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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


X
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the Fiscal Year Ended May 31, 20092010

 
  

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 
  

Commission File No. 0-11399

CINTAS CORPORATION
(Exact name of Registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 Name of each exchange on which registered
Common Stock, no par value The NASDAQ Stock Market LLC (NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by checkmark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ü NO  
  
 
   
 

Indicate by checkmark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES   NO ü
  
 
   
 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES ü NO  
  
 
   
 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.         

Indicate by a checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

YES   NO  
  
 
   
 

Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer   ü         Accelerated Filer                Smaller Reporting Company                Non-Accelerated Filer                (Do not check if a smaller reporting company)

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES   NO ü
  
 
   
 

The aggregate market value of the Common Stock held by non-affiliates as of November 30, 2008,2009, was $3,669,978,425$4,294,096,390 based on a closing sale price of $24.02$28.09 per share. As of June 30, 2009, 173,085,9262010, 173,207,493 shares of Common Stock were issued and 152,790,170152,869,848 shares were outstanding.

Documents Incorporated by Reference

Portions of the Registrant's Proxy Statement to be filed with the Commission for its 20092010 Annual Meeting of Shareholders are incorporated by reference in Part III as specified.

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Cintas Corporation
Index to Annual Report on Form 10-K





Page
Part I    

Item 1.

 

Business

 

3

Item 1A.

 

Risk Factors

 

4

Item 1B.

 

Unresolved Staff Comments

 

9

Item 2.

 

Properties

 

9

Item 3.

 

Legal Proceedings

 

10

Item 4.

 

Submission of Matters to a Vote of Security Holders[Reserved]

 

10


Part II


 


 


 


 

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

11

Item 6.

 

Selected Financial Data

 

13

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operation

 

14

Item 7A.

 

Quantitative and Qualitative Disclosure About Market Risk

 

29

Item 8.

 

Financial Statements and Supplementary Data

 

3031

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

6667

Item 9A.

 

Controls and Procedures

 

6667

Item 9B.

 

Other Information

 

6667


Part III


 


 


 


 

Item 10.

 

Directors and Executive Officers of the Registrant

 

6768

Item 11.

 

Executive Compensation

 

6768

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

6768

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

6768

Item 14.

 

Principal Accountant Fees and Services

 

6768


Part IV


 


 


 


 

Item 15.

 

Exhibits and Financial Statement Schedules

 

6869

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Part I



Item 1.  Business

Cintas Corporation (Cintas), a Washington corporation, provides highly specialized products and services to businesses of all types primarily throughout the United StatesNorth America and Canada.Latin America, Europe and Asia. Cintas' products and services are designed to enhance its customers' images and brand identification as well as provide a safe and efficient work place. Cintas was founded in 1968 by Richard T. Farmer, currently the Chairman Emeritus of the Board, when he left his family's industrial laundry business in order to develop uniform programs using an exclusive new fabric. In the early 1970's, Cintas acquired the family industrial laundry business. Over the years, Cintas developed additional products and services that complemented its core uniform business and broadened the scope of products and services available to its customers.

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

We provide our products and services to approximately 800,000 businesses of all types — from small service and manufacturing companies to major corporations that employ thousands of people. This diversity in customer base results in no individual customer accounting for greater than one percent of Cintas' total revenue. As a result, the loss of one account would not have a significant financial impact on Cintas.

The following table sets forth Cintas' total revenue and the revenue derived from each operating segment provided by Cintas.segment:

 


Fiscal Year Ended May 31, (in thousands)

  2009  

2008

  

2007

 
 
 
 
 

Rental Uniforms and Ancillary Products

 $2,755,015 $2,834,568 $2,734,629 
 

Uniform Direct Sales

  428,369  517,490  501,443 
 

First Aid, Safety and Fire Protection Services

  378,097  403,552  362,417 
 

Document Management Services

  213,204  182,290  108,411 
     
 

 $3,774,685 $3,937,900 $3,706,900 
     

 


Fiscal Year Ended May 31, (in thousands)

  2010  

2009

  

2008

 
 
 
 
 

Rental Uniforms and Ancillary Products

 $2,569,357 $2,755,015 $2,834,568 
 

Uniform Direct Sales

  386,370  428,369  517,490 
 

First Aid, Safety and Fire Protection Services

  338,651  378,097  403,552 
 

Document Management Services

  252,961  213,204  182,290 
     
 

 $3,547,339 $3,774,685 $3,937,900 
     

Additional information is also included in Note 1514 entitled Operating Segment Information in "Notes to Consolidated Financial Statements."

The primary markets served by all Cintas operating segments are local in nature and highly fragmented. Cintas competes with national, regional and local providers, and the level of competition varies at each of Cintas' local operations. Product, design, price, quality, service and convenience to the customer are the competitive elements in each of our operating segments.

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Within the Rental Uniforms and Ancillary Products operating segment, Cintas provides its products and services to customers via local delivery routes originating from rental processing plants and branches. Within the Uniform Direct Sales and First Aid, Safety and Fire Protection Services operating segments, Cintas provides its products and services via its distribution network and local delivery routes or local representatives. Within the Document Management Services operating segment, Cintas provides its services via local service routes originating from document management branches and document retention facilities. In total, Cintas has approximately 7,9007,700 local delivery routes, 411418 operations and 8 distribution centers. At May 31, 2009,2010, Cintas employed approximately 31,00030,000 employees of which approximately 300225 were represented by labor unions.

Cintas sources finished products from many outside suppliers. In addition, Cintas operates 6 manufacturing facilities which provide for standard uniform needs. Cintas purchases fabric, used in its manufacturing process, from several suppliers. Cintas is not aware of any circumstances that would hinder its ability to continue obtaining these materials.

Cintas is subject to various environmental laws and regulations, as are other companies in the uniform rental industry. While environmental compliance is not a material component of our costs, Cintas must incur capital expenditures and associated operating costs, primarily for water treatment and waste removal, on a regular basis. Environmental spending related to water treatment and waste removal was approximately $18 million in fiscal 2010 and approximately $19 million in fiscal 2009 and approximately $17 million in fiscal 2008.2009. Capital expenditures to limit or monitor hazardous substances were less than $1 million in fiscal 2010 and approximately $2 million in fiscal 2009 and approximately $4 million in fiscal 2008.2009. Cintas does not expect a material change in the cost of environmental compliance on a percent to revenue basis and is not aware of any material non-compliance with environmental laws.

Cintas' corporate website is located at www.cintas.com. Cintas files with or furnishes to the SEC Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, as well as proxy statements and annual reports to shareholders, and, quarterlyfrom time to time, other documents. The reports and proxyother documents filed with or furnished to the SEC are available to investors on or through our corporate website free of charge as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. In addition, the public may read and copy any of the materials we file with the Securities and Exchange Commission (SEC). The public may copy these materialsSEC at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580NE, Washington D.C. 20549 and20549. The public may obtain further information concerningon the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.1-800-SEC-0330. The SEC maintains an Internetinternet site located at http://www.sec.gov that contains the samereports, proxy and information statements and other information regarding issuers, such as Cintas, that is filedfile electronically with the SEC. The addressCintas' SEC filings and its Code of that site is: http://www.sec.gov. Cintas' Annual ReportBusiness Conduct can be found on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K and amendments to those reportsthe Investor Information page of our website at www.cintas.com/company/investor_information/highlights.aspx. These documents are available free of chargein print to any shareholder who requests a copy by writing or calling Cintas as postedset forth on its website, www.cintas.com, as soon as reasonably practicable after electronically filing with the SEC. The information on Cintas' website is not part of this Annual Report on Form 10-K.Investor Information page.

Item 1A.  Risk Factors

The statements in this section describe majorthe most significant risks that could materially and adversely affect our business, financial condition and results of operation and the trading price of our debt or equity securities could decline.securities.

In addition, this section sets forth statements which constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995.

This Annual Report on Form 10-K contains forward-looking statements that are subject to numerous assumptions, risks or uncertainties.statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as "estimates," "anticipates," "predicts," "projects," "plans," "expects," "intends," "target," "forecast," "believes," "seeks," "could," "should," "may" and "will" or the negative versions thereof and

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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. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ from those set forth in or

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implied by this Annual Report. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy costs, lower sales volumes, loss of customers due to outsourcing trends, the effects of credit market volatility and changes in our credit ratings, fluctuations in foreign currency exchange, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, asset impairment charges, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the unaccessibility of computer systems data, 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 and labor laws, the reactions of competitors in terms of price and service and other factors set forth in this Item 1A. "Risk Factors" section. Cintas undertakes no obligation to update any forward-looking statements whether as a result of new information or to reflect events or circumstances arising after the date on which they are made.

Negative global economic factors may adversely affect our financial performance.
Negative economic conditions, in North America and globally,our other markets, may adversely affect our financial performance. Higher levels of unemployment, inflation, tax rates and other changes in tax laws and other economic factors could adversely affect the demand for Cintas' products and services. Increases in labor costs, including healthcare and insurance costs, labor shortages or shortages of skilled labor, higher material costs for items such as fabrics and textiles, lower recycled paper prices, higher interest rates, inflation, higher tax rates and other changes in tax laws and other economic factors could increase our costs of rental uniforms and ancillary products and other services and selling and administrative expenses. As a result, these factors could adversely affect our sales and results of operation.

The effects of credit market volatility and changes in our credit ratings could adversely affect our liquidity and results of operation.
Our operating cash flows, combined with access to the credit markets, provide us with significant discretionary funding capacity. However, deterioration in the global credit markets may limit our ability to access credit markets, which could adversely affect our liquidity and/or increase our cost of borrowing. In addition, credit market deterioration and its actual or perceived effects on our results of operation and financial condition, along with deterioration in general economic conditions, may increase the likelihood that the major independent credit agencies will downgrade our credit ratings, which could increase our cost of borrowing. Increases in our cost of borrowing could adversely affect our results of operation.

Fluctuations in foreign currency exchange could adversely affect our financial condition and results of operation.
We earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including the Canadian dollar and the euro. In fiscal 2009, fiscal 2008 and fiscal 2007, revenue denominated in currencies other than the U.S. dollar represented less than 10% of our consolidated revenue. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenue, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, fluctuations in the value of the U.S. dollar against other major currencies, particularly in the event of significant increases in foreign currency revenue, will impact our revenue and operating income and the value of balance sheet items denominated in foreign currencies. This impact could adversely affect our financial condition and results of operation.

Increased competition could adversely affect our financial performance.
We operate in highly competitive industries and compete with national, regional and local providers. Product, design, price, quality, service and convenience to the customer are the competitive elements in these industries. If

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existing or future competitors seek to gain or retain market share by reducing prices, Cintas may be required to lower prices, which would hurt our results of operation. Cintas' competitors also generally compete with Cintas for acquisition candidates, which can increase the price for acquisitions and reduce the number of available acquisition candidates. In addition, our customers and prospects may decide to perform certain services in-house instead of outsourcing these services to Cintas. These competitive pressures could adversely affect our sales and results of operation.

An inability to open new, cost effective operating facilities may adversely affect our expansion efforts.
We plan to expand our presence in existing markets and enter new markets. The opening of new operating facilities is necessary to gain the capacity required for this expansion. Our ability to open new operating facilities depends on our ability to identify attractive locations, negotiate leases or real estate purchase agreements on acceptable terms, identify and obtain adequate utility and water sources and comply with environmental regulations, zoning laws and other similar factors. Any inability to effectively identify and manage these items may adversely affect our expansion efforts, and, consequently, adversely affect our financial performance.

Risks associated with our acquisition practice could adversely affect our results of operation.
Historically, a portion of our growth has come from acquisitions. We continue to evaluate opportunities for

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acquiring businesses that may supplement our internal growth. However, there can be no assurance that we will be able to locate and purchase suitable acquisitions. In addition, the success of any acquisition depends in part on our ability to integrate the acquired company. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our management's attention and our financial and other resources. Although we conduct due diligence investigations prior to each acquisition, there can be no assurance that we will discover or adequately protect against all material liabilities of an acquired business for which we may be responsible as a successor owner or operator. The failure to successfully integrate these acquired businesses or to discover such liabilities could adversely affect our results of operation.

Increases in fuel and energy costs could adversely affect our results of operation and financial condition.
The price of fuel and energy needed to run our vehicles and equipment is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries, regional production patterns, limits on refining capacities, natural disasters and environmental concerns. Future increases in fuel and energy costs could adversely affect our results of operation and financial condition.

Unionization campaigns could adversely affect our results of operation.
Cintas continues to be the target of a corporate unionization campaign by several unions. These unions are attempting to pressure Cintas into surrendering our employees' rights to a government-supervised election by unilaterally accepting union representation. We continue to vigorously oppose this campaign and defend our employees' rights to a government-supervised election. This campaign could be materially disruptive to our business and could materially adversely affect our results of operation.

Risks associated with the suppliers from whom our products are sourced could adversely affect our results of operation.
The products we sell are sourced from a wide variety of domestic and international suppliers. Global sourcing of many of the products we sell is an important factor in our financial performance. We require all of our suppliers to comply with applicable laws, including labor and environmental laws, and otherwise be certified as meeting our required supplier standards of conduct. Our ability to find qualified suppliers who meet our standards, and to access products in a timely and efficient manner is a significant challenge, especially with respect to suppliers located and goods sourced outside the United States.U.S. Political and economic stability in the countries in which foreign suppliers are located, the financial stability of suppliers, suppliers' failure to meet our supplier standards, labor problems experienced by our suppliers, the availability of raw materials to suppliers, currency exchange rates, transport availability and cost, inflation and other factors relating to the suppliers and the countries in which they are located are beyond our control. In addition, United StatesU.S. and foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. These and other factors affecting our suppliers and our access to products could adversely affect our results of operation.

IncreasesFluctuations in fuel and energy costsforeign currency exchange could adversely affect our results of operationfinancial condition and financial condition.
The price of fuel and energy needed to run our vehicles and equipment is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries, regional production patterns, limits on refining capacities, natural disasters and environmental concerns. The increases in oil prices during 2008, which moderated in late 2008 and 2009, resulted in significantly higher fuel costs to Cintas. Similar increases in the future in fuel and energy costs could adversely affect our results of operation and financial condition.

An inability to open new, cost effective operating facilities may adversely affect our expansion efforts.
We plan to expand our presence in existing markets and enter new markets. The opening of new operating facilities is necessary to gain the capacity required for this expansion. Our ability to open new operating facilities depends on our ability to identify attractive locations, negotiate leases or real estate purchase agreements on acceptable terms, identify and obtain adequate utility and water sources and comply with environmental regulations, zoning laws and other similar factors. Any inability to effectively identify and manage these items may adversely affect our expansion efforts, and, consequently, adversely affect our financial performance.

Unionization campaigns could adversely affect our results of operation.
Cintas continues to beWe earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the targetU.S. dollar, including the Canadian dollar and the euro. In fiscal years 2010, 2009 and 2008, revenue denominated in currencies other than the U.S. dollar represented less than 10% of a corporate unionization campaign by several unions. These unionsour consolidated revenue. Because our consolidated financial statements are attempting to pressure Cintaspresented in U.S. dollars, we must translate revenue, income and expenses, as well as assets and liabilities, into surrenderingU.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, fluctuations in the value of the U.S. dollar against other major currencies, particularly in the event of significant increases in foreign currency revenue, will impact our employees' rights to a government-supervised election by unilaterally accepting union representation. We continue to vigorously oppose this campaignrevenue and defend our employees' rights to a government-supervised election. This campaign could be materially disruptive to our businessoperating income and could materially adversely affect our resultsthe value of operation.

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balance sheet items denominated in foreign currencies. This impact could adversely affect our financial condition and results of operation.

Within our Document Management business, we handle customers' confidential information. Our failureFailure to protect our customers' confidential information against security breachescomply with the regulations of the U.S. Occupational Safety and Health Administration and other state and local agencies that oversee safety compliance could damage our reputation, harm our business and adversely impactaffect our results of operation.
Our Document Management Services business includes both document destructionThe Occupational Safety and document retention services. These services involveHealth Act of 1970, as amended, or "OSHA", establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by OSHA and various record keeping, disclosure and procedural requirements. Various OSHA standards may apply to our operations. We have incurred, and will continue to incur, capital and operating expenditures and other costs in the handlingordinary course of our customers' confidential informationbusiness in complying with OSHA and the subsequent destruction or retentionother state and local laws and regulations. Any failure to comply with these regulations could result in fines by government authorities and payment of this information. Any compromise of security, accidental loss or theft of customer data indamages to private litigants and affect our possession could damageability to service our reputation and expose us to risk of liability, which could harm our businesscustomers and adversely impactaffect our results of operation.

We are subject to legal proceedings that may adversely affect our financial condition and results of operation.
We are party to various litigation claims and legal proceedings. We discuss these lawsuits and other litigation to which we are party in greater detail under the caption "Item 3. Legal Proceedings" and in Note 13 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements." Certain of these lawsuits or potential future lawsuits, if decided adversely to us or settled by us, may result in liability and expense material to our financial condition and results of operation.

Compliance with environmental laws and regulations could result in significant costs that adversely affect our results of operation.
Our operating locations are subject to environmental laws and regulations relating to the protection of the environment and health and safety matters, including those governing discharges of pollutants to the air and water, the management and disposal of hazardous substances and wastes and the clean-up of contaminated sites. The operation of our businesses entails risks under environmental laws and regulations. We could incur significant costs, including clean-up costs, fines and sanctions and claims by third parties for property damage and personal injury, as a result of violations of or liabilities under these laws and regulations. We are currently involved in a limited number of remedial investigations and actions at various locations. While based on information currently known to us, we believe that we maintain adequate reserves with respect to these matters, our liability could exceed forecasted amounts, and the imposition of additional clean-up obligations or the discovery of additional contamination at these or other sites could result in significant additional costs which could adversely affect our results of operation. In addition, potentially significant expenditures could be required to comply with environmental laws and regulations, including requirements that may be adopted or imposed in the future.

Under environmental laws, an owner or operator of real estate may be required to pay the costs of removing or remediating hazardous materials located on or emanating from property, whether or not the owner or operator knew of or was responsible for the presence of such hazardous materials. While Cintas regularly engages in environmental due diligence in connection with acquisitions, we can give no assurance that locations that have been acquired or leased have been operated in compliance with environmental laws and regulations during prior periods or that future uses or conditions will not make us liable under these laws or expose us to third-party actions including tort suits.

We are subjectrely extensively on computer systems to legal proceedings that may adversely affectprocess transactions, maintain information and manage our financial condition and results of operation.
We are party to various litigation claims and legal proceedings. We discuss these lawsuits and other litigation to which we are party in greater detail under the caption "Item 3. Legal Proceedings" and in Note 14 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements." Certain of these lawsuits or potential future lawsuits, if decided adversely to us or settled by us, may result in liability and expense material to our financial condition and results of operation.

Failure to comply with the regulations of the U.S. Occupational Safety and Health Administration and other state and local agencies that oversee safety compliance could adversely affect our results of operation.
The Occupational Safety and Health Act of 1970, as amended, or "OSHA", establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by OSHA and various record keeping, disclosure and procedural requirements. Various OSHA standards may apply to our operations. We have incurred, and will continue to incur, capital and operating expenditures and other costsbusinesses. Disruptions in the ordinary courseavailability of our business in complying with OSHA and other state and local laws and regulations. Any failure to comply with these regulationscomputer systems could result in fines by government authorities, payment of damages to private litigants and affectimpact our ability to service our customers and adversely affect our sales and results of operation.

Our businesses rely on our computer systems to provide customer information, process customer transactions and provide other general information necessary to manage our businesses. We have an active disaster recovery plan in

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Risks associated withplace that is frequently reviewed and tested. However, our acquisition practicecomputer systems are subject to damage or interruption due to system conversions, power outages, computer or telecommunication failures, computer viruses, security breaches, catastrophic events such as fires, tornadoes and hurricanes and usage errors by our employees. If our computer systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may have interruptions in our ability to service our customers. This disruption caused by the unavailability of our computer systems could adversely affect our sales and results of operation.
Historically, a portion of our growth has come from acquisitions. We continue to evaluate opportunities for acquiring businesses that may supplement our internal growth. However, there can be no assurance that we will be able to locate and purchase suitable acquisitions. In addition, the success of any acquisition depends in part on our ability to integrate the acquired company. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our management's attention and our financial and other resources. Although we conduct due diligence investigations prior to each acquisition, there can be no assurance that we will discover all material liabilities of an acquired business for which we may be responsible as a successor owner or operator. The failure to successfully integrate these acquired businesses or to discover such liabilities could adversely affect our results of operation.

We may experience difficulties in attracting and retaining competent personnel in key positions.
We believe that a key component of our success is our corporate culture which has been imparted by management throughout our corporate organization. This factor, along with our entire operation, depends on our ability to attract and retain key employees. Competitive pressures within and outside our industry may make it more difficult and expensive for us to attract and retain key employees which could adversely affect our businesses.

Unexpected events could disrupt our operations and adversely affect our results of operation.
Unexpected events, including fires or explosions at facilities, natural disasters such as hurricanes and tornados, war or terrorist activities, unplanned outages, supply disruptions, failure of equipment or systems or changes in laws and/or regulations impacting our businesses, could adversely affect our results of operation. These events could result in customer disruption, physical damage to one or more key operating facilities, the temporary closure of one or more key operating facilities or the temporary disruption of information systems.

Deterioration in general economic conditions, primarily in North America, may result in the recognition of impairment charges which could adversely affect our results of operation and financial condition.
We assess our goodwill and other intangible assets and our long-lived assets for impairment when required by U.S. generally accepted accounting principles. These accounting principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. The fair value of these assets is impacted by general economic conditions in the locations in which we operate. Deterioration in these general economic conditions may result in: declining revenue which can lead to excess capacity and declining operating cash flow; reductions in management's estimates for future revenue and operating cash flow growth; increases in borrowing rates and other deterioration in factors that impact our weighted average cost of capital; and deteriorating real estate values. If our assessment of goodwill, other intangible assets or long-lived assets indicates an impairment of the carrying value for which we recognize an impairment charge, this may adversely affect our results of operation and financial condition.

Failure to achieve and maintain effective internal controls could adversely affect our business and stock price.
Effective internal controls are necessary for us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the consolidated financial statement preparation and presentation. While we continue to evaluate our internal controls, we cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. If we fail to maintain the adequacy of our internal controls or if we or our independent registered public accounting firm were to discover material weaknesses in our internal controls, as such standards are modified, supplemented or amended, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable

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financial reports or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.

We may experience difficulties in attracting and retaining competent personnel in key positions.
We believe that a key component of our success is our corporate culture which has been imparted by management throughout our corporate organization. This factor, along with our entire operation, depends on our ability to attract and retain key employees. Competitive pressures within and outside our industry may make it more difficult and expensive for us to attract and retain key employees which could adversely affect our businesses.

Unexpected events could disrupt our operations and adversely affect our results of operation.
Unexpected events, including fires or explosions at facilities, natural disasters such as hurricanes and tornados, war or terrorist activities, unplanned outages, supply disruptions, failure of equipment or systems or changes in laws and/or regulations impacting our businesses, could adversely affect our results of operation. These events could result in customer disruption, physical damage to one or more key operating facilities, the temporary closure of one or more key operating facilities or the temporary disruption of information systems.

We may recognize impairment charges which could adversely affect our results of operation and financial condition.
We assess our goodwill and other intangible assets and our long-lived assets for impairment when required by U.S. generally accepted accounting principles. These accounting principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. The fair value of these assets is impacted by general economic conditions in the locations in which we operate. Deterioration in these general economic conditions may result in: declining revenue which can lead to excess capacity and declining operating cash flow; reductions in management's estimates for future revenue and operating cash flow growth; increases in borrowing rates and other deterioration in factors that impact our weighted average cost of capital; and deteriorating real estate values. If our assessment of goodwill, other intangible assets or long-lived assets indicates an impairment of the carrying value for which we recognize an impairment charge, this may adversely affect our results of operation and financial condition.

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Within our Document Management business, we handle customers' confidential information. Our failure to protect our customers' confidential information against security breaches could damage our reputation, harm our business and adversely impact our results of operation.
Our Document Management Services business includes both document destruction and document retention services. These services involve the handling of our customers' confidential information and the subsequent destruction or retention of this information. Any compromise of security, accidental loss or theft of customer data in our possession could damage our reputation and expose us to risk of liability, which could harm our business and adversely impact our results of operation.

The effects of credit market volatility and changes in our credit ratings could adversely affect our liquidity and results of operation.
Our operating cash flows, combined with access to the credit markets, provide us with significant discretionary funding capacity. However, deterioration in the global credit markets may limit our ability to access credit markets, which could adversely affect our liquidity and/or increase our cost of borrowing. In addition, credit market deterioration and its actual or perceived effects on our results of operation and financial condition, along with deterioration in general economic conditions, may increase the likelihood that the major independent credit agencies will downgrade our credit ratings, which could increase our cost of borrowing. Increases in our cost of borrowing could adversely affect our results of operation.

Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2.  Properties

Cintas occupies 419426 facilities located in 279281 cities. Cintas leases 216224 of these facilities for various terms ranging from monthly to the year 2019. Cintas expects that it will be able to renew or replace its leases on satisfactory terms. Of the 6 manufacturing facilities listed below, Cintas controls the operations of 2 of these manufacturing facilities, but does not own or lease the real estate related to these operations. All other facilities are owned. The principal executive office in Cincinnati, Ohio, provides centrally located administrative functions including accounting, finance, marketing and computer system development and support. Cintas operates rental processing plants that house administrative, sales and service personnel and the necessary equipment involved in the cleaning of uniforms and bulk items, such as entrance mats and shop towels. Branch operations provide administrative, sales and service functions. Cintas operates 8 distribution centers and 6 manufacturing facilities. Cintas also operates first aid, safety and fire protection and document management facilities and direct sales offices. Cintas considers the facilities it operates to be adequate for their intended use. Cintas owns or leases approximately 14,40014,500 vehicles which are used for the route-based deliveriesservices and by the sales service and management employee-partners.

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The following chart provides additional information concerning Cintas' facilities:

 

Type of Facility

  # of Facilities 
 
 
 
 

Rental Processing Plants

  175171 
 

Rental Branches

  101105 
 

First Aid, Safety and Fire Protection Facilities

  5759 
 

Document Management Facilities

  5762 
 

Distribution Centers

  8*
 

Manufacturing Facilities

  6 
 

Direct Sales Offices

  15 
     
 

Total

  419426 
     

Rental processing plants, rental branches, distribution centers and manufacturing facilities are used in Cintas' Rental Uniforms and Ancillary Products operating segment. Rental processing plants, rental branches, distribution centers, manufacturing facilities and direct sales offices are all used in the Uniform Direct Sales operating segment. First aid, safety and fire protection facilities, rental processing facilities and distribution centers are used in the First Aid, Safety and Fire Protection Services operating segment. Document management facilities and rental processing facilities are used in the Document Management Services operating segment.

* Includes the principal executive office, which is attached to the distribution center in Cincinnati, Ohio.

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Item 3.  Legal Proceedings

We discuss material legal proceedings (other than ordinary routine litigation incidental to our business) pending against us in "Item 8. Financial Statements and Supplementary Data," in Note 1413 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements." We refer you to and incorporate by reference into this Item 3 that discussion for important information concerning those legal proceedings, including the basis for such actions and, where known, the relief sought.

Item 4.  Submission of Matters to a Vote of Security Holders[Reserved]

None in the fourth quarter of fiscal 2009.

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Part II



Item 5.  Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Cintas' common stock is traded on the NASDAQ Global Select Market under the symbol "CTAS"."CTAS." The following table shows the high and low closing prices of shares of Cintas' common stock by quarter during the last two fiscal years:

 

Fiscal 2009

       
 
 
 
 

Quarter Ended

  

High

  

Low

 
   
 

May 2009

 $26.83 $18.15 
 

February 2009

  25.70  20.06 
 

November 2008

  33.05  19.80 
 

August 2008

  31.38  25.44 
 

Fiscal 2008

       
 
 
 
 

Quarter Ended

  

High

  

Low

 
   
 

       
 

May 2008

 $31.01 $27.74 
 

February 2008

  34.75  28.78 
 

November 2007

  38.00  31.79 
 

August 2007

  40.90  35.37 

 

Fiscal 2010

       
 
 
 
 

Quarter Ended

  

High

  

Low

 
   
 

May 2010

 $28.73 $24.86 
 

February 2010

  29.68  23.75 
 

November 2009

  30.69  26.81 
 

August 2009

  28.00  21.61 
 

Fiscal 2009

       
 
 
 
 

Quarter Ended

  

High

  

Low

 
   
 

       
 

May 2009

 $26.83 $18.15 
 

February 2009

  25.70  20.06 
 

November 2008

  33.05  19.80 
 

August 2008

  31.38  25.44 

Holders

At May 31, 2009,2010, there were approximately 3,0004,000 shareholders on record of Cintas' common stock. Cintas believes that this represents approximately 72,000 beneficial owners.

Dividends

Dividends on the outstanding common stock have been paid annually and amounted to $0.48 per share, $0.47 per share $0.46 per share and $0.39$0.46 per share in fiscal 2010, fiscal 2009 and fiscal 2008, and fiscal 2007, respectively.

Stock Performance Graph

The following graph summarizes the cumulative return on $100 invested in Cintas' common stock, the S&P 500 Stock Index and the common stocks of a selected peer group of companies. Because our products and services are diverse, Cintas does not believe that any single published industry index is appropriate for comparing shareholder return. Therefore, the peer group used in the performance graph combines four publicly traded companies in the business services industry that have similar characteristics as Cintas, such as route-based delivery of products and services. The companies included in the peer group are G & K Services, Inc., UniFirst Corporation, ABM Industries and Ecolab, Inc.

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Total shareholder return was based on the increase in the price of the stock and assumed reinvestment of all dividends. Further, total return was weighted according to market capitalization of each company. The companies in the peer group are not the same as those considered by the Compensation Committee of the Board of Directors.

Total Shareholder Returns
Comparison of Five-Year Cumulative Total Return

Purchases of Equity Securities by the Issuer and Affiliated Purchases

On May 2, 2005, Cintas announced that the Board of Directors authorized a $500 million share 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 of Directors did not specify an expiration date for the share buyback program.

During the first quarter of fiscal 2009, Cintas purchased 0.9 milliondid not purchase any shares of Cintas'Cintas common stock at an average price of $28.61 per share, for a total purchase price of approximately $26 million and Cintas purchased no other shares in fiscal 2009.

2010 under the share buyback program. From the inception of the share buyback program through July 30, 2009,2010, Cintas has purchased a total of 20.3 million shares of Cintas' common stock at an average price of $39.31 per share for a total purchase price of approximately $798 million. The maximum approximate dollar value of shares that may yet be purchased under the share buyback program as of July 30, 2009,2010, is approximately $202 million.

During fiscal 2010, Cintas purchased approximately 43,000 shares of Cintas' common stock in trade for employee payroll taxes due on restricted stock options that vested during the fiscal year. These shares were purchased at an average price of $22.71 per share for a total purchase price of approximately $1 million.

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Item 6.  Selected Financial Data

Eleven-Year Financial Summary

(In thousands except per share and percentage data)
 
Fiscal
Years Ended
May 31,
  1999  2000  2001  2002  2003  2004  2005  2006  2007  2008  2009  
10-Year
Compd
Growth
 

 
 
Revenue $1,751,568  1,901,991  2,160,700  2,271,052  2,686,585  2,814,059  3,067,283  3,403,608  3,706,900  3,937,900  3,774,685  8.0% 
Net Income $136,796  190,386  218,665  229,466  243,191  265,078  292,547  323,382  334,538  335,405  226,357  5.2% 
Basic EPS $0.83  1.14  1.30  1.35  1.43  1.55  1.70  1.93  2.09  2.15  1.48  6.0% 
Diluted EPS $0.81  1.12  1.27  1.33  1.41  1.54  1.69  1.92  2.09  2.15  1.48  6.2% 
Dividends Per Share $0.15  0.19  0.22  0.25  0.27  0.29  0.32  0.35  0.39  0.46  0.47  12.1% 
Total Assets $1,407,818  1,581,342  1,752,224  2,519,234  2,582,946  2,810,297  3,059,744  3,425,237  3,570,480  3,808,601  3,720,951  10.2% 
Shareholders' Equity $871,433  1,042,896  1,231,346  1,423,814  1,646,418  1,888,093  2,104,574  2,090,192  2,167,738  2,254,131  2,367,409  10.5% 
Return on Average Equity (1)  16.8%  19.9%  19.2%  17.3%  15.8%  15.0%  14.7%  15.4%  15.7%  15.2%  9.8%    
Long-Term Debt $283,581  254,378  220,940  703,250  534,763  473,685  465,291  794,454  877,074  942,736  786,058    
                                      

(In thousands except per share and percentage data)
 
Fiscal
Years Ended
May 31,
  2000  2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  
10-Year
Compd
Growth
 

 
 
Revenue $1,901,991  2,160,700  2,271,052  2,686,585  2,814,059  3,067,283  3,403,608  3,706,900  3,937,900  3,774,685  3,547,339  6.4% 
Net Income $190,386  218,665  229,466  243,191  265,078  292,547  323,382  334,538  335,405  226,357  215,620  1.3% 
Basic EPS $1.14  1.30  1.35  1.43  1.55  1.70  1.93  2.09  2.15  1.48  1.40  2.1% 
Diluted EPS $1.12  1.27  1.33  1.41  1.54  1.69  1.92  2.09  2.15  1.48  1.40  2.3% 
Dividends Per Share $0.19  0.22  0.25  0.27  0.29  0.32  0.35  0.39  0.46  0.47  0.48  9.7% 
Total Assets $1,581,342  1,752,224  2,519,234  2,582,946  2,810,297  3,059,744  3,425,237  3,570,480  3,808,601  3,720,951  3,969,736  9.6% 
Shareholders' Equity $1,042,896  1,231,346  1,423,814  1,646,418  1,888,093  2,104,574  2,090,192  2,167,738  2,254,131  2,367,409  2,534,029  9.3% 
Return on Average Equity (1)  19.9%  19.2%  17.3%  15.8%  15.0%  14.7%  15.4%  15.7%  15.2%  9.8%  8.8%    
Long-Term Debt $254,378  220,940  703,250  534,763  473,685  465,291  794,454  877,074  942,736  786,058  785,444    
                                      
(1)
Return on average equity is computed as net income divided by the average of shareholders' equity. We believe that this calculation gives management and shareholders a good indication of Cintas' historical performance.

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Item 7.  Management's Discussion and Analysis
of Financial Condition and Results of Operation

Business Strategy

Cintas provides highly specialized products and services to businesses of all types primarily throughout the United StatesNorth America and Canada. We refer to ourselves as "The Service Professionals."Latin America, Europe and Asia. We bring value to our customers by helping them provide a cleaner, safer and more pleasant atmosphere for their customers and employees. Our products and services are designed to improve our customers' images. We also help our customers protect their employees and their company by enhancing workplace safety and helping to ensure legal compliance in key areas of their business.

We are North America's leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom productscleaning services and supplies, carpet and tile cleaning services, first aid, safety and fire protection products and services, document management services and branded promotional products.

OurCintas' principal objective is "to exceed customers' expectations in order to maximize the long-term value of Cintas for shareholders and working partners," and it provides the framework and focus for our business strategy. This strategy is to achieve revenue growth for all of our products and services by increasing our penetration at existing customers and by broadening our customer base to include business segments to which Cintas has not historically served. We will also continue to identify additional product and service opportunities for our current and future customers.

To pursue the strategy of increasing penetration, we have a highly talented and diverse team of service professionals visiting our customers on a regular basis. This frequent contact with our customers enables us to develop close personal relationships. The combination of our distribution system and these strong customer relationships provides a platform from which we launch additional products and services.

We pursue the strategy of broadening our customer base in a fewseveral ways. Cintas has a national sales organization introducing all of our products and services to prospects in all business segments. Our ever expandingbroad range of products and services allows our sales organization to consider any type of business a prospect. We also broaden our customer base through geographic expansion, especially in our emerging businesses of first aid and safety, fire protection and document management. Finally, we evaluate strategic acquisitions as opportunities arise.

Results of Operation

The economic downturn that occurred in fiscal 2009 continued throughout most of our fiscal 2010. The U.S. economy, which lost millions of jobs in our fiscal 2009, continued to lose jobs through the first three quarters of our fiscal 2010. These job losses directly affected our business as many of our products and services are dependent on customer employee levels. We were encouraged, though, that the rate of U.S. job loss lessened as we progressed through the first three quarters of fiscal 2010, and U.S. employment levels slightly increased in our fourth fiscal 2010 quarter. As this stabilization occurred in the general U.S. economic environment, our internal growth rate improved.

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Internal growth by quarter is shown in the table below. Internal growth percentages have been adjusted for the appropriate number of workdays, by quarter and for the year, where applicable.

Internal Growth


First Quarter Ending August 31, 2009

-12.6%

Second Quarter Ending November 30, 2009

-10.2%

Third Quarter Ending February 28, 2010

-3.6%

Fourth Quarter Ending May 31, 2010

1.9%

For the Year Ending May 31, 2010


- -6.4

%

Despite the lower revenue level for the year, we were able to generate improved cash flow, with net cash provided by operating activities of $561.6 million representing a 7.3% increase compared to fiscal 2009. We also increased the dividend paid to shareholders to $0.48 per share, marking the 27th consecutive increase in the dividend paid.

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

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The following table sets forth certain consolidated statements of income data as a percent to revenue by operating segment and in total for the fiscal years ended May 31:

 

  
2010
  2009  2008 
 
 
 
 

Revenue:

          
  

Rental Uniforms and Ancillary Products

  72.4% 73.0% 72.0%
  

Uniform Direct Sales

  11.0% 11.4% 13.1%
  

First Aid, Safety and Fire Protection Services

  9.5% 10.0% 10.3%
  

Document Management Services

  7.1% 5.6% 4.6%
     
 

Total revenue

  100.0% 100.0% 100.0%
 

Cost of sales:

          
  

Rental Uniforms and Ancillary Products

  56.4% 56.7% 55.8%
  

Uniform Direct Sales

  69.9% 75.2% 67.5%
  

First Aid, Safety and Fire Protection Services

  61.1% 61.9% 60.1%
  

Document Management Services

  48.6% 49.4% 45.4%
     
 

Total cost of sales

  57.8% 58.9% 57.3%
 

Gross margin:

          
  

Rental Uniforms and Ancillary Products

  43.6% 43.3% 44.2%
  

Uniform Direct Sales

  30.1% 24.8% 32.5%
  

First Aid, Safety and Fire Protection Services

  38.9% 38.1% 39.9%
  

Document Management Services

  51.4% 50.6% 54.6%
     
 

Total gross margin

  42.2% 41.1% 42.7%
 

Selling and administrative expenses

  
30.6

%
 
28.7

%
 
28.0

%
 

Legal settlements, net of insurance proceeds

  0.7%    
 

Restructuring charges

  -0.1% 0.3%  
 

Impairment of long-lived assets

    1.3%  
 

Interest income

  -0.1% -0.1% -0.1%
 

Interest expense

  1.4% 1.3% 1.3%
     
 

Income before income taxes

  9.7% 9.6% 13.5%
     

Fiscal 2010 Compared to Fiscal 2009

Fiscal 2010 total revenue was $3.5 billion, a decrease of 6.0% compared to fiscal 2009. Total revenue decreased organically by 6.4%. Fiscal 2010 had one more workday than fiscal 2009, and this additional workday in fiscal 2010 accounted for the difference between the total decrease of 6.0% and the organic decrease of 6.4%. As a result of the economic downturn discussed above, we experienced decreases in uniform revenue, both rented and purchased, and revenue for our hygiene products and first aid and safety products. In addition, the continued difficult economic environment in fiscal 2010 caused many of our customers to reduce facility spending on items such as entrance mats and shop towels and delay spending on facility upgrades, resulting in a reduction in our facility services and fire protection revenue.

Rental Uniforms and Ancillary Products operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Rental Uniforms and Ancillary Products operating segment decreased 6.7% compared to fiscal 2009. Rental Uniforms and

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Ancillary Products operating segment revenue decreased organically by 6.9% in fiscal 2010. The decrease in the Rental Uniforms and Ancillary Products operating segment revenue was primarily due to decreased uniform wearers caused in large part by the difficult U.S. economic environment in fiscal 2010. Fiscal 2010 had one more workday than fiscal 2009, which resulted in an increase in revenue of 0.4%.

Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, decreased 4.1% compared to fiscal 2009. Other Services revenue decreased organically by 5.2%. Decreases in Uniform Direct Sales operating segment revenue and First Aid, Safety and Fire Protection Services operating segment revenue were offset by increased revenue in our Document Management Services operating segment. Acquisitions in our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment accounted for growth of 0.7% during fiscal 2010. Fiscal 2010 had one more workday than fiscal 2009, which resulted in an increase in revenue of 0.4%.

Cost of rental uniforms and ancillary products decreased 7.2% compared to fiscal 2009. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The cost decrease compared to fiscal 2009 was primarily driven by the volume decrease in the Rental Uniforms and Ancillary Products operating segment revenue. We also incurred a loss on inventory valuation of $8.4 million in fiscal 2009 that did not reoccur in fiscal 2010 related to excess inventory levels.

Cost of other services decreased 9.3% compared to fiscal 2009. Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment. The decrease from fiscal 2009 was due to the volume decrease in Other Services revenue. We also incurred a loss on inventory valuation of $19.1 million in fiscal 2009 that did not reoccur in fiscal 2010 related to excess inventory levels.

Selling and administrative expenses increased $3.7 million, or 0.3%, compared to fiscal 2009. This increase is primarily due to a $9.6 million increase in medical expenses, an increase of $6.2 million in professional services and depreciation mainly related to the implementation of a new enterprise-wide computer system, and a $3.4 million increase in stock compensation expense, offset by a $15.6 million reduction in bad debt expense.

Legal settlements, net of insurance proceeds, of $23.5 million primarily related to a settlement in principle occurring in the first quarter of fiscal 2010 between Cintas and the plaintiffs involved in the litigation,Paul Veliz, et al. v. Cintas Corporation.The principle terms of the settlement provide for an aggregate cash payment of approximately $24 million. The pre-tax impact, net of insurance proceeds, was approximately $19.5 million. This settlement is more fully described in Note 13 entitled Litigation and Other Contingencies in "Notes to Consolidated Financial Statements."

Operating income of $390.8 million in fiscal 2010 decreased $18.3 million, or 4.5%, compared to fiscal 2009. This decrease was primarily due to lower volumes resulting from the difficult U.S. economic environment in fiscal 2010.

Net interest expense (interest expense less interest income) decreased $0.6 million from the prior fiscal year. This decrease was due to a $1.1 million reduction in interest income caused by lower interest rates on Canadian treasury securities during fiscal 2010 compared to fiscal 2009, offset by a decrease of $1.6 million in interest expense caused by lower levels of borrowings in fiscal 2010 compared to fiscal 2009.

Income before income taxes was $343.9 million, a 4.9% decrease compared to fiscal 2009. This change reflects the decrease in operating income described above.

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Cintas' effective tax rate was 37.3% for fiscal 2010 as compared to 37.4% and 36.8% for fiscal 2009 and 2008, respectively (also see Note 8 entitled Income Taxes of "Notes to Consolidated Financial Statements" for more information on income taxes).

Net income for fiscal 2010 of $215.6 million was a 4.7% decrease compared to fiscal 2009, and diluted earnings per share of $1.40 was a 5.4% decrease compared to fiscal 2009. These changes reflect the decrease in operating income described above.

Rental Uniforms and Ancillary Products Operating Segment

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue decreased $185.7 million, or 6.7%, and the cost of rental uniforms and ancillary products decreased $112.7 million, or 7.2%. The operating segment's fiscal 2010 gross margin was 43.6% of revenue compared to 43.3% in fiscal 2009. Excluding a fiscal 2009 loss on inventory valuation of $8.4 million, fiscal 2009 gross margin was 43.6%. Despite the lower volume, we were able to maintain the same gross margin (excluding the loss on inventory) as a percent to revenue due to lower material cost and due to cost reduction initiatives such as reducing both facility and route capacity resulting in lower depreciation, production labor and other facility related expenses.

Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment as a percent to revenue, at 30.6%, increased 270 basis points from 27.9% in fiscal 2009. This increase was due to increased medical expense and an increase in selling labor due to the addition of sales representatives.

The restructuring amount of ($2.9) million in fiscal 2010 represents a change in estimate related to restructuring charges taken in fiscal 2009. The change in estimate represents the difference between severance and other exit costs estimated based on information available in fiscal 2009 and severance and other exit costs actually paid in fiscal 2010. See Note 2 entitled Restructuring and Related Activity of "Notes to Consolidated Financial Statements" for more information.

Income before income taxes decreased $34.0 million to $336.5 million for the Rental Uniforms and Ancillary Products operating segment for fiscal 2010 compared to fiscal 2009. This decrease is primarily due to the decrease in revenue described above combined with the increase in selling and administrative expenses.

Uniform Direct Sales Operating Segment

Uniform Direct Sales operating segment revenue decreased $42.0 million, or 9.8%, compared to fiscal 2009. Cost of uniform direct sales decreased $52.3 million, or 16.2%, compared to fiscal 2009. The gross margin as a percent to revenue of 30.1% for fiscal 2010 increased from 24.8% in fiscal 2009. Excluding a fiscal 2009 loss on inventory valuation of $16.1 million, gross margin as a percent to revenue was 28.5% in fiscal 2009. Despite the lower volume in fiscal 2010, we were able to improve the gross margin as a percent to revenue due to cost reduction initiatives such as reducing distribution facility labor to adjust to the lower volumes and by sourcing improvements.

Selling and administrative expenses as a percent to revenue, at 19.7%, decreased from 22.9% in fiscal 2009. This decrease is due to cost reduction initiatives to adjust the selling labor to better align with the current volume level.

Income before income taxes was $40.1 million in fiscal 2010, an increase of $36.9 million compared to fiscal 2009. Fiscal 2009 income before income taxes included a loss on inventory valuation of $16.1 million and a charge of $4.6 million related to restructuring activities. Additionally, the increase in income before income taxes in fiscal 2010 compared to fiscal 2009 is due primarily to cost reduction initiatives to reduce capacity, labor and other resources to better align with the current volume level.

First Aid, Safety and Fire Protection Services Operating Segment

First Aid, Safety and Fire Protection Services operating segment revenue decreased $39.4 million in fiscal 2010, a 10.4% decrease compared to fiscal 2009. This operating segment's revenue decreased organically by 10.6%. The

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difficult U.S. economic environment, which included job losses in fiscal 2010 and reductions in facility spending, directly impacted this operating segment's revenue. Acquisitions accounted for an increase in revenue of 0.2%. Fiscal 2010 had one more workday than fiscal 2009, which resulted in an increase in revenue of 0.4%.

Cost of first aid, safety and fire protection services decreased $27.0 million, or 11.5%, in fiscal 2010, due primarily to decreased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent to revenue was 38.9% for fiscal 2010 compared to 38.1% in fiscal 2009. Excluding a fiscal 2009 loss on inventory valuation of $3.0 million, gross margin as a percent to revenue was 38.9% in fiscal 2009. Despite the lower volume, we were able to maintain the same gross margin (excluding the loss on inventory) as a percent to revenue due to the elimination of lower margin fire installation business throughout the course of fiscal 2010 and due to cost reduction initiatives resulting in lower labor related expenses.

Selling and administrative expenses decreased by $8.8 million in fiscal 2010 compared to fiscal 2009 primarily due to lower bad debt expense resulting from improved collection efforts. Selling and administrative expenses as a percent to revenue, at 34.9%, increased from 33.6% in fiscal 2009. This increase as a percent to revenue was due to lower volume.

Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment was $13.4 million in fiscal 2010 compared to $15.9 million in fiscal 2009. This decrease was primarily due to the reduced volume in First Aid, Safety and Fire Protection Services operating segment.

Document Management Services Operating Segment

Document Management Services operating segment revenue increased $39.8 million for fiscal 2010, or 18.6%, over fiscal 2009. This operating segment's internal growth for fiscal 2010 was 14.4% over fiscal 2009. The internal growth is primarily due to the sale of destruction services to new customers and an increase in recycled paper revenue. This operating segment derives a portion of its revenue from the sale of shredded paper to paper recyclers. The weighted average price of standard office paper, which accounts for the majority of the recycled paper revenue, increased by 6.4% in fiscal 2010 compared to fiscal 2009. Acquisitions accounted for revenue growth of 3.8%. Fiscal 2010 had one more workday than fiscal 2009, which resulted in an increase in revenue of 0.4%.

Cost of document management services increased $17.7 million, or 16.8%, for fiscal 2010, due to increased Document Management Services operating segment volume. Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs. The gross margin as a percent to revenue was 51.4% for fiscal 2010, an increase from 50.6% in fiscal 2009. This increase from fiscal 2009 is mainly due to the increase in recycled paper prices in fiscal 2010 compared to fiscal 2009.

Selling and administrative expenses as a percent to revenue was 41.8% for fiscal 2010 compared to 41.4% in fiscal 2009. This increase was due to an increase in selling labor due to the addition of sales representatives and increased medical expense.

Income before income taxes for the Document Management Services operating segment was $24.3 million, an increase of $4.9 million compared to fiscal 2009. Income before income taxes was 9.6% of the operating segment's revenue compared to 9.1% in fiscal 2009. This increase is due to the increase in the average price of standard office paper, offset by the increase in selling and administrative expenses.

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Fiscal 2009 Compared to Fiscal 2008

The economic environment in fiscal 2009 presented challenges not experienced in decades. The financial crisis which began in September, 2008, caused many of our customers to immediately reduce spending. As the economic turmoil continued, we saw our customers make dramatic reductions in spending. Significant job losses in the U.S. and CanadaNorth America followed the financial crisis as these economies lost millions of jobs from October 2008 through May 2009.

The suddenness and severity of the economic downturn required us to react quickly to reduce our cost structure. Beginning in the second quarter of fiscal 2009, we closed two manufacturing plants in Kentucky, initiated hiring and wage freezes in many parts of the organization, eliminated many overhead positions and reduced discretionary and capital spending. These initiatives resulted in a reduction to selling and administrative expenses of approximately $60 million when comparing the last six months of fiscal 2009 to the first six months of fiscal 2009.

In addition to the actions described above, we initiated restructuring activities during the fourth quarter of fiscal 2009 to reduce excess capacity and further reduce our cost structure. These activities included closing or converting to branches 16 of our rental processing plants and reducing our workforce by 1,200 employees. We

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expect theseThese restructuring activities to bewere substantially completed by May 31,in fiscal 2010. During the fourth quarter of fiscal 2009, we recorded charges of $48.9 million in long-lived asset impairment costs, $7.9 million in employee termination costs and $2.3 million in other exit costs for a total of $59.1 million that will be incurred as a result of this restructuring. The following summarizes these amounts by operating segment:

 

(In millions)

May 31, 2009

  

Rental
Uniforms
& Ancillary
Products

  

Uniform
Direct
Sales

  

First Aid,
Safety &
Fire
Protection

  

Document
Management

  

Total

 
 
 
 
 

Restructuring charges

 $8.8 $0.5 $0.6 $0.3 $10.2 
 

Impairment of long-lived assets

  44.2  4.1  0.6    48.9 
     
 

Loss before income taxes

 $53.0 $4.6 $1.2 $0.3 $59.1 
     

A progression of our restructuring liability balance, primarily recorded in accrued compensation and related liabilities, at May 31, 2009, is as follows:

 

(In millions)

  Employee
Termination
Costs
  Other Exit
Costs
  Total 
 
 
 
 

Charge to earnings — fiscal 2009

 $7.9 $2.3 $10.2 
 

Cash paid — fiscal 2009

  (2.0)   (2.0)
     
 

Balance as of May 31, 2009

 $5.9 $2.3 $8.2 
     

The restructuring activities are more fully described in Note 2 entitled Restructuring and Related Activity of "Notes to Consolidated Financial Statements."

Despite the economic turmoil during fiscal 2009, we were still able to generate strong operating cash flow. Net cash provided by operating activities was $523.5 million. We reduced capital and acquisition spending by $110.9 million in fiscal 2009 compared to fiscal 2008. We were able to pay down $157.1 million in net borrowings during fiscal 2009, resulting in no outstanding commercial paper borrowings as of May 31, 2009. Additionally, we were still able to pay shareholders an increased dividend of $0.47 per share.

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

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The following table sets forth certain consolidated statements of income data as a percentage of revenue by operating segment and in total for the periods indicated.

 

  
2009
  2008  2007 
 
 
 
 

Revenue:

          
  

Rental Uniforms and Ancillary Products

  73.0% 72.0% 73.8%
  

Uniform Direct Sales

  11.4% 13.1% 13.5%
  

First Aid, Safety and Fire Protection Services

  10.0% 10.3% 9.8%
  

Document Management Services

  5.6% 4.6% 2.9%
     
 

Total revenue

  100.0% 100.0% 100.0%
 

Cost of sales:

          
  

Rental Uniforms and Ancillary Products

  56.7% 55.8% 55.4%
  

Uniform Direct Sales

  75.2% 67.5% 68.0%
  

First Aid, Safety and Fire Protection Services

  61.9% 60.1% 60.1%
  

Document Management Services

  49.4% 45.4% 47.6%
     
 

Total cost of sales

  58.9% 57.3% 57.3%
 

Gross margin:

          
  

Rental Uniforms and Ancillary Products

  43.3% 44.2% 44.6%
  

Uniform Direct Sales

  24.8% 32.5% 32.0%
  

First Aid, Safety and Fire Protection Services

  38.1% 39.9% 39.9%
  

Document Management Services

  50.6% 54.6% 52.4%
     
 

Total gross margin

  41.1% 42.7% 42.7%
 

Selling and administrative expenses

  
28.7

%
 
28.0

%
 
27.1

%
 

Restructuring charges

  0.3%    
 

Impairment of long-lived assets

  1.3%    
 

Interest income

  -0.1% -0.1% -0.2%
 

Interest expense

  1.3% 1.3% 1.4%
     
 

Income before income taxes

  9.6% 13.5% 14.4%
     

The reduction in Uniform Direct Sales and First Aid, Safety and Fire Protection Services revenue as a percentage of total revenue in fiscal 2009 reflects the significant reduction in spending by customers of these businesses during the economic turmoil in fiscal 2009. Despite a significant decrease in the price of recycled paper prices during fiscal 2009, Document Management Services revenue increased as a percentage of total revenue over the last two fiscal years as a result of acquisitions and internal growth in our destruction services.

Cost of sales as a percentage of revenue increased in fiscal 2009 compared to fiscal 2008 due to lower revenue levels in all operating segments other than Document Management Services. The significant deterioration of the U.S. and Canadian economies,North American economy, particularly in the last five months of the year ended May 31, 2009, which led to reduced revenue levels in our Rental Uniforms and Ancillary Products operating segment, our Uniform Direct Sales operating segment and our First Aid, Safety and Fire Protection Services operating segment, created excess inventory levels in these operating segments. As a result, we reduced the carrying amount of specific inventory to

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realizable values and recorded a pre-tax loss in the year ended May 31, 2009, of $27.5 million. The following summarizes this loss by operating segment:

 

(In millions)

May 31, 2009

  

Rental
Uniforms
& Ancillary
Products

  

Uniform
Direct
Sales

  

First Aid,
Safety &
Fire
Protection

  

Document
Management

  

Total

 
 
 
 
 

Cost of rental uniforms and ancillary products

 $8.4 $ $ $ $8.4 
 

Cost of other services

    16.1  3.0    19.1 
     
 

Loss on inventory valuation

 $8.4 $16.1 $3.0 $ $27.5 
     

Cost of sales as a percentage of revenue in Document Management Services increased as a percentage of revenue in fiscal 2009 compared to fiscal 2008 as a result of a significant decrease in the price of recycled paper. This operating segment derives revenue from the sale of shredded paper to paper recyclers. The weighted average price of standard office paper, which accounts for the majority of the recycled paper revenue, dropped by 24.2% in fiscal 2009 compared to fiscal 2008.

Selling and administrative expenses as a percentage of revenue increased in fiscal 2009 compared to fiscal 2008 as a result of the lower revenue in fiscal 2009.

Fiscal 2009 Compared to Fiscal 2008

Fiscal 2009 total revenue was $3.8 billion, a decrease of 4.1% compared to fiscal 2008. Acquisitions in our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment accounted for growth of 0.7% during fiscal 2009. Information related to acquisitions is discussed in Note 109 entitled Acquisitions of "Notes to Consolidated Financial Statements." Total revenue decreased organically by

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4.5%. The difficult U.S. and CanadianNorth American economic environmentsenvironment that began with the financial crisis in our second quarter of fiscal quarter2009 deteriorated in our third and fourth fiscal quarters.quarters of fiscal 2009. These economies lost millions of jobs from October, 2008, through May, 2009. Because of customer job losses, we experienced decreases in uniform revenue, both rented and purchased, and revenue for our hygiene products and first aid and safety products. In addition, facility closures by our customers reduced our volume of entrance mats, mops, shop towels and other facility needs such as fire protection services and document management services. Fiscal 2009 had one fewer workday than fiscal 2008, which resulted in a decrease in revenue of 0.3%.

Rental Uniforms and Ancillary Products operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Rental Uniforms and Ancillary Products operating segment decreased 2.8% compared to fiscal 2008. Rental Uniforms and Ancillary Products operating segment revenue decreased organically by 2.4% in fiscal 2009. The decrease in the Rental Uniforms and Ancillary Products operating segment revenue was primarily due to decreased uniform wearers caused in large part by job losses in the U.S. and Canadian economies.economies during fiscal 2009. Fiscal 2009 had one fewer workday than fiscal 2008, which resulted in a decrease in revenue of 0.4%.

Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, decreased 7.6% compared to fiscal 2008. Acquisitions in our First Aid, Safety and Fire Protection Services operating segment and our Document Management Services operating segment accounted for growth of 2.5% during fiscal 2009. Other Services revenue decreased organically by 9.7%. The turmoil in the U.S. and Canadian economies significantly affected our Other Services revenue, particularly in the Uniform Direct Sales and First Aid, Safety and Fire Protection Services

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operating segments. The revenue decreases in these operating segments were partially offset by increased revenue in our Document Management Services operating segment. Fiscal 2009 had one fewer workday than fiscal 2008, which resulted in a decrease in revenue of 0.4%.

Cost of rental uniforms and ancillary products decreased 1.2% compared to fiscal 2008. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The cost decrease compared to fiscal 2008 was primarily driven by the volume decrease in the Rental Uniforms and Ancillary Products operating segment revenue. The cost decrease due to reduced volume was partially offset by a loss on inventory valuation of $8.4 million, as described above.

Cost of other services decreased 1.9% compared to fiscal 2008. Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment. The decrease from fiscal 2008 was due to the volume decrease in Other Services.other services. The cost decrease due to reduced volume was partially offset by a loss on inventory valuation of $19.1 million, as described above.

Selling and administrative expenses decreased $21.4 million, or 1.9%, compared to fiscal 2008. This decrease is primarily due to a decrease of $18.9 million in labor costs and payroll taxes related to our fiscal 2009 cost reduction efforts.

Operating income of $409.1 million in fiscal 2009 decreased $168.4 million, or 29.2%, compared to fiscal 2008. Excluding the loss on inventory valuation of $27.5 million and the charges of $59.1 million relating to the restructuring activities, operating income decreased by $81.8 million, or 14.2%, compared to fiscal 2008. This decrease was primarily due to lower volumes brought on by the turmoil in the U.S. and Canadian economies in fiscal 2009.

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Net interest expense (interest expense less interest income) of $46.9 million in fiscal 2010 increased $0.7 million from the prior fiscal year. This increase was due to a $3.3 million reduction in interest income caused by lower interest rates on Canadian treasury securities during fiscal 2009 compared to fiscal 2008, offset by a decrease of $2.6 million in interest expense caused by lower levels of borrowings in fiscal 2009 compared to fiscal 2008.

Income before income taxtaxes was $361.6 million, a 31.9% decrease compared to fiscal 2008. This change reflects the decrease in operating income described above.

Cintas' effective tax rate was 37.4% for fiscal 2009 as compared to 36.8% and 37.3% for fiscal 2008 and 2007, respectively (also see Note 98 entitled Income Taxes of "Notes to Consolidated Financial Statements" for more information on income taxes).

Net income for fiscal 2009 of $226.4 million was a 32.5% decrease compared to fiscal 2008, and diluted earnings per share of $1.48 was a 31.2% decrease compared to fiscal 2008. These changes reflect the decrease in operating income described above.

Rental Uniforms and Ancillary Products Operating Segment

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue decreased $79.6 million, or 2.8%, and the cost of rental uniforms and ancillary products decreased $19.4 million, or 1.2%. The operating segment's gross margin was $1,192.8 million, or 43.3% of revenue. This gross margin percent ofto revenue of 43.3% decreased from 44.2% in fiscal 2008. Excluding the loss on inventory valuation of $8.4 million in fiscal 2009, the gross margin percent in fiscal 2009 was 43.6%. The decrease of 60 basis points from 44.2% in fiscal 2008 to 43.6% in fiscal 2009 is primarily due to the reduced volume in the Rental Uniforms and Ancillary Products operating segment.

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Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment as a percent to revenue, at 27.9%, decreased 40 basis points from 28.3% in fiscal 2008. This decrease was due to a reduction in labor costs associated with our cost reduction efforts.

Income before income taxes decreased $80.7 million to $370.5 million for the Rental Uniforms and Ancillary Products operating segment for fiscal 2009 compared to fiscal 2008. Income before income taxes was 13.4% of this operating segment's revenue. Excluding the loss on inventory valuation of $8.4 million and the charges of $53.0 million relating to the restructuring activities, income before income taxes as a percent ofto revenue was 15.7% in fiscal 2009, which is relatively consistent with the 15.9% in fiscal 2008.

Uniform Direct Sales Operating Segment

Uniform Direct Sales operating segment revenue decreased $89.1 million for fiscal 2009, a 17.2% decrease compared to fiscal 2008. There were no acquisitions in the Uniform Direct Sales operating segment during fiscal 2009.

Cost of uniform direct sales decreased $26.9 million, or 7.7%, for fiscal 2009 due to decreased Uniform Direct Sales operating segment volume, partially offset by a loss on inventory valuation of $16.1 million. The gross margin as a percent to revenue of 24.8% for fiscal 2009 decreased from 32.5% in fiscal 2008. Excluding the loss on inventory valuation of $16.1 million in fiscal 2009, the gross margin percent in fiscal 2009 was 28.5%. The decrease from 32.5% in fiscal 2008 to 28.5% in fiscal 2009 is primarily due to the reduced volume.

Selling and administrative expenses as a percent to revenue, at 22.9%, increased from 20.0% in fiscal 2008. This increase is due to lower volume and an increase in bad debt expense of 70 basis points.

Income before income taxes was $3.2 million in fiscal 2009, a decrease of $61.5 million compared to fiscal 2008. This decrease is primarily due to the reduced volume in the Uniform Direct Sales operating segment, as well as the loss on inventory valuation of $16.1 million and the charges of $4.6 million relating to the restructuring activities.

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Excluding the loss on inventory valuation and the charges relating to the restructuring activities, income before income taxes was $24.0 million in fiscal 2009, a decrease of $40.8 million.

First Aid, Safety and Fire Protection Services Operating Segment

First Aid, Safety and Fire Protection Services operating segment revenue decreased $25.5 million in fiscal 2009, a 6.3% decrease compared to fiscal 2008. This operating segment's revenue decreased organically by 7.6%. The turmoil in the U.S. and Canadian economies during fiscal 2009 affected our First Aid, Safety and Fire Protection Services operating segment revenue. Our customers in this segment reduced their spending at the onset of the financial crisis in September, 2008, resulting in decreased revenue in fiscal 2009 compared to fiscal 2008. Acquisitions accounted for growth of 1.7%. Fiscal 2009 had one fewer workday than fiscal 2008, which resulted in a decrease in revenue of 0.4%.

Cost of first aid, safety and fire protection services decreased $8.8 million, or 3.6%, in fiscal 2009, due to decreased First Aid, Safety and Fire Protection Services operating segment volume, partially offset by a loss on inventory valuation of $3.0 million. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent to revenue was 38.1% for fiscal 2009. Excluding the loss on inventory valuation of $3.0 million in fiscal 2009, the gross margin percent in fiscal 2009 was 38.9%. The decrease from 39.9% in fiscal 2008 to 38.9% in fiscal 2009 is primarily due to the reduced volume.

Selling and administrative expenses as a percent to revenue, at 33.6%, increased from 31.0% in fiscal 2008. This increase was due to lower volume and an increase in bad debt expense of 130 basis points.

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Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment was $15.9 million in fiscal 2009 compared to $35.6 million in fiscal 2008. This decrease of $19.7 million was primarily due to the reduced volume in First Aid, Safety and Fire Protection Services operating segment, as well as the loss on inventory valuation of $3.0 million and the charges of $1.2 million relating to the restructuring activities. Excluding the loss on inventory valuation and the charges relating to the restructuring activities, income before income taxes was $20.1 million, or 5.3% of revenue, in fiscal 2009 compared to 8.8% of revenue in fiscal 2008.

Document Management Services Operating Segment

Document Management Services operating segment revenue increased $30.9 million for fiscal 2009, or 17.0% over fiscal 2008. This operating segment's internal growth for fiscal 2009 was 6.0% over fiscal 2008. The internal growth is primarily due to the sale of destruction services to new customers, offset by a decline in recycled paper revenue. This operating segment derives revenue from the sale of shredded paper to paper recyclers. The weighted average price of standard office paper, which accounts for the majority of the recycled paper revenue, dropped by 24.2% in fiscal 2009 compared to fiscal 2008. Acquisitions accounted for growth of 11.4%. Fiscal 2009 had one fewer workday than fiscal 2008, which resulted in a decrease in revenue of 0.4%.

Cost of document management services increased $22.7 million, or 27.4%, for fiscal 2009, due to increased Document Management Services volume. Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs. The gross margin as a percent to revenue was 50.6% for fiscal 2009, down from 54.6% in fiscal 2008. This decrease from fiscal 2008 is mainly due to the sharp decline in recycled paper prices compared to fiscal 2008. The decrease in the average price of standard office paper resulted in a decrease in gross margin as a percent to revenue of 2.9%.

Selling and administrative expenses as a percent to revenue was 41.4% compared to 40.5% in fiscal 2008. This increase is due to the sharp decline in recycled paper prices compared to fiscal 2008. The decrease in the average price of standard office paper resulted in an increase in selling and administrative expense as a percent to revenue of 2.4%.

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Income before income taxes for the Document Management Services operating segment was $19.4 million, a decrease of $6.4 million compared to fiscal 2008. Income before income taxes was 9.1% of the operating segment's revenue compared to 14.1% in fiscal 2008. The decrease in the average price of standard paper resulted in a decrease in income before income taxes as a percent to revenue of 14.5%.

Fiscal 2008 Compared to Fiscal 2007

Fiscal 2008 total revenue was $3.9 billion, an increase of 6.2% over fiscal 2007. Internal growth was 4.6% in fiscal 2008, compared to 5.3% in fiscal 2007. The deterioration in the U.S. and Canadian economies created a challenging environment throughout fiscal 2008. The rising unemployment in the U.S. put pressure on our ability to grow rental uniform wearers, particularly in the latter half of fiscal 2008, as many of our customers reduced their workforces. In addition, our fire protection services business within the First Aid, Safety and Fire Protection Services operating segment suffered due to pressure on fire installation system revenue and lower than anticipated recurring service revenue. Our internal growth was generated primarily through the sale of document management services to new and existing customers, continued penetration of our ancillary products and services such as mats, hygiene supplies and restroom cleaning services to existing customers, and first aid and safety products and services to new and existing customers. The remaining growth in total revenue was generated predominantly through acquisitions of rental, first aid, safety and fire protection service businesses and document management businesses. Information related to acquisitions is discussed in Note 10 entitled Acquisitions of "Notes to Consolidated Financial Statements."

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Rental Uniforms and Ancillary Products operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Rental Uniforms and Ancillary Products operating segment increased 3.7% over fiscal 2007. Internal growth for the Rental Uniforms and Ancillary Products operating segment was 3.4% in fiscal 2008. The increase in the Rental Uniforms and Ancillary Products operating segment revenue was primarily due to growth in the customer base as well as the continued penetration of ancillary products into our existing customer base. New business remained the main driver of our internal growth as we continued to sell rental programs to new customers. We also continued to expand our rental market, with over half of our new business being comprised of customers who were first time users of uniform rental programs. The remaining growth of 0.3% in fiscal 2008 resulted from the acquisition of rental businesses.

Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, increased 13.5% over fiscal 2007. Internal growth accounted for 8.2% of this increase. This internal growth was generated primarily through the increased sales of first aid, safety and fire protection products and services and document management services to customers. The remaining revenue growth of 5.3% was generated through a combination of acquisitions of first aid, safety and fire protection businesses and document management businesses.

Cost of rental uniforms and ancillary products increased 4.4% over fiscal 2007. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The cost increase over fiscal 2007 was primarily driven by the growth in the Rental Uniforms and Ancillary Products operating segment revenue. In addition, rising energy costs, especially in the second half of the fiscal year, contributed to this increase. Energy costs increased 11.1% in fiscal 2008, from $104.6 million in fiscal 2007 to $116.2 million in fiscal 2008.

Cost of other services increased 10.5% over fiscal 2007. Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment and the Document Management Services operating segment. The increase over fiscal 2007 was due to the growth in other services revenue, derived through a combination of internal growth and acquisitions. Rising energy costs also impacted the cost of other services. Other services energy costs increased 35.4% from $18.1 million in fiscal 2007 to $24.5 million in fiscal 2008. Improved leverage and various cost containment programs in our Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services operating segments helped to partially offset the increases in energy costs.

Selling and administrative expenses increased 10.0% over fiscal 2007. Selling and administrative expenses increased mainly due to higher selling expenses. In fiscal 2007, we reorganized our sales efforts to become more efficient and productive in the long-term. This reorganization, as well as increased marketing plans and sales promotions, combined to increase our selling costs by $53.1 million over the prior fiscal year. In addition, administrative expenses increased by $10.4 million due to an increase in legal and other professional services.

Operating income of $577.5 million in fiscal 2008, was relatively flat over fiscal 2007. Gross margin increased by $100.2 million, but was offset by the increase of $100.2 million in selling and administrative expenses.

Net interest expense (interest expense less interest income) increased $2.9 million from the prior fiscal year. This increase was primarily a result of increased interest expense from additional debt added in fiscal 2008 used to buyback shares under our share buyback program.

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Income before income taxes was $530.7 million, a 0.5% decrease over fiscal 2007. This change reflects the relatively flat operating income being reduced by the higher net interest expense.

Cintas' effective tax rate was 36.8% for fiscal 2008 as compared to 37.3% for fiscal 2007 (see also Note 9 entitled Income Taxes of "Notes to Consolidated Financial Statements").

Net income for fiscal 2008 of $335.4 million was a 0.3% increase over fiscal 2007, and diluted earnings per share of $2.15 was a 2.9% increase over fiscal 2007. The increase in diluted earnings per share was greater than the increase in net income due to the impact of the share buyback program, which is discussed in more detail in the Liquidity and Capital Resources section below.

Rental Uniforms and Ancillary Products Operating Segment

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased $99.9 million, or 3.7%, and the cost of rental uniforms and ancillary products increased $66.4 million, or 4.4%. The operating segment's gross margin was $1,253.0 million, or 44.2% of revenue. This gross margin percent of revenue of 44.2% decreased from the 44.6% in fiscal 2007, primarily as a result of an 11.1% increase in energy costs.

Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment as a percent to sales, at 28.3%, increased 60 basis points from the 27.7% in the prior fiscal year. This increase was due to the increased investment in our sales organization and increases in our marketing efforts and sales promotions as described above.

Income before income taxes decreased $11.1 million to $451.3 million for the Rental Uniforms and Ancillary Products operating segment for fiscal 2008 compared to the prior fiscal year. Income before income taxes was 15.9% of this operating segment's revenue, which is a 100 basis point decrease compared to fiscal 2007 primarily as a result of the increased energy costs and the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Uniform Direct Sales Operating Segment

Uniform Direct Sales operating segment revenue increased $16.0 million for fiscal 2008, a 3.2% increase over fiscal 2007. There were no acquisitions in the Uniform Direct Sales operating segment during fiscal 2008.

Cost of uniform direct sales increased $8.5 million, or 2.5%, for fiscal 2008 due to increased Uniform Direct Sales operating segment volume. The gross margin as a percent to revenue was 32.5% for fiscal 2008, which was a 50 basis point improvement over the prior fiscal year. This improvement is due to both sourcing improvements for catalog products as well as the increased sales volume.

Selling and administrative expenses as a percent to revenue, at 20.0%, increased 60 basis points compared to fiscal 2007. This increase is in part due to the catalog costs associated with the introduction of the new "Uniform Book" and new healthcare catalog.

Income before income taxes increased $1.5 million to $64.8 million for the Uniform Direct Sales operating segment for fiscal 2008 compared to the prior fiscal year. Income before income taxes was 12.5% of the operating segment's revenue, which is a 10 basis point decrease compared to fiscal 2007. This decrease is primarily due to the increased catalog costs noted above, offset by the gross margin improvements due to sourcing improvements and increased sales volume.

First Aid, Safety and Fire Protection Services Operating Segment

First Aid, Safety and Fire Protection Services operating segment revenue increased $41.1 million for fiscal 2008, an 11.4% increase over fiscal 2007. This operating segment's internal growth for fiscal 2008 was 6.1% over the prior fiscal year. The operating segment's internal growth was negatively impacted by lower than anticipated fire

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suppression system installation revenue and lower than anticipated recurring service revenue within the fire protection services business. Internal growth was generated primarily by the sale of first aid and safety products and services to new customers. The remaining growth was generated through the acquisition of first aid, safety and fire protection businesses.

Cost of first aid, safety and fire protection services increased $24.8 million, or 11.4%, for fiscal 2008, due to increased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent to revenue was 39.9% for fiscal 2008, which is consistent with the prior fiscal year.

Selling and administrative expenses as a percent to revenue, at 31.0%, increased 170 basis points compared to fiscal 2007. This increase was due to the increased investment in our sales organization and increases in our marketing efforts and sales promotions as described above.

Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment decreased by $2.6 million in fiscal 2008 compared to the prior fiscal year. Income before income taxes was 8.8% of the operating segment's revenue, which is a 180 basis point decrease compared to last fiscal year primarily as a result of the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Document Management Services Operating Segment

Document Management Services operating segment revenue increased $73.9 million for fiscal 2008, or 68.1% over the prior fiscal year. This operating segment's internal growth for fiscal 2008 was 38.2% over fiscal 2007. The internal growth is primarily due to the sale of destruction services to new customers. The remaining growth was generated through the acquisition of document management businesses.

Cost of document management services increased $31.1 million, or 60.2%, for fiscal 2008, due to increased Document Management Services operating segment volume. Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs. The gross margin as a percent to revenue was 54.6% for fiscal 2008, which is a 220 basis point improvement over the gross margin percentage in fiscal 2007. This improvement is primarily due to the operating segment's increased sales volume and favorable recycled paper prices relative to the prior fiscal year.

Selling and administrative expenses as a percent to revenue was 40.5% compared to 45.7% in fiscal 2007. This decrease is due to better leveraging of administrative functions resulting from the operating segment's increased sales volume, partially offset by the increased investment in our sales organization and increases in our marketing efforts and sales promotions.

Income before income taxes for the Document Management Services operating segment increased $18.6 million for fiscal 2008 compared to the prior fiscal year. Income before income taxes was 14.1% of the operating segment's revenue compared to 6.6% in fiscal 2007 primarily as a result of the operating segment's increased sales volume.

Liquidity and Capital Resources

At May 31, 2009,2010, Cintas had $250.1$566.1 million in cash, cash equivalents and marketable securities, representing an increase of $58.4$316.0 million or 30.5% from May 31, 2008.2009. This increase is attributable to the improvement in net working capital and lower use of cash for financing and investing activities.activities including capital expenditures. Net working capital (defined as current assets less current liabilities) increased by $37.7$171.9 million in fiscal 2009at May 31, 2010 compared to fiscal 2008.May 31, 2009. Cash used for investing and financing activities decreased by $56.1$177.8 million in fiscal 20092010 compared to fiscal 2008. Cash2009 due to a reduction in repayment of debt. As a result of the cash generated from operationsin fiscal 2010, we did not have any commercial paper outstanding as of May 31, 2010, under our commercial paper program discussed above.

Net cash provided by operating activities was $523.5$561.6 million in fiscal 20092010 as compared to $542.7$523.5 million generated in fiscal 2008.2009. This $19.2$38.1 million decreaseincrease is primarily a result of lower income during the current fiscal yearincreases in working capital, offset by improvements in working

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capital.lower net income. Significant uses of cash in fiscal 20092010 were capital expenditures of $160.1$111.1 million, net repaymentdividends of long-term debt of $157.1$74.0 million and dividendsacquisitions of $72.2businesses, net of cash acquired, of $50.4 million. Cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures.

Marketable securities consist primarily of Canadian treasuryfixed income securities. Cintas believes that its investment policy pertaining to marketable securities is conservative. The criterion used in making investment decisions is the preservation of principal, while earning an attractive yield.

Accounts receivable decreased $72.4increased $8.6 million primarily due to decreased revenue.higher fourth quarter revenue in fiscal 2010 compared to fiscal 2009. The average collection period in fiscal 20092010 of 42 days remained comparable with fiscal 2008.2009.

Inventories and uniforms and other rental items in service decreased $71.3$36.2 million, or 11.7% due to a $27.5 million reduction of inventory related to the loss on inventory valuation and6.7%, due to an overall reduction in inventory levels in response to customer demandsdemand driven by the current economic environment.

WorkingNet working capital increased $37.7$171.9 million to $952.8$1,141.3 million in fiscal 2009,2010, primarily due to the increased cash balances discussed above offset by reductions in accounts receivable and inventory levels.

Net property and equipment decreased $59.9$20.1 million in fiscal 2010 versus fiscal 2009 due to normal ongoing property and equipment activity and the impacta reduction in capital expenditures of the restructuring activities, including the categorization of $15.7 million in assets held for sale.$49.0 million. Capital expenditures for fiscal 20092010 totaled $160.1$111.1 million, including $114.4$68.2 million for the Rental Uniforms and Ancillary Products operating segment and $22.8$27.9 million for the Document Management Services operating segment, exceedingwhile depreciation expense by $2.5totaled $152.1 million. Included in the overall capital expenditure figure and in some of the operating segment data are approximately $43 million of costs related to information technology capital projects, including implementation costs of an enterprise computer system. During fiscal 2009,2010, Cintas completed construction of threeone new uniform rental facilities.facility.

Long-term debt totaled $786.7$786.1 million at May 31, 2009.2010. This amount includes $225.0 million of 10-year senior notes at a rate of 6.0% issued in fiscal 2002, $250.0 million of 30-year senior notes issued in fiscal 20062007 at a rate of 6.15% and $300.0 million of 10-year senior notes issued in fiscal 2008 at a rate of 6.125%. Cintas has earned credit ratings on these notes of "A" from Standard & Poor's and "A2" from Moody's. Cintas utilizes a $600.0 million commercial paper program, on which it has earned credit ratings of "A-1" from Standard & Poor's and "Prime-1" from Moody's. We believe these ratings are reflective ofreflect our commitment to conservative financial policies, strong financial management and a disciplined integration strategy for acquisitions. The commercial paper program is fully supported by a long-term credit facility that matures in fiscal 2011. As of May 31, 2009,2010, there were no outstanding borrowings under this program. During fiscal 2009, Cintas initiated a $7.5 million loan with PIDC Regional Center, LP for

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funding related to a facility being built in Philadelphia. It is a 5-year note with a 2.75% interest rate.

Cintas' total debt to capitalization ratio has decreased from 29.5% at May 31, 2008, to 24.9% at May 31, 2009. Total2009, to 23.7% at May 31, 2010.

Cintas has certain covenants related to debt decreased $157.2 millionagreements. These covenants limit Cintas' ability to incur certain liens, to engage in fiscal 2009 throughsale-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 usesignificant debt covenants for all periods presented. If a default of cash generated by operationsa significant covenant were to reduce commercial paper balances.occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital.

During fiscal 2009,2010, Cintas paid dividends of $72.2$74.0 million, or $0.47$0.48 per share. On a per share basis, this dividend is an increase of 2.2%2.1% over the dividend paid in fiscal 2008.2009. This marks the 2627th consecutive year that Cintas has increased its annual dividend, every year since going public in 1983.

On May 2, 2005, Cintas announced that the Board of Directors authorized a $500.0 million share 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 $500.0 million. During fiscal 2010, Cintas did not make any common stock repurchases under the first quarter of fiscal 2009, Cintas purchased 0.9 million shares of Cintas stock at an average price of $28.61 per share for a total purchase price of approximately $26 million.buyback program. From the inception of the share buyback program through July 30, 2009,2010, Cintas has purchased

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20.3 million shares of Cintas' common stock at an average price of $39.31 per share for a total purchase price of approximately $798 million. The Board of Directors did not specify an expiration date for this program.

During fiscal 2010, Cintas purchased approximately 43,000 shares of Cintas' common stock in trade for employee payroll taxes due on restricted stock options that vested during the fiscal year. These shares were purchased at an average price of $22.71 per share for a total purchase price of approximately $1 million.

Following is information regarding Cintas' long-term contractual obligations and other commitments outstanding as of May 31, 2009:2010:

Long-Term Contractual Obligations

 

(In thousands)

  Payments Due by Period 
   
 

  Total  
One year
or less
  Two to
three years
  Four to
five years
  After five
years
 
 
 
 
 

Long-term debt (1)

 $786,627 $569 $1,256 $233,823 $550,979 
 

Capital lease obligations (2)

  29  29       
 

Operating leases (3)

  95,954  27,329  39,753  18,033  10,839 
 

Interest payments (4)

  652,577  49,563  98,977  71,228  432,809 
 

Interest swap agreements

           
 

Unconditional purchase obligations

           
     
 

Total contractual cash obligations

 $1,535,187 $77,490 $139,986 $323,084 $994,627 
     

 

(In thousands)

  Payments Due by Period 
   
 

  Total  
One year
or less
  Two to
three years
  Four to
five years
  After five
years
 
 
 
 
 

Long-term debt (1)

 $786,053 $609 $226,278 $8,690 $550,476 
 

Operating leases (2)

  89,041  27,766  37,348  15,472  8,455 
 

Interest payments (3)

  611,555  49,520  85,382  43,918  432,735 
 

Interest swap agreements

           
 

Unconditional purchase obligations

           
     
 

Total long-term contractual cash obligations

 $1,486,649 $77,895 $349,008 $68,080 $991,666 
     

Cintas also makes payments to defined contribution plans. The amounts of contributions made to the defined contribution plans are made at the discretion of Cintas. Future contributions are expected to increase approximately 3% to 5% annually. Based on that increase, payments due in one year or less would be $25,221,$21,393, two to three years would be $54,287$46,049 and four to five years would be $59,852.$50,769. Payments for years thereafter are expected to continue increasing by approximately 5% each year.

(1)
Long-term debt primarily consists of $775,000 in senior notes. Reference Note 76 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements" for a detailed discussion of long-term debt.

(2)
Capital lease obligations are included in long-term debt detailed in Note 7 entitled Long-Term Debt of "Notes to Consolidated Financial Statements."

(3)
Operating leases consist primarily of building leases and a synthetic lease on a corporate aircraft.

leases.

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(4)(3)
Interest payments include interest on both fixed and variable rate debt. Rates have been assumed to increase 2550 basis points in fiscal 2010,2011, increase 75150 basis points for both fiscal 2011 andin fiscal 2012, increase 100125 basis points in fiscal 2013, increase 50100 basis points in both fiscal 2014 and 2015 and increase an additional 50 basis points in each year thereafter.

Other Commitments

 

(In thousands)

  Amount of Commitment Expiration per Period 
   
 

  Total  One year
or less
  Two to
three years
  Four to
five years
  After five
years
 
 
 
 
 

Lines of credit (1)

 $531,360 $ $531,360 $ $ 
 

Standby letters of credit (2)

  68,640  68,631  9     
 

Guarantees

           
 

Standby repurchase obligations

           
 

Other commercial commitments

           
     
 

Total commercial commitments

 $600,000 $68,631 $531,369 $ $ 
     

 

(In thousands)

  Amount of Commitment Expiration per Period 
   
 

  Total  One year
or less
  Two to
three years
  Four to
five years
  After five
years
 
 
 
 
 

Lines of credit (1)

 $504,122 $504,122 $ $ $ 
 

Standby letters of credit (2)

  95,878  95,878       
 

Guarantees

           
 

Standby repurchase obligations

           
 

Other commercial commitments

           
     
 

Total other commitments

 $600,000 $600,000 $ $ $ 
     
(1)
Back-up facility for the commercial paper program (reference Note 76 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements" for further discussion).

(2)
Support certain outstanding debt (reference Note 76 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements"), self-insured workers' compensation and general liability insurance programs.

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Cintas has no off-balance sheet arrangements other than the synthetic lease on a corporate aircraft. 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, revenue or expenses, results of operation, liquidity, capital expenditures or capital resources.

Inflation and Changing Prices

Changes in wages, benefits and energy costs have the potential to materially impact Cintas' financial results. Medical benefit costs increased as a percent to revenue due to increased utilization and rising healthcare industry costs. Medical benefits were 4.0% of total revenue in fiscal 2010 and 3.5% of total revenue in fiscal 2009 and 3.1% of total revenue in fiscal 2008.2009. Management believes inflation has not had a material impact on Cintas' financial condition or a negative impact on results of operation.

Litigation and Other Contingencies

Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the financial position or results of operation of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business. Please refer to "Part I, Item 3. Legal Proceedings" and Note 1413 entitled Litigation and Other Contingencies of "Part II, Item 8. Notes to Consolidated Financial Statements" for a detailed discussion of certain specific litigation.

New Accounting Standards

Effective June 1, 2008, Cintas adoptedThe Financial Accounting Standards Board (FASB) Statement No. 157,Fair Value Measurements (FAS 157), which definesissued FASB Accounting Standards Codification (ASC) effective for financial statements issued for interim and annual periods ending after September 30, 2009. The ASC is an aggregation of previously issued authoritative GAAP in one comprehensive set of guidance organized by subject area. In accordance with the ASC, references to previously issued accounting standards have been removed. Subsequent revisions to GAAP will be incorporated into the ASC through Accounting Standards Updates (ASU). The following is a list of recent pronouncements issued by the FASB impacting Cintas.

Effective June 1, 2009, Cintas adopted fair value establishes a framework for measuring fair value under U.S. generally accepted accounting principles (GAAP) and expands disclosure requirements about fair value measurements. FASB Staff Position 157-2 delayed the effective date of FAS 157measurements guidance for all non-financialnonfinancial assets and non-financialnonfinancial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). For all non-financial assetsnonrecurring basis. The guidance defines fair value, establishes guidance for measuring fair value and liabilities, FAS 157 is effective for Cintas beginning June 1, 2009.expands disclosures regarding fair value measurements. The adoption

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Table of FAS 157 for our financial assets and liabilitiesContents


adoption did not have a material impact on Cintas' results of operation orour consolidated financial condition. Cintas' adoption of FAS 157 is more fully described instatements. See Note 3 entitled Fair Value Measurements of "Notes to Consolidated Financial Statements."Statements" for additional information.

Effective June 1, 2009, Cintas does not believe that the adoption of FAS 157 with respect to non-financial assets and liabilities will materially impact its financial position and results of operation.

In December 2007, the FASB issued Statement No. 141 (revised 2007),Business Combinations (FAS 141(R)). Under FAS 141(R),adopted new guidance on business combinations, in which an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs beare recognized separately from the acquisition and expensed as incurred, restructuring costs generally beare expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. For Cintas, FAS 141(R) is effective for acquisitions and adjustments to an acquired entity's deferred tax asset and liability balances occurring after May 31, 2009. TheThis adoption of FAS 141(R) willdid not have ana material impact on Cintas' consolidatedresults of operations or financial statements when effective, but the nature and magnitude of the specificcondition. Any future effects will depend upon the terms and size of future acquisitions.

Effective June 1, 2009, Cintas adopted new guidance for determining whether instruments granted in share-based payment transactions are participating securities. This guidance provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the acquisitions consummatedcomputation of earnings per share pursuant to the two-class method of determining earnings per share. The adoption did not have a material impact on basic or diluted earnings per share. Cintas' adoption is more fully described in Note 11 entitled Earnings per Share of "Notes to Consolidated Financial Statements."

Effective June 1, 2009, Cintas adopted new guidance on subsequent events. The objective of this guidance is to establish general standards of accounting for and disclosure of events that occur after the effective date.

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Tableconsolidated balance sheet date but before the consolidated financial statements are issued or are available to be issued. This adoption did not have a material impact on Cintas' results of Contentsoperations or financial condition.

Critical Accounting Policies

The preparation of Cintas' consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that have a significant effect on the amounts reported in the consolidated financial statements and accompanying notes. These critical accounting policies should be read in conjunction with Note 1 entitled Significant Accounting Policies of "Notes to Consolidated Financial Statements." Significant changes, estimates or assumptions related to any of the following critical accounting policies could possibly have a material impact on the consolidated financial statements.

Revenue recognition

Rental revenue, which is recorded in the Rental Uniforms and Ancillary Products operating segment, is recognized when services are performed. Other services revenue, which is recorded in the Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services operating segments, is recognized when either services are performed or when products are shipped and the title and risks of ownership pass to the customer.

Allowance for doubtful accounts

Cintas establishes an allowance for doubtful accounts. This allowance includes an estimate based on historical rates of collectability and allowances for specific accounts identified as uncollectible. The allowance that is an estimate based on historical rates of collectability is recorded for overdue amounts, beginning with a nominal percentage and increasing substantially as the account ages. The amount provided as the account ages will differ slightly between the Rental Uniforms and Ancillary Products operating segment and the three other operating segments because of differences in customers served and the nature of each operating segment.

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Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market. Substantially all inventories represent finished goods. Cintas applies a commonly accepted practice of using inventory turns to apply variances between actual and standard costs to the inventory balances. The judgments and estimates used to calculate inventory turns will have an impact on the valuation of inventories at the lower of cost or market. An inventory obsolescence reserve is determined by specific identification, as well as an estimate based on historical rates of obsolescence. The significant deterioration of the U.S. and Canadian economies, particularly in the last five months of the year ended May 31, 2009, led to reduced revenue in our Rental Uniforms and Ancillary Products operating segment, our Uniform Direct Sales operating segment and our First Aid, Safety and Fire Protection Services operating segment, which created excess inventory amounts in these operating segments. As a result, we reduced the carrying amount of specific inventory to realizable values and recorded a pre-tax loss in the year ended May 31, 2009, of $27.5 million. The following summarizes this amount by operating segment:

 

(In millions)

May 31, 2009

  

Rental
Uniforms
& Ancillary
Products

  

Uniform
Direct
Sales

  

First Aid,
Safety &
Fire
Protection

  

Document
Management

  

Total

 
 
 
 
 

Cost of rental uniforms and ancillary products

 $8.4 $ $ $ $8.4 
 

Cost of other services

    16.1  3.0    19.1 
     
 

Loss on inventory valuation

 $8.4 $16.1 $3.0 $ $27.5 
     

Uniforms and other rental items in service

Uniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method. Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life

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of 18 months. Other rental items including shop towels, mats, cleanroom garments, flame resistant clothing, linens and restroom dispensers are amortized over their useful lives which range from 8 to 48 months. The amortization rates used are based on industry experience, Cintas' specific experience and wear tests performed by Cintas. These factors are critical to determining the amount of in service inventory that is presented in the consolidated financial statements.

Property and equipment

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which is typically 30 to 40 years for buildings, 5 to 20 years for building improvements, 3 to 10 years for equipment and 2 to 15 years for leasehold improvements. When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows or based on prices of similar assets, as appropriate. Long-lived assets that are held for sale are reported at the lower of the carrying amount or the fair value, less estimated costs to sell. See Note 2 entitled Restructuring and Related Activity of "Notes to Consolidated Financial Statements" for discussion of impairment of long-lived assets.

Goodwill and impairment

Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas performscompletes an annual impairment tests by operating segment. These tests includetest which includes the determination of the fair value of its reporting units. This test includes comparisons to current market values, where available, and discounted cash flow analyses. Significant assumptions include growth rates based on historical trends and margin improvement leveraged from such growth. The methodology used is consistent with prior years. Based on the results of the impairment tests, Cintas has not recognized an impairment of goodwill for the fiscal years ended May 31, 2010, 2009 2008 or 2007.2008.

Service contracts and other assets

Service contracts and other assets, which consist primarily of noncompete and consulting agreements obtained through acquisitions of businesses, are amortized by use of the straight-linestraight line method over the estimated lives of the agreements, which are generally 5 to 10 years. Certain noncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contracts and other assets is accomplished through specific identification. No impairment has been recognized by Cintas for the fiscal years ended May 31, 2010, 2009 2008 or 2007.2008.

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Stock-based compensation

As required under FASB Statement No. 123(R),Share-Based Payment, compensationCompensation expense is recognized for all share-based payments to employees, including stock options, in the consolidated statements of income based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model. Measured compensation cost, net of estimated forfeitures, is recognized on a straight linestraight-line basis over the vesting period of the related share-based compensation award.

See Note 1312 entitled Stock-Based Compensation of "Notes to Consolidated Financial Statements" for further information.

Litigation and environmental matters

Cintas is subject to legal proceedings and claims related to environmental matters arising from the ordinary course of business. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine

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the existence of a liability, as well as the amount to be recorded. While a significant change in assumptions and judgments could have a material impact on the amounts recorded for contingent liabilities, Cintas does not believe that they will result in a material adverse effect on the consolidated financial statements.

A detailed discussion of litigation matters is discussed above in the sectionNote 13 entitled Litigation and Other Contingencies.Contingencies of "Notes to Consolidated Financial Statements."

Income taxes

Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. See Note 98 entitled Income Taxes of "Notes to Consolidated Financial Statements" for the types of items that give rise to significant deferred income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes. Deferred income taxes that are not related to an asset or liability for financial reporting are classified according to the expected reversal date. Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. As a result of this review, Cintas has not established a valuation allowance against the deferred tax assets.

Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas' evaluation of current tax positions, Cintas believes its accruals are appropriate.

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk

Cintas manages interest rate risk by using a combination of variable and fixed rate debt and investing in marketable securities. Earnings are affected by changes in short-term interest rates due to investments in marketable securities and money market accounts and periodic issuances of commercial paper. If short-term rates changed by one-half percent (or 50 basis points), Cintas' income before income taxes would change by approximately $0.5$1.5 million. This estimated exposure considers the effects on investments and the change in the cost of variable rate debt. This analysis does not consider the effects of a change in economic activity or a change in Cintas' capital structure.

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

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and profit translated into U.S. dollars. Foreign denominated revenue and profit represents less than 10% of Cintas' consolidated revenue and profit. Cintas periodically uses foreign currency hedges such as average rate options and forward contracts to mitigate the risk of foreign currency exchange rate movements resulting from foreign currency revenue and from international cash flows. The primary foreign currency to which Cintas is exposed is the Canadian dollar.

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Item 8.  Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Audited Consolidated Financial Statements for the Fiscal Years Ended May 31, 2010, 2009 and 2008

Audited Consolidated Financial Statements for the Fiscal Years Ended May 31, 2009, 2008 and 2007

  

Management's Report on Internal Control over Financial Reporting

 
3132
  

Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm

 
3233
  

Consolidated Statements of Income

 
3435
  

Consolidated Balance Sheets

 
3536
  

Consolidated Statements of Shareholders' Equity

 
3637
  

Consolidated Statements of Cash Flows

 
3738
  

Notes to Consolidated Financial Statements

 
3839

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Management's Report on
Internal Control over Financial Reporting



To the Shareholders of Cintas Corporation:

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

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

With the supervision of our Chief Executive Officer and our Chief Financial Officer, management assessed our internal control over financial reporting as of May 31, 2009.2010. Management based its assessment on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed by our internal audit function.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2009,2010, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.

We reviewed the results of management's assessment with the Audit Committee of our Board of Directors. Additionally, our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of Cintas Corporation's internal control over financial reporting. Ernst & Young LLP has issued an attestation report, which is included in this Annual Report.

 /s/  Scott D. Farmer
      Scott D. Farmer
      Chief Executive Officer

 

/s/  William C. Gale
      William C. Gale
      Senior Vice President and Chief Financial Officer

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Report of Independent Registered Public Accounting Firm



To the Board of Directors and Shareholders of Cintas Corporation:

We have audited Cintas Corporation's internal control over financial reporting as of May 31, 2009,2010, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Cintas Corporation's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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

In our opinion, Cintas Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2009,2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Cintas Corporation as of May 31, 20092010 and 2008,2009, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 2009,2010, of Cintas Corporation, and our report dated July 27, 2009,30, 2010, expressed an unqualified opinion thereon.

  /s/ Ernst & Young LLP
Cincinnati, Ohio
July 27, 200930, 2010
  

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Report of Independent Registered Public Accounting Firm



To the Board of Directors and Shareholders of Cintas Corporation:

We have audited the accompanying consolidated balance sheets of Cintas Corporation as of May 31, 20092010 and 2008,2009, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 2009.2010. Our audits also included the consolidated financial statement schedule listed in the indexIndex at Item 15(a). These consolidated financial statements and schedule are the responsibility of Cintas Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cintas Corporation at May 31, 20092010 and 2008,2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2009,2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As described in Note 1 to the consolidated financial statements, in fiscal 2008, Cintas Corporation adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cintas Corporation's internal control over financial reporting as of May 31, 2009,2010, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 27, 2009,30, 2010, expressed an unqualified opinion thereon.

  /s/ Ernst & Young LLP
Cincinnati, Ohio
July 27, 2009

33


Table of Contents

Consolidated
Statements of Income

          

  
Fiscal Years Ended May 31,
 
  

(In thousands except per share data)

  2009  2008  2007 

 
 

Revenue:

          

Rental uniforms and ancillary products

 $2,755,015 $2,834,568 $2,734,629 

Other services

  1,019,670  1,103,332  972,271 
    

  3,774,685  3,937,900  3,706,900 

Costs and expenses:

          

Cost of rental uniforms and ancillary products

  1,562,230  1,581,618  1,515,185 

Cost of other services

  661,584  674,682  610,360 

Selling and administrative expenses

  1,082,709  1,104,145  1,003,958 

Restructuring charges

  10,209     

Impairment of long-lived assets

  48,888     
    

Operating income

  409,065  577,455  577,397 

Interest income

  
(2,764

)
 
(6,072

)
 
(6,480

)

Interest expense

  50,236  52,823  50,324 
    

Income before income taxes

  
361,593
  
530,704
  
533,553
 

Income taxes

  135,236  195,299  199,015 
    

Net income

 $226,357 $335,405 $334,538 
    

Basic earnings per share

 
$

1.48
 
$

2.15
 
$

2.09
 
    

Diluted earnings per share

 
$

1.48
 
$

2.15
 
$

2.09
 
    

Dividends declared and paid per share

 
$

0.47
 
$

0.46
 
$

0.39
 
    

See accompanying notes.Cincinnati, Ohio
July 30, 2010

34


Table of Contents

Consolidated
Balance Sheets

       

  
As of May 31,
 
  

(In thousands except share data)

  2009  2008 

 
 

Assets

       

Current assets:

       

Cash and cash equivalents

 $129,745 $66,224 

Marketable securities

  120,393  125,471 

Accounts receivable, principally trade, less allowance of $19,532 and $13,139, respectively

  357,678  430,078 

Inventories, net

  202,351  238,669 

Uniforms and other rental items in service

  335,447  370,416 

Income taxes, current

  25,512   

Deferred tax asset

  66,368  39,410 

Prepaid expenses

  17,035  12,068 

Assets held for sale

  15,744   
    

Total current assets

  1,270,273  1,282,336 

Property and equipment, at cost, net

  
914,627
  
974,575
 

Goodwill

  
1,331,388
  
1,315,569
 

Service contracts, net

  124,330  152,757 

Other assets, net

  80,333  83,364 
    

 $3,720,951 $3,808,601 
    

Liabilities and Shareholders' Equity

       

Current liabilities:

       

Accounts payable

 $69,965 $94,755 

Accrued compensation and related liabilities

  48,414  50,605 

Accrued liabilities

  198,488  207,925 

Income taxes, current

    12,887 

Long-term debt due within one year

  598  1,070 
    

Total current liabilities

  317,465  367,242 

Long-term liabilities:

       

Long-term debt due after one year

  786,058  942,736 

Deferred income taxes

  149,032  124,184 

Accrued liabilities

  100,987  120,308 
    

Total long-term liabilities

  1,036,077  1,187,228 

Shareholders' equity:

       

Preferred stock, no par value:

       

100,000 shares authorized, none outstanding

     

Common stock, no par value:

       

425,000,000 shares authorized

       

2009:  173,085,926 shares issued and
          152,790,170 shares outstanding

       

2008:  173,083,426 shares issued and
          153,691,103 shares outstanding

  129,215  129,182 

Paid-in capital

  72,364  60,408 

Retained earnings

  2,938,419  2,784,302 

Treasury stock:

       

2009: 20,295,756 shares

       

2008: 19,392,323 shares

  (797,888) (772,041)

Other accumulated comprehensive income (loss):

       

Foreign currency translation

  33,505  61,206 

Unrealized loss on derivatives

  (8,207) (8,815)

Unrealized gain (loss) on available-for-sale securities

  1  (111)
    

Total shareholders' equity

  2,367,409  2,254,131 
    

 $3,720,951 $3,808,601 
    

Consolidated
Statements of Income

          

  
Fiscal Years Ended May 31,
 
  

(In thousands except per share data)

  2010  2009  2008 

 
 

Revenue:

          
 

Rental uniforms and ancillary products

 $2,569,357 $2,755,015 $2,834,568 
 

Other services

  977,982  1,019,670  1,103,332 
    

  3,547,339  3,774,685  3,937,900 

Costs and expenses:

          
 

Cost of rental uniforms and ancillary products

  1,449,576  1,562,230  1,581,618 
 

Cost of other services

  599,946  661,584  674,682 
 

Selling and administrative expenses

  1,086,359  1,082,709  1,104,145 
 

Legal settlements, net of insurance proceeds

  23,529     
 

Restructuring charges

  (2,880) 10,209   
 

Impairment of long-lived assets

    48,888   
    

Operating income

  390,809  409,065  577,455 
 

Interest income

  
(1,695

)
 
(2,764

)
 
(6,072

)
 

Interest expense

  48,612  50,236  52,823 
    

Income before income taxes

  
343,892
  
361,593
  
530,704
 

Income taxes

  128,272  135,236  195,299 
    

Net income

 $215,620 $226,357 $335,405 
    

Basic earnings per share

 
$

1.40
 
$

1.48
 
$

2.15
 
    

Diluted earnings per share

 
$

1.40
 
$

1.48
 
$

2.15
 
    

Dividends declared and paid per share

 
$

0.48
 
$

0.47
 
$

0.46
 
    

See accompanying notes.

35


Table of Contents

Consolidated
Statements of Shareholders' Equity

 Common Stock   Paid-In  Retained  Other
Accumulated
Comprehensive
 Treasury Stock   Total
Shareholders'
 

(In thousands)

  Shares  Amount  Capital  Earnings  Income (Loss)  Shares  Amount  Equity 

 
 

Balance at June 1, 2006

  172,571 $109,948 $58,556 $2,260,917 $42,384  (9,389)$(381,613)$2,090,192 
 

Net income

  
  
  
  
334,538
  
  
  
  
334,538
 
 

Equity adjustment for foreign currency translation

          7,426      7,426 
 

Change in fair value of derivatives, net of $8,196 of tax

          (13,571)     (13,571)
 

Change in fair value of available-for-sale securities, net of $522 of tax

          882      882 
                         
 

Comprehensive income, net of tax

                       329,275 
 

Dividends

        (61,996)       (61,996)
 

Stock-based compensation

      4,500          4,500 
 

Stock options exercised, net of shares surrendered

  303  10,863  (6,147)         4,716 
 

Repurchase of common stock

            (4,808) (198,949) (198,949)
  

Balance at May 31, 2007

  172,874  120,811  56,909  2,533,459  37,121  (14,197) (580,562) 2,167,738 
  
 

Net income

        335,405        335,405 
 

Equity adjustment for foreign currency translation

          19,391      19,391 
 

Change in fair value of derivatives, net of $2,924 of tax

          (4,394)     (4,394)
 

Change in fair value of available-for-sale securities, net of $98 of tax

          162      162 
                         
 

Comprehensive income, net of tax

                       350,564 
 

FIN 48 adjustment

        (13,731)       (13,731)
 

Dividends

        (70,831)       (70,831)
 

Stock-based compensation

      7,456          7,456 
 

Stock options exercised, net of shares surrendered

  209  8,371  (3,957)         4,414 
 

Repurchase of common stock

            (5,195) (191,479) (191,479)
  

Balance at May 31, 2008

  173,083  129,182  60,408  2,784,302  52,280  (19,392) (772,041) 2,254,131 
  
 

Net income

        226,357        226,357 
 

Equity adjustment for foreign currency translation

          (27,701)     (27,701)
 

Change in fair value of derivatives, net of $94 of tax

          608      608 
 

Change in fair value of available-for-sale securities, net of $50 of tax

          112      112 
                         
 

Comprehensive income, net of tax

                       199,376 
 

Dividends

        (72,207)       (72,207)
 

Stock-based compensation

      11,953          11,953 
 

Stock options exercised, net of shares surrendered

  3               
 

Other

    33  3  (33)       3 
 

Repurchase of common stock

            (904) (25,847) (25,847)
  

Balance at May 31, 2009

  173,086 $129,215 $72,364 $2,938,419 $25,299  (20,296)$(797,888)$2,367,409 
  

Consolidated
Balance Sheets

       

  
As of May 31,
 
  

(In thousands except share data)

  2010  2009 

 
 

Assets

       

Current assets:

       

Cash and cash equivalents

 $411,281 $129,745 

Marketable securities

  154,806  120,393 

Accounts receivable, principally trade, less allowance of $14,297 and $19,532, respectively

  366,301  357,678 

Inventories, net

  169,484  202,351 

Uniforms and other rental items in service

  332,106  335,447 

Income taxes, current

  15,691  25,512 

Deferred tax asset

  52,415  66,368 

Prepaid expenses

  13,423  17,035 

Assets held for sale

  9,437  15,744 
    

Total current assets

  1,524,944  1,270,273 

Property and equipment, at cost, net

  
894,522
  
914,627
 

Goodwill

  
1,356,925
  
1,331,388
 

Service contracts, net

  103,445  124,330 

Other assets, net

  89,900  80,333 
    

 $3,969,736 $3,720,951 
    

Liabilities and Shareholders' Equity

       

Current liabilities:

       

Accounts payable

 $71,747 $69,965 

Accrued compensation and related liabilities

  66,924  48,414 

Accrued liabilities

  244,402  181,892 

Long-term debt due within one year

  609  598 
    

Total current liabilities

  383,682  300,869 

Long-term liabilities:

       

Long-term debt due after one year

  785,444  786,058 

Deferred income taxes

  150,560  149,032 

Accrued liabilities

  116,021  117,583 
    

Total long-term liabilities

  1,052,025  1,052,673 

Shareholders' equity:

       

Preferred stock, no par value:

       

100,000 shares authorized, none outstanding

     

Common stock, no par value:

       

425,000,000 shares authorized

       

2010:  173,207,493 shares issued and
 152,869,848 shares outstanding

       

2009:  173,085,926 shares issued and
 152,790,170 shares outstanding

  132,058  129,215 

Paid-in capital

  84,616  72,364 

Retained earnings

  3,080,079  2,938,419 

Treasury stock:

       

2010: 20,337,645 shares

       

2009: 20,295,756 shares

  (798,857) (797,888)

Other accumulated comprehensive income (loss):

       

Foreign currency translation

  42,870  33,505 

Unrealized loss on derivatives

  (6,997) (8,207)

Other

  287   

Unrealized (loss) gain on available-for-sale securities

  (27) 1 
    

Total shareholders' equity

  2,534,029  2,367,409 
    

 $3,969,736 $3,720,951 
    

See accompanying notes.

36


Table of Contents

Consolidated
Statements of Shareholders' Equity

Consolidated
Statements of Cash Flows

          

  
Fiscal Years Ended May 31,
 
  

(In thousands)

  2009  2008  2007 

 
 

Cash flows from operating activities:

          

Net income

 $226,357 $335,405 $334,538 

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

          

Depreciation

  157,572  148,566  135,181 

Amortization

  42,534  43,337  40,745 

Impairment of long-lived assets

  48,888     

Stock-based compensation

  11,953  7,456  4,500 

Deferred income taxes

  (1,174) 1,663  (332)

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

          

Accounts receivable

  71,149  (14,939) (11,460)

Inventories

  35,136  (6,100) (32,090)

Uniforms and other rental items in service

  29,661  (23,854) (6,968)

Prepaid expenses

  (4,949) 3,830  (4,502)

Accounts payable

  (24,560) 30,567  (7,654)

Accrued compensation and related liabilities

  (2,012) (12,430) 12,600 

Accrued liabilities and other

  (28,991) 20,398  9,028 

Income taxes (receivable) payable

  (38,042) 8,841  (25,148)
    

Net cash provided by operating activities

  523,522  542,740  448,438 

Cash flows from investing activities:

          

Capital expenditures

  (160,092) (190,333) (180,824)

Proceeds from sale or redemption of marketable securities

  116,433  45,791  118,174 

Purchase of marketable securities and investments

  (128,402) (54,498) (48,515)

Acquisitions of businesses, net of cash acquired

  (30,909) (111,535) (160,707)

Other

  (251) (400) (1,836)
    

Net cash used in investing activities

  (203,221) (310,975) (273,708)

Cash flows from financing activities:

          

Proceeds from issuance of debt

  7,500  295,000  252,460 

Repayment of debt

  (164,649) (232,409) (169,987)

Stock options exercised

    8,371  10,863 

Dividends paid

  (72,207) (70,831) (61,996)

Repurchase of common stock

  (25,847) (191,479) (198,949)

Other

  855  (11,356) (11,628)
    

Net cash used in financing activities

  (254,348) (202,704) (179,237)

Effect of exchange rate changes on cash and cash equivalents

  
(2,432

)
 
1,803
  
953
 
    

Net increase (decrease) in cash and cash equivalents

  63,521  30,864  (3,554)

Cash and cash equivalents at beginning of year

  66,224  35,360  38,914 
    

Cash and cash equivalents at end of year

 $129,745 $66,224 $35,360 
    

 Common Stock   Paid-In  Retained  Other
Accumulated Comprehensive
 Treasury Stock   Total
Shareholders'
 

(In thousands)

  Shares  Amount  Capital  Earnings  Income (Loss)  Shares  Amount  Equity 

 
 

Balance at June 1, 2007

  172,874 $120,811 $56,909 $2,533,459 $37,121  (14,197)$(580,562)$2,167,738 
 

Net income

  
  
  
  
335,405
  
  
  
  
335,405
 
 

Equity adjustment for foreign currency translation

          19,391      19,391 
 

Change in fair value of derivatives, net of $2,924 of tax

          (4,915)     (4,915)
 

Amortization of interest rate lock agreements

          521      521 
 

Change in fair value of available-for-sale securities, net of $98 of tax

          162      162 
                         
 

Comprehensive income, net of tax

                       350,564 
 

FIN 48 adjustment

        (13,731)       (13,731)
 

Dividends

        (70,831)       (70,831)
 

Stock-based compensation

      7,456          7,456 
 

Stock options exercised, net of shares surrendered

  209  8,371  (3,957)         4,414 
 

Repurchase of common stock

            (5,195) (191,479) (191,479)
  

Balance at May 31, 2008

  173,083  129,182  60,408  2,784,302  52,280  (19,392) (772,041) 2,254,131 
  
 

Net income

        226,357        226,357 
 

Equity adjustment for foreign currency translation

          (27,701)     (27,701)
 

Change in fair value of derivatives, net of $94 of tax

          (159)     (159)
 

Amortization of interest rate lock agreements

          767      767 
 

Change in fair value of available-for-sale securities, net of $50 of tax

          112      112 
                         
 

Comprehensive income, net of tax

                       199,376 
 

Dividends

        (72,207)       (72,207)
 

Stock-based compensation

      11,953          11,953 
 

Stock options exercised, net of shares surrendered

  3               
 

Other

    33  3  (33)       3 
 

Repurchase of common stock

            (904) (25,847) (25,847)
  

Balance at May 31, 2009

  173,086  129,215  72,364  2,938,419  25,299  (20,296) (797,888) 2,367,409 
  
 

Net income

        215,620        215,620 
 

Equity adjustment for foreign currency translation

          9,365      9,365 
 

Change in fair value of derivatives, net of $260 of tax

          443      443 
 

Amortization of interest rate lock agreements

          767      767 
 

Change in fair value of available-for-sale securities, net of ($14) of tax benefit

          (28)     (28)
                         
 

Comprehensive income, net of tax

                       226,167 
 

Dividends

        (73,960)       (73,960)
 

Stock-based compensation

      15,349          15,349 
 

Vesting of stock-based compensation awards

  121  2,843  (2,843)          
 

Other

      (254)   287      33 
 

Repurchase of common stock

            (42) (969) (969)
  

Balance at May 31, 2010

  173,207 $132,058 $84,616 $3,080,079 $36,133  (20,338)$(798,857)$2,534,029 
  

See accompanying notes.

37


Table of Contents

Consolidated
Statements of Cash Flows

          

  
Fiscal Years Ended May 31,
 
  

(In thousands)

  2010  2009  2008 

 
 

Cash flows from operating activities:

          

Net income

 $215,620 $226,357 $335,405 

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

          

Depreciation

  152,059  157,572  148,566 

Amortization of deferred charges

  41,082  42,534  43,337 

Impairment of long-lived assets

    48,888   

Stock-based compensation

  15,349  11,953  7,456 

Deferred income taxes

  13,295  (1,174) 1,663 

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

          

Accounts receivable, net

  1,140  71,149  (14,939)

Inventories, net

  30,293  35,136  (6,100)

Uniforms and other rental items in service

  4,164  29,661  (23,854)

Prepaid expenses

  3,715  (4,949) 3,830 

Accounts payable

  8,939  (24,560) 30,567 

Accrued compensation and related liabilities

  18,393  (2,012) (12,430)

Accrued liabilities and other

  47,528  (28,991) 20,398 

Income taxes payable (receivable)

  9,995  (38,042) 8,841 
    

Net cash provided by operating activities

  561,572  523,522  542,740 

Cash flows from investing activities:

          

Capital expenditures

  (111,078) (160,092) (190,333)

Proceeds from sale or redemption of marketable securities

  34,712  116,433  45,791 

Purchase of marketable securities and investments

  (81,269) (128,402) (54,498)

Acquisitions of businesses, net of cash acquired

  (50,444) (30,909) (111,535)

Other

  4,579  (251) (400)
    

Net cash used in investing activities

  (203,500) (203,221) (310,975)

Cash flows from financing activities:

          

Proceeds from issuance of debt

    7,500  295,000 

Repayment of debt

  (603) (164,649) (232,409)

Stock options exercised

      8,371 

Dividends paid

  (73,960) (72,207) (70,831)

Repurchase of common stock

  (969) (25,847) (191,479)

Other

  (977) 855  (11,356)
    

Net cash used in financing activities

  (76,509) (254,348) (202,704)

Effect of exchange rate changes on cash and cash equivalents

  
(27

)
 
(2,432

)
 
1,803
 
    

Net increase in cash and cash equivalents

  281,536  63,521  30,864 

Cash and cash equivalents at beginning of year

  129,745  66,224  35,360 
    

Cash and cash equivalents at end of year

 $411,281 $129,745 $66,224 
    

See accompanying notes.

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Notes to Consolidated Financial Statements

(Amounts in thousands except per share and share data)



1.  Significant Accounting Policies

Business description.  Cintas Corporation (Cintas) provides highly specialized products and services to businesses of all types primarily throughout the United StatesNorth America and Canada.Latin America, Europe and Asia. Cintas is 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 productscleaning services and supplies, carpet and tile cleaning 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.

Cintas classifies its businesses into four operating segments in accordance with the criteria set forth in Financial Accounting Standards Board (FASB) Statement No. 131,Disclosures about Segments of an Enterprise and Related Information.segments. The Rental Uniforms and Ancillary Products operating segment reflectsconsists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and hygiene productssupplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items and branded promotional products. The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services. The Document Management Services operating segment consists of document destruction, document imaging and document retention services.

Principles of consolidation.  The consolidated financial statements include the accounts of Cintas controlled majority-owned subsidiaries and any entities that are not controlled but require consolidation in accordance with FASB Interpretation No. 46,Consolidation of Variable Interest Entities — an interpretation of ARB No. 51over which Cintas has control (collectively, Cintas). Intercompany balances and transactions have been eliminated as appropriate.

Use of estimates.  The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition.  Rental revenue, which is recorded in the Rental Uniforms and Ancillary Products operating segment, is recognized when services are performed. Other Services revenue, which is recorded in the Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services operating segments, is recognized when either services are performed or when products are shipped and the title and risks of ownership pass to the customer.

Cost of rental uniforms and ancillary products.  Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The Rental Uniforms and Ancillary Products operating segment inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution are included in the cost of rental uniforms and ancillary products.

Cost of other services.  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 includes inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution.

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Selling and administrative expenses.  Selling and administrative expenses consist primarily of sales labor and commissions, management and administrative labor, payroll taxes, medical expense, insurance expense, legal and professional costs and amortization of finite-lived intangible assets.

Cash and cash equivalents.  Cintas considers all highly liquid investments with a maturity of three months or less, at date of purchase, to be cash equivalents.

Marketable securities.  All marketableMarketable securities are comprised of fixed income securities and are classified as available-for-sale.

Accounts receivable.  Accounts receivable is comprised of amounts owed through product shipments and services provided and is presented net of an allowance for doubtful accounts. ThisThe allowance includesis an estimate based on historical rates of collectability and allowances for specific accounts identified as uncollectible. The allowance that is an estimate based on historical rates of collectability is recorded for overdue amounts, beginning with a nominal percentage and increasing substantially as the account ages. The amount provided as the account ages will differ slightly between the Rental Uniforms and Ancillary Products operating segment and the three other operating segments because of differences in customers served and the nature of each operating segment. When an account is considered uncollectible, it is written off against thisthe allowance.

Inventories.  Inventories are valued at the lower of cost (first-in, first-out) or market. Substantially all inventories represent finished goods. The significant deteriorationInventory is comprised of the U.S. and Canadian economies, particularly in the last five months of the year ended May 31, 2009, led to reduced revenue in our Rental Uniforms and Ancillary Products operating segment, our Uniform Direct Sales operating segment and our First Aid, Safety and Fire Protection Services operating segment, which created excess inventory amounts in these operating segments. As a result, we reduced the carrying amount of specific inventory to realizable values and recorded a pre-tax loss in the year ended May 31, 2009, of $27,486. The following summarizes this amount by operating segment:amounts:

 

May 31, 2009

  Rental
Uniforms
& Ancillary
Products
  Uniform
Direct
Sales
  First Aid,
Safety &
Fire
Protection
  Document
Management
  Total 
 
 
 
 

Cost of rental uniforms and ancillary products

 $8,419 $ $ $ $8,419 
 

Cost of other services

    16,069  2,998    19,067 
     
 

Loss on inventory valuation

 $8,419 $16,069 $2,998 $ $27,486 
     

 

  2010  2009 
 
 
 
 

Raw materials

 $13,058 $12,498 
 

Work in process

  11,522  10,773 
 

Finished goods

  144,904  179,080 
     
 

 $169,484 $202,351 
     

Inventories are recorded net of reserves for obsolete inventory of $48,353$32,466 and $20,660$48,353 as of May 31, 20092010 and 2008,2009, respectively.

Uniforms and other rental items in service.  These items are valued at cost less amortization, calculated using the straight-line method. Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months. Other rental items, including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their useful lives which range from 8 to 48 months.

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Property and equipment.  Property and equipment is stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method primarily over the following estimated useful lives, in years:

 

Buildings

  
30 to 40
 
 

Building improvements

    5 to 20 
 

Equipment

    3 to 10 
 

Leasehold improvements

  2 to 15 

Long-lived assets.  As required under FASB Statement No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), whenWhen events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is

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recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows or based on prices of similar assets, as appropriate. Long-lived assets that are held for sale are reported at the lower of the carrying amount or the fair value, less estimated costs to sell. See Note 2 entitled Restructuring and Related Activity for discussion of impairment of long-lived assets.

Goodwill.  As required under FASB Statement No. 142,Goodwill and Other Intangible Assets (FAS 142), goodwill is separately disclosed from other intangible assets on the consolidated balance sheet and not amortized, but is tested for impairment on a reporting unit basis on at least an annual basis.amortized. Cintas completes an annual goodwill impairment test as required by FAS 142.which includes the determination of the fair value of its reporting units. The methodology used is consistent with prior years. Based on the results of the annual impairment tests,test, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2010, 2009 2008 or 2007.2008. Cintas will continue to perform future impairment tests as required by FAS 142 as of March 1 in future years or when indicators of impairment are noted.

Service contracts and other assets.  Service contracts and other assets, which consist primarily of noncompete and consulting agreements obtained through acquisitions of businesses, are amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years.

Accrued liabilities.  Current accrued liabilities consist primarily of insurance, medical and profit sharing obligations and legal and environmental contingencies. These are recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Current accrued liabilities include the following amounts:

 

  2010  2009 
 
 
 
 

General insurance liabilities

 $50,480 $48,090 
 

Employee benefit related liabilities

  47,754  47,072 
 

Legal settlements

  30,448   
 

Taxes and related liabilities

  22,403  8,583 
 

Accrued interest

  20,762  20,742 
 

Other

  72,555  57,405 
     
 

 $244,402 $181,892 
     

Long-term accrued liabilities consistconsists primarily of reserves associated with unrecognized tax benefits, which are described in more detail in Note 98 entitled Income Taxes.Taxes, and retirement obligations.

Stock-based compensation.  As required under FASB Statement No. 123(R),Share-Based Payment, compensationCompensation expense is recognized for all share-based payments to employees, including stock options, in the consolidated statements of income based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model. Measured compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period of the related share-based compensation award.

See Note 13 entitled Stock-Based Compensation for further information.

Derivatives and hedging activities.  Derivatives and hedging activities are presented in accordance with FASB Statement No. 133Accounting for Derivatives and Hedging Activities (FAS 133), as amended. FAS 133 requires the recognition of all derivatives on the consolidated balance sheet at fair value and recognition of the resulting gains or losses as adjustments to earnings or other comprehensive income.

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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 activitiesDerivatives are transacted only with highly rated institutions, reducingrecorded at fair value on the exposureconsolidated balance sheet, and gains and losses are recorded as adjustments to credit risk in the event of nonperformance.

See Note 7 entitled Long-Term Debt for further information on derivatives and hedging activities.earnings or other comprehensive income, as appropriate.

Other accounting pronouncements.  The Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Codification (ASC) effective for financial statements issued for interim and annual periods ending after September 30, 2009. The ASC is an aggregation of previously issued authoritative GAAP in one comprehensive set of guidance organized by subject area. In accordance with the ASC, references to previously issued accounting standards have been removed. Subsequent revisions to GAAP will be incorporated into the ASC through Accounting Standards Updates (ASU). The following is a list of recent pronouncements issued by the FASB impacting Cintas.

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Effective June 1, 2008,2009, Cintas adopted FASB Statement No. 157,Fair Value Measurements (FAS 157), which defines fair value establishes a framework for measuring fair value under U.S. generally accepted accounting principles (GAAP) and expands disclosure requirements about fair value measurements. FASB Staff Position 157-2 delayed the effective date of FAS 157measurements guidance for all non-financialnonfinancial assets and non-financialnonfinancial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). For all non-financial assetsnonrecurring basis. The guidance defines fair value, establishes guidance for measuring fair value and liabilities, FAS 157 is effective for Cintas beginning June 1, 2009.expands disclosures regarding fair value measurements. The adoption of FAS 157 for our financial assets and liabilities did not have a material impact on Cintas' results of operation orour consolidated financial condition. Cintas' adoption of FAS 157 is more fully describedstatements.

Effective June 1, 2009, Cintas adopted new guidance on business combinations, in Note 3 entitled Fair Value Measurements. Cintas does not believe that the adoption of FAS 157 with respect to non-financial assets and liabilities will materially impact its financial position and results of operation.

In December 2007, the FASB issued Statement No. 141 (revised 2007),Business Combinations (FAS 141(R)). Under FAS 141(R),which an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs beare recognized separately from the acquisition and expensed as incurred, restructuring costs generally beare expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. For Cintas, FAS 141(R) is effective for acquisitions and adjustments to an acquired entity's deferred tax asset and liability balances occurring after May 31, 2009. TheThis adoption of FAS 141(R) willdid not have ana material impact on Cintas' consolidatedresults of operations or financial statements when effective, but the nature and magnitude of the specificcondition. Any future effects will depend upon the terms and size of future acquisitions.

Effective June 1, 2009, Cintas adopted new guidance for determining whether instruments granted in share-based payment transactions are participating securities. This guidance provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the acquisitions consummatedcomputation of earnings per share pursuant to the two-class method of determining earnings per share. The adoption did not have a material impact on basic or diluted earnings per share.

Effective June 1, 2009, Cintas adopted new guidance on subsequent events. The objective of this guidance is to establish general standards of accounting for and disclosure of events that occur after the effective date.consolidated balance sheet date but before the consolidated financial statements are issued or are available to be issued. This adoption did not have a material impact on Cintas' results of operations or financial condition.

2.  Restructuring and Related Activity

Due to the declining economic conditions which have negatively impacted the U.S.North American economy and Canadian economies and CintasCintas' businesses, during the fourth quarter of fiscal 2009, management initiated certain restructuring activities to eliminate excess capacity and reduce our cost structure. These activities includeincluded closing or converting to branches 16 of our rental processing plants and reducing our workforce by 1,200 employees. We expecthave substantially completed these restructuring activities to be completed byas of May 31, 2010.

During the fourth quarter of fiscal 2009, Cintas recorded charges of $48,888 in long-lived asset impairment costs, $7,937 in employee termination costs and $2,272 in other exit costs for a total of $59,097 incurred as a result of this restructuring. These charges by operating segment are describeddetailed in Note 1514 entitled Operating Segment Information.

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A progression of our restructuring liability balance, primarily recorded in accrued compensation and related liabilities at May 31, 2009, is as follows:

 

  Employee
Termination
Costs
  Other Exit
Costs
  Total 
 
 
 
 

Charge to earnings — fiscal 2009

 $7,937 $2,272 $10,209 
 

Cash paid — fiscal 2009

  (2,022)   (2,022)
     
 

Balance as of May 31, 2009

 $5,915 $2,272 $8,187 
     

 

  Employee
Termination
Costs
  Other Exit
Costs
  Total 
 
 
 
 

Balance as of June 1, 2009

 $5,915 $2,272 $8,187 
 

Cash paid — fiscal 2010

  (3,785) (297) (4,082)
 

Change in estimate

  (1,380) (1,500) (2,880)
     
 

Balance as of May 31, 2010

 $750 $475 $1,225 
     

The change in estimate represents the difference between severance and other exit costs estimated based on the information available in fiscal 2009 and severance and other exit costs actually paid in fiscal 2010.

The fiscal 2009 charge of $48,888 in long-lived asset impairment costs includesincluded $25,849 in land and buildings of which $10,930 relatesrelated to assets held for sale, $18,221 in equipment and $4,818 in long-lived other assets. Our accounting policy for long-lived assets is described in Note 1 entitled Significant Accounting Policies. The fair value was determined primarily by using market quoted prices and other prices quoted for similar assets and discounted cash flow models.

Primarily as a result of these restructuring activities, certainCertain assets totaling $9,437 and $15,744 are categorized at May 31, 2010 and 2009, respectively, as assets held for sale at the lower of their carrying value or fair value less cost to sell. These assets are in the Rental Uniform and Ancillary Products operating segment and are comprised of $3,077 and $6,268 of land at May 31, 2010 and 2009, respectively and $6,360 and $9,476 of buildings and improvements.improvements at May 31, 2010 and 2009, respectively.

3.  Fair Value Measurements

Effective June 1, 2008, Cintas adopted FAS 157, whichFASB ASC defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. FAS 157It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 —

 

Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 —

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Cintas' assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

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All financial assetsinstruments that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurementconsolidated balance sheet date. These assetsfinancial instruments measured at fair value on a recurring basis are summarized below:

 

  As of May 31, 2009 
   
 

  Level 1  Level 2  Level 3  Fair Value 
 
 
 
 

Cash and cash equivalents

 $129,745 $ $ $129,745 
 

Marketable securities

  120,393      120,393 
 

Accounts receivable, net

    78    78 
 

Other assets, net

  17,105      17,105 
     
 

Total assets at fair value

 $267,243 $78 $ $267,321 
     
 

Current accrued liabilities

 
$

 
$

253
 
$

 
$

253
 
     
 

Total liabilities at fair value

 $ $253 $ $253 
     

 

  As of May 31, 2010 
   
 

  Level 1  Level 2  Level 3  Fair Value 
 
 
 
 

Cash and cash equivalents

 $411,281 $ $ $411,281 
 

Marketable securities:

             
  

U.S. municipal bonds

    21,954    21,954 
  

Canadian treasury securities

  97,791  35,061    132,852 
 

Accounts receivable, net

    450    450 
     
 

Total assets at fair value

 $509,072 $57,465 $ $566,537 
     
 

Current accrued liabilities

 
$

 
$

64
 
$

 
$

64
 
     
 

Total liabilities at fair value

 $ $64 $ $64 
     

Accounts receivable, net, includes foreign currency average rate options. Other assets, net, include retirement assets. Current accrued liabilities include foreign currency forward contracts.

4.  Marketable Securities

 

  As of May 31, 2009 
   
 

  Level 1  Level 2  Level 3  Fair Value 
 
 
 
 

Cash and cash equivalents

 $129,745 $ $ $129,745 
 

Marketable securities:

             
  

Canadian treasury securities

  120,393      120,393 
 

Accounts receivable, net

    78    78 
     
 

Total assets at fair value

 $250,138 $78 $ $250,216 
     
 

Current accrued liabilities

 
$

 
$

253
 
$

 
$

253
 
     
 

Total liabilities at fair value

 $ $253 $ $253 
     

AllCintas' cash and cash equivalents and marketable securities are comprisedgenerally classified within Level 1 or Level 2 of fixed incomethe fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Cintas does not adjust the quoted market price for such financial instruments.

The funds invested in Canadian marketable securities and classified as available-for-sale.are not expected to be repatriated, but instead are expected to be invested indefinitely in foreign subsidiaries. Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of the securities sold is based on the specific identification method.

The following is a summaryamortized cost basis of the marketable securities:

 

  2009  2008 
   
 

  Cost  Fair Value  Cost  Fair Value 
 
 
 
 

Canadian treasury securities

 $120,403 $120,393 $125,626 $125,471 
     

Assecurities as of May 31, 2010 and 2009, all marketable securities are concentrated in Canadais $154,857 and consist primarily of Canadian treasury securities. These funds are not expected to be repatriated, but instead are expected to be invested indefinitely in foreign subsidiaries.

$120,403, respectively. Purchases of marketable securities were $64,416, $122,652 $43,750 and $30,829$43,750 for the fiscal years ended May 31, 2010, 2009 2008 and 2007, respectively.

The cost and fair value of marketable securities at May 31, 2009, by contractual maturity, are $120,403 and $120,393,2008, respectively. All contractual maturities are due within one year.

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Accounts receivable, net and current accrued liabilities include foreign currency average rate options. The fair value of Cintas' foreign currency average rate options are based on similar exchange traded derivatives and are, therefore, included within Level 2 of the fair value hierarchy.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Cintas believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated balance sheet date.

5.4.  Property and Equipment

 

  2009  2008 
 
 
 
 

Land

 $77,210 $94,539 
 

Buildings and improvements

  444,683  462,799 
 

Equipment

  1,088,809  1,029,048 
 

Leasehold improvements

  15,269  16,700 
 

Construction in progress

  93,834  104,704 
     
 

  1,719,805  1,707,790 
 

Less: accumulated depreciation

  805,178  733,215 
     
 

 $914,627 $974,575 
     

 

  2010  2009 
 
 
 
 

Land

 $101,374 $77,210 
 

Buildings and improvements

  471,592  444,683 
 

Equipment

  1,178,181  1,088,809 
 

Leasehold improvements

  17,176  15,269 
 

Construction in progress

  88,769  93,834 
     
 

  1,857,092  1,719,805 
 

Less: accumulated depreciation

  962,570  805,178 
     
 

 $894,522 $914,627 
     

Interest expense is net of capitalized interest of $2,182, $2,259 $1,090 and $490$1,090 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively.

6.5.  Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill and service contracts for the fiscal years ended May 31, 20092010 and 2008,2009, by operating segment, are as follows:

 

Goodwill

  Rental
Uniforms &
Ancillary
Products
  Uniform
Direct
Sales
  First Aid,
Safety &
Protection
  Document
Management
  Total 
 
 
 
 

Balance as of June 1, 2007

 $863,319 $23,883 $162,021 $196,654 $1,245,877 
 

Goodwill (adj.) acquired

  (1,034)   3,523  64,808  67,297 
 

Foreign currency translation

  1,296  73    1,026  2,395 
     
 

Balance as of May 31, 2008

 $863,581 $23,956 $165,544 $262,488 $1,315,569 
 

Goodwill acquired

      1,328  17,340  18,668 
 

Foreign currency translation

  (1,702) (65)   (1,082) (2,849)
     
 

Balance as of May 31, 2009

 $861,879 $23,891 $166,872 $278,746 $1,331,388 
     

 

Goodwill

  Rental
Uniforms &
Ancillary
Products
  Uniform
Direct
Sales
  First Aid,
Safety &
Fire
Protection
  Document
Management
  Total 
 
 
 
 

Balance as of June 1, 2008

 $863,581 $23,956 $165,544 $262,488 $1,315,569 
 

Goodwill acquired

      1,328  17,340  18,668 
 

Foreign currency translation

  (1,702) (65)   (1,082) (2,849)
     
 

Balance as of May 31, 2009

 $861,879 $23,891 $166,872 $278,746 $1,331,388 
 

Goodwill (adj.) acquired

  (1,401)   15,095  12,528  26,222 
 

Foreign currency translation

  639  37    (1,361) (685)
     
 

Balance as of May 31, 2010

 $861,117 $23,928 $181,967 $289,913 $1,356,925 
     

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Service Contracts

  Rental
Uniforms &
Ancillary
Products
  Uniform
Direct
Sales
  First Aid,
Safety &
Protection
  Document
Management
  Total 
 
 
 
 

Balance as of June 1, 2007

 $104,285 $699 $45,352 $21,025 $171,361 
 

Service contracts (adj.) acquired

  (19)   2,682  11,227  13,890 
 

Service contracts amortization

  (21,510) (401) (6,090) (6,502) (34,503)
 

Foreign currency translation

  1,818  30    161  2,009 
     
 

Balance as of May 31, 2008

 $84,574 $328 $41,944 $25,911 $152,757 
 

Service contracts acquired

      264  4,252  4,516 
 

Service contracts amortization

  (16,289) (289) (6,166) (7,613) (30,357)
 

Foreign currency translation

  (2,388) (39)   (159) (2,586)
     
 

Balance as of May 31, 2009

 $65,897 $ $36,042 $22,391 $124,330 
     

  
  
  
  
  
  
 
 

Service Contracts

  Rental
Uniforms &
Ancillary
Products
  Uniform
Direct
Sales
  First Aid,
Safety &
Fire
Protection
  Document
Management
  Total 
 
 
 
 

Balance as of June 1, 2008

 $84,574 $328 $41,944 $25,911 $152,757 
 

Service contracts acquired

      264  4,252  4,516 
 

Service contracts amortization

  (16,289) (289) (6,166) (7,613) (30,357)
 

Foreign currency translation

  (2,388) (39)   (159) (2,586)
     
 

Balance as of May 31, 2009

 $65,897 $ $36,042 $22,391 $124,330 
 

Service contracts acquired

      5,897  4,500  10,397 
 

Service contracts amortization

  (18,081)   (6,340) (7,545) (31,966)
 

Foreign currency translation

  895      (211) 684 
     
 

Balance as of May 31, 2010

 $48,711 $ $35,599 $19,135 $103,445 
     

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

 

As of May 31, 2009

  
Carrying
Amount
  Accumulated
Amortization
  Net 
 
 
 
 

Service contracts

 $335,473 $211,143 $124,330 
     
 

Noncompete and consulting agreements

 
$

65,683
 
$

44,320
 
$

21,363
 
 

Investments

  51,762    51,762 
 

Other

  10,675  3,467  7,208 
     
 

Total

 $128,120 $47,787 $80,333 
     

 

As of May 31, 2010

  
Carrying
Amount
  Accumulated
Amortization
  Net 
 
 
 
 

Service contracts

 $346,569 $243,124 $103,445 
     
 

Noncompete and consulting agreements

 
$

68,435
 
$

53,425
 
$

15,010
 
 

Investments (1)

  68,616    68,616 
 

Other

  10,516  4,242  6,274 
     
 

Total

 $147,567 $57,667 $89,900 
     

 

 

As of May 31, 2008

  Carrying
Amount
  Accumulated
Amortization
  Net 
 
 
 
 

Service contracts

 $333,543 $180,786 $152,757 
     
 

Noncompete and consulting agreements

 
$

63,894
 
$

34,625
 
$

29,269
 
 

Investments

  46,012    46,012 
 

Other

  10,790  2,707  8,083 
     
 

Total

 $120,696 $37,332 $83,364 
     

 

As of May 31, 2009

  Carrying
Amount
  Accumulated
Amortization
  Net 
 
 
 
 

Service contracts

 $335,473 $211,143 $124,330 
     
 

Noncompete and consulting agreements

 
$

65,683
 
$

44,320
 
$

21,363
 
 

Investments(1)

  51,762    51,762 
 

Other

  10,675  3,467  7,208 
     
 

Total

 $128,120 $47,787 $80,333 
     
(1)
Investments at May 31, 2010, include the cash surrender value of insurance policies of $34,294, equity method investments of $30,036 and cost method investments of $4,286. Investments at May 31, 2009, include the cash surrender value of insurance policies of $18,006, equity method investments of $28,742 and cost method investments of $5,014.

Amortization expense was $41,082, $42,534 $43,337 and $40,745$43,337 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $39,348, $35,493, $29,363, $13,534$37,869, $31,462, $15,398, $12,282 and $10,868,$9,509, respectively.

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7.6.  Long-Term Debt and Derivatives

 

  2009  2008 
 
 
 
 

Unsecured term notes due through 2036 at an average rate of 6.07%

 $786,627 $779,652 
 

Unsecured notes due through 2009

    163,005 
 

Other

  29  1,149 
     
 

  786,656  943,806 
 

Less: amounts due within one year

  598  1,070 
     
 

 $786,058 $942,736 
     

 

  2010  2009 
 
 
 
 

Unsecured term notes due through 2036 at an average rate of 6.07%

 $786,053 $786,627 
 

Other

    29 
     
 

  786,053  786,656 
 

Less: amounts due within one year

  609  598 
     
 

 $785,444 $786,058 
     

Cintas has $68,640 of lettersLetters of credit outstanding atwere $95,878 and $68,640 for the fiscal years ended May 31, 2009.2010 and 2009, respectively. Maturities of long-term debt during each of the next five years are $598, $609, $647,$642, $225,636, $8,187 and $8,187,$503, respectively.

Interest paid net of amount capitalized, was $48,592, $49,857 $49,707 and $45,805$49,707 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively.

Cintas has a commercial paper program supported by a $600,000 long-term credit facility. As of May 31, 2009, thereThere was no commercial paper outstanding. As ofoutstanding for the fiscal years ended May 31, 2008, there was $163,000 of commercial paper outstanding.

Cintas periodically uses cash flow hedges to hedge the exposure of variability in interest rates. Such 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 gain2010 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 swaps, lock agreements or forward starting swaps outstanding as of May 31, 2009 or 2008.2009.

Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2002, fiscal 2007 and fiscal 2008. The amortization of the cash flow hedges resulted in a credit to other comprehensive income of $767, $521$767 and $384$521 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively.

To hedge the exposure of movements in the foreign currency rates, Cintas uses foreign currency hedges. These hedges would reduce the impact on cash flows from movements in the foreign currency exchange rates. Examples of foreign currency hedge instruments that Cintas may use are average rate options and forward contracts. At May 31, 2009, Cintas had $78 in average rate options included in accounts receivable, net of $450 and $253 in forward contracts$78 for the fiscal years ended May 31, 2010 and 2009, respectively. Cintas also had average rate options included in current accrued liabilities.liabilities of $64 and $253 for the fiscal years ended May 31, 2010 and 2009, respectively. These instruments increased foreign currency exchange loss by $520 during fiscal 2010 and reduced foreign currency exchange loss by $1,095 during fiscal 2009.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to 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. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital.

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8.7.  Leases

Cintas conducts certain operations from leased facilities and leases certain equipment. Most leases contain renewal options for periods from 1 to 10 years. The lease agreements provide for increases in rent expense if the options are exercised based on increases in certain price level factors or other prearranged factors. Step rent provisions, escalation clauses, capital improvements funding and other lease concessions are taken into account in computing minimum lease payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease

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term. Lease payments are not dependent on an existing index or rate and are not included in minimum lease payments. It is anticipated that expiring leases will be renewed or replaced.

The minimum rental payments under noncancelable lease arrangements for each of the next five years and thereafter are $27,329, $22,560, $17,193, $11,222, $6,812$27,766, $22,017, $15,331, $9,587, $5,885 and $10,839,$8,455, respectively. Rent expense under operating leases during the fiscal years ended May 31, 2010, 2009 and 2008, was $38,046, $37,897 and 2007, was $37,897, $34,996, and $33,268, respectively.

9.8.  Income Taxes

Income before income taxes consist of the following components:

 

  2009  2008  2007 
 
 
 
 

U.S. operations

 $332,863 $476,279 $488,011 
 

Foreign operations

  28,730  54,425  45,542 
     
 

 $361,593 $530,704 $533,553 
     

 

  2010  2009  2008 
 
 
 
 

U.S. operations

 $315,717 $332,863 $476,279 
 

Foreign operations

  28,175  28,730  54,425 
     
 

 $343,892 $361,593 $530,704 
     

Income taxes consist of the following components:

 

  2009  2008  2007 
 
 
 
 

Current:

          
 

Federal

 $135,909 $171,927 $184,363 
 

State and local

  18,962  17,225  16,181 
     
 

  154,871  189,152  200,544 
 

Deferred

  (19,635) 6,147  (1,529)
     
 

 $135,236 $195,299 $199,015 
     

 

  2010  2009  2008 
 
 
 
 

Current:

          
 

        Federal

 $106,389 $135,909 $171,927 
 

        State and local

  12,909  18,962  17,225 
     
 

  119,298  154,871  189,152 
 

Deferred

  8,974  (19,635) 6,147 
     
 

 $128,272 $135,236 $195,299 
     

Reconciliation of income tax expense using the statutory rate and actual income tax expense is as follows:

 

  2009  2008  2007 
 
 
 
 

Income taxes at the U.S. federal statutory rate

 $126,558 $185,746 $186,744 
 

State and local income taxes, net of federal benefit

  9,062  12,832  10,602 
 

Other

  (384) (3,279) 1,669 
     
 

 $135,236 $195,299 $199,015 
     

 

  2010  2009  2008 
 
 
 
 

Income taxes at the U.S. federal statutory rate

 $120,362 $126,558 $185,746 
 

State and local income taxes, net of federal benefit

  8,631  9,062  12,832 
 

Other

  (721) (384) (3,279)
     
 

 $128,272 $135,236 $195,299 
     

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The components of deferred income taxes included on the consolidated balance sheets are as follows:

 

  2009  2008 
 
 
 
 

Deferred tax assets:

       
 

Employee benefits

 $102 $8,100 
 

Allowance for doubtful accounts

  6,211  4,589 
 

Inventory obsolescence

  17,877  8,793 
 

Insurance and contingencies

  15,492  10,753 
 

Other

  23,192  16,820 
     
 

  62,874  49,055 
 

Deferred tax liabilities:

       
 

In service inventory

  7,743  8,248 
 

Property

  76,482  66,339 
 

Intangibles

  58,538  51,993 
 

State taxes and other

  2,775  7,249 
     
 

  145,538  133,829 
     
 

Net deferred tax liability

 $82,664 $84,774 
     

 

  2010  2009 
 
 
 
 

Deferred tax assets:

       
  

Allowance for doubtful accounts

 $4,890 $6,211 
  

Inventory obsolescence

  12,381  17,877 
  

Insurance and contingencies

  16,148  15,492 
  

Stock-based compensation

  9,954  7,000 
  

Other

  20,622  16,294 
     
 

  63,995  62,874 
 

Deferred tax liabilities:

       
  

In service inventory

  8,416  7,743 
  

Property

  81,634  76,482 
  

Intangibles

  65,868  58,538 
  

State taxes and other

  6,222  2,775 
     
 

  162,140  145,538 
     
 

Net deferred tax liability

 $98,145 $82,664 
     

Income taxes paid were $103,762, $187,150 $180,634 and $220,740$180,634 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively.

Cintas has undistributedUndistributed earnings of foreign subsidiaries ofwere approximately $198,273, $181,556 atand $184,551 for the fiscal years ended May 31, 2010, 2009 and 2008, respectively, for which deferred taxes have not been provided. Such earnings are considered indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result. The current calculation of such additional taxes is not practicable.

Cintas adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48) in fiscal 2008. FIN 48 addressesuncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, companiesCompanies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As a result of the adoption of FIN 48, Cintas recorded a decrease to retained earnings as of June 1, 2007, and a corresponding increase in long-term accrued liabilities of $13,731, inclusive of associated interest and penalties.

As of May 31, 20092010 and May 31, 2008,2009, there was $26,261$27,777 and $27,861,$26,261, respectively, in total unrecognized tax benefits, which if recognized, would favorably impact Cintas' effective tax rate. Cintas recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods. The total amount accrued for interest and penalties as of May 31, 20092010 and May 31, 2008,2009, was $15,739$15,693 and $15,850,$15,739, respectively. Cintas records thethis tax liability under FIN 48 in both current and long-term accrued liabilities on the consolidated balance sheets.

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In the normal course of business, Cintas provides for uncertain tax positions and the related interest, and adjusts its unrecognized tax benefits and accrued interest accordingly. During fiscal 2009, unrecognizedUnrecognized tax benefits related to continuing operations increased by $879 in fiscal 2010, decreased by $18,682 in fiscal 2009 and accruedincreased by $2,770 in fiscal 2008. Accrued interest decreased by $565.$46 in fiscal 2010, decreased by $565 in fiscal 2009 and increased by $487 in fiscal 2008.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

   
 

Balance at June 1, 2007

 $112,658 
 

Additions based on tax positions related to the current year

  1,554 
 

Additions for tax positions of prior years

  4,465 
 

Settlements

  (87)
 

Statute expirations

  (3,261)
     
 

Balance at May 1, 2008

 $115,329 
 

Additions based on tax positions related to the current year

  1,525 
 

Additions for tax positions of prior years

  1,989 
 

Settlements

  (3,120)
 

Statute expirations

  (20,558)
     
 

Balance at May 31, 2009

 $95,165 
     

   
 

Balance at June 1, 2008

 $115,329 
 

Additions based on tax positions related to the current year

  1,525 
 

Additions for tax positions of prior years

  1,989 
 

Settlements

  (3,120)
 

Statute expirations

  (20,558)
     
 

Balance at May 31, 2009

 $95,165 
 

Additions based on tax positions related to the current year

  1,528 
 

Additions for tax positions of prior years

  3,760 
 

Settlements

  (605)
 

Statute expirations

  (3,991)
     
 

Balance at May 31, 2010

 $95,857 
     

The majority of Cintas' operations are in the United States and Canada.North America. Cintas is required to file federal income tax returns as well as state income tax returns in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results of operation in any given period.

All U.S. federal income tax returns are closed to audit through fiscal 2005.2006. Cintas is currently in advanced stages of various audits in certain foreign jurisdictions and certain domestic states. The years under audit cover fiscal years back to 2000. Based on the resolution of the various audits, it is reasonably possible that the balance of unrecognized tax benefits could decrease by $1,346approximately $15,000 for the fiscal year ended May 31, 2010.2011.

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10.9.  Acquisitions

For all acquisitions accounted for as purchases, theThe purchase price paid for each acquisition has been allocated to the fair value of the assets acquired and liabilities assumed. During fiscal 2010, Cintas acquired three First Aid, Safety and Fire Protection Services operating segment businesses and four Document Management Services operating segment businesses. During fiscal 2009, Cintas acquired three First Aid, Safety and Fire Protection Services operating segment businesses and twelve Document Management Services operating segment businesses. During fiscal 2008, Cintas acquired one Rental Uniforms and Ancillary Products operating segment business, nine First Aid, Safety and Fire Protection Services operating segment businesses and twenty Document Management Services operating segment businesses. The following summarizes the aggregate purchase price for all businesses acquired:

 

  2009  2008 
 
 
 
 

Fair value of tangible assets acquired

 $6,546 $13,587 
 

Fair value of goodwill acquired

  19,024  67,758 
 

Fair value of service contracts acquired

  4,085  13,596 
 

Fair value of other intangibles acquired

  2,288  5,429 
     
 

Total fair value of assets acquired

  31,943  100,370 
 

Fair value of liabilities assumed and incurred

  574  (11,165)
     
 

Total cash paid for acquisitions

 $31,369 $111,535 
     

 

  2010  2009 
 
 
 
 

Fair value of tangible assets acquired

 $23,006 $6,546 
 

Fair value of goodwill acquired

  26,978  19,024 
 

Fair value of service contracts acquired

  9,018  4,085 
 

Fair value of other intangibles acquired

  3,828  2,288 
     
 

Total fair value of assets acquired

  62,830  31,943 
 

Fair value of liabilities assumed and incurred

  11,870  574 
     
 

Total cash paid for acquisitions

 $50,960 $31,369 
     

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The results of operation for the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The pro forma revenue, net income and earnings per share information relating to acquired businesses are not presented because they are not significant to Cintas.

11.10.  Defined Contribution Plans

Cintas' Partners' Plan (the Plan) is a non-contributory profit sharing plan and Employee Stock Ownership Plan (ESOP) for the benefit of substantially all U.S. Cintas employees who have completed one year of service. The Plan also includes a 401(k) savings feature covering substantially all U.S. employees. The amounts of contributions to the Plan and ESOP, as well as the matching contribution to the 401(k), are made at the discretion of Cintas. Total contributions, including Cintas' matching contributions, which approximate cost, were $19,849, $23,400 $28,700 and $27,900$28,700 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively.

Cintas also has a non-contributory deferred profit sharing plan (DPSP), which covers substantially all Canadian employees. In addition, a registered retirement savings plan (RRSP) is offered to those employees. The amounts of contributions to the DPSP, as well as the matching contribution to the RRSP, are made at the discretion of Cintas. Total contributions, which approximate cost, were $921, $1,086 $1,500 and $1,239$1,500 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively.

Cintas has a supplemental executive retirement plan (SERP) subject to Section 409A of the Internal Revenue Code for the benefit of certain highly compensated Cintas employees. The SERP allows participants to defer the receipt of compensation which would otherwise become payable to them. Matching contributions are made at the discretion of Cintas. Total matching contributions were $5,014, $5,498 and $5,915 for the fiscal years ended May 31, 2010, 2009 and 2008, respectively.

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12.11.  Earnings per Share

Earnings per shareCintas adopted new guidance for determining whether instruments granted in share-based payment transactions are computed in accordance with FASB Statement No. 128,Earnings per Share.participating securities on June 1, 2009, using the retrospective method. The basic computations are basedretrospective application had no impact on the weighted average number of common shares outstanding during each period. The diluted computations reflect the potential dilution that could occur if stock options were exercised into common stock, under certain circumstances, that then would share in the earnings of Cintas.

The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective years:fiscal years ended May 31, 2009 and 2008, respectively. The following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Cintas' common shares:

 

  2009  2008  2007 
 
 
 
 

Numerator:

          
 

Net income

 $226,357 $335,405 $334,538 
     
 

Denominator:

          
 

Denominator for basic earnings per share — weighted average shares (000's)

  152,942  155,678  159,769 
 

Effect of dilutive securities — employee stock options (000's)

  424  252  418 
     
 

Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversions (000's)

  153,366  155,930  160,187 
     
 

Basic earnings per share

 
$

1.48
 
$

2.15
 
$

2.09
 
     
 

Diluted earnings per share

 $1.48 $2.15 $2.09 
     

 

  2010  2009  2008 
 
 
 
 

Basic Earnings per Share

          
 

Net income

 $215,620 $226,357 $335,405 
 

Less dividends to:

          
  

Common shares

 $73,377 $71,811 $70,692 
  

Unvested shares

  583  396  139 
     
 

Total dividends

 $73,960 $72,207 $70,831 
 

Undistributed net income

 
$

141,660
 
$

154,150
 
$

264,574
 
 

Less: net income allocated to participating unvested securities

  
661
  
427
  
315
 
     
 

Net income available to common shareholders

 
$

140,999
 
$

153,723
 
$

264,259
 
     
 

Basic weighted average common shares outstanding

  
152,858
  
152,942
  
155,678
 
     
 

Basic earnings per share:

          
 

Common shares — distributed earnings

 $0.48 $0.47 $0.46 
 

Common shares — undistributed earnings

  0.92  1.01  1.69 
     
  

Total common shares

 $1.40 $1.48 $2.15 
     
 

Unvested shares — distributed earnings

 
$

0.48
 
$

0.47
 
$

0.46
 
 

Unvested shares — undistributed earnings

  0.92  1.01  1.69 
     
  

Total unvested shares

 $1.40 $1.48 $2.15 
     

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  2010  2009  2008 
 
 
 
 

Diluted Earnings per Share

          
 

Net income

 $215,620 $226,357 $335,405 
 

Less dividends to:

          
  

Common shares

 $73,377 $71,811 $70,692 
  

Unvested shares

  583  396  139 
     
 

Total dividends

 $73,960 $72,207 $70,831 
 

Undistributed net income

 
$

141,660
 
$

154,150
 
$

264,574
 
 

Less: net income allocated to participating unvested securities

  
661
  
427
  
315
 
     
 

Net income available to common shareholders

 
$

140,999
 
$

153,723
 
$

264,259
 
     
 

Basic weighted average common shares outstanding

  
152,858
  
152,942
  
155,678
 
     
 

Effect of dilutive securities — employee stock options

  
  
  
 
 

Diluted weighted average common shares outstanding

  
152,858
  
152,942
  
155,678
 
     
 

Diluted earnings per share:

          
 

Common shares — distributed earnings

 $0.48 $0.47 $0.46 
 

Common shares — undistributed earnings

  0.92  1.01  1.69 
     
  

Total common shares

 $1.40 $1.48 $2.15 
     
 

Unvested shares — distributed earnings

 
$

0.48
 
$

0.47
 
$

0.46
 
 

Unvested shares — undistributed earnings

  0.92  1.01  1.69 
     
  

Total unvested shares

 $1.40 $1.48 $2.15 
     

For the fiscal years ended May 31, 2010, 2009 and 2008, 4,451, 5,474 and 3,060 options granted to purchase shares of Cintas common stock, respectively, were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common shares (anti-dilutive).

13.12.  Stock-Based Compensation

Under the 2005 Equity Compensation Plan 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 awards, performance awards and other stock unit awards up to an aggregate of 14,000,000 shares of Cintas' common stock. At May 31, 2010, 10,914,768 shares of common stock are reserved for future issuance under the 2005 Equity Compensation Plan. The compensation cost charged against income was $15,349, $11,953 $7,456 and $4,500$7,456 for the fiscal years ended May 31, 2010, 2009 and 2008, and 2007, respectively. The amount recorded in fiscal 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 year ended May 31, 2007, are both $.01 higher, respectively, due to this change in estimated forfeitures. The total income tax benefit recognized in the consolidated income statement for share-based compensation arrangements was $3,912, $2,809 $2,022 and $1,413$2,022 for the fiscal years ended May 31, 2010, 2009 2008 and 2007,2008, respectively.

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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 Compensation Committee of the Board of Directors, but no stock option may be exercised later than 10 years after the date of the grant. The option awards generally have 10-year terms with graded vesting in years 3 through 10 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:

 

  2009  2008  2007 
 
 
 
 

Risk-free interest rate

  4.5% 4.5% 4.0%
 

Dividend yield

  1.0% 0.8% 0.7%
 

Expected volatility of Cintas' common stock

  30.0% 30.0% 38.0%
 

Expected life of the option in years

  7.5  8.5  7.5 

 

  2010  2009  2008 
 
 
 
 

Risk-free interest rate

  3.9% 4.5% 4.5%
 

Dividend yield

  1.3% 1.0% 0.8%
 

Expected volatility of Cintas' common stock

  30.0% 30.0% 30.0%
 

Expected life of the option in years

  7.5  7.5  8.5 

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' common 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 fair value of stock options granted during fiscal 2010, 2009 and 2008 was $10.16, $10.17 and 2007 was $10.17, $15.89, and $16.01, respectively.

The information presented in the following table relates primarily to stock options granted and outstanding under either the plan adopted in fiscal 20062005 Equity Compensation Plan or under previously adopted plans:

 

  Shares  Weighted
Average
Exercise Price
 
 
 
 
 

Outstanding, May 31, 2006 (2,718,180 shares exercisable)

  6,535,404 $40.08 
 

Granted

  1,226,855  38.05 
 

Canceled

  (720,927) 41.47 
 

Exercised

  (392,728) 22.40 
     
 

Outstanding, May 31, 2007 (2,316,157 shares exercisable)

  6,648,604  40.60 
 

Granted

  1,005,200  30.99 
 

Canceled

  (745,197) 40.15 
 

Exercised

  (259,839) 24.07 
     
 

Outstanding, May 31, 2008 (2,041,837 shares exercisable)

  6,648,768  39.85 
 

Granted

  539,039  23.62 
 

Canceled

  (828,383) 36.47 
 

Exercised

     
     
 

Outstanding, May 31, 2009 (1,914,710 shares exercisable)

  6,359,424 $38.91 
     

 

  Shares  Weighted
Average
Exercise
Price
 
 
 
 
 

Outstanding, May 31, 2007 (2,316,157 shares exercisable)

  6,648,604 $40.60 
 

    Granted

  1,005,200  30.99 
 

    Canceled

  (745,197) 40.15 
 

    Exercised

  (259,839) 24.07 
     
 

Outstanding, May 31, 2008 (2,041,837 shares exercisable)

  6,648,768  39.85 
 

    Granted

  539,039  23.62 
 

    Canceled

  (828,383) 36.47 
 

    Exercised

     
     
 

Outstanding, May 31, 2009 (1,914,710 shares exercisable)

  6,359,424  38.91 
 

    Granted

  1,070,798  28.52 
 

    Canceled

  (963,016) 35.98 
 

    Exercised

     
     
 

Outstanding, May 31, 2010 (1,838,530 shares exercisable)

  6,467,206 $37.63 
     

There were no stock options exercised during the yearyears ended May 31, 2010 or 2009. The total cash received from employees as a result of employee stock option exercises for the fiscal yearsyear ended May 31, 2008, and 2007 was $4,430 and $5,023, respectively.$4,430.

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The fair value of stock options vested duringwas $6,808, $3,458 and $2,069 for the fiscal years ended May 31, 2010, 2009 is $3,458.and 2008, respectively.

The following table summarizes the information related to stock options outstanding at May 31, 2009:2010:

         Outstanding Options  Exercisable Options 
     
   Range of
Exercise Prices
  Number
Outstanding
  Average
Remaining
Option Life
  Weighted
Average
Exercise Price
  Number
Exercisable
  Weighted
Average
Exercise Price
 
   
 
 
   $ 20.29 – $ 39.19  1,771,714  8.13 $29.35  118,913 $34.70 
      39.29 –   41.65  1,596,383  4.80  40.29  605,470  41.12 
      41.72 –   42.06  1,219,027  3.83  42.03  337,827  41.95 
      42.19 –   53.19  1,772,300  4.16  44.83  852,500  45.49 
     
   $ 20.29 – $ 53.19  6,359,424  5.37 $38.91  1,914,710 $42.81 
     

 

       Outstanding Options  Exercisable Options 
     
 

 Range of
Exercise Prices
  Number
Outstanding
  Average
Remaining
Option
Life
  Weighted
Average
Exercise
Price
  Number
Exercisable
  Weighted
Average
Exercise
Price
 
   
 
 
 

 $ 20.29 – $ 36.08  2,316,163  8.36 $28.94  122,340 $33.30 
 

    36.10 –   41.65  1,652,693  3.98  39.99  715,590  40.73 
 

    41.72 –   44.33  1,344,650  3.24  42.34  562,700  42.53 
 

    44.43 –   53.19  1,153,700  3.70  45.67  437,900  47.67 
     
 

 $ 20.29 – $ 53.19  6,467,206  5.34 $37.63  1,838,530 $42.44 
     

At May 31, 2009,2010, the aggregate intrinsic value of stock options outstanding and exercisable was $52$971 and $0,$23, respectively.

The weighted-average remaining contractual term of stock options exercisable is 2.32.2 years.

Restricted Stock Awards

Restricted stock awards will consist of Cintas' common stock which is subject to such conditions, restrictions and limitations as the Compensation Committee of the Board of Directors determines to be appropriate. The vesting period is generally three years after the grant date. The recipient of restricted stock awards will have all rights of a shareholder of Cintas, including the right to vote and the right to receive cash dividends, during the vesting period.

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

 

  Shares  Weighted
Average
Exercise Price
 
 
 
 
 

Outstanding, unvested grants at May 31, 2006

  128,075 $36.08 
 

Granted

  251,011  38.11 
 

Canceled

  (49,662) 37.92 
 

Vested

     
     
 

Outstanding, unvested grants at May 31, 2007

  329,424  37.35 
 

Granted

  240,086  30.05 
 

Canceled

  (35,879) 38.16 
 

Vested

     
     
 

Outstanding, unvested grants at May 31, 2008

  533,631  34.01 
 

Granted

  502,821  26.66 
 

Canceled

  (52,583) 32.99 
 

Vested

  (2,500) 36.08 
     
 

Outstanding, unvested grants at May 31, 2009

  981,369 $30.29 
     

 

  Shares  Weighted
Average
Grant
Price
 
 
 
 
 

Outstanding, unvested grants at May 31, 2007

  329,424 $37.35 
 

        Granted

  240,086  30.05 
 

        Canceled

  (35,879) 38.16 
 

        Vested

     
     
 

Outstanding, unvested grants at May 31, 2008

  533,631  34.01 
 

        Granted

  502,821  26.66 
 

        Canceled

  (52,583) 32.99 
 

        Vested

  (2,500) 36.08 
     
 

Outstanding, unvested grants at May 31, 2009

  981,369  30.29 
 

        Granted

  597,514  24.63 
 

        Canceled

  (53,278) 27.85 
 

        Vested

  (118,254) 36.57 
     
 

Outstanding, unvested grants at May 31, 2010

  1,407,351 $27.45 
     

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The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 2009,2010, was $45,348,$50,614, and the weighted-average period of time over which this cost will be recognized is 3.33.1 years.

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Cintas reserves shares of common stock to satisfy share option exercises and/or future restricted stock grants. At May 31, 2009, 11,573,249 shares of common stock are reserved for future issuance under the 2005 Equity Compensation Plan.

14.13.  Litigation and Other Contingencies

Cintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the financial position or results of operation 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 April 5, 2004 and February 14, 2006, the court stayed the claims of all plaintiffs with valid arbitration agreements pending arbitration of those 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 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. On April 30, 2009, plaintiff filed a statement with the court indicating that plaintiffs do not intend to pursue class certification for any of their state law claims other than those arising under California law. Plaintiffs have yet to identify a representative plaintiff for their California class claims. No determination has been made by the court or an arbitrator regarding class certification. There can be no assurance as to whether a class will 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 (Serrano), filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division. TheSerrano plaintiffs allegealleged that Cintas discriminated against women in hiring into various service sales representative positions across all divisions of Cintas. On November 15, 2005, the Equal Employment Opportunity Commission (EEOC) intervened in theSerrano lawsuit. TheSerrano plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys' fees and other remedies. Cintas is a defendant in another purported class action lawsuit,Blanca Nelly Avalos, et al. v. Cintas Corporation (Avalos), currently pending in the United States District Court, Eastern District of Michigan, Southern Division. Ms. Avalos' claims have been dismissed, but her putative class complaint remains pending. TheAvalos plaintiffs allege that Cintas discriminated against women, African-Americans and Hispanics in hiring into various service sales representative positions in Cintas' Rental division only throughout the United States. TheAvalos plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys' fees and other remedies. The claims inAvalos originally were brought in the previously disclosed lawsuit captionedRobert Ramirez, et al. v. Cintas Corporation (Ramirez), filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division. On April 27, 2005, the EEOC intervened in the claims asserted inRamirez. On May 11, 2006, theRamirez andAvalos African-American, Hispanic and female failure to hire into service sales representative positions claims and the

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EEOC's intervention were consolidated for pretrial purposes with theSerrano case and transferred to the United States District Court for the Eastern District of Michigan, Southern Division. The consolidated case is known asMirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos). On October 27, 2008, the United States District Court in the Eastern District of Michigan granted a summary judgment in favor of Cintas limiting the scope of the putative class in theSerrano lawsuit to female applicants for service sales representative positions at Cintas locations within the state of Michigan. Consequently, all claims brought by female applicants for service sales representative positions outside of the state of Michigan were dismissed. Similarly, any claims brought by the EEOC on behalf of similarly situated female applicants outside of the state of Michigan have also been dismissed from theSerrano lawsuit. Cintas is a defendant in another purported class action lawsuit,Blanca Nelly Avalos, et al. v. Cintas Corporation (Avalos), which was filed in the United States District Court, Eastern District of Michigan, Southern Division. TheAvalos plaintiffs alleged that Cintas discriminated against women, African-Americans and Hispanics in hiring into various service sales representative positions in Cintas' Rental division only throughout the United States. TheAvalos plaintiffs sought injunctive relief, compensatory damages, punitive damages, attorneys' fees and other remedies. The claims inAvalos originally were brought in the lawsuit captionedRobert Ramirez, et al. v. Cintas Corporation (Ramirez), filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division. On May 11, 2006, theRamirez andAvalos African-American, Hispanic and female failure to hire into service sales representative positions claims and the EEOC's intervention were consolidated for pretrial purposes with theSerrano case and transferred to the United States District Court for the Eastern District of Michigan, Southern Division. The consolidated case was known asMirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos). On March 31, 2009, the United States District Court, Eastern District of Michigan, Southern Division entered an order denying class certification to all plaintiffs in theSerrano/Avalos lawsuits. On February 24, 2006, a motion to intervene inFollowing denial of class certification, the Judge permitted the individualAvalos andSerrano was filed by intervening plaintiffs Colleen Grindle, et al.,to proceed separately. In theSerrano case, all private individual claims have been dismissed with prejudice and the EEOC is continuing to pursue individual claims on behalf of a subclass of female employees at Cintas' Perrysburg, Ohio, rental location who allegedly were denied hire, promotion, or transfer to service sales representative positions.13 claimants. On March 24, 2006, the plaintiffs Colleen Grindle, et al., withdrew their motion to intervene without prejudice. On February 20, 2007, the plaintiffs Colleen Grindle, et al., filed a separate lawsuit in the Court of Common Pleas, Wood County, Ohio, captionedColleen Grindle, et al. v. Cintas Corporation (Grindle), on behalf of a class of female employees at Cintas' Perrysburg, Ohio, location who allegedly were denied hire, promotion, or transfer to service sales representative positions on the basis of their gender. TheGrindle plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys' fees and other remedies. On May 19, 2009, theGrindle plaintiffs dismissed their class action allegations. The non-service sales representative hiring claims in the previously disclosedRamirez case had been ordered byApril 15, 2010, the United States District Court, forEastern Division of Michigan, Southern Division entered an order granting summary judgment against all individual plaintiffs in the Northern District of California, San Francisco Division to arbitration and their claims had been stayed pending the completion of arbitration. TheRamirezAvalos purported class action claims included allegations that Cintas failed to promote Hispanics into supervisory positions, discriminated against African-Americans and Hispanics in service sales representative route assignments and discriminated against African-Americans in hourly pay in Cintas' Rental division only throughoutlawsuit. On May 11, 2010, Plaintiff Tanesha Davis, on behalf of all similarly situated plaintiffs, filed a notice of appeal of the United States. TheRamirez plaintiffs sought injunctive relief, compensatory damages, punitive damages, attorneys' fees and other remedies. In addition, a class action lawsuit,Larry Houston, et al. v. Cintas Corporation (Houston), was filed on August 3, 2005,District Court's summary judgment order in the United States District Court of Appeals for the Northern DistrictSixth Circuit. The Appellate Court has made no determination regarding the merits of California on behalf of African-American managers alleging racial discrimination. On November 22, 2005, the court entered an order consolidatingHouston withRamirez and ordered the named plaintiffs inHouston to arbitrate all of their claims for monetary damages with the previously filedRamirez arbitration. On March 16, 2009, the plaintiffs inRamirez andHouston agreed to voluntarily dismiss all class claims in the case with prejudice and the arbitrator entered an order dismissing all class claims in the consolidated arbitration. On April 3, 2009, the United States District Court for the Northern District of California entered an order affirming the arbitrator's decision to dismiss the class claims inRamirez andHouston with prejudice, and thereby relinquished his jurisdiction over the individual plaintiffs' class claims.

On July 17, 2008, Manville Personal Injury Settlement Trust filed a purported shareholder derivative lawsuit in the Court of Common Pleas, Hamilton County, Ohio, captionedManville Personal Injury Settlement Trust v. Richard T. Farmer, et al., A0806822 against certain directors and officers, alleging that they breached their fiduciary duties to Cintas by consciously failing to cause Cintas to comply with worker safety and employment-related laws and regulations. Cintas is named as a nominal defendant in the case. The complaint contends that, as a consequence of such alleged breach of duty, Cintas suffered substantial monetary losses and other injuries and seeks, among other things, an award of compensatory damages, other non-monetary remedies and expenses.Davis' appeal.

The litigation discussed above, if decided or settled adversely to Cintas, may, individually or in the aggregate, result in liability material to Cintas' consolidated financial condition or results of operation and could increase costs of operations on an ongoing basis. Any estimated liability relating to these proceedings is not determinable at this

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time. Cintas may enter into discussions regarding settlement of these and other lawsuits, and may enter into settlement agreements if it believes such settlement is in the best interest of Cintas' shareholders.

55Cintas is a defendant in a purported class action lawsuit,Paul Veliz, et al. v. Cintas Corporation (Veliz), 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 April 5, 2004 and February 14, 2006, the Court stayed the claims of all plaintiffs with valid arbitration agreements pending arbitration of those claims. Claims made in theVeliz action, therefore, are pending before the United States District Court, Northern District of California and Judge Bruce Meyerson (Ret.), an Arbitrator selected by the parties. On August 5, 2009, the parties in theVeliz action reached a settlement in principle. When the settlement is fully documented and approved by the Court, the settlement will resolve all claims now pending or that could have been brought relating to the subject matter of the case before the Court and the Arbitrator. Cintas expects that the approval process will take several months. The principal terms of the settlement provide for an aggregate cash payment of approximately $23,950 which is accrued in current accrued liabilities at May 31, 2010. The pre-tax impact, net of insurance proceeds, was $19,477.


TableDuring fiscal 2010, Cintas had other legal settlements that totaled $4,052, net of Contentsinsurance proceeds. None of these settlements were significant individually. These settlements included litigation related to multiple subjects including employment practices and insurance coverage.


15.14.  Operating Segment Information

Cintas classifies its businesses into four operating segments in accordance with the criteria set forth in FASB Statement No. 131,Disclosures about Segments of an Enterprise and Related Information.segments. The Rental Uniforms and Ancillary Products operating segment reflectsconsists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and hygiene productssupplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items and branded promotional products. The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services. The Document Management Services operating segment consists of document destruction, document imaging and document retention services.

As described more fully in Note 2 entitled Restructuring and Related Activity, Cintas recorded a charge of $59,097 related to restructuring activities and impairment of long-lived assets in the quarterfiscal year ended May 31, 2009. The total charges due to the restructuring activities and impairment of long-lived assets for the Rental Uniforms and Ancillary Products, Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services operating segments is $52,986, $4,682, $1,107 and $322, respectively.

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Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment revenue and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Significant Accounting Policies. Information related to the operations of Cintas' operating segments is set forth below.below:

  Rental
Uniforms
& Ancillary
Products
  Uniform
Direct
Sales
  First Aid,
Safety &
Fire
Protection
  Document
Management
  Corporate  Total 

 
 

May 31, 2009

                   

Revenue

 $2,755,015 $428,369 $378,097 $213,204 $ $3,774,685 
    

Gross margin

 
$

1,192,785
 
$

106,033
 
$

144,180
 
$

107,873
 
$

 
$

1,550,871
 

Selling and admin. expenses

  769,275  98,131  127,126  88,177    1,082,709 

Restructuring charges

  8,782  547  564  316    10,209 

Impairment of long-lived assets

  44,204  4,135  543  6    48,888 

Interest income

          (2,764) (2,764)

Interest expense

          50,236  50,236 
    

Income before income taxes

 $370,524 $3,220 $15,947 $19,374 $(47,472)$361,593 
    

Depreciation and amortization

 $140,448 $6,950 $18,282 $34,426 $ $200,106 
    

Capital expenditures

 $114,423 $14,582 $8,312 $22,775 $ $160,092 
    

Total assets

 $2,533,406 $140,826 $324,158 $472,423 $250,138 $3,720,951 
    

May 31, 2008

                   

Revenue

 $2,834,568 $517,490 $403,552 $182,290 $ $3,937,900 
    

Gross margin

 
$

1,252,951
 
$

168,210
 
$

160,823
 
$

99,616
 
$

 
$

1,681,600
 

Selling and admin. expenses

  801,691  103,444  125,185  73,825    1,104,145 

Interest income

          (6,072) (6,072)

Interest expense

          52,823  52,823 
    

Income before income taxes

 $451,260 $64,766 $35,638 $25,791 $(46,751)$530,704 
    

Depreciation and amortization

 $139,781 $7,072 $17,483 $27,567 $ $191,903 
    

Capital expenditures

 $140,838 $6,454 $12,043 $30,998 $ $190,333 
    

Total assets

 $2,620,138 $205,638 $345,479 $445,651 $191,695 $3,808,601 
    

May 31, 2007

                   

Revenue

 $2,734,629 $501,443 $362,417 $108,411 $ $3,706,900 
    

Gross margin

 
$

1,219,444
 
$

160,676
 
$

144,439
 
$

56,796
 
$

 
$

1,581,355
 

Selling and admin. expenses

  757,058  97,361  106,171  49,592  (6,224) 1,003,958 

Interest income

          (6,480) (6,480)

Interest expense

          50,324  50,324 
    

Income before income taxes

 $462,386 $63,315 $38,268 $7,204 $(37,620)$533,553 
    

Depreciation and amortization

 $135,207 $6,548 $14,943 $19,228 $ $175,926 
    

Capital expenditures

 $132,857 $7,955 $11,384 $28,628 $ $180,824 
    

Total assets

 $2,567,070 $183,373 $330,735 $333,889 $155,413 $3,570,480 
    

  Rental
Uniforms
& Ancillary
Products
  Uniform
Direct
Sales
  First Aid,
Safety &
Fire
Protection
  Document
Management
  Corporate  Total 

 
 

May 31, 2010

                   

Revenue

 $2,569,357 $386,370 $338,651 $252,961 $ $3,547,339 
    

Gross margin

 
$

1,119,781
 
$

116,336
 
$

131,726
 
$

129,974
 
$

 
$

1,497,817
 

Selling and admin. expenses

  786,145  76,232  118,284  105,698    1,086,359 

Legal settlements, net of insurance proceeds

          23,529  23,529 

Restructuring charges

  (2,880)         (2,880)

Interest income

          (1,695) (1,695)

Interest expense

          48,612  48,612 
    

Income before income taxes

 $336,516 $40,104 $13,442 $24,276 $(70,446)$343,892 
    

Depreciation and amortization

 $131,714 $7,582 $16,178 $37,667 $ $193,141 
    

Capital expenditures

 $68,224 $6,791 $8,155 $27,908 $ $111,078 
    

Total assets

 $2,375,208 $198,955 $329,569 $499,917 $566,087 $3,969,736 
    

May 31, 2009

                   

Revenue

 $2,755,015 $428,369 $378,097 $213,204 $ $3,774,685 
    

Gross margin

 
$

1,192,785
 
$

106,033
 
$

144,180
 
$

107,873
 
$

 
$

1,550,871
 

Selling and admin. expenses

  769,275  98,131  127,126  88,177    1,082,709 

Restructuring charges

  8,782  547  564  316    10,209 

Impairment of long-lived assets

  44,204  4,135  543  6    48,888 

Interest income

          (2,764) (2,764)

Interest expense

          50,236  50,236 
    

Income before income taxes

 $370,524 $3,220 $15,947 $19,374 $(47,472)$361,593 
    

Depreciation and amortization

 $140,448 $6,950 $18,282 $34,426 $ $200,106 
    

Capital expenditures

 $114,423 $14,582 $8,312 $22,775 $ $160,092 
    

Total assets

 $2,533,406 $140,826 $324,158 $472,423 $250,138 $3,720,951 
    

May 31, 2008

                   

Revenue

 $2,834,568 $517,490 $403,552 $182,290 $ $3,937,900 
    

Gross margin

 
$

1,252,951
 
$

168,210
 
$

160,823
 
$

99,616
 
$

 
$

1,681,600
 

Selling and admin. expenses

  801,691  103,444  125,185  73,825    1,104,145 

Interest income

          (6,072) (6,072)

Interest expense

          52,823  52,823 
    

Income before income taxes

 $451,260 $64,766 $35,638 $25,791 $(46,751)$530,704 
    

Depreciation and amortization

 $139,781 $7,072 $17,483 $27,567 $ $191,903 
    

Capital expenditures

 $140,838 $6,454 $12,043 $30,998 $ $190,333 
    

Total assets

 $2,620,138 $205,638 $345,479 $445,651 $191,695 $3,808,601 
    

5758


Table of Contents

16.15.  Quarterly Financial Data (Unaudited)

The following is a summary of the results of operation for each of the quarters within the fiscal years ended May 31, 2010 and 2009:

 

May 31, 2010

  
First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 
 
 
 
 

Revenue

 $891,569 $884,509 $861,812 $909,449 
 

Gross margin

 $382,795 $369,847 $359,607 $385,568 
 

Net income

 $53,984 $57,176 $48,982 $55,478 
 

Basic earnings per share

 $0.35 $0.37 $0.32 $0.36 
 

Diluted earnings per share

 $0.35 $0.37 $0.32 $0.36 
 

Weighted average number of shares outstanding (000's)

  152,828  152,866  152,869  152,870 


 

May 31, 2009

  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 
 
 
 
 

Revenue

 $1,002,179 $985,184 $908,639 $878,683 
 

Gross margin

 $425,083 $415,000 $376,437 $334,351 
 

Net income

 $78,636 $71,838 $71,811 $4,072 
 

Basic earnings per share

 $0.51 $0.47 $0.47 $0.03 
 

Diluted earnings per share

 $0.51 $0.47 $0.47 $0.03 
 

Weighted average number of shares outstanding (000's)

  153,394  152,788  152,993  152,790 

As described more fully in Note 2 entitled Restructuring and Related Activity, we recorded a charge of $59,097 related to restructuring activities and impairment of long-lived assets in the quarter ended May 31, 2009. The following is a summary of the results of operation for each of the quarters within the fiscal years ended May 31, 2009 and 2008:

 

May 31, 2009

  
First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 
 
 
 
 

Revenue

 $1,002,179 $985,184 $908,639 $878,683 
 

Gross margin

 $425,083 $415,000 $376,437 $334,351 
 

Net income

 $78,636 $71,838 $71,811 $4,072 
 

Basic earnings per share

 $.51 $.47 $.47 $.03 
 

Diluted earnings per share

 $.51 $.47 $.47 $.03 
 

Weighted average number of shares outstanding (000's)

  153,394  152,788  152,993  152,790 


 

May 31, 2008

  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 
 
 
 
 

Revenue

 $969,128 $983,865 $975,952 $1,008,955 
 

Gross margin

 $417,372 $420,568 $411,225 $432,435 
 

Net income

 $81,063 $82,853 $81,828 $89,661 
 

Basic earnings per share

 $.51 $.53 $.53 $.58 
 

Diluted earnings per share

 $.51 $.53 $.53 $.58 
 

Weighted average number of shares outstanding (000's)

  158,771  156,563  153,679  153,686 

5859


Table of Contents

17.16.  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 $775,000 of long-term senior notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.

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

Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages.pages:

Condensed Consolidating Income Statement

Fiscal Year Ended May 31, 2009

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

Year Ended May 31, 2010

Year Ended May 31, 2010

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




 

 

Revenue:

Revenue:

 

Revenue:

  

Rental uniforms and ancillary products

Rental uniforms and ancillary products

 $ $2,101,857 $569,780 $175,711 $(92,333)$2,755,015 

Rental uniforms and ancillary products

 $ $1,970,303 $518,254 $180,847 $(100,047)$2,569,357 

Other services

Other services

  1,295,603 397,426 60,414 (733,773) 1,019,670 

Other services

   1,216,779 351,368 66,229 (656,394) 977,982 

Equity in net income of affiliates

Equity in net income of affiliates

 226,357    (226,357)  

Equity in net income of affiliates

  215,620    (215,620)  
       

 226,357 3,397,460 967,206 236,125 (1,052,463) 3,774,685 

  215,620 3,187,082 869,622 247,076 (972,061) 3,547,339 

Costs and expenses (income):

Costs and expenses (income):

 

Costs and expenses (income):

  

Cost of rental uniforms and ancillary products

Cost of rental uniforms and ancillary products

  1,242,048 368,125 106,856 (154,799) 1,562,230 

Cost of rental uniforms and ancillary products

   1,226,076 332,935 111,340 (220,775) 1,449,576 

Cost of other services

Cost of other services

  958,634 348,159 38,449 (683,658) 661,584 

Cost of other services

   798,841 297,890 41,316 (538,101) 599,946 

Selling and administrative expenses

Selling and administrative expenses

  1,051,221 (27,889) 57,953 1,424 1,082,709 

Selling and administrative expenses

   1,037,945 (20,140) 67,669 885 1,086,359 

Legal settlements, net of insurance proceeds

Legal settlements, net of insurance proceeds

    23,529   23,529 

Restructuring charges

Restructuring charges

  6,575 3,531 103  10,209 

Restructuring charges

   (1,080) (1,800)   (2,880)

Impairment of long-lived assets

  25,713 17,328 5,847  48,888 
       

Operating income

Operating income

 226,357 113,269 257,952 26,917 (215,430) 409,065 

Operating income

  215,620 125,300 237,208 26,751 (214,070) 390,809 

Interest income

Interest income

 
 
 
(930

)
 
(1,834

)
 
 
(2,764

)

Interest income

  
 
(268

)
 
(1,130

)
 
(297

)
 
 
(1,695

)

Interest expense (income)

Interest expense (income)

  53,197 (2,982) 21  50,236 

Interest expense (income)

   51,486 (2,897) 23  48,612 
       

Income before income taxes

Income before income taxes

 226,357 60,072 261,864 28,730 (215,430) 361,593 

Income before income taxes

  215,620 74,082 241,235 27,025 (214,070) 343,892 

Income taxes

Income taxes

  17,152 110,001 8,083  135,236 

Income taxes

   27,936 91,239 9,123 (26) 128,272 
       

Net income

Net income

 $226,357 $42,920 $151,863 $20,647 $(215,430)$226,357 

Net income

 $215,620 $46,146 $149,996 $17,902 $(214,044)$215,620 
       

5960


Table of Contents

Condensed Consolidating Income Statement

Fiscal Year Ended May 31, 2008

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

Year Ended May 31, 2009

Year Ended May 31, 2009

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




 

 

Revenue:

Revenue:

 

Revenue:

  

Rental uniforms and ancillary products

Rental uniforms and ancillary products

 $ $2,059,920 $578,426 $197,333 $(1,111)$2,834,568 

Rental uniforms and ancillary products

 $ $2,101,857 $569,780 $175,711 $(92,333)$2,755,015 

Other services

Other services

  1,418,749 536,881 66,873 (919,171) 1,103,332 

Other services

   1,295,603 397,426 60,414 (733,773) 1,019,670 

Equity in net income of affiliates

Equity in net income of affiliates

 335,405    (335,405)  

Equity in net income of affiliates

  226,357    (226,357)  
       

 335,405 3,478,669 1,115,307 264,206 (1,255,687) 3,937,900 

  226,357 3,397,460 967,206 236,125 (1,052,463) 3,774,685 

Costs and expenses (income):

Costs and expenses (income):

 

Costs and expenses (income):

  

Cost of rental uniforms and ancillary products

Cost of rental uniforms and ancillary products

  1,262,373 372,225 115,822 (168,802) 1,581,618 

Cost of rental uniforms and ancillary products

   1,242,048 368,125 106,856 (154,799) 1,562,230 

Cost of other services

Cost of other services

  928,838 456,759 41,750 (752,665) 674,682 

Cost of other services

   958,634 348,159 38,449 (683,658) 661,584 

Selling and administrative expenses

Selling and administrative expenses

  1,078,984 (27,702) 57,239 (4,376) 1,104,145 

Selling and administrative expenses

   1,051,221 (27,889) 57,953 1,424 1,082,709 

Restructuring charges

Restructuring charges

   6,575 3,531 103  10,209 

Impairment of long-lived assets

Impairment of long-lived assets

   25,713 17,328 5,847  48,888 
       

Operating income

Operating income

 
335,405
 
208,474
 
314,025
 
49,395
 
(329,844

)
 
577,455
 

Operating income

  
226,357
 
113,269
 
257,952
 
26,917
 
(215,430

)
 
409,065
 

Interest income

Interest income

 
 
 
(1,450

)
 
(4,622

)
 
 
(6,072

)

Interest income

  
 
 
(930

)
 
(1,834

)
 
 
(2,764

)

Interest expense (income)

Interest expense (income)

  54,153 (7,107) 5,777  52,823 

Interest expense (income)

   53,197 (2,982) 21  50,236 
       

Income before income taxes

Income before income taxes

 
335,405
 
154,321
 
322,582
 
48,240
 
(329,844

)
 
530,704
 

Income before income taxes

  
226,357
 
60,072
 
261,864
 
28,730
 
(215,430

)
 
361,593
 

Income taxes

Income taxes

  57,779 120,776 16,744  195,299 

Income taxes

   17,152 110,001 8,083  135,236 
       

Net income

Net income

 $335,405 $96,542 $201,806 $31,496 $(329,844)$335,405 

Net income

 $226,357 $42,920 $151,863 $20,647 $(215,430)$226,357 
       

Condensed Consolidating Income Statement

Fiscal Year Ended May 31, 2007

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

Year Ended May 31, 2008

Year Ended May 31, 2008

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




 

 

Revenue:

Revenue:

 

Revenue:

  

Rental uniforms and ancillary products

Rental uniforms and ancillary products

 $ $2,009,095 $554,595 $171,634 $(695)$2,734,629 

Rental uniforms and ancillary products

 $ $2,059,920 $578,426 $197,333 $(1,111)$2,834,568 

Other services

Other services

  1,337,319 543,535 57,625 (966,208) 972,271 

Other services

   1,418,749 536,881 66,873 (919,171) 1,103,332 

Equity in net income of affiliates

Equity in net income of affiliates

 334,538    (334,538)  

Equity in net income of affiliates

  335,405    (335,405)  
       

 334,538 3,346,414 1,098,130 229,259 (1,301,441) 3,706,900 

  335,405 3,478,669 1,115,307 264,206 (1,255,687) 3,937,900 

Costs and expenses (income):

Costs and expenses (income):

 

Costs and expenses (income):

  

Cost of rental uniforms and ancillary products

Cost of rental uniforms and ancillary products

  1,249,798 333,004 102,133 (169,750) 1,515,185 

Cost of rental uniforms and ancillary products

   1,262,373 372,225 115,822 (168,802) 1,581,618 

Cost of other services

Cost of other services

  1,015,381 352,099 35,424 (792,544) 610,360 

Cost of other services

   928,838 456,759 41,750 (752,665) 674,682 

Selling and administrative expenses

Selling and administrative expenses

  891,836 70,341 48,817 (7,036) 1,003,958 

Selling and administrative expenses

   1,078,984 (27,702) 57,239 (4,376) 1,104,145 
       

Operating income

Operating income

 
334,538
 
189,399
 
342,686
 
42,885
 
(332,111

)
 
577,397
 

Operating income

  
335,405
 
208,474
 
314,025
 
49,395
 
(329,844

)
 
577,455
 

Interest income

Interest income

 
 
(2,628

)
 
(528

)
 
(3,324

)
 
 
(6,480

)

Interest income

  
 
 
(1,450

)
 
(4,622

)
 
 
(6,072

)

Interest expense (income)

Interest expense (income)

  50,981 (6,307) 5,650  50,324 

Interest expense (income)

   54,153 (7,107) 5,777  52,823 
       

Income before income taxes

Income before income taxes

 
334,538
 
141,046
 
349,521
 
40,559
 
(332,111

)
 
533,553
 

Income before income taxes

  
335,405
 
154,321
 
322,582
 
48,240
 
(329,844

)
 
530,704
 

Income taxes

Income taxes

  52,853 130,972 15,190  199,015 

Income taxes

   57,779 120,776 16,744  195,299 
       

Net income

Net income

 $334,538 $88,193 $218,549 $25,369 $(332,111)$334,538 

Net income

 $335,405 $96,542 $201,806 $31,496 $(329,844)$335,405 
       

6061


Table of Contents

Condensed Consolidating Balance Sheet

As of May 31, 2009

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

As of May 31, 2010

As of May 31, 2010

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




 

 

Assets

Assets

 

Assets

  

Current assets:

Current assets:

 

Current assets:

  

Cash and cash equivalents

Cash and cash equivalents

 $ $39,397 $76,979 $13,369 $ $129,745 

Cash and cash equivalents

 $ $34,905 $339,702 $36,674 $ $411,281 

Marketable securities

Marketable securities

    120,393  120,393 

Marketable securities

    21,954 132,852  154,806 

Accounts receivable, net

Accounts receivable, net

  275,878 88,158 21,944 (28,302) 357,678 

Accounts receivable, net

   265,594 74,256 26,451  366,301 

Inventories, net

Inventories, net

  194,604 2,505 8,248 (3,006) 202,351 

Inventories, net

   144,826 16,857 9,420 (1,619) 169,484 

Uniforms and other rental items in service

Uniforms and other rental items in service

  258,766 76,167 20,998 (20,484) 335,447 

Uniforms and other rental items in service

   256,398 70,489 25,514 (20,295) 332,106 

Income taxes, current

Income taxes, current

  3,172 15,865 6,475  25,512 

Income taxes, current

   5,306 (591) 10,976  15,691 

Deferred tax asset (liability)

Deferred tax asset (liability)

   67,298 (930)  66,368 

Deferred tax asset (liability)

    54,474 (2,059)  52,415 

Prepaid expenses

Prepaid expenses

  6,178 9,473 1,384  17,035 

Prepaid expenses

   5,565 6,371 1,487  13,423 

Assets held for sale

Assets held for sale

   15,744   15,744 

Assets held for sale

    9,437   9,437 
       

Total current assets

Total current assets

  777,995 352,189 191,881 (51,792) 1,270,273 

Total current assets

   712,594 592,949 241,315 (21,914) 1,524,944 

Property and equipment, at cost, net

Property and equipment, at cost, net

 
 
636,348
 
227,325
 
50,954
 
 
914,627
 

Property and equipment, at cost, net

  
 
591,040
 
240,462
 
63,020
 
 
894,522
 

Goodwill

Goodwill

   1,293,559 37,829  1,331,388 

Goodwill

    1,310,675 46,250  1,356,925 

Service contracts, net

Service contracts, net

  118,459 1,658 4,213  124,330 

Service contracts, net

   98,335 880 4,230  103,445 

Other assets, net

Other assets, net

 1,876,863 1,598,027 1,782,517 336,264 (5,513,338) 80,333 

Other assets, net

  2,032,649 1,608,188 814,657 322,707 (4,688,301) 89,900 
       

 $1,876,863 $3,130,829 $3,657,248 $621,141 $(5,565,130)$3,720,951 

 $2,032,649 $3,010,157 $2,959,623 $677,522 $(4,710,215)$3,969,736 
       

Liabilities and Shareholders' Equity

Liabilities and Shareholders' Equity

 

Liabilities and Shareholders' Equity

  

Current liabilities:

Current liabilities:

 

Current liabilities:

  

Accounts payable

Accounts payable

 $(465,247)$162,162 $371,731 $(20,013)$21,332 $69,965 

Accounts payable

 $(465,247)$164,131 $343,454 $(8,614)$38,023 $71,747 

Accrued compensation and related liabilities

Accrued compensation and related liabilities

  32,119 14,296 1,999  48,414 

Accrued compensation and related liabilities

   42,181 21,730 3,013  66,924 

Accrued liabilities

Accrued liabilities

  43,066 147,841 8,439 (858) 198,488 

Accrued liabilities

   53,432 178,698 13,092 (820) 244,402 

Long-term debt due within one year

Long-term debt due within one year

  749 68  (219) 598 

Long-term debt due within one year

   805 (196)   609 
       

Total current liabilities

Total current liabilities

 (465,247) 238,096 533,936 (9,575) 20,255 317,465 

Total current liabilities

  (465,247) 260,549 543,686 7,491 37,203 383,682 

Long-term liabilities:

Long-term liabilities:

 

Long-term liabilities:

  

Long-term debt due after one year

Long-term debt due after one year

  796,351 241 24,511 (35,045) 786,058 

Long-term debt due after one year

   795,541 (10,917)  820 785,444 

Deferred income taxes

Deferred income taxes

   145,444 3,588  149,032 

Deferred income taxes

    145,563 4,997  150,560 

Accrued liabilities

Accrued liabilities

   100,987   100,987 

Accrued liabilities

    115,549 472  116,021 
       

Total long-term liabilities

Total long-term liabilities

  796,351 246,672 28,099 (35,045) 1,036,077 

Total long-term liabilities

   795,541 250,195 5,469 820 1,052,025 

Total shareholders' equity

Total shareholders' equity

 2,342,110 2,096,382 2,876,640 602,617 (5,550,340) 2,367,409 

Total shareholders' equity

  2,497,896 1,954,067 2,165,742 664,562 (4,748,238) 2,534,029 
       

 $1,876,863 $3,130,829 $3,657,248 $621,141 $(5,565,130)$3,720,951 

 $2,032,649 $3,010,157 $2,959,623 $677,522 $(4,710,215)$3,969,736 
       

6162


Table of Contents

Condensed Consolidating Balance Sheet

As of May 31, 2008

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

As of May 31, 2009

As of May 31, 2009

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




 

 

Assets

Assets

 

Assets

  

Current assets:

Current assets:

 

Current assets:

  

Cash and cash equivalents

Cash and cash equivalents

 $ $37,472 $7,851 $20,901 $ $66,224 

Cash and cash equivalents

 $ $39,397 $76,979 $13,369 $ $129,745 

Marketable securities

Marketable securities

    125,471  125,471 

Marketable securities

     120,393  120,393 

Accounts receivable, net

Accounts receivable, net

  313,050 119,592 28,703 (31,267) 430,078 

Accounts receivable, net

   275,878 88,158 21,944 (28,302) 357,678 

Inventories, net

Inventories, net

  218,109 18,349 8,928 (6,717) 238,669 

Inventories, net

   194,604 2,505 8,248 (3,006) 202,351 

Uniforms and other rental items in service

Uniforms and other rental items in service

  288,493 85,753 23,923 (27,753) 370,416 

Uniforms and other rental items in service

   258,766 76,167 20,998 (20,484) 335,447 

Income taxes, current

Income taxes, current

   3,172 15,865 6,475  25,512 

Deferred tax asset (liability)

Deferred tax asset (liability)

   41,664 (2,254)  39,410 

Deferred tax asset (liability)

    67,298 (930)  66,368 

Prepaid expenses

Prepaid expenses

  5,048 5,876 1,144  12,068 

Prepaid expenses

   6,178 9,473 1,384  17,035 

Assets held for sale

Assets held for sale

    15,744   15,744 
       

Total current assets

Total current assets

  862,172 279,085 206,816 (65,737) 1,282,336 

Total current assets

   777,995 352,189 191,881 (51,792) 1,270,273 

Property and equipment, at cost, net

Property and equipment, at cost, net

 
 
678,239
 
236,519
 
59,817
 
 
974,575
 

Property and equipment, at cost, net

  
 
636,348
 
227,325
 
50,954
 
 
914,627
 

Goodwill

Goodwill

   1,279,819 35,750  1,315,569 

Goodwill

    1,293,559 37,829  1,331,388 

Service contracts, net

Service contracts, net

  145,115 2,612 5,030  152,757 

Service contracts, net

   118,459 1,658 4,213  124,330 

Other assets, net

Other assets, net

 1,736,604 1,608,496 1,751,433 369,232 (5,382,401) 83,364 

Other assets, net

  1,876,863 1,598,027 1,782,517 336,264 (5,513,338) 80,333 
       

 $1,736,604 $3,294,022 $3,549,468 $676,645 $(5,448,138)$3,808,601 

 $1,876,863 $3,130,829 $3,657,248 $621,141 $(5,565,130)$3,720,951 
       

Liabilities and Shareholders' Equity

Liabilities and Shareholders' Equity

 

Liabilities and Shareholders' Equity

  

Current liabilities:

Current liabilities:

 

Current liabilities:

  

Accounts payable

Accounts payable

 $(465,247)$292,027 $255,399 $(6,000)$18,576 $94,755 

Accounts payable

 $(465,247)$162,162 $371,731 $(20,013)$21,332 $69,965 

Accrued compensation and related liabilities

Accrued compensation and related liabilities

  29,919 18,210 2,476  50,605 

Accrued compensation and related liabilities

   32,119 14,296 1,999  48,414 

Accrued liabilities

Accrued liabilities

  54,260 146,669 7,916 (920) 207,925 

Accrued liabilities

   43,066 131,618 8,066 (858) 181,892 

Income taxes, current

  340 12,686 (139)  12,887 

Long-term debt due within one year

Long-term debt due within one year

  698 574  (202) 1,070 

Long-term debt due within one year

   749 68  (219) 598 
       

Total current liabilities

Total current liabilities

 (465,247) 377,244 433,538 4,253 17,454 367,242 

Total current liabilities

  (465,247) 238,096 517,713 (9,948) 20,255 300,869 

Long-term liabilities:

Long-term liabilities:

 

Long-term liabilities:

  

Long-term debt due after one year

Long-term debt due after one year

  952,595 893 27,213 (37,965) 942,736 

Long-term debt due after one year

   796,351 241 24,511 (35,045) 786,058 

Deferred income taxes

Deferred income taxes

   118,479 5,705  124,184 

Deferred income taxes

    145,444 3,588  149,032 

Accrued liabilities

Accrued liabilities

   120,308   120,308 

Accrued liabilities

    117,210 373  117,583 
       

Total long-term liabilities

Total long-term liabilities

  952,595 239,680 32,918 (37,965) 1,187,228 

Total long-term liabilities

   796,351 262,895 28,472 (35,045) 1,052,673 

Total shareholders' equity

Total shareholders' equity

 2,201,851 1,964,183 2,876,250 639,474 (5,427,627) 2,254,131 

Total shareholders' equity

  2,342,110 2,096,382 2,876,640 602,617 (5,550,340) 2,367,409 
       

 $1,736,604 $3,294,022 $3,549,468 $676,645 $(5,448,138)$3,808,601 

 $1,876,863 $3,130,829 $3,657,248 $621,141 $(5,565,130)$3,720,951 
       

6263


Table of Contents

Condensed Consolidating Statement of Cash Flows

Fiscal Year Ended May 31, 2009

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

 
 

Cash flows from operating activities:

                   
 

Net income

 $226,357 $42,920 $151,863 $20,647 $(215,430)$226,357 
 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                   
   

Depreciation

    111,242  38,289  8,041    157,572 
   

Amortization

    39,637  1,115  1,782    42,534 
   

Impairment of long-lived assets

    25,713  18,222  4,953    48,888 
   

Stock-based compensation

  11,953          11,953 
   

Deferred income taxes

      1,429  (2,603)   (1,174)
   

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

                   
     

Accounts receivable

    37,582  31,432  5,100  (2,965) 71,149 
     

Inventories

    23,521  15,843  (517) (3,711) 35,136 
     

Uniforms and other rental items in service

    29,220  7,859  (149) (7,269) 29,661 
     

Prepaid expenses

    (1,131) (3,597) (221)   (4,949)
     

Accounts payable

    (115,841) 101,999  (13,474) 2,756  (24,560)
     

Accrued compensation and related liabilities

    2,141  (3,917) (236)   (2,012)
     

Accrued liabilities

    (11,594) (19,038) 1,579  62  (28,991)
     

Income taxes receivable

    (3,461) (28,551) (6,030)   (38,042)
    

Net cash provided by (used in) operating activities

  238,310  179,949  312,948  18,872  (226,557) 523,522 

Cash flows from investing activities:

                   
 

Capital expenditures

    (91,914) (59,925) (8,253)   (160,092)
 

Proceeds from sale or redemption of marketable securities

        116,433    116,433 
 

Purchase of marketable securities and investments

    1,912  13,691  (122,652) (21,353) (128,402)
 

Acquisitions of businesses, net of cash acquired

    (21,561)   (9,348)   (30,909)
 

Other, net

  (140,259) 88,792  (193,727) (64) 245,007  (251)
    

Net cash (used in) provided by investing activities

  (140,259) (22,771) (239,961) (23,884) 223,654  (203,221)

Cash flows from financing activities:

                   
 

Proceeds from issuance of debt

    7,500        7,500 
 

Repayment of debt

    (163,693) (3,859)   2,903  (164,649)
 

Stock options exercised

             
 

Dividends paid

  (72,207)         (72,207)
 

Repurchase of common stock

  (25,847)         (25,847)
 

Other

  3  767    85    855 
    

Net cash (used in) provided by financing activities

  (98,051) (155,426) (3,859) 85  2,903  (254,348)

Effect of exchange rate changes on cash & cash equivalents

  
  
173
  
  
(2,605

)
 
  
(2,432

)
    

Net increase (decrease) in cash and cash equivalents

    1,925  69,128  (7,532)   63,521 

Cash and cash equivalents at beginning of period

    37,472  7,851  20,901    66,224 
    

Cash and cash equivalents at end of period

 $ $39,397 $76,979 $13,369 $ $129,745 
    

63


Table of Contents

Condensed Consolidating Statement of Cash Flows

Fiscal Year Ended May 31, 2008

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

 
 

Cash flows from operating activities:

                   
 

Net income

 $335,405 $96,542 $201,806 $31,496 $(329,844)$335,405 
 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                   
   

Depreciation

    97,366  42,730  8,470    148,566 
   

Amortization

    39,762  1,303  2,272    43,337 
   

Stock-based compensation

  7,456          7,456 
   

Deferred income taxes

      1,380  283    1,663 
   

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

                   
     

Accounts receivable

    (9,760) (10,217) (2,630) 7,668  (14,939)
     

Inventories

    (9,703) 5,053  (587) (863) (6,100)
     

Uniforms and other rental items in service

    (14,890) (3,183) (1,083) (4,698) (23,854)
     

Prepaid expenses

    318  3,630  (118)   3,830 
     

Accounts payable

    2,149,538  (2,139,010) 27,909  (7,870) 30,567 
     

Accrued compensation and related liabilities

    (17,793) 6,022  (659)   (12,430)
     

Accrued liabilities

    20,651  (753) 486  14  20,398 
     

Income taxes (receivable) payable

    (386) 11,123  (1,896)   8,841 
    

Net cash provided by (used in) operating activities

  342,861  2,351,645  (1,880,116) 63,943  (335,593) 542,740 

Cash flows from investing activities:

                   
 

Capital expenditures

    (121,909) (60,818) (7,606)   (190,333)
 

Proceeds from sale or redemption of marketable securities

      37,663  8,128    45,791 
 

Purchase of marketable securities and investments

    (1,530,460) (371,128) (42,921) 1,890,011  (54,498)
 

Acquisitions of businesses, net of cash acquired

    (93,773) (41) (17,721)   (111,535)
 

Other, net

  (84,965) (671,455) 2,308,662  (6) (1,552,636) (400)
    

Net cash (used in) provided by investing activities

  (84,965) (2,417,597) 1,914,338  (60,126) 337,375  (310,975)

Cash flows from financing activities:

                   
 

Proceeds from issuance of debt

    295,000        295,000 
 

Repayment of debt

    (229,090) (1,537)   (1,782) (232,409)
 

Stock options exercised

  8,371          8,371 
 

Dividends paid

  (70,831)         (70,831)
 

Repurchase of common stock

  (191,479)         (191,479)
 

Other

  (3,957) (7,319)   (80)   (11,356)
    

Net cash (used in) provided by financing activities

  (257,896) 58,591  (1,537) (80) (1,782) (202,704)

Effect of exchange rate changes on cash & cash equivalents

  
  
578
  
  
1,225
  
  
1,803
 
    

Net (decrease) increase in cash and cash equivalents

  
  
(6,783

)
 
32,685
  
4,962
  
  
30,864
 

Cash and cash equivalents at beginning of period

    44,255  (24,834) 15,939    35,360 
    

Cash and cash equivalents at end of period

 $ $37,472 $7,851 $20,901 $ $66,224 
    

Year Ended May 31, 2010

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

 
 

Cash flows from operating activities:

                   
 

Net income

 $215,620 $46,146 $149,996 $17,902 $(214,044)$215,620 
 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                   
   

Depreciation

    105,981  37,149  8,929    152,059 
   

Amortization

    37,723  879  2,480    41,082 
   

Stock-based compensation

  15,349          15,349 
   

Deferred income taxes

    (1,745) 12,668  2,372    13,295 
   

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

                   
     

Accounts receivable, net

    17,360  14,594  (2,512) (28,302) 1,140 
     

Inventories, net

    49,396  (16,803) (913) (1,387) 30,293 
     

Uniforms and other rental items in service

    2,379  5,655  (3,681) (189) 4,164 
     

Prepaid expenses

    667  3,101  (53)   3,715 
     

Accounts payable

    19,707  (70,957) 43,498  16,691  8,939 
     

Accrued compensation and related liabilities

    10,022  7,435  936    18,393 
     

Accrued liabilities

    2,489  45,418  (417) 38  47,528 
     

Income taxes payable (receivable)

    (2,134) 16,455  (4,326)   9,995 
    

Net cash provided by (used in) operating activities

  230,969  287,991  205,590  64,215  (227,193) 561,572 

Cash flows from investing activities:

                   
 

Capital expenditures

    (62,236) (42,422) (6,420)   (111,078)
 

Proceeds from sale or redemption of marketable securities

      8,361  26,351    34,712 
 

Purchase of marketable securities and investments

    (24,826) 161,621  (34,137) (183,927) (81,269)
 

Acquisitions of businesses, net of cash acquired

    (25,686)   (24,758)   (50,444)
 

Other, net

  (156,082) (179,965) (34,494) 84  375,036  4,579 
    

Net cash (used in) provided by investing activities

  (156,082) (292,713) 93,066  (38,880) 191,109  (203,500)

Cash flows from financing activities:

                   
 

Repayment of debt

    (754) (35,933)   36,084  (603)
 

Dividends paid

  (73,950)     (10)   (73,960)
 

Repurchase of common stock

  (969)         (969)
 

Other

  32  767    (1,776)   (977)
    

Net cash (used in) provided by financing activities

  (74,887) 13  (35,933) (1,786) 36,084  (76,509)

Effect of exchange rate changes on cash and cash equivalents

  
  
217
  
  
(244

)
 
  
(27

)
    

Net (decrease) increase in cash and cash equivalents

    (4,492) 262,723  23,305    281,536 

Cash and cash equivalents at beginning of period

    39,397  76,979  13,369    129,745 
    

Cash and cash equivalents at end of period

 $ $34,905 $339,702 $36,674 $ $411,281 
    

64


Table of Contents

Condensed Consolidating Statement of Cash Flows

Fiscal Year Ended May 31, 2007

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

 
 

Cash flows from operating activities:

                   
 

Net income

 $334,538 $88,193 $218,549 $25,369 $(332,111)$334,538 
 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                   
   

Depreciation

    96,145  32,371  6,665    135,181 
   

Amortization

    23,349  15,079  2,317    40,745 
   

Stock-based compensation

  4,500          4,500 
   

Deferred income taxes

    (10,263) 9,072  859    (332)
   

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

                   
     

Accounts receivable

    (13,456) (7,148) (2,237) 11,381  (11,460)
     

Inventories

    (31,593) 1,328  712  (2,537) (32,090)
     

Uniforms and other rental items in service

    (1,049) (5,192) (836) 109  (6,968)
     

Prepaid expenses

    (3,229) (845) (428)   (4,502)
     

Accounts payable

    (210,868) 199,229  15,552  (11,567) (7,654)
     

Accrued compensation and related liabilities

    7,356  5,016  228    12,600 
     

Accrued liabilities

    5,429  3,859  (275) 15  9,028 
     

Income taxes receivable

    (3,495) (21,173) (480)   (25,148)
    

Net cash provided by (used in) operating activities

  339,038  (53,481) 450,145  47,446  (334,710) 448,438 

Cash flows from investing activities:

                   
 

Capital expenditures

    (106,396) (63,606) (10,822)   (180,824)
 

Proceeds from sale or redemption of marketable securities

    120,365    (2,191)   118,174 
 

Purchase of marketable securities and investments

    (12,247) (17,346) (30,051) 11,129  (48,515)
 

Acquisitions of businesses, net of cash acquired

    (81,212) (79,192) (303)   (160,707)
 

Other, net

  (82,809) 49,477  (292,970) 325  324,141  (1,836)
    

Net cash (used in) provided by investing activities

  (82,809) (30,013) (453,114) (43,042) 335,270  (273,708)

Cash flows from financing activities:

                   
 

Proceeds from issuance of debt

    250,000  2,460      252,460 
 

Repayment of debt

    (169,049) (378)   (560) (169,987)
 

Stock options exercised

  10,863          10,863 
 

Dividends paid

  (61,996)         (61,996)
 

Repurchase of common stock

  (198,949)         (198,949)
 

Other, net

  (6,147) (5,591)   110    (11,628)
    

Net cash (used in) provided by financing activities

  (256,229) 75,360  2,082  110  (560) (179,237)

Effect of exchange rate changes on cash & cash equivalents

  
  
  
  
953
  
  
953
 
    

Net (decrease) increase in cash and cash equivalents

  
  
(8,134

)
 
(887

)
 
5,467
  
  
(3,554

)

Cash and cash equivalents at beginning of period

    9,461  8,674  20,779    38,914 
    

Cash and cash equivalents at end of period

 $ $1,327 $7,787 $26,246 $ $35,360 
    

Year Ended May 31, 2009

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

 
 

Cash flows from operating activities:

                   
 

Net income

 $226,357 $42,920 $151,863 $20,647 $(215,430)$226,357 
 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                   
   

Depreciation

    111,242  38,289  8,041    157,572 
   

Amortization

    39,637  1,115  1,782    42,534 
   

Impairment of long-lived assets

    25,713  18,222  4,953    48,888 
   

Stock-based compensation

  11,953          11,953 
   

Deferred income taxes

      1,429  (2,603)   (1,174)
   

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

                   
     

Accounts receivable, net

    37,582  31,432  5,100  (2,965) 71,149 
     

Inventories, net

    23,521  15,843  (517) (3,711) 35,136 
     

Uniforms and other rental items in service

    29,220  7,859  (149) (7,269) 29,661 
     

Prepaid expenses

    (1,131) (3,597) (221)   (4,949)
     

Accounts payable

    (115,841) 101,999�� (13,474) 2,756  (24,560)
     

Accrued compensation and related liabilities

    2,141  (3,917) (236)   (2,012)
     

Accrued liabilities

    (11,594) (19,038) 1,579  62  (28,991)
     

Income taxes receivable

    (3,461) (28,551) (6,030)   (38,042)
    

Net cash provided by (used in) operating activities

  238,310  179,949  312,948  18,872  (226,557) 523,522 

Cash flows from investing activities:

                   
 

Capital expenditures

    (91,914) (59,925) (8,253)   (160,092)
 

Proceeds from sale or redemption of marketable securities

        116,433    116,433 
 

Purchase of marketable securities and investments

    1,912  13,691  (122,652) (21,353) (128,402)
 

Acquisitions of businesses, net of cash acquired

    (21,561)   (9,348)   (30,909)
 

Other, net

  (140,259) 88,792  (193,727) (64) 245,007  (251)
    

Net cash (used in) provided by investing activities

  (140,259) (22,771) (239,961) (23,884) 223,654  (203,221)

Cash flows from financing activities:

                   
 

Proceeds from issuance of debt

    7,500        7,500 
 

Repayment of debt

    (163,693) (3,859)   2,903  (164,649)
 

Dividends paid

  (72,207)         (72,207)
 

Repurchase of common stock

  (25,847)         (25,847)
 

Other

  3  767    85    855 
    

Net cash (used in) provided by financing activities

  (98,051) (155,426) (3,859) 85  2,903  (254,348)

Effect of exchange rate changes on cash and cash equivalents

  
  
173
  
  
(2,605

)
 
  
(2,432

)
    

Net increase (decrease) in cash and cash equivalents

    1,925  69,128  (7,532)   63,521 

Cash and cash equivalents at beginning of period

    37,472  7,851  20,901    66,224 
    

Cash and cash equivalents at end of period

 $ $39,397 $76,979 $13,369 $ $129,745 
    

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Condensed Consolidating Statement of Cash Flows

Year Ended May 31, 2008

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

 
 

Cash flows from operating activities:

                   
 

Net income

 $335,405 $96,542 $201,806 $31,496 $(329,844)$335,405 
 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                   
   

Depreciation

    97,366  42,730  8,470    148,566 
   

Amortization

    39,762  1,303  2,272    43,337 
   

Stock-based compensation

  7,456          7,456 
   

Deferred income taxes

      1,380  283    1,663 
   

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

                   
     

Accounts receivable, net

    (9,760) (10,217) (2,630) 7,668  (14,939)
     

Inventories, net

    (9,703) 5,053  (587) (863) (6,100)
     

Uniforms and other rental items in service

    (14,890) (3,183) (1,083) (4,698) (23,854)
     

Prepaid expenses

    318  3,630  (118)   3,830 
     

Accounts payable

    2,149,538  (2,139,010) 27,909  (7,870) 30,567 
     

Accrued compensation and related liabilities

    (17,793) 6,022  (659)   (12,430)
     

Accrued liabilities

    20,651  (753) 486  14  20,398 
     

Income taxes (receivable) payable

    (386) 11,123  (1,896)   8,841 
    

Net cash provided by (used in) operating activities

  342,861  2,351,645  (1,880,116) 63,943  (335,593) 542,740 

Cash flows from investing activities:

                   
 

Capital expenditures

    (121,909) (60,818) (7,606)   (190,333)
 

Proceeds from sale or redemption of marketable securities

     ��37,663  8,128    45,791 
 

Purchase of marketable securities and investments

    (1,530,460) (371,128) (42,921) 1,890,011  (54,498)
 

Acquisitions of businesses, net of cash acquired

    (93,773) (41) (17,721)   (111,535)
 

Other, net

  (84,965) (671,455) 2,308,662  (6) (1,552,636) (400)
    

Net cash (used in) provided by investing activities

  (84,965) (2,417,597) 1,914,338  (60,126) 337,375  (310,975)

Cash flows from financing activities:

                   
 

Proceeds from issuance of debt

    295,000        295,000 
 

Repayment of debt

    (229,090) (1,537)   (1,782) (232,409)
 

Stock options exercised

  8,371          8,371 
 

Dividends paid

  (70,831)         (70,831)
 

Repurchase of common stock

  (191,479)         (191,479)
 

Other

  (3,957) (7,319)   (80)   (11,356)
    

Net cash (used in) provided by financing activities

  (257,896) 58,591  (1,537) (80) (1,782) (202,704)

Effect of exchange rate changes on cash and cash equivalents

  
  
578
  
  
1,225
  
  
1,803
 
    

Net (decrease) increase in cash and cash equivalents

    (6,783) 32,685  4,962    30,864 

Cash and cash equivalents at beginning of period

  
  
44,255
  
(24,834

)
 
15,939
  
  
35,360
 
    

Cash and cash equivalents at end of period

 $ $37,472 $7,851 $20,901 $ $66,224 
    

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Item 9.  Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure

Nothing to report.

Item 9A.  Controls and Procedures

Disclosure Controls and Procedures

With the participation of Cintas' management, including Cintas' Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of May 31, 2009.2010. Based on such evaluation, Cintas' management, including Cintas' Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas' disclosure controls and procedures were effective as of May 31, 2009,2010, 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 significant 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 May 31, 2009,2010, 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" in Item 8 preceding Cintas' financial statements.

Item 9B.  Other Information

Nothing to report.

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Part III



Items 10, 11, 12, 13 and 14 of Part III are incorporated by reference to the Registrant's Proxy Statement for its 20092010 Annual Shareholders' Meeting to be filed with the Commission pursuant to Regulation 14A.

The information called for by Item 12 relating to "Securities Authorized for Issuance under Equity Compensation Plans" is set forth in the table below:

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

Plan category

  Number of shares
to be issued
upon exercise of
outstanding options (1)
  Weighted average
exercise price of
outstanding options (1)
  Number of shares
remaining available
for future issuance
under equity
compensation plans
 

 
 

Equity compensation plans approved by shareholders

  6,359,424 $ 38.91  11,573,249 

Equity compensation plans not approved by shareholders

       
    

Total

  6,359,424 $ 38.91  11,573,249 
    

Plan category

  Number of shares
to be issued
upon exercise of
outstanding options (1)
  Weighted average
exercise price of
outstanding options (1)
  Number of shares
remaining available
for future issuance
under equity
compensation plans
 

 
 

Equity compensation plans approved by shareholders

  6,467,206 $ 37.63  10,914,768 

Equity compensation plans not approved by shareholders

       
    

Total

  6,467,206 $ 37.63  10,914,768 
    

(1) Excludes 981,3691,407,351 unvested restricted stock units.

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Part IV



Item 15.  Exhibits and Financial Statement Schedules

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

(a) (2)

 

Financial Statement Schedule:

 

 

For each of the three years in the period ended May 31, 2009.2010.

 

 

Schedule II: Valuation and Qualifying Accounts and Reserves.

 

 

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

(a) (3)

 

Exhibits.


Exhibit
Number
 Description of Exhibit
 
3.1 Restated Articles of Incorporation, as amended (Incorporated by reference to Exhibit 4.1 to Cintas' Form S-3 Registration Statement filed on December 3, 2007.)

3.2

 

Amended and Restated By-laws (Incorporated by reference to Exhibit 3 to Cintas' Form 8-K dated October 14, 2008.)

4.1

 

Indenture dated as of May 28, 2002, among Cintas Corporation No. 2, as issuer, Cintas Corporation, as parent guarantor, the subsidiary guarantors thereto and Wachovia Bank, National Association, as trustee (Incorporated by reference to Cintas' Form 10-Q for the quarter ended February 28, 2005.)

4.2

 

Form of 5-1/8% Senior Note due 2007 (Incorporated by reference to Cintas' Form 10-Q for the quarter ended February 28, 2005.)

4.3


Form of 6% Senior Note due 2012 (Incorporated by reference to Cintas' Form 10-Q for the quarter ended February 28, 2005.)

4.44.3

 

Form of 6.15% Senior Note due 2036 (Incorporated by reference to Cintas' Form 8-K dated August 17, 2006.)

10.1*

 

Incentive Stock Option Plan (Incorporated by reference to Cintas' Registration Statement No. 33-23228 on Form S-8 filed under the Securities Act of 1933.)

10.2*

 

Partners' Plan, as Amended (Incorporated by reference to Cintas' Registration Statement No. 33-56623 on Form S-8 filed under the Securities Act of 1933.)

10.3*

 

1999 Cintas Corporation Stock Option Plan (Incorporated by reference to Cintas' Form 10-Q for the quarter ended November 30, 2000.)

10.4*

 

Directors' Deferred Compensation Plan (Incorporated by reference to Cintas' Form 10-Q for the quarter ended November 30, 2001.)

10.5*

 

Amended and Restated 2003 Directors' Stock Option Plan (Incorporated by reference to Cintas' Form 10-K dated May 31, 2004.)

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10.6*

10.6*
Form of agreement signed by Officers, General/Branch Managers, Professionals and Key Managers, including Executive Officers (Incorporated by reference to Cintas' Form 10-Q for the quarter ended February 28, 2005.)

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Table of Contents


10.7*

 

President and CEO Executive Compensation Plan (Incorporated by reference to Cintas' Form 10-K dated May 31, 2005.)

10.8*

 

2006 Executive Incentive Plan (Incorporated by reference to Cintas' Form 10-K dated May 31, 2005.)

10.9*

 

2005 Equity Compensation Plan (Incorporated by reference to Cintas' Registration Statement No. 333-131375 on Form S-8 filed under the Securities Act of 1933.)

10.10*

 

Criteria for Performance Evaluation of the President and CEO (Incorporated by reference to Cintas' Form 10-K dated May 31, 2006.)

10.11*

 

2007 Executive Incentive Plan (Incorporated by reference to Cintas' Form 10-K dated May 31, 2006.)

14

 

Code of Ethics (Incorporated by reference to Cintas' Form 10-K dated May 31, 2004.)

21**

 

Subsidiaries of the Registrant

23**

 

Consent of Independent Registered Public Accounting Firm

31.1**

 

Certification of Principal Executive Officer, Pursuant to Rule 13a–14(a) of the Securities Exchange Act of 1934

31.2**

 

Certification of Principal Financial Officer, Pursuant to Rule 13a–14(a) of the Securities Exchange Act of 1934

32.1**

 

Certification of Chief Executive Officer, Pursuant to 18 U.S.C. § 1350

32.2**

 

Certification of Chief Financial Officer, Pursuant to 18 U.S.C. § 1350
*
Management compensatory contracts

**
Filed herewith

Cintas will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Cintas' reasonable expenses in furnishing such exhibit.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) 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

By:  /s/  Scott D. Farmer
             Scott D. Farmer
             Chief Executive Officer

DATE SIGNED: July 30, 20092010

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

Signature Capacity Date
 

 

 

 

 

 

 

 
/s/ Richard T. FarmerRobert J. Kohlhepp
Richard T. FarmerRobert J. Kohlhepp
 Chairman of the Board of Directors July 30, 2009

/s/


Robert J. Kohlhepp
Robert J. Kohlhepp


Vice Chairman of the Board of Directors


July 30, 20092010

/s/

 

Scott D. Farmer
Scott D. Farmer

 

Chief Executive Officer and Director

 

July 30, 20092010

/s/

 

Paul R. CarterRichard T. Farmer
Paul R. CarterRichard T. Farmer

 

DirectorChairman Emeritus of the Board of Directors

 

July 30, 20092010

/s/

 

Ronald W. Tysoe
Ronald W. Tysoe

 

Director

 

July 30, 20092010

/s/


James J. Johnson
James J. Johnson


Director


July 30, 2010

/s/

 

David C. Phillips
David C. Phillips

 

Director

 

July 30, 20092010

/s/

 

William C. Gale
William C. Gale

 

Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

 

July 30, 20092010

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Cintas Corporation
Schedule II — Valuation and Qualifying Accounts and Reserves

    Additions        

(In thousands)

  Balance at
Beginning
of Year
  (1)
Charged to
Costs and
Expenses
  (2)
Charged to
Other
Accounts
  (3)


Deductions
  Balance at
End
of Year
 

 
 

Allowance for Doubtful Accounts

                

May 31, 2007

 $15,519 $3,325 $341 $4,699 $14,486 
    

May 31, 2008

 $14,486 $4,530 $127 $6,004 $13,139 
    

May 31, 2009

 $13,139 $16,650 $5 $10,262 $19,532 
    

Reserve for Obsolete Inventory

                

May 31, 2007

 $24,447 $2,559 $1,084 $5,184 $22,906 
    

May 31, 2008

 $22,906 $1,431 $751 $4,428 $20,660 
    

May 31, 2009

 $20,660 $33,972 $(85)$6,194 $48,353 
    

    Additions        

(In thousands)

  Balance at
Beginning
of Year
  (1)
Charged to
Costs and
Expenses
  (2)
Charged to
Other
Accounts
  (3)


Deductions
  Balance at
End
of Year
 

 
 

Allowance for Doubtful Accounts

                

May 31, 2008

 $14,486 $4,530 $127 $6,004 $13,139 
    

May 31, 2009

 $13,139 $16,650 $5 $10,262 $19,532 
    

May 31, 2010

 $19,532 $1,060 $(167)$6,128 $14,297 
    

Reserve for Obsolete Inventory

                

May 31, 2008

 $22,906 $1,431 $751 $4,428 $20,660 
    

May 31, 2009

 $20,660 $33,972 $(85)$6,194 $48,353 
    

May 31, 2010

 $48,353 $(7,979)$(130)$7,778 $32,466 
    
(1)
Represents amounts charged to expense to increase reserve for estimated future bad debts or to increase reserve for obsolete inventory. Amounts related to inventory are computed by performing a thorough analysis of future marketability by specific inventory item.

(2)
Represents a change in the appropriate balance sheet reserve due to acquisitions during the respective period.

(3)
Represents reductions in the balance sheet reserve due to the actual write-off of non-collectible accounts receivable or the physical disposal of obsolete inventory items. These amounts do not impact Cintas' consolidated income statement.

7172