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CINTAS CORP - Quarter Report: 2004 August (Form 10-Q)

FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

  (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2004

OR

  (   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________

  Commission file number   0-11399

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


WASHINGTON 31-1188630
(State or other jurisdiction of
 incorporation or organization)
(I.R.S. Employer
Identification No.)


6800 CINTAS BOULEVARD
       P.O. BOX 625737
CINCINNATI, OHIO 45262-5737
(Address of principal executive offices)
(Zip Code)


(513) 459-1200
(Registrant's telephone number, including area code)

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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act).     Yes  [X]       No  [   ]

        Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

                    Class                    Outstanding September 30, 2004
Common Stock, no par value 171,649,881

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CINTAS CORPORATION

INDEX

Part I.    Financial Information

        Item 1.    Financial Statements.

                       Consolidated Condensed Statements of Income -
                            Three Months Ended August 31, 2004 and 2003

                       Consolidated Condensed Balance Sheets -
                            August 31, 2004 and May 31, 2004

                       Consolidated Condensed Statements of Cash Flows -
                            Three Months Ended August 31, 2004 and 2003

                       Notes to Consolidated Condensed Financial Statements

        Item 2.    Management's Discussion and Analysis of Financial
                            Condition and Results of Operations.

        Item 3.    Quantitative and Qualitative Disclosures About
                            Market Risk.

        Item 4.    Controls and Procedures.


Part II.   Other Information

Signatures

Certifications
Page No.




   3


   4


   5

   6


  18


  21

  21


  22

  22

  23

-2-


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


Three Months Ended
August 31,

2004
2003
Revenue:            
   Rentals   $ 581,659   $ 538,404  
   Other services    164,297    139,252  


     745,956    677,656  
Costs and expenses (income):  
   Cost of rentals    317,754    298,145  
   Cost of other services    109,364    92,063  
   Selling and administrative expenses    198,809    176,130  
   Interest income    (1,122 )  (413 )
   Interest expense    5,833    6,880  
   Write-off of loan receivable    --    4,343  


     630,638    577,148  


Income before income taxes    115,318    100,508  
 
Income taxes    42,652    37,181  


Net income   $ 72,666   $ 63,327  


Basic earnings per share   $ .42   $ .37  


Diluted earnings per share   $ .42   $ .37  


See accompanying notes.

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

August 31,
2004

May 31,
2004

(Unaudited)
ASSETS            
Current assets:  
   Cash and cash equivalents   $ 81,949   $ 87,357  
   Marketable securities    182,028    166,964  
   Accounts receivable, net    291,277    285,592  
   Inventories, net    187,239    185,585  
   Uniforms and other rental items in service    304,917    301,350  
   Prepaid expenses    12,041    7,395  


Total current assets    1,059,451    1,034,243  
 
Property and equipment, at cost, net    790,804    785,310  
Goodwill    815,936    805,441  
Service contracts, net    141,992    144,664  
Other assets, net    38,831    40,639  


    $ 2,847,014   $ 2,810,297  


LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:  
   Accounts payable   $ 55,326   $ 53,451  
   Accrued compensation and related liabilities    30,532    31,804  
   Accrued liabilities    78,030    146,226  
   Income taxes:  
     Current    40,209    36,640  
     Deferred    65,395    47,042  
   Long-term debt due within one year    10,472    10,523  


Total current liabilities    279,964    325,686  
 
Long-term debt due after one year    474,266    473,685  
 
Deferred income taxes    126,419    122,957  
 
Shareholders' equity:  
   Preferred stock, no par value:  
     100,000 shares authorized, none outstanding    --    --  
   Common stock, no par value:  
     425,000,000 shares authorized,  
     171,516,573 shares issued and outstanding,  
     (171,377,679 at May 31, 2004)    96,136    94,569  
   Retained earnings    1,863,213    1,790,547  
   Other accumulated comprehensive income (loss):  
     Foreign currency translation    8,564    4,474  
     Unrealized loss on derivatives    (1,548 )  (1,621 )


Total shareholders' equity    1,966,365    1,887,969  


    $ 2,847,014   $ 2,810,297  


See accompanying notes.

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

Three Months Ended
August 31,

2004
2003
Cash flows from operating activities:            
 
   Net income   $ 72,666   $ 63,327  
   Adjustments to reconcile net income to net  
     cash provided by operating activities:  
       Depreciation    29,699    29,017  
       Amortization of deferred charges    6,729    6,418  
       Deferred income taxes    21,815    15,593  
       Change in current assets and liabilities,  
          net of acquisitions of businesses:  
            Accounts receivable    (4,776 )  6,844  
            Inventories    (1,548 )  4,055  
            Uniforms and other rental items in service    (3,567 )  5,995  
            Prepaid expenses    (4,935 )  (1,152 )
            Accounts payable    1,875    (5,075 )
            Accrued compensation and related liabilities    (1,272 )  (3,801 )
            Accrued liabilities    (67,420 )  (64,051 )
            Income taxes payable    3,569    14,888  


Net cash provided by operating activities    52,835    72,058  
 
Cash flows from investing activities:  
 
   Capital expenditures    (35,336 )  (31,007 )
   Proceeds from sale or redemption of marketable securities    9,240    2,137  
   Purchase of marketable securities    (24,304 )  (14,088 )
   Acquisitions of businesses, net of cash acquired    (14,574 )  (6,480 )
   Other    1,183    1,533  


Net cash used in investing activities    (63,791 )  (47,905 )
 
Cash flows from financing activities:  
 
   Repayment of long-term debt    (182 )  (1,797 )
   Stock options exercised    1,514    1,406  
   Other    4,216    (1,087 )


Net cash provided by (used in) financing activities    5,548    (1,478 )


Net (decrease) increase in cash and cash equivalents    (5,408 )  22,675  
 
Cash and cash equivalents at beginning of year    87,357    32,239  


Cash and cash equivalents at end of year   $ 81,949   $ 54,914  


See accompanying notes.

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

1.    Basis of Presentation

The consolidated condensed financial statements of Cintas Corporation included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. While we believe that the disclosures are adequately presented, it is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes included in our most recent annual report for the fiscal year ended May 31, 2004. A summary of our significant accounting policies is presented on page 24 of our most recent annual report. There have been no material changes in the accounting policies followed by Cintas during the fiscal year.

Interim results are subject to variations and are not necessarily indicative of the results of operations for a full fiscal year. In the opinion of management, adjustments (which include only normal recurring adjustments) necessary for a fair statement of the results of the interim periods shown, have been made.

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

2.    Earnings per Share

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

August 31,
2004

August 31,
2003

      Numerator:            
    Net income   $ 72,666   $ 63,327  


    Denominator:  
    Denominator for basic earnings per  
       share-weighted average shares    171,449    170,652  


    Effect of dilutive securities-employee  
       stock options    1,211    1,270  


    Denominator for diluted earnings per  
       share-adjusted weighted average shares  
       and assumed conversions    172,660    171,922  


    Basic earnings per share   $ .42   $ .37  


    Diluted earnings per share   $ .42   $ .37  


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

3.    Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill for the quarter ended August 31, 2004, by operating segment, are as follows:

Rentals
Other Services
Total
      Balance as of June 1, 2004     $ 685,261   $ 120,180   $ 805,441  
    Goodwill acquired during the period    3,630    6,343    9,973  
    Foreign currency translation    492    30    522  



    Balance as of August 31, 2004   $ 689,383   $ 126,553   $ 815,936  



Information regarding Cintas’ service contracts and other assets follows:

As of August 31, 2004
Carrying Amount
Accumulated
Amortization

Net
      Service contracts     $ 220,214   $ 78,222   $ 141,992  



    Noncompete and consulting agreements   $ 35,374   $ 20,950   $ 14,424  
    Other    27,190    2,783    24,407  



    Total   $ 62,564   $ 23,733   $ 38,831  





As of May 31, 2004
Carrying Amount
Accumulated
Amortization

Net
      Service contracts     $ 216,997   $ 72,333   $ 144,664  



    Noncompete and consulting agreements   $ 33,720   $ 19,665   $ 14,055  
    Other    29,100    2,516    26,584  



    Total   $ 62,820   $ 22,181   $ 40,639  



Amortization expense was $6,729 and $6,418 for the three months ended August 31, 2004 and 2003, respectively. Estimated amortization expense, excluding any future acquisitions, for each of the next five years is $26,181, $24,372, $22,759, $20,514 and $18,127, respectively.

-7-


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

4.    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. Cintas’ hedging activities are transacted only with highly-rated institutions, reducing the exposure to credit risk in the event of nonperformance.

Cintas uses derivatives for both cash flow hedging and fair value hedging purposes. For derivative instruments that hedge the exposure of variability in short-term interest rates, designated as cash flow hedges, the effective portion of the net gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For the ineffective portion of the hedge, gains or losses are charged to earnings in the current period. For derivative instruments that hedge the exposure to changes in the fair value of certain fixed rate debt, designated as fair value hedges, the effective portion of the net gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate debt attributable to the hedged risk, are recorded in current period earnings.

Cintas uses interest rate swap and lock agreements as hedges against variability in short-term interest rates. These agreements effectively convert a portion of the floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. Cintas uses the Hypothetical Derivative Method for assessing the effectiveness of these swaps. The effectiveness of these swaps is reviewed at least every fiscal quarter. Cintas also uses reverse interest rate swap agreements to convert a portion of fixed rate debt to a floating rate basis, thus hedging for changes in the fair value of the fixed rate debt being hedged. Cintas has determined that the current interest rate swap agreements, designated as fair value hedges, qualify for treatment under the short-cut method of measuring effectiveness. Under the provisions of SFAS 133, these hedges are determined to be perfectly effective and there is no requirement to periodically evaluate effectiveness.

The change in the fair value of the cash flow hedge, pertaining to interest rate swap and lock agreements, during the first quarter of fiscal year 2005 resulted in a credit of $73 to other comprehensive income. The reverse interest rate swap agreements are fair value hedges that convert $225 million of fixed rate debt to a floating rate. These agreements expire in 2007, and allow Cintas to receive an effective interest rate of 5.13% and pay an interest rate based on LIBOR. Because these fair value hedges are 100% effective, the $700 favorable change in the fair value of these hedges were directly offset by an increase in the fair value of the debt.

-8-


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

5.    Stock-Based Compensation

During the third quarter of fiscal 2003, Cintas adopted the disclosure requirements of FASB Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, but will continue to apply Accounting Principles Board Opinion No. 25 as the method used to account for stock-based employee compensation arrangements. The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.

August 31,
2004

August 31,
2003

      Net income, as reported     $ 72,666   $ 63,327  
    Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects
    2,056    1,635  


    Pro forma net income   $ 70,610   $ 61,692  


    Earnings per share:  
       Basic--as reported   $ .42   $ .37  


       Basic--pro forma   $ .41   $ .36  


       Diluted--as reported   $ .42   $ .37  


       Diluted--pro forma   $ .41   $ .36  


6.    Comprehensive Income

Total comprehensive income represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders and, as such, includes net earnings. For Cintas, the only other components of total comprehensive income are the change in cumulative foreign currency translation adjustments and the change in the fair value of forecasted cash flows associated with a derivative accounted for as a cash flow hedge. The components of comprehensive income for the three month periods ended August 31, 2004 and 2003 are as follows:

August 31,
2004

August 31,
2003

      Net income     $ 72,666   $ 63,327  
    Other comprehensive income (loss):  
    Foreign currency translation adjustment    4,090    (1,448 )
    Net unrealized income on cash flow hedges    73    361  


    Comprehensive income   $ 76,829   $ 62,240  


-9-


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

7.    Segment Information

Cintas classifies its businesses into two operating segments: Rentals and Other Services. The Rentals operating segment designs and manufactures corporate identity uniforms which it rents, along with other items, to its customers. The Other Services operating segment involves the design, manufacture and direct sale of uniforms to its customers, as well as the sale of ancillary products and services. These ancillary products and services include restroom supplies, first aid and safety products and services, document management services and cleanroom supplies. All of these services are provided throughout the United States and Canada to businesses of all types — from small service and manufacturing companies to major corporations that employ thousands of people.

The $4,343 write-off of the loan receivable in the first quarter of fiscal 2004 has been included in the Corporate segment.

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

Rentals
Other Services
Corporate
Total
As of and for the three months ended                      
   August 31, 2004  
Revenue   $ 581,659   $ 164,297   $--  $ 745,956  




Income before income taxes   $ 106,957   $ 13,072   $ (4,711) $ 115,318  




Total assets   $ 2,207,850   $ 375,187   $ 263,977  $ 2,847,014  




As of and for the three months ended  
   August 31, 2003  
Revenue   $ 538,404   $ 139,252   $--  $ 677,656  




Income before income taxes   $ 98,865   $ 12,453   $(10,810) $ 100,508  




Total assets   $ 2,228,934   $ 274,907   $92,285  $ 2,596,126  




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

8.    Supplemental Guarantor Information

Effective June 1, 2000, Cintas reorganized its legal structure and created Cintas Corporation No. 2 (Corp. 2) as its indirectly, wholly-owned principal operating subsidiary. Cintas and its wholly-owned, direct and indirect domestic subsidiaries, other than Corp. 2, unconditionally guaranteed, jointly and severally, debt of Corp. 2.

On May 13, 2002, Cintas completed the acquisition of Omni Services, Inc. (Omni) for $656,071. The purchase price for Omni was funded with $450,000 in long-term notes, $100,000 of borrowings under a commercial paper program and $106,071 in cash. The $450,000 in long-term notes consists of $225,000 with five-year maturities at an interest rate of 5.125% and $225,000 with ten-year maturities at an interest rate of 6%. An additional working capital payment of $3,055 was made during the second quarter of fiscal 2003, bringing the total purchase price to $659,126. Corp. 2 was the issuer of the $450,000 long-term notes, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and the subsidiary guarantors.

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

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

-11-


CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED AUGUST 31, 2004

Cintas
Corporation

Corp. 2
Subsidiary
Guarantors

Non-Guarantors
Eliminations
Cintas
Corporation
Consolidated

Revenue:                            
   Rentals   $ --   $ 432,791   $ 117,959   $ 30,980   $ (71 ) $ 581,659  
   Other services    --    177,673    78,324    7,272    (98,972 )  164,297  
   Equity in net income of affiliates    72,666    --    --    --    (72,666 )  --  






     72,666    610,464    196,283    38,252    (171,709 )  745,956  
Costs and expenses (income):  
   Cost of rentals    --    263,439    70,852    17,993    (34,530 )  317,754  
   Cost of other services    --    136,561    38,343    4,371    (69,911 )  109,364  
   Selling and administrative expenses    --    185,687    (3,987 )  8,172    8,937    198,809  
   Interest income    --    (939 )  (3 )  (180 )  --    (1,122 )
   Interest expense    --    5,691    (799 )  941    --    5,833  






     --    590,439    104,406    31,297    (95,504 )  630,638  






Income before income taxes    72,666    20,025    91,877    6,955    (76,205 )  115,318  
Income taxes    --    5,613    35,010    2,029    --    42,652  






Net income   $ 72,666   $ 14,412   $ 56,867   $ 4,926   $ (76,205 ) $ 72,666  






-12-


CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED AUGUST 31, 2003

Cintas
Corporation

Corp. 2
Subsidiary
Guarantors

Non-Guarantors
Eliminations
Cintas
Corporation
Consolidated

Revenue:                            
   Rentals   $ --   $ 402,396   $ 109,016   $ 27,045   $ (53 ) $ 538,404  
   Other services    --    255,927    54,186    7,687    (178,548 )  139,252  
   Equity in net income of affiliates    63,327    --    --    --    (63,327 )  --  






     63,327    658,323    163,202    34,732    (241,928 )  677,656  
Costs and expenses (income):  
   Cost of rentals    --    257,593    61,848    16,706    (38,002 )  298,145  
   Cost of other services    --    189,234    39,350    4,803    (141,324 )  92,063  
   Selling and administrative expenses    --    176,727    (8,711 )  8,145    (31 )  176,130  
   Interest income    --    (342 )  (21 )  (50 )  --    (413 )
   Interest expense    --    6,806    (945 )  1,019    --    6,880  
   Write-off of loan receivable    --    --    4,343    --    --    4,343  






     --    630,018    95,864    30,623    (179,357 )  577,148  






Income before income taxes    63,327    28,305    67,338    4,109    (62,571 )  100,508  
Income taxes    --    5,386    29,838    1,957    --    37,181  






Net income   $ 63,327   $ 22,919   $ 37,500   $ 2,152   $ (62,571 ) $ 63,327  






-13-


CONDENSED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 31, 2004

Cintas
Corporation

Corp. 2
Subsidiary
Guarantors

Non-Guarantors
Eliminations
Cintas
Corporation
Consolidated

Assets                            
Current assets:  
   Cash and cash equivalents   $ --   $ 47,286   $ 7,685   $ 26,978   $ --   $ 81,949  
   Marketable securities    --    161,012    --    21,016    --    182,028  
   Accounts receivable, net    --    212,030    81,682    9,038    (11,473 )  291,277  
   Inventories, net    --    175,158    20,298    7,699    (15,916 )  187,239  
   Uniforms and other rental items in service    --    244,532    72,375    15,686    (27,676 )  304,917  
   Prepaid expenses    --    10,179    729    1,133    --    12,041  






Total current assets    --    850,197    182,769    81,550    (55,065 )  1,059,451  
 
Property and equipment, at cost, net    --    600,765    149,410    40,629    --    790,804  
Goodwill    --    128,278    673,668    13,990    --    815,936  
Service contracts, net    --    103,218    30,291    8,483    --    141,992  
Other assets, net    1,494,102    28,356    764,828    150,137    (2,398,592 )  38,831  






    $ 1,494,102   $ 1,710,814   $ 1,800,966   $ 294,789   $ (2,453,657 ) $ 2,847,014  






Liabilities and Shareholders' Equity  
Current liabilities:  
   Accounts payable   $ (465,247 ) $ 171,693   $ 294,697   $ 16,170   $ 38,013   $ 55,326  
   Accrued compensation and related liabilities    --    22,325    6,955    1,252    --    30,532  
   Accrued liabilities    --    174,740    (100,936 )  4,271    (45 )  78,030  
   Current income taxes    --    (28,432 )  67,622    1,048    (29 )  40,209  
   Deferred income taxes    --    --    63,515    1,880    --    65,395  
   Long-term debt due within one year    --    9,640    615    376    (159 )  10,472  






Total current liabilities    (465,247 )  349,966    332,468    24,997    37,780    279,964  
 
Long-term debt due after one year    --    482,909    (52,076 )  75,310    (31,877 )  474,266  
Deferred income taxes    --    10,222    110,890    5,307    --    126,419  
Total shareholders' equity    1,959,349    867,717    1,409,684    189,175    (2,459,560 )  1,966,365  






    $ 1,494,102   $ 1,710,814   $ 1,800,966   $ 294,789   $ (2,453,657 ) $ 2,847,014  






-14-


CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 31, 2004

Cintas
Corporation

Corp. 2
Subsidiary
Guarantors

Non-Guarantors
Eliminations
Cintas
Corporation
Consolidated

Assets                            
Current assets:  
   Cash and cash equivalents   $ --   $ 56,455   $ 8,057   $ 22,845   $ --   $ 87,357  
   Marketable securities    --    150,652    --    16,312    --    166,964  
   Accounts receivable, net    --    210,026    79,425    8,703    (12,562 )  285,592  
   Inventories, net    --    169,532    20,249    6,575    (10,771 )  185,585  
   Uniforms and other rental items in service    --    243,887    70,741    16,003    (29,281 )  301,350  
   Prepaid expenses    --    6,006    1,011    378    --    7,395  






Total current assets    --    836,558    179,483    70,816    (52,614 )  1,034,243  
 
Property and equipment, at cost, net    --    596,037    149,461    39,812    --    785,310  
Goodwill    --    124,845    667,128    13,468    --    805,441  
Service contracts, net    --    106,348    29,653    8,663    --    144,664  
Other assets, net    1,419,869    29,861    769,746    141,897    (2,320,734 )  40,639  






    $ 1,419,869   $ 1,693,649   $ 1,795,471   $ 274,656   $ (2,373,348 ) $ 2,810,297  






Liabilities and Shareholders' Equity  
Current liabilities:  
   Accounts payable   $ (465,247 ) $ 168,429   $ 298,501   $ 13,755   $ 38,013   $ 53,451  
   Accrued compensation and related liabilities    --    23,863    6,307    1,634    --    31,804  
   Accrued liabilities    --    179,525    (36,472 )  4,148    (975 )  146,226  
   Current income taxes    --    (33,638 )  69,796    511    (29 )  36,640  
   Deferred income taxes    --    601    44,630    1,811    --    47,042  
   Long-term debt due within one year    --    9,655    655    372    (159 )  10,523  






Total current liabilities    (465,247 )  348,435    383,417    22,231    36,850    325,686  
 
Long-term debt due after one year    --    482,360    (49,928 )  72,529    (31,276 )  473,685  
Deferred income taxes    --    9,621    108,143    5,193    --    122,957  
Total shareholders' equity    1,885,116    853,233    1,353,839    174,703    (2,378,922 )  1,887,969  






    $ 1,419,869   $ 1,693,649   $ 1,795,471   $ 274,656   $ (2,373,348 ) $ 2,810,297  






-15-


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 2004

Cintas
Corporation

Corp. 2
Subsidiary
Guarantors

Non-
Guarantors

Eliminations
Cintas
Corporation
Consolidated

Cash flows from operating activities:                            
    Net income   $ 72,666   $ 14,412   $ 56,867   $ 4,926   $ (76,205 ) $ 72,666  
    Adjustments to reconcile net income to net  
       cash provided by (used in) operating activities:  
         Depreciation    --    18,838    9,426    1,435    --    29,699  
         Amortization of deferred charges    --    4,439    1,738    552    --    6,729  
         Deferred income taxes    --    --    21,632    183    --    21,815  
         Changes in current assets and liabilities,  
           net of acquisitions of businesses:  
              Accounts receivable    --    (1,896 )  (1,456 )  (335 )  (1,089 )  (4,776 )
              Inventories    --    (5,626 )  57    (1,124 )  5,145    (1,548 )
              Uniforms and other rental items in service    --    (645 )  (1,634 )  317    (1,605 )  (3,567 )
              Prepaid expenses    --    (4,173 )  (7 )  (755 )  --    (4,935 )
              Accounts payable    --    3,264    (3,804 )  2,415    --    1,875  
              Accrued compensation and related liabilities    --    (1,538 )  648    (382 )  --    (1,272 )
              Accrued liabilities    --    (3,276 )  (65,197 )  123    930    (67,420 )
              Income taxes payable    --    5,206    (2,174 )  537    --    3,569  






Net cash provided by (used in) operating activities    72,666    29,005    16,096    7,892    (72,824 )  52,835  
 
Cash flows from investing activities:  
    Capital expenditures    --    (23,547 )  (9,539 )  (2,250 )  --    (35,336 )
    Proceeds from sale or redemption of marketable securities    --    9,240    --    --    --    9,240  
    Purchase of marketable securities    --    (19,600 )  --    (4,704 )  --    (24,304 )
    Acquisitions of businesses, net of cash acquired    --    (4,509 )  (10,065 )  --    --    (14,574 )
    Other    (74,233 )  348    5,323    (3,680 )  73,425    1,183  






Net cash (used in) provided by investing activities    (74,233 )  (38,068 )  (14,281 )  (10,634 )  73,425    (63,791 )
 
Cash flows from financing activities:  
   Repayment of long-term debt    --    (179 )  (2,187 )  2,785    (601 )  (182 )
   Stock options exercised    1,514    --    --    --    --    1,514  
   Other    53    73    --    4,090    --    4,216  






Net cash provided by (used in) financing activities    1,567    (106 )  (2,187 )  6,875    (601 )  5,548  






Net (decrease) increase in cash and cash equivalents    --    (9,169 )  (372 )  4,133    --    (5,408 )
Cash and cash equivalents at beginning of period    --    56,455    8,057    22,845    --    87,357  






Cash and cash equivalents at end of period   $ --   $ 47,286   $ 7,685   $ 26,978   $ --   $ 81,949  






-16-


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 2003

Cintas
Corporation

Corp. 2
Subsidiary
Guarantors

Non-
Guarantors

Eliminations
Cintas
Corporation
Consolidated

Cash flows from operating activities:                            
    Net income   $ 63,327   $ 22,919   $ 37,500   $ 2,152   $ (62,571 ) $ 63,327  
    Adjustments to reconcile net income to net  
       cash provided by (used in) operating activities:  
         Depreciation    --    18,666    9,008    1,343    --    29,017  
         Amortization of deferred charges    --    2,374    3,500    544    --    6,418  
         Deferred income taxes    --    --    15,846    (253 )  --    15,593  
         Changes in current assets and liabilities,  
           net of acquisitions of businesses:  
              Accounts receivable    --    3,751    4,842    555    (2,304 )  6,844  
              Inventories    --    6,840    (440 )  (114 )  (2,231 )  4,055  
              Uniforms and other rental items in service    --    2,768    855    897    1,475    5,995  
              Prepaid expenses    --    (1,481 )  (130 )  459    --    (1,152 )
              Accounts payable    --    6,024    (13,369 )  2,270    --    (5,075 )
              Accrued compensation and related liabilities    --    (3,411 )  (86 )  (304 )  --    (3,801 )
              Accrued liabilities    --    (4,667 )  (59,775 )  (556 )  947    (64,051 )
              Income taxes payable    --    4,531    9,718    639    --    14,888  






Net cash provided by (used in) operating activities    63,327    58,314    7,469    7,632    (64,684 )  72,058  
 
Cash flows from investing activities:  
    Capital expenditures    --    (21,538 )  (9,299 )  (170 )  --    (31,007 )
    Proceeds from sale or redemption of marketable securities    --    2,137    --    --    --    2,137  
    Purchase of marketable securities    --    (11,922 )  --    (2,166 )  --    (14,088 )
    Acquisitions of businesses, net of cash acquired    --    --    (6,480 )  --    --    (6,480 )
    Other    (64,733 )  (6,143 )  8,057    1,269    63,083    1,533  






Net cash (used in) provided by investing activities    (64,733 )  (37,466 )  (7,722 )  (1,067 )  63,083    (47,905 )
 
Cash flows from financing activities:  
   Repayment of long-term debt    --    (1,833 )  502    (915 )  449    (1,797 )
   Stock options exercised    1,406    --    --    --    --    1,406  
   Other    --    361    --    (1,448 )  --    (1,087 )






Net cash provided by (used in) financing activities    1,406    (1,472 )  502    (2,363 )  449    (1,478 )






Net increase (decrease) in cash and cash equivalents    --    19,376    249    4,202    (1,152 )  22,675  
Cash and cash equivalents at beginning of period    --    16,592    5,166    9,329    1,152    32,239  






Cash and cash equivalents at end of period   $ --   $ 35,968   $ 5,415   $ 13,531   $ --   $ 54,914  






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CINTAS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Revenue, Expenses and Income

Revenue Comparison

Total revenue increased 10% for the three months ended August 31, 2004, over the same period in fiscal 2004. After a few years of operating in a difficult economic environment, we have begun to experience some improved economic activity with our customers. Our organic growth rate has now strengthened each of the last four fiscal quarters.

Rentals operating segment revenues consist predominantly of revenues derived from the rental of corporate identity uniforms, mats, shop towels and other items. Net Rentals revenue increased 8% for the three months ended August 31, 2004, over the same period in the prior fiscal year. Rentals operating segment internal growth for the first quarter of fiscal 2005, when adjusted for the additional workday for the three months ended August 31, 2004, was 6% as compared to the three months ended August 31, 2003. This increase is primarily due to the sale of new rental programs to new customers as well as the continued penetration of ancillary products into our existing customer base. Rentals revenue growth was negatively impacted by lost business.

Other Services operating segment revenues are derived from the design, manufacture and direct sale of uniforms to our customers, as well as ancillary services including restroom and cleanroom supplies, first aid and safety products and services and document management services. Other Services Revenue increased 18% for the three months ended August 31, 2004, over the same period in the prior year. This increase was due to a combination of acquisitions of first aid and safety service and document management businesses as well as increased sales of first aid and safety products and services to new customers. Increased product penetration into our first aid and safety customer base also contributed to this increase. Other Services operating segment internal growth for the first quarter of fiscal 2005, when adjusted for the additional workday for the three months ended August 31, 2004, was 5% as compared to the three months ended August 31, 2003.

Expense Comparison

Cost of rentals consists primarily of production expenses, delivery expenses and amortization of in service uniforms and other rental items. Cost of rentals increased 7% for the three months ended August 31, 2004, as compared to the three months ended August 31, 2003, as a result of increased Rentals revenues and increased energy and labor-related costs.

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses. Cost of other services increased 19% for the three months ended August 31, 2004, as compared to the three months ended August 31, 2003. Product sales mix also contributed slightly to this increase.

Selling and administrative expenses increased 13% for the three months ended August 31, 2004, as compared to the three months ended August 31, 2003. Selling and administrative expenses increased mainly due to increased revenues, sales force additions and marketing and sales promotions. Costs of providing medical benefits to our employees also increased, accounting for a portion of the rise in administrative expenses.

We anticipate a continued rise in energy and labor-related costs.

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Net interest expense (interest expense less interest income) was $5 million for the three months ended August 31, 2004, compared to $6 million for the same period in the prior fiscal year. This decrease was primarily a result of lower outstanding debt levels as compared to the prior year.

Cintas’ effective tax rate was 37.0% for both the three months ended August 31, 2004 and August 31, 2003.

Included in net income for the first quarter of fiscal 2004 was a pre-tax charge of $4.3 million from a write-off of a receivable from a garment manufacturer. Based on concerns on the supplier’s viability to remain as a going concern, the receivable was completely written off.

Income Comparison

Net income increased 15% for the three months ended August 31, 2004, over the same period in fiscal 2004, primarily due to increased efficiencies from revenue growth and cost containment initiatives. Diluted earnings per share increased 14% for the three months ended August 31, 2004, over the same period in the prior fiscal year.

Financial Condition

At August 31, 2004, there was $264 million in cash, cash equivalents and marketable securities, an increase of $10 million from May 31, 2004, primarily due to additional cash generation from increased revenues. Capital expenditures were $35 million for the quarter ended August 31, 2004, and we expect capital expenditures for the year to be between $140 and $160 million. Cash, cash equivalents and marketable securities will be used to finance future growth, capital expenditures, repayment of debt and dividends. Cintas also has additional borrowing capacity for use in future acquisitions. We believe that our current cash position, funds generated from operations and the strength of our banking relationships are sufficient to meet our anticipated operational and capital requirements.

Net property and equipment increased by $5 million from May 31, 2004 to August 31, 2004 due to continued investment in rental facilities and equipment. At the end of the first quarter of fiscal 2005, Cintas had four uniform rental facilities in various stages of construction.

Following is information regarding Cintas’ long-term contractual obligations and other commitments outstanding as of August 31, 2004:

(In thousands)
Payments Due by Period
Long-term contractual obligations
Total
One year or
less

Two to three
years

Four to five
years

After five
years

Long-term debt (1)     $ 481,373   $ 9,929   $ 239,781   $ 3,251   $ 228,412  
Capital lease obligations (2)    3,365    543    1,180    1,038    604  
Operating leases (3)    54,847    15,252    21,327    11,873    6,395  
Unconditional purchase obligations    --    --    --    --    --  
 
Total contractual cash obligations   $ 539,585   $ 25,724   $ 262,288   $ 16,162   $ 235,411  
 
(1) Long-term debt primarily consists of commercial paper and $450,000 in long-term notes.
(2) Capital lease obligations are classified as long-term debt on the balance sheet.
(3) Operating leases consist primarily of building leases and synthetic leases on the two corporate jets.

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(In thousands)
Amount of Commitment Expiration Per Period
Other commercial commitments
Total
One year or
less

Two to three
years

Four to
five years

After five
years

Lines of credit (1)     $ 300,000   $ --   $ --   $ 300,000   $ --  
Standby letters of credit (2)    61,471    61,471    --    --    --  
Guarantees    --    --    --    --    --  
Standby repurchase obligations    --    --    --    --    --  
Other commercial commitments    --    --    --    --    --  
 
Total commercial commitments   $ 361,471   $ 61,471   $--   $ 300,000   $--  
 
(1) Back-up facility for the commercial paper program.
(2) Support certain outstanding debt and self-insured workers’ compensation and general liability insurance programs.

Litigation and Other Contingencies

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

Cintas is a defendant in a purported class action lawsuit, Paul Veliz, et al., v. Cintas Corporation, filed on March 19, 2003, in the United States District Court, Northern District of California, Oakland Division, alleging that Cintas violated certain federal and state wage and hour laws applicable to its service sales representatives, whom Cintas considers exempt employees, and asserting additional related ERISA claims. The plaintiffs are seeking unspecified monetary damages, injunctive relief, or both. Cintas denies these claims and is defending the plaintiffs’ allegations. The court ordered arbitration for all potential plaintiffs except for those that fall into one of four narrowly defined exceptions. As a result, Cintas believes that a majority of the potential plaintiffs will be required to arbitrate their claims. No determination has been made by the court or an arbitrator regarding class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. If a court or arbitrator certifies a class in this action and there is an adverse verdict on the merits, or in the event of a negotiated settlement of the action, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable at this time.

Cintas is also a defendant in a purported class action lawsuit, Robert Ramirez, et al., v. Cintas Corporation, filed on January 20, 2004, and pending in the United States District Court, Northern District of California, San Francisco Division. The case was brought on behalf of all past and present female, African-American and Hispanic employees of Cintas and its subsidiaries. The complaint alleges that Cintas has engaged in a pattern and practice of discriminating against women and minorities in recruitment, hiring, promotions, transfers, job assignments and pay. The complaint seeks injunctive relief, compensatory damages, punitive damages and attorney’s fees, among other things. Cintas denies these claims and is defending the plaintiffs’ allegations. No filings or determination has been made as to class certification. There can be no assurance as to whether a class will be certified or, if a class is certified, as to the geographic or other scope of such class. If a court certifies a class in this action and there is an adverse verdict on the merits, or in the event of a negotiated settlement of the action, the resulting liability and/or any increased costs of operations on

-20-


an ongoing basis could be material to Cintas. Any estimated liability relating to this lawsuit is not determinable at this time.

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In our normal operations, Cintas has market risk exposure to interest rates. There has been no significant change in our exposure to these risks, which has been previously disclosed on page 47 of our most recent annual report.

ITEM 4.

CONTROLS AND PROCEDURES.

An evaluation was completed under the supervision and with the participation of Cintas’ management, including Cintas’ President and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, of the effectiveness of the design and operation of Cintas’ disclosure controls and procedures as of August 31, 2004. Based on these evaluations, Cintas’ management, including the President and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, concluded that Cintas’ disclosure controls and procedures were effective as of August 31, 2004. There has been no change to Cintas’ internal control over financial reporting that occurred during the first quarter of fiscal 2005 that has materially affected, or is reasonably likely to materially affect, Cintas’ internal control over financial reporting.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as estimates, anticipates, projects, plans, expects, intends, believes, should and similar expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ from those set forth in this report. Factors that might cause such a difference include the possibility of greater than anticipated operating costs, lower sales volumes, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor, costs and possible effects of union organizing activities, outcome of pending environmental matters, the initiation or outcome of litigation, higher assumed sourcing or distribution costs of products and the reactions of competitors in terms of price and service. Cintas undertakes no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date on which they are made.

-21-


CINTAS CORPORATION

Part II.   Other Information

         Item 6.    Exhibits

  31.1 Certification of Principal Executive Officer required by Rule 13a-14(a)
  31.2 Certification of Principal Financial Officer required by Rule 13a-14(a)
  32.1 Section 1350 Certification of Chief Executive Officer
  32.2 Section 1350 Certification of Chief Financial Officer

Signatures

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Date: October 11, 2004
CINTAS CORPORATION
     (Registrant)


BY: /s/William C. Gale
      —— ———————————————————
      William C. Gale
      Senior Vice President and Chief Financial Officer
      (Chief Accounting Officer)

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