CTAS Cintas Corporation

Cintas Corporation (Nasdaq:CTAS) today reported its results for the second quarter of its fiscal year 2011. Revenue for the quarter, which ended November 30, 2010, was $936.6 million, representing a 5.9% increase compared to last year’s second quarter. When adjusting for the impact of acquisitions, the organic revenue growth was 4.2%.

Net income and earnings per diluted share for the second quarter were $55.9 million and $0.38, respectively. Last year’s net income and earnings per diluted share were $57.2 million and $0.37, respectively. Last year’s second quarter results included a legal settlement, net of insurance proceeds, which reduced net income and earnings per diluted share by $2.5 million and $0.02, respectively.

Scott D. Farmer, Chief Executive Officer, stated, “I am pleased to report solid results for our second quarter. Revenue in all four of our business segments grew over last year, and our organic growth rate improved from 2.8% in our first quarter to 4.2% in our second quarter. Our sales force’s momentum continued to improve both in new business efforts and existing customer penetration. In addition, our customer retention improved during the quarter.”

Mr. Farmer added, “Net income and earnings per diluted share were in line with our internal expectations. We are pleased that our selling and administrative expenses as a percentage of revenue decreased sequentially despite one less workday from 31.8% in our first quarter to 30.8% in our second quarter.”

The Company’s balance sheet continues to be very strong. Despite using $202 million of cash this fiscal year on our share buyback program, our cash and marketable securities were $285 million at November 30, 2010. Our total debt remained at $787 million and our total debt to total capitalization was 25%.

Mr. Farmer concluded, “Based on our second quarter results and our current outlook for the remainder of the year, we reiterate our fiscal 2011 revenue expectations to be in the range of $3.55 billion to $3.75 billion. We also continue to expect our fiscal 2011 earnings per diluted share to be in the range of $1.55 to $1.63.”

About Cintas

Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types primarily throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid, safety, fire protection products and services and document management services for approximately 800,000 businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of the Standard & Poor’s 500 Index.

CAUTION CONCERNING 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,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and 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. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the unavailability of computer systems, the initiation or outcome of litigation, investigations or other proceedings, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic or extraordinary events, changes in federal and state tax and labor laws, the reactions of competitors in terms of price and service and the finalization of our financial statements for the three and six months ended November 30, 2010. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2010 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

                  Cintas Corporation Consolidated Condensed Statements of Income (Unaudited) (In thousands except per share data)     Three Months Ended

November 30,2010

   

November 30,2009

    % Chng.   Revenue: Rental uniforms and ancillary products $ 657,847 $ 643,597 2.2 Other services   278,719         240,912   15.7 Total revenue $ 936,566 $ 884,509 5.9   Costs and expenses: Cost of rental uniforms and ancillary products $ 377,471 $ 363,728 3.8 Cost of other services 168,447 150,934 11.6 Selling and administrative expenses 288,304 259,406 11.1 Legal settlements, net of insurance proceeds   -         4,052   N/A   Operating income $ 102,344 $ 106,389 -3.8   Interest income $ (394 ) $ (314 ) 25.5 Interest expense   12,161         12,579   -3.3   Income before income taxes $ 90,577 $ 94,124 -3.8 Income taxes   34,711         36,948   -6.1 Net income $ 55,866       $ 57,176   -2.3   Per share data: Basic earnings per share $ 0.38       $ 0.37   2.7 Diluted earnings per share $ 0.38       $ 0.37   2.7   Weighted average number of shares outstanding 145,511 152,866 Diluted average number of shares outstanding 145,511 152,866     Six Months Ended

November 30,2010

   

November 30,2009

    % Chng.   Revenue: Rental uniforms and ancillary products $ 1,315,411 $ 1,299,235 1.2 Other services   545,059         476,843   14.3 Total revenue $ 1,860,470 $ 1,776,078 4.8   Costs and expenses: Cost of rental uniforms and ancillary products $ 748,986 $ 726,657 3.1 Cost of other services 327,165 296,779 10.2 Selling and administrative expenses 581,729 523,833 11.1 Legal settlements, net of insurance proceeds   -         23,529   N/A   Operating income $ 202,590 $ 205,280 -1.3   Interest income $ (972 ) $ (673 ) 44.4 Interest expense   24,435         24,617   -0.7   Income before income taxes $ 179,127 $ 181,336 -1.2 Income taxes   61,984         70,176   -11.7 Net income $ 117,143       $ 111,160   5.4   Per share data: Basic earnings per share $ 0.78       $ 0.72   8.3 Diluted earnings per share $ 0.78       $ 0.72   8.3   Weighted average number of shares outstanding 148,856 152,847 Diluted average number of shares outstanding 148,856 152,847       CINTAS CORPORATION SUPPLEMENTAL DATA Three Months Ended

November 30,2010

November 30,2009

Rental uniforms and ancillary products gross margin 42.6 % 43.5 % Other services gross margin 39.6 % 37.3 % Total gross margin 41.7 % 41.8 % Net margin 6.0 % 6.5 % Net margin, excluding charges 6.0 % 6.7 %   Depreciation and amortization $ 47,954 $ 47,562 Capital expenditures $ 39,934 $ 23,273   Debt to total capitalization 24.7 % 24.0 %     Six Months Ended

November 30,2010

November 30,2009

Rental uniforms and ancillary products gross margin 43.1 % 44.1 % Other services gross margin 40.0 % 37.8 % Total gross margin 42.2 % 42.4 % Net margin 6.3 % 6.3 % Net margin, excluding charges 6.3 % 7.1 %   Depreciation and amortization $ 95,745 $ 96,467 Capital expenditures $ 88,134 $ 48,092   Debt to total capitalization 24.7 % 24.0 %    

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional measures of operating results, net earnings, net margin and earnings per share adjusted to exclude certain costs, expenses and gains and losses. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP is shown below.

Management believes earnings per diluted share excluding the legal settlement charges provides investors pertinent information given the one-time nature of these charges.

        Three Months Ended

November 30,2010

   

November 30,2009

    % Chng.         Income before income taxes $ 90,577     $ 94,124 -3.8   Excluding: Legal settlements, net of insurance proceeds $ -     $ 4,052   Income before income taxes, excluding charges $ 90,577 $ 98,176 -7.7 Income taxes, excluding charges   34,711       38,517 Net income, excluding charges $ 55,866     $ 59,659 -6.4   Per share data: Earnings per diluted share, excluding charges $ 0.38     $ 0.39 -2.6     Six Months Ended

November 30,2010

   

November 30,2009

    % Chng.   Income before income taxes $ 179,127     $ 181,336 -1.2   Excluding: Legal settlements, net of insurance proceeds $ -     $ 23,529   Income before income taxes, excluding charges $ 179,127 $ 204,865 -12.6 Income taxes, excluding charges   61,984       79,283 Net income, excluding charges $ 117,143     $ 125,582 -6.7   Per share data: Earnings per diluted share, excluding charges $ 0.78     $ 0.82 -4.9             Computation of Free Cash Flow   Six Months Ended November 30, 2010   2009   Net Cash Provided by Operations $ 109,229 $ 294,175   Capital Expenditures $ (88,134 )   $ (48,092 )   Free Cash Flow $ 21,095 $ 246,083  

Note: Management uses free cash flow to assess the financial performance of the Company. Managementbelieves that free cash flow is useful to investors because it relates the operating cash flow of theCompany to the capital that is spent to continue, improve and grow business operations.

                          SUPPLEMENTAL SEGMENT DATA

RentalUniforms andAncillaryProducts

   

Uniform DirectSales

   

First Aid,Safety andFireProtection

   

DocumentManagement

    Corporate     Total For the three months ended November 30, 2010 Revenue $ 657,847 $ 108,789 $ 93,315 $ 76,615 $ - $ 936,566 Gross margin $ 280,376 $ 32,542 $ 38,337 $ 39,393 $ - $ 390,648 Selling and administrative expenses $ 202,264 $ 19,263 $ 33,230 $ 33,547 $ - $ 288,304 Interest income $ - $ - $ - $ - $ (394 ) $ (394 ) Interest expense $ - $ - $ - $ - $ 12,161 $ 12,161 Income (loss) before income taxes $ 78,112 $ 13,279 $ 5,107 $ 5,846 $ (11,767 ) $ 90,577   For the three months ended November 30, 2009 Revenue $ 643,597 $ 99,434 $ 81,557 $ 59,921 $ - $ 884,509 Gross margin $ 279,869 $ 29,182 $ 30,560 $ 30,236 $ - $ 369,847 Selling and administrative expenses $ 187,988 $ 18,707 $ 27,542 $ 25,169 $ - $ 259,406 Legal settlements, net of insurance proceeds $ - $ - $ - $ - $ 4,052 $ 4,052 Interest income $ - $ - $ - $ - $ (314 ) $ (314 ) Interest expense $ - $ - $ - $ - $ 12,579 $ 12,579 Income (loss) before income taxes $ 91,881 $ 10,475 $ 3,018 $ 5,067 $ (16,317 ) $ 94,124   For the six months ended November 30, 2010 Revenue $ 1,315,411 $ 207,569 $ 186,849 $ 150,641 $ - $ 1,860,470 Gross margin $ 566,425 $ 62,502 $ 76,590 $ 78,802 $ - $ 784,319 Selling and administrative expenses $ 410,095 $ 39,376 $ 67,705 $ 64,553 $ - $ 581,729 Interest income $ - $ - $ - $ - $ (972 ) $ (972 ) Interest expense $ - $ - $ - $ - $ 24,435 $ 24,435 Income (loss) before income taxes $ 156,330 $ 23,126 $ 8,885 $ 14,249 $ (23,463 ) $ 179,127 Assets $ 2,434,313 $ 262,810 $ 360,908 $ 585,687 $ 284,577 $ 3,928,295   For the six months ended November 30, 2009 Revenue $ 1,299,235 $ 188,735 $ 171,558 $ 116,550 $ - $ 1,776,078 Gross margin $ 572,578 $ 56,427 $ 65,822 $ 57,815 $ - $ 752,642 Selling and administrative expenses $ 378,244 $ 37,863 $ 57,017 $ 50,709 $ - $ 523,833 Legal settlements, net of insurance proceeds $ - $ - $ - $ - $ 23,529 $ 23,529 Interest income $ - $ - $ - $ - $ (673 ) $ (673 ) Interest expense $ - $ - $ - $ - $ 24,617 $ 24,617 Income (loss) before income taxes $ 194,334 $ 18,564 $ 8,805 $ 7,106 $ (47,473 ) $ 181,336 Assets $ 2,475,877 $ 141,920 $ 311,870 $ 476,441 $ 480,240 $ 3,886,348                 Cintas Corporation Consolidated Balance Sheets (In thousands except share data)    

ASSETS

November 30,2010

May 31,2010

  Current assets: Cash & cash equivalents $ 260,953 $ 411,281 Marketable securities 23,624 154,806 Accounts receivable, net 402,369 366,301 Inventories, net 208,380 169,484 Uniforms and other rental items in service 364,556 332,106 Income taxes, current 13,765 15,691 Deferred tax asset 53,346 52,415 Prepaid expenses and other   27,853     22,860   Total current assets 1,354,846 1,524,944   Property and equipment, at cost, net 923,535 894,522   Goodwill 1,435,352 1,356,925 Service contracts, net 104,751 103,445 Other assets, net   109,811     89,900     $ 3,928,295   $ 3,969,736    

LIABILITIES AND SHAREHOLDERS' EQUITY

  Current liabilities: Accounts payable $ 92,206 $ 71,747 Accrued compensation and related liabilities 53,563 66,924 Accrued liabilities 321,209 244,402 Long-term debt due within one year   1,817     609   Total current liabilities 468,795 383,682   Long-term liabilities: Long-term debt due after one year 785,222 785,444 Deferred income taxes 145,079 150,560 Accrued liabilities   134,086     116,021   Total long-term liabilities 1,064,387 1,052,025   Shareholders' equity: Preferred stock, no par value: - - 100,000 shares authorized, none outstanding Common stock, no par value: 135,254 132,058 425,000,000 shares authorized FY11: 173,341,299 issued and 145,301,073 outstanding FY10: 173,207,493 issued and 152,869,848 outstanding Paid-in capital 87,219 84,616 Retained earnings 3,125,411 3,080,079 Treasury stock: (1,002,064 ) (798,857 ) FY11: 28,040,226 shares FY10: 20,337,645 shares Other accumulated comprehensive income (loss): Foreign currency translation 56,244 42,870 Unrealized loss on derivatives (7,239 ) (6,997 ) Other   288     260   Total shareholders' equity 2,395,113 2,534,029   $ 3,928,295   $ 3,969,736                   Cintas Corporation Consolidated Condensed Statement of Cash Flows (Unaudited) (In thousands)     Six Months Ended

Cash flows from operating activities:

November 30,2010

November 30,2009

  Net income $ 117,143 $ 111,160   Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 74,563 75,899 Amortization of deferred charges 21,182 20,568 Stock-based compensation 5,799 7,571 Deferred income taxes (6,277 ) 4,777 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net (27,774 ) (12,843 ) Inventories, net (38,838 ) 34,874 Uniforms and other rental items in service (30,639 ) 5,495 Prepaid expenses and other (4,526 ) (568 ) Accounts payable 19,765 6,914 Accrued compensation and related liabilities (13,458 ) (1,646 ) Accrued liabilities (10,066 ) 25,246 Income taxes payable   2,355     16,728     Net cash provided by operating activities 109,229 294,175  

Cash flows from investing activities:

  Capital expenditures (88,134 ) (48,092 ) Proceeds from sale or redemption of marketable securities 135,283 25,852 Purchase of marketable securities and investments (12,472 ) (53,060 ) Acquisitions of businesses, net of cash acquired (88,799 ) (6,601 ) Other   (2,968 )   1,053     Net cash used in investing activities (57,090 ) (80,848 )  

Cash flows from financing activities:

  Proceeds from issuance of debt 1,781 - Repayment of debt (794 ) (321 ) Repurchase of common stock (203,207 ) (959 ) Other   1,699     (717 )   Net cash used in financing activities (200,521 ) (1,997 )   Effect of exchange rate changes on cash and cash equivalents (1,946 ) 939   Net (decrease) increase in cash and cash equivalents (150,328 ) 212,269   Cash and cash equivalents at beginning of period   411,281     129,745     Cash and cash equivalents at end of period $ 260,953   $ 342,014