Form 10-Q - 2/28/2007
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

( X )         QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2007

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 check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ü  No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12 b-2 of the Exchange Act.

Large Accelerated Filer  ü 
Accelerated Filer ___
Non-Accelerated Filer ___

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12 b-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, 2007
Common Stock, no par value
 
158,652,776


1




CINTAS CORPORATION
INDEX
 
 

   
Page No.
Part I.
Financial Information
 
       
 
Item 1.
Financial Statements.
 
       
   
Consolidated Condensed Statements of Income -
  Three Months and Nine Months Ended February 28, 2007 and 2006
3
       
   
Consolidated Condensed Balance Sheets -
  February 28, 2007 and May 31, 2006
4
       
   
Consolidated Condensed Statements of Cash Flows -
  Nine Months Ended February 28, 2007 and 2006
5
       
   
Notes to Consolidated Condensed Financial Statements
6
       
 
Item 2.
Management's Discussion and Analysis of Financial
  Condition and Results of Operations.
25
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
33
       
 
Item 4.
Controls and Procedures.
33
       
Part II.
Other Information
35
       
 
Item 1.
Legal Proceedings.
35
       
 
Item 1A.
Risk Factors.
36
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
36
       
 
Item 5.
Other Information.
37
       
 
Item 6.
Exhibits.
37
       
Signatures
 
37
       
Certifications
 
38

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,
 
February 28,
 
     
2007
   
2006
   
2007
   
2006
 
 
          (Restated)*           
(Restated)*
 
Revenue:
                         
Rentals
 
$
665,647
 
$
631,322
 
$
2,037,796
 
$
1,890,920
 
Other services
   
239,751
   
205,099
   
705,029
   
604,761
 
     
905,398
   
836,421
   
2,742,825
   
2,495,681
 
                           
Costs and expenses (income):
                         
Cost of rentals
   
371,185
   
350,655
   
1,129,500
   
1,039,738
 
Cost of other services
   
148,386
   
132,796
   
445,944
   
397,024
 
Selling and administrative expenses
   
253,128
   
224,420
   
745,884
   
670,014
 
Interest income
   
(1,339
)
 
(1,925
)
 
(4,488
)
 
(4,959
)
Interest expense
   
11,584
   
7,239
   
36,499
   
22,059
 
     
782,944
   
713,185
   
2,353,339
   
2,123,876
 
                           
Income before income taxes
   
122,454
   
123,236
   
389,486
   
371,805
 
                           
Income taxes
   
45,727
   
46,642
   
145,270
   
139,950
 
                           
Net income
 
$
76,727
 
$
76,594
 
$
244,216
 
$
231,855
 
                           
Basic earnings per share
 
$
.48
 
$
.46
 
$
1.52
 
$
1.38
 
                           
Diluted earnings per share
 
$
.48
 
$
.45
 
$
1.52
 
$
1.37
 
                           
Dividends declared per share
             
$
0.39
 
$
0.35
 


* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.

See accompanying notes.

3



CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)

   
February 28, 2007
 
May 31, 2006
 
   
(Unaudited)
 
(Restated)*
 
ASSETS
         
Current assets:
             
Cash and cash equivalents
 
$
31,558
 
$
38,914
 
Marketable securities
   
125,935
   
202,539
 
Accounts receivable, net
   
393,155
   
389,905
 
Inventories, net
   
227,083
   
198,000
 
Uniforms and other rental items in service
   
339,082
   
337,487
 
Prepaid expenses
   
14,926
   
11,163
 
               
Total current assets
   
1,131,739
   
1,178,008
 
               
Property and equipment, at cost, net
   
900,772
   
863,783
 
               
Goodwill
   
1,226,176
   
1,136,175
 
Service contracts, net
   
172,842
   
179,965
 
Other assets, net
   
75,960
   
67,306
 
               
   
$
3,507,489
 
$
3,425,237
 
               
LIABILITIES AND SHAREHOLDERS' EQUITY
             
Current liabilities:
             
Accounts payable
 
$
69,540
 
$
71,635
 
Accrued compensation and related liabilities
   
57,014
   
50,134
 
Accrued liabilities
   
234,840
   
188,927
 
Income taxes:
             
Current
   
51,057
   
43,694
 
Deferred
   
39,506
   
51,669
 
Long-term debt due within one year
   
229,139
   
4,288
 
               
Total current liabilities
   
681,096
   
410,347
 
               
Long-term debt due after one year
   
654,376
   
794,454
 
               
Deferred income taxes
   
115,858
   
130,244
 
               
Shareholders' equity:
             
Preferred stock, no par value:
             
100,000 shares authorized, none outstanding
   
----
   
----
 
Common stock, no par value:
             
        425,000,000 shares authorized,
             
FY 2007: 172,838,020 issued and 158,640,697 outstanding
             
FY 2006: 172,571,083 issued and 163,181,738 outstanding
   
130,389
   
120,860
 
Paid in capital
   
44,939
   
47,644
 
Retained earnings
   
2,443,139
   
2,260,917
 
Treasury stock:
             
FY 2007: 14,197,323 shares
             
FY 2006: 9,389,345 shares
   
(580,562
)
 
(381,613
)
Other accumulated comprehensive income
   
18,254
   
42,384
 
Total shareholders' equity
   
2,056,159
   
2,090,192
 
   
$
3,507,489
 
$
3,425,237
 

* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.

See accompanying notes.

4



CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

   
Nine Months Ended
 
 
February 28, 
Cash flows from operating activities:
   
2007
   
2006
 
          (Restated)*  
Net income
 
$
244,216
 
$
231,855
 
Adjustments to reconcile net income to net cash provided
             
by operating activities:
             
Depreciation
   
100,036
   
94,014
 
Amortization of deferred charges
   
30,015
   
24,130
 
Stock-based compensation
   
2,746
   
4,507
 
Deferred income taxes
   
(19,062
)
 
7,399
 
Change in current assets and liabilities, net of
             
acquisitions of businesses:
             
Accounts receivable
   
911
   
(14,187
)
Inventories
   
(28,176
)
 
11,984
 
Uniforms and other rental items in service
   
(1,595
)
 
(11,240
)
Prepaid expenses
   
(3,676
)
 
(790
)
Accounts payable
   
(2,070
)
 
(9,210
)
Accrued compensation and related liabilities
   
6,880
   
511
 
Accrued liabilities
   
(15,511
)
 
(32,293
)
Tax benefit on exercise of stock options
   
(37
)
 
(706
)
Income taxes payable
   
7,400
   
4,947
 
Net cash provided by operating activities
   
322,077
   
310,921
 
               
Cash flows from investing activities:
             
               
Capital expenditures
   
(128,636
)
 
(102,080
)
Proceeds from sale or redemption of marketable securities
   
102,871
   
74,820
 
Purchase of marketable securities
   
(24,901
)
 
(11,346
)
Acquisitions of businesses, net of cash acquired
   
(135,011
)
 
(327,983
)
Other
   
(16,303
)
 
(13,830
)
Net cash used in investing activities
   
(201,980
)
 
(380,419
)
               
Cash flows from financing activities:
             
               
Proceeds from issuance of debt
   
252,460
   
173,000
 
Repayment of debt
   
(167,687
)
 
(7,068
)
Stock options exercised
   
9,529
   
11,404
 
Tax benefit on exercise of stock options
   
37
   
706
 
Purchase of common stock
   
(198,949
)
 
(114,170
)
Other
   
(22,843
)
 
10,473
 
Net cash (used in) provided by financing activities
   
(127,453
)
 
74,345
 
               
Net (decrease) increase in cash and cash equivalents
   
(7,356
)
 
4,847
 
               
Cash and cash equivalents at beginning of period
   
38,914
   
43,196
 
               
Cash and cash equivalents at end of period
 
$
31,558
 
$
48,043
 

* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.

See accompanying notes.

5



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

1.  
Basis of Presentation

The consolidated condensed financial statements of Cintas Corporation (Cintas) included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. While we believe that the disclosures are adequately presented, it is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes included in our most recent Form 10-K for the fiscal year ended May 31, 2006. A summary of our significant accounting policies is presented on page 36 of that report. There has been no material changes in the accounting policies followed by Cintas during the fiscal year, with the exception of the new accounting standard discussed in Note 2 below.

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.

Certain prior year amounts have been reclassified to conform to current year presentation.


2.  
New Accounting Standard

At February 28, 2007, Cintas had an equity compensation plan, which is described in Note 6. Prior to June 1, 2006, Cintas accounted for this plan under the intrinsic value method proscribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation. Effective June 1, 2006, Cintas adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-retrospective transition method. Under that transition method, all prior periods have been restated based on the amounts previously calculated in the pro forma footnote disclosures required by Statement 123. Statement 123(R) requires all share-based payments to employees, including stock options, to be recognized as an expense in the statement of income based on their fair values. Due to this restatement, Cintas’ income before income taxes and net income decreased by $1,151 for the three months ended February 28, 2006, and $3,396 for the nine months ended February 28, 2006. This adoption lowered basic earnings per share for the third quarter of fiscal 2006 from $0.47 per share to $0.46 per share for the quarter. Likewise, diluted earnings per share for the third quarter of fiscal 2006 were lowered from $0.46 per share to $0.45 for the quarter. This adoption also lowered basic earnings per share year-to-date from $1.40 per share to $1.38 per share. In addition, diluted earnings per share year-to-date were lowered from $1.39 per share to $1.37 per share. The cumulative effect of the change on total shareholders’ equity as of May 31, 2006, was less than $1,000.

As a result of adopting Statement 123(R) on June 1, 2006, Cintas’ income before income taxes and net income for the nine months ended February 28, 2007, are $2,746 and $1,739 lower, respectively, than if it had continued to account for share-based compensation under Opinion 25. Basic earnings per share are $.02 lower and diluted earnings per share are $.01 lower for the nine months ended February 28, 2007, than if Cintas had continued to account for share-based compensation under Opinion 25.

6



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

3.  
Earnings per Share

The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective periods:

   
Three Months Ended
 
Nine Months Ended
 
   
February 28,
 
February 28,
 
   
2007
 
2006
 
2007
 
2006
 
       
(Restated)*
     
(Restated)*
 
Numerator:
                         
Net income
 
$
76,727
 
$
76,594
 
$
244,216
 
$
231,855
 
                           
Denominator:
                         
Denominator for basic earnings per
                         
  share-weighted average shares
   
159,311
   
168,038
   
160,144
   
168,321
 
                           
Effect of dilutive securities-
                         
  employee stock options
   
388
   
561
   
406
   
594
 
                           
Denominator for diluted earnings per
                         
  share-adjusted weighted average
                         
  shares and assuming conversions
   
159,699
   
168,599
   
160,550
   
168,915
 
                           
Basic earnings per share
 
$
.48
 
$
.46
 
$
1.52
 
$
1.38
 
                           
Diluted earnings per share
 
$
.48
 
$
.45
 
$
1.52
 
$
1.37
 

* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.
 
4.  
Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill and service contracts for the nine months ended February 28, 2007, by operating segment, are as follows:

       
Other
     
   
Rentals
   
Services
   
Total
 
Goodwill
                   
Balance as of June 1, 2006
 
$
855,135
 
$
281,040
 
$
1,136,175
 
                     
Goodwill acquired
   
(2,181
)
 
93,436
   
91,255
 
                     
Foreign currency translation
   
(952
)
 
(302
)
 
(1,254
)
                     
Balance as of February 28, 2007
 
$
852,002
 
$
374,174
 
$
1,226,176
 




7



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

       
Other
     
   
Rentals
 
Services
 
Total
 
Service Contracts
             
Balance as of June 1, 2006
 
$
132,391
 
$
47,574
 
$
179,965
 
                     
Service contracts acquired
   
304
   
16,225
   
16,529
 
                     
Service contracts amortization
   
(14,903
)
 
(7,316
)
 
(22,219
)
                     
Foreign currency translation
   
(1,364
)
 
(69
)
 
(1,433
)
                     
Balance as of February 28, 2007
 
$
116,428
 
$
56,414
 
$
172,842
 


Information regarding Cintas' service contracts and other assets are as follows:

 
 
As of February 28, 2007 
   
Carrying
Amount
 
 
Accumulated
Authortization
 
 
Net
 
                     
Service contracts
 
$
309,419
 
$
136,577
 
$
172,842
 
Noncompete and consulting agreements
 
$
56,081
 
$
21,370
 
$
34,711
 
Investments
   
34,846
   
----
   
34,846
 
Other
   
10,428
   
4,025
   
6,403
 
                     
Total
 
$
101,355
 
$
25,395
 
$
75,960
 
 
 
 
As of May 31, 2006 
   
Carrying
Amount 
 
 
Accumulated
Amortization
 
 
Net 
 
                     
Service contracts
 
$
295,929
 
$
115,964
 
$
179,965
 
Noncompete and consulting agreements
  $
45,801
  $
15,484
  $
30,317
 
Investments
   
33,754
   
----
   
33,754
 
Other
   
6,758
   
3,523
   
3,235
 
                     
Total
 
$
86,313
 
$
19,007
 
$
67,306
 

Amortization expense was $30,015 and $24,130 for the nine months ended February 28, 2007 and February 28, 2006, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $40,661, $40,099, $37,468, $34,437 and $30,766, respectively.


8


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

5.  
Debt, Derivatives and Hedging Activities

On August 15, 2006, Cintas issued $250,000 of senior notes due in 2036. This debt bears an interest rate of 6.15% paid semi-annually beginning February 15, 2007. The proceeds generated from the offering were used to repay a portion of our outstanding commercial paper borrowings.

Cintas formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Cintas’ hedging activities are transacted only with highly-rated institutions, reducing the exposure to credit risk in the event of nonperformance. Cintas periodically uses derivatives for fair value hedging and cash flow hedging purposes. There were no fair value hedges in place as of February 28, 2007.

Cash flow hedges are derivative instruments that hedge the exposure of variability in short-term interest rates. These agreements effectively convert a portion of the floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The effective portion of the net gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains or losses on the ineffective portion of the hedge are charged to earnings in the current period. When outstanding, the effectiveness of these derivative instruments is reviewed at least every fiscal quarter. Examples of cash flow hedging instruments that Cintas may use are interest rate swaps, lock agreements and forward starting swaps. There were no interest rate swap or lock agreements outstanding as of February 28, 2007. There was a cash settled forward starting swap in place as of February 28, 2007, which is discussed below.

During the third quarter of fiscal 2006, Cintas entered into a cash settled forward starting swap to protect forecasted interest payments from interest rate movement for an anticipated $200,000 debt issuance in fiscal 2008. The Hypothetical Derivative Method is used to measure hedge effectiveness. Cintas expects the forward starting swap to be perfectly effective as the critical terms of the anticipated debt issuance will perfectly offset the hedged cash flows of the forecasted interest payments. When the $200,000 of hedged debt is issued, the lender will make a payment to Cintas if the 30-year Treasury rate has increased since the inception of the cash settled forward starting swap. Conversely, if the 30-year Treasury rate decreases during that period, Cintas will pay the lender. The value of the cash settled forward starting swap prior to the debt issuance is recorded in other comprehensive income in shareholders’ equity and other assets or accrued liabilities depending on the value of the swap at the end of each reporting period. Once the debt is issued, the value of the forward starting swap will be settled with cash and will be amortized to earnings over the term of the debt issuance.

Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes, both for the senior notes issued in fiscal 2002 and the senior notes issued in fiscal 2007. The amortization of the cash flow hedges resulted in a credit to other comprehensive income of $104 for the three months ended February 28, 2007, and $281 for the nine months ended February 28, 2007.

Cintas has certain significant covenants related to debt agreements. These covenants limit Cintas’ ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas’ assets. These covenants also require Cintas to maintain certain debt to capitalization and interest coverage ratios. Cross default provisions exist between certain debt instruments. Cintas is in compliance with all of the significant debt covenants for all periods presented. Were a default of a significant covenant to occur, the default could result in an acceleration of indebtedness, impair liquidity and limit the ability to raise future capital. Cintas’ debt, net of cash and marketable securities, is $726,022 as of February 28, 2007. For the nine months ended February 28, 2007, net cash provided by operating activities was $322,077 and capital expenditures were $128,636.
 
 
9


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

6.  
Stock-Based Compensation

Under the 2005 equity compensation plan, which was approved by shareholders and adopted by Cintas in fiscal 2006, Cintas may grant officers and key employees equity compensation in the form of stock options, stock appreciation rights, restricted and unrestricted stock, performance awards and other stock unit awards up to an aggregate of 14,000,000 shares of Cintas' common stock. The compensation cost charged against income was $1,497 and $1,462 for the three month periods ended February 28, 2007 and February 28, 2006, respectively. The compensation cost charged against income was $2,746 and $4,507 for the nine month periods ended February 28, 2007 and February 28, 2006, respectively. The amount recorded in the nine month period ended February 28, 2007, reflects a cumulative catch-up adjustment of $2,169 ($2,088 after tax), due to a change in the estimated forfeitures for certain existing stock option and restricted stock grants. Basic and diluted earnings per share for the nine months ended February 28, 2007, are both $.01 higher, respectively, due to this change in estimated forfeitures. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $310 and $117 for the three month periods ended February 28, 2007 and 2006, respectively, and was $1,007 and $418 for the nine month periods ended February 28, 2007 and 2006, respectively.

Stock Options

Stock options are granted at the fair market value of the underlying common stock on the date of grant. The option terms are determined by the Cintas Compensation Committee, but no stock option may be exercised later than ten years after the date of the grant. The option awards generally have ten year terms with graded vesting in years five through ten based on continuous service during that period. Cintas recognizes compensation expense for these options using the straight-line recognition method over the vesting period.

The fair value of these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

   
Three and Nine Months Ended
 
   
February 28,
 
     
2007
 
 
2006
 
               
Risk-free interest rate 
   
4.00%
 
 
4.00%
 
Dividend yield 
   
.70%
 
 
.50%
 
Expected volatility of Cintas' common stock 
   
35%
 
 
35%
 
Expected life of the option in years 
   
7.5
   
9
 

The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the stock options. The determination of expected volatility is based on historical volatility of Cintas stock over the period commensurate with the expected term of stock options, as well as other relevant factors. The weighted average expected term was determined based on the historical employee exercise behavior of the options. The weighted-average grant date fair value of stock options granted during the three months ended February 28, 2007, was $17.39 and was $20.95 for the three months ended February 28, 2006. The weighted-average grant date fair value of stock options granted during the nine months ended February 28, 2007, was $16.02 and was $20.95 for the nine months ended February 28, 2006.

The information presented in the following table relates primarily to stock options granted and outstanding under either the plan adopted in fiscal 2006 or under previously adopted plans:

10


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

       
Weighted Average
 
   
Shares
 
Exercise Price
 
Outstanding May 31, 2006 (2,718,180 shares exercisable)
   
6,535,404
 
$
40.08
 
Granted
   
1,061,005
   
37.60
 
Forfeitures/Cancellations
   
(157,435
)
 
42.52
 
Exercised
   
(144,607
)
 
18.95
 
Outstanding August 31, 2006 (2,707,855 shares exercisable)
   
7,294,367
 
$
40.09
 
Granted
   
111,500
   
41.31
 
Forfeitures/Cancellations
   
(198,545
)
 
42.02
 
Exercised
   
(79,038
)
 
24.38
 
Outstanding November 30, 2006 (2,561,212 shares exercisable)
   
7,128,284
 
$
40.23
 
Granted
   
43,350
   
41.02
 
Forfeitures/Cancellations
   
(256,675
)
 
40.04
 
Exercised
   
(125,049
)
 
24.49
 
Outstanding February 28, 2007 (2,394,238 shares exercisable)
   
6,789,910
 
$
40.53
 

The intrinsic value of stock options exercised in the three and nine months ended February 28, 2007, was $2,086 and $6,154, respectively.

The following table summarizes the information related to stock options outstanding at February 28, 2007:

       
Outstanding Options
 
Exercisable Options
 
       
Average
 
Weighted
     
Weighted
 
       
Remaining
 
Average
     
Average
 
Range of
 
Number
 
Option
 
Exercise
 
Number
 
Exercise
 
Exercise Prices
 
Outstanding
 
Life
 
Price
 
Exercisable
 
Price
 
$ 18.04 - $ 39.19
   
1,651,096
   
6.48
 
$
33.72
   
469,989
 
$
26.63
 
39.29 -    41.98
   
1,965,764
   
5.72
   
40.67
   
919,399
   
41.77
 
42.06 -    44.33
   
1,652,000
   
6.58
   
42.35
   
432,650
   
42.76
 
44.43 -    53.19
   
1,521,050
   
6.95
   
45.67
   
572,200
   
47.69
 
$ 18.04 - $ 53.19
   
6,789,910
   
6.39
 
$
40.53
   
2,394,238
 
$
40.39
 

At February 28, 2007, the aggregate intrinsic value of stock options outstanding and exercisable was $11,848 and $6,451, respectively.
 
Restricted Stock

Restricted stock consists of Cintas’ common stock which is subject to such conditions, restrictions and limitations as the Cintas Compensation Committee determines to be appropriate. The vesting period is generally three years after the grant date.

The information presented in the following table relates to restricted stock granted and outstanding under the plan adopted in fiscal 2006:


11


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

       
Weighted Average
 
   
Shares
 
Price
 
           
Outstanding, unvested grants at May 31, 2006 
   
128,075
 
$
36.08
 
Granted
   
230,365
   
38.06
 
Cancelled
   
-
   
-
 
Vested
   
-
   
-
 
Outstanding, unvested grants at August 31, 2006 
   
358,440
 
$
37.36
 
Granted
   
15,866
   
38.97
 
Cancelled
   
(2,460
)
 
36.08
 
Vested
   
-
   
-
 
Outstanding, unvested grants at November 30, 2006 
   
371,846
 
$
37.43
 
Granted
   
4,780
   
37.38
 
Cancelled
   
(1,878
)
 
36.08
 
Vested
   
-
   
-
 
Outstanding, unvested grants at February 28, 2007 
   
374,748
 
$
37.44
 

The remaining unrecognized compensation cost related to unvested stock options and restricted stock at February 28, 2007, was approximately $41,639, and the weighted-average period of time over which this cost will be recognized is 3.7 years.

Cintas reserves shares of common stock to satisfy share option exercises and/or future restricted stock grants. At February, 2007, 13,205,262 shares of common stock are reserved for future issuance under the 2005 plan.

During fiscal 2005, the Compensation Committee of the Board of Directors approved a resolution to accelerate the vesting for certain “out-of-the-money” options. The “out-of-the-money” options that were accelerated were provided to employees during fiscal 2000, 2001, 2002 and 2003. The Compensation Committee approved this acceleration in order to provide these employees the increased benefit of exercising these options when they become “in-the-money” and to avoid recognizing future compensation expense related to outstanding options under Statement 123(R). After amendment of all underlying option agreements, compensation expense to be recognized in the statement of income during the first year of adoption of Statement 123(R) was reduced by approximately $3,500.
 
7.  
Comprehensive Income

Total comprehensive income represents the net change in shareholders' equity during a period from sources other than transactions with shareholders and, as such, includes net earnings. For Cintas, the only components of total comprehensive income are the change in cumulative foreign currency translation adjustments, the change in the fair value of derivatives and the change in the fair value of available-for-sale securities. The components of comprehensive income for the three and nine month periods ended February 28, 2007 and February 28, 2006 are as follows:


12


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

 
 
Three Months Ended 
Nine Months Ended
 
February 28, 
February 28,
     
2007
 
 
2006
 
 
2007
 
 
2006
 
 
          (Restated)*           
(Restated)*
 
                           
Net income
 
$
76,727
 
$
76,594
 
$
244,216
 
$
231,855
 
                           
Other comprehensive income:
                         
  Foreign currency translation adjustment
   
(4,575
)
 
4,299
   
(11,669
)
 
15,086
 
  Change in fair value of derivatives**
   
3,358
   
(3,974
)
 
(13,330
)
 
(3,828
)
  Change in fair value of available-for-sale
   securities, net of $130 and $505 of tax,
   respectively
   
229 
   
---- 
   
869 
   
---- 
 
Comprehensive income
 
$
75,739
 
$
76,919
 
$
220,086
 
$
243,113
 

* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.

** Net of ($1,911) of tax for the three months ended February 28, 2007, and net of $7,994 of tax for the nine months ended February 28, 2007.
 
8.  
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 operations of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business, including the litigation discussed below.

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

Cintas also is a defendant in a purported class action lawsuit, Mirna E. Serrano, et al. v. Cintas Corporation, filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division (“Serrano”). Serrano alleges that Cintas discriminated against women in
 
 
13

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

hiring into various SSR positions across all divisions of Cintas throughout the United States. On November 15, 2005, the Equal Employment Opportunity Commission (“EEOC”) intervened in the Serrano lawsuit. The Serrano plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. Cintas is a defendant in another purported class action lawsuit, Nelly Blanca Avalos, et al. v. Cintas Corporation, currently pending in the United States District Court, Eastern District of Michigan, Southern Division (“Avalos”). Avalos alleges that Cintas discriminated against women, African-Americans and Hispanics in hiring into various SSR positions in Cintas’ Rental division only throughout the United States. On April 27, 2005, the EEOC intervened in the claims asserted in Avalos. The Avalos plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. The claims in Avalos originally were brought in the previously disclosed lawsuit captioned Robert Ramirez, et al. v. Cintas Corporation, filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division (“Ramirez”). On May 11, 2006, however, those claims were severed from Ramirez and transferred to the Eastern District of Michigan, Southern Division, where the case was re-named Avalos. On July 10, 2006, Avalos and Serrano were consolidated for all pretrial purposes, including proceedings on class certification. The consolidated case is known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation, and remains pending in the United States District Court, Eastern District of Michigan, Southern Division (“Serrano/Avalos”). No filings or determinations have been made in Serrano/Avalos as to class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. The non-SSR hiring claims in the previously disclosed Ramirez case that have not been dismissed remain pending in the Northern District of California, San Francisco Division, but were ordered to arbitration and stayed pending the completion of arbitration. The Ramirez purported class action claims currently in arbitration include allegations that Cintas failed to promote Hispanics into supervisory positions, discriminated against African-Americans and Hispanics in SSR route assignments and discriminated against African-Americans in hourly pay in Cintas’ Rental division only throughout the United States. The Ramirez plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. No filings or determinations have been made in Ramirez as to class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. In addition, a class action lawsuit, Larry Houston, et al. v. Cintas Corporation, was filed on August 3, 2005, in the United States District Court for the Northern District of California on behalf of African-American managers alleging racial discrimination (“Houston”). On November 22, 2005, the court entered an order requiring the named plaintiffs in the Houston lawsuit to arbitrate all of their claims for monetary damages. If there is an adverse verdict or a negotiated settlement of all or any of these actions, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas. Any estimated liability relating to these proceedings is not determinable at this time.
 
Several other similar administrative proceedings are pending including two charges filed on November 30, 2004, by an EEOC Commissioner with the EEOC Systemic Litigation Unit alleging: (i) failure to hire and assign females to production job positions; and (ii) failure to hire females, African-Americans and Hispanics into the Management Trainee program. The investigations of these allegations are pending and no determinations have been made.  On August 29, 2006, the EEOC Indianapolis District Office issued a dismissal and notice of rights and closed its file on the Clifton Cooper charge served on Cintas on March 23, 2005, by Cooper on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race. Mr. Cooper’s claims are now part of the Houston arbitration matter disclosed hereinabove.
 
Cintas is also a defendant in a lawsuit, J. Lester Alexander, III vs. Cintas Corporation, et al., which was originally filed on October 25, 2004, and is currently pending in the Circuit Court of Randolph County, Alabama. The case was brought by J. Lester Alexander, III, the Chapter 7 Trustee (the “Trustee”) of Terry Manufacturing Company, Inc. ("TMC") and Terry Uniform Company, LLC ("TUC"), against Cintas in Randolph County, Alabama. The Trustee seeks damages against Cintas for allegedly breaching fiduciary duties to TMC and TUC and for allegedly aiding and abetting breaches of fiduciary duties by others to
 
 
14

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

those entities. The complaint also includes allegations that Cintas breached certain limited liability company agreements, or alternatively, misrepresented its intention to perform its obligations in those agreements and acted as alter egos of the bankrupt TMC and is therefore liable for all of TMC's debts. The Trustee is seeking $50,000 in compensatory damages and $100,000 in punitive damages. Cintas denies these claims and is vigorously defending itself against all claims in the complaint. Cintas filed counterclaims against J. Lester Alexander, III and cross claims against Roy Terry, Rudolph Terry and Cotina Terry (collectively referred to herein as the Individual Co-Defendants). The Individual Co-Defendants have filed cross claims against Cintas alleging fraudulent inducement, breach of fiduciary duty, negligence and wantonness. If there is an adverse verdict on the merits or in the event of a negotiated settlement of this lawsuit, the resulting liability could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable at this time.

The litigation discussed above, if decided adversely to or settled by Cintas, may, individually or in the aggregate, result in liability material to Cintas’ financial condition or results of operations. Cintas may enter into discussions regarding settlement of these and other lawsuits, and may enter into settlement agreements if it believes such settlement is in the best interests of Cintas’ shareholders.
 
9.  
Segment Information

Cintas classifies its businesses into two operating segments, Rentals and Other Services, based on the similar economic characteristics of the products and services within each segment. The Rentals operating segment reflects the rental and servicing of uniforms and other garments, mats, mops and shop towels. In addition to these rental items, restroom and hygiene products and services are also provided within this segment. The Other Services operating segment consists of the direct sale of uniforms and related items, first aid, safety and fire protection products and services, document management services and branded promotional products. Both segments provide these products and services throughout the United States and Canada to businesses of all types - from small service and manufacturing companies to major corporations that employ thousands of people.

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



15

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


   
Rentals
 
Other
Services
 
Corporate
 
Total
 
For the three months
                         
  ended February 28, 2007
                         
Revenue
 
$
665,647
 
$
239,751
 
$
----
 
$
905,398
 
Income (loss) before income taxes
 
$
105,179
 
$
27,520
 
$
(10,245
)
$
122,454
 
                           
For the three months
                         
  ended February 28, 2006
                         
  (Restated)*
                         
Revenue
 
$
631,322
 
$
205,099
 
$
----
 
$
836,421
 
Income (loss) before income taxes
 
$
108,654
 
$
19,896
 
$
(5,314
)
$
123,236
 
                           
As of and for the nine months
                         
  ended February 28, 2007
                         
Revenue
 
$
2,037,796
 
$
705,029
 
$
----
 
$
2,742,825
 
Income (loss) before income taxes
 
$
347,056
 
$
74,441
 
$
(32,011
)
$
389,486
 
Total assets
 
$
2,525,832
 
$
824,164
 
$
157,493
 
$
3,507,489
 
                           
As of and for the nine months
                         
  ended February 28, 2006
                         
  (Restated)*
                         
Revenue
 
$
1,890,920
 
$
604,761
 
$
----
 
$
2,495,681
 
Income (loss) before income taxes
 
$
336,443
 
$
52,462
 
$
(17,100
)
$
371,805
 
Total assets
 
$
2,491,807
 
$
619,756
 
$
250,801
 
$
3,362,364
 
 
 * Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.
 
10.  
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 $700,000 of long-term 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 condensed consolidating financial statements has been fully consolidated in Cintas' financial statements. The condensed consolidating financial statements should be read in conjunction with the financial statements of Cintas and notes thereto of which this note is an integral part.
 
Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented below:


16



 
CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 28, 2007

 
 
   
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
Revenue:
                                     
  Rentals
 
$
----
 
$
489,272
 
$
135,225
 
$
41,335
 
$
(185
)
$
665,647
 
  Other services
   
----
   
326,636
   
131,720
   
12,932
   
(231,537
)
 
239,751
 
  Equity in net income of affiliates
   
76,727
   
----
   
----
   
----
   
(76,727
)
 
----
 
     
76,727
   
815,908
   
266,945
   
54,267
   
(308,449
)
 
905,398
 
                                       
Costs and expenses (income):
                                     
  Cost of rentals
   
----
   
310,904
   
75,122
   
24,863
   
(39,704
)
 
371,185
 
  Cost of other services
   
----
   
243,769
   
85,554
   
7,866
   
(188,803
)
 
148,386
 
  Selling and administrative expenses
   
----
   
230,570
   
12,460
   
12,151
   
(2,053
)
 
253,128
 
  Interest income
   
----
   
(526
)
 
(3
)
 
(810
)
 
----
   
(1,339
)
  Interest expense
   
----
   
11,915
   
(1,614
)
 
1,283
   
----
   
11,584
 
   
----
   
796,632
   
171,519
   
45,353
   
(230,560
)
 
782,944
 
                                       
Income before income taxes
   
76,727
   
19,276
   
95,426
   
8,914
   
(77,889
)
 
122,454
 
Income taxes
   
----
   
7,134
   
35,473
   
3,120
   
----
   
45,727
 
Net income
 
$
76,727
 
$
12,142
 
$
59,953
 
$
5,794
 
$
(77,889
)
$
76,727
 

 
17



 
CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED FEBRUARY 28, 2006
(RESTATED)*

 
   
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
Revenue:
                                     
  Rentals
 
$
----
 
$
462,276
 
$
129,045
 
$
40,139
 
$
(138
)
$
631,322
 
  Other services
   
----
   
271,594
   
108,688
   
12,976
   
(188,159
)
 
205,099
 
  Equity in net income of affiliates
   
76,594
   
----
   
----
   
----
   
(76,594
)
 
----
 
     
76,594
   
733,870
   
237,733
   
53,115
   
(264,891
)
 
836,421
 
                                       
Costs and expenses (income):
                                     
  Cost of rentals
   
----
   
291,750
   
76,548
   
24,038
   
(41,681
)
 
350,655
 
  Cost of other services
   
----
   
200,937
   
73,736
   
8,712
   
(150,589
)
 
132,796
 
  Selling and administrative expenses
   
----
   
209,097
   
2,711
   
11,998
   
614
   
224,420
 
  Interest income
   
----
   
(1,398
)
 
(60
)
 
(467
)
 
----
   
(1,925
)
  Interest expense
   
----
   
7,155
   
(1,007
)
 
1,091
   
----
   
7,239
 
   
---- 
   
707,541
   
151,928
   
45,372
   
(191,656
)
 
713,185
 
                                       
Income before income taxes
   
76,594
   
26,329
   
85,805
   
7,743
   
(73,235
)
 
123,236
 
Income taxes
   
----
   
10,256
   
33,415
   
2,971
   
----
   
46,642
 
Net income
 
$
76,594
 
$
16,073
 
$
52,390
 
$
4,772
 
$
(73,235
)
$
76,594
 
 
* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.
 
 

18



 

 

CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 28, 2007


 
   
Cintas Corporation 
   
Corp. 2
   
Subsidiary
Guarantors
 
Non-Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
Revenue:
                                           
  Rentals
 
$
----
 
$
1,497,418
 
$
413,096
     
$
127,771
 
$
(489
 
$
2,037,796
 
  Other services
   
----
   
989,396
   
392,224
       
41,978
   
(718,569
   
705,029
 
  Equity in net income of affiliates
   
244,216
   
----
   
----
       
----
   
(244,216
   
----
 
     
244,216
   
2,486,814
   
805,320
       
169,749
   
(963,274
   
2,742,825
 
                                             
Costs and expenses (income):
                                           
  Cost of rentals
   
----
   
943,530
   
236,004
       
75,556
   
(125,590
   
1,129,500
 
  Cost of other services
   
----
   
753,131
   
255,545
       
25,583
   
(588,315
   
445,944
 
  Selling and administrative expenses
   
----
   
683,734
   
32,139
       
35,630
   
(5,619
   
745,884
 
  Interest income
   
----
   
(2,220
)
 
(8
)
     
(2,260
)
 
----
     
(4,488
)
  Interest expense
   
----
   
36,893
   
(4,448
)
     
4,054
   
----
     
36,499
 
 
   
---- 
   
2,415,068
   
519,232
       
138,563
   
(719,524
   
2,353,339
 
                                             
Income before income taxes
   
244,216
   
71,746
   
286,088
       
31,186
   
(243,750
   
389,486
 
Income taxes
   
----
   
26,993
   
107,634
       
10,643
   
----
     
145,270
 
Net income
 
$
244,216
 
$
44,753
 
$
178,454
     
$
20,543
 
$
(243,750
 
$
244,216
 


19






CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED FEBRUARY 28, 2006
(RESTATED)*

 
   
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
Revenue:
                         
  Rentals
 
$
----
 
$
1,387,723
 
$
388,746
 
$
114,842
 
$
(391
)
$
1,890,920
 
  Other services
   
----
   
859,090
   
310,624
   
40,064
   
(605,017
)
 
604,761
 
  Equity in net income of affiliates
   
231,855
   
----
   
----
   
----
   
(231,855
)
 
----
 
     
231,855
   
2,246,813
   
699,370
   
154,906
   
(837,263
)
 
2,495,681
 
                                       
Costs and expenses (income):
                                     
  Cost of rentals
   
----
   
870,459
   
228,966
   
67,876
   
(127,563
)
 
1,039,738
 
  Cost of other services
   
----
   
643,181
   
212,625
   
26,165
   
(484,947
)
 
397,024
 
  Selling and administrative expenses
   
----
   
633,979
   
1,713
   
34,184
   
138
   
670,014
 
  Interest income
   
----
   
(3,631
)
 
(257
)
 
(1,071
)
 
----
   
(4,959
)
  Interest expense
   
----
   
21,872
   
(3,000
)
 
3,187
   
----
   
22,059
 
   
----
   
2,165,860
   
440,047
   
130,341
   
(612,372
)
 
2,123,876
 
                                       
Income before income taxes
   
231,855
   
80,953
   
259,323
   
24,565
   
(224,891
)
 
371,805
 
Income taxes
   
----
   
31,158
   
99,810
   
8,982
   
----
   
139,950
 
Net income
 
$
231,855
 
$
49,795
 
$
159,513
 
$
15,583
 
$
(224,891
)
$
231,855
 
 
* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.

20






CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 28, 2007



   
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
Assets
                         
Current assets:
                         
   Cash and cash equivalents
 
$           ----
 
$          853
 
$       7,374
 
$     23,331
 
$           ----
 
$       31,558
 
   Marketable securities
 
----
 
57,246
 
----
 
68,689
 
----
 
125,935
 
   Accounts receivable, net
   
----
   
260,400
   
131,289
   
20,492
   
(19,026
)
 
393,155
 
   Inventories, net
   
----
   
202,996
   
26,841
   
7,607
   
(10,361
)
 
227,083
 
   Uniforms and other rental items in
    service
   
----
   
270,161
   
81,359
   
19,193
   
(31,631
)
 
339,082
 
  Prepaid expenses
   
----
   
9,820
   
4,292
   
814
   
----
   
14,926
 
Total current assets
   
----
   
801,476
   
251,155
   
140,126
   
(61,018
)
 
1,131,739
 
                                       
Property and equipment, at cost, net
   
----
   
609,764
   
241,050
   
49,958
   
----
   
900,772
 
                                       
Goodwill
   
----
   
336,584
   
869,502
   
20,090
   
----
   
1,226,176
 
Service contracts, net
   
----
   
103,781
   
64,406
   
4,655
   
----
   
172,842
 
Other assets, net
   
1,634,652
   
71,825
   
1,313,649
   
170,309
   
(3,114,475
)
 
75,960
 
   
$
1,634,652
 
$
1,923,430
 
$
2,739,762
 
$
385,138
 
$
(3,175,493
)
$
3,507,489
 
                                       
Liabilities and Shareholders' Equity
                                     
Current liabilities:
                                     
  Accounts payable
 
$
(465,247
)
$
(405,697
)
$
909,673
 
$
682
 
$
30,129
 
$
69,540
 
  Accrued compensation and related
    liabilities
   
----
   
35,378
   
19,224
   
2,412
   
----
   
57,014
 
  Accrued liabilities
   
61,994
   
190,775
   
(22,770
)
 
4,886
   
(45
)
 
234,840
 
  Income taxes:
                                     
      Current
   
----
   
11,008
   
39,295
   
754
   
----
   
51,057
 
      Deferred
   
----
   
----
   
38,335
   
1,171
   
----
   
39,506
 
  Long-term debt due within
   one year
   
----
   
228,228
   
1,098
   
----
   
(187
)
 
229,139
 
Total current liabilities
   
(403,253
)
 
59,692
   
984,855
   
9,905
   
29,897
   
681,096
 
                                       
Long-term debt due after one year
   
----
   
659,937
   
(56,055
)
 
84,529
   
(34,035
)
 
654,376
 
Deferred income taxes
   
----
   
10,263
   
101,082
   
4,513
   
----
   
115,858
 
Total shareholders’ equity
   
2,037,905
   
1,193,538
   
1,709,880
   
286,191
   
(3,171,355
)
 
2,056,159
 
   
$
1,634,652
 
$
1,923,430
 
$
2,739,762
 
$
385,138
 
$
(3,175,493
)
$
3,507,489
 



21






CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 31, 2006
(RESTATED)*

 
      
   
Cintas Corporation 
   
Corp. 2
   
Subsidiary
Guarantors
 
Non-Guarantors
 
Eliminations
 
Cintas
Corporation
 Consolidated
Assets
                                             
Current assets:
                                             
Cash and cash equivalents
 
$
----
 
$
9,461
 
$
8,674
     
$
20,779
   
$
----
   
$
38,914
 
Marketable securities
   
----
   
154,711
   
----
       
47,828
     
----
     
202,539
 
Accounts receivable, net
   
----
   
256,602
   
124,143
       
21,378
     
(12,218
   
389,905
 
Inventories, net
   
----
   
172,279
   
27,582
       
8,256
     
(10,117
   
198,000
 
Uniforms and other rental items in service
   
----
   
272,197
   
77,636
       
19,996
     
(32,342
   
337,487
 
Prepaid expenses
   
----
   
8,169
   
2,539
       
455
     
----
     
11,163
 
Total current assets
   
----
   
873,419
   
240,574
       
118,692
     
(54,677
   
1,178,008
 
                                               
Property and equipment, at cost, net
   
----
   
604,813
   
208,684
       
50,286
     
----
     
863,783
 
                                               
Goodwill
   
----
   
292,969
   
822,165
       
21,041
     
----
     
1,136,175
 
Service contracts, net
   
----
   
112,016
   
61,324
       
6,625
     
----
     
179,965
 
Other assets, net
   
1,582,561
   
70,113
   
1,165,524
       
186,430
     
(2,937,322
   
67,306
 
   
$
1,582,561
 
$
1,953,330
 
$
2,498,271
     
$
383,074
   
$
(2,991,999
 
$
3,425,237
 
                                               
Liabilities and Shareholders' Equity
                                             
Current liabilities:
                                             
Accounts payable
 
$
(465,247
)
$
(205,605
)
$
716,714
     
$
(12,240
)
 
$
38,013
   
$
71,635
 
Accrued compensation and related liabilities
   
----
   
34,796
   
12,651
       
2,687
     
----
     
50,134
 
Accrued liabilities
   
----
   
190,728
   
(7,518
)
     
6,666
     
(949
   
188,927
 
Income taxes:
                                             
Current
   
----
   
4,081
   
37,355
       
2,258
     
----
     
43,694
 
Deferred
   
----
   
----
   
50,421
       
1,248
     
----
     
51,669
 
Long-term debt due within one year
   
----
   
3,549
   
911
       
----
     
(172
   
4,288
 
Total current liabilities
   
(465,247
)
 
27,549
   
810,534
       
619
     
36,892
     
410,347
 
                                               
Long-term debt due after one year
   
----
   
801,649
   
(61,312
)
     
89,770
     
(35,653
   
794,454
 
Deferred income taxes
   
----
   
10,263
   
115,187
       
4,794
     
----
     
130,244
 
Total shareholders’ equity
   
2,047,808
   
1,113,869
   
1,633,862
       
287,891
     
(2,993,238
   
2,090,192
 
   
$
1,582,561
 
$
1,953,330
 
$
2,498,271
     
$
383,074
   
$
(2,991,999
 
$
3,425,237
 

* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.

22


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 2007
 


   
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
Cash flows from operating activities:
                             
Net income
 
$
244,216
 
$
44,753
 
$
178,454
 
$
20,543
 
$
(243,750
)
   
$
244,216
 
Adjustments to reconcile net income to net
                                         
cash provided by (used in) operating
    activities:
                                         
Depreciation
   
----
   
61,491
   
33,621
   
4,924
   
----
       
100,036
 
Amortization of deferred charges
   
----
   
17,250
   
10,913
   
1,852
   
----
       
30,015
 
Stock-based compensation
   
2,746
   
----
   
----
   
----
   
----
       
2,746
 
Deferred income taxes
   
----
   
----
   
(18,707
)
 
(355
)
 
----
       
(19,062
)
Changes in current assets and 
      liabilities, net of acquisitions of
          businesses:
                                         
Accounts receivable
   
----
   
(1,689
)
 
(4,825
)
 
617
   
6,808
       
911
 
Inventories
   
----
   
(30,706
)
 
1,637
   
649
   
244
       
(28,176
)
Uniforms and other rental items
           in service
   
----
   
2,036
   
(3,723
)
 
803
   
(711
)
     
(1,595
)
Prepaid expenses
   
----
   
(1,571
)
 
(1,746
)
 
(359
)
 
----
       
(3,676
)
Accounts payable
   
----
   
(192,584
)
 
185,476
   
12,922
   
(7,884
)
     
(2,070
)
Accrued compensation and
           related liabilities
   
----
   
582
   
6,573
   
(275
)
 
----
       
6,880
 
Accrued liabilities
   
----
   
224
   
(14,859
)
 
(1,780
)
 
904
       
(15,511
)
Tax benefit on exercise of stock
          options
   
(37
)
 
----
   
----
   
----
   
----
       
(37
)
Income taxes payable
   
----
   
6,927
   
1,977
   
(1,504
)
 
----
       
7,400
 
                                           
Net cash provided by (used in) operating
  activities
   
246,925
   
(93,287
)
 
374,791
   
38,037
   
(244,389
)
     
322,077
 
                                           
Cash flows from investing activities:
                                         
Capital expenditures
   
----
   
(62,138
)
 
(61,576
)
 
(4,922
)
 
----
       
(128,636
)
Proceeds from sale or redemption of
  marketable securities
   
----
   
99,475
   
----
   
3,396
   
----
       
102,871
 
Purchase of marketable securities
   
----
   
(629
)
 
----
   
(24,272
)
 
----
       
(24,901
)
Acquisitions of businesses, net of cash
  acquired
   
----
   
(63,240
)
 
(71,736
)
 
(35
)
 
----
       
(135,011
)
Other
   
(52,054
)
 
33,939
   
(248,223
)
 
7,249
   
242,786
       
(16,303
)
                                           
Net cash (used in) provided by investing activities
   
(52,054
)
 
7,407
   
(381,535
)
 
(18,584
)
 
242,786
       
(201,980
)
                                           
Cash flows from financing activities:
                                         
Proceeds from issuance of debt
   
----
   
250,000
   
2,460
   
----
   
----
       
252,460
 
Repayment of debt
   
----
   
(167,033
)
 
2,984
   
(5,241
)
 
1,603
       
(167,687
)
Stock options exercised
   
9,529
   
----
   
----
   
----
   
----
       
9,529
 
Tax benefit on exercise of stock options
   
37
   
----
   
----
   
----
   
----
       
37
 
Purchase of common stock
   
(198,949
)
 
----
   
----
   
----
   
----
       
(198,949
)
Other
   
(5,488
)
 
(5,695
)
 
----
   
(11,660
)
 
----
       
(22,843
)
                                           
Net cash (used in) provided by financing
  activities
   
(194,871
)
 
77,272
   
5,444
   
(16,901
)
 
1,603
       
(127,453
)
                                           
Net (decrease) increase in cash and cash
  equivalents
   
----
   
(8,608
)
 
(1,300
)
 
2,552
   
----
       
(7,356
)
Cash and cash equivalents at beginning of period
   
----
   
9,461
   
8,674
   
20,779
   
----
       
38,914
 
Cash and cash equivalents at end of period
 
$
----
 
$
853
 
$
7,374
 
$
23,331
 
$
----
     
$
31,558
 
 
 


23

 
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 2006
(RESTATED)*
 
 

   
Cintas
Corporation
 
Corp. 2
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Cintas
Corporation
Consolidated
 
Cash flows from operating activities:
                         
Net income
 
$    231,855
 
$   49,795
 
$   159,513
 
$    15,583
 
(224,891
$     231,855
 
Adjustments to reconcile net income
  to net cash provided by (used in)
  operating activities:
                                     
Depreciation
   
----
   
57,851
   
31,449
   
4,714
   
----
   
94,014
 
Amortization of deferred charges
   
----
   
13,499
   
8,524
   
2,107
   
----
   
24,130
 
Stock-based compensation
   
4,507
   
----
   
----
   
----
   
----
   
4,507
 
Deferred income taxes
   
----
   
----
   
6,804
   
595
   
----
   
7,399
 
Changes in current assets and
liabilities, net of acquisitions and
businesses:
                                     
Accounts receivable
   
----
   
7,307
   
(10,486
)
 
(9,932
)
 
(1,076
)
 
(14,187
)
Inventories
   
----
   
16,692
   
(5
)
 
239
   
(4,942
)
 
11,984
 
Uniforms and other rental
items in service
   
----
   
(6,354
)
 
(672
)
 
(2,163
)
 
(2,051
)
 
(11,240
)
Prepaid expenses
   
----
   
(639
)
 
(154
)
 
3
   
----
   
(790
)
Accounts payable
   
----
   
(75,529
)
 
68,200
   
(1,881
)
 
----
   
(9,210
)
Accrued compensation and
related liabilities
   
----
   
(415
)
 
803
   
123
   
----
   
511
 
Accrued liabilities
   
----
   
(15,207
)
 
(18,103
)
 
100
   
917
   
(32,293
)
Tax benefit on exercise of
stock options
   
(706
)
 
----
   
----
   
----
   
----
   
(706
)
Income taxes payable
   
----
   
10,564
   
(5,446
)
 
(200
)
 
29
   
4,947
 
                                       
Net cash provided by (used in) operating
activities
   
235,656
   
57,564
   
240,427
   
9,288
   
(232,014
)
 
310,921
 
                                       
Cash flows from investing activities:
                                     
Capital expenditures
   
----
   
(43,263
)
 
(49,794
)
 
(9,023
)
 
----
   
(102,080
)
Proceeds from sale or redemption of
marketable securities
   
----
   
65,075
   
----
   
9,745
   
----
   
74,820
 
Purchase of marketable securities
   
----
   
(310
)
 
----
   
(11,036
)
 
----
   
(11,346
)
Acquisitions of businesses, net of cash
     acquired
   
----
   
(228,965
)
 
(94,449
)
 
(4,569
)
 
----
   
(327,983
)
Other
   
(128,765
)
 
(16,820
)
 
(94,054
)
 
(8,290
)
 
234,099
   
(13,830
)
                                       
Net cash (used in) provided by investing
activities
   
(128,765
)
 
(224,283
)
 
(238,297
)
 
(23,173
)
 
234,099
   
(380,419
)
                                       
Cash flows from financing activities:
                                     
Proceeds from issuance of debt
   
----
   
173,000
   
----
   
----
   
----
   
173,000
 
Repayment of debt
   
----
   
(6,578
)
 
(6,625
)
 
8,220
   
(2,085
)
 
(7,068
)
Stock options exercised
   
11,404
   
----
   
----
   
----
   
----
   
11,404
 
Tax benefit on exercise of stock options
   
706
   
----
   
----
   
----
   
----
   
706
 
Purchase of common stock
   
(114,170
)
 
----
   
----
   
----
   
----
   
(114,170
)
Other
   
(4,831
)
 
218
   
----
   
15,086
   
----
   
10,473
 
                                       
Net cash (used in) provided by financing
activities
   
(106,891
)
 
166,640
   
(6,625
)
 
23,306
   
(2,085
)
 
74,345
 
                                       
Net (decrease) increase in cash and cash
equivalents
   
----
   
(79
)
 
(4,495
)
 
9,421
   
----
   
4,847
 
Cash and cash equivalents at beginning of
period
   
----
   
13,259
   
12,570
   
17,367
   
----
   
43,196
 
Cash and cash equivalents at end of period
 
$
----
 
$
13,180
 
$
8,075
 
$
26,788
 
$
----
 
$
48,043
 
 
* Restated to reflect the adoption of FAS 123(R) using the modified-retrospective method.


24





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

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

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

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

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


RESULTS OF OPERATIONS

Cintas classifies its businesses into two operating segments, Rentals and Other Services, based on the similar economic characteristics of the products and services within each segment. The Rentals operating segment reflects the rental and servicing of uniforms and other garments, mats, mops and shop towels. In addition to these rental items, we also provide our restroom and hygiene products and services within this segment. The Other Services operating segment consists of the direct sale of uniforms and related items, first aid, safety and fire protection products and services, document management services and branded promotional products. Both segments provide these products and services throughout the United States and Canada to businesses of all types - from small service and manufacturing companies to major corporations that employ thousands of people.


New Accounting Pronouncement

At February 28, 2007, Cintas had an equity compensation plan, which is more fully described in Note 6 entitled Stock-Based Compensation of “Notes to Consolidated Financial Statements.” Prior to June 1, 2006, Cintas accounted for this plan under the intrinsic value method proscribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation. Effective June 1, 2006, Cintas adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the
 
 
25

 
modified-retrospective transition method. Under that transition method, all prior periods have been restated based on the amounts previously calculated in the pro forma footnote disclosures required by Statement 123. Statement 123(R) requires all share-based payments to employees, including stock options, to be recognized as an expense in the statement of income based on their fair values. Due to this restatement, Cintas’ income before income taxes and net income decreased by $1.2 million for the three months ended February 28, 2006, and $3.4 million for the nine months ended February 28, 2006. This adoption lowered basic earnings per share for the third quarter of fiscal 2006 from $0.47 per share to $0.46 per share for the quarter. Likewise, diluted earnings per share for the third quarter of fiscal 2006 were lowered from $0.46 per share to $0.45 for the quarter. This adoption also lowered basic earnings per share year-to-date from $1.40 per share to $1.38 per share. In addition, diluted earnings per share year-to-date were lowered from $1.39 per share to $1.37 per share. The cumulative effect of the change on total shareholders’ equity as of May 31, 2006, was less than $1,000.

As a result of adopting Statement 123(R) on June 1, 2006, Cintas’ income before income taxes and net income for the nine months ended February 28, 2007, are $2.7 million and $1.7 million lower than if Cintas had continued to account for share-based compensation under Opinion 25. Basic earnings per share are $.02 lower and diluted earnings per share are $.01 lower for the nine months ended February 28, 2007, than if Cintas had continued to account for share-based compensation under Opinion 25.

Three Months Ended February 2007 Compared to Three Months Ended February 2006

Revenue, Expenses and Income

Revenue Comparison

Total revenue increased 8.2% for the three months ended February 28, 2007, over the same period in fiscal 2006. Internal growth for this period was 4.5%. The remaining 3.7% represents growth derived mainly through the acquisitions of uniform and mat rental businesses in our Rentals segment and acquisitions of first aid, safety and fire protection businesses and document management businesses within our Other Services segment.
 
Net Rentals revenue increased 5.4% for the three months ended February 28, 2007, over the same period in the prior fiscal year. Rentals operating segment internal growth for the third quarter of fiscal 2007 was 3.0% as compared to the three months ended February 28, 2006. The Net Rentals revenue internal growth is primarily due to the sale of new rental programs to customers, offset by lost business. The remaining growth was generated primarily through the acquisition of uniform and mat rental businesses.
 
Other Services revenue increased 16.9% for the three months ended February 28, 2007, over the same period in the prior year. Other Services operating segment internal growth for the third quarter of fiscal 2007 was 9.3% as compared to the three months ended February 28, 2006. This internal growth was generated primarily through the increased direct sale of uniforms to national customers and increased sales of first aid and safety products and services and document management services to customers. The additional growth was generated through a combination of acquisitions of first aid, safety and fire protection businesses and document management businesses.

Expense Comparison

Cost of rentals consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other rental items. Cost of rentals increased 5.9% for the three months ended February 28, 2007, as compared to the three months ended February 28, 2006. This increase reflects a rise in material costs of $8.6 million due to increased Rentals revenue and an increase in delivery labor of $8.7 million due to increased Rentals revenue and the introduction of our restroom cleaning service. These increases were offset by an 8.2% decrease in Rentals energy costs from approximately $28 million in the three months ended February 28, 2006, to approximately $26 million in the three months ended February 28, 2007.
 
 
26


 
Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses. Cost of other services increased 11.7% for the three months ended February 28, 2007, as compared to the three months ended February 28, 2006. This increase was mainly due to increased sales in this segment. Gross margin within this segment may fluctuate depending on the type of product or service sold, as more cost efficient sourcing is employed and as products which require additional services or specialization generate higher gross margins. For example, tailored garments that incorporate high levels of design and customization tend to generate higher gross margins than work wear and standard catalog items. The current quarter’s gross margin is 38.1%, which is slightly higher than the expected range of 32% to 37% for this segment. However, the gross margin for the nine months ended February 28, 2007, continues to be within the expected range.

Selling and administrative expenses increased 12.8% for the three months ended February 28, 2007, as compared to the three months ended February 28, 2006. In order to accelerate revenue growth, we continue to increase our sales force, marketing plans and sales promotions. We have also reorganized our sales efforts this fiscal year to become more efficient and productive. These measures combined to increase our selling costs by $10.7 million over the prior year. The cost of providing medical and retirement benefits to our employees increased $7.4 million, representing a 21.4% increase over the prior year. In addition, administrative expenses increased by $2.1 million as a result of an increase in professional services relating to legal and the outsourcing of certain human resource functions. Administrative expenses also increased by $1.9 million due to the amortization of intangibles obtained with new acquisitions.

Net interest expense (interest expense less interest income) was $10.2 million for the three months ended February 28, 2007, compared to $5.3 million for the same period in the prior fiscal year. This increase in net interest expense is primarily due to the increased level of borrowing used to fund acquisitions and to fund the stock buyback program.

Cintas’ effective tax rate is 37.3% for the three months ended February 28, 2007, which is consistent with the first half of fiscal 2007. This effective tax rate is lower than the effective tax rate of 37.8% for the three months ended February 28, 2006, as a result of changes in state tax rates.

Income Comparison

Net income increased 0.2% for the three months ended February 28, 2007, over the same period in fiscal 2006, primarily due to revenue growth. Diluted earnings per share increased 6.7% for the three months ended February 28, 2007, over the same period in the prior fiscal year. This increase is greater than the net income increase of 0.2% due to the impact of the stock buyback program.


Nine Months Ended February 2007 Compared to Nine Months Ended February 2006

Revenue, Expenses and Income

Revenue Comparison

Total revenue increased 9.9% for the nine months ended February 28, 2007, over the same period in fiscal 2006. Internal growth for this period was 5.6%. The remaining 4.3% represents growth derived mainly through the acquisitions of uniform and mat rental businesses in our Rentals segment and acquisitions of first aid, safety and fire protection businesses and document management businesses within our Other Services segment.
 
Net Rentals revenue increased 7.8% for the nine months ended February 28, 2007, over the same period in the prior fiscal year. Rentals operating segment internal growth through the third quarter of fiscal 2007 was 4.8% as compared to the nine months ended February 28, 2006. The net Rentals revenue growth is primarily due to the sale of new rental programs to customers, offset by lost business. The remaining growth was generated primarily through the acquisition of uniform and mat rental businesses.
 
 
27

 
Other Services revenue increased 16.6% for the nine months ended February 28, 2007, over the same period in the prior year. Other Services operating segment internal growth through the third quarter of fiscal 2007 was 8.2% as compared to the nine months ended February 28, 2006. This internal growth was generated primarily through the increased direct sale of uniforms to national customers and increased sales of first aid and safety products and services and document management services to customers. The additional growth was generated through a combination of acquisitions of first aid, safety and fire protection businesses and document management businesses.

Expense Comparison

Cost of rentals consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other rental items. Cost of rentals increased 8.6% for the nine months ended February 28, 2007, as compared to the nine months ended February 28, 2006, reflecting the growth in Rentals revenue. In addition, we incurred $3.7 million in impairment and other related charges due to the closing of a Detroit, Michigan Rental processing plant. Partially offsetting these increased costs was an insurance recovery of $1.9 million representing receipt of the final settlement of our claims related to the hurricanes which occurred in fiscal 2006. As a result of these items, cost of rentals increased as a percent of Rentals revenue to 55.4% for the nine months ended February 28, 2007, as compared to 55.0% for the nine months ended February 28, 2006.

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses. Cost of other services increased 12.3% for the nine months ended February 28, 2007, as compared to the nine months ended February 28, 2006. This increase was mainly due to increased sales in this segment. Gross margin within this segment may fluctuate depending on the type of product or service sold, as more cost efficient sourcing is employed and as products which require additional services or specialization generate higher gross margins. For example, tailored garments that incorporate high levels of design and customization tend to generate higher gross margins than work wear and standard catalog items. The gross margin for the nine months ended February 28, 2007, is 36.7%, which is in line with the expected range of 32% to 37% for this segment.

Selling and administrative expenses increased 11.3% for the nine months ended February 28, 2007, as compared to the nine months ended February 28, 2006. Selling and administrative expenses as a percent of revenue increased 0.4% for the nine months ended February 28, 2007, as compared to the nine months ended February 28, 2006. In order to accelerate revenue growth, we continue to increase our sales force, marketing plans and sales promotions. We have also reorganized our sales efforts this fiscal year to become more efficient and productive. These measures combined to increase our selling costs by $20.8 million over the prior year. The cost of providing medical and retirement benefits to our employees increased $22.2 million, representing a 21.9% increase over the prior year. In addition, administrative expenses increased by $6.4 million as a result of an increase in professional services relating to legal and the outsourcing of certain human resource functions. Administrative expenses also increased by $5.9 million due to the amortization of intangibles obtained with new acquisitions.

Net interest expense (interest expense less interest income) was $32.0 million for the nine months ended February 28, 2007, compared to $17.1 million for the same period in the prior fiscal year. This increase in net interest expense is primarily due to the increased level of borrowing used to fund acquisitions and to fund the stock buyback program.

Cintas’ effective tax rate is 37.3% for the nine months ended February 28, 2007. This effective tax rate is lower than the effective tax rate of 37.6% for the nine months ended February 28, 2006, as a result of changes in state tax rates.

Income Comparison

Net income increased 5.3% for the nine months ended February 28, 2007, over the same period in fiscal 2006, primarily due to revenue growth. Diluted earnings per share increased 10.9% for the nine months ended February 28, 2007, over the same period in the prior fiscal year. This increase is greater than the net income increase of 5.3% due to the impact of the stock buyback program.
 
 

 
28

 
Financial Condition

At February 28, 2007, there was $157 million in cash, cash equivalents and marketable securities, a decrease of $84 million from May 31, 2006. This decrease was primarily due to pre-funding of employee medical costs and the purchasing of our company stock, as discussed below. Capital expenditures were approximately $129 million for the nine months ended February 28, 2007. We expect capital expenditures for the year to be between $160 and $170 million. Cash, cash equivalents and marketable securities are expected to be used to finance future acquisitions, capital expenditures, expansion and additional purchases under the stock buyback program as detailed below. We believe that our current cash position, funds generated from operations and the strength of our banking relationships provides sufficient means to meet our anticipated operational and capital requirements.

Net property and equipment increased by $37 million from May 31, 2006 to February 28, 2007, due to our continued investment in rental facilities and equipment. At the end of the third quarter of fiscal 2007, Cintas had three uniform rental facilities under construction.

In May, 2005, the Board of Directors authorized and announced a $500 million stock buyback program. This program was essentially completed during the first quarter of fiscal 2007. The Board of Directors approved an expansion of this share buyback program in July, 2006 by an additional $500 million. For the three months ended February 28, 2007, Cintas purchased approximately 1.4 million shares of Cintas stock at an average price of $40.68 per share for a total purchase price of approximately $57 million. From the inception of the stock buyback program through February 28, 2007, Cintas has purchased a total of approximately 14.2 million shares of Cintas stock, or approximately 8% of the total shares outstanding at the beginning of the program, at an average price of $40.89 per share for a total purchase price of approximately $580 million.

Following is information regarding Cintas' long-term contractual obligations and other commitments outstanding as of February 28, 2007:

(In thousands)
 
Payments Due by Period
 
Long-term contractual obligations
   
Total
   
One year
or less
   
Two to
three
years
   
Four to
five years
   
After five
years
 
                                 
Long-term debt (1)
 
$
881,634
 
$
228,526
 
$
171,410
 
$
1,240
 
$
480,458
 
Capital lease obligations (2)
   
1,881
   
613
   
788
   
240
   
240
 
Operating leases (3)
   
53,606
   
16,085
   
21,536
   
10,185
   
5,800
 
Interest payments (4)
   
539,985
   
41,780
   
58,755
   
58,528
   
380,922
 
Interest swap agreements (5)
   
----
   
----
   
----
   
----
   
----
 
Unconditional purchase obligations
   
----
   
----
   
----
   
----
   
----
 
Total contractual cash obligations
 
$
1,477,106
 
$
287,004
 
$
252,489
 
$
70,193
 
$
867,420
 

Cintas also makes payments to defined contribution plans. The amounts of contributions made to the plans are made at the discretion of Cintas. Future contributions are assumed to increase 15% annually. Assuming this 15% increase, payments due in one year or less would be $31,791, two to three years would be $78,602 and four to five years would be $103,951. Payments for years thereafter are assumed to continue increasing by 15% each year.

(1)  
Long-term debt primarily consists of $700,000 in long-term notes, including $225,000 of long-term debt due within one year.
(2)  
Capital lease obligations are classified as debt on the balance sheet.
(3)  
Operating leases consist primarily of building leases and a synthetic lease on a corporate jet.
(4)  
Interest payments include interest on both fixed and variable rate debt. Rates have been assumed to remain constant for the remainder of fiscal 2007, increase 25 basis points in fiscal 2008, an additional 25 basis points in fiscal 2009 and then remain constant in future years.
(5)  
Reference Note 5 entitled Debt, Derivatives and Hedging Activities of “Notes to Consolidated Condensed Financial Statements” for a detailed discussion of interest swap agreements.
 
 
 
29


 
(In thousands)
 
Amount of Commitment Expiration Per Period
 
Other commercial commitments
   
Total
   
One year
or less
   
Two to
three
years
   
Four to
five years
   
After five
years
 
                                 
Lines of credit (1)
 
$
400,000
 
$
----
 
$
----
 
$
400,000
 
$
----
 
Standby letter of credit (2)
   
75,448
   
75,432
   
16
   
----
   
----
 
Guarantees
   
----
   
----
   
----
   
----
   
----
 
Standby repurchase obligations
   
----
   
----
   
----
   
----
   
----
 
Other commercial commitments
   
----
   
----
   
----
   
----
   
----
 
Total commercial commitments
 
$
475,448
 
$
75,432
 
$
16
 
$
400,000
 
$
----
 

(1)  
Back-up facility for the commercial paper program.
(2)  
Support certain outstanding debt and self-insured workers' compensation and general liability insurance programs.

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

Litigation and Other Contingencies

Cintas is 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 operations of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business, including the litigation discussed below.

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

Cintas also is a defendant in a purported class action lawsuit, Mirna E. Serrano, et al. v. Cintas Corporation, filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division (“Serrano”). Serrano alleges that Cintas discriminated against women in hiring into various SSR positions across all divisions of Cintas throughout the United States. On November 15, 2005, the Equal Employment Opportunity Commission (“EEOC”) intervened in the Serrano lawsuit. The Serrano plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. Cintas is a defendant in another purported class action lawsuit, Nelly Blanca Avalos, et al. v. Cintas Corporation, currently pending in the United States District Court, Eastern District of Michigan, Southern Division (“Avalos”). Avalos alleges that Cintas discriminated against
 
 
30

 
 women, African-Americans and Hispanics in hiring into various SSR positions in Cintas’ Rental division only throughout the United States. On April 27, 2005, the EEOC intervened in the claims asserted in Avalos. The Avalos plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. The claims in Avalos originally were brought in the previously disclosed lawsuit captioned Robert Ramirez, et al. v. Cintas Corporation, filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division (“Ramirez”). On May 11, 2006, however, those claims were severed from Ramirez and transferred to the Eastern District of Michigan, Southern Division, where the case was re-named Avalos. On July 10, 2006, Avalos and Serrano were consolidated for all pretrial purposes, including proceedings on class certification. The consolidated case is known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation, and remains pending in the United States District Court, Eastern District of Michigan, Southern Division (“Serrano/Avalos”). No filings or determinations have been made in Serrano/Avalos as to class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. The non-SSR hiring claims in the previously disclosed Ramirez case that have not been dismissed remain pending in the Northern District of California, San Francisco Division, but were ordered to arbitration and stayed pending the completion of arbitration. The Ramirez purported class action claims currently in arbitration include allegations that Cintas failed to promote Hispanics into supervisory positions, discriminated against African-Americans and Hispanics in SSR route assignments and discriminated against African-Americans in hourly pay in Cintas’ Rental division only throughout the United States. The Ramirez plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies. No filings or determinations have been made in Ramirez as to class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. In addition, a class action lawsuit, Larry Houston, et al. v. Cintas Corporation, was filed on August 3, 2005, in the United States District Court for the Northern District of California on behalf of African-American managers alleging racial discrimination (“Houston”). On November 22, 2005, the court entered an order requiring the named plaintiffs in the Houston lawsuit to arbitrate all of their claims for monetary damages. If there is an adverse verdict or a negotiated settlement of all or any of these actions, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas. Any estimated liability relating to these proceedings is not determinable at this time.

Several other similar administrative proceedings are pending including two charges filed on November 30, 2004, by an EEOC Commissioner with the EEOC Systemic Litigation Unit alleging: (i) failure to hire and assign females to production job positions; and (ii) failure to hire females, African-Americans and Hispanics into the Management Trainee program. The investigations of these allegations are pending and no determinations have been made. On August 29, 2006, the EEOC Indianapolis District Office issued a dismissal and notice of rights and closed its file on the Clifton Cooper charge served on Cintas on March 23, 2005, by Cooper on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race. Mr. Cooper’s claims are now part of the Houston arbitration matter disclosed hereinabove.
 
Cintas is also a defendant in a lawsuit, J. Lester Alexander, III vs. Cintas Corporation, et al., which was originally filed on October 25, 2004, and is currently pending in the Circuit Court of Randolph County, Alabama. The case was brought by J. Lester Alexander, III, the Chapter 7 Trustee (the “Trustee”) of Terry Manufacturing Company, Inc. ("TMC") and Terry Uniform Company, LLC ("TUC"), against Cintas in Randolph County, Alabama. The Trustee seeks damages against Cintas for allegedly breaching fiduciary duties to TMC and TUC and for allegedly aiding and abetting breaches of fiduciary duties by others to those entities. The complaint also includes allegations that Cintas breached certain limited liability company agreements, or alternatively, misrepresented its intention to perform its obligations in those agreements and acted as alter egos of the bankrupt TMC and is therefore liable for all of TMC's debts. The Trustee is seeking $50 million in compensatory damages and $100 million in punitive damages. Cintas denies these claims and is vigorously defending itself against all claims in the complaint. Cintas filed counterclaims against J. Lester Alexander, III and cross claims against Roy Terry, Rudolph Terry and Cotina Terry (collectively referred to herein as the Individual Co-Defendants). The Individual Co-Defendants have filed cross claims against Cintas alleging fraudulent inducement, breach of fiduciary duty, negligence and wantonness. If there is an adverse verdict on the merits or in the event of a negotiated settlement of this lawsuit, the resulting liability could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable at this time.
 
 

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

As we look forward to the remainder of fiscal 2007, our outlook remains positive, but guarded. In an effort to further increase our revenue, we have reorganized our sales efforts to become more efficient and productive. In the short term, this change has caused disruption due to the promotion of many high-performing sales reps into management jobs, the time to train them in their new roles and the time necessary to develop their newly hired replacements. We anticipate the full benefit of this new organization will be felt as these new sales representatives become fully productive. We will also continue searching out additional products and services to become an even more valuable resource for our customers. As such, we see upside potential for all of our business units. Although difficult to predict, we anticipate continued growth in all of our business units.

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

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

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

For the remainder of fiscal year 2007, we expect our effective tax rate to be consistent with that of the nine months ended February 28, 2007.

We will continue to evaluate the opportunities for executing the stock buyback program that was approved by the Board of Directors in May, 2005 and expanded in the first quarter of fiscal 2007.

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

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



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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. This market risk exposure to interest rates has been previously disclosed on page 28 of our most recent Form 10-K.

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


ITEM 4.
CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

With the participation of Cintas’ management, including Cintas’ Chief Executive Officer and President, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of February 28, 2007. Based on such evaluation, Cintas’ management, including Cintas’ Chief Executive Officer and President, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas’ disclosure controls and procedures were effective as of February 28, 2007, 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, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. See “Management’s Report on Internal Control over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” on pages 29 and 30 of our most recent Form 10-K.


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Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements.  Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar expressions and by the context in which they are used.  Such statements are based upon current expectations of Cintas and speak only as of the date made.  These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ from those set forth in or implied by this 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 costs, lower sales volumes, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, the initiation or outcome of litigation, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic events, changes in federal and state tax laws and the reactions of competitors in terms of price and service.  Cintas undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses in Part II, Item 1A, of this Quarterly Report and in our Annual Report on Form 10-K for the year ended May 31, 2006. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the risk factors identified in Part II, Item 1A, in this Quarterly Report and in our Form 10-K for the year ended May 31, 2006, to be a complete discussion of all potential risks or uncertainties.



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CINTAS CORPORATION

Part II. Other Information

Item 1. Legal Proceedings

I. Supplemental Information: We discuss certain legal proceedings pending against us in Part I of this Quarterly Report on Form 10-Q under the caption “Item 1. Financial Statements,” in Note 8 to our financial statements, which is captioned “Litigation and Other Contingencies,” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Litigation and Other Contingencies.” We refer you to those discussions for important information concerning those legal proceedings, including the basis for such actions and, where known, the relief sought. We provide the following additional information concerning those legal proceedings which sets forth the name of the lawsuit, the court in which the lawsuit is pending and the date on which the petition commencing the lawsuit was filed.

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

Race and Gender Litigation and Related Charges: Robert Ramirez, et al. v. Cintas Corporation, United States District Court, Northern District of California, San Francisco Division, January 20, 2004; On April 27, 2005, the EEOC intervened in some of the claims in Ramirez; Mirna E. Serrano, et al. v. Cintas Corporation, United States District Court for the Eastern District of Michigan, Southern Division, May 10, 2004; On November 15, 2005, the EEOC intervened in Serrano; On May 11, 2006, the Ramirez African-American, Hispanic and female failure to hire into service sales representative position claims and the EEOC’s intervention were transferred to the Eastern District of Michigan, Southern Division; The remaining claims in Ramirez were dismissed or compelled to arbitration; On July 10, 2006, the claims that were transferred from Ramirez to the Eastern District of Michigan, Southern Division were consolidated with the Serrano case for pretrial purposes and the case was renamed Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation; Larry Houston, et al. v. Cintas Corporation, United States District Court for the Northern District of California, August 3, 2005; On November 22, 2005, the named plaintiffs in Houston were ordered to arbitration and EEOC charges filed by an EEOC Commissioner on November 30, 2004, with the EEOC Systemic Litigation Unit. On August 29, 2006, the EEOC issued a dismissal and notice of rights and closed its file on the previously disclosed class action charge filed by Clifton Cooper on March 23, 2005, with the EEOC Systemic Litigation Unit.
 
Breach of Fiduciary Duties: J. Lester Alexander, III vs. Cintas Corporation, et al., Randolph County, Alabama Circuit Court, October 25, 2004.



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Item 1A.   Risk Factors

The risks described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended May 31, 2006, describe risks that could materially and adversely affect our business, financial condition and results of operations and the trading price of our debt or equity securities could decline. These risks are not the only risks that we face. Our business, financial condition and results of operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations.


    Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 
(c) On May 2, 2005, Cintas announced that the Board of Directors authorized a $500 million stock buyback program at market prices. In July 2006, Cintas announced that the Board of Directors approved the expansion of its share buyback program by an additional $500 million. The Board did not specify an expiration date for this program.
 

 
Period
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of the publicly announced plan
Maximum approximate dollar value of shares that may yet be purchased under the plan
December 2006
250,000
$40.10
13,046,485
$466,402,264
         
January 2007
850,838
$40.58
13,897,323
$431,875,381
         
February 2007
300,000
$41.46
14,197,323
$419,438,500
         
Total
1,400,838
$40.68
14,197,323
$419,438,500

 
For the three months ended February 28, 2007, Cintas purchased 1,400,838 shares of Cintas stock at an average price of $40.68 per share for a total purchase price of approximately $57 million. From the inception of the stock buyback program through February 28, 2007, Cintas has purchased a total of approximately 14.2 million shares of Cintas stock at an average price of $40.89 per share for a total purchase price of approximately $580 million. The maximum approximate dollar value of shares that may yet be purchased under the plan as of February 28, 2007, is $419,438,500.
 
During the third quarter of fiscal 2007, Cintas also acquired 30,870 shares as payment received from employees upon the exercise of options under the stock option plan.
 

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Item 5. Other Information

On January 16, 2007, Cintas declared an annual cash dividend of $.39 per share on outstanding common stock, an 11.4 percent increase over the dividends paid in the prior year. The dividend was paid on March 13, 2007, to shareholders of record as of February 6, 2007.


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


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 5, 2007 By:   /s/   William C. Gale
 
William C. Gale
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer) 
 
 


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