and related items, first aid,safety and fire protection products and services, document management servicesand branded promotional products.  Bothsegments provide these products and services throughout the United States andCanada to businesses of all types - from small service and manufacturingcompanies to major corporations that employ thousands of people.

*Principlesof consolidation.*  Theconsolidated financial statements include the accounts of Cintas, controlledmajority-owned subsidiaries and any entities that are not controlled butrequire consolidation in accordance with FASB Interpretation No. 46, *Consolidation of Variable Interest Entities - an interpretation of ARBNo. 51*, (collectively, Cintas or the company).  Intercompany balances and transactions havebeen eliminated.

*Useof estimates.*  Thepreparation of financial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes.  Financial results could differ from thoseestimates.

*Revenuerecognition.*  Rentalrevenue is recognized when services are performed and other services revenue isrecognized either when services are performed or when products are shipped andthe title and risks of ownership pass to the customer.

*Costof rentals.*  Cost ofrentals consists primarily of production expenses, delivery expenses and theamortization of in service inventory, including uniforms, mats, shop towels andother rental items.  The Rentals segmentinbound freight charges, purchasing and receiving costs, inspection costs, warehousingcosts and other costs of distribution are included in the cost of rentals.

*Costof other services.*  Costof other services consists primarily of cost of goods sold (predominantlyuniforms and first aid products), delivery expenses and distributionexpenses.  The Other Services segmentinbound freight charges, purchasing and receiving costs, inspection costs,warehousing costs and other costs of distribution are included in the cost ofother services.

*Sellingand administrative expense. *Selling and administrative expense consistsprimarily of sales labor and commissions, management and administrative labor, payrolltaxes, medical expense, insurance expense, legal and professional costsand amortization of intangibles.

*Cashand cash equivalents.* Cintas considers all highly liquid investments with a maturity of threemonths or less, at date of purchase, to be cash equivalents.

*Marketablesecurities.*  Allmarketable securities are comprised of debt securities and classified asavailable-for-sale.  The majority ofthese debt securities are obligations of state and political subdivisions.

33

----

 

*Accountsreceivable.*  Accountsreceivable are comprised of amounts owed through product shipments and arepresented net of an allowance for uncollectible accounts.  This allowance is an estimate based onhistorical rates of collectibility.  Anuncollectible accounts provision is recorded for overdue amounts, beginningwith a nominal percentage and increasing substantially as the accountages.  The amount provided as the accountages will differ slightly between the Rentals and Other Services segmentsbecause of differences in customers served and the nature of each businesssegment.  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.

*Uniformsand 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 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.

*Propertyand equipment.*  Propertyand equipment is stated at cost, less accumulated depreciation.  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-livedassets.*  When events orcircumstances indicate that the carrying amount of long-lived assets may not berecoverable, the estimated future cash flows (undiscounted) are compared to thecarrying amount of the assets.  If theestimated future cash flows are less than the carrying amount of the assets, animpairment loss is recorded.  Theimpairment loss is measured by comparing the fair value of the assets withtheir carrying amounts. Fair value is determined by discounted cash flows orappraised 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.*  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 is testedfor impairment on at least an annual basis. Cintas completed an annual goodwill impairment test for the years endedMay 31, 2006, 2005, and 2004, as required by SFAS 142.  Based on the results of the impairment tests,Cintas was not required to recognize an impairment of goodwill in any of theseyears.  Cintas will continue to performfuture impairment tests as required by SFAS 142 as of March 1 in future yearsor when indicators of impairment are noted.

*Servicecontracts and other assets.* Service contracts and other assets, which consist primarily ofnoncompete and consulting agreements obtained through acquisitions ofbusinesses, are amortized by use of the straight-line method over the estimatedlives of the agreements, which are generally five to ten years.

*Accruedliabilities.*  Accruedliabilities consist primarily of insurance, medical and profit sharingobligations and legal and environmental contingencies.  These are recorded when it is probable that aliability has occurred and the amount of the liability can be reasonablyestimated.

*Stockoptions.*  Cintasapplies the provisions of Accounting Principles Board Opinion No. 25 (APB 25), *Accounting for Stock Issued to Employees.*  Accordingly, no compensation expense has beenreflected in the financial statements as the exercise price of options grantedto employees is equal to the fair market value of Cintas’ common stock on thedate of grant.  Cintas has adopted thedisclosure-only provisions of Statement of Financial Accounting Standards No.123 (SFAS 123), *Accounting for Stock-BasedCompensation.*

For purposes ofpro forma disclosure, the estimated fair value of Cintas’ stock options isamortized to expense over the options’ vesting period.  Pro forma results as if Cintas accounted forits stock-based employee compensation using the fair value based alternativeappear below:

34

----

 
| ** **                                                                                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                                                          |       |     |       |     |       |     |       |
| Net income, as  reported                                                                                                                      |       | $        | 327,178    |     | $          | 300,518  |       | $ | 272,205 |   |
| Add: Restricted  stock expense, net of related tax effects                                                                                    |       | 929      |       | —   |       | —   |       |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | (4,725   | )          | (7,971   | )          | (7,127   | )          |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Pro forma net  income                                                                                                                         |       | $        | 323,382    |     | $          | 292,547  |       | $ | 265,078 |   |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Earnings per  share:                                                                                                                          |       |     |       |     |       |     |       |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Basic – as reported                                                                                                                      |       | $        | 1.95       |     | $          | 1.75     |       | $ | 1.59 |   |
| Basic – pro forma                                                                                                                        |       | $        | 1.93       |     | $          | 1.70     |       | $ | 1.55 |   |
|                                                                                                                                          |       |     |       |     |       |     |       |
| Diluted – as reported                                                                                                                    |       | $        | 1.94       |     | $          | 1.74     |       | $ | 1.58 |   |
| Diluted – pro  forma                                                                                                                     |       | $        | 1.92       |     | $          | 1.69     |       | $ | 1.54 |   |

 

The effects ofproviding pro forma disclosure are not representative of earnings to bereported for future years.

On December 16,2004, FASB issued Statement No. 123 (revised 2004), *Share-BasedPayment*, (Statement 123(R)), which is a revision of SFAS 123, *Accounting for Stock-Based Compensation*. Generally, theapproach in Statement 123(R) is similar to the approach described in SFAS 123.However, Statement 123(R) requires all share-based payments to employees,including grants of employee stock options, to be recognized as an expense inthe statement of income based on their fair values. Pro forma disclosure is nolonger an alternative. The new standard is effective for public entities (excludingsmall business issuers) no later than the beginning of the first fiscal yearbeginning after June 15, 2005. Cintas will adopt this Statement on June 1, 2006,using the modified-retrospective method, restating all prior periods.  The effect of adoption of SFAS 123(R) iscurrently estimated to be approximately $5,000 ($0.03 per share) after-tax forfiscal 2007. However, Cintas’ actual share-based compensation expense in fiscal2007 depends on a number of factors, including fair value of awards at the timeof grant.

During fiscal2005, the Compensation Committee of the Board of Directors approved aresolution to accelerate the vesting for certain “out-of-the-money”options.  The options that wereaccelerated were provided to employees during fiscal 2000, 2001, 2002 and2003.  The Compensation Committeeapproved this acceleration in order to provide these employees the increasedbenefit of exercising these options when they become in-the-money and to avoidrecognizing future compensation expense related to outstanding options underSFAS No. 123(R).  After amendment of allunderlying option agreements, compensation expense to be recognized in thestatement of income during the first year of adoption of SFAS No. 123(R) wasreduced by approximately $3,500.

*Derivativesand hedging activities.* Derivatives and hedging activities are presented in accordance with Statementof Financial Accounting Standards No. 133 (SFAS 133), *Accounting for Derivatives and Hedging Activities,*as amended.  This Standard requires therecognition of all derivatives on the balance sheet at fair value andrecognition of the resulting gains or losses as adjustments to earnings orother comprehensive income.

Cintas formallydocuments all relationships between hedging instruments and hedged items, aswell as its risk management objective and strategy for undertaking varioushedge transactions.  Cintas’ hedgingactivities are transacted only with highly rated institutions, reducing theexposure to credit risk in the event of nonperformance.

See Note 5entitled Long-Term Debt for further information on derivatives.

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

*Cash and cash equivalents*.  The amounts reported approximate marketvalue.

*Marketable securities.*  The amounts reported are at market value.  Market values are based on quoted marketprices.

*Long-term debt.*  The amounts reported are at a carrying valuewhich approximates market value.  Marketvalues are determined using similar debt instruments currently available toCintas that are consistent with the terms, interest rates and maturities.

35

----

 

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

*Other accounting pronouncements*.In July 2006, the FASB issued Interpretation No. 48 (FIN 48), *Accounting for Uncertainty in Income Taxes*, which clarifiesthe accounting for income taxes by prescribing the minimum recognition thresholda tax position is required to meet before being recognized in the financialstatements. FIN 48 also provides guidance of derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition. This Interpretation will be effective for Cintas beginning June 1,2007. Cintas is currently assessing the impact of this recent Interpretation onits financial statements.

2.               MARKETABLESECURITIES

All marketablesecurities are comprised of debt securities and classified as available-for-sale.  Realized gains and losses and declines invalue determined to be other than temporary on available-for-sale securitiesare included in interest income.  Thecost of the securities sold is based on the specific identificationmethod.  Interest on securitiesclassified as available-for-sale is included in interest income.

The following is asummary of marketable securities:
| ** **                                                            | ** ** | **2006**   | ** ** | **2005**            | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                                            | ** ** | ** ** | ** ** | **Estimated**       | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **                                                            | ** ** | **Cost**   | ** ** | **Fair Value** | ** ** | **Cost** | ** ** | **Fair Value** | ** ** |
|                                                                  |       |       |       |                |       |   |   |   |   |
| Obligations of  state and political subdivisions                      |       | $          | 106,655    |                | $          | 105,715 |   | $ | 163,168 |   | $ | 161,258 |   |
| U.S. Treasury  securities and obligations of U.S. government agencies |       | 46,635     |       | 45,877              |       | 55,143 |   | 54,583 |   |
| Canadian  Treasury securities                                         |       | 37,846     |       | 37,754              |       | 39,574 |   | 39,529 |   |
| Other debt  securities                                                |       | 13,232     |       | 13,193              |       | 8,347 |   | 8,317 |   |
|                                                                  |       | $          | 204,368    |                | $          | 202,539 |   | $ | 266,232 |   | $ | 263,687 |   |

 

The gross realizedgains on sales of available-for-sale securities totaled $3, $23 and $19 for theyears ended May 31, 2006, 2005 and 2004, and the gross realized losses totaled$219, $19 and $0, respectively.  Netunrealized losses are $1,829 and $2,545 at May 31, 2006 and 2005, respectively.

The cost andestimated fair value of debt securities at May 31, 2006, by contractualmaturity, are shown below.  Expectedmaturities will differ from contractual maturities because the issuers of thesecurities may have the right to prepay the obligations without prepaymentpenalties.
| ** **                              | ** ** | ** ** | ** ** | **Estimated**       | ** ** |
|-----------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                              | ** ** | **Cost**   | ** ** | **Fair Value** | ** ** |
|                                    |       |       |       |                |       |
| Due in one year  or less                |       | $          | 165,627    |                | $          | 164,542 |   |
| Due after one  year through three years |       | 38,741     |       | 37,997              |       |
|                                    |       | $          | 204,368    |                | $          | 202,539 |   |

 

3.               PROPERTY ANDEQUIPMENT
| ** **                      | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|---------------------------------|------------|-----------|------------|-----------|------------|
|                            |       |      |       |      |       |
| Land                            |       | $         | 81,015     |      | $          | 72,663 |   |
| Buildings and  improvements     |       | 439,992   |       | 431,746   |       |
| Equipment                       |       | 774,667   |       | 783,244   |       |
| Leasehold  improvements         |       | 11,068    |       | 10,735    |       |
| Construction in  progress       |       | 57,383    |       | 72,487    |       |
|                            |       | 1,364,125 |       | 1,370,875 |       |
| Less:  accumulated depreciation |       | 500,342   |       | 553,677   |       |
|                            |       | $         | 863,783    |      | $          | 817,198 |   |

 

Interest expense is net of capitalized interest of $384, $749 and $521for the years ended May 31, 2006, 2005 and 2004, respectively.

36

----

 

4.               GOODWILL, SERVICECONTRACTS AND OTHER ASSETS

Changes in thecarrying amount of goodwill and service contracts for the years ended May 31,2006 and 2005, by operating segment, are as follows:

|                               | ** ** | ** **  | ** ** | **Other**    | ** ** | ** ** | ** ** |
|-------------------------------|------------|-------------|------------|--------------|------------|------------|------------|
| **Goodwill**                  | ** ** | **Rentals** | ** ** | **Services** | ** ** | **Total**  | ** ** |
|                          |       |        |       |         |       |       |       |
| Balance as of  June 1, 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    |       |
| Goodwill  acquired            |       | 151,716     |       | 92,521       |       | 244,237    |       |
| Foreign currency  translation |       | 1,997       |       | 403          |       | 2,400      |       |
| Balance as of May 31,  2006   |       | $           | 855,135    |         | $          | 281,040    |       | $ | 1,136,175 |   |

 

|                                 | ** ** | ** **  | ** ** | **Other**    | ** ** | ** ** | ** ** |
|---------------------------------|------------|-------------|------------|--------------|------------|------------|------------|
| **Service Contracts**      | ** ** | **Rentals** | ** ** | **Services** | ** ** | **Total**  | ** ** |
|                            |       |        |       |         |       |       |       |
| Balance as of  June 1, 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    |       |
| Service  contracts acquired     |       | 32,635      |       | 26,292       |       | 58,927     |       |
| Service  contracts amortization |       | (21,527     | )          | (7,076       | )          | (28,603    | )          |
| Foreign currency  translation   |       | 2,933       |       | 112          |       | 3,045      |       |
| Balance as of May 31,  2006     |       | $           | 132,391    |         | $          | 47,574     |       | $ | 179,965 |   |

 

Informationregarding Cintas’ service contracts and other assets follows:
|                                       | ** ** | **As of May 31, 2006** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **Carrying  Amount**                       | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|                                  |       |                                       |       |   |   |   |   |
| Service  contracts                    |       | $                                          | 295,929    |   | $ | 115,964 |   | $ | 179,965 |   |
|                                  |       |                                       |       |   |   |   |   |
| Noncompete and  consulting agreements |       | $                                          | 45,801     |   | $ | 15,484 |   | $ | 30,317 |   |
| Other                                 |       | 40,512                                     |       | 3,523 |   | 36,989 |   |
| Total                                 |       | $                                          | 86,313     |   | $ | 19,007 |   | $ | 67,306 |   |

 
|                                       | ** ** | **As of May 31, 2005** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **Carrying  Amount**                       | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|                                  |       |                                       |       |   |   |   |   |
| Service  contracts                    |       | $                                          | 236,179    |   | $ | 89,583 |   | $ | 146,596 |   |
|                                  |       |                                       |       |   |   |   |   |
| Noncompete and  consulting agreements |       | $                                          | 36,158     |   | $ | 17,163 |   | $ | 18,995 |   |
| Other                                 |       | 23,671                                     |       | 2,798 |   | 20,873 |   |
| Total                                 |       | $                                          | 59,829     |   | $ | 19,961 |   | $ | 39,868 |   |

 

Amortization expense was$33,536, $28,362 and $25,974 for the years ended May 31, 2006, 2005 and 2004, respectively.  Estimated amortization expense, excluding anyfuture acquisitions, for each of the next five years is $37,268, $34,197,$31,986, $28,956 and $25,289, respectively.

37

----

 

5.               LONG-TERM DEBT
|                                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                               |       |     |       |     |       |
| Unsecured term  notes due through 2017 at an average rate of 5.58%                 |       | $        | 453,205    |     | $          | 456,640 |   |
| Unsecured notes  due through 2009 at an average rate of 5.08%                      |       | 339,228  |       | 8,594    |       |
| Industrial  development revenue bonds due through 2015 at an average rate of 4.03% |       | 3,948    |       | 4,434    |       |
| Other                                                                              |       | 2,361    |       | 2,923    |       |
|                                                                               |       | 798,742  |       | 472,591  |       |
| Less: amounts  due within one year                                                 |       | 4,288    |       | 7,300    |       |
|                                                                               |       | $        | 794,454    |     | $          | 465,291 |   |

 

Debt in the amountof $6,309 is secured by assets with a carrying value of $7,111 at May 31,2006.  Cintas has letters of credit outstanding at May 31, 2006,approximating $56,950.  Maturities of long-term debt during each of thenext five years are $4,288, $228,912, $997, $334,038 and $441, respectively.

Interest paid, netof amount capitalized, was $30,714, $23,163 and $25,825 for the years endedMay 31, 2006, 2005 and 2004, respectively.

Cintas has acommercial paper program supported by a $400 million long-term creditfacility.  As of May 31, 2006, there was $333.5 million of commercialpaper outstanding.

From time to time,Cintas will use derivatives for both cash flow hedging and fair value hedgingpurposes. 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 affects earnings.For the ineffective portion of the hedge, gains or losses are charged toearnings 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 thederivative instrument, as well as the offsetting gain or loss on the fixed ratedebt attributable to the hedged risk, are recorded in current period earnings. 

Cintas also uses interest rate swap and lockagreements, from time to time, as hedges against variability in short-terminterest rates. These agreements effectively convert a portion of the floatingrate debt to a fixed rate basis, thus reducing the impact of interest ratechanges on future interest expense. Cintas uses the Hypothetical DerivativeMethod for measuring the effectiveness of these swaps. There were no interestrate swap agreements outstanding as of May 31, 2006.  When outstanding, the effectiveness of theseswaps is reviewed at least every fiscal quarter.  Cintas also uses reverse interest rate swapagreements to convert a portion of fixed rate debt to a floating rate basis,thus hedging for changes in the fair value of the fixed rate debt being hedged.These agreements involve the receipt of fixed rate amounts in exchange forfloating rate interest payments over the life of the agreements without anexchange of underlying principal amount. Cintas structures these agreements such that the mark-to-market valuesof both the fair value hedging instruments and the underlying debt obligationsare equal and recorded as offsetting gains and losses in current periodearnings. Cintas would also structure these reverse interest rate swapagreements, designated as fair value hedges, to qualify for treatment under theshort-cut method of measuring effectiveness. Under the provisions of Statement133, if these hedges are determined to be perfectly effective, there is norequirement to periodically evaluate effectiveness.  As of May 31, 2006, Cintas had no reverseinterest rate swap agreements as it terminated its reverse interest rate swapagreements on September 1, 2005, thereby converting $225 million in long-termdebt back to fixed rate debt with an effective interest rate of 5.13%. 

Cintas entered into two interest rate lock agreementsas part of the Omni acquisition in fiscal 2002. The amortization of the cashflow hedge pertaining to these lock agreements, and the change in the fairvalue of the cash flow hedge, pertaining to the interest rate swap agreementsin fiscal 2004,  resulted in a credit toother comprehensive income of $290, $290 and $669 for the years ended May 31,2006, 2005 and 2004, respectively.

During the third quarter of fiscal 2006, Cintasentered into a cash settled forward starting swap to protect forecastedinterest payments from interest rate movement for an anticipated $200 milliondebt issuance in fiscal 2007. The Hypothetical Derivative Method is used tomeasure hedge effectiveness. Cintas expects the forward starting swap to beperfectly effective as the critical terms of the anticipated debt issuance willperfectly offset the hedged cash flows of the forecasted interest payments.When the $200 million of hedged debt is issued, the

38

----

 

lender will make a payment to Cintas if the 30-yearTreasury rate has increased since the inception of the forward startingswap.  Conversely, if the 30-yearTreasury rate decreases during that period, Cintas will pay the lender. Thevalue of the forward starting swap prior to the debt issuance is recorded inother assets and in other comprehensive income in shareholders’ equity.  Once the debt is issued, the value of the forwardstarting swap will be settled with cash and will be amortized to earnings overthe term of the debt issuance. 

Cintas has certain significant covenants related todebt agreements. These covenants limit Cintas’ ability to incur certain liens,to engage in sale-leaseback transactions and to merge, consolidate or sell allor substantially all of Cintas’ assets. These covenants also require Cintas tomaintain certain debt to capitalization and interest coverage ratios. Crossdefault provisions exist between certain debt instruments. Cintas is incompliance with all of the significant debt covenants for all periodspresented. Were a default of a significant covenant to occur, the default couldresult in an acceleration of indebtedness, impair liquidity and limit theability to raise future capital. Cintas’ debt, net of cash and marketablesecurities, is $557 million as of May 31, 2006. For fiscal 2006, net cash provided by operating activities was $462million. Capital expenditures were approximately $157 million for the sameperiod.

6.               LEASES

Cintas conducts certain operations from leasedfacilities and leases certain equipment. Most leases contain renewal 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 rentalpayments under noncancelable lease arrangements for each of the next five yearsand thereafter are $19,355, $14,934, $11,916, $8,055, $5,872 and $8,272,respectively.  Rent expense underoperating leases during the years ended May 31, 2006, 2005 and 2004, was$30,136, $25,280 and $22,675, respectively.

7.               INCOMETAXES
|                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Earnings before  income taxes consist of the following components: |       |     |       |     |       |     |       |
| U.S. operations                                                    |       | $        | 483,223    |     | $          | 447,965  |       | $ | 411,091 |   |
| Foreign operations                                                 |       | 38,592   |       | 29,028   |       | 20,989   |       |
|                                                               |       | $        | 521,815    |     | $          | 476,993  |       | $ | 432,080 |   |

 
|                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income taxes  consist of the following components: |       |     |       |     |       |     |       |
| Current:                                           |       |     |       |     |       |     |       |
| Federal                                            |       | $        | 180,697    |     | $          | 155,987  |       | $ | 132,105 |   |
| State and local                                    |       | 15,026   |       | 18,043   |       | 12,291   |       |
|                                               |       | 195,723  |       | 174,030  |       | 144,396  |       |
| Deferred                                           |       | (1,086   | )          | 2,445    |       | 15,479   |       |
|                                               |       | $        | 194,637    |     | $          | 176,475  |       | $ | 159,875 |   |

 
|                                                                                                              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| 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                                                              |       | $        | 182,635    |     | $          | 166,947  |       | $ | 151,228 |   |
| State and local income taxes, net of federal benefit                                                         |       | 11,917   |       | 12,050   |       | 8,939    |       |
| Other                                                                                                        |       | 85       |       | (2,522   | )          | (292     | )          |
|                                                                                                         |       | $        | 194,637    |     | $          | 176,475  |       | $ | 159,875 |   |

 

39

----

 

Thecomponents of deferred income taxes included on the balance sheets are asfollows:
|                             | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:       |       |     |       |     |       |
| Employee benefits           |       | $        | 4,467      |     | $          | 4,462 |   |
| Allowance for bad debts     |       | 5,377    |       | 3,357    |       |
| Inventory obsolescence      |       | 10,445   |       | 11,238   |       |
| Insurance and contingencies |       | 10,222   |       | 10,222   |       |
| Other                       |       | 7,671    |       | 9,532    |       |
|                        |       | 38,182   |       | 38,811   |       |
| Deferred tax  liabilities:  |       |     |       |     |       |
| In service inventory        |       | 90,675   |       | 82,883   |       |
| Property                    |       | 75,047   |       | 87,491   |       |
| Intangibles                 |       | 34,369   |       | 30,296   |       |
| Other                       |       | 6,976    |       | —   |       |
| State taxes                 |       | 13,776   |       | 13,861   |       |
|                        |       | 220,843  |       | 214,531  |       |
|                        |       |     |       |     |       |
| Net deferred tax  liability |       | $        | 182,661    |     | $          | 175,720 |   |

 

Income taxes paidwere $183,268, $151,243 and $118,125 for the years ended May 31, 2006, 2005 and2004, respectively.

The American JobsCreation Act of 2004 (the Act) created a temporary incentive for U.S.corporations to repatriate accumulated income earned in foreign jurisdictionsby providing an 85% dividends-received deduction for certain dividends fromcontrolled foreign corporations.  Cintashas reviewed this provision and determined that no foreign earnings will berepatriated under the Act.

U.S. income taxesof $6,573, net of foreign tax credits, have not been provided for on acumulative total of approximately $105,136 of undistributed earnings forcertain non-U.S. subsidiaries as of May 31, 2006.  Cintas intends to reinvest these earningsindefinitely in operations outside the United States.

8.               ACQUISITIONS

For allacquisitions accounted for as purchases, including insignificant acquisitions,the purchase price paid for each has been allocated to the fair value of theassets acquired and liabilities assumed. During fiscal 2006, Cintas acquired 9 Rentals businesses and 24 OtherServices businesses.  During fiscal 2005,Cintas acquired 10 Rentals businesses and 27 Other Services businesses.  The following summarizes the aggregate purchaseprice for all businesses acquired:
|                                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Fair value of  tangible assets acquired         |       | $        | 51,798     |     | $          | 18,811 |   |
| Fair value of  goodwill acquired                |       | 244,109  |       | 81,245   |       |
| Fair value of  service contracts acquired       |       | 58,536   |       | 24,008   |       |
| Fair value of  other intangibles acquired       |       | 18,782   |       | 10,082   |       |
| Total fair value  of assets acquired            |       | 373,225  |       | 134,146  |       |
| Fair value of  liabilities assumed and incurred |       | 26,929   |       | 12,219   |       |
| Total cash paid for  acquisitions               |       | $        | 346,296    |     | $          | 121,927 |   |

 

The results of operationsfor the acquired businesses are included in the consolidated statements of incomefrom the dates of acquisition.  The proforma revenue, net income and earnings per share information relating toacquired businesses are not presented because they are not significant.

40

----

 

9.               DEFINEDCONTRIBUTION PLANS

Cintas’ Partners’Plan is a non-contributory profit sharing plan and ESOP for the benefit ofsubstantially all U.S. Cintas employees who have completed one year ofservice.  The plan also includes a 401(k)savings feature covering substantially all employees.  The amounts of contributions to the profitsharing plan and ESOP, as well as the matching contribution to the 401(k), aremade at the discretion of Cintas.  Totalcontributions, including Cintas’ matching contributions, were $26,500, $24,400and $22,160 for the years ended May 31, 2006, 2005 and 2004, respectively.

Cintas also has anon-contributory deferred profit sharing plan (DPSP), which coverssubstantially all Canadian employees.  Inaddition, a registered retirement savings plan (RRSP) is offered to thoseemployees.  The amounts of contributionsto the DPSP, as well as the matching contribution to the RRSP, are made at thediscretion of Cintas.  Totalcontributions were $1,144, $897 and $774 for the years ended May 31, 2006, 2005and 2004, respectively.

10.         EARNINGS PER SHARE

Earnings per shareare computed in accordance with Statement of Financial Accounting Standards No.128, *Earnings per Share.*  The basic computations are computed based onthe weighted average number of common shares outstanding during eachperiod.  The diluted computations reflectthe potential dilution that could occur if stock options were exercised intocommon stock, under certain circumstances, that then would share in theearnings of Cintas.

Thefollowing table represents a reconciliation of the shares used to calculatebasic and diluted earnings per share for the respective years:
|                                                                                                                          | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Numerator:                                                                                                               |       |     |       |     |       |     |       |
| Net income                                                                                                               |       | $        | 327,178    |     | $          | 300,518  |       | $ | 272,205 |   |
|                                                                                                                     |       |     |       |     |       |     |       |
| Denominator:                                                                                                             |       |     |       |     |       |     |       |
| Denominator for basic earnings per share – weighted  average shares (000’s)                                    |       | 167,951  |       | 171,679  |       | 170,960  |       |
| Effect of dilutive securities - employee stock  options (000’s)                                                     |       | 594      |       | 970      |       | 1,412    |       |
| Denominator for diluted earnings per share –  adjusted weighted average shares and assumed conversions (000’s) |       | 168,545  |       | 172,649  |       | 172,372  |       |
|                                                                                                                     |       |     |       |     |       |     |       |
| Basic earnings  per share                                                                                                |       | $        | 1.95       |     | $          | 1.75     |       | $ | 1.59 |   |
|                                                                                                                     |       |     |       |     |       |     |       |
| Diluted earnings per  share                                                                                              |       | $        | 1.94       |     | $          | 1.74     |       | $ | 1.58 |   |

 

11.         STOCK-BASED COMPENSATION

Under the 2005equity compensation plan adopted by Cintas in fiscal 2006, Cintas may grantofficers and key employees equity compensation in the form of stock options,stock appreciation rights, restricted and unrestricted stock awards,performance awards and other stock unit awards up to an aggregate of 14,000,000shares of Cintas’ common stock.  

*StockOptions*

Stock options are grantedat the fair market value of the underlying common stock on the date ofgrant.  The option terms are determinedby the Cintas Compensation Committee, but no stock option may be exercised laterthan ten years after the date of the grant.

41

----

 

Theinformation presented in the following table relates primarily to stock optionsgranted and outstanding under either the plan adopted in fiscal 2006 or underpreviously adopted plans:
| ** **                                               | ** ** | **Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------------------------------------------|------------|
|                                                     |       |       |       |                                           |       |
| 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                                          |       |
| Granted                                                  |       | 1,248,450  |       | 43.96                                          |       |
| Cancelled                                                |       | (637,502   | )          | 41.38                                          |       |
| Exercised                                                |       | (517,429   | )          | 20.86                                          |       |
| Outstanding May 31,  2006 (2,718,180 shares exercisable) |       | 6,535,404  |       | $                                              | 40.08      |   |

 

Thefollowing table summarizes the information related to stock options outstandingat May 31, 2006:
|                                         | ** ** | ** **                  | ** ** | **Outstanding Options**                     | ** ** | **Exercisable Options**                       | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | **Number**

**Outstanding** | ** ** | **Average**

**Remaining**

**Option**

**Life** | ** ** | **Weighted**

**Average**

**Exercise**

**Price** | ** ** | **Number**

**Exercisable** | ** ** | **Weighted**

**Average**

**Exercise**

**Price** | ** ** |
| $16.83  – $39.29                   |       | 1,970,877                   |       | 4.48                                             |       | $                                                  | 32.17      |   | 623,213 |   | $ | 24.33 |   |
| 39.42 – 41.98                      |       | 1,175,077                   |       | 5.53                                             |       | 41.64                                              |       | 990,917 |   | 41.77 |   |
| 42.06 – 44.33                      |       | 1,747,600                   |       | 7.21                                             |       | 42.36                                              |       | 480,650 |   | 42.78 |   |
| 44.43 – 53.19                      |       | 1,641,850                   |       | 7.69                                             |       | 45.69                                              |       | 623,400 |   | 47.70 |   |
| $16.83 – $53.19                    |       | 6,535,404                   |       | 6.21                                             |       | $                                                  | 40.08      |   | 2,718,180 |   | $ | 39.31 |   |

 

At May 31, 2006,13,853,250 shares of common stock are reserved for future issuance under the2005 plan.

Pro formainformation regarding earnings and earnings per share is required by SFAS 123and has been determined as if Cintas had accounted for its stock optionsgranted subsequent to May 31, 1995, under the fair value method of SFAS123.  The weighted average fair value ofstock options granted during fiscal 2006, 2005 and 2004 was $20.95, $19.80 and$18.43, respectively.  The fair value ofthese options was estimated at the date of grant using a Black-Scholesoption-pricing model with the following weighted-average assumptions:
|                                                   | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                              |       |     |       |     |       |     |       |
| Risk-free  interest rate                          |       | 4.00     | %          | 4.00     | %          | 4.00     | %          |
| Dividend yield                                    |       | .50      | %          | .50      | %          | .50      | %          |
| Expected  volatility of Cintas’ common stock |       | 35       | %          | 35       | %          | 35       | %          |
| Expected life of the  option in years             |       | 9        |       | 9        |       | 9        |       |

 

The Black-Scholesoption-pricing model was developed for use in estimating the fair value oftraded options which have no vesting restrictions and are freelytransferable.  In addition, optionvaluation models require the input of highly subjective assumptions includingthe expected stock price volatility. Because Cintas’ options have characteristics significantly differentfrom those of traded options and because changes in the subjective inputassumptions can materially affect the fair value estimate, in Cintas’ opinion,existing models do not necessarily provide a reliable single measure of thefair value of its stock options.

42

----

 

*RestrictedStock Awards*

Restricted stockawards will consist of Cintas’ common stock which is subject to suchconditions, restrictions and limitations as the Cintas Compensation Committeedetermines to be appropriate.  Therecipient of restricted stock awards will have all rights of a shareholder ofCintas, including the right to vote and the right to receive cash dividends,during the vesting period.

The informationpresented in the following table relates to restricted stock awards granted andoutstanding under the plan adopted in fiscal 2006:
|                                               | ** ** | **Shares** | ** ** |
|-----------------------------------------------|------------|------------|------------|
|                                          |       |       |       |
| Outstanding,  unvested grants at May 31, 2005 |       | —     |       |
| Granted                                       |       | 128,075    |       |
| Cancelled                                     |       | —     |       |
| Vested                                        |       | —     |       |
| Outstanding, unvested  grants at May 31, 2006 |       | 128,075    |       |

 

Cintas granted restrictedstock awards with a weighted average price of $36.08 in fiscal 2006.

12.         LITIGATION AND OTHERCONTINGENCIES

Cintas is subjectto legal proceedings and claims arising from the ordinary course of itsbusiness, including personal injury, customer contract, environmental andemployment claims.  In the opinion ofmanagement, the aggregate liability, if any, with respect to such ordinarycourse of business actions, will not have a material adverse effect on thefinancial 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 adefendant in a purported class action lawsuit, *Paul Veliz,et al., v. Cintas Corporation*, filed on March 19, 2003, in theUnited States District Court, Northern District of California, OaklandDivision, alleging that Cintas violated certain federal and state wage and hourlaws applicable to its service sales representatives, whom Cintas considersexempt employees, and asserting additional related ERISA claims.  On August 23, 2005, an amended complaint wasfiled alleging additional state law wage and hour claims under the followingstate laws: Arkansas, Kansas, Kentucky, Maine, Maryland, Massachusetts,Minnesota, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, Washington,West Virginia and Wisconsin.  Theplaintiffs are seeking unspecified monetary damages, injunctive relief or both.  Cintas denies these claims and is defendingthe plaintiffs’ allegations.  On February14, 2006, the court ordered a majority of the opt-in plaintiffs to arbitratetheir claims in accordance with the terms of their Cintas employmentagreement.  On February 14, 2006, the courtalso permitted plaintiffs to file a second amended complaint alleging state lawclaims in the 15 states listed above only with respect to the putative classmembers that may litigate their claims in court.  No determination has been made by the courtor an arbitrator regarding class certification. There can be no assurance as to whether a class will be certified or, ifa class is certified, as to the geographic or other scope of such class.  If a court or arbitrator certifies a class inthis action and there is an adverse verdict on the merits, or in the event of anegotiated settlement of the action, the resulting liability and/or anyincreased costs of operations on an ongoing basis could be material toCintas.  Any estimated liability relatingto this lawsuit is not determinable at this time.

Cintas is also adefendant in a purported class action lawsuit, *RobertRamirez, et al., v. Cintas Corporation*, filed on January 20, 2004,and pending in the United States District Court, Northern District ofCalifornia, San Francisco Division.  Thecase was brought on behalf of all past and present female, African-American andHispanic applicants and employees of Cintas and its subsidiaries.  The complaint alleges that Cintas has engagedin a pattern and practice of discriminating against females and minorities inrecruitment, hiring, promotions, transfers, job assignments and pay.  The complaint seeks injunctive relief,compensatory damages, punitive damages and attorneys’ fees, among otherthings.  The claims in the complaint weresignificantly narrowed down through dismissal and transfer of claims to severalspecific claims against Cintas’ Rental Division only, including, failure tohire African-Americans, Hispanics and females into service sales representativepositions, failure to promote Hispanics to supervisory positions,discrimination against African-Americans and Hispanics in service salesrepresentative route assignment and pay claims and discrimination againstAfrican-Americans in hourly pay.  On April27, 2005, the United States Equal Employment Opportunity Commission (EEOC)intervened in order to participate in the failure to hire females into servicesales representative positions claim.  OnMay 11, 2006, the

43

----

 

court signed anorder transferring the class claims of failure to hire African-Americans,Hispanics and females into service sales representative positions and the EEOC’scomplaint in intervention to the *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.  All of the remaining claims in the *Ramirez* lawsuit were ordered to arbitration and stayed bythe court pending the completion of arbitration.  No filings or determinations have been madein regard to the lawsuit or arbitration 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 a class action lawsuit, *Mirna E.Serrano, et al., v. Cintas Corporation*, filed on May 10, 2004, inthe United States District Court for the Eastern District of Michigan, SouthernDivision on behalf of female service sales representative job applicants at allCintas locations in Michigan.  OnSeptember 6, 2005, a Magistrate Judge granted plaintiffs’ motion for leave tofile a second amended complaint to expand the lawsuit to a nationwideclaim.  On November 15, 2005, the EEOCintervened in *Serrano* to participate in thelawsuit in continuation of an EEOC charge filed on April 17, 2000, by MirnaSerrano with the EEOC Detroit District office. On February 24, 2006, a motion to intervene in *Serrano*wasfiled by intervening plaintiffs Colleen Grindle, et al., on behalf of anationwide subclass and an Ohio subclass of female employees in Cintas’ RentalDivision who were allegedly denied hire, promotion or transfer to a servicesales representative position.  On March24, 2006, the Grindle plaintiffs withdrew their motion to intervene withoutprejudice.  In addition, a class actionlawsuit, *Larry Houston, et al., v. Cintas Corporation,*wasfiled on August 3, 2005, in the United States District Court for the NorthernDistrict of California on behalf of African-American managers alleging racialdiscrimination.  On November 22, 2005,the court entered an order requiring the named plaintiffs in the *Houston*lawsuit to arbitrate all of their claims formonetary damages.  If there is an adverseverdict or a negotiated settlement of all or any of these actions, theresulting liability and/or any increased costs of operations on an ongoingbasis could be material to Cintas.  Anyestimated liability relating to these proceedings is not determinable at thistime.

Several othersimilar administrative proceedings are pending including: (i) two charges filedon November 30, 2004, by an EEOC Commissioner with the EEOC Systemic LitigationUnit alleging failure to hire and assign females to production job positions,and failing to hire females, African-Americans and Hispanics into theManagement Trainee program, (ii) a charge filed on January 24, 2005, byJennifer Fargo on behalf of herself and a similarly situated class with the AugustaHuman Relations Commission and the EEOC Detroit District office alleging genderand equal pay discrimination against female sales representatives and salesassociates, and (iii) a charge filed on March 23, 2005, by Clifton Cooper onbehalf of himself and a similarly situated class with the EEOC SystemicLitigation Unit alleging discriminatory pay and treatment due to race.  The investigations of these allegations arepending and no determinations have been made. On May 26, 2006, the EEOC issued a dismissal and notice of rights andclosed its file on the Melissa Schulz charge filed on April 25, 2005, on behalfof herself and a similarly situated class with the EEOC Systemic LitigationUnit and the Oregon Bureau of Labor and Industries, Civil Rights Divisionalleging discriminatory pay and treatment due to race and gender, following adetermination that it was unable to conclude that the information obtainedestablished a violation of statute.  OnMay 18, 2006, the EEOC issued a dismissal and notice of rights and closed itsfile on the Mattie Cooper charge filed on June 10, 2005, on behalf of herselfand a similarly situated class with the EEOC Systemic Litigation Unit allegingdiscriminatory pay and treatment due to race and gender, following a determinationthat it was unable to conclude that the information obtained established aviolation of statute.

Cintas is also adefendant in a lawsuit, *J. Lester Alexander, IIIvs. Cintas Corp., et al*., which was originally filed on October 25,2004, and is currently pending in the United States Bankruptcy Court for theMiddle District of Alabama, Eastern Division.  The case was brought by J.Lester Alexander, III, the Chapter 7 Trustee (the “Trustee”) of TerryManufacturing 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, misrepresentedits intention to perform its obligations in those agreements and acted as alteregos of the bankrupt TMC and is therefore liable for all of TMC’s debts. The Trustee is seeking $50,000 in compensatory damages and $100,000 in punitivedamages.  Cintas denies these claims and is vigorously defending itselfagainst all claims in the complaint.   If there is an adverse verdicton the merits or in the event of a negotiated settlement of this lawsuit, theresulting liability could be material to Cintas.  Any estimated liabilityrelating to this lawsuit is not determinable at this time.

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

44

----

 

13.         SEGMENT INFORMATION

Cintas classifies itsbusinesses into two operating segments, Rentals and Other Services, based onthe similar economic characteristics of the products and services within eachsegment. The Rentals operating segment reflects the rental and servicing ofuniforms and other garments, mats, mops and shop towels.  In addition to these rental items, we alsoprovide restroom and hygiene products and services within this segment.  The Other Services operating segment consistsof the direct sale of uniforms and related items, first aid, safety and fireprotection products and services, document management services and branded promotionalproducts.  Both segments provide theseproducts and services throughout the United States and Canada to businesses ofall types - from small service and manufacturing companies to majorcorporations that employ thousands of people.

Information as tothe operations of Cintas’ different business segments is set forth below basedon the distribution of products and services offered.  Cintas evaluates performances based onseveral 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, 2006                         |       |        |       |         |       |          |       |       |       |
| Revenue                              |       | $           | 2,568,776  |         | $          | 834,832       |       | $          | —     |   | $ | 3,403,608 |   |
|                                 |       |        |       |         |       |          |       |       |       |
| Gross margin                         |       | $           | 1,161,947  |         | $          | 292,845       |       | $          | —     |   | $ | 1,454,792 |   |
| Selling and  administrative expenses |       | 690,707     |       | 217,247      |       | —        |       | 907,954    |       |
| Interest income                      |       | —      |       | —       |       | (6,759        | )          | (6,759     | )          |
| Interest expense                     |       | —      |       | —       |       | 31,782        |       | 31,782     |       |
| Income before income  taxes          |       | $           | 471,240    |         | $          | 75,598        |       | $          | (25,023    | ) | $ | 521,815 |   |
| Depreciation and  amortization       |       | $           | 130,327    |         | $          | 30,326        |       | $          | —     |   | $ | 160,653 |   |
| Capital expenditures                 |       | $           | 125,290    |         | $          | 31,342        |       | $          | —     |   | $ | 156,632 |   |
| Total assets                         |       | $           | 2,530,685  |         | $          | 653,099       |       | $          | 241,453    |   | $ | 3,425,237 |   |
|                                 |       |        |       |         |       |          |       |       |       |
| 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 |   |

 

45

----

 

14.          SUBSEQUENT EVENTS

Subsequent to May 31, 2006, Cintas purchased approximately2.7 million additional shares of Cintas stock at an average price of $41.69 pershare for a total purchase price of approximately $114 million.  From the inception of the stock repurchaseprogram through July 21, 2006, Cintas has purchased approximately 12.1 millionshares of Cintas stock at an average price of $40.88 per share for a totalpurchase price of approximately $496 million. In July 2006, Cintas announcedthat the Board of Directors approved the expansion of its share repurchase programby an additional $500 million. The Board did not specify an expiration date forthis program.

Also subsequent to May 31, 2006, Cintas borrowed anadditional $56 million under the $400 million commercial paper program forshort-term cash requirements.  Thisfinancing decision was made in order to allow certain marketable securities toreach maturity rather than Cintas incurring a penalty for early redemption.

15.         QUARTERLY FINANCIAL DATA(UNAUDITED)

The following is asummary of the results of operations for each of the quarters within the yearsended May 31, 2006 and 2005:
| ** **                                                 | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **May 31, 2006**                                 | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|                                                       |       |        |       |        |       |        |       |        |       |
| Revenue                                                    |       | $           | 823,475    |        | $          | 835,785     |       | $           | 836,421    |   | $ | 907,927 |   |
| Gross margin                                               |       | $           | 355,488    |        | $          | 350,461     |       | $           | 352,970    |   | $ | 395,873 |   |
| Net income                                                 |       | $           | 79,535     |        | $          | 77,971      |       | $           | 77,745     |   | $ | 91,927 |   |
| Basic earnings per  share                                  |       | $           | .47        |        | $          | .46         |       | $           | .47        |   | $ | .55 |   |
| Diluted earnings per  share                                |       | $           | .47        |        | $          | .46         |       | $           | .46        |   | $ | .55 |   |
| Weighted average number of shares outstanding (000’s) |       | 168,939     |       | 167,975     |       | 168,038     |       | 166,854     |       |

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

 

16.         SUPPLEMENTAL GUARANTORINFORMATION

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

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

As allowed by SECrules, the following condensed consolidating financial statements are providedas an alternative to filing separate financial statements of theguarantors.  Each of the subsidiariespresented in the condensed financial statements has been fully consolidated inCintas’ financial statements.  Thecondensed consolidating financial statements should be read in conjunction withthe financial statements of Cintas and notes thereto of which this note is anintegral part.

Condensed consolidatingfinancial statements for Cintas, Corp. 2, the subsidiary guarantors andnon-guarantors are presented below:

 

46

----

 

CONDENSED CONSOLIDATINGINCOME STATEMENT

YEAR ENDED MAY 31,2006
| ** **                           | ** ** | **Cintas  Corporation** | ** ** | **Corp. 2** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Cintas  Corporation  Consolidated** | ** ** |
|--------------------------------------|------------|-------------------------|------------|------------------|------------|----------------------------|------------|--------------------|------------|------------------|------------|---------------------------------------|------------|
| Revenue:                             |       |                    |       |             |       |                       |       |               |       |             |       |                                  |       |
| Rentals                              |       | $                       | —     |             | $          | 1,887,625                  |       | $                  | 524,556    |             | $          | 157,124                               |       | $ | (529 | ) | $ | 2,568,776 |   |
| Other services                       |       | —                  |       | 1,154,847        |       | 434,851                    |       | 54,812             |       | (809,678         | )          | 834,832                               |       |
| Equity in net  income of affiliates  |       | 327,178                 |       | —           |       | —                     |       | —             |       | (327,178         | )          | —                                |       |
|                                 |       | 327,178                 |       | 3,042,472        |       | 959,407                    |       | 211,936            |       | (1,137,385       | )          | 3,403,608                             |       |
|                                 |       |                    |       |             |       |                       |       |               |       |             |       |                                  |       |
| Costs and expenses  (income):        |       |                    |       |             |       |                       |       |               |       |             |       |                                  |       |
| Cost of rentals                      |       | —                  |       | 1,162,222        |       | 324,602                    |       | 92,753             |       | (172,748         | )          | 1,406,829                             |       |
| Cost of other  services              |       | —                  |       | 870,532          |       | 284,310                    |       | 35,082             |       | (647,937         | )          | 541,987                               |       |
| Selling and  administrative expenses |       | —                  |       | 838,556          |       | 22,784                     |       | 45,922             |       | 692              |       | 907,954                               |       |
| Interest income                      |       | —                  |       | (4,721           | )          | (366                       | )          | (1,672             | )          | —           |       | (6,759                                | )          |
| Interest expense                     |       | —                  |       | 32,323           |       | (4,864                     | )          | 4,323              |       | —           |       | 31,782                                |       |
|                                 |       | —                  |       | 2,898,912        |       | 626,466                    |       | 176,408            |       | (819,993         | )          | 2,881,793                             |       |
|                                 |       |                    |       |             |       |                       |       |               |       |             |       |                                  |       |
| Income before income  taxes          |       | 327,178                 |       | 143,560          |       | 332,941                    |       | 35,528             |       | (317,392         | )          | 521,815                               |       |
| Income taxes                         |       | —                  |       | 54,953           |       | 127,447                    |       | 12,237             |       | —           |       | 194,637                               |       |
| Net income                           |       | $                       | 327,178    |             | $          | 88,607                     |       | $                  | 205,494    |             | $          | 23,291                                |       | $ | (317,392 | ) | $ | 327,178 |   |

 

47

----

 

CONDENSED CONSOLIDATINGINCOME STATEMENT

YEAR ENDED MAY 31,2005
| ** **                           | ** ** | **Cintas**

**Corporation** | ** ** | **Corp. 2** | ** ** | **Subsidiary**

**Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Cintas**

**Corporation**

**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 |   |

 

48

----

 

CONDENSEDCONSOLIDATING 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 |   |

 

49

----

 

CONDENSEDCONSOLIDATING BALANCE SHEET

AS OF MAY 31, 2006

 
| ** **                                     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **     | ** ** | ** **         | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|------------------------------------------------|------------|-----------------|------------|------------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **Cintas**      | ** ** | ** **       | ** ** | **Subsidiary** | ** ** | ** **         | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                                     | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                     |       |            |       |             |       |           |       |               |       |             |       |             |       |
| Current assets:                                |       |            |       |             |       |           |       |               |       |             |       |             |       |
| Cash and cash equivalents                      |       | $               | —     |             | $          | 9,461          |       | $                  | 8,674      |             | $          | 20,779           |       | $ | — |   | $ | 38,914 |   |
| Marketable securities                          |       | —          |       | 154,711          |       | —         |       | 47,828             |       | —           |       | 202,539          |       |
| Accounts receivable, net                       |       | —          |       | 256,602          |       | 124,143        |       | 21,378             |       | (12,218          | )          | 389,905          |       |
| Inventories, net                               |       | —          |       | 172,279          |       | 27,582         |       | 8,256              |       | (10,117          | )          | 198,000          |       |
| Uniforms and other rental items in service     |       | —          |       | 272,197          |       | 77,636         |       | 19,996             |       | (32,342          | )          | 337,487          |       |
| Prepaid expenses                               |       | —          |       | 8,169            |       | 2,539          |       | 455                |       | —           |       | 11,163           |       |
| Total current  assets                          |       | —          |       | 873,419          |       | 240,574        |       | 118,692            |       | (54,677          | )          | 1,178,008        |       |
|                                           |       |            |       |             |       |           |       |               |       |             |       |             |       |
| Property and  equipment, at cost, net          |       | —          |       | 604,813          |       | 208,684        |       | 50,286             |       | —           |       | 863,783          |       |
| Goodwill                                       |       | —          |       | 292,969          |       | 822,165        |       | 21,041             |       | —           |       | 1,136,175        |       |
| Service  contracts, net                        |       | —          |       | 112,016          |       | 61,324         |       | 6,625              |       | —           |       | 179,965          |       |
| Other assets, net                              |       | 1,580,332       |       | 70,113           |       | 1,165,524      |       | 186,430            |       | (2,935,093       | )          | 67,306           |       |
|                                           |       | $               | 1,580,332  |             | $          | 1,953,330      |       | $                  | 2,498,271  |             | $          | 383,074          |       | $ | (2,989,770 | ) | $ | 3,425,237 |   |
|                                           |       |            |       |             |       |           |       |               |       |             |       |             |       |
| **Liabilities  and Shareholders’ Equity** |       |            |       |             |       |           |       |               |       |             |       |             |       |
| Current  liabilities:                          |       |            |       |             |       |           |       |               |       |             |       |             |       |
| Accounts payable                               |       | $               | (465,247   | )                | $          | (244,197       | )          | $                  | 755,306    |             | $          | (12,240          | )          | $ | 38,013 |   | $ | 71,635 |   |
| Accrued compensation and related liabilities   |       | —          |       | 34,796           |       | 14,132         |       | 2,687              |       | —           |       | 51,615           |       |
| Accrued liabilities                            |       | —          |       | 190,728          |       | (7,518         | )          | 6,666              |       | (949             | )          | 188,927          |       |
| Current income taxes                           |       | —          |       | 4,081            |       | 37,355         |       | 2,258              |       | —           |       | 43,694           |       |
| Deferred income taxes                          |       | —          |       | —           |       | 50,421         |       | 1,248              |       | —           |       | 51,669           |       |
| Long-term debt due within one year             |       | —          |       | 3,549            |       | 911            |       | —             |       | (172             | )          | 4,288            |       |
| Total current  liabilities                     |       | (465,247        | )          | (11,043          | )          | 850,607        |       | 619                |       | 36,892           |       | 411,828          |       |
|                                           |       |            |       |             |       |           |       |               |       |             |       |             |       |
| Long-term debt  due after one year             |       | —          |       | 801,649          |       | (61,312        | )          | 89,770             |       | (35,653          | )          | 794,454          |       |
| Deferred income  taxes                         |       | —          |       | 10,263           |       | 115,935        |       | 4,794              |       | —           |       | 130,992          |       |
| Total  shareholders’ equity               |       | 2,045,579       |       | 1,152,461        |       | 1,593,041      |       | 287,891            |       | (2,991,009       | )          | 2,087,963        |       |
|                                           |       | $               | 1,580,332  |             | $          | 1,953,330      |       | $                  | 2,498,271  |             | $          | 383,074          |       | $ | (2,989,770 | ) | $ | 3,425,237 |   |

 

50

----

 

CONDENSEDCONSOLIDATING 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 |   |

 

51

----

 

CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED MAY 31, 2006
| ** **                                                                                   | ** ** | ** **      | ** ** | ** **       | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | **Cintas**       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **Cintas**      | ** ** | ** **       | ** ** | **Subsidiary** | ** ** | **Non-**       | ** ** | ** **       | ** ** | **Corporation**  | ** ** |
| ** **                                                                                   | ** ** | **Corporation** | ** ** | **Corp. 2** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from  operating activities:                                                       |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Net income                                                                                   |       | $               | 327,178    |             | $          | 88,607         |       | $              | 205,494    |             | $          | 23,291           |       | $ | (317,392 | ) | $ | 327,178 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Depreciation                                                                                 |       | —          |       | 91,528           |       | 29,220         |       | 6,369          |       | —           |       | 127,117          |       |
| Amortization of deferred charges                                                             |       | —          |       | 18,611           |       | 12,115         |       | 2,810          |       | —           |       | 33,536           |       |
| Deferred income taxes                                                                        |       | —          |       | 41               |       | (216           | )          | 432            |       | —           |       | 257              |       |
| Changes  in current assets and liabilities, net of acquisitions of businesses:               |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Accounts receivable                                                                          |       | —          |       | (9,074           | )          | (22,532        | )          | (12,376        | )          | (172             | )          | (44,154          | )          |
| Inventories                                                                                  |       | —          |       | 28,804           |       | (1,688         | )          | 831            |       | (5,914           | )          | 22,033           |       |
| Uniforms and other rental items in service                                                   |       | —          |       | (16,621          | )          | (2,749         | )          | (3,412         | )          | (3,901           | )          | (26,683          | )          |
| Prepaid expenses                                                                             |       | —          |       | (1,901           | )          | (537           | )          | 133            |       | —           |       | (2,305           | )          |
| Accounts payable                                                                             |       | —          |       | (339,147         | )          | 356,346        |       | (14,870        | )          | —           |       | 2,329            |       |
| Accrued compensation and related liabilities                                                 |       | —          |       | 6,509            |       | 5,609          |       | 787            |       | —           |       | 12,905           |       |
| Accrued liabilities                                                                          |       | —          |       | (6,848           | )          | 2,902          |       | 2,028          |       | 13               |       | (1,905           | )          |
| Income taxes payable                                                                         |       | —          |       | 4,721            |       | 5,871          |       | 957            |       | 29               |       | 11,578           |       |
|                                                                                         |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Net cash provided by (used in) operating activities                                          |       | 327,178         |       | (134,770         | )          | 589,835        |       | 6,980          |       | (327,337         | )          | 461,886          |       |
|                                                                                         |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Cash  flows from investing activities:                                                       |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                                                         |       | —          |       | (79,858          | )          | (60,271        | )          | (16,503        | )          | —           |       | (156,632         | )          |
| Proceeds from sale or redemption of marketable  securities                                   |       | —          |       | 70,772           |       | —         |       | 16,705         |       | —           |       | 87,477           |       |
| Purchase of marketable securities                                                            |       | —          |       | (536             | )          | —         |       | (25,077        | )          | —           |       | (25,613          | )          |
| Acquisitions of businesses, net of cash acquired                                             |       | —          |       | (231,896         | )          | (109,312       | )          | (5,155         | )          | —           |       | (346,363         | )          |
| Other                                                                                        |       | 46,313          |       | 45,294           |       | (415,289       | )          | (5,412         | )          | 330,179          |       | 1,085            |       |
|                                                                                         |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Net cash provided by (used in) investing activities                                          |       | 46,313          |       | (196,224         | )          | (584,872       | )          | (35,442        | )          | 330,179          |       | (440,046         | )          |
|                                                                                         |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Cash flows from  financing activities:                                                       |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Proceeds from issuance of debt                                                               |       | —          |       | 333,500          |       | —         |       | —         |       | —           |       | 333,500          |       |
| Repayment of debt                                                                            |       | —          |       | (6,594           | )          | (8,859         | )          | 10,992         |       | (2,842           | )          | (7,303           | )          |
| Stock options exercised                                                                      |       | 7,680           |       | —           |       | —         |       | —         |       | —           |       | 7,680            |       |
| Dividends paid                                                                               |       | (58,823         | )          | —           |       | —         |       | —         |       | —           |       | (58,823          | )          |
| Repurchase of common stock                                                                   |       | (323,409        | )          | —           |       | —         |       | —         |       | —           |       | (323,409         | )          |
| Other                                                                                        |       | 1,061           |       | 290              |       | —         |       | 20,882         |       | —           |       | 22,233           |       |
|                                                                                         |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Net cash (used in) provided by financing activities                                          |       | (373,491        | )          | 327,196          |       | (8,859         | )          | 31,874         |       | (2,842           | )          | (26,122          | )          |
|                                                                                         |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Net (decrease) increase in cash and cash equivalents                                         |       | —          |       | (3,798           | )          | (3,896         | )          | 3,412          |       | —           |       | (4,282           | )          |
| Cash and cash equivalents at beginning of period                                             |       | —          |       | 13,259           |       | 12,570         |       | 17,367         |       | —           |       | 43,196           |       |
|                                                                                         |       |            |       |             |       |           |       |           |       |             |       |             |       |
| Cash and cash  equivalents at end of period                                                  |       | $               | —     |             | $          | 9,461          |       | $              | 8,674      |             | $          | 20,779           |       | $ | — |   | $ | 38,914 |   |

 

52

----

 

CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS

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 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 |   |

 

53

----

 

CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS

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 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 |   |

 

54

----

 

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Nothing to report.

ITEM 9A.CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

With the participation of Cintas’ management,including Cintas’ Chief Executive Officer, Chief Financial Officer, President,General Counsel and Controllers, Cintas has evaluated the effectiveness of thedisclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934) as of May 31, 2006.  Based on such evaluation, Cintas’ management,including Cintas’ Chief Executive Officer, Chief Financial Officer, President,General Counsel and Controllers, have concluded that Cintas’ disclosurecontrols and procedures were effective as of May 31, 2006, in ensuring (i)information required to be disclosed by Cintas in the reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reported,within the time periods specified in the SEC’s rules and forms and (ii)information required to be disclosed by Cintas in the reports that it files orsubmits under the Exchange Act is accumulated and communicated to Cintas’management, including its principal executive and principal financial officers,or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure.

Internal Control over Financial Reporting

There were no changes in Cintas’ internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the fiscal quarter ended May 31, 2006, 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 the Board ofDirectors authorized a $500 million stock repurchase program at marketprices.  Pursuant to that authorization,on May 12, 2006, as part of this share repurchase program, the registrantentered into a Rule 10b5-1 trading plan effective May 15, 2006, and terminatingon the earlier of July 14, 2006, or the date that the maximum amount ofrepurchases permitted under the trading plan had been repurchased.  The maximum amount of repurchases permittedwas reached on June 19, 2006, thus terminating the trading plan on that date.In July 2006, Cintas announced that the Board of Directors approved theexpansion of its share repurchase program by an additional $500 million.

PART III

Items 10, 11, 12, 13 and14 of Part III are incorporated by reference to the Registrant’s ProxyStatement for its 2006 Annual Shareholders’ Meeting to be filed with theCommission pursuant to Regulation 14A.

PARTIV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements.  All financial statements required to be filedby Item 8 of this Form and included in this report are listed in Item 8.  No additional financial statements are filedbecause the requirements for paragraph (d) under Item 14 are not applicable toCintas.

(a) (2) Financial Statement Schedule:

For each of the three years in the period ended May31, 2006.

Schedule II: Valuation and Qualifying Accounts andReserves.

All other schedules are omitted because they are notapplicable, or not required, or because the required information is included inthe Consolidated Financial Statements or Notes thereto.

55

----

 

(a) (3) Exhibits.

 
| 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,                                                                                       |       | (14)               |

 

56

----

 

|        |   | the lenders, Bank One,  NA, as agent, and Merrill Lynch Bank USA, as syndication agent                                                                                                                             |   |           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|   |   |                                                                                                                                                                                                               |   |           |
| 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                                                                                                                                                                     |   | (18)           |
|   |   |                                                                                                                                                                                                               |   |           |
| 10.19* |   | 2006 Executive  Incentive Plan                                                                                                                                                                                     |   | (18)           |
|   |   |                                                                                                                                                                                                               |   |           |
| 10.20* |   | 2005 Equity  Compensation Plan                                                                                                                                                                                     |   | (19)           |
|   |   |                                                                                                                                                                                                               |   |           |
| 10.21* |   | Criteria for  Performance Evaluation of the President and CEO                                                                                                                                                      |   | filed herewith |
|   |   |                                                                                                                                                                                                               |   |           |
| 10.22* |   | 2007 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 CompensatoryContracts

 

Incorporated byreference 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 Form S-8 filed under the Securities Actof 1933.

(4)                          Cintas’Registration Statement No. 33-56623 on Form S-8 filed under the Securities Actof 1933.

57

----

 

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

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

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

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

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

(10)                    the UnitogCompany’s 1997 Proxy Statement.

(11)                    Cintas’ Form10-Q for the quarter ended November 30, 2000.

(12)                    Cintas’ Form10-Q for the quarter ended November 30, 2001.

(13)                    Cintas’ Form10-Q for the quarter ended February 28, 2002.

(14)                    Cintas’ Form8-K dated May 13, 2002.

(15)                    Cintas’ Form10-K dated May 31, 2002.

(16)                    Cintas’ Form10-K dated May 31, 2004.

(17)                    Cintas’ Form10-Q for the quarter ended February 28, 2005.

(18)                    Cintas’ Form10-K dated May 31, 2005.

(19)                    Cintas’Registration Statement No. 333-131375 on Form S-8 filed under the SecuritiesAct of 1933.

Cintas will provide shareholders with any exhibit uponthe payment of a specified reasonable fee, which fee shall be limited toCintas’ reasonable expenses in furnishing such exhibit.

58

----

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.
| CINTAS CORPORATION            |   |
|-------------------------------|--------|
|                          |   |
| DATE SIGNED:  August 11, 2006 | /s/    | Scott D. Farmer |   |
| By: Scott D.  Farmer          |   |
| Chief Executive  Officer      |   |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated.
| Signature           | ** **          | **Capacity**                                 | ** **                                         | **Date**         |
|---------------------|---------------------|----------------------------------------------|----------------------------------------------------|------------------|
|                |                |                                         |                                               |             |
| /s/                 | Richard T.  Farmer  |                                         | Chairman of the Board of  Directors                |             |   |
| Richard T.  Farmer  |                |                                         |                                               | August  11, 2006 |
|                |                |                                         |                                               |             |
| /s/                 | Robert J.  Kohlhepp |                                         | Vice Chairman of the Board  and Director           |             |   |
| Robert J.  Kohlhepp |                |                                         |                                               | August  11, 2006 |
|                |                |                                         |                                               |             |
| /s/                 | Scott D. Farmer     |                                         | Chief Executive  Officer, President and            |             |   |
| Scott D. Farmer     |                | Director                                     |                                               | August  11, 2006 |
|                |                |                                         |                                               |             |
| /s/                 | Paul R. Carter      |                                         | Director                                           |             | August  11, 2006 |
| Paul R. Carter      |                |                                         |                                               |             |
|                |                |                                         |                                               |             |
| /s/                 | Roger L. Howe       |                                         | Director                                           |             | August  11, 2006 |
| Roger L. Howe       |                |                                         |                                               |             |
|                |                |                                         |                                               |             |
| /s/                 | David C.  Phillips  |                                         | Director                                           |             | August  11, 2006 |
| David C.  Phillips  |                |                                         |                                               |             |
|                |                |                                         |                                               |             |
| /s/                 | William C. Gale     |                                         | Senior Vice President  and Chief Financial Officer |             |   |
| William C. Gale     |                | (Principal Financial and Accounting Officer) |                                               | August 11, 2006  |
|                     |                     |                                              |                                                    |                  |  |  |  |  |  |

 

 

59

----

 

CINTAS CORPORATION

Schedule II -Valuation and Qualifying Accounts 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, 2004                     |       | $                                            | 7,737      |                                               | $          | 1,456                                     |       | $                   | 2,943      |   | $ | 3,782 |   | $ | 8,354 |   |
| May 31, 2005                     |       | $                                            | 8,354      |                                               | $          | 3,870                                     |       | $                   | 1,993      |   | $ | 4,326 |   | $ | 9,891 |   |
| May 31, 2006                     |       | $                                            | 9,891      |                                               | $          | 8,598                                     |       | $                   | 2,498      |   | $ | 5,468 |   | $ | 15,519 |   |
| Reserve for Obsolete  Inventory  |       |                                         |       |                                               |       |                                      |       |                |       |   |   |
| May 31, 2004                     |       | $                                            | 25,436     |                                               | $          | 3,229                                     |       | $                   | 626        |   | $ | 3,326 |   | $ | 25,965 |   |
| May 31, 2005                     |       | $                                            | 25,965     |                                               | $          | 3,055                                     |       | $                   | 407        |   | $ | 4,139 |   | $ | 25,288 |   |
| May 31, 2006                     |       | $                                            | 25,288     |                                               | $          | 4,518                                     |       | $                   | 3,213      |   | $ | 8,572 |   | $ | 24,447 |   |

----

(1)             Represents amountscharged to expense to increase reserve for estimated future bad debts or toincrease reserve for obsolete inventory. Amountsrelated to inventory are computed by performing a thorough analysis of futuremarketability by specific inventory item.

(2)             Represents a changein 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 obsolete inventory items. These amounts do not impactCintas’ income statement.

60

----