Item 7. Management's Discussion and Analysis

of Financial Condition and Results of Operations

Business Strategy

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

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

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

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

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

Results of Operations

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

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

	2012			2011			2010
Revenue:
Rental Uniforms and Ancillary Products	71.0	%		70.7	%		72.4	%
Uniform Direct Sales	10.6	%		11.0	%		11.0	%
First Aid, Safety and Fire Protection Services	10.1	%		9.9	%		9.5	%
Document Management Services	8.3	%		8.4	%		7.1	%
Total revenue	100.0	%		100.0	%		100.0	%
Cost of sales:
Rental Uniforms and Ancillary Products	56.6	%		56.8	%		56.4	%
Uniform Direct Sales	70.1	%		69.8	%		69.9	%
First Aid, Safety and Fire Protection Services	57.1	%		58.7	%		61.1	%
Document Management Services	50.9	%		48.7	%		48.6	%
Total cost of sales	57.6	%		57.8	%		57.8	%
Gross margin:
Rental Uniforms and Ancillary Products	43.4	%		43.2	%		43.6	%
Uniform Direct Sales	29.9	%		30.2	%		30.1	%
First Aid, Safety and Fire Protection Services	42.9	%		41.3	%		38.9	%
Document Management Services	49.1	%		51.3	%		51.4	%
Total gross margin	42.4	%		42.2	%		42.2	%
Selling and administrative expenses	29.2	%		30.7	%		30.6	%
Legal settlements, net of insurance proceeds	—	%		—	%		0.7	%
Restructuring credits	—	%		—	%		-0.1	%
Interest income	—	%		-0.1	%		-0.1	%
Interest expense	1.7	%		1.3	%		1.4	%
Income before income taxes	11.5	%		10.3	%		9.7	%

Fiscal 2012 Compared to Fiscal 2011

Fiscal 2012 total revenue was $4.1 billion, an increase of 7.7% compared to fiscal 2011. The increase primarily resulted from an organic growth increase of 6.1%. Revenue was also positively impacted by 0.4% due to one more workday in fiscal 2012 compared to fiscal 2011. The remaining 1.2% increase represents growth derived through acquisitions in our Document Management Services operating segment, our First Aid, Safety and Fire Protection Services operating segment and our Uniform Rentals and Ancillary Products operating segment during the year. Organic growth by quarter is shown in the table below. Organic growth percentages have been adjusted for the appropriate number of workdays, by quarter and for the year, where applicable.

	Organic Growth
First Quarter Ending August 31, 2011	7.6	%
Second Quarter Ending November 30, 2011	7.0	%
Third Quarter Ending February 29, 2012	5.9	%
Fourth Quarter Ending May 31, 2012	4.0	%
For the Fiscal Year Ending May 31, 2012	6.1	%

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 8.2% compared to fiscal 2011. The increase primarily resulted from an organic growth increase in revenue of 6.7%. This organic increase in the Rental Uniforms and Ancillary Products operating segment revenue was primarily due to improvements in sales representative productivity. Generally, sales productivity improvements are the result of increased tenure and improved training, which result in a higher number of accounts sold. Revenue was also positively impacted by 0.4% due to one more workday in fiscal 2012 compared to fiscal 2011. The remaining 1.1% increase represents growth derived through acquisitions in our Rental Uniforms and Ancillary Products operating segment.

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 6.4% compared to fiscal 2011. The increase primarily resulted from an organic growth increase of 4.6% which was due to improved sales representative productivity and improved account retention, slightly offset by a decrease in the average selling price of recycled paper. Revenue was also positively impacted by 0.4% due to one more workday in fiscal 2012 compared to fiscal 2011. The remaining 1.4% represents growth derived through acquisitions in our Document Management Services operating segment and our First Aid, Safety and Fire Protection Services operating segment during fiscal 2012.

Cost of rental uniforms and ancillary products increased 7.7% compared to fiscal 2011. 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 of rental uniforms and ancillary products increase compared to fiscal 2011 was due to increased Rental Uniforms and Ancillary Products operating segment sales volume.

Cost of other services increased 6.6% compared to fiscal 2011. 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 from fiscal 2011 was due to increased Other Services sales volume.

Selling and administrative expenses increased $30.0 million, or 2.6%, compared to fiscal 2011 due to increases in labor and other employee-partner related expenses. However, selling and administrative expenses as a percent of revenue, at 29.2%, decreased from 30.7% in fiscal 2011 due to improvements in sales representative productivity and cost control initiatives.

Operating income of $539.6 million in fiscal 2012 increased $99.3 million, or 22.5%, compared to fiscal 2011. This increase was primarily due to increased revenue in fiscal 2012 and improved capacity utilization.

Net interest expense (interest expense less interest income) increased $21.0 million from fiscal 2011. This increase was due to the increased interest cost associated with the issuance of $500.0 million aggregate principal amount of senior notes in the fourth quarter of fiscal 2011.

Income before income taxes was $470.9 million, a 19.9% increase compared to fiscal 2011. This change reflects the increase in operating income offset by the increase in net interest expense described above.

Cintas' effective tax rate was 36.8% for fiscal 2012 as compared to 37.1% and 37.3% for fiscal 2011 and 2010, respectively. The decrease in the effective tax rate from fiscal 2011 to fiscal 2012 was primarily the result of positive audit resolutions (also see Note 7 entitled Income Taxes of "Notes to Consolidated Financial Statements" for more information on income taxes).

Net income for fiscal 2012 of $297.6 million was a 20.5% increase compared to fiscal 2011. This increase was primarily due to revenue increasing at a faster rate of 7.7% compared to a 5.7% increase in operating expenses. Revenue grew at a faster rate primarily due to improvements in sales representative productivity. Diluted earnings per share of $2.27 was a 35.1% increase compared to fiscal 2011. The increase in diluted earnings per share is higher than the increase in net income due to a decrease in weighted average common stock outstanding as a result of Cintas purchasing 11.4 million shares of its common stock during fiscal 2012.

Rental Uniforms and Ancillary Products Operating Segment

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased $220.0 million, or 8.2%, and the cost of rental uniforms and ancillary products increased $118.1 million, or 7.7%. The operating segment's fiscal 2012 gross margin was 43.4% of revenue compared to 43.2% in fiscal 2011. The increase in gross margin as a percent of revenue over fiscal 2011 was due to an increase in revenue as a result of improvements in sales representative productivity and improved capacity utilization.

Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment increased $12.0 million in fiscal 2012 compared to fiscal 2011 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expenses as a percent of revenue, at 28.6%, decreased from 30.5% in fiscal 2011. This decrease as a percent of revenue was primarily due to cost control initiatives and higher Rental Uniforms and Ancillary Products operating segment revenue from greater sales representative productivity in fiscal 2012 compared to fiscal 2011.

Income before income taxes increased $89.9 million to $429.5 million for the Rental Uniforms and Ancillary Products operating segment for fiscal 2012 compared to fiscal 2011. This increase is primarily due to the increase in revenue offset by the increase in selling and administrative expenses discussed above.

Uniform Direct Sales Operating Segment

Uniform Direct Sales operating segment revenue increased $14.8 million, or 3.5%, compared to fiscal 2011. Revenue was positively impacted by 0.4% due to one more workday in fiscal 2012 compared to fiscal 2011. Cost of uniform direct sales increased $11.6 million, or 4.0%, compared to fiscal 2011. The gross margin as a percent of revenue was 29.9% for fiscal 2012 compared to 30.2% in fiscal 2011. This decrease in gross margin as a percent of revenue over fiscal 2011 was due to increased garment material costs due to higher cotton prices, higher freight costs on shipments from our distribution centers and higher energy-related costs associated with our rental catalog service.

Selling and administrative expenses increased $2.4 million, or 3.0%, in fiscal 2012 compared to fiscal 2011. Selling and administrative expenses as a percent of revenue, at 18.6%, decreased slightly from 18.7% in fiscal 2011.

Income before income taxes was $49.0 million in fiscal 2012, an increase of $0.8 million, or 1.6%, compared to fiscal 2011. Income before income taxes as a percent of revenue, at 11.3%, decreased from 11.5% in fiscal 2011. This decrease in income before income taxes is primarily due to cost of uniform direct sales increasing at a greater rate than revenue based on the factors noted above.

First Aid, Safety and Fire Protection Services Operating Segment

First Aid, Safety and Fire Protection Services operating segment revenue increased $38.0 million in fiscal 2012, a 10.1% increase compared to fiscal 2011. This increase primarily resulted from an organic growth increase of 8.4% due to improvements in sales representative productivity and improved customer retention. Revenue was also positively impacted by 0.4% due to one more workday in fiscal 2012 compared to fiscal 2011. The remaining 1.3% represents growth derived through acquisitions.

Cost of first aid, safety and fire protection services increased $15.6 million, or 7.1%, in fiscal 2012, due primarily to increased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 42.9% for fiscal 2012 compared to 41.3% in fiscal 2011. This increase is due to an increase in revenue for the reasons noted above and improved capacity utilization from the higher revenue levels.

Selling and administrative expenses increased by $8.7 million, or 6.5%, in fiscal 2012 compared to fiscal 2011 primarily due to an increase in labor and other employee-partner related expenses. However, selling and administrative expenses as a percent of revenue, at 34.5%, decreased from 35.6% in fiscal 2011. Revenue grew at a faster rate than selling and administrative expenses due to improvements in sales representative productivity and cost control initiatives.

Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment was $35.1 million in fiscal 2012 compared to $21.5 million in fiscal 2011. This increase in income before income taxes was primarily due to the increase in First Aid, Safety and Fire Protection Services operating segment revenue and improved capacity utilization from the higher revenue levels.

Document Management Services Operating Segment

Document Management Services operating segment revenue increased $18.8 million for fiscal 2012, or 5.8%, over fiscal 2011. This increase primarily resulted from an organic growth increase of 2.1%. Revenue was also positively impacted by 0.4% due to one more workday in fiscal 2012 compared to fiscal 2011. The remaining 3.3% increase represents growth derived mainly through acquisitions. This operating segment derives a portion of its revenue from the sale of shredded paper to paper recyclers. The average price from these paper sales decreased by approximately 6% in fiscal 2012 compared to fiscal 2011, due to decreases in recycled paper prices. This decrease resulted in lower recycled paper revenue.

Cost of document management services increased $16.9 million, or 10.8%, for fiscal 2012 due to increased Document Management Services operating segment volume. Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs. The gross margin as a percent of revenue decreased from 51.3% in fiscal 2011 to 49.1% in fiscal 2012. This decrease is due to a drop in recycled paper prices and an increase in energy-related costs in fiscal 2012 compared to fiscal 2011.

Selling and administrative expenses increased $7.0 million in fiscal 2012 over fiscal 2011. This increase is primarily due to an increase in labor and other employee-partner related expenses. However, these expenses as a percent of revenue, at 41.4%, decreased from 41.7% in fiscal 2011. This decrease is due to the revenue growing at a faster rate than the expenses due to cost control initiatives, lower bad debt expense and lower amortization expense related to acquisition related intangible assets.

Income before income taxes for the Document Management Services operating segment was $26.0 million, a decrease of $5.1 million compared to fiscal 2011. Income before income taxes, at 7.6% of the operating segment's revenue, decreased from 9.7% in fiscal 2011. This decrease is primarily a result of the increase in the cost of document management services and selling and administrative expenses, as discussed above.

Fiscal 2011 Compared to Fiscal 2010

Fiscal 2011 total revenue was $3.8 billion, an increase of 7.4% compared to fiscal 2010. Total revenue increased organically by 5.1%. The remaining 2.3% represents growth derived through acquisitions in our Document Management Services operating segment, our First Aid, Safety and Fire Protection Services operating segment and our Rental Uniforms and Ancillary Products operating segment. Organic growth by quarter is shown in the table below.

	Organic Growth
First Quarter Ending August 31, 2010	2.8	%
Second Quarter Ending November 30, 2010	4.2	%
Third Quarter Ending February 28, 2011	5.5	%
Fourth Quarter Ending May 31, 2011	8.0	%
For the Fiscal Year Ending May 31, 2011	5.1	%

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 4.8% compared to fiscal 2010. Rental Uniforms and Ancillary Products operating segment revenue increased organically by 3.3% in fiscal 2011. This organic increase in the Rental Uniforms and Ancillary Products operating segment revenue was primarily due to improvements in sales representative productivity and improved customer retention. The remaining revenue growth of 1.5% was due to acquisitions made in this operating segment.

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 14.3% compared to fiscal 2010. The increase primarily resulted from an organic increase of 9.8%, which was due to improved sales representative productivity, improved account retention and an increase in the average selling price of recycled paper. The remaining 4.5% represents growth derived through acquisitions in our Document Management Services operating segment and our First Aid, Safety and Fire Protection Services operating segment during fiscal 2011.

Cost of rental uniforms and ancillary products increased 5.6% compared to fiscal 2010. 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 of rental uniforms and ancillary products increase compared to fiscal 2010 was due to increased Rental Uniforms and Ancillary Products operating segment sales volume.

Cost of other services increased 11.8% compared to fiscal 2010. 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 from fiscal 2010 was due to increased Other Services sales volume.

Selling and administrative expenses increased $82.6 million, or 7.6%, compared to fiscal 2010. Labor and payroll tax expenses increased $47.5 million compared to fiscal 2010 primarily as a result of an increase in the number of sales representatives. In addition, bad debt expense increased $6.7 million due to a slight deterioration in the aging of receivables and professional services increased $10.9 million due to costs related to our enterprise-wide system conversion.

During the first quarter of fiscal 2010, Cintas and the plaintiffs involved in the litigation, Paul Veliz, et al. v. Cintas Corporation, reached a settlement in principle. The pre-tax impact, net of insurance proceeds, was approximately $19.5 million. This settlement is more fully described in Note 12 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements." 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.

Operating income of $440.3 million in fiscal 2011 increased $49.5 million, or 12.7%, compared to fiscal 2010. This increase was primarily due to increased revenue in fiscal 2011, improved capacity utilization and the legal settlements that occurred in the prior fiscal year.

Net interest expense (interest expense less interest income) increased $0.8 million from fiscal 2010. This increase was due to a $1.1 million increase in interest expense caused by higher levels of borrowings in fiscal 2011 compared to fiscal 2010, offset by a $0.3 million increase in interest income.

Income before income taxes was $392.7 million, a 14.2% increase compared to fiscal 2010. This change reflects the increase in operating income offset by the increase in net interest expense described above.

Cintas' effective tax rate was 37.1% for fiscal 2011 as compared to 37.3% and 37.4% for fiscal 2010 and 2009, respectively (also see Note 7 entitled Income Taxes of "Notes to Consolidated Financial Statements" for more information on income taxes).

Net income for fiscal 2011 of $247.0 million was a 14.5% increase compared to fiscal 2010, and diluted earnings per share of $1.68 was a 20.0% increase compared to fiscal 2010. These changes reflect the items described above. The increase in diluted earnings per share of 20.0% is higher than the 14.5% increase in net income due to the impact of Cintas purchasing 15.4 million shares of its common stock during fiscal 2011.

Rental Uniforms and Ancillary Products Operating Segment

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased $122.9 million, or 4.8%, and the cost of rental uniforms and ancillary products increased $80.9 million, or 5.6%. The operating segment's fiscal 2011 gross margin was 43.2% of revenue compared to 43.6% in fiscal 2010. The reduction in gross margin as a percent of revenue over fiscal 2010 was due to a 15 basis point increase in maintenance costs and a 15 basis point increase in energy-related costs, which include natural gas, electric and gas.

Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment increased $36.1 million in fiscal 2011 compared to fiscal 2010 primarily due to an increase in selling labor due to the addition of sales representatives. The sales representatives were primarily added during the third quarter of fiscal 2010 to grow revenue in the operating segment. Selling and administrative expenses as a percent of revenue, at 30.5%, slightly decreased from 30.6% in fiscal 2010. This slight decrease as a percent of revenue was due to higher volume.

Income before income taxes increased $3.0 million to $339.6 million for the Rental Uniforms and Ancillary Products operating segment for fiscal 2011 compared to fiscal 2010. This increase is primarily due to the increase in revenue offset by the increase in selling and administrative expenses discussed above.

Uniform Direct Sales Operating Segment

Uniform Direct Sales operating segment revenue increased $32.9 million, or 8.5%, compared to fiscal 2010. Cost of uniform direct sales increased $22.7 million, or 8.4%, compared to fiscal 2010. The gross margin as a percent of revenue was 30.2% for fiscal 2011, which is relatively consistent with the 30.1% in fiscal 2010.

Selling and administrative expenses increased $2.0 million, or 2.6%, in fiscal 2011 compared to fiscal 2010. Selling and administrative expenses as a percent of revenue, at 18.7%, decreased from 19.7% in fiscal 2010. This decrease in selling and administrative expenses as a percent of revenue was due to the selling and administrative expenses being relatively consistent with fiscal 2010 while revenue increased by 8.5%.

Income before income taxes was $48.3 million in fiscal 2011, an increase of $8.2 million, or 20.3%, compared to fiscal 2010. The increase in income before income taxes is primarily due to the increase in revenue while keeping selling and administrative expenses relatively consistent.

First Aid, Safety and Fire Protection Services Operating Segment

First Aid, Safety and Fire Protection Services operating segment revenue increased $39.0 million in fiscal 2011, an 11.5% increase compared to fiscal 2010. This increase primarily resulted from an organic increase of 7.3%, which is attributable to improved customer retention and sales representative productivity. The remaining 4.2% represents growth derived through acquisitions.

Cost of first aid, safety and fire protection services increased $14.7 million, or 7.1%, in fiscal 2011, due primarily to increased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 41.3% for fiscal 2011 compared to 38.9% in fiscal 2010. This increase is due to an increase in revenue and improved capacity utilization.

Selling and administrative expenses increased by $16.3 million, or 13.8%, in fiscal 2011 compared to fiscal 2010 primarily due to an increase in the number of sales representatives and a $2.4 million increase in bad debt expense due to a slight deterioration in the aging of receivables. Selling and administrative expenses as a percent of revenue, at 35.6%, increased from 34.9% in fiscal 2010.

Income before income taxes for the First Aid, Safety and Fire Protection Services operating segment was $21.5 million in fiscal 2011 compared to $13.4 million in fiscal 2010. This increase in income before income taxes was primarily due to the increase in First Aid, Safety and Fire Protection Services operating segment revenue and improved capacity utilization.

Document Management Services Operating Segment

Document Management Services operating segment revenue increased $68.3 million for fiscal 2011, or 27.0%, over fiscal 2010. This increase primarily resulted from an organic increase of 15.3%. The organic increase 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 average selling price from these paper sales increased by approximately 31% in fiscal 2011 compared to fiscal 2010. Excluding recycled paper revenue, this operating segment revenue grew 8.2% organically compared to fiscal 2010. Acquisitions accounted for revenue growth of 11.7%.

Cost of document management services increased $33.3 million, or 27.1%, for fiscal 2011 due to increased Document Management Services operating segment volume. Gross margin for the Document Management Services operating segment is defined as revenue less production and service costs. The gross margin as a percent of revenue was 51.3% for fiscal 2011, which is relatively consistent with the gross margin of 51.4% in fiscal 2010.

Selling and administrative expenses increased $28.2 million in fiscal 2011 over fiscal 2010. This increase is primarily due to an increase in the number of sales representatives. Selling and administrative expenses as a percent of revenue was 41.7% for fiscal 2011, which is consistent with the 41.8% in fiscal 2010.

Income before income taxes for the Document Management Services operating segment was $31.1 million, an increase of $6.8 million compared to fiscal 2010. Income before income taxes was 9.7% of the operating segment's revenue which is consistent with 9.6% in fiscal 2010.

Liquidity and Capital Resources

The following is a summary of our cash flows and cash, cash equivalents and marketable securities as of and for the fiscal years ending May 31:

(In thousands)	2012				2011
Net cash provided by operating activities	$	469,862			$	340,886
Net cash used in investing activities	$	(104,294	)		$	(298,593	)
Net cash used in financing activities	$	(460,575	)		$	(20,038	)
Cash and cash equivalents at the end of the period	$	339,825			$	438,106
Marketable securities at the end of the period	$	—			$	87,220

The cash, cash equivalents and marketable securities as of May 31, 2012, include $51.8 million that is located outside of the United States. In the fourth quarter of fiscal 2012, Cintas repatriated approximately $110 million of cash from foreign subsidiaries. We expect to use the remaining amounts located outside of the U.S. to fund our international operations and international expansion activities. No marketable securities were outstanding at May 31, 2012. We believe that our investment policy pertaining to marketable securities is conservative. The primary criterion used in making investment decisions is the preservation of principal, while earning an attractive yield.

Cash flows provided by operating activities have historically supplied us with a significant source of liquidity. We generally use these cash flows to fund most, if not all, of our operations and expansion activities and dividends on our common stock. We may also use cash flows provided by operating activities, as well as proceeds from long-term debt and short-term borrowings, to fund growth and expansion opportunities, as well as other cash requirements such as the repurchase of our common stock.

Net cash provided by operating activities was $469.9 million for fiscal 2012, an increase of $129.0 million compared to fiscal 2011. Along with the increase in net income, the decrease in inventory during the third and fourth quarters of fiscal 2012 also had a positive impact on our operating cash flow. In addition, although accounts receivable increased on increased revenue, the average accounts receivable collection period at May 31, 2012 improved to 40 days compared to 42 days at May 31, 2011.

Net cash used in investing activities includes capital expenditures and cash paid for acquisitions of businesses. Capital expenditures were $160.8 million and $182.6 million for fiscal 2012 and fiscal 2011, respectively. These capital expenditures primarily related to expansion efforts in the Rental Uniforms and Ancillary Products and Document Management Services operating segments and to our enterprise-wide system conversion. Capital expenditures for fiscal 2012 included $107.2 million for the Rental Uniforms and Ancillary Products operating segment and $33.2 million for the Document Management Services operating segment. Cash paid for acquisitions of businesses was $24.9 million and $171.6 million for fiscal 2012 and fiscal 2011, respectively. The acquisitions in fiscal 2012 occurred in our Document Management Services, First Aid, Safety and Fire Protection Services and Rental Uniforms and Ancillary Products operating segments. The cash used for capital expenditures and acquisitions was offset by net proceeds from the redemption of marketable securities of $79.4 million in fiscal 2012 and $60.7 million in fiscal 2011.

Net cash used in financing activities was $460.6 million and $20.0 million for fiscal 2012 and 2011, respectively. We completed the May 2, 2005 share buyback program by purchasing 7.7 million shares of Cintas common stock for a total of $202.1 million 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 the October 26, 2010 share buyback program, we purchased 7.7 million shares of Cintas common stock for an aggregate purchase price of $240.5 million, which resulted in a total of $442.5 million of Cintas common stock being repurchased 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 an aggregate purchase price of $259.5 million. From the inception of the October 26, 2010 share buyback program through July 29, 2011, Cintas 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. On October 18, 2011, we announced that the Board of Directors authorized a new $500.0 million share buyback program at market prices. Beginning in April 2012, under the October 18, 2011 share buyback program through May 31, 2012, Cintas has purchased a total of approximately 3.3 million shares of Cintas stock at an average price of $39.10 per share for a total purchase price of $129.6 million. In July 2012, we purchased 0.6 million shares of Cintas stock for $23.7 million. From the inception of the October 18, 2011 share buyback program through July 30, 2012, Cintas has purchased a total of 3.9 million shares of Cintas common stock at an average price

of $38.86 per share for a total purchase price of $153.3 million. For the fiscal year ended May 31, 2012, Cintas acquired approximately 99,000 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $32.05 per share.

We paid an annual cash dividend of $70.8 million, or $0.54 per share, in December 2011. On a per share basis, this dividend is an increase of 10.2% over the dividend paid in fiscal 2011. This marks the 29th consecutive year that Cintas has increased its annual dividend, every year since going public in 1983.

As of May 31, 2012, we had $1,275.0 million aggregate principal amount in fixed rate senior notes outstanding with maturities ranging from 2012 to 2036. On May 18, 2011, Cintas issued $250.0 million aggregate principal amount of senior notes due 2016 bearing an interest rate of 2.85% and an additional $250.0 million aggregate principal amount of senior notes due 2021 bearing an interest rate of 4.30%. The interest on both tranches of these senior notes are paid semi-annually. 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. As of May 31, 2012, we also had outstanding $225.0 million of 10-year senior notes issued in fiscal 2002 at a rate of 6.0%, $250.0 million of 30-year senior notes issued in fiscal 2007 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%. During fiscal 2010, Cintas initiated a $7.5 million loan with PIDC Regional Center, LP for funding related to a facility being built in Philadelphia. It is a 5-year note with a 2.75% interest rate.

On June 1, 2012, Cintas repaid at maturity $225.0 million aggregate principal amount of its 6.00% senior notes due 2012. Subsequently, on June 5, 2012, Cintas issued $250.0 million aggregate principal amount of senior notes due June 1, 2022. These senior notes bear interest at a rate of 3.25% paid semi-annually beginning December 1, 2012. The net proceeds generated from the offering will be used for general corporate purposes.

Cintas' commercial paper program has a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group. This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million. The revolving credit facility was amended on October 7, 2011, to extend the maturity date from September 26, 2014 to October 6, 2016, to improve the applicable margin used to calculate the interest rate payable on any outstanding loans and the facility fee payable under the agreement and to replace the financial covenant regarding Cintas' net funded indebtedness to total capitalization with a requirement to maintain a leverage ratio of consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (debt to EBITDA) of no more than 3.5 to 1.0. We believe this program, along with cash generated from operations, will be adequate to provide necessary funding for our future cash requirements. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2012 or 2011.

Cintas has certain covenants related to debt agreements. These covenants limit our ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to EBITDA and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. As of May 31, 2012, Cintas was in compliance with all significant debt covenants.

Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity. We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. Our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness. As of May 31, 2012, our ratings were as follows:

Rating Agency		Outlook		Commercial Paper		Long-term Debt
Standard & Poor's		Stable		A-2		BBB+
Moody's Investors Service		Stable		P-1		A2

In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected. In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above. The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at

any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.

To monitor our credit rating and our capacity for long-term financing, we consider various qualitative and quantitative factors. One such factor is the ratio of our total debt to EBITDA. For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and long-term obligations under capital leases.

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)	$	1,284,802			$	225,636			$	8,690			$	250,403			$	800,073
Operating leases (2)	187,519				36,887				55,883				34,587				60,162
Interest payments (3)	616,373				55,158				109,852				93,307				358,056
Interest swap agreements	—				—				—				—				—
Unconditional purchase obligations	—				—				—				—				—
Total long-term contractual cash obligations	$	2,088,694			$	317,681			$	174,425			$	378,297			$	1,218,291

Cintas also makes payments to defined contribution plans. The amount of contributions made to the defined contribution plans are at the discretion of the Board of Directors 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 $28.0 million, two to three years would be $60.4 million and four to five years would be $66.6 million. Payments for years thereafter are expected to continue increasing by approximately 5% each year.

(1)	Long-term debt primarily consists of $1,275.0 million in senior notes. Reference Note 5 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements" for a detailed discussion of long-term debt.

(2)	Operating leases consist primarily of operational facility leases.

(3)

Interest payments could include interest on both fixed and variable rate debt. As of May 31, 2012, Cintas did not have commercial paper outstanding, and therefore did not have any variable rate debt. Rates have been assumed to remain constant in fiscal 2013, increase 75 basis points in both fiscal 2014 and 2015, increase 100 basis points in both fiscal 2016 and 2017 and increase a total of 150 basis points beyond fiscal 2017.

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)	$	299,916			$	—			$	—			$	299,916			$	—
Standby letters of credit (2)	85,716				85,716				—				—				—
Guarantees	—				—				—				—				—
Standby repurchase obligations	—				—				—				—				—
Other commercial commitments	—				—				—				—				—
Total other commitments	$	385,632			$	85,716			$	—			$	299,916			$	—

(1)	Back-up facility for the commercial paper program (reference Note 5 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements" for further discussion).

(2)	Support certain outstanding debt (reference Note 5 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements"), self-insured workers' compensation and general liability insurance programs.

Inflation and Changing Prices

Changes in wages, benefits and energy costs have the potential to materially impact Cintas' consolidated financial results. Management believes inflation has not had a material impact on Cintas' consolidated financial condition or a negative impact on results of operations.

Litigation and Other Contingencies

Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or results of operations of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business. Please refer to "Part I, Item 3. Legal Proceedings" and Note 12 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements" for a detailed discussion of certain specific litigation.

New Accounting Standards

In June 2011, the Financial Accounting Standards Board (FASB) issued new guidance on the presentation of other comprehensive income. The new guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in shareholders' equity and requires an entity to present either one continuous statement of net income and other comprehensive income or two separate, but consecutive, statements. This new guidance is effective for Cintas for the first quarter of the fiscal year ending May 31, 2013, and is to be applied retrospectively. Cintas does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In September 2011, the FASB issued new guidance with respect to the annual goodwill impairment test, which adds a qualitative assessment that allows companies to determine whether they need to perform the two-step impairment test. The objective of the guidance is to simplify how companies test goodwill for impairment and, more specifically, to reduce the cost and complexity of performing the goodwill impairment test. The guidance may change how the goodwill impairment test is performed, but should not change the timing or measurement of goodwill impairments. The qualitative screen is effective for companies with fiscal years beginning after December 15, 2011. Early adoption is permitted for all companies. Cintas will consider the new guidance in performing its annual goodwill impairment test; however, it was not early adopted in fiscal 2012.

Critical Accounting Policies

The preparation of Cintas' consolidated financial statements in conformity with U.S. generally accepted accounting principles (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 the company's 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.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market. 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 the company's historical rates of obsolescence.

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 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. 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 based on industry and company specific experience, 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 estimated fair value, less estimated costs to sell.

Goodwill and impairment

Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test which includes the determination of the estimated 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, as well as discount rates. The methodology used is consistent with prior years. Based on the results of the annual impairment tests, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2012, 2011 or 2010.

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. 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, 2012, 2011 or 2010.

Stock-based compensation

Compensation expense is recognized for all share-based payments to employees, including stock options and restricted stock awards, 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 11 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 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 in Note 12 entitled Litigation and Other 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 7 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. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized.

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 tax related accruals are appropriate.