CTAS-2013-2.28-10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
( X )
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2013
 
OR 
(    )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                         to                                        
 
Commission file number 0-11399
 
CINTAS CORPORATION
(Exact name of Registrant as specified in its charter)
 
WASHINGTON
 
31-1188630
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
6800 CINTAS BOULEVARD
P.O. BOX 625737
CINCINNATI, OHIO 45262-5737
(Address of principal executive offices)(Zip Code)
 
(513) 459-1200
(Registrant’s telephone number, including area code)
 
Indicate by checkmark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   ü   No     
 
Indicate by a checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes   ü   No     
 
Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large Accelerated Filer    ü               Accelerated Filer                          Smaller Reporting Company     
Non-Accelerated Filer          (Do not check if a smaller reporting company)
 
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No     ü  
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding March 31, 2013
Common Stock, no par value
 
122,520,572




CINTAS CORPORATION
TABLE OF CONTENTS

Part I.
Financial Information
Page No.
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 

 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibits
 
 
 
 
 
 
 
 

2



CINTAS CORPORATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)

 
Three Months Ended
 
Nine Months Ended
 
February 28,
2013
 
February 29,
2012
 
February 28,
2013
 
February 29,
2012
Revenue:
 

 
 

 
 
 
 
Rental uniforms and ancillary products
$
748,887

 
$
721,012

 
$
2,259,569

 
$
2,163,224

Other services
326,787

 
291,100

 
927,816

 
885,194

 
1,075,674

 
1,012,112

 
3,187,385

 
3,048,418

Costs and expenses:
 

 
 

 
 
 
 
Cost of rental uniforms and ancillary products
434,809

 
409,958

 
1,301,859

 
1,223,611

Cost of other services
198,924

 
176,251

 
565,674

 
530,067

Selling and administrative expenses
308,918

 
288,367

 
908,512

 
895,945

 
 
 
 
 
 
 
 
Operating income
133,023

 
137,536

 
411,340

 
398,795

 
 
 
 
 
 
 
 
Interest income
(132
)
 
(373
)
 
(358
)
 
(1,141
)
Interest expense
16,302

 
17,219

 
49,194

 
52,281

 
 
 
 
 
 
 
 
Income before income taxes
116,853

 
120,690

 
362,504

 
347,655

Income taxes
42,148

 
44,655

 
133,039

 
128,632

Net income
$
74,705

 
$
76,035

 
$
229,465

 
$
219,023

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.60

 
$
0.58

 
$
1.84

 
$
1.67

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.60

 
$
0.58

 
$
1.83

 
$
1.67

 
 
 
 
 
 
 
 
Dividends declared per share
$

 
$

 
$
0.64

 
$
0.54

 
 
See accompanying notes.

3



CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)

 
Three Months Ended
 
Nine Months Ended
 
February 28, 2013
 
February 29, 2012
 
February 28, 2013
 
February 29, 2012
 
 
 
 
 
 
 
 
Net income
$
74,705

 
$
76,035

 
$
229,465

 
$
219,023

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
        Foreign currency translation adjustments
(8,173
)
 
11,203

 
519

 
(9,343
)
      Change in fair value of derivatives(1)
(36
)
 
304

 
(187
)
 
485

      Amortization of interest rate lock agreements
488

 
377

 
1,464

 
1,131

      Change in fair value of available-for-sale securities(2)
1

 
(29
)
 
(11
)
 
(4
)
 
 
 
 
 
 
 
 
Other comprehensive (loss) income
(7,720
)
 
11,855

 
1,785

 
(7,731
)
 
 
 
 
 
 
 
 
Comprehensive income
$
66,985

 
$
87,890

 
$
231,250

 
$
211,292



(1)      Net of $0.2 million of tax benefit for the three months ended February 29, 2012. Net of less than $0.1 million of tax expense and $0.3 million of tax benefit for the nine months ended February 28, 2013 and February 29, 2012, respectively.

(2)      Net of less than $0.1 million of tax benefit and $0.1 million of tax expense for the three months ended February 28, 2013 and February 29, 2012, respectively. Net of less than $0.1 million of tax benefit and $0.1 million of tax expense for the nine months ended February 28, 2013 and February 29, 2012, respectively.

See accompanying notes.







4



CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
 
February 28,
2013
 
May 31,
2012
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
217,470

 
$
339,825

Marketable securities
28,216

 

Accounts receivable, net
495,124

 
450,861

Inventories, net
246,957

 
251,205

Uniforms and other rental items in service
481,576

 
452,785

Income taxes, current
15,331

 
22,188

Prepaid expenses and other
24,778

 
24,704

Total current assets
1,509,452

 
1,541,568

 
 
 
 
Property and equipment, at cost, net
976,844

 
944,305

 
 
 
 
Goodwill
1,519,987

 
1,485,375

Service contracts, net
93,573

 
76,822

Other assets, net
121,443

 
112,836

 
$
4,221,299

 
$
4,160,906

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
109,064

 
$
94,840

Accrued compensation and related liabilities
90,533

 
91,214

Accrued liabilities
238,462

 
256,642

Deferred tax liability
62,019

 
2,559

Long-term debt due within one year
674

 
225,636

Total current liabilities
500,752

 
670,891

 
 
 
 
Long-term liabilities:
 

 
 

Long-term debt due after one year
1,308,656

 
1,059,166

Deferred income taxes
209,455

 
204,581

Accrued liabilities
72,190

 
87,133

Total long-term liabilities
1,590,301

 
1,350,880

 
 
 
 
Shareholders’ equity:
 

 
 

Preferred stock, no par value:
 

 
 

100,000 shares authorized, none outstanding

 

Common stock, no par value:
 

 
 

425,000,000 shares authorized,
 

 
 

FY 2013:  174,570,683 issued and 122,723,896 outstanding
 

 
 

FY 2012:  173,745,913 issued and 126,519,758 outstanding
178,290

 
148,255

Paid-in capital
103,666

 
107,019

Retained earnings
3,631,793

 
3,482,073

Treasury stock:
 

 
 

FY 2013:  51,846,787 shares
 

 
 

FY 2012:  47,226,155 shares
(1,821,951
)
 
(1,634,875
)
Other accumulated comprehensive income
38,448

 
36,663

Total shareholders’ equity
2,130,246

 
2,139,135

 
$
4,221,299

 
$
4,160,906

See accompanying notes.

5



CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) 
 
Nine Months Ended
 
February 28,
2013
 
February 29,
2012
Cash flows from operating activities:
 

 
 

Net income
$
229,465

 
$
219,023

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
123,242

 
115,566

Amortization of intangible assets
17,884

 
29,520

Stock-based compensation
16,660

 
15,023

Deferred income taxes
63,799

 
(995
)
Change in current assets and liabilities, net of acquisitions of businesses:
 

 
 

Accounts receivable, net
(41,402
)
 
(11,760
)
Inventories, net
4,437

 
(26,958
)
Uniforms and other rental items in service
(28,803
)
 
(40,435
)
Prepaid expenses and other
9

 
(5,977
)
Accounts payable
13,475

 
6,372

Accrued compensation and related liabilities
(680
)
 
3,251

Accrued liabilities
(35,682
)
 
9,327

Income taxes payable
5,939

 
(4,243
)
Net cash provided by operating activities
368,343

 
307,714

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(151,799
)
 
(117,716
)
Proceeds from redemption of marketable securities
97,651

 
519,955

Purchase of marketable securities and investments
(135,398
)
 
(576,404
)
Acquisitions of businesses, net of cash acquired
(64,625
)
 
(20,882
)
Other, net
(662
)
 
1,853

Net cash used in investing activities
(254,833
)
 
(193,194
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from issuance of debt
250,000

 

Repayment of debt
(225,472
)
 
(1,216
)
Proceeds from exercise of stock-based compensation awards
7,156

 
356

Dividends paid
(79,744
)
 
(70,820
)
Repurchase of common stock
(187,076
)
 
(262,682
)
Other, net
(1,385
)
 
1,390

Net cash used in financing activities
(236,521
)
 
(332,972
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
656

 
(1,671
)
 
 
 
 
Net decrease in cash and cash equivalents
(122,355
)
 
(220,123
)
 
 
 
 
Cash and cash equivalents at beginning of period
339,825

 
438,106

 
 
 
 
Cash and cash equivalents at end of period
$
217,470

 
$
217,983

 
See accompanying notes.

6



CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
1.             Basis of Presentation
 
The consolidated condensed financial statements of Cintas Corporation (Cintas, the Company, we, us or our) included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations.  While we believe that the disclosures are adequately presented, it is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2012.  A summary of our significant accounting policies is presented beginning on page 35 of that report.  There have been no material changes in the accounting policies followed by Cintas during the current fiscal year.
 
As disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2012, inventories are valued at the lower of cost (first-in, first-out) or market.  Inventory is comprised of the following amounts: 
(In thousands)
February 28,
2013
 
May 31,
2012
 
 
 
 
Raw materials
$
19,747

 
$
19,138

Work in process
16,782

 
13,052

Finished goods
210,428

 
219,015

 
$
246,957

 
$
251,205

 
Interim results are subject to variations and are not necessarily indicative of the results of operations for a full fiscal year.  In the opinion of management, adjustments (which include only normal recurring adjustments) necessary for a fair statement of the consolidated results of the interim periods shown have been made.
 
2.             Fair Value Measurements
 
FASB Accounting Standard Codification (ASC) Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
 
Level 1 –    Quoted prices in active markets for identical assets or liabilities.
 
Level 2 –   Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
 
Level 3 –   Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
 
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Cintas’ assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
 
In order to meet the requirements of ASC 820, Cintas utilizes two basic valuation approaches to determine the fair value of its assets and liabilities required to be recorded on a recurring basis at fair value. The first approach is the cost approach. The cost approach is generally the value a market participant would expect to replace the respective

7



asset or liability. The second approach is the market approach. The market approach looks at what a market participant would consider valuing an exact or similar asset or liability to that of Cintas, including those traded on exchanges.
 
All financial instruments that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated balance sheet date.  These financial instruments measured at fair value on a recurring basis are summarized below: 
(In thousands)
As of February 28, 2013
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Cash and cash equivalents
$
217,470

 
$

 
$

 
$
217,470

Marketable securities:
 

 
 

 
 

 
 

U.S. municipal bonds

 
5,812

 

 
5,812

Canadian treasury securities

 
22,404

 

 
22,404

Total assets at fair value
$
217,470

 
$
28,216

 
$

 
$
245,686

(In thousands)
As of May 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Cash and cash equivalents
$
339,825

 
$

 
$

 
$
339,825

Total assets at fair value
$
339,825

 
$

 
$

 
$
339,825

 
Cintas’ cash and cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets, and financial instruments classified as Level 2 are based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The types of financial instruments Cintas classifies within Level 1 include most bank deposits and money market securities. Cintas does not adjust the quoted market price for such financial instruments.
 
The types of financial instruments Cintas classifies within Level 2 include Canadian treasury securities (both federal and provincial) and highly rated U.S. state or municipal bonds. The valuation technique used for Cintas’ marketable securities classified within Level 2 of the fair value hierarchy is primarily the market approach. The primary inputs to value Cintas’ marketable securities is the respective instruments future cash flows based on its stated yield and the amount a market participant would pay for a similar instrument. Primarily all of Cintas’ marketable securities are actively traded and the recorded fair value reflects current market conditions. However, due to the inherent volatility in the investment market, there is at least a possibility that recorded investment values may change in the near term.
 
The funds invested in Canadian marketable securities are not presently expected to be repatriated, but instead are expected to be invested indefinitely in foreign subsidiaries. Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of the securities sold is based on the specific identification method. The amortized cost basis of the marketable securities as of February 28, 2013 was $28.2 million. There were no outstanding marketable securities as of May 31, 2012. All outstanding marketable securities as of February 28, 2013, had contractual maturities due within one year.
 
The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Cintas believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated balance sheet date.

Cintas’ non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis primarily relate to assets and liabilities acquired in a business acquisition. Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a non-recurring basis (including business acquisitions).  Based on the nature of Cintas’ business acquisitions, which occur regularly throughout the fiscal year, the majority of the assets acquired and liabilities assumed consist of working capital, primarily valued using Level 2 inputs, property and equipment, also primarily valued using Level 2 inputs and goodwill and other identified intangible assets valued using Level 3 inputs. In general, non-recurring fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities.

8



Fair values determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability, such as internal estimates of future cash flows and company specific discount rates.
 
3.             Earnings per Share
 
The following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Cintas’ common shares: 
 
Three Months Ended
 
Nine Months Ended
(In thousands except per share data)
February 28,
2013
 
February 29,
2012
 
February 28,
2013
 
February 29,
2012
Basic Earnings per Share
 

 
 

 
 
 
 
Net income
$
74,705

 
$
76,035

 
$
229,465

 
$
219,023

 
 
 
 
 
 
 
 
Less dividends to:
 
 
 
 
 
 
 
     Common shares
$

 
$

 
$
78,866

 
$
70,055

     Unvested shares

 

 
878

 
765

Total dividends
$

 
$

 
$
79,744

 
$
70,820

 
 
 
 
 
 
 
 
Undistributed net income
$
74,705

 
$
76,035

 
$
149,721

 
$
148,203

 
 
 
 
 
 
 
 
Less: net income allocated to participating unvested securities
517

 
556

 
1,048

 
1,096

 
 
 
 
 
 
 
 
Net income available to common shareholders
$
74,188

 
$
75,479

 
$
148,673

 
$
147,107

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
123,120

 
129,735

 
124,483

 
130,261

 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
Common shares - distributed earnings
$
0.00

 
$
0.00

 
$
0.64

 
$
0.54

Common shares - undistributed earnings
0.60

 
0.58

 
1.20

 
1.13

    Total common shares
$
0.60

 
$
0.58

 
$
1.84

 
$
1.67

 
 
 
 
 
 
 
 
Unvested shares - distributed earnings
$
0.00

 
$
0.00

 
$
0.64

 
$
0.54

Unvested shares - undistributed earnings
0.60

 
0.58

 
1.20

 
1.13

    Total unvested shares
$
0.60

 
$
0.58

 
$
1.84

 
$
1.67

 
 
 
 
 
 
 
 

9



 
Three Months Ended
 
Nine Months Ended
(In thousands except per share data)
February 28,
2013
 
February 29,
2012
 
February 28,
2013
 
February 29,
2012
Diluted Earnings per Share
 

 
 

 
 
 
 
Net income
$
74,705

 
$
76,035

 
$
229,465

 
$
219,023

 
 
 
 
 
 
 
 
Less dividends to:
 
 
 
 
 
 
 
    Common shares
$

 
$

 
$
78,866

 
$
70,055

    Unvested shares

 

 
878

 
765

Total dividends
$

 
$

 
$
79,744

 
$
70,820

 
 
 
 
 
 
 
 
Undistributed net income
$
74,705

 
$
76,035

 
$
149,721

 
$
148,203

 
 
 
 
 
 
 
 
Less: net income allocated to participating unvested securities
517

 
556

 
1,048

 
1,096

 
 
 
 
 
 
 
 
Net income available to common shareholders
$
74,188

 
$
75,479

 
$
148,673

 
$
147,107

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
123,120

 
129,735

 
124,483

 
130,261

 
 
 
 
 
 
 
 
Effect of dilutive securities – employee stock options
637

 
210

 
418

 
60

 
 
 
 
 
 
 
 
Diluted weighted average common shares outstanding
123,757

 
129,945

 
124,901

 
130,321

 
 
 
 
 
 
 
 
Diluted earnings per share:


 


 
 
 
 
Common shares - distributed earnings
$
0.00

 
$
0.00

 
$
0.64

 
$
0.54

Common shares - undistributed earnings
0.60

 
0.58

 
1.19

 
1.13

    Total common shares
$
0.60

 
$
0.58

 
$
1.83

 
$
1.67

 
 
 
 
 
 
 
 
Unvested shares - distributed earnings
$
0.00

 
$
0.00

 
$
0.64

 
$
0.54

Unvested shares - undistributed earnings
0.60

 
0.58

 
1.19

 
1.13

    Total unvested shares
$
0.60

 
$
0.58

 
$
1.83

 
$
1.67

 
For the three months ended February 28, 2013 and February 29, 2012, 0.6 million and 1.1 million options granted to purchase shares of Cintas common stock were excluded from the computation of diluted earnings per share, respectively. For the nine months ended February 28, 2013 and February 29, 2012, 0.8 million and 2.1 million options granted to purchase shares of Cintas common stock were excluded from the computation of diluted earnings per share, respectively. The exercise prices of these options were greater than the average market price of the common stock (anti-dilutive).
 
On October 18, 2011, we announced that the Board of Directors authorized a 500.0 million share buyback program at market prices.  During the first nine months of fiscal 2013, we purchased 4.4 million shares of Cintas common stock for a total purchase price of $179.4 million. From the inception of the October 18, 2011 share buyback program through April 9, 2013, Cintas has purchased a total of 8.0 million shares of Cintas common stock at an average price of $40.05 for a total purchase price of $319.2 million. In addition, for the nine months ended February 28, 2013, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the nine months ended February 28, 2013. These shares were acquired at an average price of $37.95 per share for a total purchase price of $7.7 million.

10



4.             Goodwill, Service Contracts and Other Assets
 
Changes in the carrying amount of goodwill and service contracts for the nine months ended February 28, 2013, by operating segment, are as follows:
Goodwill (in thousands)
Rental
Uniforms &
Ancillary
Products
 
Uniform
Direct
Sales
 
First Aid,
Safety &
Fire
Protection
 
Document
Management
 
Total
 
 

 
 

 
 

 
 

 
 

Balance as of June 1, 2012
$
944,449

 
$
23,968

 
$
192,465

 
$
324,493

 
$
1,485,375

Goodwill acquired

 

 
23,798

 
10,422

 
34,220

Foreign currency translation
13

 
(16
)
 

 
395

 
392

Balance as of February 28, 2013
$
944,462

 
$
23,952

 
$
216,263

 
$
335,310

 
$
1,519,987

Service Contracts (in thousands)
Rental
Uniforms &
Ancillary
Products
 
Uniform
Direct
Sales
 
First Aid,
Safety &
Fire
Protection
 
Document
Management
 
Total
 
 

 
 

 
 

 
 

 
 

Balance as of June 1, 2012
$
29,156

 
$

 
$
29,334

 
$
18,332

 
$
76,822

Service contracts acquired

 

 
10,199

 
22,024

 
32,223

Service contracts amortization
(4,540
)
 

 
(5,880
)
 
(5,072
)
 
(15,492
)
Foreign currency translation
18

 

 

 
2

 
20

Balance as of February 28, 2013
$
24,634

 
$

 
$
33,653

 
$
35,286

 
$
93,573


Information regarding Cintas’ service contracts and other assets is as follows:
 
As of February 28, 2013
(In thousands)
Carrying Amount
 
Accumulated Amortization
 
Net
Service contracts
$
416,866

 
$
323,293

 
$
93,573

 
 
 
 
 
 
Noncompete and consulting agreements
$
77,661

 
$
72,468

 
$
5,193

Investments (1)
99,107

 

 
99,107

Other
21,502

 
4,359

 
17,143

Total
$
198,270

 
$
76,827

 
$
121,443

 
As of May 31, 2012
(In thousands)
Carrying Amount
 
Accumulated Amortization
 
Net
Service contracts
$
384,622

 
$
307,800

 
$
76,822

 
 
 
 
 
 
Noncompete and consulting agreements
$
76,036

 
$
69,954

 
$
6,082

Investments (1)
90,198

 

 
90,198

Other
19,828

 
3,272

 
16,556

Total
$
186,062

 
$
73,226

 
$
112,836


(1)      Investments at February 28, 2013, include the cash surrender value of insurance policies of $70.5 million, equity method investments of $27.7 million and cost method investments of $0.9 million.  In the second quarter of fiscal 2013, Cintas sold stock of an equity method investment for a gain of $8.5 million. No further sales occurred in the third quarter of fiscal 2013. Investments at May 31, 2012, include the cash surrender value of insurance policies of $57.4 million, equity method investments of $31.9 million and cost method investments of $0.9 million.
 
Amortization expense was $17.9 million and $29.5 million for the nine months ended February 28, 2013 and February 29, 2012, respectively.  Estimated amortization expense, excluding any future acquisitions, for each of the next five full fiscal years is $23.5 million, $21.6 million, $18.7 million, $13.6 million and $8.5 million, respectively.
 
Investments recorded using the cost method are evaluated for impairment on an annual basis or when indicators of impairment are identified.  For the three and nine months ended February 28, 2013 and February 29, 2012, no losses due to impairment were recorded.  

11



5.             Debt, Derivatives and Hedging Activities
 
Cintas’ commercial paper program has a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group.  This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million and has a maturity date of October 6, 2016.  No commercial paper or borrowings on our revolving credit facility were outstanding as of February 28, 2013 or May 31, 2012.

On June 1, 2012, Cintas repaid at maturity $225.0 million aggregate principal amount of its 6.00% senior notes due 2012. On June 5, 2012, Cintas issued $250.0 million aggregate principal amount of senior notes due June 1, 2022. These senior notes bear interest at a rate of 3.25% paid semi-annually beginning December 1, 2012.
 
Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2008, fiscal 2011 and fiscal 2013.  The amortization of the cash flow hedges resulted in an increase to other comprehensive income of $0.5 million and $0.4 million for the three months ended February 28, 2013 and February 29, 2012, respectively, and $1.5 million and $1.1 million for the nine months ended February 28, 2013 and February 29, 2012, respectively.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas’ ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas’ assets. These covenants also require Cintas to maintain certain debt to EBITDA and interest coverage ratios. Cross-default provisions exist between certain debt instruments.  Cintas is in compliance with all of the significant debt covenants for all periods presented. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. 


6.             Income Taxes
 
In the normal course of business, Cintas provides for uncertain tax positions and the related interest, and adjusts its unrecognized tax benefits and accrued interest accordingly.  During the three months ended February 28, 2013, unrecognized tax benefits increased by approximately $2.2 million and accrued interest increased by approximately $0.1 million.  During the nine months ended February 28, 2013, unrecognized tax benefits decreased by approximately $29.9 million and accrued interest decreased by approximately $1.0 million. The decrease in unrecognized tax benefits for the nine months ended February 28, 2013, was due to a change in the IRS capitalization regulations adopted by Cintas in the second quarter of fiscal 2013 and resulted in a reclassification between long-term accrued liabilities and deferred tax liability.
 
All U.S. federal income tax returns are closed to audit through fiscal 2010.  Cintas is currently in advanced stages of various audits in certain foreign jurisdictions and certain domestic states. The years under audit cover fiscal years back to 2005.  Based on the resolution of the various audits and changes in tax law, it is reasonably possible that the balance of unrecognized tax benefits could decrease by $1.3 million for the fiscal year ending May 31, 2013.
 
On December 23, 2011, the U.S. Department of the Treasury and the Internal Revenue Service issued temporary regulations (Regulations Section 2011-14) that provide guidance on amounts paid to improve tangible property, and acquire or produce tangible property, as well as guidance regarding the disposition of property and the expensing of supplies and materials. The finalized regulations are effective for Cintas' fiscal year ending May 31, 2014. Due to the recently announced extension of effective date of the regulations and indications of changes to the de minimis and disposition rules, Cintas continues to review these regulations, but does not believe there will be a material impact on Cintas’ consolidated financial statements.




12



7. Litigation and Other Contingencies

Cintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, consolidated results of operation or consolidated cash flows of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business, including the litigation discussed below.

Cintas is a defendant in a purported class action lawsuit, Mirna E. Serrano, et al. v. Cintas Corporation (Serrano), filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division.  The Serrano plaintiffs alleged that Cintas discriminated against women in hiring into various service sales representative positions across all divisions of Cintas.  On November 15, 2005, the Equal Employment Opportunity Commission (EEOC) intervened in the Serrano lawsuit.  The Serrano plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  On October 27, 2008, the United States District Court in the Eastern District of Michigan granted summary judgment in favor of Cintas limiting the scope of the putative class in the Serrano lawsuit to female applicants for service sales representative positions at Cintas locations within the state of Michigan.  Consequently, all claims brought by female applicants for service sales representative positions outside of the state of Michigan were dismissed.  Similarly, any claims brought by the EEOC on behalf of similarly situated female applicants outside of the state of Michigan have also been dismissed from the Serrano lawsuit. In September 2010, the Court in Serrano dismissed all private individual claims and all claims of the EEOC and the 13 individuals it claimed to represent. The EEOC appealed the District Court's summary judgment decisions and various other rulings to the United States Court of Appeals for the Sixth Circuit. On November 9, 2012, the Sixth Circuit Court of Appeals reversed the District Court's opinion and remanded the claims back to the District Court.
 
Cintas is a defendant in another purported class action lawsuit, Blanca Nelly Avalos, et al. v. Cintas Corporation (Avalos), which was filed in the United States District Court, Eastern District of Michigan, Southern Division.  The Avalos plaintiffs alleged that Cintas discriminated against women, African-Americans and Hispanics in hiring into various service sales representative positions in Cintas’ Rental division only throughout the United States.  The Avalos plaintiffs sought injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies.  The claims in Avalos originally were brought in the lawsuit captioned Robert Ramirez, et al. v. Cintas Corporation (Ramirez), filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division.  On May 11, 2006, the Ramirez and Avalos African-American, Hispanic and female failure to hire into service sales representative positions claims and the EEOC’s intervention were consolidated for pretrial purposes with the Serrano case and transferred to the United States District Court for the Eastern District of Michigan, Southern Division.  The consolidated case was known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos).  On March 31, 2009, the United States District Court, Eastern District of Michigan, Southern Division entered an order denying class certification to all plaintiffs in the Serrano/Avalos lawsuits.   Following denial of class certification, the Court permitted the individual Avalos and Serrano plaintiffs to proceed separately.  In the Avalos case, the Court dismissed the remaining claims of the individual plaintiffs who remained in that case after the denial of class certification.  On May 11, 2010, Plaintiff Tanesha Davis, on behalf of all similarly situated plaintiffs in the Avalos case, filed a notice of appeal of the District Court’s summary judgment order in the United States Court of Appeals for the Sixth Circuit.  The Sixth Circuit Court of Appeals has made no determination regarding the merits of Davis’ appeal. 
 
The litigation discussed above, if decided or settled adversely to Cintas, may, individually or in the aggregate, result in liability material to Cintas’ consolidated financial condition, consolidated results of operation or consolidated cash flows and could increase costs of operations on an ongoing basis.  Any estimated liability relating to these proceedings is not determinable at this time.  Cintas may enter into discussions regarding settlement of these and other lawsuits, and may enter into settlement agreements if it believes such settlement is in the best interest of Cintas’ shareholders.


13



8.      Segment Information
 
Cintas classifies its businesses into four operating segments based on the types of products and services provided.  The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items.  In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment.  The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items.  The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services.  The Document Management Services operating segment consists of document destruction, document imaging and document retention services.

Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment revenue and income before income taxes.  The accounting policies of the operating segments are the same as those described in Note 1 entitled Basis of Presentation.  Information related to the operations of Cintas’ operating segments is set forth below: 
(In thousands)
Rental
Uniforms &
Ancillary Products
 
Uniform
Direct Sales
 
First Aid,
Safety &
Fire Protection
 
Document Management
 
Corporate
 
Total
For the three months ended February 28, 2013
 

 
 

 
 

 
 

 
 

 
 

Revenue
$
748,887

 
$
126,129

 
$
112,878

 
$
87,780

 
$

 
$
1,075,674

Income (loss) before income taxes
$
102,547

 
$
16,050

 
$
10,530

 
$
3,896

 
$
(16,170
)
 
$
116,853

 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended February 29, 2012
 

 
 

 
 

 
 

 
 

 
 

Revenue
$
721,012

 
$
109,114

 
$
101,378

 
$
80,608

 
$

 
$
1,012,112

Income (loss) before income taxes
$
112,471

 
$
14,481

 
$
7,724

 
$
2,860

 
$
(16,846
)
 
$
120,690

 
 
 
 
 
 
 
 
 
 
 
 
As of and for the nine months ended February 28, 2013
 

 
 

 
 

 
 

 
 

 
 

Revenue
$
2,259,569

 
$
336,611

 
$
335,232

 
$
255,973

 
$

 
$
3,187,385

Income (loss) before income taxes
$
335,505

 
$
35,195

 
$
29,205

 
$
11,435

 
$
(48,836
)
 
$
362,504

Total assets
$
2,809,886

 
$
167,835

 
$
392,820

 
$
605,072

 
$
245,686

 
$
4,221,299

 
 
 
 
 
 
 
 
 
 
 
 
As of and for the nine months ended February 29, 2012
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
2,163,224

 
$
322,762

 
$
306,808

 
$
255,624

 
$

 
$
3,048,418

Income (loss) before income taxes
$
316,366

 
$
36,130

 
$
25,069

 
$
21,230

 
$
(51,140
)
 
$
347,655

Total assets
$
2,813,701

 
$
153,181

 
$
369,288

 
$
564,383

 
$
352,614

 
$
4,253,167




14




9.      Supplemental Guarantor Information
 
Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas.  Corp. 2 is the issuer of the $1,300.0 million aggregate principal amount of long-term senior notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.
 
As allowed by SEC rules, the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements of the guarantors.  Each of the subsidiaries presented in the following condensed consolidating financial statements has been fully consolidated in Cintas’ consolidated financial statements.  The following condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of Cintas and notes thereto of which this note is an integral part.
 
Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages: 




15



Condensed Consolidating Income Statement
Three Months Ended February 28, 2013
(In thousands)

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

 
 

 
 

 
 

 
 

 
 

Rental uniforms and ancillary products
$

 
$
565,731

 
$
151,595

 
$
55,906

 
$
(24,345
)
 
$
748,887

Other services

 
394,957

 
9,679

 
31,950

 
(109,799
)
 
326,787

Equity in net income of affiliates
74,705

 

 

 

 
(74,705
)
 

 
74,705

 
960,688

 
161,274

 
87,856

 
(208,849
)
 
1,075,674

Costs and expenses (income):
 

 
 

 
 

 
 

 
 

 
 

Cost of rental uniforms and ancillary products

 
367,447

 
85,481

 
39,108

 
(57,227
)
 
434,809

Cost of other services

 
247,942

 
2,733

 
19,605

 
(71,356
)
 
198,924

Selling and administrative expenses

 
295,643

 
(4,592
)
 
24,972

 
(7,105
)
 
308,918

Operating income
74,705

 
49,656

 
77,652

 
4,171

 
(73,161
)
 
133,023

 
 
 
 
 
 
 
 
 
 
 
 
Interest income

 
(2
)
 
(86
)
 
(44
)
 

 
(132
)
Interest expense (income)

 
16,480

 
(175
)
 
(3
)
 

 
16,302

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
74,705

 
33,178

 
77,913

 
4,218

 
(73,161
)
 
116,853

Income taxes

 
9,981

 
23,901

 
8,272

 
(6
)
 
42,148

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
74,705

 
$
23,197

 
$
54,012

 
$
(4,054
)
 
$
(73,155
)
 
$
74,705



16



Condensed Consolidating Income Statement
Three Months Ended February 29, 2012
(In thousands)

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

 
 

 
 

 
 

 
 

 
 

Rental uniforms and ancillary products
$

 
$
550,167

 
$
141,867

 
$
52,652

 
$
(23,674
)
 
$
721,012

Other services

 
361,849

 
8,504

 
27,785

 
(107,038
)
 
291,100

Equity in net income of affiliates
76,035

 

 

 

 
(76,035
)
 

 
76,035

 
912,016

 
150,371

 
80,437

 
(206,747
)
 
1,012,112

Costs and expenses (income):
 

 
 

 
 

 
 

 
 

 
 

Cost of rental uniforms and ancillary products

 
350,615

 
80,270

 
35,984

 
(56,911
)
 
409,958

Cost of other services

 
240,568

 
(5,902
)
 
17,532

 
(75,947
)
 
176,251

Selling and administrative expenses

 
286,257

 
(17,100
)
 
22,926

 
(3,716
)
 
288,367

Operating income
76,035

 
34,576

 
93,103

 
3,995

 
(70,173
)
 
137,536

 
 
 
 
 
 
 
 
 
 
 
 
Interest income

 
(54
)
 
(280
)
 
(202
)
 
163

 
(373
)
Interest expense (income)

 
17,559

 
(333
)
 
(7
)
 

 
17,219

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
76,035

 
17,071

 
93,716

 
4,204

 
(70,336
)
 
120,690

Income taxes

 
7,114

 
36,109

 
1,438

 
(6
)
 
44,655

 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
76,035

 
$
9,957

 
$
57,607

 
$
2,766

 
$
(70,330
)
 
$
76,035


17



Condensed Consolidating Income Statement
Nine Months Ended February 28, 2013
(In thousands)

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

 
 

 
 

 
 

 
 

 
 

Rental uniforms and ancillary products
$

 
$
1,717,290

 
$
457,183

 
$
165,060

 
$
(79,964
)
 
$
2,259,569

Other services

 
1,151,628

 
31,188

 
90,292

 
(345,292
)
 
927,816

Equity in net income of affiliates
229,465

 

 

 

 
(229,465
)
 

 
229,465

 
2,868,918

 
488,371

 
255,352

 
(654,721
)
 
3,187,385

Costs and expenses (income):
 

 
 

 
 

 
 

 
 

 
 

Cost of rental uniforms and ancillary products

 
1,099,289

 
269,837

 
114,651

 
(181,918
)
 
1,301,859

Cost of other services

 
740,797

 
(6,633
)
 
55,877

 
(224,367
)
 
565,674

Selling and administrative expenses

 
866,546

 
(15,754
)
 
72,978

 
(15,258
)
 
908,512

Operating income
229,465

 
162,286

 
240,921

 
11,846

 
(233,178
)
 
411,340

 
 
 
 
 
 
 
 
 
 
 
 
Interest income

 
(33
)
 
(247
)
 
(78
)
 

 
(358
)
Interest expense (income)

 
49,323

 
(126
)
 
(3
)
 

 
49,194

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
229,465

 
112,996

 
241,294

 
11,927

 
(233,178
)
 
362,504

Income taxes

 
39,236

 
83,784

 
10,042

 
(23
)
 
133,039

 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
229,465

 
$
73,760

 
$
157,510

 
$
1,885

 
$
(233,155
)
 
$
229,465


18



Condensed Consolidating Income Statement
Nine Months Ended February 29, 2012
(In thousands)

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

 
 

 
 

 
 

 
 

 
 

Rental uniforms and ancillary products
$

 
$
1,662,058

 
$
425,455

 
$
156,511

 
$
(80,800
)
 
$
2,163,224

Other services

 
1,087,507

 
40,176

 
86,425

 
(328,914
)
 
885,194

Equity in net income of affiliates
219,023

 

 

 

 
(219,023
)
 

 
219,023

 
2,749,565

 
465,631

 
242,936

 
(628,737
)
 
3,048,418

Costs and expenses (income):
 

 
 

 
 

 
 

 
 

 
 

Cost of rental uniforms and ancillary products

 
1,053,496

 
248,561

 
107,163

 
(185,609
)
 
1,223,611

Cost of other services

 
698,073

 
(4,168
)
 
53,662

 
(217,500
)
 
530,067

Selling and administrative expenses

 
828,080

 
6,297

 
71,391

 
(9,823
)
 
895,945

Operating income
219,023

 
169,916

 
214,941

 
10,720

 
(215,805
)
 
398,795

 
 
 
 
 
 
 
 
 
 
 
 
Interest income

 
(211
)
 
(518
)
 
(575
)
 
163

 
(1,141
)
Interest expense (income)

 
53,148

 
(1,214
)
 
347

 

 
52,281

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
219,023

 
116,979

 
216,673

 
10,948

 
(215,968
)
 
347,655

Income taxes

 
44,011

 
81,518

 
3,121

 
(18
)
 
128,632

 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
219,023

 
$
72,968

 
$
135,155

 
$
7,827

 
$
(215,950
)
 
$
219,023



19



Condensed Consolidating Statement of Comprehensive Income
Three Months Ended February 28, 2013
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
74,705

 
$
23,197

 
$
54,012

 
$
(4,054
)
 
$
(73,155
)
 
$
74,705

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
       Foreign currency translation
           adjustments

 
(7
)
 

 
(8,166
)
 

 
(8,173
)
      Change in fair value of derivatives

 
(36
)
 

 

 

 
(36
)
      Amortization of interest rate lock
          agreements

 
488

 

 

 

 
488

      Change in fair value of available-for-
          sale securities

 

 
4

 
(3
)
 

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 
445

 
4

 
(8,169
)
 

 
(7,720
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
74,705

 
$
23,642

 
$
54,016

 
$
(12,223
)
 
$
(73,155
)
 
$
66,985



20



Condensed Consolidating Statement of Comprehensive Income
Three Months Ended February 29, 2012
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
76,035

 
$
9,957

 
$
57,607

 
$
2,766

 
$
(70,330
)
 
$
76,035

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
       Foreign currency translation
           adjustments

 
20

 

 
11,183

 

 
11,203

      Change in fair value of derivatives

 
(27
)
 

 
331

 

 
304

      Amortization of interest rate lock
          agreements

 
377

 

 

 

 
377

      Change in fair value of available-for-
          sale securities

 

 

 
(29
)
 

 
(29
)
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income

 
370

 

 
11,485

 

 
11,855

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
76,035

 
$
10,327

 
$
57,607

 
$
14,251

 
$
(70,330
)
 
$
87,890



21



Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended February 28, 2013
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
229,465

 
$
73,760

 
$
157,510

 
$
1,885

 
$
(233,155
)
 
$
229,465

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
       Foreign currency translation
           adjustments

 

 

 
519

 

 
519

      Change in fair value of derivatives

 
(187
)
 

 

 

 
(187
)
      Amortization of interest rate lock
          agreements

 
1,464

 

 

 

 
1,464

      Change in fair value of available-for-
          sale securities

 

 
(3
)
 
(8
)
 

 
(11
)
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 
1,277

 
(3
)
 
511

 

 
1,785

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
229,465

 
$
75,037

 
$
157,507

 
$
2,396

 
$
(233,155
)
 
$
231,250



22



Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended February 29, 2012
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
219,023

 
$
72,968

 
$
135,155

 
$
7,827

 
$
(215,950
)
 
$
219,023

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
       Foreign currency translation
           adjustments

 
(15
)
 

 
(9,328
)
 

 
(9,343
)
      Change in fair value of derivatives

 
180

 

 
305

 

 
485

      Amortization of interest rate lock
          agreements

 
1,131

 

 

 

 
1,131

      Change in fair value of available-for-
          sale securities

 

 

 
(4
)
 

 
(4
)
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 
1,296

 

 
(9,027
)
 

 
(7,731
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
219,023

 
$
74,264

 
$
135,155

 
$
(1,200
)
 
$
(215,950
)
 
$
211,292



23



Condensed Consolidating Balance Sheet
As of February 28, 2013
(In thousands)

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

 
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$

 
$
46,596

 
$
139,548

 
$
31,326

 
$

 
$
217,470

Marketable securities

 

 
5,811

 
22,405

 

 
28,216

Accounts receivable, net

 
344,563

 
107,460

 
43,101

 

 
495,124

Inventories, net

 
207,720

 
24,814

 
11,123

 
3,300

 
246,957

Uniforms and other rental items in service

 
351,693

 
110,310

 
37,568

 
(17,995
)
 
481,576

Income taxes, current

 
(10,466
)
 
17,757

 
8,040

 

 
15,331

Prepaid expenses and other

 
7,334

 
14,539

 
2,905

 

 
24,778

Total current assets

 
947,440

 
420,239

 
156,468

 
(14,695
)
 
1,509,452

 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, at cost, net

 
623,384

 
260,463

 
92,997

 

 
976,844

 
 
 
 
 
 
 
 
 
 
 
 
Goodwill

 

 
1,451,520

 
68,467

 

 
1,519,987

Service contracts, net

 
89,175

 
197

 
4,201

 

 
93,573

Other assets, net
1,626,551

 
1,628,389

 
2,665,764

 
764,474

 
(6,563,735
)
 
121,443

 
$
1,626,551

 
$
3,288,388

 
$
4,798,183

 
$
1,086,607

 
$
(6,578,430
)
 
$
4,221,299

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
(465,247
)
 
$
(569,422
)
 
$
1,082,127

 
$
23,587

 
$
38,019

 
$
109,064

Accrued compensation and related liabilities

 
64,253

 
20,212

 
6,068

 

 
90,533

Accrued liabilities

 
45,861

 
180,466

 
12,135

 

 
238,462

Deferred tax (asset) liability

 
(538
)
 
58,997

 
3,560

 

 
62,019

Long-term debt due within one year

 
923

 
(249
)
 

 

 
674

Total current liabilities
(465,247
)
 
(458,923
)
 
1,341,553

 
45,350

 
38,019

 
500,752

 
 
 
 
 
 
 
 
 
 
 
 
Long-term liabilities:
 

 
 

 
 

 
 

 
 

 
 

Long-term debt due after one year

 
1,318,061

 
(10,253
)
 
848

 

 
1,308,656

Deferred income taxes

 
(6
)
 
203,389

 
6,072

 

 
209,455

Accrued liabilities

 

 
71,334

 
856

 

 
72,190

Total long-term liabilities

 
1,318,055

 
264,470

 
7,776

 

 
1,590,301

Total shareholders’ equity
2,091,798

 
2,429,256

 
3,192,160

 
1,033,481

 
(6,616,449
)
 
2,130,246

 
$
1,626,551

 
$
3,288,388

 
$
4,798,183

 
$
1,086,607

 
$
(6,578,430
)
 
$
4,221,299



24



Condensed Consolidating Balance Sheet
As of May 31, 2012
(In thousands)

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

 
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$

 
$
58,737

 
$
229,287

 
$
51,801

 
$

 
$
339,825

Accounts receivable, net

 
327,442

 
81,243

 
42,176

 

 
450,861

Inventories, net

 
210,283

 
20,258

 
10,781

 
9,883

 
251,205

Uniforms and other rental items in service

 
337,298

 
101,435

 
35,051

 
(20,999
)
 
452,785

Income taxes, current

 
5,296

 
3,642

 
13,250

 

 
22,188

Prepaid expenses and other

 
7,905

 
12,770

 
4,029

 

 
24,704

Total current assets

 
946,961

 
448,635

 
157,088

 
(11,116
)
 
1,541,568

 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, at cost, net

 
600,565

 
259,744

 
83,996

 

 
944,305

 
 
 
 
 
 
 
 
 
 
 
 
Goodwill

 

 
1,419,535

 
65,840

 

 
1,485,375

Service contracts, net

 
71,337

 
326

 
5,159

 

 
76,822

Other assets, net
1,637,225

 
1,628,516

 
2,467,198

 
759,439

 
(6,379,542
)
 
112,836

 
$
1,637,225

 
$
3,247,379

 
$
4,595,438

 
$
1,071,522

 
$
(6,390,658
)
 
$
4,160,906

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
(465,247
)
 
$
(475,624
)
 
$
978,932

 
$
18,760

 
$
38,019

 
$
94,840

Accrued compensation and related liabilities

 
63,797

 
21,619

 
5,798

 

 
91,214

Accrued liabilities

 
67,651

 
176,220

 
13,557

 
(786
)
 
256,642

Deferred tax (asset) liability

 
(538
)
 
(87
)
 
3,184

 

 
2,559

Long-term debt due within one year

 
225,866

 
(230
)
 

 

 
225,636

Total current liabilities
(465,247
)
 
(118,848
)
 
1,176,454

 
41,299

 
37,233

 
670,891

 
 
 
 
 
 
 
 
 
 
 
 
Long-term liabilities:
 

 
 

 
 

 
 

 
 

 
 

Long-term debt due after one year

 
1,068,820

 
(11,288
)
 
848

 
786

 
1,059,166

Deferred income taxes

 
(6
)
 
199,404

 
5,183

 

 
204,581

Accrued liabilities

 

 
86,406

 
727

 

 
87,133

Total long-term liabilities

 
1,068,814

 
274,522

 
6,758

 
786

 
1,350,880

Total shareholders’ equity
2,102,472

 
2,297,413

 
3,144,462

 
1,023,465

 
(6,428,677
)
 
2,139,135

 
$
1,637,225

 
$
3,247,379

 
$
4,595,438

 
$
1,071,522

 
$
(6,390,658
)
 
$
4,160,906
















25



Condensed Consolidating Statement of Cash Flows
Nine Months Ended February 28, 2013
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 

 
 

 
 

 
 

 
 

 
 

Net income
$
229,465

 
$
73,760

 
$
157,510

 
$
1,885

 
$
(233,155
)
 
$
229,465

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

 
 

 
 

 
 

Depreciation

 
73,048

 
40,025

 
10,169

 

 
123,242

Amortization of intangible assets

 
15,681

 
158

 
2,045

 

 
17,884

Stock-based compensation
16,660

 

 

 

 

 
16,660

Deferred income taxes

 
(1
)
 
63,063

 
737

 

 
63,799

Changes in current assets and liabilities, net of acquisitions of businesses:
 

 
 

 
 

 
 

 
 

 
 

Accounts receivable, net

 
(14,247
)
 
(26,217
)
 
(938
)
 

 
(41,402
)
Inventories, net

 
2,563

 
(4,556
)
 
(153
)
 
6,583

 
4,437

Uniforms and other rental items in service

 
(14,395
)
 
(8,876
)
 
(2,528
)
 
(3,004
)
 
(28,803
)
Prepaid expenses and other

 
623

 
(1,769
)
 
1,155

 

 
9

Accounts payable

 
(61,702
)
 
70,654

 
4,523

 

 
13,475

Accrued compensation and related liabilities

 
456

 
(1,407
)
 
271

 

 
(680
)
Accrued liabilities

 
(25,003
)
 
(10,825
)
 
(640
)
 
786

 
(35,682
)
Income taxes payable

 
15,762

 
(14,114
)
 
4,291

 

 
5,939

Net cash provided by operating activities
246,125

 
66,545

 
263,646

 
20,817

 
(228,790
)
 
368,343

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures

 
(92,342
)
 
(40,817
)
 
(18,640
)
 

 
(151,799
)
Proceeds from redemption of marketable securities

 

 
10,810

 
86,841

 

 
97,651

Purchase of marketable securities and investments

 
(865
)
 
(32,340
)
 
(109,870
)
 
7,677

 
(135,398
)
Acquisitions of businesses, net of cash acquired

 
(62,693
)
 

 
(1,932
)
 

 
(64,625
)
Other
10,653

 
57,394

 
(298,624
)
 
8,016

 
221,899

 
(662
)
Net cash provided by (used in) investing activities
10,653

 
(98,506
)
 
(360,971
)
 
(35,585
)
 
229,576

 
(254,833
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 

 
 

 
 

 
 

 
 

 
 

Proceeds from issuance of debt

 
250,000

 

 

 

 
250,000

Repayment of debt

 
(225,702
)
 
1,016

 

 
(786
)
 
(225,472
)
Exercise of stock-based compensation awards
7,156

 

 

 

 

 
7,156

Dividends paid
(79,723
)
 

 

 
(21
)
 

 
(79,744
)
Repurchase of common stock
(187,076
)
 

 

 

 

 
(187,076
)
Other
2,865

 
(4,477
)
 

 
227

 

 
(1,385
)
Net cash (used in) provided by financing activities
(256,778
)
 
19,821

 
1,016

 
206

 
(786
)
 
(236,521
)
 
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents

 
(1
)
 
6,570

 
(5,913
)
 

 
656

 
 
 
 
 
 
 
 
 
 
 
 
Net decrease in cash and cash equivalents

 
(12,141
)
 
(89,739
)
 
(20,475
)
 

 
(122,355
)
Cash and cash equivalents at beginning of period

 
58,737

 
229,287

 
51,801

 

 
339,825

Cash and cash equivalents at end of period
$

 
$
46,596

 
$
139,548

 
$
31,326

 
$

 
$
217,470


26



Condensed Consolidating Statement of Cash Flows
Nine Months Ended February 29, 2012
(In thousands)

 
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 

 
 

 
 

 
 

 
 

 
 

Net income
$
219,023

 
$
72,968

 
$
135,155

 
$
7,827

 
$
(215,950
)
 
$
219,023

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

 
 

 
 

 
 

Depreciation

 
70,252

 
35,841

 
9,473

 

 
115,566

Amortization of intangible assets

 
25,474

 
308

 
3,738

 

 
29,520

Stock-based compensation
15,023

 

 

 

 

 
15,023

Deferred income taxes

 

 
(710
)
 
(285
)
 

 
(995
)
Changes in current assets and liabilities, net of acquisitions of businesses:
 

 
 

 
 

 
 

 
 

 
 

Accounts receivable, net

 
(6,542
)
 
(3,844
)
 
(1,374
)
 

 
(11,760
)
Inventories, net

 
(29,357
)
 
4,975

 
399

 
(2,975
)
 
(26,958
)
Uniforms and other rental items in service

 
(25,877
)
 
(13,403
)
 
(1,057
)
 
(98
)
 
(40,435
)
Prepaid expenses and other

 
(1,698
)
 
(5,316
)
 
1,037

 

 
(5,977
)
Accounts payable

 
(61,326
)
 
45,955

 
21,743

 

 
6,372

Accrued compensation and related liabilities

 
3,185

 
(698
)
 
764

 

 
3,251

Accrued liabilities

 
(11,899
)
 
29,797

 
(9,375
)
 
804

 
9,327

Income taxes payable

 
9,603

 
(16,827
)
 
2,981

 

 
(4,243
)
Net cash provided by operating activities
234,046

 
44,783

 
211,233

 
35,871

 
(218,219
)
 
307,714

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures

 
(80,939
)
 
(24,837
)
 
(11,940
)
 

 
(117,716
)
Proceeds from redemption of marketable securities

 

 

 
519,955

 

 
519,955

Purchase of marketable securities and investments

 
(2,552
)
 
(35,293
)
 
(568,963
)
 
30,404

 
(576,404
)
Acquisitions of businesses, net of cash acquired

 
(15,632
)
 
(65
)
 
(5,185
)
 

 
(20,882
)
Other
98,271

 
49,778

 
(334,530
)
 
(285
)
 
188,619

 
1,853

Net cash provided by (used in) investing activities
98,271

 
(49,345
)
 
(394,725
)
 
(66,418
)
 
219,023

 
(193,194
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 

 
 

 
 

 
 

 
 

 
 

Repayment of debt

 
(736
)
 
324

 

 
(804
)
 
(1,216
)
Exercise of stock-based compensation awards
356

 

 

 

 

 
356

Dividends paid
(70,800
)
 

 

 
(20
)
 

 
(70,820
)
Repurchase of common stock
(262,682
)
 

 

 

 

 
(262,682
)
Other
809

 
1,131

 

 
(550
)
 

 
1,390

Net cash (used in) provided by financing activities
(332,317
)
 
395

 
324

 
(570
)
 
(804
)
 
(332,972
)
 
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents

 
(73
)
 
(2
)
 
(1,596
)
 

 
(1,671
)
 
 
 
 
 
 
 
 
 
 
 
 
Net decrease in cash and cash equivalents

 
(4,240
)
 
(183,170
)
 
(32,713
)
 

 
(220,123
)
Cash and cash equivalents at beginning of period

 
54,957

 
313,283

 
69,866

 

 
438,106

Cash and cash equivalents at end of period
$

 
$
50,717

 
$
130,113

 
$
37,153

 
$

 
$
217,983


27



CINTAS CORPORATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
BUSINESS STRATEGY
 
Cintas provides highly specialized products and services to businesses of all types primarily throughout North America, as well as Latin America, Europe and Asia.  We bring value to our customers by helping them provide a cleaner, safer and more pleasant atmosphere for their customers and employees.  Our products and services are designed to improve our customers’ images.  We also help our customers protect their employees and their company by enhancing workplace safety and helping to ensure legal compliance in key areas of their business.
 
We are North America’s leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, first aid, safety and fire protection products and services, and document management services.
 
Cintas’ principal objective is “to exceed customers’ expectations in order to maximize the long-term value of Cintas for shareholders and working partners,” and it provides the framework and focus for Cintas’ business strategy.  This strategy is to achieve revenue growth for all of our products and services by increasing our penetration at existing customers and by broadening our customer base to include business segments that we have not historically served.  We will also continue to identify additional product and service opportunities for our current and future customers.
 
To pursue the strategy of increasing penetration, we have a highly talented and diverse team of service professionals visiting our customers on a regular basis.  This frequent contact with our customers enables us to develop close personal relationships.  The combination of our distribution system and these strong customer relationships provides a platform from which we launch additional products and services.
 
We pursue the strategy of broadening our customer base in several ways.  Cintas has a national sales organization introducing all of its products and services to prospects in all business segments.  Our broad range of products and services allows our sales organization to consider any type of business a prospect.  We also broaden our customer base through geographic expansion, especially in our emerging businesses of first aid and safety, fire protection and document management.  Finally, we evaluate strategic acquisitions as opportunities arise.
  
RESULTS OF OPERATIONS
 
Cintas classifies its businesses into four operating segments based on the types of products and services provided.  The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items.  In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment.  The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items.  The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services.  The Document Management Services operating segment consists of document destruction, document imaging and document retention services.  Revenue and income before income taxes for each of these operating segments for the three and nine months ended February 28, 2013 and February 29, 2012, are presented in Note 8 entitled Segment Information of “Notes to Consolidated Condensed Financial Statements.”

Consolidated Results
 
Three Months Ended February 28, 2013 Compared to Three Months Ended February 29, 2012
 
Total revenue increased 6.3% for the three months ended February 28, 2013, over the same period in the prior fiscal year from $1,012.1 million to $1,075.7 million. Revenue was negatively impacted by 1.6% due to one fewer workday in the three months ended February 28, 2013, compared to the three months ended February 29, 2012. Revenue increased organically (adjusts for the impact of acquisitions and the impact of fewer workdays in the current period) by 6.9%. The remaining 1.0% increase represents growth derived through acquisitions in our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment.


28



Rental Uniforms and Ancillary Products operating segment revenue increased 3.9% for the three months ended February 28, 2013, over the same period in the prior fiscal year from $721.0 million to $748.9 million.  The increase resulted from an organic growth increase in revenue of 5.5% primarily due to improvements in sales representative productivity and an increase in the number of sales representatives. Generally, sales productivity improvements are the result of increased tenure and improved training, which result in a higher number of products and services sold. Revenue was negatively impacted by 1.6% due to one fewer workday in the three months ended February 28, 2013, compared to the three months ended February 29, 2012.
 
Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, increased 12.3% for the three months ended February 28, 2013, over the same period in the prior fiscal year from $291.1 million to $326.8 million. Other Services revenue increased organically by 10.5%.  The positive organic growth for Other Services revenue was related to organic growth in each of the operating segments. Acquisitions in our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment resulted in growth of 3.5% in the quarter.  Revenue was negatively impacted by 1.7% due to one fewer workday in the three months ended February 28, 2013, compared to the three months ended February 29, 2012.
 
Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items.  Cost of rental uniforms and ancillary products increased $24.9 million, or 6.1%, for the three months ended February 28, 2013, compared to the three months ended February 29, 2012.  This increase was due to higher Rental Uniforms and Ancillary Products operating segment sales volume, an increase in material cost due to an increase in customer accounts which require the injection of inventory into in service inventory and higher service costs associated with expanded route capacity.

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid, safety and fire protection products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment.  Cost of other services increased $22.7 million, or 12.9%, for the three months ended February 28, 2013, compared to the three months ended February 29, 2012.  This increase was primarily due to increased Uniform Direct Sales operating segment volume. In addition, increases in sales volume for both the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment also contributed to the quarter increase.
 
Selling and administrative expenses increased $20.6 million, or 7.1%, for the three months ended February 28, 2013, compared to the three months ended February 29, 2012, primarily as a result of increases in employee-partner medical claims and auto and other self insurance claims during the quarter.
 
Net interest expense (interest expense less interest income) was $16.2 million for the three months ended February 28, 2013, compared to $16.8 million for the three months ended February 29, 2012.  The decrease in interest expense is due to the maturity of the $225.0 million aggregate principal amount of 6.0% senior notes on June 1, 2012, offset by the issuance of $250.0 million aggregate principal amount of 3.25% senior notes due 2022 in the first quarter of fiscal 2013.

Cintas’ effective tax rate was 36.1% for the three months ended February 28, 2013, compared to 37.0% for the three months ended February 29, 2012.  The effective tax rate can fluctuate from quarter to quarter based on specific discrete items.
 
Net income decreased $1.3 million, or 1.7%, for the three months ended February 28, 2013, from the same period in the prior fiscal year.  This decrease was the result of a number of factors. First, there was one fewer workday in the three months ended February 28, 2013 when compared to the same period in the prior fiscal year. Several large expenses, including rental material cost, depreciation and amortization, are determined on a monthly basis instead of a workday basis, and one fewer workday results in one less day of revenue to cover these expenses. As noted above, the other factors contributing to the lower net income were increased cost of rental uniforms and ancillary products and increased selling and administrative expenses.   Diluted earnings per share were $0.60 for the three months ended February 28, 2013, which was an increase of 3.4% compared to the same period in the prior fiscal year.  Diluted earnings per share increased despite the decrease in net income due to a decrease in weighted average common stock outstanding as a result of purchasing 7.7 million shares of common stock under the October 18, 2011 share buyback program during the fourth quarter of fiscal 2012 and the first three quarters of fiscal 2013.

29



Rental Uniforms and Ancillary Products Operating Segment
 
Three Months Ended February 28, 2013 Compared to Three Months Ended February 29, 2012
 
As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased from $721.0 million to $748.9 million, or 3.9%, and the cost of rental uniforms and ancillary products increased $24.9 million, or 6.1%, for the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012. The operating segment’s gross margin was $314.1 million, or 41.9% of revenue, for the third quarter of fiscal 2013.  This gross margin as a percent of revenue of 41.9% was 120 basis points lower than the prior fiscal year’s third quarter of 43.1%, primarily due to the impact of one fewer workday in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012, an increase in material cost due to an increase in customer accounts which require the injection of inventory into in service inventory and higher service costs associated with expanded route capacity.

Selling and administrative expenses as a percent of revenue, at 28.2%, increased 70 basis points, or $12.9 million, compared to the third quarter of the prior fiscal year due to higher employee-partner medical expenses and higher auto and other self insurance claims.
 
Income before income taxes decreased $9.9 million to $102.5 million for the Rental Uniforms and Ancillary Products operating segment for the third quarter of fiscal 2013 compared to the same quarter last fiscal year.  Income before income taxes was 13.7% of the operating segment’s revenue, which is a 190 basis point decrease compared to the third quarter of the prior fiscal year.  This decrease is due to the decrease in gross margin and the increase in selling and administrative expenses as discussed above.
 
Uniform Direct Sales Operating Segment
 
Three Months Ended February 28, 2013 Compared to Three Months Ended February 29, 2012
 
Uniform Direct Sales operating segment revenue increased from $109.1 million to $126.1 million, or 15.6%, for the three months ended February 28, 2013, over the same quarter in the prior fiscal year due to several large customer roll-outs. 
 
Cost of uniform direct sales increased $13.4 million, or 17.7%, for the three months ended February 28, 2013, over the same quarter in the prior fiscal year.  The gross margin as a percent of revenue was 29.2% for the three months ended February 28, 2013, which is a 130 basis point decrease compared to the gross margin percent of revenue of 30.5% in the same quarter of the prior fiscal year.  The increase in cost of uniform direct sales and the gross margin percent to revenue decrease are due to a less profitable mix of products being sold as well as costs incurred in connection with the large customer roll-outs noted above.

Selling and administrative expenses increased $2.0 million compared to the third quarter of the prior fiscal year, primarily due to an increase in labor and other employee-partner related expenses.  Selling and administrative expenses as a percent of revenue, at 16.5%, decreased 70 basis points compared to the three months ended February 28, 2013. This decrease in percent of revenue is mainly due to higher revenue for the third quarter of fiscal 2013 compared to the same quarter in the prior fiscal year.
 
Income before income taxes increased $1.6 million for the Uniform Direct Sales operating segment for the third quarter of fiscal 2013 compared to the same quarter last fiscal year.  Income before income taxes was 12.7% of the operating segment’s revenue, which is a 60 basis point decrease compared to the same quarter last fiscal year.  This decrease in income before income taxes is primarily due to the decline in gross margin as discussed above. 

First Aid, Safety and Fire Protection Services Operating Segment
 
Three Months Ended February 28, 2013 Compared to Three Months Ended February 29, 2012

First Aid, Safety and Fire Protection Services operating segment revenue increased from $101.4 million to $112.9 million, or 11.3%, for the three months ended February 28, 2013.  Revenue increased organically by 6.9% due to improvements in sales representative productivity. Acquisitions resulted in growth of 6.2%. Revenue was negatively impacted by 1.8% due to one fewer workday in the three months ended February 28, 2013, compared to the three months ended February 29, 2012.


30



Cost of first aid, safety and fire protection services increased $5.6 million, or 9.7%, for the three months ended February 28, 2013, over the three months ended February 29, 2012, due to increased First Aid, Safety and Fire Protection Services operating segment volume.  Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses.  The gross margin as a percent of revenue was 44.0% for the quarter ended February 28, 2013, which is an 80 basis point increase compared to the gross margin as a percent of revenue of 43.2% in the same quarter of the prior fiscal year. This increase is due to higher revenue per customer stop and improved capacity utilization from the higher revenue level.

Selling and administrative expenses increased $3.1 million compared to the third quarter of the prior fiscal year, primarily due to an increase in labor and other employee-partner related expenses.  Selling and administrative expenses as a percent of revenue, at 34.7%, decreased 80 basis points compared to the third quarter of the prior fiscal year due to revenue growing at a faster rate than selling and administrative expenses.
 
Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment increased $2.8 million to $10.5 million for the three months ended February 28, 2013, compared to the same quarter in the prior fiscal year, primarily due to the increase in First Aid, Safety and Fire Protection Services operating segment revenue.  Income before income taxes, at 9.3% of the operating segment’s revenue is a 170 basis point increase compared to the same quarter last fiscal year.  This increase in income before income taxes is primarily due to the increase in gross margin as discussed above.
 
Document Management Services Operating Segment
 
Three Months Ended February 28, 2013 Compared to Three Months Ended February 29, 2012
 
Document Management Services operating segment revenue increased from $80.6 million to $87.8 million, or 8.9%, for the quarter ended February 28, 2013, over the same quarter in the prior fiscal year. Revenue was negatively impacted by 1.7% due to one fewer workday in the three months ended February 28, 2013, compared to the three months ended February 29, 2012. Document Management Services operating segment revenue increased organically by 5.8% due to sales productivity improvements and an increase in recycled paper revenue based on increased sales volume. The remaining 4.8% increase represents growth due to acquisitions. This operating segment derives a portion of its revenue from the sale of shredded paper to paper recyclers. Paper prices for the quarter ended February 28, 2013, were consistent with paper prices in the same quarter in the prior fiscal year.
 
Cost of document management services increased $3.7 million, or 8.5%, for the three months ended February 28, 2013, over the same quarter in the prior fiscal year due to increased Document Management Services operating segment volume. Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs.  The gross margin as a percent of revenue was 47.1% for the three months ended February 28, 2013, which was consistent with last year's third quarter gross margin as a percent of revenue of 47.0%.
 
Selling and administrative expenses increased $2.5 million compared to the third quarter of the prior fiscal year, primarily due to an increase in labor and other employee-partner related expenses.  Selling and administrative expenses as a percent of revenue, at 42.7%, decreased 70 basis points compared to the three months ended February 28, 2013. This decrease in percent of revenue is mainly due to revenue growing at a faster rate than selling and administrative expenses.

Income before income taxes for the Document Management Services operating segment increased $1.0 million to $3.9 million for the three months ended February 28, 2013, compared to the same period in the prior fiscal year.  Income before income taxes as a percentage of the operating segment’s revenue increased from 3.5% in last year’s third quarter to 4.4% for the quarter ended February 28, 2013, primarily as a result of the revenue growth.










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Consolidated Results 

Nine Months Ended February 28, 2013 Compared to Nine Months Ended February 29, 2012

Total revenue increased 4.6% for the nine months ended February 28, 2013, over the same period in the prior fiscal year from $3.0 billion to $3.2 billion. Revenue was negatively impacted by 0.5% due to one fewer workday in the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012. Revenue increased organically by 4.5%.  The remaining 0.6% increase represents growth derived through acquisitions in our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment.

Rental Uniforms and Ancillary Products operating segment revenue increased 4.5% for the nine months ended February 28, 2013 , over the same period in the prior fiscal year from $2.2 billion to $2.3 billion. The increase primarily resulted from an organic growth increase in revenue of 4.9% primarily due to improvements in sales representative productivity. Generally, sales productivity improvements are the result of increased tenure and improved training, which result in a higher number of products and services sold. Revenue increased 0.1% due to acquisitions. Revenue was negatively impacted by 0.5% due to one fewer workday in the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012.

Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, increased 4.8% for the nine months ended February 28, 2013, over the same period in the prior fiscal year from $885.2 million to $927.8 million. Other
Services revenue increased organically by 3.4%. Revenue increased 2.0% as a result of growth derived through acquisitions in our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment. Revenue was negatively impacted by 0.6% due to one fewer workday in the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012.

Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. Cost of rental uniforms and ancillary products increased $78.2 million, or 6.4%, for the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012. This increase was due to higher Rental Uniforms and Ancillary Products operating segment sales volume.

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid, safety and fire protection products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment.  Cost of other services increased $35.6 million, or 6.7%, for the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012.  This increase was primarily due to increased Uniform Direct Sales and First Aid, Safety and Fire Protection Services operating segment sales volumes.

Selling and administrative expenses increased $12.6 million, or 1.4%, for the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012, due to an increase in labor and other employee-partner related expenses.

Net interest expense (interest expense less interest income) was $48.8 million for the nine months ended February 28, 2013, compared to $51.1 million for the nine months ended February 29, 2012. The decrease in interest cost is due to the maturity of the $225.0 million aggregate principal amount of 6.0% senior notes on June 1, 2012, offset by the issuance of $250.0 million aggregate principal amount of 3.25% senior notes due 2022 in the first quarter of fiscal 2013.

Cintas' effective tax rate was 36.7% for the nine months ended February 28, 2013, compared to 37.0% for the nine months ended February 29, 2012. The effective tax rate can fluctuate from period to period based on specific discrete items.

Net income increased $10.4 million, or 4.8%, for the nine months ended February 28, 2013, from the same period in the prior fiscal year. The increase was primarily due to the 4.6% growth in revenue. The impact of the increase in revenue was partially offset by one fewer workday in the nine months ended February 28, 2013 compared to the same period in the prior fiscal year. Diluted earnings per share were $1.83 for the nine months ended February 28, 2013, which was an increase of 9.6% compared to the same period in the prior fiscal year. The increase in diluted earnings per share is higher than the increase in net income due to a decrease in weighted average common stock outstanding

32



as a result of purchasing 7.7 million shares of common stock under the October 18, 2011 share buyback program during the fourth quarter of fiscal 2012 and the first three quarters of fiscal 2013.

Rental Uniforms and Ancillary Products Operating Segment
 
Nine Months Ended February 28, 2013 Compared to Nine Months Ended February 29, 2012

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased from $2.2 billion to $2.3 billion, or 4.5%, and the cost of rental uniforms and ancillary products increased $78.2 million, or 6.4%, for the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012. The operating segment’s gross margin was $957.7 million, or 42.4% of revenue, for the nine months ended February 28, 2013.  This gross margin percent of revenue of 42.4% was 100 basis points lower than the same period of the prior fiscal year of 43.4%.  This decrease is due primarily to an increase in material cost due to an increase in customer accounts which requires an increase in inventory, costs associated with route expansion and a $1.6 million write-off of a garment processing system.
 
Selling and administrative expenses as a percent of revenue, at 27.5%, decreased 130 basis points, or $1.0 million compared to the same period of the prior fiscal year. This decrease is primarily due to a gain on the sale of stock of an equity method investment that has been offset by higher labor and other employee-partner related expenses.

Income before income taxes increased $19.1 million to $335.5 million for the Rental Uniforms and Ancillary Products operating segment compared to the same period last fiscal year. Income before income taxes was 14.8% of the operating segment’s revenue, which is a 20 basis point increase compared to the same period of the prior fiscal year.  This improvement is primarily due to revenue increasing at a faster rate of 4.5% compared to a 4.2% increase in operating expenses.  Revenue grew at a faster rate due primarily to improvements in sales representative productivity and improved customer retention.

Uniform Direct Sales Operating Segment
 
Nine Months Ended February 28, 2013 Compared to Nine Months Ended February 29, 2012

Uniform Direct Sales operating segment revenue increased from $322.8 million to $336.6 million, or 4.3%, for the nine months ended February 28, 2013, over the same period in the prior fiscal year due to increased customer orders for uniforms and several large customer roll-outs. 
 
Cost of uniform direct sales increased $12.8 million, or 5.6%, for the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012. due to increased uniform direct sales operating segment volume.  The gross margin as a percent of revenue was 28.7% for the nine months ended February 28, 2013, which is a 90 basis point decrease compared to the gross margin percentage of 29.6% in the same period of the prior fiscal year.  This decrease is due to a less profitable mix of products being sold and costs incurred in conjunction with the large roll-outs that occurred in the third quarter.

Selling and administrative expenses increased $2.0 million, or 3.3% compared to the nine months ended February 29, 2012, primarily due to an increase in labor and other employee-partner related expenses.  However, selling and administrative expenses as a percent of revenue, at 18.2%, decreased 20 basis points compared to the same period of the prior fiscal year due to the increase in revenue for the nine months ended February 28, 2013 compared to the same period in the prior fiscal year.

Income before income taxes decreased $0.9 million to $35.2 million for the Uniform Direct Sales operating segment for the nine months ended February 28, 2013. Income before income taxes was 10.5% of the operating segment’s revenue compared to 11.2% for the same period last fiscal year, which is a 70 basis point decrease compared to the same period last fiscal year.  This decrease in income before income taxes is primarily due to the decline in gross margin as discussed above.
 






33



First Aid, Safety and Fire Protection Services Operating Segment
 
Nine Months Ended February 28, 2013 Compared to Nine Months Ended February 29, 2012

First Aid, Safety and Fire Protection Services operating segment revenue increased from $306.8 million to $335.2 million, or 9.3%, for the nine months ended February 28, 2013.  The increase primarily resulted from organic growth in revenue of 6.1% due to improved sales representative productivity.  Acquisitions resulted in revenue growth of 3.7%. Revenue was negatively impacted by 0.5% due to one fewer workday in the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012.
 
Cost of first aid, safety and fire protection services increased $16.0 million, or 9.2%, for the nine months ended February 28, 2013, over the same period in the prior fiscal year due to increased First Aid, Safety and Fire Protection Services operating segment volume.  Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses.  The gross margin as a percent of revenue at 43.2% for the nine months ended February 28, 2013, was consistent with the gross margin as a percent of revenue of 43.1% for the nine months ended February 29, 2012.

Selling and administrative expenses increased $8.2 million, or 7.7% compared to the nine months ended February 29, 2012, primarily due to an increase in labor and other employee-partner related expenses.  However, selling and administrative expenses as a percent of revenue, at 34.5%, decreased 50 basis points compared to the same period of the prior fiscal year due to revenue increasing at a faster rate the selling and administrative expenses during the nine months ended February 28, 2013, compared to the same period in the prior fiscal year.
 
Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment increased $4.1 million to $29.2 million for the nine months ended February 28, 2013, compared to the same period in the prior fiscal year, primarily due to the increase in First Aid, Safety and Fire Protection Services operating segment revenue. Income before income taxes was 8.7% of the operating segment’s revenue for the nine months ended February 28, 2013, which is a 50 basis point increase compared to same period in the prior fiscal year. This improvement is primarily due to revenue increasing at a faster rate than operating expenses as discussed above.

Document Management Services Operating Segment
 
Nine Months Ended February 28, 2013 Compared to Nine Months Ended February 29, 2012

Document Management Services operating segment revenue increased from $255.6 million to $256.0 million, or 0.1%, for the nine months ended February 28, 2013, over the same period in the prior fiscal year. The increase primarily resulted from acquisitions, which accounted for revenue growth of 2.4%. The acquired volume offset an organic decrease in revenue of 1.8% due to a decrease in recycled paper revenue. This operating segment derives a portion of its revenue from the sale of shredded paper to paper recyclers. The average price from these paper sales decreased by approximately 22% in the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012. Revenue was negatively impacted by 0.5% due to one fewer workday in the nine months ended February 28, 2013, compared to the nine months ended February 29, 2012.
 
Cost of document management services increased $6.8 million, or 5.3%, for the nine months ended February 28, 2013, primarily due to increased Document Management Services operating segment volume. Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs.  The gross margin as a percent of revenue decreased from 49.8% for the nine months ended February 29, 2012, to 47.2% for the nine months ended February 28, 2013. This decrease is due to the lower recycled paper prices as discussed above.

Selling and administrative expenses as a percent of revenue, at 42.8%, increased 130 basis points, or $3.4 million compared to the same period of the prior fiscal year. This increase is primarily due to an increase in labor and other employee-partner related expenses.

Income before income taxes for the Document Management Services operating segment decreased $9.8 million to $11.4 million for the nine months ended February 28, 2013, compared to the same period in the prior fiscal year.  Income before income taxes as a percentage of the operating segment’s revenue decreased from 8.3% in last fiscal year’s first nine months to 4.5% for the nine months ended February 28, 2013, primarily as a result of the lower recycled paper prices.

34



Liquidity and Capital Resources
 
The following is a summary of our cash flows and cash, cash equivalents and marketable securities as of and for the nine months ended February 28, 2013 and February 29, 2012:
(In thousands)
2013
 
2012
Net cash provided by operating activities
$
368,343

 
$
307,714

Net cash used in investing activities
$
(254,833
)
 
$
(193,194
)
Net cash used in financing activities
$
(236,521
)
 
$
(332,972
)
 
 
 
 
Cash and cash equivalents at the end of the period
$
217,470

 
$
217,983

Marketable securities at the end of the period
$
28,216

 
$
134,631


The cash and cash equivalents and marketable securities as of February 28, 2013, include $53.7 million that is located outside of the United States.  We expect to use these amounts to fund our international operations.  The marketable securities at February 28, 2013, consist of Canadian treasury securities and United States municipal bonds.  We believe that our investment policy pertaining to marketable securities is conservative.  The primary criterion used in making investment decisions is the preservation of principal, while earning an attractive yield.
 
Cash flows provided by operating activities have historically supplied us with a significant source of liquidity.  We generally use these cash flows to fund most, if not all, of our operations and expansion activities and dividends on our common stock.  We may also use cash flows provided by operating activities, as well as proceeds from long-term debt and short-term borrowings, to fund growth and expansion opportunities, as well as other cash requirements such as the repurchase of our common stock.
 
Net cash provided by operating activities was $368.3 million for the nine months ended February 28, 2013, an increase of $60.6 million compared to the same period last fiscal year.  In addition to net income being higher, the decrease in inventory and uniforms and other rental items in service also had a positive impact on cash flows.
 
Net cash used in investing activities includes capital expenditures and cash paid for acquisitions of businesses.  Capital expenditures were $151.8 million and $117.7 million for the nine months ended February 28, 2013 and February 29, 2012, respectively.  These capital expenditures primarily relate to expansion efforts in Rental Uniforms and Ancillary Products and Document Management Services operating segments.  Capital expenditures for the nine months ended February 28, 2013, included $108.7 million for the Rental Uniforms and Ancillary Products operating segment and $29.0 million for the Document Management Services operating segment.  Cash paid for acquisitions of businesses was $64.6 million and $20.9 million for the nine months ended February 28, 2013 and February 29, 2012, respectively.  The acquisitions this fiscal year occurred in our First Aid, Safety and Fire Protection Services and Document Management Services operating segments.
 
Net cash used in financing activities was $236.5 million and $333.0 million for the nine months ended February 28, 2013 and February 29, 2012, respectively.  On October 26, 2010, we announced that the Board of Directors authorized a $500.0 million share buyback program at market prices.  We completed the October 26, 2010 share buyback program by purchasing 8.1 million shares of Cintas common stock in June and July 2011 for an aggregate purchase price of $259.5 million.  On October 18, 2011, we announced that the Board of Directors authorized a new $500.0 million share buyback program at market prices.  Beginning in April 2012 through May 31, 2012, under the October 18, 2011 share buyback program, Cintas purchased a total of 3.3 million shares of Cintas common stock at an average price of $39.10 per share for a total purchase price of $129.6 million. During the first nine months of fiscal 2013, we purchased 4.4 million shares of Cintas common stock for a total purchase price of $179.4 million. From the inception of the October 18, 2011 share buyback program through April 9, 2013, Cintas has purchased a total of 8.0 million shares of Cintas common stock at an average price of $40.05 per share for a total purchase price of $319.2 million. For the nine months ended February 28, 2013, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the nine months ended February 28, 2013.  These shares were acquired at an average price of $37.95 per share for a total purchase price of $7.7 million.
 
As of February 28, 2013, we had $1,300.0 million aggregate principal amount in fixed rate senior notes outstanding with maturities ranging from 2016 to 2036.  On June 1, 2012, Cintas repaid at maturity $225.0 million aggregate principal amount of its 6.00% senior notes due 2012. On June 5, 2012, Cintas issued $250.0 million aggregate principal amount

35



of senior notes due June 1, 2022. These senior notes bear interest at a rate of 3.25% paid semi-annually beginning December 1, 2012. The net proceeds generated from the offering will be used for general corporate purposes.
 
Cintas’ commercial paper program has a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group.  This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million.  The revolving credit facility was amended on October 7, 2011, to extend the maturity date from September 26, 2014 to October 6, 2016, to improve the applicable margin used to calculate the interest rate payable on any outstanding loans and the facility fee payable under the agreement and to replace the financial covenant regarding Cintas’ net funded indebtedness to total capitalization with a requirement to maintain a leverage ratio of consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (debt to EBITDA) of no more than 3.5 to 1.0. We believe this program, along with cash generated from operations, will be adequate to provide necessary funding for our future cash requirements.  No commercial paper or borrowings under our revolving credit facility were outstanding as of February 28, 2013 or May 31, 2012.
 
Cintas has certain covenants related to debt agreements. These covenants limit our ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to EBITDA and interest coverage ratios. Cross-default provisions exist between certain debt instruments.  If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital.  As of February 28, 2013, Cintas was in compliance with all significant debt covenants.
 
Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity.  We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. Our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness.  As of February 28, 2013, our ratings were as follows:
 
Rating Agency
 
Outlook
 
Commercial Paper
 
Long-term Debt
Standard & Poor’s
 
Stable
 
A-2
 
BBB+
Moody’s Investors Service
 
Stable
 
P-1
 
A2
 
 
In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected.  In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above.  The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating.  Moreover, each credit rating is specific to the security to which it applies.
 
To monitor our credit rating and our capacity for long-term financing, we consider various qualitative and quantitative factors.  One such factor is the ratio of our debt to EBITDA. For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and long-term obligations under capital leases. 

Litigation and Other Contingencies
 
Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims.  In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or results of operation of Cintas.  Cintas is party to additional litigation not considered in the ordinary course of business.  Please refer to Note 7 entitled Litigation and Other Contingencies of “Notes to Consolidated Condensed Financial Statements” for a detailed discussion of certain specific litigation.




36



Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements.  The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements.  Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used.  Such statements are based upon current expectations of Cintas and speak only as of the date made.  You should not place undue reliance on any forward-looking statement.  We cannot guarantee that any forward-looking statement will be realized.  These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Quarterly Report.  Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy and fuel costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the inaccessibility of computer systems data, the initiation or outcome of litigation, investigations or other proceedings, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic or extraordinary events, the amount and timing of repurchases of our common stock, if any, changes in federal and state tax and labor laws and the reactions of competitors in terms of price and service.  Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made.  A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2012, and in our reports on Forms 10-Q and 8-K.  The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
In our normal operations, Cintas has market risk exposure to interest rates.  There has been no material change to this market risk exposure to interest rates from that which was previously disclosed on page 26 of our Annual Report on Form 10-K for the year ended May 31, 2012.
 
Through its foreign operations, Cintas is exposed to foreign currency risk.  Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign currency denominated revenue and profit translated into U.S. dollars.  The primary foreign currency to which Cintas is exposed is the Canadian dollar.  Cintas has average rate options in place to limit a portion of the risks of the revenue translation from Canadian foreign currency exchange rate movements during the remainder of the fiscal year; however, the amount of these options is not significant.
 
ITEM 4.
CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures
 
With the participation of Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of February 28, 2013.  Based on such evaluation, Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, has concluded that Cintas’ disclosure controls and procedures were effective as of February 28, 2013, in ensuring (i) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is accumulated and communicated to Cintas’ management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
 
Internal Control over Financial Reporting
 
There were no changes in Cintas’ internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended February 28, 2013, that have materially affected, or are reasonably likely to materially affect, Cintas’ internal control over financial reporting. See “Management’s Report on Internal Control over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” on pages 28 and 29 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2012.

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CINTAS CORPORATION
 
Part II.  Other Information
 
Item 1.    Legal Proceedings.
 
We discuss material legal proceedings (other than ordinary routine litigation incidental to our business) pending against us in “Part I, Item 1. Financial Statements,” in Note 7 entitled Litigation and Other Contingencies of “Notes to Consolidated Condensed Financial Statements.” We refer you to and incorporate by reference into this Part II, Item 1 that discussion for important information concerning those legal proceedings.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
Period
Total number
of shares
purchased
 
Average
price paid
per share
 
Total number of
shares purchased
as part of the
publicly announced
plan (1)
 
Maximum
approximate dollar
value of shares that
may yet be
purchased under
the plan (1)
 
 
 
 
 
 
 
 
December 1 - 31, 2012

 
$

 

 
$
218,709,700

January 1 - 31, 2013 (2)
240,735

 
42.50

 
237,775

 
208,604,505

February 1 - 28, 2013
415,375

 
42.52

 
415,375

 
190,944,265

Total
656,110

 
$
42.51

 
653,150

 
$
190,944,265


(1) On October 18, 2011, Cintas announced that the Board of Directors authorized a $500.0 million share buyback program at market prices. The October 18, 2011 buyback program does not have an expiration date. Beginning in April 2012, under the October 18, 2011 program, through February 28, 2013, Cintas has purchased a total of approximately 8.0 million shares of Cintas common stock at an average price of $40.05 per share for a total purchase price of $319.2 million.
(2) During January 2013, Cintas acquired 2,960 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock options that vested during the fiscal year. These shares were acquired at an average price of $42.32 per share for a total purchase price of $0.1 million.




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Item 6.     Exhibits
31.1
Certification of Principal Executive Officer required by Rule 13a-14(a)
31.2
Certification of Principal Financial Officer required by Rule 13a-14(a)
32.1
Section 1350 Certification of Chief Executive Officer
32.2
Section 1350 Certification of Chief Financial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

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Signatures
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
CINTAS CORPORATION
 
 
 
(Registrant)
 
 
 
 
 
 
Date:  April 9, 2013
 
/s/
William C. Gale
 
 
 
 
 
 
 
 
William C. Gale
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
(Chief Accounting Officer)

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EXHIBIT INDEX

31.1
Certification of Principal Executive Officer required by Rule 13a-14(a)
31.2
Certification of Principal Financial Officer required by Rule 13a-14(a)
32.1
Section 1350 Certification of Chief Executive Officer
32.2
Section 1350 Certification of Chief Financial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

42