Item 8. Financial Statements and Supplementary Data

138K characters. Original on sec.gov · Markdown

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Audited Consolidated Financial Statements for the Fiscal Years Ended May 31, 2011, 2010 and 2009


		Management's Report on Internal Control over Financial Reporting		31
		Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm		32
		Consolidated Statements of Income		34
		Consolidated Balance Sheets		35
		Consolidated Statements of Shareholders' Equity		36
		Consolidated Statements of Cash Flows		37
		Notes to Consolidated Financial Statements		38

**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, 2011. Management based its assessment on criteria established in Internal 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, 2011, 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 on Form 10-K.


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

**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, 2011, based on criteria established in Internal 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 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.

In our opinion, Cintas Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2011, 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, 2011 and 2010, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 2011, of Cintas Corporation, and our report dated July 29, 2011, expressed an unqualified opinion thereon.


		/s/ ERNST & YOUNG LLP
Cincinnati, Ohio July 29, 2011

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, 2011 and 2010, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 2011. Our audits also included the consolidated financial statement schedule listed in the Index 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, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2011, 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.

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, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 29, 2011, expressed an unqualified opinion thereon.


		/s/ ERNST & YOUNG LLP

Cincinnati, Ohio July 29, 2011


Consolidated Statements of Income
			Fiscal Years Ended May 31,

(In thousands except per share data)			2011			2010			2009

Revenue:
	Rental uniforms and ancillary products	$	2,692,248		$	2,569,357		$	2,755,015
	Other services		1,118,136			977,982			1,019,670

			3,810,384			3,547,339			3,774,685
Costs and expenses:
	Cost of rental uniforms and ancillary products		1,530,456			1,449,576			1,562,230
	Cost of other services		670,641			599,946			661,584
	Selling and administrative expenses		1,168,944			1,086,359			1,082,709
	Legal settlements, net of insurance proceeds		—			23,529			—
	Restructuring (credits) charges		—			(2,880	)		10,209
	Impairment of long-lived assets		—			—			48,888

Operating income			440,343			390,809			409,065
	Interest income		(2,030	)		(1,695	)		(2,764	)
	Interest expense		49,704			48,612			50,236

Income before income taxes			392,669			343,892			361,593
Income taxes			145,680			128,272			135,236

Net income		$	246,989		$	215,620		$	226,357

Basic earnings per share		$	1.68		$	1.40		$	1.48

Diluted earnings per share		$	1.68		$	1.40		$	1.48

Dividends declared and paid per share		$	0.49		$	0.48		$	0.47

See accompanying notes.


Consolidated Balance Sheets
		As of May 31,

(In thousands except share data)		2011			2010

Assets
Current assets:
Cash and cash equivalents	$	438,106		$	411,281
Marketable securities		87,220			154,806
Accounts receivable, principally trade, less allowance of $17,057 and $14,297, respectively		429,131			362,219
Inventories, net		249,658			169,484
Uniforms and other rental items in service		393,826			332,106
Income taxes, current		33,542			15,691
Deferred tax asset		45,813			52,415
Prepaid expenses and other		23,481			22,860

Total current assets		1,700,777			1,520,862
Property and equipment, at cost, net		946,218			894,522
Goodwill		1,487,882			1,356,925
Service contracts, net		102,312			103,445
Other assets, net		114,751			93,982

	$	4,351,940		$	3,969,736

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	110,279		$	71,747
Accrued compensation and related liabilities		79,834			66,924
Accrued liabilities		242,691			244,402
Long-term debt due within one year		1,335			609

Total current liabilities		434,139			383,682
Long-term liabilities:
Long-term debt due after one year		1,284,790			785,444
Deferred income taxes		196,321			150,560
Accrued liabilities		134,041			116,021

Total long-term liabilities		1,615,152			1,052,025
Shareholders' equity:
Preferred stock, no par value:
100,000 shares authorized, none outstanding		—			—
Common stock, no par value:
425,000,000 shares authorized
2011: 173,346,180 shares issued and 137,583,884 shares outstanding
2010: 173,207,493 shares issued and 152,869,848 shares outstanding		135,401			132,058
Paid-in capital		95,732			84,616
Retained earnings		3,255,256			3,080,079
Treasury stock:
2011: 35,762,296 shares
2010: 20,337,645 shares		(1,242,547	)		(798,857	)
Other accumulated comprehensive income (loss):
Foreign currency translation		70,214			42,870
Unrealized loss on derivatives		(12,326	)		(6,997	)
Other		919			260

Total shareholders' equity		2,302,649			2,534,029

	$	4,351,940		$	3,969,736

See accompanying notes.

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, 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		—		—			—			—			—			—			—
	Repurchase of common stock		—		—		—			—			—			(904	)		(25,847	)		(25,847	)
	Other		—		33		3			(33	)		—			—			—			3

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 benefit		—		—		—			—			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	)		—			—			—			—			—
	Repurchase of common stock		—		—		—			—			—			(42	)		(969	)		(969	)
	Other		—		—		(254	)		—			287			—			—			33

Balance at May 31, 2010			173,207		132,058		84,616			3,080,079			36,133			(20,338	)		(798,857	)		2,534,029

	Net income		—		—		—			246,989			—			—			—			246,989
	Equity adjustment for foreign currency translation		—		—		—			—			27,344			—			—			27,344
	Change in fair value of derivatives, net of $3,813 of tax		—		—		—			—			(6,096	)		—			—			(6,096	)
	Amortization of interest rate lock agreements		—		—		—			—			767			—			—			767
	Change in fair value of available-for-sale securities, net of $0 of tax benefit		—		—		—			—			3			—			—			3

	Comprehensive income, net of tax																					269,007
	Dividends		—		—		—			(71,812	)		—			—			—			(71,812	)
	Stock-based compensation		—		—		15,203			—			—			—			—			15,203
	Vesting of stock-based compensation awards		139		3,343		(3,343	)		—			—			—			—			—
	Repurchase of common stock		—		—		—			—			—			(15,424	)		(443,690	)		(443,690	)
	Other		—		—		(744	)		—			656			—			—			(88	)

Balance at May 31, 2011			173,346	$	135,401	$	95,732		$	3,255,256		$	58,807			(35,762	)	$	(1,242,547	)	$	2,302,649

See accompanying notes.


Consolidated Statements of Cash Flows
		Fiscal Years Ended May 31,

(In thousands)		2011			2010			2009

Cash flows from operating activities:
Net income	$	246,989		$	215,620		$	226,357
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		150,886			152,059			157,572
Amortization of deferred charges		42,581			41,082			42,534
Impairment of long-lived assets		—			—			48,888
Stock-based compensation		15,203			15,349			11,953
Deferred income taxes		47,908			13,295			(1,174	)
Change in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net		(48,986	)		5,222			71,149
Inventories, net		(78,824	)		30,293			35,136
Uniforms and other rental items in service		(58,180	)		4,164			29,661
Prepaid expenses		360			3,715			(4,949	)
Accounts payable		29,215			8,939			(24,560	)
Accrued compensation and related liabilities		12,493			18,393			(2,012	)
Accrued liabilities and other		(2,167	)		47,528			(28,991	)
Income taxes, current		(16,592	)		9,995			(38,042	)

Net cash provided by operating activities		340,886			565,654			523,522
Cash flows from investing activities:
Capital expenditures		(182,592	)		(111,078	)		(160,092	)
Proceeds from redemption of marketable securities		139,056			34,712			116,433
Purchase of marketable securities and investments		(78,307	)		(81,269	)		(128,402	)
Acquisitions of businesses, net of cash acquired		(171,552	)		(50,444	)		(30,909	)
Other		(5,198	)		497			(251	)

Net cash used in investing activities		(298,593	)		(207,582	)		(203,221	)
Cash flows from financing activities:
Proceeds from issuance of debt		1,002,281			—			7,500
Repayment of debt		(502,208	)		(603	)		(164,649	)
Dividends paid		(71,812	)		(73,960	)		(72,207	)
Repurchase of common stock		(443,690	)		(969	)		(25,847	)
Other		(4,609	)		(977	)		855

Net cash used in financing activities		(20,038	)		(76,509	)		(254,348	)
Effect of exchange rate changes on cash and cash equivalents		4,570			(27	)		(2,432	)

Net increase in cash and cash equivalents		26,825			281,536			63,521
Cash and cash equivalents at beginning of year		411,281			129,745			66,224

Cash and cash equivalents at end of year	$	438,106		$	411,281		$	129,745

See accompanying notes.

**Notes to Consolidated Financial Statements **

1. Significant Accounting Policies

Business description. Cintas Corporation (Cintas) provides highly specialized products and services to businesses of all types primarily throughout North America, as well as 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 cleaning services and supplies, carpet and tile cleaning services, first aid, safety and fire protection products and services, document management services and branded promotional products. Cintas' products and services are designed to enhance its customers' images and to provide additional safety and protection in the workplace.

Cintas classifies its businesses into four operating segments based on the types of products and services provided. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items 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 over 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.

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.

Restructuring charges. During fiscal 2009, Cintas management initiated certain restructuring activities to eliminate excess capacity and reduce its cost structure. Cintas recorded restructuring charges of $7.9 million in employee termination costs and $2.3 million in other exit costs for a total of $10.2 million. In fiscal 2010, Cintas recorded a change in estimate of ($1.4) million in employee termination costs and ($1.5) million in other exit costs for a total restructuring credit of ($2.9) million.

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. Marketable 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. The allowance is 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 the allowance.

Inventories. Inventories are valued at the lower of cost (first-in, first-out) or market. Inventory is comprised of the following amounts:


(In thousands)		2011		2010

Raw materials	$	16,900	$	13,058
Work in process		18,907		11,522
Finished goods		213,851		144,904

	$	249,658	$	169,484

Inventories are recorded net of reserves for obsolete inventory of $30.7 million and $32.5 million as of May 31, 2011 and 2010, 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.

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. 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 estimated fair value, less estimated costs to sell.

The fiscal 2009 charge of $48.9 million in long-lived asset impairment costs included $25.8 million in land and buildings of which $10.9 million related to assets held for sale, $18.2 million in equipment and $4.8 million in long-lived other assets. The fair value was determined primarily by using market quoted prices and other prices quoted for similar assets and discounted cash flow models.

Goodwill. Goodwill is separately disclosed from other intangible assets on the consolidated balance sheet and not amortized. Cintas completes an annual goodwill impairment test which includes the determination of the estimated fair value of its reporting units. The methodology used is consistent with prior years. Based on the results of the annual impairment test, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2011, 2010 or 2009. Cintas will continue to perform future impairment tests as of March 1 in future years and 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 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:


(In thousands)		2011		2010

General insurance liabilities	$	58,892	$	50,480
Employee benefit related liabilities		48,827		47,754
Legal settlements		1,195		30,448
Taxes and related liabilities		18,886		22,403
Accrued interest		21,224		20,762
Other		93,667		72,555

	$	242,691	$	244,402

Long-term accrued liabilities consists primarily of reserves associated with unrecognized tax benefits, which are described in more detail in Note 7 entitled Income Taxes, and retirement obligations.

Stock-based compensation. Compensation 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.

Derivatives and hedging activities. 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. Derivatives are recorded at fair value on the consolidated balance sheet, and gains and losses are recorded as adjustments to earnings or other comprehensive income, as appropriate.

2. Fair Value Measurements

Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


	Level 1 —		Quoted prices in active markets for identical assets or liabilities.
	Level 2 —		Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
	Level 3 —		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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

In order to meet the requirements of ASC 820, Cintas utilizes two basic valuation approaches to determine the fair value of its assets and liabilities required to be recorded on a recurring basis at fair value. The first approach is the cost approach. The cost approach is generally the value a market participant would expect to replace the respective asset or liability. The second approach is the market approach. The market approach looks at what a market participant would consider valuing an exact or similar asset or liability to that of Cintas, including those traded on exchanges.

All financial instruments that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value

at the consolidated balance sheet date. These financial instruments measured at fair value on a recurring basis are summarized below:


(In thousands)			As of May 31, 2011

			Level 1		Level 2		Level 3		Fair Value

Cash and cash equivalents		$	438,106	$	—	$	—	$	438,106
Marketable securities:
	Canadian treasury securities		61,142		26,078		—		87,220

Total assets at fair value		$	499,248	$	26,078	$	—	$	525,326

Current accrued liabilities		$	—	$	869	$	—	$	869

Total liabilities at fair value		$	—	$	869	$	—	$	869


(In thousands)			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

Cintas' cash and cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the 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. The types of financial instruments based on quoted market prices in active markets include most bank deposits, money market securities and certain Canadian treasury securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. Cintas does not adjust the quoted market price for such financial instruments.

The types of financial instruments valued based on quoted market prices in markets that are not active, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include certain Canadian treasury securities (primarily agency debt obligations) and U.S. municipal bonds. The primary inputs to value Cintas' marketable securities is the respective instruments future cash flows based on its stated yield and the amount a market participant would pay for a similar instrument. The valuation technique used for Cintas' marketable securities classified within Level 2 of the fair market value hierarchy is primarily the market approach. Primarily all of Cintas' marketable securities are actively traded and the recorded fair value reflects current market conditions. However, due to the inherent volatility in the investment market, there is at least a possibility that recorded investment values may change in the near term.

The funds invested in Canadian marketable securities are not expected to be repatriated, but instead are expected to be invested indefinitely in foreign subsidiaries. Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense.

The cost of the securities sold is based on the specific identification method. The amortized cost basis of the marketable securities as of May 31, 2011 and 2010 is $87.3 million and $154.9 million, respectively. Purchases of marketable securities were $62.7 million, $64.4 million and $122.7 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively. All contractual maturities are due within one year.

Accounts receivable, net and current accrued liabilities include foreign currency average rate options and forward contracts. The fair value of Cintas' foreign currency average rate options and forward contracts are based on similar exchange traded derivatives (market approach) 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.

Cintas' non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis primarily relate to assets and liabilities acquired in a business acquisition. Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a non-recurring basis (including business acquisitions). Based on the nature of Cintas' business acquisitions, which occur regularly throughout the fiscal year, the majority of the assets acquired and liabilities assumed consist of working capital, primarily valued using Level 2 inputs, property and equipment, also primarily valued using Level 2 inputs and goodwill and other identified intangible assets valued using Level 3 inputs. In general, non-recurring fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability, such as internal estimates of future cash flows.

3. Property and Equipment


(In thousands)		2011		2010

Land	$	103,838	$	101,374
Buildings and improvements		484,254		471,592
Equipment		1,334,943		1,178,181
Leasehold improvements		21,763		17,176
Construction in progress		97,598		88,769

		2,042,396		1,857,092
Less: accumulated depreciation		1,096,178		962,570

	$	946,218	$	894,522

Interest expense is net of capitalized interest of $2.2 million, $2.2 million and $2.3 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

4. Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill and service contracts for the fiscal years ended May 31, 2011 and 2010, by operating segment, are as follows:


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

Balance as of June 1, 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
Goodwill acquired		80,699			—		10,977		33,196			124,872
Foreign currency translation		1,361			67		—		4,657			6,085

Balance as of May 31, 2011	$	943,177		$	23,995	$	192,944	$	327,766		$	1,487,882



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

Balance as of June 1, 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
Service contracts acquired		13,090			—		7,498			10,288			30,876
Service contracts amortization		(19,081	)		—		(7,219	)		(8,200	)		(34,500	)
Foreign currency translation		1,908			—		—			583			2,491

Balance as of May 31, 2011	$	44,628		$	—	$	35,878		$	21,806		$	102,312

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


		As of May 31, 2011

(In thousands)		Carrying Amount		Accumulated Amortization		Net

Service contracts	$	379,967	$	277,655	$	102,312

Noncompete and consulting agreements	$	76,091	$	63,982	$	12,109
Investments (1)		84,197		—		84,197
Other		23,135		4,690		18,445

Total	$	183,423	$	68,672	$	114,751


		As of May 31, 2010

(In thousands)		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		14,598		4,242		10,356

Total	$	151,649	$	57,667	$	93,982

(1)

Investments at May 31, 2011, include the cash surrender value of insurance policies of $51.1 million, equity method investments of $30.2 million and cost method investments of $2.9 million. Investments at May 31, 2010, include the cash surrender value of insurance policies of $34.3 million, equity method investments of $30.0 million and cost method investments of $4.3 million.

Amortization expense was $42.6 million, $41.1 million and $42.5 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $36.9 million, $20.1 million, $16.8 million, $14.1 million and $8.9 million, respectively.

Investments recorded using the cost method are evaluated for impairment on an annual basis or when indicators of impairment are identified. For fiscal 2011 and 2010, no losses due to impairment were recorded.

5. Long-Term Debt and Derivatives


(In thousands)		2011		2010

Unsecured term notes due through 2036 at an average rate of 5.10%	$	1,286,125	$	786,053
Less: amounts due within one year		1,335		609

	$	1,284,790	$	785,444

Letters of credit outstanding were $82.7 million and $95.9 million at May 31, 2011 and 2010, respectively. Maturities of long-term debt during each of the next five years are $1.3 million, $225.6 million, $8.2 million, $0.5 million and $0.2 million, respectively.

Interest paid was $49.2 million, $48.6 million and $49.9 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

Cintas has a commercial paper program with a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group. The revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million and an expiration date of September 26, 2014. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2011 or 2010.

On May 18, 2011, Cintas issued $250.0 million of senior notes due 2016 bearing an interest rate of 2.85% and an additional $250.0 million of senior notes due 2021 bearing an interest rate of 4.30%. The interest on both tranches of these senior notes will be paid semi-annually beginning December 1, 2011. The net proceeds generated from the offerings were used to repay our outstanding commercial paper borrowings, purchase shares of Cintas common stock under the October 26, 2010 share buyback program and other general corporate purchases.

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, 2007 and 2008. The amortization of the cash flow hedges resulted in a credit to other comprehensive income of $0.8 million for each of the fiscal years ended May 31, 2011, 2010 and 2009. Cintas also entered into an interest rate lock agreement to hedge against the movement in the treasury rate at the time Cintas issued its senior notes in fiscal 2011, as discussed above. This interest rate lock agreement will begin amortization in fiscal 2012 based on the timing of the fiscal 2011 offering.

To hedge the exposure of movements in the foreign currency rates, Cintas uses foreign currency hedges. These hedges 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. Cintas did not have average rate options included in accounts receivable at May 31, 2011, and had $0.5 million of average rate options included in accounts receivable at May 31, 2010. Cintas also had average rate options and forward contracts included in current accrued liabilities of $0.9 million and less than $0.1 million at May 31, 2011 and 2010, respectively. These instruments increased foreign currency exchange loss by $0.3 million and $0.5 million during fiscal 2011 and 2010, respectively.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to 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.

6. 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 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 $29.6 million, $24.0 million, $18.7 million, $14.0 million, $9.9 million and $10.6 million, respectively.

Rent expense under operating leases during the fiscal years ended May 31, 2011, 2010 and 2009, was $45.7 million, $38.0 million and $37.9 million, respectively.

7. Income Taxes


(In thousands)		2011		2010		2009

Income before income taxes consist of the following components:
U.S. operations	$	377,922	$	315,717	$	332,863
Foreign operations		14,747		28,175		28,730

	$	392,669	$	343,892	$	361,593


(In thousands)		2011		2010		2009

Income taxes consist of the following components:
Current:
Federal	$	70,811	$	106,389	$	135,909
State and local		15,063		12,909		18,962

		85,874		119,298		154,871
Deferred		59,806		8,974		(19,635	)

	$	145,680	$	128,272	$	135,236


(In thousands)		2011			2010			2009

Reconciliation of income tax expense using the statutory rate and actual income tax expense is as follows:
Income taxes at the U.S. federal statutory rate	$	137,434		$	120,362		$	126,558
State and local income taxes, net of federal benefit		11,984			8,631			9,062
Other		(3,738	)		(721	)		(384	)

	$	145,680		$	128,272		$	135,236

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


(In thousands)		2011		2010

Deferred tax assets:
Allowance for doubtful accounts	$	5,630	$	4,890
Inventory obsolescence		11,204		12,381
Insurance and contingencies		19,121		16,148
Stock-based compensation		12,585		9,954
Other		15,065		20,622

		63,605		63,995
Deferred tax liabilities:
In service inventory		10,108		8,416
Property		118,413		81,634
Intangibles		77,910		65,868
State taxes and other		7,682		6,222

		214,113		162,140

Net deferred tax liability	$	150,508	$	98,145

Income taxes paid were $105.8 million, $103.8 million and $187.2 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

Undistributed earnings of foreign subsidiaries were approximately $222.0 million, $198.3 million and $181.6 million for the fiscal years ended May 31, 2011, 2010 and 2009, 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.

Accounting for uncertain 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. Companies 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.

As of May 31, 2011 and 2010, there was $18.8 million and $27.8 million, 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, 2011 and 2010, was $9.1 million and $15.7 million, respectively. Cintas records this tax liability as current and long-term accrued liabilities on the consolidated balance sheets, as appropriate.

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. Unrecognized tax benefits related to continuing operations increased by $6.4 million in fiscal 2011, increased by $0.9 million in fiscal 2010 and decreased by $18.7 million in fiscal 2009. Accrued interest decreased by $6.6 million in fiscal 2011, decreased by less than $0.1 million in fiscal 2010 and decreased by $0.6 million in fiscal 2009.

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


(In thousands)

Balance at June 1, 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
Additions for tax positions of prior years		10,529
Settlements		(2,194	)
Statute expirations		(1,093	)

Balance at May 31, 2011	$	103,099

The majority of Cintas' operations are in 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 2008. 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 2004. Based on the resolution of the various audits and other potential regulatory developments, it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $12.8 million for the fiscal year ended May 31, 2012.

8. Acquisitions

The purchase price paid for each acquisition has been allocated to the fair value of the assets acquired and liabilities assumed. During fiscal 2011, Cintas acquired four Uniform Rental and Ancillary Products operating segment businesses, eleven First Aid, Safety and Fire Protection Services operating segment businesses and twelve Document Management Services operating segment businesses. During fiscal 2010, Cintas acquired three First Aid, Safety and Fire Protection Services operating segment businesses and four Document Management Services operating segment businesses. The following summarizes the aggregate purchase price for all businesses acquired:


(In thousands)		2011		2010

Fair value of tangible assets acquired	$	37,403	$	23,006
Fair value of goodwill acquired		125,562		26,978
Fair value of service contracts acquired		28,449		9,018
Fair value of other intangibles acquired		6,937		3,828

Total fair value of assets acquired		198,351		62,830
Fair value of liabilities assumed and incurred		24,729		11,870

Total cash paid for acquisitions	$	173,622	$	50,960

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.

9. 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 $21.1 million, $19.8 million and $23.4 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

Cintas 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 $1.0 million, $0.9 million and $1.1 million for the fiscal years ended May 31, 2011, 2010 and 2009, 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 $6.1 million, $5.0 million and $5.5 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

10. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Cintas' common shares:


(In thousands except per share data)		2011		2010		2009

Basic and Diluted Earnings per Share
Net income	$	246,989	$	215,620	$	226,357
Less dividends to:
Common shares	$	71,197	$	73,377	$	71,811
Unvested shares		615		583		396

Total dividends	$	71,812	$	73,960	$	72,207
Undistributed net income	$	175,177	$	141,660	$	154,150
Less: net income allocated to participating unvested securities		1,097		661		427

Net income available to common shareholders	$	174,080	$	140,999	$	153,723

Basic weighted average common shares outstanding		146,586		152,858		152,942

Effect of dilutive securities — employee stock options		—		—		—
Diluted weighted average common shares outstanding		146,586		152,858		152,942

Basic and diluted earnings per share:
Common shares — distributed earnings	$	0.49	$	0.48	$	0.47
Common shares — undistributed earnings		1.19		0.92		1.01

Total common shares	$	1.68	$	1.40	$	1.48

Unvested shares — distributed earnings	$	0.49	$	0.48	$	0.47
Unvested shares — undistributed earnings		1.19		0.92		1.01

Total unvested shares	$	1.68	$	1.40	$	1.48

For the fiscal years ended May 31, 2011, 2010 and 2009, 3.9 million, 4.5 million and 5.5 million 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).

We completed the May 2, 2005 share buyback program by purchasing 7.7 million shares of Cintas common stock for a total purchase of $202.1 million of Cintas common stock by the end of September 30, 2010. On October 26, 2010, we announced that the Board of Directors authorized an additional $500.0 million share buyback program at market prices. Beginning in April 2011, under this new program, we purchased 7.7 million shares of Cintas common stock for a purchase price of $240.5 million, which resulted in a total purchase of $442.5 million of Cintas common stock through May 31, 2011. We completed the October 26, 2010 share buyback program by purchasing an additional 8.1 million shares of Cintas common stock in June and July 2011 for $259.5 million. From the inception of the October 26, 2010 share buyback program through July 29, 2011, Cintas has purchased a total of 15.8 million shares of Cintas common stock at an average price of $31.70 per share for a total purchase price of $500.0 million.

11. 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, 2011, 9,713,983 shares of common stock are reserved for future issuance under the 2005 Equity Compensation Plan. The compensation cost was $15.2 million, $15.3 million and $12.0 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively. The total income tax benefit recognized in the consolidated income statement for share-based compensation arrangements was $4.5 million, $3.9 million and $2.8 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

Stock Options

Stock options are granted at the fair market value of the underlying common stock on the date of grant. The option terms are determined by the 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:


	2011		2010		2009

Risk-free interest rate	2.5	%	3.9	%	4.5	%
Dividend yield	1.5	%	1.3	%	1.0	%
Expected volatility of Cintas' common stock	30.0	%	30.0	%	30.0	%
Expected life of the option in years	7.5		7.5		7.5

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 2011, 2010 and 2009 was $8.01, $8.23 and $10.02, respectively.

The information presented in the following table relates primarily to stock options granted and outstanding under either the 2005 Equity Compensation Plan or under previously adopted plans:


	Shares			Weighted Average Exercise Price

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
Granted	2,030,764			25.70
Canceled	(833,267	)		38.76
Exercised	—			—

Outstanding, May 31, 2011 (1,945,207 shares exercisable)	7,664,703		$	34.34

The fair value of stock options vested was $9.0 million, $6.8 million and $3.5 million for the fiscal years ended May 31, 2011, 2010 and 2009, respectively.

The following table summarizes the information related to stock options outstanding at May 31, 2011:


		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 – $ 25.88	2,912,715	9.56	$	25.33	10,564	$	22.66
26.00 – 39.29	1,916,197	5.04		33.48	517,564		37.55
39.43 – 42.06	1,617,358	3.20		41.49	778,370		41.77
42.30 – 51.40	1,218,433	2.86		45.29	638,709		46.25

$ 20.29 – $ 51.40	7,664,703	6.02	$	34.34	1,945,207	$	42.02

At May 31, 2011, the aggregate intrinsic value of stock options outstanding and exercisable was $12.2 million and $0.1 million, respectively.

The weighted-average remaining contractual term of stock options exercisable is 2.1 years.

Restricted Stock Awards

Restricted stock awards consist of Cintas' common stock that 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 Grant Price

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
Granted	712,721			31.59
Canceled	(66,754	)		25.54
Vested	(135,936	)		39.26

Outstanding, unvested grants at May 31, 2011	1,917,382		$	28.22

The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 2011, was $51.8 million and the weighted-average period of time over which this cost will be recognized is 3.0 years.

12. Litigation and Other Contingencies

Cintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or consolidated 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, Mirna E. Serrano, et al. v. Cintas Corporation (Serrano), filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division. The Serrano plaintiffs alleged that Cintas discriminated against women in hiring into various service sales representative positions across all divisions of Cintas. On November 15, 2005, the Equal Employment Opportunity Commission (EEOC) intervened in the Serrano lawsuit. The Serrano plaintiffs seek injunctive relief, compensatory damages, punitive damages, attorneys' fees and other remedies. On October 27, 2008, the United States District Court in the Eastern District of Michigan granted summary judgment in favor of Cintas limiting the scope of the putative class in the Serrano lawsuit to female applicants for service sales representative positions at Cintas locations within the state of Michigan. Consequently, all claims brought by female applicants for service sales representative positions outside of the state of Michigan were dismissed. Similarly, any claims brought by the EEOC on behalf of similarly situated female applicants outside of the state of Michigan have also been dismissed from the Serrano lawsuit. Cintas is a defendant in another purported class action lawsuit, Blanca Nelly Avalos, et al. v. Cintas Corporation (Avalos), which was filed in the United States District Court, Eastern District of Michigan, Southern

Division. The Avalos plaintiffs alleged that Cintas discriminated against women, African-Americans and Hispanics in hiring into various service sales representative positions in Cintas' Rental division only throughout the United States. The Avalos plaintiffs sought injunctive relief, compensatory damages, punitive damages, attorneys' fees and other remedies. The claims in Avalos originally were brought in the lawsuit captioned Robert Ramirez, et al. v. Cintas Corporation (Ramirez), filed on January 20, 2004, in the United States District Court, Northern District of California, San Francisco Division. On May 11, 2006, the Ramirez and Avalos African-American, Hispanic and female failure to hire into service sales representative positions claims and the EEOC's intervention were consolidated for pretrial purposes with the Serrano case and transferred to the United States District Court for the Eastern District of Michigan, Southern Division. The consolidated case was known as Mirna E. Serrano/Blanca Nelly Avalos, et al. v. Cintas Corporation (Serrano/Avalos). On March 31, 2009, the United States District Court, Eastern District of Michigan, Southern Division entered an order denying class certification to all plaintiffs in the Serrano/Avalos lawsuits. Following denial of class certification, the Court permitted the individual Avalos and Serrano plaintiffs to proceed separately. In the Avalos case, the Court dismissed the remaining claims of the individual plaintiffs who remained in that case after the denial of class certification. On May 11, 2010, Plaintiff Tanesha Davis, on behalf of all similarly situated plaintiffs in the Avalos case, filed a notice of appeal of the District Court's summary judgment order in the United States Court of Appeals for the Sixth Circuit. The Appellate Court has made no determination regarding the merits of Davis' appeal. In September 2010, the Court in Serrano dismissed all private individual claims and all claims of the EEOC and the 13 individuals it claimed to represent. The EEOC has appealed the District Court's summary judgment decisions and various other rulings to the United States Court of Appeals for the Sixth Circuit. The Court of Appeals has not yet ruled on the EEOC's 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 consolidated 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 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.

Cintas 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 the Veliz 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 the Veliz action reached a settlement in principle. That settlement was granted preliminary approval by the District Court. The pre-tax impact, net of insurance proceeds, was $19.5 million in fiscal 2010. Pursuant to the settlement agreement, Cintas paid $22.8 million on December 17, 2010. On June 3, 2011, the Court granted final approval of the settlement. According to the terms of the settlement agreement, Cintas will pay the remaining settlement funds to satisfy the future income tax liabilities of the class members as they receive their respective shares of the settlement funds. The balance of the settlement funds will be used to pay the fees and expenses of the settlement administrator.

During the second quarter of fiscal 2010, Cintas had legal settlements that totaled $4.0 million, net of insurance proceeds. None of these settlements were significant individually. These settlements included litigation related to multiple subjects including employment practices and insurance coverage.

13. Operating Segment Information

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:


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

May 31, 2011
Revenue	$	2,692,248		$	419,222	$	377,663	$	321,251	$	—		$	3,810,384

Gross margin	$	1,161,792		$	126,475	$	156,060	$	164,960	$	—		$	1,609,287
Selling and admin. expenses		822,230			78,220		134,604		133,890		—			1,168,944
Interest income		—			—		—		—		(2,030	)		(2,030	)
Interest expense		—			—		—		—		49,704			49,704

Income before income taxes	$	339,562		$	48,255	$	21,456	$	31,070	$	(47,674	)	$	392,669

Depreciation and amortization	$	122,767		$	6,720	$	18,599	$	45,381	$	—		$	193,467

Capital expenditures	$	108,557		$	5,223	$	23,215	$	45,597	$	—		$	182,592

Total assets	$	2,544,178		$	331,192	$	355,332	$	595,912	$	525,326		$	4,351,940

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 credits		(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

14. 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, 2011 and 2010:


May 31, 2011 (in thousands)		First Quarter		Second Quarter		Third Quarter		Fourth Quarter

Revenue	$	923,904	$	936,566	$	937,827	$	1,012,087
Gross margin	$	393,671	$	390,648	$	391,921	$	433,047
Net income	$	61,277	$	55,866	$	59,070	$	70,776
Basic earnings per share	$	0.40	$	0.38	$	0.41	$	0.49
Diluted earnings per share	$	0.40	$	0.38	$	0.41	$	0.49
Weighted average number of shares outstanding		152,164		145,511		145,303		143,317


May 31, 2010 (in thousands)		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		152,828		152,866		152,869		152,870

15. Supplemental Guarantor Information

Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $1,275.0 million of long-term senior notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.

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

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

Condensed Consolidating Income Statement


Year Ended May 31, 2011 (in thousands)			Cintas Corporation		Corp. 2			Subsidiary Guarantors			Non- Guarantors			Eliminations			Cintas Corporation Consolidated

Revenue:
Rental uniforms and ancillary products		$	—	$	2,069,895		$	531,525		$	196,380		$	(105,552	)	$	2,692,248
Other services			—		1,395,119			340,063			109,634			(726,680	)		1,118,136
Equity in net income of affiliates			246,989		—			—			—			(246,989	)		—

			246,989		3,465,014			871,588			306,014			(1,079,221	)		3,810,384
Costs and expenses (income):
Cost of rental uniforms and ancillary products			—		1,305,908			330,442			132,463			(238,357	)		1,530,456
	Cost of other services		—		876,359			316,650			67,997			(590,365	)		670,641
Selling and administrative expenses			—		1,065,037			17,270			92,839			(6,202	)		1,168,944

Operating income			246,989		217,710			207,226			12,715			(244,297	)		440,343
Interest income			—		(589	)		(697	)		(100,777	)		100,033			(2,030	)
Interest expense (income)			—		52,357			(2,687	)		34			—			49,704

Income before income taxes			246,989		165,942			210,610			113,458			(344,330	)		392,669
Income taxes			—		60,028			76,186			9,494			(28	)		145,680

Net income		$	246,989	$	105,914		$	134,424		$	103,964		$	(344,302	)	$	246,989

Condensed Consolidating Income Statement


Year Ended May 31, 2010 (in thousands)		Cintas Corporation		Corp. 2			Subsidiary Guarantors			Non- Guarantors			Eliminations			Cintas Corporation Consolidated

Revenue:
Rental uniforms and ancillary products	$	—	$	1,970,303		$	518,254		$	180,847		$	(100,047	)	$	2,569,357
Other services		—		1,216,779			351,368			66,229			(656,394	)		977,982
Equity in net income of affiliates		215,620		—			—			—			(215,620	)		—

		215,620		3,187,082			869,622			247,076			(972,061	)		3,547,339
Costs and expenses (income):
Cost of rental uniforms and ancillary products		—		1,226,076			332,935			111,340			(220,775	)		1,449,576
Cost of other services		—		798,841			297,890			41,316			(538,101	)		599,946
Selling and administrative expenses		—		1,037,945			(20,140	)		67,669			885			1,086,359
Legal settlements, net of insurance proceeds		—		—			23,529			—			—			23,529
Restructuring charges		—		(1,080	)		(1,800	)		—			—			(2,880	)

Operating income		215,620		125,300			237,208			26,751			(214,070	)		390,809
Interest income		—		(268	)		(1,130	)		(297	)		—			(1,695	)
Interest expense (income)		—		51,486			(2,897	)		23			—			48,612

Income before income taxes		215,620		74,082			241,235			27,025			(214,070	)		343,892
Income taxes		—		27,936			91,239			9,123			(26	)		128,272

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

Condensed Consolidating Income Statement


Year Ended May 31, 2009 (in thousands)		Cintas Corporation		Corp. 2		Subsidiary Guarantors			Non- Guarantors			Eliminations			Cintas Corporation Consolidated

Revenue:
Rental uniforms and ancillary products	$	—	$	2,101,857	$	569,780		$	175,711		$	(92,333	)	$	2,755,015
Other services		—		1,295,603		397,426			60,414			(733,773	)		1,019,670
Equity in net income of affiliates		226,357		—		—			—			(226,357	)		—

		226,357		3,397,460		967,206			236,125			(1,052,463	)		3,774,685
Costs and expenses (income):
Cost of rental uniforms and ancillary products		—		1,242,048		368,125			106,856			(154,799	)		1,562,230
Cost of other services		—		958,634		348,159			38,449			(683,658	)		661,584
Selling and administrative expenses		—		1,051,221		(27,889	)		57,953			1,424			1,082,709
Restructuring charges		—		6,575		3,531			103			—			10,209
Impairment of long-lived assets		—		25,713		17,328			5,847			—			48,888

Operating income		226,357		113,269		257,952			26,917			(215,430	)		409,065
Interest income		—		—		(930	)		(1,834	)		—			(2,764	)
Interest expense (income)		—		53,197		(2,982	)		21			—			50,236

Income before income taxes		226,357		60,072		261,864			28,730			(215,430	)		361,593
Income taxes		—		17,152		110,001			8,083			—			135,236

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

Condensed Consolidating Balance Sheet


As of May 31, 2011 (in thousands)		Cintas Corporation			Corp. 2			Subsidiary Guarantors			Non- Guarantors			Eliminations			Cintas Corporation Consolidated

Assets
Current assets:
Cash and cash equivalents	$	—		$	54,957		$	313,283		$	69,866		$	—		$	438,106
Marketable securities		—			—			—			87,220			—			87,220
Accounts receivable, net		—			312,033			76,484			40,614			—			429,131
Inventories, net		—			204,536			24,943			13,266			6,913			249,658
Uniforms and other rental items in service		—			302,897			82,148			34,895			(26,114	)		393,826
Income taxes, current		—			949			8,355			24,238			—			33,542
Deferred tax asset (liability)		—			566			47,905			(2,658	)		—			45,813
Prepaid expenses and other		—			5,738			13,732			4,011			—			23,481

Total current assets		—			881,676			566,850			271,452			(19,201	)		1,700,777
Property and equipment, at cost, net		—			587,701			274,086			84,431			—			946,218
Goodwill		—			—			1,416,926			70,956			—			1,487,882
Service contracts, net		—			94,379			663			7,270			—			102,312
Other assets, net		1,778,595			1,629,598			2,070,017			369,527			(5,732,986	)		114,751

	$	1,778,595		$	3,193,354		$	4,328,542		$	803,636		$	(5,752,187	)	$	4,351,940

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	(465,247	)	$	(329,430	)	$	855,739		$	11,198		$	38,019		$	110,279
Accrued compensation and related liabilities		—			55,138			20,153			4,543			—			79,834
Accrued liabilities		—			61,399			154,861			27,235			(804	)		242,691
Long-term debt due within one year		—			855			480			—			—			1,335

Total current liabilities		(465,247	)		(212,038	)		1,031,233			42,976			37,215			434,139
Long-term liabilities:
Long-term debt due after one year		—			1,294,674			(12,433	)		1,745			804			1,284,790
Deferred income taxes		—			(7	)		190,701			5,627			—			196,321
Accrued liabilities		—			—			133,427			614			—			134,041

Total long-term liabilities		—			1,294,667			311,695			7,986			804			1,615,152
Total shareholders' equity		2,243,842			2,110,725			2,985,614			752,674			(5,790,206	)		2,302,649

	$	1,778,595		$	3,193,354		$	4,328,542		$	803,636		$	(5,752,187	)	$	4,351,940

Condensed Consolidating Balance Sheet


As of May 31, 2010 (in thousands)		Cintas Corporation			Corp. 2		Subsidiary Guarantors			Non- Guarantors			Eliminations			Cintas Corporation Consolidated

Assets
Current assets:
Cash and cash equivalents	$	—		$	34,905	$	339,702		$	36,674		$	—		$	411,281
Marketable securities		—			—		21,954			132,852			—			154,806
Accounts receivable, net		—			261,512		74,256			26,451			—			362,219
Inventories, net		—			144,826		16,857			9,420			(1,619	)		169,484
Uniforms and other rental items in service		—			256,398		70,489			25,514			(20,295	)		332,106
Income taxes, current		—			5,306		(591	)		10,976			—			15,691
Deferred tax asset (liability)		—			—		54,474			(2,059	)		—			52,415
Prepaid expenses and other		—			5,565		15,808			1,487			—			22,860

Total current assets		—			708,512		592,949			241,315			(21,914	)		1,520,862
Property and equipment, at cost, net		—			591,040		240,462			63,020			—			894,522
Goodwill		—			—		1,310,675			46,250			—			1,356,925
Service contracts, net		—			98,335		880			4,230			—			103,445
Other assets, net		2,032,649			1,612,270		1,613,514			322,707			(5,487,158	)		93,982

	$	2,032,649		$	3,010,157	$	3,758,480		$	677,522		$	(5,509,072	)	$	3,969,736

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	(465,247	)	$	164,131	$	343,454		$	(8,614	)	$	38,023		$	71,747
Accrued compensation and related liabilities		—			42,181		21,730			3,013			—			66,924
Accrued liabilities		—			53,432		178,698			13,092			(820	)		244,402
Long-term debt due within one year		—			805		(196	)		—			—			609

Total current liabilities		(465,247	)		260,549		543,686			7,491			37,203			383,682
Long-term liabilities:
Long-term debt due after one year		—			795,541		(10,917	)		—			820			785,444
Deferred income taxes		—			—		145,563			4,997			—			150,560
Accrued liabilities		—			—		115,549			472			—			116,021

Total long-term liabilities		—			795,541		250,195			5,469			820			1,052,025
Total shareholders' equity		2,497,896			1,954,067		2,964,599			664,562			(5,547,095	)		2,534,029

	$	2,032,649		$	3,010,157	$	3,758,480		$	677,522		$	(5,509,072	)	$	3,969,736

Condensed Consolidating Statement of Cash Flows


Year Ended May 31, 2011 (in thousands)					Cintas Corporation			Corp. 2			Subsidiary Guarantors			Non- Guarantors			Eliminations			Cintas Corporation Consolidated

Cash flows from operating activities:
	Net income			$	246,989		$	105,914		$	134,424		$	103,964		$	(344,302	)	$	246,989
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation			—			103,039			36,032			11,815			—			150,886
		Amortization			—			37,615			543			4,423			—			42,581
		Stock-based compensation			15,203			—			—			—			—			15,203
		Deferred income taxes			—			(4,886	)		51,996			798			—			47,908
		Changes in current assets and liabilities, net of acquisitions of businesses:
			Accounts receivable, net		—			(39,060	)		(2,079	)		(7,847	)		—			(48,986	)
			Inventories, net		—			(59,223	)		(8,112	)		(2,957	)		(8,532	)		(78,824	)
			Uniforms and other rental items in service		—			(45,149	)		(11,671	)		(7,179	)		5,819			(58,180	)
			Prepaid expenses		—			223			2,085			(1,948	)		—			360
			Accounts payable		—			(392,210	)		393,185			28,244			(4	)		29,215
			Accrued compensation and related liabilities		—			12,957			(1,577	)		1,113			—			12,493
			Accrued liabilities		—			(2,740	)		(6,318	)		6,875			16			(2,167	)
			Income taxes, current		—			4,265			(8,858	)		(11,999	)		—			(16,592	)

Net cash provided by (used in) operating activities					262,192			(279,255	)		579,650			125,302			(347,003	)		340,886
Cash flows from investing activities:
	Capital expenditures				—			(99,739	)		(68,274	)		(14,579	)		—			(182,592	)
	Proceeds from sale or redemption of marketable securities				—			—			23,206			115,850			—			139,056
	Purchase of marketable securities and investments				—			(16,897	)		(55,438	)		(61,438	)		55,466			(78,307	)
	Acquisitions of businesses, net of cash acquired				—			(133,378	)		(1,831	)		(36,343	)		—			(171,552	)
	Other, net				253,387			54,296			(504,637	)		(99,797	)		291,553			(5,198	)

Net cash provided by (used in) investing activities					253,387			(195,718	)		(606,974	)		(96,307	)		347,019			(298,593	)
Cash flows from financing activities:
	Proceeds from the issuances of debt				—			1,000,500			1,781			—			—			1,002,281
	Repayment of debt				—			(501,316	)		(876	)		—			(16	)		(502,208	)
	Dividends paid				(71,801	)		—			—			(11	)		—			(71,812	)
	Repurchase of common stock				(443,690	)		—			—			—			—			(443,690	)
	Other				(88	)		(4,576	)		—			55			—			(4,609	)

Net cash (used in) provided by financing activities					(515,579	)		494,608			905			44			(16	)		(20,038	)
Effect of exchange rate changes on cash and cash equivalents					—			417			—			4,153			—			4,570

Net increase (decrease) in cash and cash equivalents					—			20,052			(26,419	)		33,192			—			26,825
Cash and cash equivalents at beginning of period					—			34,905			339,702			36,674			—			411,281

Cash and cash equivalents at end of period				$	—		$	54,957		$	313,283		$	69,866		$	—		$	438,106

Condensed Consolidating Statement of Cash Flows


Year Ended May 31, 2010 (in thousands)					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		—			21,442			14,594			(2,512	)		(28,302	)		5,222
			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, current		—			(2,134	)		16,455			(4,326	)		—			9,995

Net cash provided by (used in) operating activities					230,969			292,073			205,590			64,215			(227,193	)		565,654
Cash flows from investing activities:
	Capital expenditures				—			(62,236	)		(42,422	)		(6,420	)		—			(111,078	)
	Proceeds from 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	)		(184,047	)		(34,494	)		84			375,036			497

Net cash (used in) provided by investing activities					(156,082	)		(296,795	)		93,066			(38,880	)		191,109			(207,582	)
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

Condensed Consolidating Statement of Cash Flows


Year Ended May 31, 2009 (in thousands)					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, current		—			(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

Previous: Item 7A. Quantitative and Qualitative Disclosure About Market Risk · Next: Item 9. Changes in and Disagreements with