ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS STRATEGY

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 products and services, first aid, safety and fire protection products and services, document management services and cleanroom services.  Our services are designed to enhance our customers’ images and to provide additional safety and protection in the workplace.

Our business strategy is to increase our market share of the uniform rental and sales business in North America through the sale of new uniform programs and to provide our customers with all of the products and services we offer.  We will also continue to identify additional product and service opportunities for our current and future customers.  Our long-term goal is to provide a product or service to every business in North America.

To pursue this strategy, we focus on the development of a highly talented and diverse team of employees (who we call partners) – a team that is properly trained and motivated to service our customers.  We support our partners’ service efforts by providing superior products with distinct competitive advantages, and we embrace technological advances.

Continuous cost containment and product and process innovation are considered hallmarks of our organization.  In order to sustain these efforts, we have implemented a Six Sigma effort within Cintas.  Six Sigma is an analytical process that assists companies in improving quality and customer satisfaction while reducing cycle time and operating costs.  We are pleased with our progress in this endeavor and are optimistic about the improved efficiencies that this process will yield to Cintas.

We continue to leverage our size and core competencies to become a more valued business service provider to our current and future customers.  We will also continue to supplement our internal growth with strategic acquisitions and the cultivation of new businesses.

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

As evidenced above, our revenue growth has been higher in Other Services versus Rentals during fiscal 2005, resulting in a moderate shift in the percentage of revenue between our reporting segments.  This shift was mainly driven by the acquisitions of first aid, safety and fire protection businesses and document management businesses.  Information related to acquisitions is discussed in Note 8 entitled Acquisitions of “Notes to Consolidated Financial Statements.”

FISCAL 2005 COMPARED TO FISCAL 2004

Fiscal 2005 total revenue was $3.1 billion, an increase of 9.0% over fiscal 2004.  Internal growth improved throughout fiscal 2005 and was 6.3% for the year.  As the economy continued to strengthen and employment rates improved, our internal growth rates improved.  Internal growth by quarter is shown in the table below.  Internal growth percentages have been adjusted for the appropriate number of workdays, by quarter and for the year, where applicable.

Historically, increases in our internal growth rate have lagged an economic upturn as customers add individuals to existing rental or sales programs or enter into new rental or sales programs.  Our internal growth continues to be generated mainly through the continued sale of uniform rental programs to new customers and the increased penetration of ancillary products to our existing customer base.  The remaining growth in total revenue was generated predominantly through acquisitions of first aid, safety and fire protection service businesses and document management businesses.  Information related to acquisitions is discussed in Note 8 entitled Acquisitions of “Notes to Consolidated Financial Statements.”

11

Rentals operating segment revenues consist predominantly of revenues derived from the rental and/or sale of corporate identity uniforms, mats, shop towels, restroom supplies and other rental services.  Revenue from the Rentals segment increased 7.4% over fiscal 2004.  Internal revenue growth for the Rentals segment was 6.8% in fiscal 2005 compared to 4.2% in fiscal 2004.  The 0.6% of remaining growth in fiscal 2005 resulted from the acquisition of rental volume.

The increase in Rentals revenue was primarily due to growth in the customer base as well as the continued penetration of ancillary products into our existing customer base.  New business remained healthy as we experienced continued success in selling uniform rental programs to new customers.  We also continued to expand our rental market, with over half of our new business being comprised of customers who were first time users of uniform rental programs.  Rentals revenue growth was partially offset by lost business of approximately 7.0%.

Other Services operating segment revenues are predominantly derived from the design, manufacture and direct sale of uniforms to our customers and the sale of other direct sale products and services.  Other direct sale products and services include cleanroom supplies, first aid, safety and fire protection products and services and document management services.  Other Services revenue increased 14.9% over fiscal 2004, primarily due to acquisitions of first aid, safety and fire protection businesses and document management businesses.

Internal revenue growth in the Other Services segment was 4.4% for the year.  This increase was mainly driven by the growth of the sale of first aid, safety and fire protection products and services and document management services.  Growth in these areas continues to be through an increase in the customer base and through further penetration of additional products and services into our existing customer base.

Cost of rentals increased 6.0% over fiscal 2004.  Cost of rentals consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other rental items.  The cost increase over fiscal 2004 was primarily driven by the growth in Rentals segment revenues.  Rising oil and fuel costs also contributed to this increase.  Various cost containment initiatives implemented throughout the year provided a decrease in cost of rentals as a percent to Rentals revenue from 55.5% in fiscal 2004 to 54.8% in fiscal 2005.

Cost of other services increased 15.2% over fiscal 2004.  Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses.  The increase over fiscal 2004 was due to the growth in Other Services revenue, derived through a combination of internal growth and acquisitions.  Gross margin within this segment generally fluctuates between 30% to 35%, depending on the type of product or service sold.  Products which require additional services generate higher gross margins.  The gross margin for fiscal 2005 is 33.7%, which is in the upper portion of that general range, mainly due to a shift in the product mix.

Selling and administrative expenses increased 11.4% over fiscal 2004.  Selling and administrative expenses increased mainly due to higher selling expenses.  In order to accelerate revenue growth, we have increased our sales force, marketing plans and sales promotions.  These measures combined to increase our selling costs by approximately $36 million over the prior fiscal year.  The cost of providing medical benefits to our employees also increased approximately $15 million.  The costs of providing medical benefits are anticipated to continue to rise.

Net interest expense decreased $5 million from the prior fiscal year.  This decrease was primarily a result of increased interest income due to higher levels of cash and marketable securities throughout the entire year and an increase in the interest rate environment.

Pre-tax income was $477 million, a 10.4% increase over fiscal 2004.  Pre-tax income from the Rentals segment increased 9.2% over the prior year due to higher rental revenue and various cost containment initiatives, which more than offset the increases in selling expenses and medical costs.  Pre-tax income for the Other Services segment decreased 1.4% from the prior year mainly due to increased selling expenses and medical costs.

Cintas’ effective tax rate was 37.0% for both fiscal 2005 and fiscal 2004 (see also Note 7 entitled Income Taxes of “Notes to Consolidated Financial Statements” and the Outlook section below).

Net income for fiscal 2005 of $301 million was a 10.4% increase over fiscal 2004 and diluted earnings per share of $1.74 was a 10.1% increase over fiscal 2004, both of which are consistent with the increases in pre-tax income.  Return on average equity was approximately 15% in both fiscal 2005 and 2004.  Return on average equity is computed as net income divided by the average of shareholders’ equity.

Cash, cash equivalents and marketable securities increased by $55 million in fiscal 2005, or 21.7%, primarily due to increased revenues.  Cash, cash equivalents and marketable securities will be used to finance future acquisitions, capital

12

expenditures, expansion and possible stock repurchases.  Marketable securities consist primarily of municipal bonds and federal government securities.

Accounts receivable increased $41 million due to increased revenues. Accounts receivable also increased due to a loan to an affiliated company.  During the fourth quarter of fiscal 2005, the Board of Directors approved and Cintas provided a $10 million loan to an affiliated company with specific repayment terms over the next three years.  This affiliated company manufactures a significant portion of Cintas’ mats.  A dividend of $5 million was subsequently received by Cintas from this affiliate in the first quarter of fiscal 2006.

Inventories increased $28 million mainly due to increased revenues.  Other contributing factors include the continued increase in international sourcing of product, a current conversion of our comfort pant to a new fabric and style, and additional inventory requirements for our Uniform Book, a large catalog used for the direct sale of uniforms and accessories.

Net property and equipment increased by $32 million due to continued investment in rental facilities and equipment and real estate purchased in conjunction with the acquisitions of first aid, safety and fire protection and document management businesses.  Capital expenditures exceeded depreciation expense by $21 million.   During the year, Cintas completed construction of five new uniform rental facilities and has an additional three uniform rental facilities in various stages of construction to accommodate growth in rental operations.

Total debt decreased $12 million through repayment of certain debt, net of the change in fair market value of the debt (see Note 5 entitled Long-Term Debt of “Notes to Consolidated Financial Statements”).

FISCAL 2004 COMPARED TO FISCAL 2003

Fiscal 2004 total revenue was $2.8 billion, an increase of 4.7% over fiscal 2003.  This growth was achieved despite the difficult economic environment that existed for much of the year.  Internal growth for fiscal 2004, when adjusted for the additional workday in fiscal 2004 as compared to fiscal 2003, was 3.0%.  Weakness in employment numbers through the first half of our fiscal year directly affected our business, mainly through reduced uniform wearers and usage of related products, and caused our internal growth rate to be lower than our stated objective.  As employment numbers strengthened over the second half of the year, our internal growth rates improved.  Internal growth by quarter is shown in the table below.  Internal growth percentages have been adjusted for the appropriate number of workdays, by quarter and for the year, where applicable.

Historically, increases in our internal growth rate have lagged an economic upturn as customers add individuals to existing rental or sales programs or enter into new rental or sales programs.  Our internal growth continues to be generated mainly through the continued sale of uniform rental programs to new customers and the increased penetration of ancillary products to our existing customer base.

The remaining growth in total revenue was generated predominantly through acquisitions of first aid and safety service businesses and document management businesses.  Information related to acquisitions is discussed in Note 8 entitled Acquisitions of “Notes to Consolidated Financial Statements.”

Rentals operating segment revenues consist predominantly of revenues derived from the rental and/or sale of corporate identity uniforms, mats, shop towels, restroom supplies and other rental services.  Revenue from the Rentals segment increased 4.3%, when adjusted for the extra workday that occurred in fiscal 2004 as compared to fiscal 2003.  Internal revenue growth for the Rentals segment was 4.2%, adjusted for the additional workday.  The amount of acquired rental volume was insignificant for the year ending May 31, 2004.

The increase in Rentals revenue was primarily due to growth in the customer base as well as the continued penetration of ancillary products into our existing customer base.  New business remained healthy as we experienced continued

13

success in selling uniform rental programs to new customers.  We continue to expand our rental market, with over half of our new business being comprised of customers who were first time users of uniform rental programs.  Rentals revenue growth was mitigated by lost business and reductions in existing business attributable to the sluggish economy, especially during the first half of the year.

Other Services operating segment revenues are predominantly derived from the design, manufacture and direct sale of uniforms to our customers and the sale of other direct sale products and services.  Other direct sale products and services include cleanroom supplies, first aid and safety products and services and document management services.  Other Services revenue increased 4.4%, when adjusted for the extra workday that occurred in fiscal 2004 as compared to fiscal 2003, primarily due to acquisitions of first aid and safety services and document management businesses.

Internal revenue in the Other Services segment, adjusted for the additional workday in fiscal 2004, decreased by 1.3% for the year.  This decrease was mainly due to the continued difficulty experienced by our uniform direct sale customers in the hospitality and airline industries.  Weakness in the hospitality sector and delayed purchases by large national account customers have continued to impact our direct sales effort.  Partially offsetting this internal revenue decrease in uniform direct sale revenues were increased revenues from the sale of first aid products and services and document management services.

Cost of rentals increased 4.2% over fiscal 2003.  Cost of rentals consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms and other rental items.  The cost increase over fiscal 2003 was primarily driven by the growth in Rentals segment revenues.  An increase in fuel and energy costs and a rise in labor delivery costs also contributed to this increase.  Further assimilation of operations obtained through the Omni acquisition and various cost containment initiatives implemented throughout the year mitigated the increased fuel, energy and delivery costs.

Cost of other services increased 2.8% over fiscal 2003.  Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses.  The increase over fiscal 2003 was due to the growth in Other Services revenue, derived predominantly through acquisitions.  The increased volume afforded additional overhead coverage, thereby providing a decrease in cost of other services as a percent to Other Services revenue from 67.3% in fiscal 2003 to 66.1% in fiscal 2004.  Sourcing and manufacturing efficiencies and other cost containment initiatives, including Six Sigma initiatives, implemented throughout the year supported this reduction in cost of other services as a percent to Other Services revenue.

Selling and administrative expenses increased 4.6% over fiscal 2003, primarily due to increased revenues.  The continued rise in medical costs and increased legal expenses contributed to the increase.

Net interest expense decreased $6 million from the prior year.  This decrease was primarily a result of lower debt outstanding.  Total outstanding debt decreased $79 million from May 31, 2003 to May 31, 2004, as cash from operations was used to reduce debt which had been incurred predominantly during the acquisition of Omni in May 2002 (see the Liquidity and Capital Resources section below and Note 5 entitled Long-Term Debt of “Notes to Consolidated Financial Statements”).

A write-off of a loan receivable from a garment manufacturer is included in net income as a pre-tax charge of $4.3 million.  Due to developments concerning the supplier’s viability to remain as a going concern, the collectibility of the receivable was doubtful.  As such, the receivable was completely written off.

Pre-tax income was $432 million, a 9.2% increase over fiscal 2003.  Pre-tax income from the Rentals segment increased 6.7% over the prior year due to higher rental revenue, increased efficiencies obtained from the assimilation of operations obtained from the Omni acquisition and various cost containment initiatives.  Pre-tax income for the Other Services segment increased 19.6% from the prior year, due to increased sales volume, the continued leveraging of fixed costs and sourcing and cost containment initiatives.

Cintas’ effective tax rate was 37.0% for both fiscal 2004 and fiscal 2003 (see also Note 7 entitled Income Taxes of “Notes to Consolidated Financial Statements”).

Net income for fiscal 2004 of $272 million was a 9.2% increase over fiscal 2003 and diluted earnings per share of $1.58 was a 9.0% increase over fiscal 2003.  Return on average equity was 15.4% in fiscal 2004 and 16.2% in fiscal 2003.  Return on average equity is computed as net income divided by the average of shareholders’ equity.

14

Cash, cash equivalents and marketable securities increased by $197 million in fiscal 2004, or 341.1%, primarily due to increased revenues, a reduction in inventory levels and, to a lesser extent, a reduction in uniform and other rental items in service levels.  Cash, cash equivalents and marketable securities will be used to finance future acquisitions, capital expenditures and expansion.  Marketable securities consist primarily of municipal bonds and federal government securities.

Accounts receivable increased $7 million due to increased revenues.  Aggressive collection efforts provided for a lower sequential increase in accounts receivable as compared to total revenue growth.

Inventories decreased $43 million due to improved processes and management systems, including cycle time reductions and other process improvements initiated primarily through our Six Sigma process.  The completion of the Omni product line consolidation also contributed to this decrease in inventory levels.

Net property and equipment increased by $8 million due to real estate purchased in conjunction with the acquisitions of first aid and safety services and document management businesses.  Depreciation expense exceeded capital expenditures by $4 million as Cintas continued to consolidate operations obtained from the Omni acquisition in May of 2002.  In addition, due to excess plant capacity and a sluggish economy, Cintas slowed the pace of new plant construction.  During the year, Cintas completed construction of four new uniform rental facilities and has an additional eight uniform rental facilities in various stages of construction to accommodate growth in rental operations.

Total debt decreased $79 million through repayment of certain debt related to the purchase of Omni, net of the change in fair market value of the debt (see Note 5 entitled Long-Term Debt of “Notes to Consolidated Financial Statements”).  This significant debt reduction was possible due to strong cash flows being generated by operations.

its annual dividend since going public in 1983.

On May 2, 2005, Cintas announced that the Board of Directors authorized a $500 million stock repurchase program at market prices.  During fiscal 2005, we purchased approximately 1.5 million shares of Cintas stock at an average price of $39.62 per share, for a total purchase price of approximately $58 million.  Due to the stock being purchased late in fiscal 2005, the amount of purchased shares did not change fiscal 2005 earnings per share. Subsequent to May 31, 2005, Cintas purchased approximately 2.4 million additional shares of Cintas stock at an average price of $39.08 per share for a total purchase price of approximately $96 million.  As such, from the inception of the stock repurchase program through July 22, 2005, Cintas has purchased approximately 3.9 million shares of Cintas stock at an average price of $39.27 per share for a total purchase price of approximately $154 million.  The Board did not specify an expiration date for this program.

Following is information regarding Cintas’ long-term contractual obligations and other commitments outstanding as of May 31, 2005:

Cintas also makes payments to defined contribution plans.  The amounts of contributions made to the plans are made at the discretion of Cintas.  Future contributions are expected to increase 15% annually.  Assuming this 15% increase, payments due in one year or less would be $29,397, two to three years would be $72,685 and four to five years would be $96,126.  Payments for years thereafter are expected to continue increasing by 15% each year.

(1)    Long-term debt primarily consists of $450,000 in long-term notes related to the Omni acquisition.  Reference Note 5 entitled Long-Term Debt of “Notes to Consolidated Financial Statements” for a detailed discussion of long-term debt.

(2)    Capital lease obligations are included in long-term debt detailed in Note 5 entitled Long-Term Debt of “Notes to Consolidated Financial Statements.”

(3)    Operating leases consist primarily of building leases and synthetic leases on two corporate jets.

(4)    Interest payments include interest on both fixed and variable rate debt.  Rates have been assumed to increase 100 basis points for fiscal 2006, an additional 50 basis points in fiscal 2007 and then remain constant in future years.

(5)    Reference Note 5 entitled Long-Term Debt of “Notes to Consolidated Financial Statements” for a detailed discussion of interest swap agreements.

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

16

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

Cintas has no off-balance sheet arrangements other than the synthetic leases on two corporate jets.  The synthetic leases on the aircraft do not currently have, and are not reasonably likely to have, a current or future material effect on Cintas’ financial condition, changes in Cintas’ financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

INFLATION AND CHANGING PRICES

Changes in wages, benefits and oil and fuel costs have the potential to materially impact Cintas’ financial results.  Medical benefits and oil and fuel costs, in particular, continue to rise.  Medical benefit costs have increased due to a combination of rising healthcare costs and an increase in the number of covered participants.  Medical benefits were 3.1% of total revenues in fiscal 2005 and 2.9% of total revenues in fiscal 2004.  Oil and fuel costs were 2.8% of total revenues in fiscal 2005 and 2.5% of total revenues in fiscal 2004.

Management believes inflation has not had a material impact on Cintas’ financial condition or a negative impact on 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 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.  The court ordered arbitration as to three of the ten named plaintiffs.  On April 27, 2005, the United States Equal Employment Opportunity Commission (EEOC) filed a motion to intervene in order to participate in this lawsuit.  No filings or determination has been made in regard to the lawsuit 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.  Several related proceedings with similar allegations and seeking similar relief damages and fees are pending, including an EEOC charge filed on April 17, 2000, by Mirna Serrano with the EEOC Detroit District office on behalf of female service sales representative job applicants at all Cintas locations in Michigan, a class action lawsuit, Mirna E. Serrano, et al., v. Cintas Corporation , filed on May 10, 2004, in the United States District Court for the Eastern District of Michigan, Southern Division on behalf of the same female service sales representative job applicants in the EEOC charge, and an administrative action filed on December 15, 2004, by James Morgan with the EEOC Washington, D.C. office and the California Department of Fair Employment and Housing alleging racial discrimination in compensation and training opportunities.  In addition, a class action lawsuit, Larry Houston, et al., v. Cintas Corporation , was filed on August 3, 2005, in the United States District Court for the Northern District of California on behalf of African-American managers alleging racial discrimination. If there is an adverse verdict or a negotiated settlement of these actions, the resulting liability and/or any increased costs of operations on an ongoing basis could be material to Cintas.  Any estimated liability relating to these proceedings is not determinable at this time.

17

Several other similar administrative proceedings are pending including: (i) two charges filed on November 30, 2004, by an EEOC Commissioner with the EEOC Systemic Litigation Unit alleging failure to hire and assign females to production job positions, and, failing to hire females, African-Americans and Hispanics into the Management Trainee program, (ii) a charge filed on January 24, 2005, by Jennifer Fargo on behalf of herself and a similarly situated class with the Augusta Human Relations Commission and the EEOC Detroit District office alleging gender and equal pay discrimination against female sales representatives and sales associates, (iii) a charge filed on March 23, 2005, by Clifton Cooper on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race, (iv) a charge filed on March 28, 2005, by Lorelei Reynolds on behalf of herself and a similarly situated class with the EEOC Birmingham District alleging discriminatory pay and treatment due to race and gender, (v) a charge filed on April 25, 2005, by Melissa Schulz on behalf of herself and a similarly situated class with the EEOC Systemic Litigation Unit and the Oregon Bureau of Labor and Industries, Civil Rights Division alleging discriminatory pay and treatment due to race and gender, (vi) a charge filed on May 6, 2005, by Anthony Jones on behalf of himself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race and (vii) a charge filed on June 10, 2005, by Mattie Cooper on behalf of herself and a similarly situated class with the EEOC Systemic Litigation Unit alleging discriminatory pay and treatment due to race and gender.  The investigations of these allegations are pending and no determinations have been made.

Cintas is also a defendant in a lawsuit, J. Lester Alexander, III vs. Cintas Corp., et al ., which was originally filed on October 25, 2004, and is currently pending in the United States Bankruptcy Court for the Middle District of Alabama, Eastern Division.  The case was brought by J. Lester Alexander, III, the Chapter 7 Trustee (the “Trustee”) of Terry Manufacturing Company, Inc. (“TMC”) and Terry Uniform Company, LLC (“TUC”), against Cintas in Randolph County, Alabama.  The Trustee seeks damages against Cintas for allegedly breaching fiduciary duties to TMC and TUC and for allegedly aiding and abetting breaches of fiduciary duties by others to those entities.  The complaint also includes allegations that Cintas breached certain limited liability company agreements, or alternatively, misrepresented their intention to perform their obligations in those agreements and acted as alter egos of the bankrupt TMC and are therefore liable for all of TMC’s debts.  The Trustee is seeking $50 million in compensatory damages and $100 million in punitive damages.  Cintas denies these claims and is vigorously defending itself against all claims in the complaint.   If there is an adverse verdict on the merits or in the event of a negotiated settlement of this lawsuit, the resulting liability could be material to Cintas.  Any estimated liability relating to this lawsuit is not determinable at this time.

During fiscal 2001, the State of Connecticut filed suit against Cintas in the Superior Court District of Hartford alleging various violations of state environmental laws and alleging that Cintas violated certain wastewater discharge and hazardous waste violations.  While this proceeding is not considered material to the business or financial condition of the registrant, management reasonably believes that the proceedings will result in monetary sanctions in excess of $100 thousand.  A reserve has been established for the estimated liability related to these allegations.

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.

Cintas is subject to various environmental laws and regulations, as are other companies in the industry.  While environmental compliance is not a material component of our costs, Cintas must incur capital expenditures and associated operating costs, primarily for water treatment and waste removal, on a regular basis.  Environmental spending related to water treatment and waste removal was approximately $14 million in fiscal 2005 and approximately $12 million in fiscal 2004.  Capital expenditures to limit or monitor hazardous substances were $4 million in fiscal 2005 and $3 million in fiscal 2004.  These expenditures were primarily related to the purchase of water treatment systems, which are depreciated over a useful life of ten years.  Cintas does not expect a material change in the cost of environmental compliance on a percent to sale basis and is not aware of any material non-compliance with environmental laws.

NEW ACCOUNTING STANDARDS

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (revised 2004), Share-Based Payment , (Statement 123R) which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation .   Generally, the approach in Statement 123R is similar to the approach described in Statement 123.  However, Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer an alternative.  The new standard will be effective for public entities (excluding small business issuers) no later than the beginning of the first fiscal year beginning after June 15, 2005.  Cintas will adopt this Statement no later than the first quarter of fiscal 2007. Cintas is in the process of determining the impact that the adoption of this Statement will have on its financial position and results of operations.

18

CRITICAL ACCOUNTING POLICIES

The preparation of Cintas’ consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and judgments that have a significant effect on the amounts reported in the 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 financial statements.

Revenue recognition

Rental revenue is recognized when services are performed and other services revenue is recognized either when services are performed or when products are shipped and the title and risks of ownership pass to the customer.  Cintas establishes an allowance for uncollectible accounts.  This allowance is an estimate based on historical rates of collectibility.  An uncollectible accounts provision 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 Rentals and Other Services segments, because of differences in customers served and the nature of each business segment.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market.  Substantially all inventories represent finished goods.  Cintas applies a commonly accepted practice of using inventory turns to apply variances between actual to standard costs to the inventory balances.  The judgments and estimates used to calculate inventory turns will have an impact on the valuation of inventory at the lower of cost or market.  Inventory obsolescence is determined by specific identification, as well as an estimate based on historical rates of obsolescence.

Uniforms and other rental items in service

Uniform 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 garments) are amortized over their useful life of eighteen months.  Other rental items including shop towels, mats, cleanroom garments, flame resistant garments, linens and restroom dispensers are amortized over their useful lives of eight to forty-eight months.  The amortization rates used are based on industry experience, Cintas’ experience and wear tests performed by Cintas.  These factors are critical to determining the amount of in service inventory that is presented in the financial statements.

Property and equipment

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which is typically thirty to forty years for buildings, five to twenty years for building improvements, three to ten years for equipment and two to five years for leasehold improvements.  When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated future cash flows (undiscounted) are compared to the carrying amount of the assets.  If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss is recorded.  The impairment loss is measured by comparing the fair value of the assets with their carrying amounts.  Fair value is determined by discounted cash flows or appraised values, as appropriate.  Long-lived assets that are held for disposal are reported at the lower of the carrying amount or the fair value, less estimated costs related to disposition.

Goodwill and impairment

Goodwill, primarily obtained through acquisitions of businesses, is valued at cost less any impairment.  Cintas performs annual impairment tests by segment.  These tests include 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.  Based on the results of the impairment tests, Cintas has not recognized an impairment of goodwill for the years ended May 31, 2005, 2004 or 2003.

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 five to ten 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

19

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 through specific identification.  No impairment has been recognized by Cintas for the years ended May 31, 2005, 2004 or 2003.

Environmental matters and related litigation

Cintas is subject to legal proceedings and claims related to environmental matters arising from the ordinary course of business.  U.S. generally accepted accounting principles require 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.  Cintas regularly consults with attorneys to ensure that all of the relevant facts and circumstances are considered before a contingent liability is 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 financial statements.  A detailed discussion of litigation matters is discussed above in the section entitled Litigation and Other Contingencies.

Income taxes

Deferred tax assets and liabilities are determined by the differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  Please reference 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.  As a result of this review, Cintas has not established a valuation allowance against the deferred tax assets.

Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due.  These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.  In evaluating the exposure associated with various filing positions, Cintas records reserves for probable exposures.  Based on Cintas’ evaluation of current tax positions, Cintas believes it has appropriately accrued for probable exposures.

OUTLOOK

As we look forward to fiscal 2006, our outlook remains positive, but guarded.  As the economy has strengthened and employment rates have improved, our internal growth rates have also continued to improve.  Based on our marketing data, we have a relatively low 7% market share of a $42.5 billion estimated potential market.  As such, we see upside potential for all of our business units.  Although difficult to predict, we anticipate continued growth in all of our business units.  Overall performance will be largely driven by external market conditions.

In the marketplace, competition and related pricing pressure will continue; however, we believe cost containment initiatives, technological advances and continued leverage of our infrastructure will soften or offset any impact.

When appropriate opportunities arise, we will supplement our internal growth with strategic acquisitions.

Like most other companies, we experienced, and anticipate continuing to experience, increased costs for wages and benefits, including medical benefits.  Changes in oil and fuel costs and changes in federal and state tax laws also have the potential to impact our results.

Cintas continues to be the target of a corporate unionization campaign by UNITE HERE and the Teamsters unions.  These unions are attempting to pressure Cintas into surrendering our employees’ rights to a government-supervised election and unilaterally accept union representation.  This is unacceptable.  Cintas’ philosophy in regard to unions is straightforward:  We believe that employees have the right to say yes to union representation and the freedom to say no.  This campaign could be materially disruptive to our business and could materially adversely affect results of operations.  We will continue to vigorously oppose this campaign and to defend our employees’ rights.

We believe that the high level of customer service provided by our partners and supported by our infrastructure, quality products, financial resources and corporate culture will provide for continued business success.  However, a number of factors influence future revenue, margins and profit which make forecasting difficult.

20

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE

ABOUT MARKET RISK

Cintas manages interest rate risk by using a combination of variable and fixed rate debt, marketable securities and interest rate swap agreements.  Earnings are affected by changes in short-term interest rates due to the use of variable rate notes and revolving credit facilities amounting to approximately $230 million, with an average interest rate of 4.6%.  This exposure is limited by the purchase of marketable securities and interest rate swap agreements as a hedge against variability in short-term rates.  If short-term rates change by one-half percent (or 50 basis points), Cintas’ income before taxes would change by approximately $1 million.  This estimated exposure considers the mitigating effects of marketable securities and swap agreements on the change in the cost of variable rate debt.  This analysis does not consider the effects of a change in economic activity or a change in Cintas’ capital structure.

Through its foreign operations, Cintas is exposed to foreign currency risk.  Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenue and profit translated into U.S. dollars.  The primary foreign currency to which Cintas is exposed is the Canadian dollar.  Cintas does not currently use forward exchange contracts to limit potential losses in earnings or cash flows from foreign currency exchange rate movements.

21