UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended fiscal year endedMay 31, 20172020
 ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-11399
CINTAS CORPORATIONCommission file number 0-11399
ctas-20200531_g1.jpg
Cintas Corporation
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)
its charter)
WASHINGTONWashington31-1188630
(State or Other Jurisdiction of Incorporation)
(IRS Employer Identification Number)

Incorporation or Organization)
(I.R.S. Employer
Identification No.)
6800 Cintas Boulevard
P.O. Box 625737
Cincinnati,Ohio45262-5737
(Address of Principal Executive Offices)
(513) 459-1200
(Registrant's telephone number, including area code)
Zip Code)
Registrant's Telephone Number, Including Area Code: (513) 459-1200
Securities registered pursuant to Section 12(b) of the Act:
Act
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock,stock, no par valueCTASThe NASDAQ Stock Market LLC
 (NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YESYesü☒NONo ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YESYes☐NONoü☒
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.
YESYesü☒NONo☐
Indicate by a check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
files.
YESYesü☒NONo☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filerü☒Accelerated Filer☐Non-Accelerated Filer☐(Do not check if a smaller reporting company.)
Smaller Reporting Company☐Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.762(b)) by the registered public accounting firm that prepared or issued is audit report.
Yes☒No☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YESYes☐NONoü☒
The aggregate market value of the Registrant's Common Stock held by non-affiliates as of November 30, 2016,29, 2019, was $12,034,116,433$26,657,809,636 based on a closing sale price of $114.60$257.06 per share. As of June 30, 2017, 181,027,8412020, 186,894,602 shares of the Registrant's Common Stock were issued and 105,435,865103,499,012 shares were outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be filed with the Commission for its 20172020 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

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Cintas Corporation
Index to Annual Report on Form 10-K




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Page
Item 1.
Business
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Item 1A.
Risk Factors
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Item 1B.
Unresolved Staff Comments
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Item 2.
Properties
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Item 3.
Legal Proceedings
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Item 4.
Mine Safety Disclosures
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Part II
Item 5.
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1415
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Part I


Item 1.  Business
Cintas Corporation (Cintas, Company, we, us or our), a Washington corporation, helps more than one million businesses of all types and sizes, primarily in North America,the United States (U.S.), as well as Canada, Latin America, Europe and Asia, get Ready™READY™ to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care,mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and safetytraining and compliance training,courses, Cintas helps customers get Ready for the Workday™Workday®.Cintas was founded in 1968 by Richard T. Farmer, currently the Chairman Emeritus of the Board of Directors, when he left his family's industrial laundry business in order to develop uniform programs using an exclusive new fabric. In the early 1970's, Cintas acquired the family industrial laundry business. Over the years, Cintas developed additional products and services that complemented its core uniform business and broadened the scope of products and services available to its customers.
On March 21, 2017, Cintas completed the acquisition of G&K Services, Inc. (G&K) for consideration of approximately $2.1 billion. G&K is now a wholly-owned subsidiary of Cintas that will operate within
Cintas’ reportable operating segments are the Uniform Rental and Facility Services operating segment. To financesegment and the G&K acquisition, Cintas used a combination of new senior notes, a term loan, other borrowings under its existing credit facility and cash on hand. G&K's results of operations are included in Cintas' consolidated financial statements as of and from the date of acquisition.
U.S. Generally Accepted Accounting Principles (U. S. GAAP) requires companies to evaluate their reportable operating segments periodically and when certain events occur. As a result of our evaluation in fiscal 2016, effective June 1, 2015, Cintas realigned its organizational structure and updated its reportable operating segments in light of certain changes in its business including the acquisition of ZEE Medical Inc. (ZEE) in the first quarter of fiscal 2016. Cintas’ updated reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services.Services operating segment. The Uniform Rental and Facility Services reportable operating segment which includes G&K, consists of the rental and servicing of uniforms and other garments, including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies, carpet and tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment which includes ZEE, consists of first aid and safety products and services. The remainder of Cintas’ business, which consists of the Fire Protection Services operating segment and itsthe Uniform Direct Sale business,operating segment, is included in All Other.
At May 31, 2017, Cintas
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and has classifiedsince spread globally. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Through the first three quarters of fiscal 2020, the COVID-19 pandemic did not have a significant impact on our business. However, efforts to contain the spread of COVID-19 intensified during our fiscal 2020 fourth quarter. Most states and municipalities within the U.S. enacted temporary closures of businesses, issued quarantine orders and took other restrictive measures in response to the COVID-19 pandemic. Within the U.S., our business referredhas been designated an essential business, which allows us to as "Discontinued Services", as held for sale.  Priorcontinue to meetingserve customers that remain open.

We have operations throughout the held for sale criteria, Discontinued Services was primarily includedU.S. and participate in All Other. Ina global supply chain. During the fourth quarter of fiscal 2014, Cintas completed its partnership transaction2020, the existence of the COVID-19 pandemic, the fear associated with the shareholdersCOVID-19 pandemic and the reactions of Shred-it International Inc.governments around the world in response to combine Cintas' shredding business (Shredding) with the shreddingCOVID-19 pandemic to regulate the flow of labor and products and impede the business of Shred-it International Inc. (the Shredding Transaction). Pursuantour customers, impacted our ability to conduct normal business operations, which had an adverse effect on our business. If we need to close any of our facilities or a critical number of our employees become too ill to work, our business operations could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to the Shredding Transaction,COVID-19 pandemic, including being required to shut down their operations, demand for our services and products could also be materially adversely affected in a rapid manner. The impact of the newly formed partnership (the Shred-it Partnership) was owned 42% by CintasCOVID-19 pandemic is fluid and 58% bycontinues to evolve, and therefore, we cannot predict the shareholders of Shred-it International Inc. Cintas' investment in the Shred-it Partnership (Shred-it) and theextent to which our business, results of Shredding are classified as discontinued operations, for all periods presented as a resultfinancial condition or liquidity will ultimately be impacted. For more information, see the sections entitled “Management’s Discussion and Analysis of selling the investment during fiscal 2016. During fiscal 2015, Cintas sold the storage business (Storage)Financial Condition and as a result, its operations are also classified as discontinued operations for all periods presented. In accordance with the applicable accounting guidance for the disposalResults of long-lived assetsOperations,” and discontinued operations, the results of Discontinued Services, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented. Please see Note 16 entitled Discontinued Operations of "Notes to Consolidated Financial Statements" for additional information.“Risk Factors” within this Annual Report on Form 10-K.

We provide our products and services to over one million businesses of all types, from small service and manufacturing companies to major corporations that employ thousands of people. This diversity in customer base results in no individual customer accounting for greater than one percent of Cintas' total revenue. As a result, the loss of one account would not have a significant financial impact on Cintas.










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The following table sets forth Cintas' total revenue and the revenue derived from each reportable operating segment and the remaining operating segments included in the All Other:Other category for the fiscal years ended May 31:
(In thousands)202020192018
Uniform Rental and Facility Services$5,643,494  $5,552,430  $5,247,124  
First Aid and Safety Services708,569  619,470  564,706  
All Other733,057  720,403  664,802  
Total Revenue$7,085,120  $6,892,303  $6,476,632  
Fiscal Year Ended May 31, (in thousands)2017 
2016(1)
 
2015(1)
      
Uniform Rental and Facility Services$4,202,490
 $3,759,524
 $3,519,199
First Aid and Safety Services508,233
 461,783
 326,593
All Other612,658
 574,465
 523,885
Total Revenue$5,323,381
 $4,795,772
 $4,369,677

(1)
The figures for fiscal 2016 and 2015 reflect the change in classification of Discontinued Services, Shredding and Storage to discontinued operations within the Consolidated Statements of Income. See Note 16 entitled Discontinued Operations of "Notes to Consolidated Financial Statements."
Additional information regarding each reportable operating segment and All Other is also included in Note 1414 entitled Operating Segment Information of "Notes"Notes to Consolidated Financial Statements."

The primary markets served by all Cintas businesses are local in nature and highly fragmented. Cintas competes with national, regional and local providers, and the level of competition varies at each of Cintas' local operations. Product, design, price, quality, service and convenience to the customer are the competitive elements in each of our businesses.

Within the Uniform Rental and Facility Services reportable operating segment, Cintas provides its products and services to customers via local delivery routes originating from rental processing plants and branches. Within the First Aid and Safety Services reportable operating segment and All Other, Cintas provides its products and services via its distribution network and local delivery routes or local representatives. InAt May 31, 2020, Cintas, in total, Cintas hashad approximately 11,00011,100 local delivery routes, 528472 operational facilities and 1112 distribution centers. At May 31, 2017,centers, and Cintas employed approximately 42,000 employees,40,000 employee-partners, of which approximately 1,7001,200 were represented by labor unions.

Cintas sources finished products from many outside suppliers. In addition, Cintas operates sixfive manufacturing facilities that provide for standard uniform needs. Cintas purchases fabric, used in the manufacturing of its manufacturing process,products, from several suppliers. Cintas is not aware of any circumstances that would hinder its ability to continue obtaining these materials.

Cintas is subject to various environmental laws and regulations, as are other companies in the uniform rental industry. While environmental compliance is not a material component of its 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$20 million in fiscal 2017 and2020, approximately $13$21 million in fiscal 2016.2019 and approximately $20 million in fiscal 2018. Capital expenditures to limit or monitor hazardous substances totaled approximately $3 million in both fiscal 20172020, approximately $10 million in fiscal 2019 and approximately $2 million in fiscal 2016. Cintas does not expect a material change in the cost of environmental compliance and is not aware of any material non-compliance with environmental laws.2018.

Cintas uses its corporate website, www.cintas.com, as a channel for routine distribution of important information, including news releases, analyst presentations and financial information. Cintas files with or furnishes to the SECSecurities and Exchange Commission (SEC) Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, as well as proxy statements and annual reports to shareholders, and, from time to time, other documents. The reports and other documents filed with or furnished to the SEC are available to investors on or through our corporate website free of charge as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. In addition, the public may read and copy any of the materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington D.C. 20549. The public may obtain information on the operation of the facilities by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site located at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, such as Cintas, that file electronically with the SEC. Cintas' SEC filings can be found on the Investors page of its website at www.cintas-corp.com/company/investor_information/highlights.aspxwww.cintas.com/investors/financials.aspx and its Code of Conduct and Business Ethics can be found on the About Us page of its website at www.cintas-corp.com/www.cintas.com/company. These documents are available in print to any shareholder who requests a copy by writing or calling Cintas as set forth on the Investor Information page. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.

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Item 1A.  Risk Factors
The statements in this section describe the most significant risks that could materially and adversely affect our business, consolidated financial condition and consolidated results of operation and the trading price of our debt or equity securities.


In addition, this section sets forth statements which constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995.


This Annual Report on Form 10-K contains 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 Annual Report. Factors that might cause such a difference include, but are not limited to, risks inherent with the G&K transaction in the achievement of cost synergies and the timing thereof, including whether the G&K transaction will be accretive and within the expected timeframe; the possibility of greater than anticipated operating costs including energy and fuel costs; lower sales volumes; loss of customers due to outsourcing trends; the performance and costs of integration of acquisitions, including G&K;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; the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks; 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; coststhe effect of our SAP system implementation;new accounting pronouncements; disruptions caused by the inaccessibility of computer systems data, including cybersecurity risks; 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;events including viral pandemics such as the COVID-19 coronavirus; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; and the reactions of competitors in terms of price and service. 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, except otherwise as required by law. 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.

Negative global economic factors, including the COVID-19 pandemic, may adversely affect our financial performance.
Negative economic conditions, in North America and our other markets, may adversely affect our financial performance. Higher levels of unemployment, inflation, tax rates and other changes in tax laws and other economic factors could adversely affect the demand for Cintas’ products and services. Increases in labor costs, including the cost to provide employee-partner related healthcare benefits, minimum wages, labor shortages or shortages of skilled labor, regulations regarding the classification of employees and/or their eligibility for overtime wages, higher material costs for items such as fabrics and textiles, the inability to obtain insurance coverage at cost-effective rates, higher interest rates, inflation, higher tax rates and other changes in tax laws and other economic factors could increase our costs of rental uniforms and facility services, cost of other services and selling and administrative expenses. As a result, these factors could adversely affect our sales and consolidated results of operations.


The COVID-19 pandemic has created widespread disruption in the global economy and is having an adverse impact on our consolidated results of operations and financial performance, as well as on the results of operations and financial performance of many of the customers and suppliers in industries that we serve and operate. The duration of the pandemic itself and the market and workplace disruptions it has caused, including disruptions imposed by federal, state and local actions, as well as the potential for new government regulations, and the long-term effects on the economy and our customers are uncertain and as yet unknowable. These factors, as they become more certain, could adversely affect our workforce, sales and overall business. Furthermore, the ultimate impact of the COVID-19 pandemic on our consolidated results of operations and financial performance depends on
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many factors that are not within our control, including, but not limited to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic and actions taken in response on global and regional economies; the availability of federal, state or local funding programs; general economic uncertainty in key financial markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, consolidated results of operations, consolidated financial position and the achievement of our strategic objectives.

Increased competition could adversely affect our financial performance.
We operate in highly competitive industries and compete with national, regional and local providers. Product, design, price, quality, service and convenience to the customer are the competitive elements in these industries. If existing or future competitors seek to gain or retain market share by reducing prices, Cintas may be required to lower prices, which would hurt its results of operations. Cintas' competitors also generally compete with Cintas for acquisition candidates, which can increase the price for acquisitions and reduce the number of available acquisition candidates. In addition, our customers and prospects may decide to perform certain services in-house instead of outsourcing these services to us. These competitive pressures could adversely affect our sales and consolidated results of operations.




An inability to open new, cost effective operating facilities may adversely affect our expansion efforts.
We plan to expand our presence in existing markets and enter new markets. The opening of new operating facilities is necessary to gain the capacity required for this expansion. Our ability to open new operating facilities depends on our ability to identify attractive locations, negotiate leases or real estate purchase agreements on acceptable terms, identify and obtain adequate utility and water sources and comply with environmental regulations, zoning laws and other similar factors. Any inability to effectively identify and manage these items may adversely affect our expansion efforts, and, consequently, adversely affect our financial performance.


Risks associated with our acquisition practice could adversely affect our consolidated results of operations.
Historically, a portion of our growth has come from acquisitions. We continue to evaluate opportunities for acquiring businesses that may supplement our internal growth. However, there can be no assurance that we will be able to locate and purchase suitable acquisitions. In addition, the success of any acquisition, including the ability to realize anticipated cost synergies, depends in part on our ability to integrate the acquired company. The process of integrating acquired businesses including G&K and ZEE, may involve unforeseen difficulties and may require a disproportionate amount of our management's attention and our financial and other resources. If management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, we may not be able to realize anticipated cost synergies resulting from acquisitions and our business could suffer. Although we conduct due diligence investigations prior to each acquisition, there can be no assurance that we will discover or adequately protect against all material liabilities of an acquired business for which we may be responsible as a successor owner or operator. The failure to identify suitable acquisitions and successfully integrate these acquired businesses, or to discover liabilities associated with such businesses in the diligence process, could adversely affect our consolidated results of operations.


Our indebtedness may limit cash flow available to invest in the ongoing needs of our business.
Our outstanding indebtedness including indebtedness incurred to consummate the G&K transaction, may have negative consequences on our business, such as requiring us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividend increases, stock buybacks and other general corporate purposes, as well as increase our vulnerability to adverse economic or industry conditions. In addition, it may limit our ability to obtain additional financing in the future to enable us to react to changes in our business or industry or place us at a competitive disadvantage compared to businesses in our industry that have less debt.

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Changes in the fuel and energy industry could adversely affect our consolidated financial condition and consolidated results of operations.
The price of fuel and energy needed to run our vehicles and equipment is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for fuel and other energy related products, actions by energy producers, war and unrest in oil producing countries, regional production patterns, limits on refining capacities, natural disasters, environmental concerns and environmental concerns.viral pandemics such as COVID-19. Increases in fuel and energy costs could adversely affect our consolidated financial condition and consolidated results of operations.


Failure to preserve positive labor relationships with our employees could adversely affect our consolidated results of operations.
Following the G&K transaction, more of our labor force is unionized. While we believe that our employee relations are good, we have been and could continue to be the target of a unionization campaign by several unions. These unions have attempted to pressure Cintas into surrendering its employees' rights to a government-supervised election by unilaterally accepting union representation. We will continue to vigorously oppose any unionization campaign and defend our employees' rights to a government-supervised election. Unionization campaigns could be materially disruptive to our business and could adversely affect our consolidated results of operations.


Risks associated with the suppliers from whom our products are sourced could adversely affect our consolidated results of operations.
The products we sell are sourced from a wide variety of domestic and international suppliers. Global sourcing of many of the products we sell is an important factor in our financial performance. We require all of our suppliers to comply with applicable laws, including labor and environmental laws, and otherwise be certified as meeting our required supplier standards of conduct. Our ability to find qualified suppliers who meet our standards, and to access products in a timely and efficient manner is a significant challenge, especially with respect to suppliers located and goods sourced outside the United States.U.S. Political and economic stability in the countries in which foreign suppliers are located, the financial stability of suppliers, suppliers' failure to meet our supplier standards, labor problems experienced by our suppliers, the availability of raw materials to suppliers, currency exchange rates, transport availability and cost,


inflation and other factors relating to the suppliers and the countries in which they are located are beyond our control. In addition, U.S. and foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. These and other factors, including the potential negative impact of viral pandemics such as COVID-19 affecting our suppliers and our access to products could adversely affect our consolidated results of operations.


Fluctuations in foreign currency exchange could adversely affect our consolidated financial condition and consolidated results of operations.
We earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, includingprimarily the Canadian dollar, British pound, and the euro.dollar. In fiscal years 2017, 20162020, 2019 and 2015,2018, revenue denominated in currencies other than the U.S. dollar represented less than 10% of our consolidated revenue. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenue, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, fluctuations in the value of the U.S. dollar against other major currencies, particularly in the event of significant increases in foreign currency revenue, will impact our revenue and operating income and the value of balance sheet items denominated in foreign currencies. This impact could adversely affect our consolidated financial condition and consolidated results of operations.


Failure to comply with federal and state regulations to which we are subject could result in penalties or costs that could adversely affect our consolidated results of operations. 
Our business is subject to complex and stringent state and federal regulations, including employment laws and regulations, minimum wage requirements, overtime requirements, working condition requirements, citizenship requirements, transportation and other laws and regulations. In particular, we are subject to the regulations promulgated by the U.S. Department of Transportation or USDOT,(USDOT) and under the Occupational Safety and Health Act of 1970, as amended or OSHA.(OSHA). We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of our business in complying with the USDOT, OSHA and other laws and
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regulations to which we are subject. Changes in laws, regulations and the related interpretations, including any laws or regulations that may be enacted by the current U.S. presidential administration and Congress, may alter the landscape in which we do business and may affect our costs of doing business. The impact of new laws and regulations cannot be predicted. Compliance with new laws and regulations may increase our operating costs or require significant capital expenditures. Any failure to comply with applicable laws or regulations could result in substantial fines by government authorities, payment of damages to private litigants, or possible revocation of our authority to conduct our operations, which could adversely affect our ability to service customers and our consolidated results of operations.


We are subject to legal proceedings that may adversely affect our consolidated financial condition and consolidated results of operations.
We are subject to various litigation claims and legal proceeding arising from the ordinary course of our business, including personal injury, customer contract, environmental and employment claims. Certain of these lawsuits or potential future lawsuits, if decided adversely to us or settled by us, may result in liability and expense material to our consolidated financial condition and consolidated results of operations.


Compliance with environmental laws and regulations could result in significant costs that adversely affect our consolidated results of operations.
Our operating locations are subject to environmental laws and regulations relating to the protection of the environment and health and safety matters, including those governing discharges of pollutants to the air and water, the management and disposal of hazardous substances and wastes and the clean-up of contaminated sites. The operation of our businesses entails risks under environmental laws and regulations. We could incur significant costs, including clean-up costs, fines and sanctions and claims by third parties for property damage and personal injury, as a result of violations of or liabilities under these laws and regulations. We are currently involved in a limited number of remedial investigations and actions at various locations. While based on information currently known to us, we believe that we maintain adequate reserves with respect to these matters, our liability could exceed forecasted amounts, and the imposition of additional clean-up obligations or the discovery of additional contamination at these or other sites could result in significant additional costs which could adversely affect our results of operations. In addition, potentially significant expenditures could be required to comply with environmental laws and regulations, including requirements that may be adopted or imposed in the future.




Under applicable environmental laws, an owner or operator of real estate may be required to pay the costs of removing or remediating hazardous materials located on or emanating from property, whether or not the owner or operator knew of or was responsible for the presence of such hazardous materials. While we regularly engage in environmental due diligence in connection with acquisitions, we can give no assurance that locations that have been acquired or leased have been operated in compliance with environmental laws and regulations during prior periods or that future uses or conditions will not make us liable under these laws or expose us to third-party actions, including tort suits.


We rely extensively on computer systems, including third-party systems, to process transactions, maintain information and manage our businesses. Disruptions in the availability of computer systems due to implementation of a new system or otherwise, or privacy breaches involving computer systems, could impact our ability to service our customers and adversely affect our sales, consolidated results of operations and reputation and expose us to litigation risk.
Our businesses rely on ourvarious computer systems, including third-party systems, to provide customer information, process customer transactions and provide other general information necessary to manage our businesses. We have an active disaster recovery plan in place that is frequently reviewed and tested. However, our computer systems including the systems inherited from G&K, are subject to damage or interruption due to system conversions, such as our current conversion to SAP enterprise system, power outages, computer or telecommunication failures, catastrophic events such as fires, tornadoes and hurricanes and usage errors by our employees. Although we believe that we have adopted appropriate measures to mitigate potential risks to our technology and our operations from these information technology-related and other potential disruptions, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational delays and interruptions in our ability to provide products and services to our customers. Any disruption caused by the unavailability of our computer systems could adversely affect our sales, could require us to make a significant investment to fix or replace them and, therefore, could adversely affect our consolidated results of operations. In addition, cyber-securitycyber-
8

security attacks are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data. If the network of security controls, policy enforcement mechanisms and monitoring systems to address these threats to our technology fails, the compromising of confidential or otherwise protected Company, customer, or employee information, destruction or corruption of data, security breaches, or other manipulation or improper use of our systems and networks could result in financial losses from remedial actions, loss of business or potential liability and damage to our reputation.


We also rely on software applications, enterprise cloud storage systems and cloud computing services provided by third-party vendors for certain information technology services, including our SAP enterprise system, payroll data, risk management data and lease data. If these third-party vendors, as well as our suppliers and other vendors, experience service interruptions or damage, security breaches, cyber-attacks, computer viruses, ransomware or other similar events or intrusions, our business and our consolidated results of operations may be adversely affected.

Failure to achieve and maintain effective internal controls could adversely affect our business and stock price.
Effective internal controls are necessary for us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the consolidated financial statement preparation and presentation. While we continue to evaluate our internal controls, including those related to the acquired G&K business, we cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. If we fail to maintain the adequacy of our internal controls or if we or our independent registered public accounting firm were to discover material weaknesses in our internal controls, as such standards are modified, supplemented or amended, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.


We may experience difficulties in attracting and retaining competent personnel in key positions.
We believe that a key component of our success is our corporate culture, which has been imparted by management throughout our corporate organization. This factor, along with our entire operation, depends on our ability to attract and retain key employees. Competitive pressures within and outside our industry may make it more difficult and expensive for us to attract and retain key employees which could adversely affect our businesses.


Unexpected events could disruptnegatively impact our operations and adversely affect our consolidated results of operations.
Unexpected events, including fires or explosions at facilities, severe weather conditions, natural disasters such as hurricanes and tornadoes, war or terrorist activities, unplanned outages, viral pandemics such as COVID-19, supply disruptions, failure of equipment or systems or changes in laws and/or regulations impacting our businesses, could adversely affect our consolidated results of operations. These events could result in customer disruption, physical damage to one or more key operating facilities, the temporary closure of one or more key operating facilities or the temporary disruption of information systems. In addition, negative publicity, whether warranted or not, impacting brand image perception could adversely affect our consolidated results of operations.




We may recognize impairment charges, which could adversely affect our consolidated financial condition and consolidated results of operations.
We assess our goodwill and other intangible assets and our long-lived assets for impairment when required by U.S. GAAP.Generally Accepted Accounting Principles (U.S. GAAP). These accounting principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed their estimated fair values. The estimated fair value of these assets is impacted by, general economicbut not limited to, macroeconomic, industry and market conditions in the locations in which we operate. Deterioration in these general economic conditions may result in: declining revenue, which can lead to excess capacity and declining operating cash flow; reductions in management's estimates for future revenue and operating cash flow growth; increases in borrowing rates and other deterioration in factors that impact our weighted average cost of capital; and deteriorating real estate values. If our assessment of goodwill, other intangible assets or long-lived assets indicates an impairment of the carrying value
9

for which we recognize an impairment charge, this may adversely affect our consolidated financial condition and consolidated results of operations.


The effects of credit market volatility and changes in our credit ratings could adversely affect our liquidity and consolidated results of operations.
Our operating cash flows, combined with access to the credit markets, provide us with significant discretionary funding capacity. However, deterioration in the global credit markets may limit our ability to access credit markets, which could adversely affect our liquidity and/or increase our cost of borrowing. In addition, credit market deterioration and its actual or perceived effects on our results of operations and financial condition, along with deterioration in general economic conditions, may increase the likelihood that the major independent credit agencies will downgrade our credit ratings, which could increase our cost of borrowing. Increases in our cost of borrowing could adversely affect our consolidated results of operations.


Increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could adversely impact our financial results.
Changes in tax laws or regulations in the jurisdictions in which we do business, or other tax law implementations or interpretations, could increase our effective tax rate, restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions on our current practices and reduce our net income and adversely affect our cash flows.

We are also subject to tax audits, including with respect to transfer pricing, in the U.S. and other jurisdictions and our tax positions may be challenged by tax authorities. Although we believe that our current tax provisions are reasonable and appropriate, there can be no assurance that these items will be settled for the amounts accrued, that additional tax exposures will not be identified in the future or that additional tax reserves will not be necessary for any such exposures. Any increase in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on our business, results of operations and financial condition.

Item 1B.  Unresolved Staff Comments
None.




10

Item 2.  Properties
Cintas occupies 539484 facilities located in 345333 cities. Cintas leases 295249 of these facilities for various terms ranging from monthly to the year 2032. Cintas expects that it will be able to renew or replace its leases on satisfactory terms. Of the sixfive manufacturing facilities noted below, Cintas controls the operations ofall but one manufacturing facility, but does not own or lease the real estate related to the operation. All remaining facilities are owned.owned by Cintas. The principal executive office in Cincinnati, Ohio, provides centrally located administrative functions including accounting, finance, marketing and computer system development and support. Cintas operates rental processing plants that house administrative, sales and service personnel and the necessary equipment involved in the cleaning of uniforms and bulk items, such as entrance mats and shop towels. Branch operations provide administrative, sales and service functions. Cintas operates 1112 distribution centers and sixfive manufacturing facilities. Cintas also operates first aid and safety and fire protection facilities and direct sales offices. Cintas considers the facilities it operates to be adequate for their intended use. Cintas owns or leases approximately 19,20020,500 vehicles which are used for the route-based services and by the sales and management employee-partners.

The following chart provides additional information concerning Cintas' facilities:
Type of Facility# of Facilities
Rental Processing Plants217212 
Rental Branches203141 
First Aid and Safety Facilities5361 
All Other Facilities4953 
Distribution Centers1112 
(1)
Manufacturing Facilities65 
Total539
Total484 
(1) Includes the principal executive office, which is attached to the distribution center in Cincinnati, Ohio.

Certain facilities are utilized by multiple operating segments. These facilities are only presented once, in their primary operating segment, herein. Rental processing plants, rental branches, distribution centers and manufacturing facilities are used in Cintas' Uniform Rental and Facility Services reportable operating segment. First aid and safety facilities, rental processing plants and distribution centers are used in the First Aid and Safety Services reportable operating segment. Rental processing plants, rental branches, first aid and safety facilities, fire protection facilities, direct sales offices, distribution centers and manufacturing facilities are all utilized by the businessesoperating segments included in All Other.
























11


Item 3.  Legal Proceedings
Cintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows of Cintas.


The Company and three executive officers were defendants in a purported class action, filed on December 12, 2019, pending in the U.S. District Court for the Southern District of Ohio alleging violations of federal securities laws. The lawsuit asserted that the defendants made material misstatements regarding the Company’s margins, earnings guidance and regulatory compliance that caused the Company's stock to trade at artificially inflated prices between March 2017 and November 2019. The lawsuit was dismissed without prejudice on April 22, 2020.

The Company, the Board of Directors, CEO and the Investment Policy Committee are defendants in a purported class action, filed on December 13, 2019, pending in the U.S. District Court for the Southern District of Ohio alleging violations of The Employee Retirement Income Security Act of 1974 (ERISA). The lawsuit asserts that the defendants improperly managed the costs of the employee retirement plan, breached their fiduciary duties in failing to investigate and select lower cost alternative funds and failed to monitor and control the employee retirement plan’s recordkeeping costs. The defendants deny liability.

Item 4.  Mine Safety Disclosures

Not applicable.

12



Part II


Item 5.  Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Cintas' common stock is traded on the NASDAQ Global Select Market under the symbol "CTAS." The following table provides the high and low sales prices of shares of Cintas' common stock by quarter during the last two fiscal years:
Fiscal 2017   
Quarter EndedHigh Low
    
May 2017$128.85
 $117.21
February 2017122.21
 112.96
November 2016119.94
 102.07
August 2016117.69
 91.24
    
Fiscal 2016   
Quarter EndedHigh Low
    
May 2016$95.49
 $84.32
February 201693.64
 80.00
November 201594.35
 82.71
August 201589.74
 78.00
Holders
At May 31, 2017,2020, there were approximately 2,000 shareholders onof record of Cintas' common stock. Cintas believes that this represents approximately 62,000192,000 beneficial owners.
Dividends
Dividends on Cintas' outstanding common stock have been paid annually and amounted to $1.33$2.55 per share, $1.05$2.05 per share and $1.70$1.62 per share in fiscal 2017, 20162020, 2019 and 2015,2018, respectively. The fiscal 2015 dividend was comprised of an annual cash dividend of $0.85 per share, and an additional $0.85 per share special dividend related to the cash proceeds received from the Shred-it Transaction.


Stock Performance Graph
The following graph summarizes the cumulative return on $100 invested in Cintas' common stock, the S&P 500 Stock Index and the common stocks of a selected peer group of companiescompanies. Because our products and services are diverse, Cintas does not believe that any single published industry index is appropriate for comparing shareholder return. Therefore, the peer groupsgroup used in the performance graph combines publicly traded companies in the business services industry that have similar characteristics as Cintas for each fiscal year, such as route based delivery of products and services. Prior toIn fiscal 2017,2019, Cintas compared its common stock returns to the following publicly traded companies: G & K Services, Inc., UniFirst Corporation, ABM Industries, Inc. and Iron Mountain,Rollins, Inc. (Old Peer Group). In fiscal 2016,2020, Cintas completedadded a company to the sale of the businesses within the former Document Management Services operating segment. Aspeer group for more useful comparisons, and as a result Cintas made the change to a new peer group (New Peer Group). The companies included in the New Peer Group are UniFirst Corporation, ABM Industries, and Rollins, Inc. Rollins, Inc.and Aramark. Aramark was added to the New Peer Group because it is a route based provider of products and services with similar characteristics as Cintas.
Total shareholder return was based on the increase in the price of the common stock and assumed reinvestment of all dividends. Further,Furthermore, total return was weighted according to market capitalization of each company. The companies in the Peer GroupsGroup are not the same as those considered by the Compensation Committee of the Board of Directors.

Total Shareholder Returns
Comparison of Five-Year Cumulative Total Return
ctas-20200531_g2.jpg
(1) The Old Peer Group previously included G&K Services, Inc. but has been excluded from the Old Peer Group herein due to our acquisition of G&K Services, Inc. during fiscal 2017.
13




Purchases of Equity Securities by the Issuer and Affiliated Purchases
Period
(In millions, except share and per share data)
Total number
of shares
purchased		Average
price paid
per share
Total number of
shares purchased
as part of the
publicly announced
plan (1)
Maximum
approximate dollar
value of shares that
may yet be
purchased under
the plan (1)
March 1 - 31, 2020 (2)
770,974  $262.96  770,044  $1,060.9  
April 1 - 30, 2020 (3)
1,027  $197.77  —  $1,060.9  
May 1 - 31, 2020 (4)
903  $252.73  —  $1,060.9  
Total772,904  $262.86  770,044  $1,060.9  
Period (In millions, except share and per share data)
Total number
of shares
purchased
 
Average
price paid
per share
 
Total number of
shares purchased
as part of the
publicly announced
plan (1)
 
Maximum
approximate dollar
value of shares that
may yet be
purchased under
the plan (1)
        
March 1 - 31, 2017 (2)
937
 $126.20
 —
 $500.0
April 1 - 30, 2017 (3)
689
 125.11
 —
 500.0
May 1 - 31, 2017 (4)
3,704
 124.75
 —
 500.0
Total5,330
 $125.05
 —
 $500.0


(1)On August 6, 2016,October 30, 2018, Cintas announced that the Board of Directors authorized a $500.0 million$1.0 billion share buyback program, which does not have an expiration date. From the inception of the October 30, 2018 share buyback program through May 31, 2020, Cintas has purchased a total of 4.3 million shares of Cintas common stock at an average price of $219.42 per share for a total purchase price of $939.1 million. Additionally, on October 29, 2019, Cintas announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. Cintas has not made any purchases under the October 29, 2019 share buyback program through May 31, 2020.
(2)During March 2017,2020, Cintas acquired 937930 shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were purchased at an average price of $126.20$173.22 per share for a total purchase price of $0.1$0.2 million.
(3)During April 2017,2020, Cintas acquired 6891,027 shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were purchased at an average price of $125.11$197.77 per share for a total purchase price of less than $0.1$0.2 million.
(4) During May 2017,2020, Cintas acquired 3,704903 shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were purchased at an average price of $124.75$252.73 per share for a total purchase price of $0.5$0.2 million.


14

Item 6.  Selected Financial Data
Five-Year Financial Summary
(In thousands except per share and percentage data)
Fiscal Years Ended May 31,
2016(1)
2017(1)(3)
2018(1)
2019(1)(2)
2020(1)(2)
Compound
Annual
Growth
(2016-2020)
Revenue$4,795,772  $5,323,381  $6,476,632  $6,892,303  $7,085,120  10.2%
Net Income, Continuing
Operations		448,605  457,286  783,932  882,635  876,360  18.2%
Net Income (Loss), Discontinued
Operations		244,915  23,422  58,654  2,346  (323) (80.9)%
Net Income$693,520  $480,708  $842,586  $884,981  $876,037  6.0%
Basic Earnings Per Share:
Continuing Operations$4.08  $4.27  $7.24  $8.23  $8.36  19.6%
Discontinued Operations2.22  0.22  0.54  0.02  0.00  (100.0)%
Basic Earnings Per Share$6.30  $4.49  $7.78  $8.25  $8.36  7.3%
Diluted Earnings Per Share:
Continuing Operations$4.02  $4.17  $7.03  $7.97  $8.11  19.2%
Discontinued Operations2.19  0.21  0.53  0.02  0.00  (100.0)%
Diluted Earnings Per Share$6.21  $4.38  $7.56  $7.99  $8.11  6.9%
Dividends Per Share$1.05  $1.33  $1.62  $2.05  $2.55  24.8%
Total Assets (4)
$4,098,815  $6,844,057  $6,958,214  $7,436,662  $7,669,885  17.0%
Shareholders' Equity$1,842,659  $2,302,793  $3,016,526  $3,002,721  $3,235,202  15.1%
Return on Average Equity (5)
23.8 %22.1 %29.5 %29.3 %28.1 %
Long-Term Debt$1,294,422  
$ 3,133,524(6)
$2,535,309  $2,849,771  $2,539,705  

(1)In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results of discontinued operations have been excluded from continuing operations for all periods presented. Please see Note 16 entitled Discontinued Operations of "Notes to Consolidated Financial Statements" for additional information.

(2)In accordance with the applicable accounting guidance for revenue from contracts with customers, Cintas capitalizes commission expenses and amortizes them on a straight-line basis over the expected period of benefit. The current and noncurrent assets related to capitalized contract costs included in the consolidated balance sheet at May 31, 2020, totaled $76.2 million and $227.1 million, respectively, and at May 31, 2019, totaled $69.6 million and $206.0 million, respectively. Historical periods presented prior to fiscal 2019 do not include capitalized contract costs, and as a result, the information may not be comparable. Please see Note 2 entitled Revenue Recognition of "Notes to Consolidated Financial Statements" for additional information.

(3)Includes G&K Services, Inc. (G&K) results of operations from March 21, 2017 through May 31, 2017, as a result of Cintas' acquisition of G&K in fiscal 2017. Historical periods presented prior to fiscal 2017 do not include G&K, and as a result, the information may not be comparable.

(4)In accordance with the applicable accounting guidance for leases, Cintas records operating leases on the consolidated balance sheet. At May 31, 2020, total assets include $160.0 million of operating lease right-of-use assets, net. Historical periods presented prior to fiscal 2020 do not include operating leases on the consolidated balance sheet, and as a result, the information may not be comparable. See Note 1 entitled Significant Accounting Policies and Note 8 entitled Leases of "Notes to Consolidated Financial Statements" for additional information on the adoption of this new guidance.

(5)Return on average equity is computed as net income from continuing operations divided by the average of shareholders' equity. We believe that disclosure of this non-GAAP financial measure gives management and shareholders a good indication of Cintas' historical performance.

(6)Includes issuance of approximately $2.1 billion in debt to fund the G&K acquisition. Please see Note 7 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for additional information.


15
(In thousands except per share and percentage data)          
Fiscal Years Ended May 31,
2013(1)
 
2014(1)
 
2015(1)
 
2016(1)
 
2017(1)(2)
 
Compound
Annual
Growth
(2013-2017)
            
Revenue$3,878,271
 $4,091,204
 $4,369,677
 $4,795,772
 $5,323,381
 8.2%
Net Income, Continuing Operations300,150
 330,541
 402,553
 448,605
 457,286
 11.1%
Net Income, Discontinued Operations15,292
 43,901
 28,065
 244,915
 23,422
 11.2%
Net Income$315,442

$374,442

$430,618
 $693,520
 $480,708
 11.1%
Basic Earnings Per Share:           
Continuing Operations$2.41
 $2.72
 $3.44
 $4.08
 $4.27
 15.4%
Discontinued Operations0.12
 0.36
 0.24
 2.22
 0.22
 16.4%
Basic Earnings Per Share$2.53
 $3.08
 $3.68
 $6.30
 $4.49
 15.4%
Diluted Earnings Per Share:           
Continuing Operations$2.40
 $2.69
 $3.39
 $4.02
 $4.17
 14.8%
Discontinued Operations0.12
 0.36
 0.24
 2.19
 0.21
 15.0%
Diluted Earnings Per Share$2.52
 $3.05
 $3.63
 $6.21
 $4.38
 14.8%
Dividends Per Share$0.64
 $0.77
 $1.70
 $1.05
 $1.33
 20.1%
Total Assets (3)
$4,336,417
 $4,454,457
 $4,185,675
 $4,098,815
 $6,844,057
 12.1%
Shareholders' Equity$2,201,492
 $2,192,858
 $1,932,455
 $1,842,659
 $2,302,793
 1.1%
Return on Average Equity (4)
13.8% 15.0% 19.5% 23.8% 22.1%  
Long-Term Debt$1,291,764
 $1,292,482
 $1,293,215
 $1,294,422
 
$ 3,133,524(5)

  


(1)
In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results of our Discontinued Services, Shredding and Storage have been excluded from continuing operations for all periods presented. Please see Note 16 entitled Discontinued Operations of "Notes to Consolidated Financial Statements" for additional information.

(2)
Includes G&K results of operations from March 21, 2017 through May 31, 2017. Historical periods presented prior to fiscal 2017 do not include G&K and as a result, the information may not be comparable. Please see Note 9 entitled Acquisitions and Divestitures of "Notes to Consolidated Financial Statements" for additional information regarding the G&K acquisition.

(3)
In accordance with the applicable accounting guidance for simplifying the presentation of debt issuance costs, the debt costs related to recognized debt liabilities have been excluded from Total Assets and reclassified to Long-Term Debt as a direct deduction from the carrying amount of the debt liabilities. The impact of this change in accounting principle on balances previously reported for fiscal 2016, 2015, 2014 and 2013 were reclassifications of $5.6 million, $6.8 million, $8.0 million and $9.2 million, respectively, from other assets to long-term liabilities.

(4)
Return on average equity is computed as net income from continuing operations divided by the average of shareholders' equity. We believe that disclosure of this non-GAAP financial measure gives management and shareholders a good indication of Cintas' historical performance.

(5)
Includes issuance of approximately $2.1 billion in debt to fund the G&K acquisition. Please see Note 6 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for additional information.




Item 7.  Management's Discussion and Analysis
Analysis of Financial Condition and Results of Operations
Business Strategy
Cintas helps more than one million businesses of all types and sizes, primarily in North America,the U.S., as well as Canada, Latin America, Europe and Asia, get Ready™READY™ to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care,mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and safetytraining and compliance training,courses, Cintas helps customers get Ready for the Workday™Workday®.

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

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

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

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

Results of Operations
On March 21, 2017, This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on discussion of fiscal 2020 results compared to 2019 results. For discussion of fiscal 2019 results compared to fiscal 2018 results, see the "Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the fiscal year ended May 31, 2019, filed with the SEC on July 26, 2019.

Cintas completedclassifies its business into two reportable operating segments and places the acquisitionremainder of G&K Services, Inc. (G&K) for consideration of approximately $2.1 billion. G&K is now a wholly-owned subsidiary of Cintas that will operate withinits operating segments in an All Other category. Cintas’ two reportable operating segments are the Uniform Rental and Facility Services operating segment. To financesegment and the G&K acquisition, Cintas used a combination of new senior notes, a term loan, other borrowings under its existing credit facility and cash on hand. G&K's results of operations are included in Cintas' consolidated financial statements as of and from the date of acquisition.
U. S. GAAP requires companies to evaluate their reportable operating segments periodically and when certain events occur. As a result of our evaluation in fiscal 2016, effective June 1, 2015, Cintas realigned its organizational structure and updated its reportable operating segments in light of certain changes in its business, including the acquisition of ZEE Medical Inc. (ZEE) in the first quarter of fiscal 2016. Cintas’ updated reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services.Services operating segment. The Uniform Rental and Facility Services reportable operating segment, which includes G&K, consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies, carpet and tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment which includes ZEE, consists of first aid and safety products and services. The remainder of Cintas’ business, which consists of Fire Protection Services operating segment and itsthe Uniform Direct Sale business,operating segment, is included in All Other. These operating segments consist of fire protection products and services and the direct sale of uniforms and related items. Cintas evaluates operating segment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these reportable operating segments for the years ended May 31, 2017, 20162020, 2019 and 20152018 are presented in Note 14 entitled Operating Segment Information of "Notes"Notes to Consolidated Financial Statements.Statements." The Company regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.

16


At May 31, 2017, Cintas has classifiedIn March 2020, the World Health Organization characterized a novel strain of coronavirus (COVID-19) as a pandemic. Through the first three quarters of fiscal 2020, the COVID-19 pandemic did not have a significant impact on our business. However, efforts to contain the spread of COVID-19 intensified during our fiscal 2020 fourth quarter. Most states and municipalities within the U.S. enacted temporary closures of businesses, issued quarantine orders and took other restrictive measures in response to the COVID-19 pandemic. Within the U.S., our business referredwas designated an essential business, which allowed us to as Discontinued Services, as held for sale.  Priorcontinue to meetingserve customers that remained open.

We have operations throughout the held for sale criteria, Discontinued Services was primarily includedU.S. and participate in All Other. Ina global supply chain. During the fourth quarter of fiscal 2014, Cintas completed its partnership transaction2020, the existence of the COVID-19 pandemic, the fear associated with the shareholdersCOVID-19 pandemic and the reactions of Shred-it International Inc.governments around the world in response to combine Shredding with the shreddingCOVID-19 pandemic to regulate the flow of labor and products and impede the business of Shred-it International Inc. Pursuantour customers, impacted our ability to conduct normal business operations, which had an adverse effect on our business.

In response to the Shredding Transaction, the Shred-it Partnershipimpact of COVID-19, Cintas put in place health and safety measures to keep Cintas employees, contractors and customers safe. These health and safety measures have not materially impacted our ability to service our customers. Many of Cintas' customers were also impacted by COVID-19 and we did see an impact on some customer's ability to pay. While there was owned 42% byminimal disruption to our supply chain, Cintas and 58%did experience an increase in inventory caused by the shareholdersimpact of Shred-it International Inc. Cintas' investment in Shred-it and the resultsCOVID-19. See Note 1 entitled Significant Accounting Policies of Shredding are classified as discontinued operations for all periods presented as a result of selling the investment during fiscal 2016. During fiscal 2015, Cintas sold Storage and, as a result, its operations are also classified as discontinued operations for all periods presented. In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results of Discontinued Services, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented. Please see Note 16 entitled Discontinued Operations of "Notes"Notes to Consolidated Financial Statements"Statements" for additional information.detail on steps taken to assess the higher collection risk related to our customers and the additional reserve placed on inventory.

Cintas also initiated certain activities to reduce operating costs and better align its workforce with the needs of its ongoing business. During the fourth quarter of fiscal 2020, Cintas recorded $24.5 million in employee termination costs and $9.2 million in long-lived asset impairment costs. See Note 1 entitled Significant Accounting Policies of "Notes to Consolidated Financial Statements." The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, consolidated results of operations, consolidated financial condition or liquidity will ultimately be impacted.
17

The following table sets forth certain consolidated statements of income data as a percent of revenue by reportable operating segment, All Other and in total for the fiscal years ended May 31:
202020192018
Revenue:   
Uniform Rental and Facility Services79.7%80.6%81.0%
First Aid and Safety Services10.0%9.0%8.7%
All Other10.3%10.4%10.3%
Total revenue100.0%100.0%100.0%
Cost of sales:   
Uniform Rental and Facility Services54.1%54.5%55.0%
First Aid and Safety Services52.2%52.0%52.9%
All Other58.2%57.4%57.5%
Total cost of sales54.4%54.6%55.1%
Gross margin:   
Uniform Rental and Facility Services45.9%45.5%45.0%
First Aid and Safety Services47.8%48.0%47.1%
All Other41.8%42.6%42.5%
Total gross margin45.6%45.4%44.9%
Selling and administrative expenses:
Uniform Rental and Facility Services28.1%27.6%28.6%
First Aid and Safety Services32.7%33.4%33.7%
All Other34.9%33.3%33.9%
Total selling and administrative expenses29.2%28.7%29.6%
G&K Services, Inc. integration expenses—%0.2%0.6%
Gain on sale of a cost method investment—%1.0%—%
Interest expense, net1.5%1.5%1.7%
Income from continuing operations before income taxes14.9%16.0%13.0%

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2017(1)
 
2016(1)
 
2015(1)
      
Revenue:     
Uniform Rental and Facility Services79.0% 78.4% 80.5%
First Aid and Safety Services9.5% 9.6% 7.5%
All Other11.5% 12.0% 12.0%
Total revenue100.0% 100.0% 100.0%
      
Cost of sales:     
Uniform Rental and Facility Services54.9% 55.7% 56.6%
First Aid and Safety Services54.7% 57.3% 53.4%
All Other58.3% 58.6% 59.1%
Total cost of sales55.3% 56.2% 56.6%
      
Gross margin:     
Uniform Rental and Facility Services45.1% 44.3% 43.4%
First Aid and Safety Services45.3% 42.7% 46.6%
All Other41.7% 41.4% 40.9%
Total gross margin44.7% 43.8% 43.4%
      
Selling and administrative expenses:     
Uniform Rental and Facility Services27.1% 26.5% 26.2%
First Aid and Safety Services34.9% 31.9% 32.8%
All Other34.5% 33.1% 34.3%
Total selling and administrative expenses28.7% 27.8% 27.7%
      
G&K Services, Inc. transaction and integration expenses1.5% —% —%
      
Gain on sale of stock of an equity method investment—% —% 0.5%
      
Interest expense, net1.6% 1.3% 1.5%
      
Income from continuing operations before income taxes12.9%
14.7%
14.7%
(1)
The figures presented reflect the change in classification of Discontinued Services, Shredding and Storage to discontinued operations within the Consolidated Statements of Income. See Note 16 entitled Discontinued Operations of "Notes to Consolidated Financial Statements."


Fiscal 20172020 Compared to Fiscal 20162019
Fiscal 20172020 total revenue was $5.3$7.1 billion, an increase of 11.0%2.8% over the prior fiscal year. Revenue increased organically by 6.7%3.1% as a result of increased sales volume. Organic growth adjusts for the impact of acquisitions, divestitures, workday differences and foreign currency exchange rate fluctuations.fluctuations and workday differences. Total revenue was positively impacted by 4.8%0.2% due to acquisitions, primarily through the acquisition of G&K. Revenue growth was negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and negatively impacted by 0.4% due to one less workday in fiscal 20172020 compared to fiscal 2016.2019.

As previously discussed, the government enactment of temporary closures of certain businesses in response to COVID-19 impacted our ability to service some of our customers during the fourth quarter of fiscal 2020. As a result, revenue in the fourth quarter was negatively impacted by COVID-19. Due to the constantly changing impact of COVID-19, uncertainty remains about the pace of the economic recovery and about its impact on future Cintas consolidated financial results.

Organic growth by quarter for fiscal 2020 is shown in the table below.
as follows:
Organic Growth
First quarter ended August 31, 20198.3%
Second quarter ended November 30, 20197.3%
Third quarter ended February 29, 20205.7%
Fourth quarter ended May 31, 2020-8.4%
Organic Growth
First Quarter Ending August 31, 20166.0%
Second Quarter Ending November 30, 20166.0%
Third Quarter Ending February 28, 20176.6%
Fourth Quarter EndingFor the fiscal year ended May 31, 201720208.1%
For the Fiscal Year Ending May 31, 20176.7%3.1%

Uniform Rental and Facility Services reportable operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Uniform Rental and Facility Services reportable operating segment increased 11.8%1.6% compared to fiscal 2016. The increase resulted from2019 due to an organic growth increase of 2.0%. Revenue growth was positively impacted by 0.1% due to acquisitions, negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and negatively impacted by 0.4% due to one less workday in revenue of 6.9%. The amountfiscal 2020 compared to fiscal 2019. Revenue growth was a result of new business, grew, resultingthe penetration of additional products and services into existing customers and price increases, partially offset by lost business. New business growth resulted from an increase in the number and productivity of sales representatives. Generally, sales productivity improvements are the result ofdue to increased tenure and improved training, which result inproduce a higher number of products and services sold. Revenue growth was negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and 0.4% due to one less workday in fiscal 2017 compared to the same period in the prior fiscal year. Revenue was positively impacted by 5.4% due to acquisitions, primarily G&K.

Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 8.2%7.6% compared to fiscal 2016.2019. Revenue increased organically by 6.1%7.5% primarily due primarily to improved sales representative productivity.productivity and the increased sales of personal protective equipment, offset by a decrease in sales related to customers in All Other as a result of the impact from COVID-19. Revenue growth was positively impacted by 0.5% due to acquisitions and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and 0.4% due to one less workday in fiscal 20172020 compared to fiscal 2016. Acquisitions positively impacted revenue by 2.6%.2019.

Cost of uniform rental and facility services increased 10.3%0.9% compared to fiscal 2016.2019. Cost of uniform rental and facility services consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. The cost of uniform rental and facility services increase compared to fiscal 20162019 was due to increased Uniform Rental and Facility Services reportable operating segment sales volume from internalorganic growth, partially offset by fewer inventory purchases and a reduced amount of inventory put in service during the acquired G&K sales volume.fourth quarter of fiscal 2020.

Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other increased 5.6%8.2% in fiscal 20172020 compared to fiscal 2016.2019. The increase was primarily related to the increased sales volumes in the First Aid and Safety Services reportable operating segment and All Other.an increase in the proportion of sales from personal protective equipment.

Selling and administrative expenses increased $195.0$90.4 million, or 14.6%4.6%, compared to fiscal 20162019, primarily due primarily to increases in labor and other employee-partner related expenses. As a resultIn addition, as previously discussed, Cintas
19

initiated certain activities to reduce operating costs and better align its workforce with the needs of its ongoing business. During the acquisitionfourth quarter of G&Kfiscal 2020, Cintas recorded $24.5 million in employee termination costs and $9.2 million in long-lived asset impairment costs.

Operating income in fiscal 2017, the Company incurred various transaction and2019 was negatively impacted by $14.4 million of integration expenses which relate primarily to asset impairment charges, legal and professional fees, employee terminationincurred in connection with the G&K Services, Inc. (G&K) acquisition. The after-tax effect of these integration expenses the write-offrepresents a negative impact on diluted earnings per share of excess inventory and other miscellaneous expenses. In$0.10 per share in fiscal 2017, G&K transaction and2019. No material integration expenses were $79.2recorded in fiscal 2020.

During fiscal 2019, Cintas sold a cost method investment for $73.3 million, or 1.5%resulting in a pre-tax gain of total revenue.$69.4 million. The after-tax effect of the one-time gain represents a positive impact on diluted earnings per share of $0.47 per share.

Net interest expense (interest expense less interest income) was $86.3$104.4 million in fiscal 20172020 compared to $63.6$100.5 million in fiscal 2016.2019. The increase in net interest expense is primarilyin fiscal 2020 was due to the additional debt issuedtiming of interest being incurred on our term loan in the current year (twelve months as opposed to finance the G&K acquisition and $17.1 million of short-term debt financing fees incurredone month in connection with the acquisition.fiscal 2019), partially offset by lower commercial paper borrowings in fiscal 2020 compared to fiscal 2019.


Income before income taxes was $687.4$1,058.3 million, a decrease of $17.9$44.1 million, or 2.5%4.0%, compared to fiscal 2016.2019. The decrease in income before income taxes was primarily due to the G&K transaction and integration expenses andnegative impact of COVID-19, as previously discussed, as well as the increase in interest expense previously mentioned. These impacts were partially offset by the increase in gross margin.fiscal 2019 one-time gain on sale of a cost method investment.

Cintas' effective tax rate on continuing operations was 33.5%17.2% for fiscal 20172020 compared to 36.4%19.9% in fiscal 2016. The decrease was primarily due to the adoption of Accounting Standard Update (ASU) 2016-09, "Improvements to Employee Share-Based Payment Accounting."2019. The effective tax rate in fiscal 2017 included a benefit of $29.4 million as a result ofboth periods was impacted by certain permanent differences (primarily the adoption of ASU 2016-09. This benefit was partially offset by the election to recognize forfeitures as they occur, which resulted in additional stock compensation expense of $8.3 million when compared to our historical practice of estimating forfeituretax accounting for expense purposes. The adoption of ASU 2016-09 also resulted in an increase in the effect of dilutive securities in fiscal 2017 of 0.8 million shares. For fiscal 2017, the net impact on diluted earnings per share from the adoption of ASU 2016-09 was an increase of $0.19 per share over what diluted earnings per share would have been if ASU 2016-09 was not adopted in the current year.stock-based compensation).

Net income from continuing operations for fiscal 20172020 of $457.3$876.4 million was a 1.9% increase0.7% decrease compared to fiscal 2016.2019. Diluted earnings per share from continuing operations of $4.17$8.11 was a 3.7%1.8% increase compared to fiscal 2016.2019 diluted earnings per share from continuing operations of $7.97. Diluted earnings per share from continuing operations increased primarily due to the positive impact from the lower effective tax rate combined with the decrease in weighted average common shares outstanding. The decrease indiluted weighted average common shares outstanding resulted from purchasing 8.8 million shares of common stock under the January 13, 2015 and August 4, 2015 share buyback programs since the beginning ofduring fiscal 2016.2020.

Uniform Rental and Facility Services Reportable Operating Segment
Uniform Rental and Facility Services reportable operating segment revenue increased $443.0$91.1 million, or 11.8%1.6%, and the cost of uniform rental and facility services increased $214.9$27.5 million, or 10.3%0.9%, asdue to the reasons previously discussed. The reportable operating segment's fiscal 20172020 gross margin was 45.1%45.9% of revenue compared to 44.3%45.5% in fiscal 2016.2019. The 80 basis point improvementincrease in gross margin was driven by many factors, including new business sold by sales representatives, penetration of additional products and services into existing customers and continuously improving the efficiency of internal processes.continuous improvements in process efficiency.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $143.8$50.1 million in fiscal 20172020 compared to fiscal 2016.2019. Selling and administrative expense as a percent of revenue for fiscal 20172020 was 27.1%28.1% compared to 26.5%27.6% in fiscal 2016.2019. The increase in selling and administrative expenses foras a percent of revenue was due to increases in labor and other employee-partner related expenses as well as impacts caused by COVID-19. In the fourth quarter of fiscal 2020, the Uniform Rental and Facility Services reportable operating segment is primarily relatedinitiated certain activities to reduce operating costs and better align its workforce with the needs of its ongoing business. During the fourth quarter of fiscal 2020, the reportable operating segment recorded $20.2 million in employee termination costs and $9.2 million in long-lived asset impairment costs. Due to the G&K acquisition.constantly changing impact of COVID-19, it is uncertain if similar additional activities will be initiated in the future.
As a result of the G&K acquisition, the
The Uniform Rental and Facility Services reportable operating segment incurred $79.2$14.4 million of transaction and integration expenses. These expenses consisted of the following: asset impairment charges of $23.3 million, legal and professional fees directly related to the G&K acquisition in fiscal 2019, which consisted primarily of $17.4 million, employee terminationfacility closure expenses. There were no such expenses recognized under ASC Topic 712, "Compensation - Nonretirement Postemployment Benefits" of $31.0 million, write-off of excess inventory of $5.5 million and $2.0 million of other miscellaneous integration expenses.incurred in fiscal 2020.

Income before income taxes increased $5.0$27.8 million to $677.1$1,004.6 million for fiscal 20172020 compared to fiscal 2016.2019. Income before income taxes as a percent of revenue at 16.1%, decreased 18017.8% increased 20 basis points from 17.9%17.6% in fiscal 2016.2019. The decrease isincrease was primarily due to the G&K transaction and integration expenses mentioned above.increase in gross margin, which was partially offset by the previously discussed impacts of COVID-19.
20

First Aid and Safety Services Reportable Operating Segment
First Aid and Safety Services reportable operating segment revenue increased $46.5 million in fiscal 2017, a 10.1% increase compared to fiscal 2016. Revenue increased organically by 5.9% as a result of increased sales volume. Revenue growth was positively impacted by 4.6% due to acquisitions. One less workday in fiscal 2017 compared to the prior year negatively impacted growth by 0.4%.
Cost of first aid and safety services increased $13.3 million, or 5.0%, in fiscal 2017, due primarily to increased First Aid and Safety Services reportable operating segment volume. Gross margin for the First Aid and Safety Services reportable operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 45.3% for fiscal 2017 compared to 42.7% in fiscal 2016. The increase in gross margin was due to the benefits realized as a result of the integration of ZEE. These benefits included improved delivery efficiencies and improved sourcing of goods.
Selling and administrative expenses for the First Aid and Safety Services reportable operating segment increased by $29.9 million, or 20.3%, in fiscal 2017 compared to fiscal 2016. Selling and administrative expenses as a percent of


revenue were 34.9% in fiscal 2017 compared to 31.9% in fiscal 2016. The increase in selling and administrative expenses is primarily the result of the investment in selling resources to grow the acquired ZEE customer base and increases in various employee-partner related expenses.
Income before income taxes was $52.8 million in fiscal 2017, an increase of $3.3 million, or 6.6%, compared to fiscal 2016. Income before income taxes as a percent of revenue, at 10.4%, decreased from 10.7% in fiscal 2016, due primarily to the investment in selling resources mentioned above.
Fiscal 2016 Compared to Fiscal 2015
Fiscal 2016 total revenue was $4.8 billion, an increase of 9.8% over the prior fiscal year. Revenue increased organically by 6.8% as a result of increased sales volume. Organic growth excludes the impact of acquisitions, divestitures, foreign currency exchange rate fluctuations and workday differences. Total revenue was positively impacted by 2.9% due to acquisitions and 0.8% due to two more workdays in fiscal 2016 compared to fiscal 2015. Revenue growth was negatively impacted by 0.7% due to foreign currency exchange rate fluctuations.
Organic growth by quarter is shown in the table below.
Organic Growth
First Quarter Ending August 31, 20156.9%
Second Quarter Ending November 30, 20156.6%
Third Quarter Ending February 28, 20167.1%
Fourth Quarter Ending May 31, 20166.8%
For the Fiscal Year Ending May 31, 20166.8%
Uniform Rental and Facility Services reportable operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Uniform Rental and Facility Services reportable operating segment increased 6.8% compared to fiscal 2015. The increase resulted from an organic growth increase in revenue of 6.5%. The amount of new business grew, resulting from an increase in the number and productivity of sales representatives. Generally, sales productivity improvements are the result of increased tenure and improved training, which result in a higher number of products and services sold. Revenue was positively impacted by 0.3% due to acquisitions, 0.8% due to two more workdays in fiscal 2016 compared to 2015 and negatively impacted by 0.8% due to foreign currency exchange rate fluctuations.
Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 21.8% compared to fiscal 2015. The increase primarily resulted from an organic growth increase of 8.3%, which was largely due to improved sales representative productivity. Revenue in fiscal 2016 was negatively impacted by 0.5% due to foreign currency exchange rate fluctuations. Acquisitions positively impacted the growth rate by 13.0%, and two more workdays in fiscal 2016 contributed an additional 1.0%.
Cost of uniform rental and facility services increased 5.0% compared to fiscal 2015. Cost of uniform rental and facility services consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. The increase in the cost of uniform rental and facility services compared to fiscal 2015 was due to increased Uniform Rental and Facility Services reportable operating segment sales volume.
Cost of other increased 24.3% compared to fiscal 2015. Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. The increase from fiscal 2015 was primarily due to increased First Aid and Safety Services reportable operating segment sales volume.
Selling and administrative expenses increased $123.1 million, or 10.2%, compared to fiscal 2015 due primarily to increases in labor and other employee-partner related expenses.
During fiscal 2015, Cintas sold stock in an equity method investment. In conjunction with the sale of the equity method investment, the Company received a cash dividend. The sale resulted in the recording of a gain of $21.7 million in fiscal 2015.


Operating income of $768.9 million in fiscal 2016 increased $85.3 million, or 12.5%, compared to fiscal 2015.
Net interest expense (interest expense less interest income) was $63.6 million in fiscal 2016 compared to $64.8 million in fiscal 2015. The decrease in net interest expense is primarily due to the capitalization of $1.1 million of interest in fiscal year 2016 versus $0.6 million of interest capitalized in fiscal 2015.
Income before income taxes was $705.3 million, an increase of $64.8 million, or 10.1%, compared to fiscal 2015. The increase in income before income taxes was primarily due to revenue growing at a faster rate than expenses.
Cintas' effective tax rate in fiscal 2016 was 36.4%, which was comparable to the effective tax rate of 37.2% in fiscal 2015. See Note 8 entitled Income Taxes of "Notes to Consolidated Financial Statements" for more information on income taxes.
Net income from continuing operations for fiscal 2016 of $448.6 million was a 11.4% increase compared to fiscal 2015. Diluted earnings per share from continuing operations of $4.02 was a 18.6% increase compared to fiscal 2015. The increase in diluted earnings per share is higher than the increase in net income due to a decrease in weighted average common stock outstanding as a result of Cintas purchasing 8.7 million shares of common stock under the January 13, 2015 share buyback program since the beginning of fiscal 2016.
Uniform Rental and Facility Services Reportable Operating Segment
Uniform Rental and Facility Services reportable operating segment revenue increased $240.3 million, or 6.8%, and the cost of uniform rental and facility services increased $100.2 million, or 5.0%. Revenue in fiscal 2016 was negatively affected by 0.8% due to foreign currency exchange rate changes compared to fiscal 2015 and positively affected by 0.3% due to acquisitions and 0.8% due to two more workdays in fiscal 2016 compared to 2015. The reportable operating segment's fiscal 2016 gross margin was 44.3% of revenue compared to 43.4% in fiscal 2015. The increase in gross margin as a percent of revenue over fiscal 2015 was due to new business sold by sales representatives, penetration of additional products and services into existing customers, and continuously improving the efficiency of internal processes. In addition, lower energy-related expenses increased gross margin 50 basis points.
Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $72.0 million in fiscal 2016 compared to fiscal 2015 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expense as a percent of revenue for fiscal 2016 was 26.5% compared to 26.2% in fiscal 2015.
Income before income taxes increased $68.1 million to $672.1 million for fiscal 2016 compared to fiscal 2015. Income before income taxes as a percent of revenue, at 17.9%, increased from 17.2% in fiscal 2015. This increase is primarily due to the increase in gross margin.
First Aid and Safety Services Reportable Operating Segment
First Aid and Safety Services reportable operating segment revenue increased $135.2$89.1 million in fiscal 2016,2020, a 41.4%14.4% increase compared to fiscal 2015.2019. Revenue increased organically by 9.7%14.8% as a result of increasednew business and sales volume.productivity increases, penetration of additional products and services into existing customers and sales of personal protective equipment in response to COVID-19. Revenue growth was positivelynegatively impacted by 1.1%0.4% due to two more workdaysone less workday in fiscal 20162020 compared to fiscal 2015. The remaining 30.6% increase in growth represents growth derived through acquisitions, primarily the ZEE acquisition.2019.

Cost of first aid and safety services increased $90.5 million, or 51.9%, in fiscal 2016, due primarily to increasedsales for the First Aid and Safety Services reportable operating segment increased $47.5 million, or 14.7%, in fiscal 2020, primarily due to higher sales volume. Gross margin for the First Aid and Safety Services reportable operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 42.7%47.8% for fiscal 20162020 compared to 46.6%48.0% in fiscal 2015. ZEE integration costs and2019. The decrease was primarily driven by an increase in the lower efficiencyproportion of sales of personal protective equipment as a result of the acquired ZEE routes were primarily responsible for the decrease in gross margin.impact of COVID-19.

Selling and administrative expenses for the First Aid and Safety Services reportable operating segment increased by $40.3$24.8 million, or 37.6%12.0%, in fiscal 20162020 compared to fiscal 2015 primarily2019 due to an increase inincreased labor and other employee-partner related expenses and costs associated with the integration of ZEE.expenses. Selling and administrative expenses as a percent of revenue at 31.9%, decreased from 32.8%were 32.7% in fiscal 2015.2020 compared to 33.4% in fiscal 2019. The decrease in selling and administrative expenses as a percent of revenue was due to revenue growing at a faster pace than labor and employee-partner related expenses.

Income before income taxes for the First Aid and Safety Services reportable operating segment was $49.5$106.9 million in fiscal 2016,2020, an increase of $4.4$16.8 million, or 9.7%18.7%, compared to fiscal 2015.2019. Income before income taxes as a percent of revenue at 10.7%15.1%, decreasedincreased from 13.8%14.5% in fiscal 2015,2019 due to the decreasepreviously discussed growth in gross margin discussed above.revenue and improvement in selling and administrative expenses as a percent of revenue.




Liquidity and Capital Resources
The following is a summary oftable summarizes our cash flows and cash and cash equivalents and marketable securities as of and for the fiscal years endingended May 31:
(In thousands)20202019
Net cash provided by operating activities$1,291,483  $1,067,862  
Net cash used in investing activities$(285,398) $(235,638) 
Net cash used in financing activities$(955,207) $(873,305) 
Cash and cash equivalents at end of year$145,402  $96,645  
(In thousands)2017 2016
    
Net cash provided by operating activities$763,887
 $465,845
Net cash (used in) provided by investing activities$(2,310,349) $128,381
Net cash provided by (used in) financing activities$1,578,502
 $(866,724)
    
Cash and cash equivalents at the end of the period$169,266
 $139,357
Marketable securities at the end of the period$22,219
 $70,405


Cash and cash equivalents and marketable securities as of May 31, 20172020 and 20162019 include $125.5$30.2 million and $96.5$28.5 million, respectively, that is located outside of the United States. We expect to use these amounts to fund our international operations and international expansion activities.U.S.

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

The disruption from COVID-19 negatively impacted Cintas' fiscal 2020 fourth quarter financial results, however, net cash flow provided by operating activities in the fourth quarter was not significantly impacted. At May 31, 2020, our short-term liquidity position remained solid, as our cash flows from operating activities are expected to remain sufficient to provide us with adequate levels of short-term liquidity. In addition, we have access to $1.0 billion of short-term debt from our revolving credit facility. However, our long-term liquidity position remains unclear due to the constantly changing scope and nature of the impacts of COVID-19. Accordingly, we have taken proactive measures to maintain financial flexibility within the landscape of the COVID-19 pandemic. We believe the Company has sufficient liquidity to operate in the current business environment as a result of these actions. In order to preserve cash during this time of uncertainty, we plan to limit/reduce capital expenditures to essential business needs. Also, we will limit share buybacks until we obtain more certainty regarding the impacts of COVID-19. Acquisitions and dividends remain strategic objectives, however, they will be dependent on the economic outlook and liquidity of the Company.
21

Net cash provided by operating activities was $763.9 million$1.3 billion for fiscal 2017,2020, which was an increase of $298.0$223.6 million compared to fiscal 2016. Net cash provided by operating activities2019. The increase was primarily the result of favorable changes in fiscal 2016 was negatively impacted by the $229.5 million payment of taxes due on the gain on the sale of Shred-it.working capital, specifically accounts receivable and inventories.

Net cash used in investing activities was $2,310.3$285.4 million in fiscal 2017,2020 compared to $128.4$235.6 million of netin fiscal 2019. Net cash provided byused in investing activities in fiscal 2016.includes capital expenditures, purchases of investments, proceeds from the sale of assets, cost method investments and businesses and cash paid for acquisitions of businesses. Capital expenditures were $273.3$230.3 million and $275.4$276.7 million for fiscal 20172020 and fiscal 2016,2019, respectively. Capital expenditures for fiscal 20172020 included $232.8$183.4 million for the Uniform Rental and Facility Services reportable operating segment and $26.9$35.7 million for the First Aid and Safety Services reportable operating segment. Cash paid for acquisitions of businesses, net of cash acquired, was $2,102.4$53.7 million and $156.6$9.8 million for fiscal 20172020 and fiscal 2016,2019, respectively. The acquisitions in both fiscal 20172020 and 20162019 occurred in our Uniform Rental and Facility Services reportable operating segment, which includes G&K, our First Aid and Safety Services reportable operating segment and our Fire Protection business,operating segment, which is included in All Other. Net cash provided byIn fiscal 2020, investing activities included proceeds related toof $13.3 million from the sale of Shred-itassets, and Storage of $28.3 million and $616.2 million in fiscal 20172019, included proceeds of $73.3 million from the sale of a cost method investment and 2016, respectively.$3.2 million from the sale of a business included in discontinued operations. Net cash used in investing activities for fiscal 2017also included net proceeds$10.0 million and $17.8 million of $37.3 million frominvestment purchases during fiscal 2020 and redemptions of marketable securities and investments compared to net purchases of $60.0 million in fiscal 2016.2019, respectively.

Net cash provided by financing activities was $1,578.5 million for fiscal 2017, compared to net cash used in financing activities of $866.7was $955.2 million for fiscal 2016.2020, compared to $873.3 million in fiscal 2019. The increase in cash used from financing activities from fiscal 2017 over fiscal 20162019 is primarily due to the net issuancepayment of $1,732.7the $312.5 million of debt and thein fiscal 2020 versus issuance of $312.5 million of debt in fiscal 2019, partially offset by a decrease in stock buybacks. To finance the G&K acquisition, Cintas issued various forms of debt, totaling $2,091.2 million, net. In addition, on June 1, 2016, Cintas paid the $250.0 million five-year senior notes that matured on that date with cash on hand and proceeds from the issuance of commercial paper.
used to repurchase common stock. On August 4, 2015,2, 2016, we announced that the Board of Directors authorized a $500.0 million share buyback program. This program was completed in November 2018. On October 30, 2018, we announced that the Board of Directors authorized a $1.0 billion share buyback program, which does not have an expiration date. DuringOn October 29, 2019, we announced the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. The following table summarizes the buyback activity by program and fiscal 2017, we purchased 0.1 million shares at an average priceyear ended May 31:
20202019
Buyback Program
(In thousands except per share data)
SharesAvg. Price per SharePurchase PriceSharesAvg. Price per SharePurchase Price
August 2, 2016—  $—  $—  2,130  $192.55  $410,003  
October 30, 20181,607  $246.19  $395,681  2,673  $203.30  $543,442  
October 29, 2019—  $—  $—  —  $—  $—  
1,607  $246.19  $395,681  4,803  $198.53  $953,445  

There were no share buybacks in the period subsequent to May 31, 2020 through July 29, 2020, under any share buyback program. From the inception of $94.09 perthe October 30, 2018 share for a total purchase price of $3.7 million. This completed the August 4, 2015buyback program through whichJuly 29, 2020, Cintas has purchased a total of 5.74.3 million shares of Cintas common stock at an average price of $87.89$219.42 for a total purchase price of $500.0$939.1 million. During fiscal 2016, we purchased $759.2 million of common stock under previously authorized share buyback programs. On August 2, 2016, we announced that the Board of Directors authorized a new $500.0 million share buyback program, which does not have an expiration date. ForIn addition, for the fiscal year ended May 31, 2017,2020, Cintas acquired 0.20.3 million shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $101.37$260.89 per share for a total purchase price of $17.0$68.8 million. For the fiscal year ended May 31, 2019, Cintas acquired 0.3 million shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted awards that vested during the fiscal year. These shares were acquired at an average price of 204.50 per share for a total purchase price of $62.9 million.


On October 18, 2016,29, 2019, Cintas declared an annual cash dividend of $1.33$2.55 per share on outstanding common stock, a
26.7% 24.4% increase over the annual dividend paid in the prior year. The dividend was paid on December 2, 20166, 2019, to shareholders of record as of November 4, 2016.8, 2019. This marked the 3437th consecutive year that Cintas has increased its annual dividend, every year since going public in 1983.


On March 21, 2017,During the Company completedfiscal year ended May 31, 2020, Cintas paid a net total of $112.5 million on commercial paper borrowings and paid off the acquisition of G&K. To finance the G&K acquisition, Cintas used a combination of new senior notes, a term loan other borrowings under its existing credit facility andbalance of $200.0 million with cash on hand. During the fiscal year ended May 31, 2019, Cintas issued $112.5 million, net of commercial paper borrowings and received proceeds of $200.0 million as a result of a new term loan.


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The following table summarizes Cintas' outstanding debt at May 31:
(In thousands)Interest
Rate		Fiscal Year
Issued		Fiscal Year
Maturity		20202019
Debt due within one year
Commercial paper2.68 %
(1)
20192020$—  $112,500  
Term loan3.06 %
(1)
20192020—  200,000  
Debt issuance costs—  (236) 
Total debt due within one year$—  $312,264  
Debt due after one year
Senior notes4.30 %20122022$250,000  $250,000  
Senior notes2.90 %20172022650,000  650,000  
Senior notes3.25 %20132023300,000  300,000  
Senior notes (2)
2.78 %2013202351,250  51,684  
Senior notes (3)
3.11 %2015202551,637  51,973  
Senior notes3.70 %201720271,000,000  1,000,000  
Senior notes6.15 %20072037250,000  250,000  
Debt issuance costs(13,182) (16,150) 
   Total debt due after one year$2,539,705  $2,537,507  
(In thousands)
Interest
 Rate
 Fiscal Year Issued Fiscal Year Maturity 2017 2016
          
Debt due within one year         
Senior notes2.85% 2007 2017 $—
 $250,000
Senior notes6.13% 2008 2018 300,000
 —
Commercial paper1.24%
(1) 
Various Various 50,500
 —
Current portion of term loan2.00%
(1) 
2017 2018 12,500
 —
Debt issuance costs      (100) —
Total debt due within one year      $362,900
 $250,000
          
Debt due after one year         
Senior notes6.13% 2008 2018 $—
 $300,000
Senior notes4.30% 2012 2022 250,000
 250,000
Senior notes2.90% 2017 2022 650,000
 —
Senior notes3.25% 2013 2023 300,000
 250,000
Senior notes (2)
2.78% 2013 2023 52,554
 —
Senior notes (3)
3.11% 2015 2025 52,645
 —
Senior notes3.70% 2017 2027 1,000,000
 —
Senior notes6.15% 2007 2037 250,000
 250,000
Long-term portion of term loan2.00%
(1) 
2017 2022 237,500
 —
Debt issuance costs      (22,075) (5,578)
   Total debt due after one year      $2,770,624
 $1,044,422
(1) Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2017.2019.


(2)  Cintas assumed these senior notes with the acquisition of G&K in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%.
(3)  Cintas assumed these senior notes with the acquisition of G&K in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.88%.

The credit agreement that supports our commercial paper program was amended and restated on September 16, 2016.May 24, 2019. The amendment increased the capacity of the revolving credit facility from $450.0$600.0 million to $600.0 million$1.0 billion and addedcreated a $250.0 millionnew term loan facility. The $150.0 million increase in the revolving credit facility took effect upon the consummation of the merger (Merger) contemplated by the Merger Agreement among the Cintas, G&K and Bravo Merger Sub, Inc. (Merger Sub), a wholly-owned subsidiary of Cintas. The term loan was funded upon the consummation of the Merger.$200.0 million. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under either the revolving credit facility or the term loan of up to $250.0 million in the aggregate, subject to customary conditions. The maturity date of the agreementrevolving credit facility is September 15, 2021.May 23, 2024, and the maturity date of the term loan was May 23, 2020. As of May 31, 2017,2020, there was $50.5no commercial paper outstanding and no borrowings on our credit facility. As of May 31, 2019, there was $112.5 million of commercial paper outstanding with a weighted average interest rate of 1.24%2.7% and maturity dates less than 30 days and no borrowings on our revolving credit facility. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2016.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the


maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. Cintas was in compliance with all of the debt covenants for all periods presented.

Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity. We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. OurHowever, the COVID-19 pandemic, which has caused disruption in the capital markets, could make financing more difficult and/or expensive. Additionally, our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness. 
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As of May 31, 2017,2020, our ratings were as follows:
Rating AgencyOutlookCommercial PaperLong-term Debt
Rating AgencyOutlookCommercial PaperLong-term Debt
Standard & Poor’sStableNegativeA-2BBB+A-
Moody’s Investors ServiceStableP-2A3

Standard and Poor's change in outlook from stable to negative reflects the inherent uncertainty regarding the spread of COVID-19 and the potential impact to Cintas’ operating conditions, which could result in Cintas being unable to maintain adjusted leverage of less than two times total debt to EBITDA.

In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected. In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above. The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.
 
To monitor our credit rating and our capacity for long-term financing, we consider various qualitative and quantitative factors. One such factor is the ratio of our total debt to EBITDA. For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and standby letters of credit. 

We have assessed the impact of events subsequent to our balance sheet date but prior to the issuance of this filing. The impact from COVID-19, however, continues to evolve, and the scope and nature of the impacts of COVID-19 remain unclear. As such, our conclusions regarding both our short-term and long-term obligations under capital leases. liquidity position remain unchanged. Management will continue to evaluate the Company’s liquidity position and our near- and longer-term financial performance as we manage the Company through the uncertainty related to COVID-19.

Financial and Nonfinancial Disclosure About Issuers and Guarantors of Cintas’ Senior Notes
As discussed in Note 7 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements," Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $2,550.0 million aggregate principal amount of senior notes outstanding as of May 31, 2020, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly owned, direct and indirect domestic subsidiaries.
Basis of Preparation of the Summarized Financial Information
The following tables include summarized financial information of Cintas Corporation (Issuer), Corp. 2 and subsidiary guarantors (together, the Obligor Group). Investments in and equity in the earnings of non-guarantors, which are not members of the Obligor Group, have been excluded. Non-guarantor subsidiaries are located outside the U.S., and therefore, excluded from the Obligor Group.

The summarized financial information of the Obligor Group is presented on a combined basis with intercompany balances and transactions between entities in the Obligor Group eliminated. The Obligor Group’s amounts due from, amounts due to and transactions with non-guarantors have been presented in separate line items, if they are material. Summarized financial information of the Obligor Group is as follows:
Summarized Consolidated Statement of Income for the Year Ended May 31, 2020
(In thousands)
Obligor Group
Net sales to unrelated parties$6,642,196 
Net sales to non-guarantors$4,778 
Operating income$1,140,318 
Net income$860,022 

24

Summarized Consolidated Balance Sheet as of May 31, 2020
(In thousands)
Obligor Group
Assets
Receivables due from non-obligor subsidiaries$3,199 
Total other current assets$2,143,489 
Total other noncurrent assets$4,938,093 
Liabilities
Amounts due to non-obligor subsidiaries$3,437 
Current liabilities$843,203 
Noncurrent liabilities$3,495,956 

Contractual Obligations
Payments Due by Period
(In thousands)TotalOne year
or less		Two to
three years		Four to
five years		After five
years
Debt (1)
$2,550,000  $—  $1,250,000  $50,000  $1,250,000  
Operating leases (2)
178,131  46,765  68,226  34,725  28,415  
Interest payments606,183  95,530  151,210  108,630  250,813  
Unconditional purchase obligations (3)
117,571  117,571  —  —  —  
Total contractual cash obligations$3,451,885  $259,866  $1,469,436  $193,355  $1,529,228  
 Payments Due by Period
(In thousands)Total 
One year
or less
 
Two to
three years
 
Four to
five years
 
After five
years
          
Debt (1)
$3,155,699
 $363,000
 $25,000
 $1,112,500
 $1,655,199
Operating leases (2)
176,004
 43,775
 64,417
 39,295
 28,517
Interest payments (3)
936,383
 119,547
 199,498
 196,841
 420,497
Unconditional purchase obligations—
 —
 —
 —
 —
Total contractual cash obligations$4,268,086
 $526,322
 $288,915
 $1,348,636
 $2,104,213
(1)See Note 7 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for a detailed presentation of Cintas' debt.
(2)See Note 8 entitled Leases of "Notes to Consolidated financial Statements" for a detailed presentation of Cintas' leases.
(3)Commitments entered into with key suppliers for minimum purchases quantities related to inventory needs in response to COVID-19.
Cintas also makes payments to defined contribution plans.plans and may make payments to defined benefit plans to satisfy minimum funding requirements. The amount of contributions made to the defined contribution plans are at the discretion of the Board of Directors of Cintas. Future contributions to the defined contribution plans are expected to be $51.7$70.2 million in the next year, $111.2$151.2 million in the next two to three years and $122.6$166.7 million in the next four to five years. Cintas may make paymentsFuture contributions to the defined benefit plans are expected to satisfy minimum funding requirements. Currently, Cintas does not expect to make any such payments duringbe $4.8 million in the next year, $6.2 million in the next two to three years and $6.2 million in the next four to five years.
(1)
See Note 6 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for a detailed presentation of Cintas' debt.
(2)
Operating leases consist primarily of operational facility leases.
(3)
Interest payments include interest on both fixed and variable rate debt. As of May 31, 2017, Cintas had approximately $300.5 million of variable rate debt outstanding, which consisted of $50.5 million of commercial paper and a $250.0 million term loan. The interest payments for variable rate debt were estimated using forecasted rates in future years.


Other Commitments
Amount of Commitment Expiration per Period
(In thousands)TotalOne year
or less		Two to
three years		Four to
five years		After five
years
Lines of credit (1)
$999,877  $—  $—  $999,877  $—  
Standby letters of credit and surety bonds (2)
120,634  118,831  1,803  —  —  
Total other commitments$1,120,511  $118,831  $1,803  $999,877  $—  
 Amount of Commitment Expiration per Period
(In thousands)Total 
One year
or less
 
Two to
three years
 
Four to
five years
 
After five
Years
          
Lines of credit (1)
$549,399
 $—
 $549,399
 $—
 $—
Standby letters of credit and surety bonds (2)
110,893
 110,893
 —
 —
 —
Total other commitments$660,292
 $110,893
 $549,399
 $—
 $—
(1)Back-up facility for the commercial paper program (reference Note 7 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for further discussion).

(2)These standby letters of credit and surety bonds support certain outstanding debt (reference Note 7 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements"), self-insured workers' compensation and general liability insurance programs.
(1)
Back-up facility for the commercial paper program (reference Note 6 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for further discussion).
(2)
These standby letters of credit support certain outstanding debt (reference Note 6 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements"), self-insured workers' compensation and general liability insurance programs.
Inflation and Changing Prices
Changes in wages, benefits and energy costs have the potential to materially impact Cintas' consolidated financial results.results of operations. Management believes inflation has not had a material impact on Cintas' consolidated financial condition or a negative impact on the consolidated results of operations.
25

Litigation and Other Contingencies
Cintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows of Cintas.

The Company and three executive officers were defendants in a purported class action, filed on December 12, 2019, pending in the U.S. District Court for the Southern District of Ohio alleging violations of federal securities laws. The lawsuit asserted that the defendants made material misstatements regarding the Company’s margins, earnings guidance and regulatory compliance that caused the Company's stock to trade at artificially inflated prices between March 2017 and November 2019. The lawsuit was dismissed without prejudice on April 22, 2020.

The Company, the Board of Directors, CEO and the Investment Policy Committee are defendants in a purported class action, filed on December 13, 2019, pending in the U.S. District Court for the Southern District of Ohio alleging violations of ERISA. The lawsuit asserts that the defendants improperly managed the costs of the employee retirement plan, breached their fiduciary duties in failing to investigate and select lower cost alternative funds and failed to monitor and control the employee retirement plan’s recordkeeping costs. The defendants deny liability.
New Accounting Standards
In April 2014,February 2016, the Financial Accounting Standards Board (FASB) issued Accounting StandardStandards Update (ASU) 2014-08, “Reporting Discontinued Operations2016-02, “Leases (Topic 842),” as amended. Cintas adopted this standard effective June 1, 2019, using a modified retrospective transition approach. Topic 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and Disclosuresa lease liability for all leases with a term of Disposalsgreater than 12 months regardless of Componentstheir classification. Topic 842 provided a number of an Entity,”optional practical expedients in transition, and we have determined to use certain of these practical expedients upon our adoption of Topic 842. Specifically, the Company elected the package of practical expedients permitted under Topic 842, which amended accounting guidanceallows a lessee to carryforward their population of existing leases, the classification of each lease, as well as the treatment of initial direct lease costs as of the period of adoption. The Company also elected the practical expedient related to lease and non-lease components, as an accounting policy election for the reportingfleet and vehicle asset class, which allows a lessee to not separate non-lease from lease components and instead account for consideration paid in a contract as a single lease component. In addition, the Company elected the short-term lease recognition exemption for all leases with a term of discontinued operations12 months or less, which means it will not recognize right-of-use assets or lease liabilities for these leases. The adoption of Topic 842, on June 1, 2019, resulted in the Company recognizing right-of-use assets, net of $168.0 million and disclosurescorresponding lease liabilities of disposals$173.4 million. The adoption of componentsTopic 842 did not have a material impact on the Company's consolidated statements of an entity. The amended guidance changesincome or consolidated statements of cash flows.

In February 2018, the thresholds for disposalsFASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This standard allows entities to qualify as discontinued operationselect to reclassify the income tax effects of the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings. Effective June 1, 2019, Cintas adopted ASU 2018-02, on a prospective basis, which resulted in a $2.0 million reclassification adjustment of the stranded tax effects from retained earnings to accumulated other comprehensive loss that was determined using a specific identification method.

In April 2019, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 will replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires additional disclosures. This guidanceconsideration of a broader range of reasonable and supportable information to inform credit loss estimates. In connection with recognizing credit losses on accounts receivable and other financial instruments, Cintas will be required to use a forward-looking expected loss model rather than the incurred loss model. ASU 2016-13 is effective for reportingannual periods beginning after December 15, 20142019, with early adoption permitted. The adoption of this standard will be through a cumulative-effect adjustment to retained earnings as of the effective date. Cintas will adopt this standard on June 1, 2020, and the adoption of this standard is not expected to have a material impact on the consolidated financial statements.
26

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to be applied prospectively.the carrying value). This standard was adopted by Cintas adopted ASU 2014-08 duringin the quarter ended August 31, 2015current fiscal year and applieddid not have a material impact on the amended accounting guidance to Shred-it and will apply it to future transactions, as appropriate.consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," to clarify revenue recognition principles. This guidance is intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that is recognized from contracts with customers. This guidance will beWe adopted ASU 2014-09, and all the related amendments, effective for reporting periods beginning after December 15, 2017 and will be required to be applied retrospectively. Early application of the amendments in this update is not permitted. A cross-functional implementation team has been established consisting of representatives from all of our operating segments. The implementation team is working to analyze the impact of the standard on the Cintas' contract portfolio by reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to revenue contracts. In addition, we are in the process of identifying and implementing the appropriate changes to business processes and controls to support recognition and disclosure under the new standard. Cintas plans to adopt the standard as of the first quarter of fiscal year 2019June 1, 2018 using the modified retrospective approach and will recordmethod. ASU 2014-09 requires a cumulativecompany to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon adoption of ASU 2014-09, we recorded an adjustment to equity for open contractsthe opening balance of retained earnings as of June 1, 2018. Cintas is continuingThe adjustment to evaluateretained earnings primarily relates to the impactcapitalization of certain direct and incremental contract costs required by the new guidance. Capitalized costs are amortized ratably over the anticipated period of benefit. We applied ASU 2014-09 only to contracts that were not completed prior to fiscal 2019. The adoption of ASU 2014-09 did not have a material impact on our consolidated statements of comprehensive income and an estimatehad no impact to the Company's operating cash flow.

In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosure required in lieu of those statements. We adopted these amendments for the year ended May 31, 2020. Accordingly, combined summarized financial information has been presented only for the issuer and guarantors of our senior notes for the most recent fiscal year and the year-to-date interim period, and the location of the impactrequired disclosures has been removed from the notes to the consolidated financial statements cannot be made at this time.and moved to Part II. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In April 2015, the FASB issued ASU 2015-17, “Balance Sheet Classifications of Deferred Taxes,” which amended accounting guidance related to the presentation of deferred tax liabilities and assets. The amended guidance requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. This guidance can also be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Cintas adopted ASU 2015-17 during the quarter ended November 30, 2015 and has applied this amended accounting guidance to its deferred tax liabilities and assets for all periods presented.


In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the consolidated condensed balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective for annual and interim periods beginning after December 15, 2015. The guidance is applied retrospectively and early adoption is permitted. Cintas adopted ASU 2015-03 during the quarter ended August 31, 2016 and has applied this amended accounting guidance to its long-term debt and other assets for all periods presented. The impact of this change in accounting principle on balances previously reported as of May 31, 2016 was a reclassification of $5.6 million from other assets to debt due after one year within long-term liabilities.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments.” This amendment eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination. This amendment became effective for Cintas beginning June 1, 2016, and was adopted prospectively in accordance with the standard. The adoption of this amendment did not have an effect on our consolidated financial statements for the fiscal year ended May 31, 2017.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Topic 842 supersedes the previous leases standard, ASC 840, Leases. This guidance is effective for reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Cintas is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 is intended to simplify accounting for share-based payments. Upon adoption, ASU 2016-09 requires that excess tax benefits for share-based payments be recorded as a reduction of income tax expense and reflected within operating cash flows rather than being recorded within equity and reflected within financing cash flows. The standard also permits the repurchase of more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. This update is effective for interim and annual periods beginning after December 15, 2016; however, early adoption is permitted. Cintas adopted ASU 2016-09 during the quarter ended August 31, 2016 and elected to make an accounting policy change to recognize forfeitures as they occur. The adoption impact on the consolidated balance sheet was a cumulative-effect adjustment of $26.7 million, increasing opening retained earnings and decreasing paid-in capital. 
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs.” ASU 2017-07 continues to require the service component of pension and other postretirement benefit costs to be presented in the same line item as other employee compensation costs on the consolidated statement of income and changes the presentation of other components of net benefit cost so that these items will be presented outside of operating income within the consolidated statements of income. Cintas plans to adopt ASU 2017-07 in fiscal 2018 and apply it prospectively. Cintas does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements.
No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the consolidated financial statements.



Critical Accounting Policies and Estimates
The preparation of Cintas' consolidated financial statements in conformity with U. S.U.S. GAAP requires management to make estimates and judgments that have a significant effect on the amounts reported in the consolidated financial statements and accompanying notes. These critical accounting policies should be read in conjunction with Note 1 entitled Significant Accounting Policies of "Notes"Notes to Consolidated Financial Statements.Statements." Significant changes, estimates or assumptions related to any of the following critical accounting policies, including those impacted by COVID-19, could possibly have a material impact on the consolidated financial statements.

Revenue recognition
Rental revenue, which is recorded in the Uniform Rental and Facility Services reportable operating segment, is recognized when services are performed. Other revenue, which is recorded in the First Aid and Safety Services reportable operating segments and All Other, is recognized when either services are performed or when productsthe obligations under the terms of a contract with a customer are shipped andsatisfied. See Note 2 entitled Revenue Recognition of the title and risks of ownership pass"Notes to the customer.Consolidated Financial Statements" for more information on Cintas' revenue.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market. Cintas applies a commonly accepted practice of using inventory turns to apply variances between actual and standard costs to the inventory balances. The judgments and estimates used to calculate inventory turns will have an impact on the valuation of inventories at the lower of cost or market. An inventory obsolescence reserve is determined by specific identification, as well as an estimate based on the Company's historical rates of obsolescence.
Uniforms and other rental items in service
Uniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method. Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months. Uniforms acquired in the G&K acquisition will be amortized over 12 months. Other rental items, including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their useful lives, which range from 8 to 60 months. The amortization rates used are based on industry experience, Cintas' specific experience and wear tests performed by Cintas. These factors are critical to determining the amount of in service inventory and related cost of uniforms and ancillary products that are presented in the consolidated financial statements.
27

Property and equipment
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets based on industry and Cintas specific experience, which is typically 30 to 40 years for buildings, 5 to 20 years for building improvements, 3 to 10 years for equipment and 2 to 15 years for leasehold improvements. When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows or based on prices of similar assets, as appropriate. As a result of the identification of certain G&K plantsrestructuring activities to eliminate excess capacity and branches for future closure,reduce our cost structure, an indicator of potential impairment was identified. Cintas recognized an impairment loss of $23.3$9.2 million during the year ended May 31, 2017,2020, based on the excess of the carrying amount of assetassets over their respective fair values. The undiscounted cash flows were estimated, using Level 2 inputs based on both the cost and market approaches, at the lowest discernible level of cash flows, which is at the location level. Cintas did not identify any indicators of impairment for the fiscal years ended May 31, 20162019 and 2015.2018.

Goodwill
Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test, which may includethat includes an assessment of qualitative factors including, but not limited to, macroeconomic, conditions, industry and market conditions, and entity specific factors such as strategies and financial performance. The test may also includeIn fiscal 2020, we identified the determination of the estimated fair value of Cintas' reporting units via comparisons to current market values, where available, and discounted cash flow analyses. Significant assumptions may include growth rates based on historical trends and margin improvement leveragedimpact from such growth,COVID-19 as well as discount rates. We determine discount rates separately for each reporting unit using the weighted average cost of capital, which includes a calculation of cost of equity, which is developed using the capital asset pricing model and comparable company betas (a measure of systemic risk), and cost of debt. We also use comparable market earnings


multiple data and our market capitalization to corroborate our reporting unit valuations.qualitative factor that necessitated a quantitative analysis. We test for goodwill impairment at the reporting unit level. As a result of Cintas’ operating segment realignment in fiscal 2016 and the acquisition of G&K in fiscal 2017, the composition of Cintas’ reporting units for the evaluation of goodwill impairment has changed. Cintas has identified sixfour reporting units for purposes of evaluating goodwill impairment: Uniform Rental and Facility Services, G&K Services Uniform Rental and Facility Services, First Aid and Safety Services and threetwo reporting units within All Other. Given the proximity of the G&K acquisition date to the consolidated balance sheet date, the Company performedTo test for goodwill impairment, using a high level qualitativequantitative analysis, for its G&K reporting unit, which considered indicators of impairment to evaluate whetherwe estimate the fair value was more-likely-than-not in excess of its carrying value. each of our reporting units using both a discounted cash flow valuation technique and a market-based approach.

The key indicators considered includeimpairment test is dependent upon a number of significant estimates and assumptions, including macroeconomic conditions, industry/market considerations, financial performance,growth rates, competitive activities, cost containment, margin expansion and our business plans. We believe these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and identifiable intangible assets, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values. The most significant assumptions used in the determination of the estimated fair value of the reporting units are the revenue and EBITDA growth rates (including terminal growth rates) and the discount rate. The terminal growth rate represents the rate at which the reporting unit is expected to grow beyond the shorter-term business planning period. The terminal growth rate utilized in our fair value estimate is consistent with the reporting unit operating plans and approximates expected long-term category market growth rates and inflation. The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. The discount rates may be impacted by adverse changes in management,the macroeconomic environment, specifically the COVID-19 pandemic, volatility in the equity and composition of net assets.debt markets or other factors. Based on the results of the annual impairment tests, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2017, 20162020, 2019 or 2015.2018. Cintas will continue to perform impairment tests as of March 1 in future years and when indicators of impairment exist.

Service contracts and other assets
Service contracts and other assets, which consist primarily of noncompete and consulting agreements obtained through acquisitions of businesses, are amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years. The G&K service contract asset will beis being amortized over a period of 15 years, which represents the estimated life of the economic benefit and the asset amortization is based on the annual economic value of the underlying asset, which generally decreases over the 15-year term. Certain noncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contracts and other assets is accomplished through specific identification. No impairment has been recognized by Cintas for the fiscal years ended May 31, 2017, 20162020, 2019 or 2015.2018.
Business Combinations
28

Accounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.  As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income. See Note 9 entitled Acquisitions and Divestitures of the "Notes to Consolidated Financial Statements" for a discussion of the G&K and ZEE Acquisitions.Insurance reserve
GeneralThe insurance liabilities
General insurance liabilities representreserve represents the estimated ultimate cost of all asserted and unasserted claims, incurred, primarily related to worker'sworkers' compensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves are estimated through actuarial procedures, with the assistance of third-party actuarial specialists, of the insurance industry and by using industry assumptions, adjusted for specific expectations based on our claims history. Cintas records an increase or decrease in selling and administrative expenses related to development of prior claims, higher claims activity and other environmental factors in the period in which it becomes known. These changes in estimates may be material to the consolidated financial statements.

Stock-based compensation
Compensation expense is recognized for all share-based payments to employees, including stock options and restricted stock awards, in the consolidated statements of income based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model. MeasuredGenerally, measured compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period of the related share-based compensation award. See Note 12 entitled Stock-Based Compensation of "Notes"Notes to Consolidated Financial Statements"Statements" for further information.



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. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. While a significant change in assumptions and judgments could have a material impact on the amounts recorded for contingent liabilities, Cintas does not believe that they will result in a material adverse effect on the consolidated financial statements.

Income taxes
Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in future periods. Cintas accounts for Global Intangible Low-Taxed Income (GILTI) as a current-period expense when incurred. See Note 89 entitled Income Taxes of "Notes"Notes to Consolidated Financial Statements"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. Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized.

Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas' evaluation of current tax positions, Cintas believes its tax related accruals are appropriate.


29

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
Earnings aremay be affected by changes in short-term interest rates due to investments, if any, in marketable securities and money market accounts and periodic issuances of commercial paper. If short-term rates changed by one-half percent (or 50 basis points), Cintas' income before income taxes would change by approximately $1.1$0.4 million. This estimated exposure considers the effects on investments. 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. Foreign denominated revenue and profit represents less than 10% of Cintas' consolidated revenue and profit. Cintas periodically uses foreign currency hedges such as average rate options and forward contracts to mitigate the risk of foreign currency exchange rate movements resulting from foreign currency revenue and from international cash flows. The primary foreign currency to which Cintas is exposed is the Canadian dollar.

30


Item 8.  Financial Statements and Supplementary Data


Index to Consolidated Financial Statements
Audited Consolidated Financial Statements for the Fiscal Years Ended May 31, 2017, 20162020, 2019 and 20152018


3032
3133
3336
3437
3538
3639
3740
3841




31

Management's Report on
Internal Control over Financial Reporting


To the Shareholders of Cintas Corporation:
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.
With the supervision of our Chairman and Chief Executive Officer and our Chief Financial Officer, management assessed our internal control over financial reporting as of May 31, 2017.2020. Management based its assessment on criteria established in Internal Control — Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed by our internal audit function. The Company’s evaluation of internal control over financial reporting did not include the internal controls of G&K operations subsequent to the acquisition on March 21, 2017, which are included in the 2017 consolidated financial statements and constituted 37.6% of total assets (inclusive of acquired goodwill and identifiable intangible assets which represents 29.6% of total assets) as of May 31, 2017, and 3.5% of revenue for the year then ended.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2017,2020, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.
We reviewed the results of management's assessment with the Audit Committee of our Board of Directors. Additionally, our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of Cintas Corporation's internal control over financial reporting. Ernst & Young LLP has issued an attestation report, which is included in this Annual Report on Form 10-K.


Scott D. Farmer

Chairman and Chief Executive Officer
J. Michael Hansen
Senior
Executive Vice President and Chief Financial Officer



32

Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Cintas Corporation

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cintas Corporation (the Company) as of May 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended May 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated July 29, 2020, expressed an unqualified opinion thereon.

Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers and recognizing costs related to obtaining customer contracts in the period ended May 31, 2019.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements, and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
33

Valuation of Insurance Reserves
Description of the Matter
At May 31, 2020, the Company's insurance reserve was $165.4 million. As described in Note 1 to the Company’s consolidated financial statements, the Company’s insurance reserve represents the estimated ultimate cost of all asserted and unasserted claims primarily related to workers' compensation, auto liability and other general liability exposure. The insurance reserve is estimated through actuarial procedures and by using industry assumptions, adjusted for Company specific expectations based on claims history.

Auditing the Company's estimate of the insurance reserve is judgmental and complex due to the significant estimation uncertainty in the value of asserted claims including their loss development as well as the potential value of unasserted claims, which are developed with the assistance of a third-party actuarial specialist.

How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s insurance reserve. This includes internal controls over the claims activity and actuarial methods used to establish the insurance reserve. Specifically, we tested internal controls related to management’s review of data provided to the actuary, validation of claim activity and review of actuarial methods.

To test the insurance reserve, our audit procedures included, among others, assessing the methodologies used to estimate the insurance reserve and testing the completeness and accuracy of the underlying claims data, vouching payments made to third parties and testing the mathematical accuracy of the actuarially determined insurance reserve. Furthermore, we involved our actuarial specialists to assist in evaluating the methodologies used by management to determine the insurance reserve and comparing the Company’s recorded insurance reserve to a range developed based on independently selected actuarial methodologies.

/s/ ERNST & YOUNG LLP

We have served as the Company's auditor since 1968
Cincinnati, Ohio
July 29, 2020
34

Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and the Board of Directors and Shareholders of Cintas Corporation
Opinion on Internal Control over Financial Reporting
We have audited Cintas Corporation’s internal control over financial reporting as of May 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cintas Corporation’sCorporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of May 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended May 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated July 29, 2020, expressed an unqualified opinion thereon.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.“Report of Management”. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of G&K Services, Inc., which is included in the May 31, 2017 consolidated financial statements of Cintas Corporation and constituted 37.6% of total assets (inclusive of acquired goodwill and identifiable intangible assets which represents 29.6% of total assets) as of May 31, 2017, and 3.5% of revenues for the year then ended. Our audit of internal control over financial reporting of Cintas Corporation also did not include an evaluation of the internal control over financial reporting of G&K Services, Inc.

In our opinion, Cintas Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2017, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Cintas Corporation as of May 31, 2017 and 2016 and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended May 31, 2017 and our report dated July 31, 2017 expressed an unqualified opinion thereon.


/s/ ERNST & YOUNG LLP

Cincinnati, Ohio
July 31, 2017


Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Cintas Corporation
We have audited the accompanying consolidated balance sheets of Cintas Corporation as of May 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 2017. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(a)(2). These consolidated financial statements and schedule are the responsibility of Cintas Corporation’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cintas Corporation at May 31, 2017 and 2016, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 31, 2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cintas Corporation’s internal control over financial reporting as of May 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated July 31, 2017 expressed an unqualified opinion thereon.




/s/ ERNST & YOUNG LLP
Cincinnati, Ohio
July 31, 2017



29, 2020
35
Consolidated
Statements of Income
     
 Fiscal Years Ended May 31,
(In thousands except per share data)2017 2016 2015
      
Revenue:     
Uniform rental and facility services$4,202,490
 $3,759,524
 $3,519,199
Other1,120,891
 1,036,248
 850,478
 5,323,381
 4,795,772
 4,369,677
Costs and expenses:     
Cost of uniform rental and facility services2,307,774
 2,092,833
 1,992,665
Cost of other635,312
 601,599
 484,089
Selling and administrative expenses1,527,380
 1,332,399
 1,209,284
G&K Services, Inc. transaction and integration expenses79,224
 —
 —
Operating income773,691
 768,941
 683,639
      
Gain on sale of stock of an equity method investment—
 —
 21,739
      
Interest income(237) (896) (339)
Interest expense86,524
 64,522
 65,161
      
Income before income taxes687,404
 705,315
 640,556
Income taxes230,118
 256,710
 238,003
Income from continuing operations457,286
 448,605
 402,553
Income from discontinued operations, net of tax of $15,057,
  $138,184 and $15,910, respectively
23,422
 244,915
 28,065
Net income$480,708
 $693,520
 $430,618
      
Basic earnings per share     
Continuing operations$4.27
 $4.08
 $3.44
Discontinued operations0.22
 2.22
 0.24
Basic earnings per share$4.49
 $6.30
 $3.68
      
Diluted earnings per share     
Continuing operations$4.17
 $4.02
 $3.39
Discontinued operations0.21
 2.19
 0.24
Diluted earnings per share$4.38
 $6.21
 $3.63
      
Dividends declared and paid per share$1.33
 $1.05
 $1.70



Consolidated
Statements of Income		Fiscal Years Ended May 31,
(In thousands except per share data)202020192018
Revenue:   
Uniform rental and facility services$5,643,494  $5,552,430  $5,247,124  
Other1,441,626  1,339,873  1,229,508  
Total revenue7,085,120  6,892,303  6,476,632  
Costs and expenses:   
Cost of uniform rental and facility services3,055,145  3,027,599  2,886,959  
Cost of other796,227  736,116  681,150  
Selling and administrative expenses2,071,052  1,980,644  1,916,792  
G&K Services, Inc. integration expenses—  14,410  41,897  
Operating income1,162,696  1,133,534  949,834  
Gain on sale of a cost method investment—  69,373  —  
Interest income(988) (1,228) (1,342) 
Interest expense105,393  101,736  110,175  
Income before income taxes1,058,291  1,102,399  841,001  
Income taxes181,931  219,764  57,069  
Income from continuing operations876,360  882,635  783,932  
(Loss) income from discontinued operations, net of tax
   (benefit) expense of $(107), $757 and $35,313, respectively
(323) 2,346  58,654  
Net income$876,037  $884,981  $842,586  
Basic earnings per share:
Continuing operations$8.36  $8.23  $7.24  
Discontinued operations0.00  0.02  0.54  
Basic earnings per share$8.36  $8.25  $7.78  
Diluted earnings per share:
Continuing operations$8.11  $7.97  $7.03  
Discontinued operations0.00  0.02  0.53  
Diluted earnings per share$8.11  $7.99  $7.56  
Dividends declared and paid per share$2.55  $2.05  $1.62  


See accompanying notes.



36
Consolidated Statements
of Comprehensive Income
     
 Fiscal Years Ended May 31,
(In thousands)2017 2016 2015
      
Net income$480,708
 $693,520
 $430,618
      
Other comprehensive (loss) income, net of tax:     
Foreign currency translation adjustments(10,252) (11,933) (38,538)
Cumulative translation adjustment on Shred-it—
 6,472
 —
Change in fair value of cash flow hedges31,136
 (12,156) 37
Amortization of interest rate lock agreements1,076
 1,952
 1,952
Other(115) (738) (350)
      
Other comprehensive income (loss), net of tax expense (benefit)
     of $19,118, ($9,813) and $1,043, respectively
21,845
 (16,403) (36,899)
      
Comprehensive income$502,553
 $677,117
 $393,719



Consolidated Statements
of Comprehensive Income		Fiscal Years Ended May 31,
(In thousands)202020192018
Net income$876,037  $884,981  $842,586  
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments(11,321) (21,572) 19,276  
Change in fair value of interest rate lock agreements, net of tax
   benefit of $(32,793), $(8,734) and $0, respectively
(94,954) (27,659) —  
Amortization of interest rate lock agreement, net of tax benefit
   of $463, $717 and $571, respectively
(1,433) (1,179) (933) 
Other, net of tax (benefit) expense of $(2,802), $(1,618) and
   $119, respectively
(8,495) (5,085) 1,029  
Other comprehensive (loss) income, net of tax (benefit) expense
   of $(35,132), $(9,635) and $690, respectively
(116,203) (55,495) 19,372  
Comprehensive income$759,834  $829,486  $861,958  


See accompanying notes.




37
Consolidated
Balance Sheets
   
 As of May 31,
(In thousands except share data)2017 2016
    
Assets   
Current assets:   
Cash and cash equivalents$169,266
 $139,357
Marketable securities22,219
 70,405
Accounts receivable, principally trade, less allowance of $20,525 and $19,103, respectively736,008
 546,488
Inventories, net278,218
 249,362
Uniforms and other rental items in service635,702
 538,286
Income taxes, current44,320
 1,712
Prepaid expenses and other current assets30,132
 25,948
Assets held for sale38,613
 19,021
Total current assets1,954,478
 1,590,579
    
Property and equipment, at cost, net1,323,501
 993,692
    
Investments164,788
 124,952
Goodwill2,782,335
 1,276,076
Service contracts, net586,988
 78,194
Other assets, net31,967
 14,283
Long-term assets held for sale—
 21,039
 $6,844,057
 $4,098,815
Liabilities and Shareholders' Equity   
Current liabilities:   
Accounts payable$177,051
 $110,940
Accrued compensation and related liabilities149,635
 101,391
Accrued liabilities429,809
 343,266
Liabilities held for sale11,457
 9,958
Debt due within one year362,900
 250,000
Total current liabilities1,130,852
 815,555
    
Long-term liabilities:   
Debt due after one year2,770,624
 1,044,422
Deferred income taxes469,328
 259,475
Accrued liabilities170,460
 136,704
Total long-term liabilities3,410,412
 1,440,601
    
Shareholders' equity:   
Preferred stock, no par value:   
100,000 shares authorized, none outstanding—
 —
Common stock, no par value:   
425,000,000 shares authorized   
2017: 180,992,605 shares issued and 104,213,479 shares outstanding 
  
2016: 179,598,516 shares issued and 105,400,629 shares outstanding485,068
 409,682
Paid-in capital223,924
 205,260
Retained earnings5,170,830
 4,805,867
Treasury stock: 
  
2017: 75,591,976 shares   
2016: 75,385,037 shares(3,574,000) (3,553,276)
Accumulated other comprehensive loss(3,029) (24,874)
Total shareholders' equity2,302,793
 1,842,659
 $6,844,057
 $4,098,815


Consolidated
Balance Sheets		As of May 31,
(In thousands except share data)20202019
Assets  
Current assets:  
Cash and cash equivalents$145,402  $96,645  
Accounts receivable, principally trade, less allowance of $62,167 and
    $37,809, respectively
870,369  910,120  
Inventories, net408,898  334,589  
Uniforms and other rental items in service770,411  784,133  
Income taxes, current—  7,475  
Prepaid expenses and other current assets114,619  103,318  
Total current assets2,309,699  2,236,280  
Property and equipment, net1,403,065  1,430,685  
Investments214,847  192,346  
Goodwill2,870,020  2,842,441  
Service contracts, net451,529  494,595  
Operating lease right-of-use assets, net159,967  —  
Other assets, net260,758  240,315  
$7,669,885  $7,436,662  
Liabilities and Shareholders' Equity  
Current liabilities:  
Accounts payable$230,995  $226,020  
Accrued compensation and related liabilities127,417  155,509  
Accrued liabilities456,653  433,940  
Income taxes, current27,099  —  
Operating lease liabilities, current43,031  —  
Debt due within one year—  312,264  
Total current liabilities885,195  1,127,733  
Long-term liabilities:  
Debt due after one year2,539,705  2,537,507  
Deferred income taxes388,579  438,179  
Operating lease liabilities122,695  —  
Accrued liabilities498,509  330,522  
Total long-term liabilities3,549,488  3,306,208  
Shareholders' equity:  
Preferred stock, no par value:—  —  
100,000 shares authorized, NaN outstanding
Common stock, no par value:1,102,689  840,328  
425,000,000 shares authorized  
2020: 186,793,207 shares issued and 103,415,368 shares outstanding  
2019: 184,790,626 shares issued and 103,284,401 shares outstanding
Paid-in capital171,521  227,928  
Retained earnings7,296,509  6,691,236  
Treasury stock:(5,182,137) (4,717,619) 
2020: 83,377,839 shares  
2019: 81,506,225 shares
Accumulated other comprehensive loss(153,380) (39,152) 
Total shareholders' equity3,235,202  3,002,721  
$7,669,885  $7,436,662  
See accompanying notes.

38


Consolidated
Statements of Shareholders' Equity
Common Stock  Paid-In
Capital		Retained
Earnings		Other
Accumulated
Comprehensive
Income (Loss)		Treasury Stock  Total
Shareholders'
Equity
(In thousands)SharesAmountSharesAmount
Balance at June 1, 2017180,993  $485,068  $223,924  $5,170,830  $(3,029) (75,592) $(3,574,000) $2,302,793  
Net income—  —  —  842,586  —  —  —  842,586  
Comprehensive income, net of tax—  —  —  —  19,372  —  —  19,372  
Dividends—  —  —  (175,589) —  —  —  (175,589) 
Stock-based compensation—  —  112,835  —  —  —  —  112,835  
Vesting of stock-based compensation awards701  91,548  (91,548) —  —  —  —  —  
Stock options exercised, net of shares
surrendered		1,029  41,848  —  —  —  —  —  41,848  
Repurchase of common stock—  —  —  —  —  (805) (127,319) (127,319) 
Balance at May 31, 2018182,723  618,464  245,211  5,837,827  16,343  (76,397) (3,701,319) 3,016,526  
Net income—  —  —  884,981  —  —  —  884,981  
Comprehensive loss, net of tax—  —  —  —  (55,495) —  —  (55,495) 
Dividends—  —  —  (220,764) —  —  —  (220,764) 
Stock-based compensation—  —  139,210  —  —  —  —  139,210  
Vesting of stock-based compensation awards766  156,493  (156,493) —  —  —  —  —  
Stock options exercised, net of shares
surrendered		1,302  65,371  —  —  —  —  —  65,371  
Repurchase of common stock—  —  —  —  —  (5,109) (1,016,300) (1,016,300) 
Cumulative effect of change in accounting
principle		—  —  —  189,192  —  —  —  189,192  
Balance at May 31, 2019184,791  840,328  227,928  6,691,236  (39,152) (81,506) (4,717,619) 3,002,721  
Net income—  —  —  876,037  —  —  —  876,037  
Comprehensive loss, net of tax—  —  —  —  (116,203) —  —  (116,203) 
Dividends—  —  —  (267,956) —  —  —  (267,956) 
Stock-based compensation—  —  115,435  —  —  —  —  115,435  
Vesting of stock-based compensation awards641  171,842  (171,842) —  —  —  —  —  
Stock options exercised, net of shares
surrendered		1,361  90,519  —  —  —  —  —  90,519  
Repurchase of common stock—  —  —  —  —  (1,872) (464,518) (464,518) 
Cumulative effect of change in accounting
principle		—  —  —  (2,808) 1,975  —  —  (833) 
Balance at May 31, 2020186,793  $1,102,689  $171,521  $7,296,509  $(153,380) (83,378) $(5,182,137) $3,235,202  
 Common Stock   
Paid-In
Capital
 
Retained
Earnings
 
Other
Accumulated
Comprehensive
Income (Loss)
 Treasury Stock   
Total
Shareholders'
Equity
(In thousands)Shares Amount    Shares Amount 
                
Balance at June 1, 2014176,378
 $251,753
 $134,939
 $3,998,893
 $28,428
 (59,341) $(2,221,155) $2,192,858
Net income—
 —
 —
 430,618
 —
 —
 —
 430,618
Comprehensive loss, net of tax—
 —
 —
 —
 (36,899) —
 —
 (36,899)
Dividends—
 —
 —
 (201,891) —
 —
 —
 (201,891)
Stock-based compensation—
 —
 47,002
 —
 —
 —
 —
 47,002
Vesting of stock-based compensation awards575
 37,265
 (37,265) —
 —
 —
 —
 —
Stock options exercised, net of shares surrendered1,164
 40,230
 —
 —
 —
 —
 —
 40,230
Repurchase of common stock—
 —
 —
 —
 —
 (7,073) (551,970) (551,970)
Other—
 —
 12,507
 —
 —
 —
 —
 12,507
Balance at May 31, 2015178,117
 329,248
 157,183
 4,227,620
 (8,471) (66,414) (2,773,125) 1,932,455
Net income—
 —
 —
 693,520
 —
 —
 —
 693,520
Comprehensive loss, net of tax—
 —
 —
 —
 (16,403) —
 —
 (16,403)
Dividends—
 —
 —
 (115,273) —
 —
 —
 (115,273)
Stock-based compensation—
 —
 79,293
 —
 —
 —
 —
 79,293
Vesting of stock-based compensation awards605
 52,208
 (52,208) —
 —
 —
 —
 —
Stock options exercised, net of shares surrendered876
 28,226
 —
 —
 —
 —
 —
 28,226
Repurchase of common stock—
 —
 —
 —
 —
 (8,971) (780,151) (780,151)
Other—
 —
 20,992
 —
 —
 —
 —
 20,992
Balance at May 31, 2016179,598
 409,682
 205,260
 4,805,867
 (24,874) (75,385) (3,553,276) 1,842,659
Net income—
 —
 —
 480,708
 —
 —
 —
 480,708
Comprehensive income, net of tax—
 —
 —
 —
 21,845
 —
 —
 21,845
Dividends—
 —
 —
 (142,433) —
 —
 —
 (142,433)
Stock-based compensation—
 —
 88,868
 —
 —
 —
 —
 88,868
Vesting of stock-based compensation awards429
 43,516
 (43,516) —
 —
 —
 —
 —
Stock options exercised, net of shares surrendered966
 31,870
 —
 —
 —
 —
 —
 31,870
Repurchase of common stock—
 —
 —
 —
 —
 (207) (20,724) (20,724)
Adoption of new accounting guidance—
 —
 (26,688) 26,688
 —
 —
 —
 —
Balance at May 31, 2017180,993
 $485,068
 $223,924
 $5,170,830
 $(3,029) (75,592) $(3,574,000) $2,302,793



See accompanying notes.


39
Consolidated
Statements of Cash Flows
     
 Fiscal Years Ended May 31,
(In thousands)2017 2016 2015
Cash flows from operating activities:     
Net income$480,708
 $693,520
 $430,618
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation171,565
 149,691
 140,624
Amortization of intangible assets25,030
 15,588
 14,458
Stock-based compensation88,868
 79,293
 47,002
Gain on Storage(1,460) (15,786) (38,573)
(Gain) loss on Shred-it(25,457) (354,071) 3,851
Gain on sale of stock of an equity method investment—
 —
 (21,739)
Asset impairment charge23,331
 —
 —
G&K Services, Inc. transaction and integration costs31,445
 —
 —
Short-term debt financing fees included in net income17,062
 —
 —
Settlement of cash flow hedges30,194
 —
 —
Deferred income taxes3,902
 (59,302) 20,866
Change in current assets and liabilities, net of acquisitions of businesses: 
  
  
Accounts receivable, net(93,557) (52,762) (1,443)
Inventories, net(668) (17,917) 23,785
Uniforms and other rental items in service(8,732) (6,306) (31,994)
Prepaid expenses and other current assets24,201
 (965) (3,202)
Accounts payable13,726
 (564) (33,445)
Accrued compensation and related liabilities13,654
 13,512
 3,234
Accrued liabilities and other(501) 22,714
 33,066
Income taxes, current(29,424) (800) (6,832)
Net cash provided by operating activities763,887
 465,845
 580,276
Cash flows from investing activities:     
Capital expenditures(273,317) (275,385) (217,720)
Proceeds from redemption of marketable securities218,324
 434,179
 161,938
Purchase of marketable securities and investments(181,065) (494,146) (195,471)
Proceeds from Storage transactions, net of cash contributed2,400
 35,338
 158,428
Proceeds from Shredding transactions25,876
 580,837
 3,344
Proceeds from sale of stock of an equity method investment—
 —
 29,933
Dividends received on equity method investment—
 —
 5,247
Dividends received on Shred-it—
 —
 113,400
Acquisitions of businesses, net of cash acquired(2,102,371) (156,579) (15,495)
Other, net(196) 4,137
 1,383
Net cash (used in) provided by investing activities(2,310,349) 128,381
 44,987
Cash flows from financing activities:     
Proceeds from issuance of commercial paper, net50,500
 —
 —
Proceeds from issuance of debt, net1,932,229
 —
 —
Repayment of debt(250,000) (16) (518)
Payment of short-term debt financing fees(17,062) —
 —
Proceeds from exercise of stock-based compensation awards31,870
 28,226
 40,230
Dividends paid(142,433) (115,273) (201,891)
Repurchase of common stock(20,724) (780,151) (551,970)
Other, net(5,878) 490
 1,589
Net cash provided by (used in) financing activities1,578,502
 (866,724) (712,560)
Effect of exchange rate changes on cash and cash equivalents(2,131) (5,218) (8,918)
Net increase (decrease) in cash and cash equivalents29,909
 (277,716) (96,215)
Cash and cash equivalents at beginning of year139,357
 417,073
 513,288
Cash and cash equivalents at end of year$169,266
 $139,357
 $417,073


Consolidated
Statements of Cash Flows		Fiscal Years Ended May 31,
(In thousands)202020192018
Cash flows from operating activities:   
Net income$876,037  $884,981  $842,586  
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation235,905  223,631  215,476  
Amortization of intangible assets and capitalized contract costs143,148  136,462  63,940  
Stock-based compensation115,435  139,210  112,835  
Long-lived asset impairment9,220  —  —  
Gain on sale of a cost method investment—  (69,373) —  
Gain on sale of business—  (3,200) (96,400) 
Deferred income taxes(16,252) 31,708  (119,295) 
Change in current assets and liabilities, net of acquisitions of businesses:   
Accounts receivable, net39,681  (94,918) (66,267) 
Inventories, net(74,773) (60,039) (3,323) 
Uniforms and other rental items in service12,773  (90,228) (64,299) 
Prepaid expenses and other current assets and capitalized
contract costs		(110,248) (100,765) (15,526) 
Accounts payable2,629  12,276  35,275  
Accrued compensation and related liabilities(26,476) 15,321  (9,392) 
Accrued liabilities and other49,906  30,910  42,468  
Income taxes, current34,498  11,886  26,082  
Net cash provided by operating activities1,291,483  1,067,862  964,160  
Cash flows from investing activities:   
Capital expenditures(230,289) (276,719) (271,699) 
Proceeds from redemption of marketable securities and investments—  —  179,857  
Purchase of marketable securities and investments(10,031) (17,841) (153,708) 
Proceeds from sale of assets13,300  —  —  
Proceeds from sale of a cost method investment—  73,342  —  
Proceeds from sale of business—  3,200  127,835  
Acquisitions of businesses, net of cash acquired(53,720) (9,813) (19,346) 
Other, net(4,658) (7,807) 1,363  
Net cash used in investing activities(285,398) (235,638) (135,698) 
Cash flows from financing activities:   
(Payments) issuance of commercial paper, net(112,500) 112,500  (50,500) 
Proceeds from issuance of debt—  200,000  —  
Repayment of debt(200,000) —  (550,000) 
Proceeds from exercise of stock-based compensation awards90,519  65,371  41,848  
Dividends paid(267,956) (220,764) (175,589) 
Repurchase of common stock(464,518) (1,016,300) (127,319) 
Other, net(752) (14,112) (2,580) 
Net cash used in financing activities(955,207) (873,305) (864,140) 
Effect of exchange rate changes on cash and cash equivalents(2,121) (998) 5,136  
Net increase (decrease) in cash and cash equivalents48,757  (42,079) (30,542) 
Cash and cash equivalents at beginning of year96,645  138,724  169,266  
Cash and cash equivalents at end of year$145,402  $96,645  $138,724  
See accompanying notes.

40


Notes to Consolidated Financial Statements

Note 1.  Significant Accounting Policies
Business description.  Cintas Corporation (collectively with its majority-owned subsidiaries and any entities over which it has control, Cintas)Cintas, Company, we, us or our) helps more than one million1000000 businesses of all types and sizes, primarily in North America,the United States (U.S.), as well as Canada, Latin America, Europe and Asia, get Ready™READY™ to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care,mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and safetytraining and compliance training,courses, Cintas helps customers get Ready for the Workday™Workday®.
On March 21, 2017, Cintas completed the acquisition of G&K Services, Inc. (G&K) for consideration of approximately $2.1 billion. G&K is now a wholly-owned subsidiary of Cintas that will operate within
Cintas’ reportable operating segments are the Uniform Rental and Facility Services operating segment. To financesegment and the G&K acquisition, Cintas used a combination of new senior notes, a term loan, other borrowings under its existing credit facility and cash on hand. G&K's results of operations are included in Cintas' consolidated financial statements as of and from the date of acquisition.
U.S. Generally Accepted Accounting Principles (U. S. GAAP) requires companies to evaluate their reportable operating segments periodically and when certain events occur. As a result of our evaluation in fiscal 2016, effective June 1, 2015, Cintas realigned its organizational structure and updated its reportable operating segments in light of certain changes in its business, including the acquisition of ZEE Medical Inc. (ZEE) in the first quarter of fiscal 2016. Cintas’ updated reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services.Services operating segment. The Uniform Rental and Facility Services reportable operating segment, which includes G&K, consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies, carpet and tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ business,operating segments, which consists of the Fire Protection Services operating segment and itsthe Uniform Direct Sale business, isoperating segment, are included in All Other. Cintas evaluates operating segment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these reportable operating segments for the years ended May 31, 2017, 20162020, 2019 and 20152018 are presented in Note 14 entitled Operating Segment Information. The Company regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker (CODM) regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.
At May 31, 2017, Cintas
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and has classifiedsince spread globally. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Through the first three quarters of fiscal 2020, the COVID-19 pandemic did not have a significant business, referredimpact on our business. However, efforts to as "Discontinued Services," as held for sale.  Prior to meetingcontain the held for sale criteria, Discontinued Services was primarily includedspread of COVID-19 intensified during our fiscal 2020 fourth quarter. Most states and municipalities within the U.S. enacted temporary closures of businesses, issued quarantine orders and took other restrictive measures in All Other. In fiscal 2014, Cintas completed its partnership transaction with the shareholders of Shred-it International Inc. to combine Cintas' shredding business (Shredding) with the shredding business of Shred-it International Inc. (the Shredding Transaction). Pursuantresponse to the Shredding Transaction,COVID-19 pandemic. Within the newly formed partnership (the Shred-it Partnership) was owned 42% by CintasU.S., our business has been designated an essential business, which allows us to continue to serve customers that remain open. In these consolidated financial statements and 58% byrelated disclosures, we have assessed the shareholderscurrent impact of Shred-it International Inc. Cintas' investmentCOVID-19 on our consolidated financial condition, results of operations, and cash flows, as well as our estimates and accounting policies. We have made additional disclosures of these assessments, as necessary. Given the unprecedented nature of this situation, we cannot reasonably estimate the full extent of the impact COVID-19 will have on our consolidated financial condition, results of operations, or cash flows in the Shred-it Partnership (Shred-it)foreseeable future. The ultimate impact of COVID-19 on us is highly uncertain and will depend on future developments, and such impacts could exist for an extended period of time, even after the results of Shredding are classified as discontinued operations for all periods presented as a result of selling the investment during fiscal 2016. During fiscal 2015, Cintas sold the storage business (Storage) and, as a result, its operations are also classified as discontinued operations for all periods presented. In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results of Discontinued Services, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented. See Note 16 entitled Discontinued Operations for additional information.COVID-19 pandemic subsides.

Principles of consolidation.  The consolidated financial statements include the accounts of Cintas controlled majority-owned subsidiaries and any entities over which Cintas has control. Intercompany balances and transactions have been eliminated as appropriate.
Consolidated Financial statement presentation.  We have reclassified certain prior-year amounts, primarily related to discontinued operations, to conform to the current year’s presentation.


Use of estimates.  The preparation of consolidated financial statements in conformity with U.S. GAAPGenerally Accepted Accounting Principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, government policies surrounding the containment of COVID-19 and changes in the prices of raw materials, can have a significant effect on operations. These factors and other events could cause actual results to differ from management's estimates.
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Revenue recognition.  Rental revenue, which is recorded in the Uniform Rental and Facility Services reportable operating segment, is recognized when services are performed. Other revenue, which is recorded in the First Aid and Safety Services reportable operating segment and All Other, is recognized when either services are performed or when productsthe performance obligation under the terms of a contract with a customer are shipped andsatisfied. Revenue is measured as the title and risksamount of ownership passconsideration we expect to receive in exchange for the customer.performance of the service or transfer of the inventory. See Note 2 entitled Revenue Recognition.

Cost of uniform rental and facility services.  Cost of uniform rental and facility services consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. The Uniform Rental and Facility Services reportable operating segment inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution are included in the cost of uniform rental and facility services.

Cost of other.  Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other includes inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution.

Selling and administrative expenses.  Selling and administrative expenses consist primarily of sales labor and commissions, management and administrative labor, payroll taxes, medical expense, insurance expense, legal and professional costs and amortization of finite-lived intangible assets.assets and capitalized contract costs. As a result of the adverse impact that the COVID-19 pandemic has had on the economic environment in North America and the ongoing uncertainty regarding the severity and duration of the pandemic, Cintas initiated certain activities to reduce operating costs and better align its workforce with the needs of its ongoing business. During the fourth quarter of fiscal 2020, Cintas recorded a total of $24.5 million in employee termination costs, of which $20.2 million was recorded in the Uniform Rental and Facility Services reportable operating segment. The amount of employee termination benefits paid during the fiscal year ended May 31, 2020 was $14.3 million, which resulted in a related liability balance of $10.2 million at May 31, 2020 recorded in accrued compensation and related liabilities on the consolidated balance sheet. We anticipate the remaining accrued employee termination benefits to be paid by the end of the next fiscal year.

G&K transaction andServices, Inc. integration expenses. As a result of the acquisition of G&K Services, Inc. (G&K) in fiscal 2017, the Company incurred various transaction and integration expenses in fiscal 2019 and 2018, which relaterelated primarily to asset impairment charges,facility closure expenses, legal and professional fees, employee termination expenses the write-off of excess inventory and other miscellaneous expenses. See Note 17 entitled G&K Transaction andServices, Inc. Integration Expenses.

Cash and cash equivalents.  Cintas considers all highly liquid domestic investments with a maturity of three months or less, at date of purchase, to be cash equivalents. At May 31, 20172020 and 2016,2019, cash and cash equivalents includes $30.6$31.8 million and $50.6$31.4 million, respectively, of restricted cash used as collateral associated with the generalour insurance program.reserve.
Marketable securities.  Marketable securities are typically comprised of fixed income securities and are classified as available-for-sale.
Accounts receivable.Accounts receivable is comprised of amounts owed through product shipments and services provided and is presented net of an allowance for doubtful accounts. The allowance isincludes both an estimate, based on historical rates of collections, and allowancesreserves for specific accounts identified as uncollectible. The portion of the allowance that is an estimate based on Cintas' historical rates of collections 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 Uniform Rental and Facility Services reportable operating segment, the First Aid and Safety Services reportable operating segment and All Other because of differences in customers served and the nature of each business. In response to the economic disruption created by the COVID-19 pandemic and the resulting impact on our customer base, Cintas performed an additional evaluation of amounts due from customers in every operating segment that were deemed to be higher collection risk. This evaluation, which occurred in the fourth quarter of fiscal 2020, resulted in an allowance for doubtful accounts in excess of historical rates. The judgment applied to increase the allowance for doubtful accounts beyond our historical policy was deemed to be reasonable and supportable based on the data available as of the consolidated balance sheet date. When an account is considered uncollectible, it is written off against the allowance for doubtful accounts.
Inventories.
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Inventories, net.   Inventories are valued at the lower of cost (first-in, first-out) or market. Cintas applies a commonly accepted practice of using inventory turns to apply variances between actual and standard costs to the inventory balances. The judgments and estimates used to calculate inventory turns will have an impact on the valuation of inventories at the lower of cost or market.net realizable value. Inventory is comprised of the following amounts at May 31:
(In thousands)20202019
Raw materials$18,661  $17,812  
Work in process29,497  28,820  
Finished goods360,740  287,957  
$408,898  $334,589  
(In thousands)2017 2016
    
Raw materials$17,528
 $17,794
Work in process17,951
 14,731
Finished goods242,739
 216,837
 $278,218
 $249,362



Inventories are recorded net of reserves for obsolete inventory of $38.3$45.5 million and $32.7 million at May 31, 20172020 and 2016,2019, respectively. The inventory obsolescence reserve is determined by specific identification, as well as an estimate based on Cintas' historical rates of obsolescence. The increasedisruption created by the COVID-19 pandemic in the fourth quarter of fiscal 2020 resulted in a larger quantity of inventory on hand at the end of fiscal 2020 in comparison to fiscal 2019, specifically within our Uniform Direct Sales operating segment. Consequently, an additional reserve, during fiscal 2017determined through specific identification, was established for inventory within this operating segment. The judgment applied to increase the obsolete inventory reserve beyond our historical policy was deemed to be reasonable and supportable based on the data available as of the consolidated balance sheet date. Once a specific inventory item is relatedwritten down to excessthe lower of cost or net realizable value, a new cost basis has been established, and that inventory obtained in the G&K acquisition.item cannot subsequently be marked up.

Uniforms and other rental items in service.  These items are valued at cost less amortization, calculated using the straight-line method. Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months. Uniforms acquired in the G&K acquisition will be amortized over 12 months. Other rental items, including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their useful lives, which range from 8 to 60 months. The amortization rates used are based on industry experience, Cintas' specific experience and wear tests performed by Cintas. These factors are critical to determining the amount of in service inventory and related cost of uniforms and facility services that are presented in the consolidated financial statements.

Property and equipment.   Property and equipment is stated at cost, less accumulated depreciation or at fair value upon acquisition. Depreciation is calculated using the straight-line method primarily over the following estimated useful lives of the assets based on industry and Cintas specific experience, in years:

Buildings30 to 40
Building improvements5 to 20
Equipment3 to 10
Leasehold improvements2 to 15
Investments. Investments consists primarily of the cash surrender value of life insurance policies and equity method investments. The equity method is used to account for an investment if our investment gives us the ability to exercise significant influence over the operating and financial policies of the investee. In general, equity method investments are initially measured at cost. However, an equity method investment resulting from a transaction in which a controlled group of assets that constitutes a business is deconsolidated is initially measured at fair value. Cintas recognizes its share of the investee’s earnings or losses in income. Cintas also adjusts its share of the investee's earnings for intra-entity transactions, basis differences, investee capital transactions and other comprehensive income through income or other comprehensive income as appropriate. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.
Long-lived assets.When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows, prices of similar assets or third partythird-party real estate valuations, as appropriate. As a result of the identification of certain G&K plantsactivities to eliminate excess capacity and branches for future closure,reduce our cost structure in response to COVID-19, an indicator of potential impairment was identified. Cintas recognized an impairment loss of $23.3$9.2 million in the Uniform Rental and Facility Services reportable operating segment during the year ended May 31, 2017,2020, based on the excess of the carrying amount of asset over their respective fair values. The long-lived asset impairment charge was recorded within selling and administrative expenses on the consolidated statement of income. The undiscounted cash flows used to test recoverability were performed,estimated, using Level 2 inputs based on both the cost and market approaches, at the lowest discernible level of cash flows, which is at the location level. Cintas did not identify any indicators of impairment for the fiscal years ended May 31, 20162019 and 2015.2018.

Investments. Investments consists primarily of the cash surrender value of life insurance policies and equity method investments. The equity method is used to account for an investment if our investment gives us the ability to exercise significant influence over the operating and financial policies of the investee. In general, equity method investments are initially measured at cost. Cintas recognizes its share of the investee’s earnings or losses in income. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.
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Goodwill.  Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test, which may includethat includes an assessment of qualitative factors including, but not limited to, macroeconomic conditions, industry and market conditions, and entity specific factors such as strategies and financial performance. The test may also includeIn fiscal 2020, we identified the determination of the estimated fair value of Cintas' reporting units via comparisons to current market values, where available, and discounted cash flow analyses. Significant assumptions may include growth rates based on historical trends and margin improvement leveragedimpact from such growth,COVID-19 as well as discount rates. We determine discount rates separately for each reporting unit using the weighted average cost of capital, which includes a calculation of cost of equity, which is developed using the capital asset pricing model and comparable company betas (a measure of systemic risk), and cost of debt. We also use comparable market earnings multiple data and our market capitalization to corroborate our reporting unit valuations.qualitative factor that necessitated a quantitative analysis. We test for goodwill impairment at the reporting unit level. As a result of Cintas’ operating segment realignment in fiscal 2016 and the acquisition of G&K in fiscal 2017, the composition of Cintas’ reporting units for the evaluation of goodwill impairment has changed. Cintas has identified six4 reporting units for purposes of evaluating goodwill impairment: Uniform Rental and Facility Services, G&K Services Uniform Rental and Facility Services, First Aid and Safety Services and three2 reporting units within All Other. Given the proximity of the G&K acquisition date to the consolidated balance sheet date, the Company


performedTo test for goodwill impairment, using a high level qualitativequantitative analysis, for its G&K reporting unit, which considered indicators of impairment to evaluate whetherwe estimate the fair value was more-likely-than-not in excess of its carrying value. each of our reporting units using both a discounted cash flow valuation technique and a market-based approach.

The key indicators considered includeimpairment test is dependent upon a number of significant estimates and assumptions, including macroeconomic conditions, industry/market considerations, financial performance,growth rates, competitive activities, cost containment, margin expansion and our business plans. We believe these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and identifiable intangible assets, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values. The most significant assumptions used in the determination of the estimated fair value of the reporting units are the revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) growth rates (including terminal growth rates) and the discount rate. The terminal growth rate represents the rate at which the reporting unit is expected to grow beyond the shorter-term business planning period. The terminal growth rate utilized in our fair value estimate is consistent with the reporting unit operating plans and approximates expected long-term category market growth rates and inflation. The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. The discount rates may be impacted by adverse changes in management,the macroeconomic environment, specifically the COVID-19 pandemic, volatility in the equity and composition of net assets.debt markets or other factors. Based on the results of the annual impairment tests, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2017, 20162020, 2019 or 2015.2018. Cintas will continue to perform impairment tests as of March 1 in future years and when indicators of impairment exist.

Service contracts and other assets.  Service contracts and other assets, which consist primarily of capitalized contract costs and noncompete and consulting agreements obtained through acquisitions of businesses, are generally amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years. The G&K service contract asset will beis being amortized over a period of 15 years, which represents the estimated life of the economic benefit and thebenefit. The G&K service contract asset amortization is based on the annual economic value of the underlying asset which generally decreases over the 15-year term. Certain noncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contracts and other assets is accomplished through specific identification. NoNaN impairment has been recognized by Cintas for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015.2018.
Business Combinations. Accounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.  As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income. See Note 9 entitled Acquisitions and Divestitures for a discussion of the G&K and ZEE Acquisitions.
Debt Issuance Costs. issuance costs. Debt issuance costs for the revolving credit facility are included in other assets and all other debt issuance costs reduce the carrying amount of long-term debt.

Accrued liabilities.  Current accrued liabilities are recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Current accrued liabilities includeconsist of the following amounts at May 31:
(In thousands)20202019
Insurance reserve$165,427  $165,667  
Employee benefit related liabilities134,846  123,794  
Accrued interest24,538  24,687  
Other131,842  119,792  
$456,653  $433,940  
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(In thousands)2017 2016
    
General insurance liabilities$153,743
 $128,759
Employee benefit related liabilities110,104
 75,587
Taxes and related liabilities8,057
 5,765
Accrued interest36,638
 26,682
Other121,267
 106,473
 $429,809
 $343,266
Long-term accrued liabilities consist primarily of retirement obligations, which are described in more detail in Note 10 entitled Employee Benefit Plans, interest rate lock agreements, which are described in more detail in Note 7 entitled Debt and Derivatives, reserves associated with unrecognized tax benefits, which are described in more detail in Note 9 entitled Income Taxes and environmental obligations, which are further described below.
General
Insurance reserve. The insurance liabilities representreserve represents the estimated ultimate cost of all asserted and unasserted claims incurred, primarily related to workers' compensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves are estimated through actuarial procedures, with the assistance of third-party actuarial specialists, of the insurance industry and by using industry assumptions, adjusted for specific expectations based on our claims history. Cintas records an increase or decrease in selling and administrative expenses related to development of prior claims, higher claims activity and other environmental factors in the period in which it becomes known. These changes in estimates may be material to the consolidated financial statements. The increase

Environmental obligations. Environmental obligations, including obligations obtained through past business acquisitions, are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated. Cintas’ environmental obligations are estimated based on an evaluation of various factors, including currently available facts, existing technology, presently enacted laws and regulations, and remediation experience. Where the available information is sufficient to estimate the amount of the obligation, that estimate has been recorded. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. Management actively monitors all locations for compliance and changes in accrued liabilities from May 31, 2016facts and circumstances. No one location or site is deemed to May 31, 2017 is primarily relatedbe material or in violation of the applicable laws and regulations, even though costs are being incurred. Costs estimated for environmental obligations are not discounted to the acquisition of G&K.their present value.
Long-term accrued liabilities consists primarily of reserves associated with unrecognized tax benefits, which are described in more detail in Note 8 entitled Income Taxes, and retirement obligations, which are described in more detail in Note 10 entitled Employee Benefit Plans.


Pension Plans.plans. The Company assumed G&K's noncontributory, defined benefit pension plan (the Pension Plan) covering substantially all employees who were employed as of July 1, 2005, except certain employees who are covered by union-administered plans. Benefits are based on the number of years of service and each employee's compensation near retirement. G&K froze the Pension Plan effective December 31, 2006. Future growth in benefits will not occur after this date. The Company's funding policy provides for contributions of an amount between the minimum required and maximum amount that can be deducted for federal income tax purposes. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at May 31, the measurement date. The benefit obligation is the projected benefit obligation (PBO). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. The measurement of the PBO is based on the Company’s estimates and actuarial valuations. The fair value of plan assets represents the current market value of assets held by an irrevocable trust fund for the sole benefit of participants. These valuations reflect the terms of the Pension Plan and use participant-specific information such as compensation, age and years of service, as well as certain assumptions that require significant judgment, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates. We recognize, as of a measurement date, any unrecognized actuarial net gains or losses that exceed 10%ten percent of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts insideoutside the corridor are amortized over the plan participants' life expectancy. We determine the expected return on assets using the fair value of plan assets.

Stock-based compensation.  Compensation expense is recognized for all share-based payments to employees, including stock options and restricted stock awards, in the consolidated statements of income based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model. MeasuredGenerally, measured compensation cost, net of actual forfeitures, is recognized on a straight-line basis over the vesting period of the related share-based compensation award.

Derivatives and hedging activities.  Cintas formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Derivatives are recorded at fair value on the consolidated balance sheet, and gains and losses are recorded as adjustments to income or other comprehensive income, as appropriate. For derivative financial instruments that are designated as a hedge, unrealized gains and losses related to the effective portion are either recognized in income immediately to offset the realized gain or loss on the hedged item, or are deferred and reported as a component of other comprehensive income (loss) in stockholders'shareholders' equity and subsequently recognized in net income when the hedged item affects net income. The change in fair value of the ineffective portion of a derivative financial instrument is recognized in net income immediately.
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Income taxes. The provision for income taxes includes taxes paid, currently payable or receivable and those deferred. Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in future periods. Cintas accounts for Global Intangible Low-Taxed Income (GILTI) as a current-period expense when incurred. See Note 89 entitled Income Taxes 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. Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized.

Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas' evaluation of current tax positions, Cintas believes its tax related accruals are appropriate.

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. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or consolidated results of operations of Cintas.



Fair value measurements. Financial Accounting Standards Board (FASB) Accounting StandardStandards Codification (ASC) Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1 —Quoted prices in active markets for identical assets or liabilities.
Level 2 —Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Cintas' assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers between levels for the years ended May 31, 20172020 or 2016.2019. The carrying value of accounts receivable and accounts payable, and other current assets and liabilities, approximate fair value because of the short-term maturity of those instruments.
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In order to meet the requirements of ASC 820, Cintas utilizes two basic valuation approaches to determine the fair value of its assets and liabilities required to be recorded on a recurring basis at fair value. The first approach is the cost approach. The cost approach is generally the value a market participant would expect to replace the respective asset or liability. The second approach is the market approach. The market approach looks at what a market participant would consider valuing an exact or similar asset or liability to that of Cintas, including those traded on exchanges.

Cintas' non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis primarily relate to assets revalued in an impairment analysis and to assets and liabilities acquired in a business acquisition unless otherwise noted in Note 23 entitled Fair Value Disclosures. Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a non-recurring basis (including business acquisitions). Based on the nature of Cintas' business acquisitions, which occur regularly throughout the fiscal year, the majority of the assets acquired and liabilities assumed consist of working capital, primarily valued using Level 2 inputs, property and equipment, also primarily valued using Level 2 inputs and goodwill and other identified intangible assets valued using Level 3 inputs. In general, non-recurring fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability, such as internal estimates of future cash flows and company specific discount rates.

New accounting pronouncements. In April 2014, the FASB issued Accounting Standard Update (ASU) 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which amended accounting guidance related to the reporting of discontinued operations and disclosures of disposals of components of an entity. The amended guidance changes the thresholds for disposals to qualify as discontinued operations and requires additional disclosures. This guidance is effective for reporting periods beginning after December 15, 2014 and is required to be applied prospectively. Cintas adopted ASU 2014-08 during the quarter ended August 31, 2015 and applied the amended accounting guidance to Shred-it and will apply it to future transactions, as appropriate.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," to clarify revenue recognition principles. This guidance is intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount,


timing and uncertainty of revenue that is recognized from contracts with customers. This guidance will be effective for reporting periods beginning after December 15, 2017 and will be required to be applied retrospectively. Early application of the amendments in this update is not permitted. A cross-functional implementation team has been established consisting of representatives from all of our operating segments. The implementation team is working to analyze the impact of the standard on Cintas' contract portfolio by reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to revenue contracts. In addition, we are in the process of identifying and implementing the appropriate changes to business processes and controls to support recognition and disclosure under the new standard. Cintas plans to adopt the standard as of the first quarter of fiscal year 2019 using the modified retrospective approach and will record a cumulative adjustment to equity for open contracts as of June 1, 2018. Cintas is continuing to evaluate the impact of ASU 2014-09 and an estimate of the impact to the consolidated financial statements cannot be made at this time.
In April 2015, the FASB issued ASU 2015-17, “Balance Sheet Classifications of Deferred Taxes,” which amended accounting guidance related to the presentation of deferred tax liabilities and assets. The amended guidance requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. This guidance can also be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Cintas adopted ASU 2015-17 during the quarter ended November 30, 2015 and has applied this amended accounting guidance to its deferred tax liabilities and assets for all periods presented.

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the consolidated condensed balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective for annual and interim periods beginning after December 15, 2015. The guidance is applied retrospectively and early adoption is permitted. Cintas adopted ASU 2015-03 during the quarter ended August 31, 2016 and has applied this amended accounting guidance to its long-term debt and other assets for all periods presented. The impact of this change in accounting principle on balances previously reported as of May 31, 2016 was a reclassification of $5.6 million from other assets to debt due after one year within long-term liabilities.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments.” This amendment eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination. This amendment became effective for Cintas beginning June 1, 2016, and was adopted prospectively in accordance with the standard. The adoption of this amendment did not have an effect on our consolidated financial statements for the fiscal year ended May 31, 2017.
In February 2016, the FASB issued ASUAccounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties toas amended. Cintas adopted this standard effective June 1, 2019, using a contract (i.e. lessees and lessors). The new standardmodified retrospective transition approach. Topic 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight linestraight-line basis over the term of the lease, respectively.lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. LeasesTopic 842 provided a number of optional practical expedients in transition, and we have determined to use certain of these practical expedients upon our adoption of Topic 842. Specifically, the Company elected the package of practical expedients permitted under Topic 842, which allows a lessee to carryforward their population of existing leases, the classification of each lease, as well as the treatment of initial direct lease costs as of the period of adoption. The Company also elected the practical expedient related to lease and non-lease components, as an accounting policy election for the fleet and vehicle asset class, which allows a lessee to not separate non-lease from lease components and instead account for consideration paid in a contract as a single lease component. In addition, the Company elected the short-term lease recognition exemption for all leases with a term of 12 months or less, which means it will be accountednot recognize right-of-use assets or lease liabilities for similar to existing guidance for operating leases today.these leases. The adoption of Topic 842, supersedeson June 1, 2019, resulted in the previous leasesCompany recognizing right-of-use assets, net of $168.0 million and corresponding lease liabilities of $173.4 million. The adoption of Topic 842 did not have a material impact on the Company's consolidated statements of income or consolidated statements of cash flows.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This standard ASC 840, Leases. This guidance is effective for reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities areallows entities to elect to reclassify the income tax effects of the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings. Effective June 1, 2019, Cintas adopted ASU 2018-02, on a prospective basis, which resulted in a $2.0 million reclassification adjustment of the stranded tax effects from retained earnings to accumulated other comprehensive loss that was determined using a specific identification method.

In April 2019, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 will replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In connection with recognizing credit losses on accounts receivable and other financial instruments, Cintas will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Cintas is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 is intended to simplify accounting for share-based payments. Upon adoption, ASU 2016-09 will require that excess tax benefits for share-based payments be recorded as a reduction of income tax expense and reflected within operating cash flowsforward-looking expected loss model rather than being recorded within equity and reflected within financing cash flows. The standard also permits the repurchase of more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. This updateincurred loss model. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2016; however,2019, with early adoption is permitted. Cintas adopted ASU 2016-09 during the quarter ended August 31, 2016 and elected to make an accounting policy change to recognize forfeitures as they occur. The adoption impact on the consolidated


balance sheet wasof this standard will be through a cumulative-effect adjustment of $26.7 million, increasing opening to
47

retained earnings and decreasing paid-in capital. 
In March 2017,as of the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Costeffective date. Cintas will adopt this standard on June 1, 2020, and Net Periodic Postretirement Benefit Costs.” ASU 2017-07 continues to require the service component of pension and other postretirement benefit costs to be presented in the same line item as other employee compensation costs on the consolidated statement of income and changes the presentation of other components of net benefit cost so that these items will be presented outside of operating income within the consolidated statements of income. Cintas plans to adopt ASU 2017-07 in fiscal 2018 and apply it prospectively. Cintas does not expect the adoption of ASU 2017-07this standard is not expected to have a material impact on itsthe consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standard was adopted by Cintas in the current fiscal year and did not have a material impact on the consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," to clarify revenue recognition principles. This guidance is intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that is recognized from contracts with customers. We adopted ASU 2014-09, and all the related amendments, effective June 1, 2018 using the modified retrospective method. ASU 2014-09 requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon adoption of ASU 2014-09, we recorded an adjustment to the opening balance of retained earnings as of June 1, 2018. The adjustment to retained earnings primarily relates to the capitalization of certain direct and incremental contract costs required by the new guidance. Capitalized costs are amortized ratably over the anticipated period of benefit. We applied ASU 2014-09 only to contracts that were not completed prior to fiscal 2019. The adoption of ASU 2014-09 did not have a material impact on our consolidated statement of comprehensive income and had no impact to the Company's operating cash flow.

In March 2020, the Securities and Exchange Commission (SEC) amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosure required in lieu of those statements. We adopted these amendments for the year ended May 31, 2020. Accordingly, combined summarized financial information has been presented only for the issuer and guarantors of our senior notes for the most recent fiscal year and the year-to-date interim period and the location of the required disclosures has been removed from the notes to the consolidated financial statements and moved to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the consolidated financial statements.


Note 2.  Revenue Recognition
The following table presents Cintas' total revenue disaggregated by service type for the fiscal years ended May 31:
202020192018
(In thousands)Revenue%Revenue%Revenue%
Uniform Rental and Facility Services$5,643,494  79.6 %$5,552,430  80.6 %$5,247,124  81.0 %
First Aid and Safety Services708,569  10.0 %619,470  9.0 %564,706  8.7 %
Fire Protection Services422,688  6.0 %405,467  5.9 %349,968  5.4 %
Uniform Direct Sales310,369  4.4 %314,936  4.5 %314,834  4.9 %
Total revenue$7,085,120  100.0 %$6,892,303  100.0 %$6,476,632  100.0 %

Fire Protection Services and Uniform Direct Sales are included within All Other as disclosed in Note 14 entitled Operating Segment Information.

Revenue Recognition Policy
More than 95% of the Company's revenues are derived from fees for route servicing of Uniform Rental and Facility Services, First Aid and Safety Services and Fire Protection Services, performed by a Cintas employee-partner, at the customer's location of business. Revenues from our route servicing customer contracts represent a single-performance obligation. The Company recognizes these revenues over time as services are performed based on
48

the nature of services provided and contractual rates (output method). The Company's remaining revenues, primarily within the Uniform Direct Sales operating segment, and representing less than 5% of the Company's total revenues, are recognized when the obligations under the terms of a contract with a customer are satisfied. This generally occurs when the goods are transferred to the customer.

Revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. Shipping and handling costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Certain of our customer contracts, primarily within our Uniform Direct Sales operating segment, include pricing terms and conditions that include components of variable consideration. The variable consideration is typically in the form of consideration paid to a customer based on performance metrics specified within the contract. Specifically, some contracts contain discounts or rebates that the customer can earn through the achievement of specified volume levels. Each component of variable consideration is earned based on the Company's actual performance during the measurement period specified within the contract. To determine the transaction price, the Company estimates the variable consideration using the most likely amount method, based on the specific contract provisions and known performance results during the relevant measurement period. When determining if variable consideration should be constrained, the Company considers whether factors outside its control could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal. The Company's performance period generally corresponds with the monthly invoice period. No constraints on our revenue recognition were applied during the years ended May 31, 2020 or 2019. The Company reassesses these estimates during each reporting period. Cintas maintains a liability for these discounts and rebates within accrued liabilities on the consolidated balance sheets. Variable consideration also includes consideration paid to a customer at the beginning of a contract. Cintas capitalizes this consideration and amortizes it over the life of the contract as a reduction to revenue in accordance with ASC 606. These assets are included in other assets, net on the consolidated balance sheet.

Additionally, in accordance with ASC 606, certain Uniform Direct Sales customer contracts contain a provision with an enforceable right of payment and the underlying product has no alternative use to Cintas. Consequently, when both aforementioned provisions are prevalent in a customer contract, the revenue is recorded for finished goods that the customer is obligated to purchase under the termination terms of the contract.

Costs to Obtain a Contract
The Company capitalizes commission expenses paid to our employee-partners when the commissions are deemed to be incremental for obtaining the route servicing customer contract. The deferred commissions are amortized on a straight-line basis over the expected period of benefit. We review the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when we expect to recognize the expense. The current portion is included in prepaid expenses and other current assets and the noncurrent portion is included in other assets, net on the Company's consolidated balance sheets. As of May 31, 2020, the current and noncurrent assets related to deferred commissions totaled $76.2 million and $227.1 million, respectively. As of May 31, 2019, the current and noncurrent assets related to deferred commissions totaled $69.6 million and $206.0 million, respectively. We recorded amortization expense related to deferred commissions of $77.8 million and $71.1 million during the fiscal years ended May 31, 2020 and 2019, respectively. These expenses are classified in selling and administrative expense on the consolidated statements of income.

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Note 3.  Fair Value Disclosures
All financial instruments that are measured at fair value on a recurring basis (at least annually) have been segregated intoclassified within the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated balance sheet date. These financial instruments measured at fair value on a recurring basis are summarized below:
As of May 31, 2020
(In thousands)Level 1Level 2Level 3Fair Value
Cash and cash equivalents$145,402  $—  $—  $145,402  
Other assets, net
Interest rate lock agreements—  1,546  —  1,546  
Total assets at fair value$145,402  $1,546  $—  $146,948  
Long-term accrued liabilities:
  Interest rate lock agreements$—  $165,686  $—  $165,686  
Total liabilities at fair value$—  $165,686  $—  $165,686  
 As of May 31, 2017
(In thousands)Level 1 Level 2 Level 3 Fair Value
        
Cash and cash equivalents$169,266
 $—
 $—
 $169,266
Marketable securities:       
Canadian treasury securities—
 22,219
 —
 22,219
Total assets at fair value$169,266
 $22,219
 $—
 $191,485

As of May 31, 2019
(In thousands)Level 1Level 2Level 3Fair Value
Cash and cash equivalents$96,645  $—  $—  $96,645  
Total assets at fair value$96,645  $—  $—  $96,645  
Long-term accrued liabilities:
  Interest rate lock agreements$—  $36,393  $—  $36,393  
Total liabilities at fair value$—  $36,393  $—  $36,393  
 As of May 31, 2016
(In thousands)Level 1 Level 2 Level 3 Fair Value
        
Cash and cash equivalents$139,357
 $—
 $—
 $139,357
Marketable securities:       
Canadian treasury securities—
 70,405
 —
 70,405
Total assets at fair value$139,357
 $70,405
 $—
 $209,762
        
Long-term accrued liabilities:       
  Interest rate lock agreement$—
 $19,628
 $—
 $19,628
Total liabilities at fair value$—
 $19,628
 $—
 $19,628


Cintas' cash and cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets and financial instruments classified as Level 2 are based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The types of financial instruments Cintas classifies within Level 1 include most bank deposits and money market securities. Cintas does not adjust the quoted market price for such financial instruments.
The types of financial instruments Cintas classifies within Level 2 are primarily high grade domestic commercial paper and Canadian treasury securities (federal). The valuation technique used for Cintas’ marketable securities classified within Level 2 of the fair value hierarchy is primarily the market approach. The primary inputs to value Cintas’ marketable securities are the respective instrument's future cash flows based on its stated yield and the amount a market participant would pay for a similar instrument. Primarily all of Cintas’ marketable securities are actively traded and the recorded fair value reflects current market conditions. However, due to the inherent volatility in the investment market, there is at least a possibility that recorded investment values may change in the near term.



The funds invested in Canadian treasury securities are not presently expected to be repatriated, but instead are expected to be invested indefinitely in foreign subsidiaries. Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securitiesfair values of outstanding interest rate lock agreements are included in interest income or expense. The cost of the securities sold is based on the specific identification method. The amortized cost basis of marketable securitiesother assets, net, as of May 31, 20172020 and 2016 was $22.2 million and $70.4 million, respectively. Purchases of marketable securities were $171.3 million, $488.8 million and $179.2 million for the fiscal years ended May 31, 2017, 2016 and 2015, respectively. All outstanding marketable securities as of May 31, 2017 and 2016 had contractual maturities due within one year.
As of May 31, 2016, long-term accrued liabilities include interest rate lock agreements.at both May 31, 2020 and 2019. The fair valuevalues of Cintas' interest rate lock agreements are based on similar exchange traded derivatives (market approach) and are, therefore, included within Level 2 of the fair value hierarchy. The interest rate lock agreements outstanding at May 31, 2016 were settled during fiscal 2017. Allfair value was determined by comparing the locked rates against the benchmarked treasury rate. No other amounts included in other asset, net or long-term accrued liabilities are not recorded at fair value.value on a recurring basis.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Cintas believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated balance sheet dates.

In addition to assets and liabilities that are recorded at fair value on a recurring basis, Cintas records assets and liabilities at fair value on a nonrecurring basis as required under U.S. GAAP. Cintas' acquisition of G&K in fiscal 2017The assets and ZEE in fiscal 2016 were recordedliabilities measured at fair value. See Note 9 entitled Acquisitionsvalue on a nonrecurring basis primarily relate to assets revalued in an impairment analysis and Divestitures for additional information on the measurement of the G&K and ZEE assets acquired and liabilities assumed.acquired in a business acquisition.


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3.

Note 4.  Property and Equipment
Cintas' property and equipment is summarized as follows at May 31:
(In thousands)2017 2016(In thousands)20202019
   
Land$173,166
 $117,881
Land$188,720  $189,828  
Buildings and improvements624,615
 509,193
Buildings and improvements682,768  684,699  
Equipment1,930,018
 1,582,793
Equipment2,347,636  2,207,481  
Leasehold improvements32,679
 28,412
Leasehold improvements40,188  43,227  
Construction in progress79,400
 173,367
Construction in progress54,548  67,129  
2,839,878
 2,411,646
3,313,860  3,192,364  
Less: accumulated depreciation1,516,377
 1,417,954
$1,323,501
 $993,692
Accumulated depreciationAccumulated depreciation(1,910,795) (1,761,679) 
Property and equipment, netProperty and equipment, net$1,403,065  $1,430,685  


Interest expense is net of capitalized interest of $2.1Cintas capitalizes certain expenditures for software that are purchased or internally developed for use in business. Included in equipment at May 31, 2020 and 2019 were $273.0 million and $1.1$259.5 million, respectively, of internal use software. Amortization of internal use software begins when the software is ready for service and continues on the straight-line method over the estimated useful life, generally 10 years. Accumulated amortization related to internal use software was $131.7 million and $110.2 million at May 31, 2020 and 2019, respectively. We recorded amortization expense related to internal use software of $21.5 million, $21.6 million and $22.8 million for the fiscal years ended May 31, 20172020, 2019 and 2016,2018, respectively. These expenses are classified in selling and administrative expense on the consolidated statements of income.


4.Note 5.  Investments
Investments atAt May 31, 2017 of $164.82020, investments were $214.8 million and include the cash surrender value of insurance policies of $144.0$192.7 million, equity method investments of $15.8$19.0 million and cost method investments of $5.0$3.1 million. Investments atAt May 31, 2016 of $125.02019, investments were $192.3 million and include the cash surrender value of insurance policies of $108.1$170.5 million, equity method investments of $14.5$18.6 million and cost method investments of $2.4$3.2 million.
During fiscal 2015, Cintas sold stock in an equity method investment. In conjunction with the sale of the equity method investment, Cintas also received a cash dividend of $5.2 million. Total cash received from the transaction was $35.2 million. The sale resulted in the recording of a gain, net of tax, of approximately $13.6 million in the fiscal year ended May 31, 2015. As a result, the Company no longer has the ability to exercise significant influence over the investee. Therefore, effective July 1, 2014, the remaining investment retained by Cintas is accounted for under the cost method.
Investments are evaluated for impairment on an annual basis or when indicators of impairment exist. For fiscal years 2017, 20162020, 2019 and 2015, no2018, 0 impairment losses due to impairment were recorded.




During fiscal 2019, Cintas sold a cost method investment to a third party. Proceeds from the sale were $73.3 million, which resulted in a pre-tax gain of $69.4 million.
5.
Note 6.  Goodwill, Service Contracts and Other Assets
Changes in the carrying amount of goodwill and service contracts by reportable operating segment and All Other, are as follows:presented in the following tables:
Goodwill
(In thousands)
Uniform Rental
and Facility
Services		First Aid
and Safety
Services		All
Other		Total
Balance at June 1, 2018$2,505,476  $244,279  $97,133  $2,846,888  
Goodwill acquired1,153  —  5,484  6,637  
Foreign currency translation(10,227) (820) (37) (11,084) 
Balance at May 31, 20192,496,402  243,459  102,580  2,842,441  
Goodwill acquired21,081  164  11,137  32,382  
Foreign currency translation(4,442) (357) (4) (4,803) 
Balance at May 31, 2020$2,513,041  $243,266  $113,713  $2,870,020  

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Goodwill (in thousands)
Uniform Rental and Facility
Services
 
First Aid
 and Safety
 Services
 
All
Other
 Total
        
Balance as of June 1, 2015$940,423
 $154,954
 $84,717
 $1,180,094
Goodwill acquired10,020
 86,874
 203
 97,097
Foreign currency translation(713) (380) (22) (1,115)
Balance at May 31, 2016$949,730
 $241,448
 $84,898
 $1,276,076
Goodwill acquired1,499,008
 2,265
 6,281
 1,507,554
Foreign currency translation(668) (601) (26) (1,295)
Balance as of May 31, 2017$2,448,070
 $243,112
 $91,153
 $2,782,335
Service Contracts
(In thousands)
Uniform Rental
and Facility
Services		First Aid
and Safety
Services		All
Other		Total
Balance at June 1, 2018$492,067  $27,294  $26,407  $545,768  
Service contracts acquired2,864  14  5,186  8,064  
Service contracts amortization(46,943) (3,853) (5,394) (56,190) 
Foreign currency translation(2,972) (75) —  (3,047) 
Balance at May 31, 2019445,016  23,380  26,199  494,595  
Service contracts acquired11,058  325  3,288  14,671  
Service contracts amortization(47,070) (3,877) (5,374) (56,321) 
Foreign currency translation(1,393) (23) —  (1,416) 
Balance at May 31, 2020$407,611  $19,805  $24,113  $451,529  

Assets held for sale at May 31, 2017 and 2016 include $15.5 million of goodwill associated with Discontinued Services.
Service Contracts (in thousands)
Uniform Rental and Facility
Services
 
First Aid
 and Safety
 Services
 
All
Other
 Total
        
Balance as of June 1, 2015$5,078
 $1,576
 $28,996
 $35,650
Service contracts acquired18,912
 34,052
 2,730
 55,694
Service contracts amortization(4,078) (3,355) (5,696) (13,129)
Foreign currency translation—
 (21) —
 (21)
Balance at May 31, 2016$19,912
 $32,252
 $26,030
 $78,194
Service contracts acquired521,708
 1,632
 5,895
 529,235
Service contracts amortization(11,636) (3,952) (4,922) (20,510)
Foreign currency translation(61) 130
 —
 69
Balance as of May 31, 2017$529,923
 $30,062
 $27,003
 $586,988

Information regarding Cintas' service contracts and other assets is as follows:
As of May 31, 2020
(In thousands)Carrying
Amount		Accumulated
Amortization		Net
Service contracts$941,383  $489,854  $451,529  
Capitalized contract costs (1)
$375,912  $148,853  $227,059  
Noncompete and consulting agreements43,890  41,317  2,573  
Other54,239  23,113  31,126  
Other assets$474,041  $213,283  $260,758  
 As of May 31, 2017
(In thousands)
Carrying
Amount
 
Accumulated
Amortization
 Net
      
Service contracts$911,273
 $324,285
 $586,988
      
Noncompete and consulting agreements$40,743
 $39,244
 $1,499
Other34,890
 4,422
 30,468
Total$75,633
 $43,666
 $31,967

As of May 31, 2019
(In thousands)Carrying
Amount		Accumulated
Amortization		Net
Service contracts$928,635  $434,040  $494,595  
Capitalized contract costs (1)
$277,016  $71,062  $205,954  
Noncompete and consulting agreements42,308  40,524  1,784  
Other50,306  17,729  32,577  
Other assets$369,630  $129,315  $240,315  
 As of May 31, 2016
(In thousands)
Carrying
Amount
 
Accumulated
Amortization
 Net
      
Service contracts$382,858
 $304,664
 $78,194
      
Noncompete and consulting agreements$40,238
 $38,788
 $1,450
Other15,275
 2,442
 12,833
Total$55,513
 $41,230
 $14,283
(1) The current portion of capitalized contract costs included in prepaid expenses and other current assets on the consolidated balance sheet as of May 31, 2020 and 2019 is $76.2 million and $69.6 million, respectively.

Amortization expense for service contracts and other assets for continuing operations was $22.8$140.8 million, $14.2$134.0 million and $12.1$61.2 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively. EstimatedAt May 31, 2020, the weighted average amortization period for service contracts, capitalized contract costs, noncompete and consulting agreements and other was 14 years, 7 years, 5 years and 3 years, respectively. The estimated future amortization expense for service contracts and other assets for continuing operations, excluding any future acquisitions for eachand commissions to be earned, as of the next five yearsMay 31, 2020, is $60.0 million, $60.1 million, $59.5 million, $53.7 million and $53.1 million, respectively. The increase in amortization expense in the current year and for the next five years over past fiscal years is the result of the G&K acquisition.

as follows:

Fiscal Year
(In thousands)
2021$134,140  
2022122,271  
2023103,100  
202491,428  
202578,605  
Thereafter231,063  
Total future amortization expense$760,607  
6.
52

Note 7.  Debt and Derivatives

Cintas' debt is summarized as follows at May 31:
(In thousands)Interest
Rate		Fiscal Year
Issued		Fiscal Year
Maturity		20202019
Debt due within one year
Commercial paper2.68 %
(1)
20192020$—  $112,500  
Term loan3.06 %
(1)
20192020—  200,000  
Debt issuance costs—  (236) 
Total debt due within one year$—  $312,264  
Debt due after one year
Senior notes4.30 %20122022$250,000  $250,000  
Senior notes2.90 %20172022650,000  650,000  
Senior notes3.25 %20132023300,000  300,000  
Senior notes (2)
2.78 %2013202351,250  51,684  
Senior notes (3)
3.11 %2015202551,637  51,973  
Senior notes3.70 %201720271,000,000  1,000,000  
Senior notes6.15 %20072037250,000  250,000  
Debt issuance costs(13,182) (16,150) 
   Total debt due after one year$2,539,705  $2,537,507  
(In thousands)
Interest
 Rate
 Fiscal Year Issued Fiscal Year Maturity 2017 2016
          
Debt due within one year         
Senior notes2.85% 2007 2017 $—
 $250,000
Senior notes6.13% 2008 2018 300,000
 —
Commercial paper1.24%
(1) 
Various Various 50,500
 —
Current portion of term loan2.00%
(1) 
2017 2018 12,500
 —
Debt issuance costs      (100) —
Total debt due within one year      $362,900
 $250,000
          
Debt due after one year         
Senior notes6.13% 2008 2018 $—
 $300,000
Senior notes4.30% 2012 2022 250,000
 250,000
Senior notes2.90% 2017 2022 650,000
 —
Senior notes3.25% 2013 2023 300,000
 250,000
Senior notes (2)
2.78% 2013 2023 52,554
 —
Senior notes (3)
3.11% 2015 2025 52,645
 —
Senior notes3.70% 2017 2027 1,000,000
 —
Senior notes6.15% 2007 2037 250,000
 250,000
Long-term portion of term loan2.00%
(1) 
2017 2022 237,500
 —
Debt issuance costs      (22,075) (5,578)
   Total debt due after one year      $2,770,624
 $1,044,422
(1)  Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2017.2019.
(2)Cintas assumed these senior notes with the acquisition of G&K in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of3.73%of 3.73%.
(3)  Cintas assumed these senior notes with the acquisition of G&K in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.88%.
The average interest rate for all Cintas debt at May 31, 20172020 was 3.8% with maturity dates through fiscal year 2037. Cintas' senior notes, excluding the G&K senior notes assumed with the acquisition of G&K in fiscal 2017, and term loan are recorded at cost, net of debt issuance costs. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' debt as of May 31, 20172020 were $3,156.0$2,550.0 million and $3,296.8$2,804.2 million, respectively, and as of May 31, 20162019 were $1,300.0$2,866.2 million and $1,416.6$2,998.7 million, respectively. On June 1, 2016,During the fiscal year ended May 31, 2020, Cintas paid the $250.0a net total of $112.5 million five-year senior notes that matured on that date with cash on hand and $218.5 million proceeds from the issuance of commercial paper. In June and July 2017,During the fiscal year ended May 31, 2019, Cintas paid a total of $50.5issued $112.5 million, net of commercial paper and $150.0 million of the term loan with cash on hand.paper.
Letters of credit outstanding were $110.9 million and $83.4$120.6 million at both May 31, 20172020 and 2016, respectively.2019. Maturities of debt during each of the next five years are $363.0$0.0 million, $12.5$900.0 million, $12.5$350.0 million, $12.5$0.0 million and $1,100.0$50.0 million, respectively.

Interest paid was $76.6$105.5 million, $64.5$101.8 million and $65.3$122.1 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively. Interest paid in fiscal 2017 included the payment of $17.1 million in short-term debt financing fees, which were related to the acquisition of G&K and are not reoccurring

The credit agreement that supports our commercial paper program was amended and restated on September 16, 2016.May 24, 2019. The amendment increased the capacity of the revolving credit facility from $450.0$600.0 million to $600.0 million$1.0 billion and addedcreated a $250.0 million term loan. The $150.0 million increase in the revolving credit facility took effect upon the consummation of the merger (Merger) contemplated by the merger agreement (Merger Agreement) among the Company, G&K and Bravo Merger Sub, Inc. (Merger Sub), a wholly-owned subsidiary of Cintas. Thenew term loan was funded upon the consummation of th


e Merger.$200.0 million. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under either the revolving credit facility or the term loan facility of up to $250.0 million in the aggregate, subject to customary conditions. The maturity date of the agreementrevolving credit facility is September 15, 2021.May 23, 2024, and the maturity date of the term loan was May 23, 2020. As of May 31, 2017,2020, there was $50.50 commercial paper outstanding and 0 borrowings on our revolving credit facility. There was $112.5 million of commercial paper outstanding with a weighted average interest rate of 1.24% and2.7% with maturity dates less than 30 days and no0 borrowings on our revolving credit facility.facility as of May 31, 2019. The fair value of the commercial paper, which approximates the carrying value, is estimated using Level 2 inputs based on general market prices. Given its short-term nature, the carrying value of the outstanding commercial paper approximates fair value. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2016.
53

Cintas uses interest rate locks to manage its overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2008, fiscal 2011,2012, fiscal 2013 and fiscal 2017. The amortization of the cash flow hedges resulted in an increasea decrease to other comprehensive income (loss) of $1.1$1.4 million, $2.0$1.2 million and $2.0$0.9 million in the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively. During the third quarter of fiscal 2016,2020, Cintas entered into an interest rate lock agreementagreements with a total notional value of $950.0 million for forecasted debt issuances in connection with upcoming debt maturities. As of May 31, 2020, the fair values of these interest rate locks were an asset of $1.5 million and a liability of $53.8 million, recorded in other assets, long-term accrued liabilities and in other comprehensive loss, net of tax. During fiscal 2019, Cintas entered into interest rate lock agreements with a notional value of $550.0$500.0 million for a forecasted debt issuance. As of May 31, 2016,2020 and 2019, the fair valuevalues of this treasury lock wasthese interest rate locks entered into during fiscal 2019 were a liability of $19.6$111.9 million and $36.4 million, respectively, that were recorded in long-term accrued liabilities and in other comprehensive income,loss, net of tax. TheThese interest rate locks had no impact on net income or cash flows from continuing operations for fiscal 2016. As of the third quarter of2020 or fiscal 2017, Cintas had multiple interest rate lock agreements in place for forecasted long-term debt issuances. The notional value of the planned debt issuances was $500.0 million of 5-year senior notes and $1.0 billion of 10-year senior notes. In conjunction with the issuance of long-term debt in the fourth quarter of fiscal 2017, Cintas settled these interest rate lock agreements, which resulted in a deferred gain of $30.2 million. The effective portion of the gain was recorded in other comprehensive income to be amortized as a reduction to interest expense beginning in the fourth quarter of fiscal 2017 through the remaining life of the debt.2019.
To hedge the exposure of movements in the foreign currency rates, Cintas may use foreign currency hedges. These hedges reduce the impact on cash flows from movements in the foreign currency exchange rates. Examples of foreign currency hedge instruments that Cintas may use are average rate options and forward contracts. These instruments did not impact foreign currency exchange during fiscal 2017, 2016 or 2015. Cintas had no foreign currency forward contracts as of May 31, 2017 or 2016.
Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA)EBITDA and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. Cintas was in compliance with all of the debt covenants for all periods presented.


As of May 31, 2020, the Company has unrecognized inventory purchase commitments with various suppliers totaling $117.6 million. In fiscal 2020, we made $32.7 million of inventory purchases related to the unrecognized commitments, and the Company expects to purchase all remaining commitments within the next twelve months. No such arrangements existed at the May 31, 2019 consolidated balance sheet date.
7.
54

Note 8.  Leases
Cintas conductshas operating leases for certain operationsoperating facilities, vehicles and equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. Each new contract is evaluated to determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated balance sheet with a corresponding operating lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from leased facilitiesthe lease. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the consolidated balance sheet.

Operating lease right-of-use assets, net and leases certain equipment. Most leases contain renewal options for periods from 1 to 10 years. Theoperating lease agreements provide for increases in rent expense ifliabilities are recognized at the options are exercisedcommencement date of the lease based on increases in certain price level factors or other prearranged factors. Step rent provisions, escalation clauses, capital improvements funding and other lease concessions are taken into account in computing minimum lease payments. Minimumthe present value of lease payments over the lease term and include options to extend or terminate the lease when they are recognizedreasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. Lease expense for operating leases is recorded on a straight-line basis over the minimum lease term. Lease paymentsterm and variable lease costs are recorded as incurred. Both lease expense and variable lease costs are primarily recorded in cost of uniform rental and facility services and other on the Company's consolidated statements of income. The Company's lease agreements do not dependent on an existing indexcontain any material residual value guarantees or ratematerial restrictive covenants.

Operating lease costs, including short-term lease expense and are not includedvariable lease costs which were immaterial in minimum lease payments. It is anticipated that expiring leases will be renewed or replaced.
The minimum rental payments under noncancelable lease arrangements for each of the next five years and thereafter are $43.8period, were $70.4 million, $35.9 million, $28.5 million, $22.3 million, $17.0$69.7 million and $28.5$70.0 million, respectively.
Rent expenserespectively, for continuing operations under operating leases during the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively.

The following table provides supplemental information related to the Company's consolidated statement of cash flows for the fiscal year ended May 31, 2020:
(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities$50,816 
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities$40,728 

Other information related to the operating lease right-of-use assets, net and operating lease liabilities was $49.6 million, $40.8 million and $34.2 million, respectively.

as follows at May 31, 2020:

Weighted-average remaining lease term - operating leases5.19 years
Weighted-average discount rate - operating leases2.66%
8.
The contractual future minimum lease payments of Cintas' operating lease liabilities by fiscal year are as follows as of May 31, 2020:
(In thousands)
2021$46,765  
202238,396  
202329,830  
202420,537  
202514,188  
Thereafter28,415  
Total payments178,131  
Less: interest(12,405) 
Total present value of lease payments$165,726  

55

Note 9.  Income Taxes
Income before income taxes for continuing operations consists of the following components:
components for the fiscal years ended May 31:
(In thousands)2017 2016 2015(In thousands)202020192018
     
U.S. operations$673,055
 $685,167
 $622,502
U.S. operations$1,035,902  $1,061,505  $798,215  
Foreign operations14,349
 20,148
 18,054
Foreign operations22,389  40,894  42,786  
$687,404
 $705,315
 $640,556
$1,058,291  $1,102,399  $841,001  

Income tax expense (benefit) for continuing operations consists of the following components:
components for the fiscal years ended May 31:
(In thousands)2017 2016 2015(In thousands)202020192018
     
Current:     Current:   
Federal$194,130
 $279,134
 $199,360
Federal$153,736  $134,174  $124,861  
State and local27,197
 25,428
 24,733
State and local34,502  40,949  32,322  
ForeignForeign6,985  9,882  15,103  
221,327
 304,562
 224,093
195,223  185,005  172,286  
Deferred8,791
 (47,852) 13,910
Deferred(13,292) 34,759  (115,217) 
$230,118
 $256,710
 $238,003
$181,931  $219,764  $57,069  

Reconciliation of income tax expense for continuing operations using the statutory rate and actual income tax expense is as follows:follows for the fiscal years ended May 31:
(In thousands)202020192018
Income taxes at the U.S. federal statutory rate$222,258  $231,503  $245,322  
Permanent differences (1)
(67,075) (51,201) (47,137) 
State and local income taxes, net of federal benefit25,294  31,687  24,783  
Other (2)
1,454  6,506  (4,451) 
Impact of the Tax Cuts and Jobs Act:
Deemed repatriation of non-U.S. earnings, net of foreign
tax credits and other (collectively, transition tax)		—  153  9,768  
Non-U.S. withholding taxes related to certain non-U.S.
earnings subject to repatriation		—  690  4,363  
Remeasurement of U.S. net deferred tax liabilities from
35% to 21%		—  426  (175,579) 
$181,931  $219,764  $57,069  
(In thousands)2017 2016 2015
      
Income taxes at the U.S. federal statutory rate$240,677
 $246,881
 $224,360
State and local income taxes, net of federal benefit19,210
 16,339
 16,308
Other (1)
(29,769) (6,510) (2,665)
 $230,118
 $256,710
 $238,003
(1) The Other category in fiscal 2017 is primarily associated with $29.4 millionPrimarily consists of the excess tax benefitbenefits related to stock-based compensation.

(2) Primarily consists of adjustments for share based compensation under the adoption of ASU 2016-09.uncertain tax positions, tax credits and return to provision adjustments.
56

The components of deferred income taxes included on the consolidated balance sheets are as follows:follows at May 31:
(In thousands)20202019
Deferred tax assets:  
Allowance for doubtful accounts$14,718  $9,495  
Inventory obsolescence13,744  9,257  
Insurance reserves45,197  45,339  
Stock-based compensation78,802  77,697  
Net operating loss and foreign related carry-forwards (1)
7,657  9,109  
Treasury locks39,046  5,806  
Operating lease liabilities42,191  —  
Deferred compensation and other73,562  48,922  
314,917  205,625  
Valuation allowance(6,411) (7,308) 
308,506  198,317  
Deferred tax liabilities:  
Uniform and other rental items in service189,787  194,939  
Property and equipment177,664  159,186  
Service contracts and other intangible assets207,610  210,531  
Capitalized contract costs77,741  70,228  
Operating lease right-of-use assets42,191  —  
State taxes and other2,092  1,612  
697,085  636,496  
Net deferred tax liability$388,579  $438,179  
(In thousands)2017 2016
    
Deferred tax assets:   
Allowance for doubtful accounts$7,707
 $7,416
Inventory obsolescence16,096
 13,702
Insurance and contingencies54,489
 42,717
Stock-based compensation73,027
 45,720
Net operating loss and foreign related carry-forwards (1)
37,814
 17,883
Treasury locks—
 12,055
Other25,891
 8,100
 215,024
 147,593
Valuation allowance(18,088) (17,047)
 196,936
 130,546
Deferred tax liabilities:   
In service inventory210,766
 172,704
Property126,872
 93,784
Intangibles290,049
 104,585
Treasury locks6,435
 —
State taxes and other32,142
 18,948
 666,264
 390,021
Net deferred tax liability$469,328
 $259,475
(1) During fiscal 2017, the The majority of these net operating loss increased primarily due to the G&K acquisition. The net operating losslosses and foreign related to the G&K acquisition is expected to be utilized by fiscal 2018carryforwards have a five-year expiration period and willgenerally expire in 2037.fiscal year 2021 to 2025.



Although realization is not assured, management has evaluated its deferred tax assets to determine whether a valuation allowance is required or should be adjusted. This evaluation considers, among other items, the nature, frequency and amount of recent losses, reversal periods of taxable temporary differences, duration of statutory periods and tax planning strategies. As a result of this analysis, management believes it is more likely than not that the recorded deferred tax assets, net of valuation allowances, will be realized.

The progression of the valuation allowance is as follows:follows at May 31:
(In thousands)20202019
Balance at beginning of year$(7,308) $(11,302) 
Subtractions (1)
897  3,994  
Balance at end of year$(6,411) $(7,308) 
(In thousands)2017 2016
    
Balance at beginning of year$(17,047) $(14,690)
Additions(1,667) (3,437)
Subtractions626
 1,080
Balance at end of year$(18,088)
$(17,047)
(1)  Primarily related to expiration of net operating loss and foreign related carryforwards.

Income taxes paid were $269.6$160.3 million, $452.6$173.2 million and $236.7$175.3 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Undistributed earnings of foreign subsidiaries were approximately $214.8 million, $117.2 million and $147.1 million as of May 31, 2017, 2016 and 2015, respectively, for which deferred taxes have not been provided. Such earnings are considered to be permanently reinvested in Cintas' foreign subsidiaries. If such earnings were repatriated, additional tax expense may result. The current calculation of such additional taxes is not practicable.
As of May 31, 20172020 and 2016,2019, there was $12.6$35.9 million and $12.9$37.3 million, respectively, in total unrecognized tax benefits, which, if recognized, would favorably impact Cintas' effective tax rate. Cintas recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods. The total amount accrued for interest and penalties as of May 31, 20172020 and 2016,2019, was $0.9$3.7 million and $1.1$2.8 million, respectively. Cintas records this tax liability as current andin long-term accrued liabilities on the consolidated balance sheets, as appropriate.
In the normal course of business, Cintas provides for uncertain tax positions and the related interest, and adjusts its unrecognized tax benefits and accrued interest accordingly. Unrecognized tax benefits did not change in fiscal2017 and increased in fiscal 2016 and fiscal 2015 by $0.8 million and $1.4 million, respectively. Accrued interest decreased by $0.2 million in fiscal 2017 and increased by $0.2 millionin both fiscal 2016 and 2015.
57

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits (exclusive of interest and penalties) is as follows:
(In thousands)
Balance at June 1, 2018$36,647 
Additions for tax positions of the current year3,641 
Additions for tax positions of prior years10,239 
Statute expirations(1,812)
Balance at May 31, 201948,715 
Additions for tax positions of the current year3,976 
Additions for tax positions of prior years4,325 
Settlements(5,473)
Statute expirations(6,873)
Balance at May 31, 2020$44,670 
(In thousands) 
  
Balance at June 1, 2014$13,062
Additions for tax positions of prior years4,001
Settlements(48)
Statute expirations(1,603)
Balance at May 31, 2015$15,412
Additions for tax positions of prior years3,259
Settlements(48)
Statute expirations(2,092)
Balance at May 31, 2016$16,531
Additions from G&K acquisition (1)
2,084
Additions for tax positions of prior years2,520
Settlements (2)
(1,044)
Statute expirations(2,734)
Balance at May 31, 2017$17,357
(1) Increase in unrecognized tax benefit associated with unrecognized benefits assumed in the G&K acquisition.
(2) Decrease in unrecognized tax benefit associated with the settlement of a fiscal 2012 Internal Revenue Service audit.
On September 13, 2013, the U.S. Department of the Treasury and the Internal Revenue Service released final tangible property regulations under Sections 162(a) and 263(a) of the Internal Revenue Code regarding amounts paid to improve tangible property and acquire or produce tangible property, as well as proposed regulations regarding the disposition


of property. The effective date of the final regulations was for Cintas' fiscal year ended May 31, 2015, and there was not a material impact on the consolidated financial statements for any period presented.
The majority of Cintas' operations are in North America. Cintas is required to file federal income tax returns, as well as state income tax returns in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results of operation in any given period.

All U.S. federal income tax returns are closed to audit through fiscal 2013.2016. Cintas is currently in various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2012.2014. Based on the resolution of the various audits and other potential regulatory developments, it is expected that the balance of unrecognized tax benefits will not change for the fiscal year ending May 31, 2018.2021.


Foreign Withholding Tax
9.  AcquisitionsThe Company asserts that all foreign earnings will be indefinitely reinvested, with the exception of certain foreign investments in which earnings and Divestitures
Acquisitions
The purchase price paid for each acquisition has been allocatedcash generation are in excess of local needs. With the passage of tax reform in the U.S., dividends of earnings from non-US operations are generally no longer subject to US income tax. Cintas continues to analyze the fair valueestimated impact of the assets acquirednon-US income and liabilities assumed. During fiscal 2017, Cintas acquired three businesses included in the Uniform Rental and Facility Services reportable operating segment, including the G&K acquisition discussed below, four businesses included in the First Aid and Safety Services reportable operating segment and eleven businesses included in All Other. During fiscal 2016, Cintas acquired two business included in the Uniform Rental and Facility Services reportable operating segment, two businesses included in the First Aid and Safety Services reportable operating segment, including the ZEE acquisition discussed below, and six businesses included in All Other.
The following summarizes the aggregate purchase price and fair value allocations for all businesses acquired:
(In thousands)2017 2016
    
Fair value of tangible assets acquired$550,491
 $26,759
Fair value of service contracts acquired529,235
 55,694
Fair value of other intangibles acquired17,556
 4,639
Net goodwill recognized1,507,554
 97,097
Total fair value of assets acquired2,604,836
 184,189
Fair value of liabilities assumed502,465
 27,610
Total cash paid for acquisitions$2,102,371
 $156,579
G&K Acquisition
On March 21, 2017, Cintas completed the acquisition of G&K for consideration of approximately $2.1 billion. Pursuant to the Merger Agreement, each share of common stock of G&K issued and outstanding immediately prior to the effective time of the G&K acquisition was canceled and converted into the right to receive $97.50 in cash. The total purchase price was $2,078.4 million, which was funded using a combination of new senior notes, a term loan, other borrowings under our existing credit facility and cash on hand. The net consideration transferred for G&K consisted of the following items:


(In thousands)  
   
Cash consideration for common stock$1,901,845
(1) 
Cash consideration for share-based awards62,257
(2) 
Cash consideration for G&K revolving debt124,180
(3) 
Cash consideration for transaction expenses24,529
(4) 
Total consideration2,112,811
 
Cash acquired(34,393)
(5) 
Net consideration transferred$2,078,418
 
(1) The cash consideration for outstanding shares of G&K common stock is the product of the agreed-upon cash per share price of $97.50 and total G&K outstanding shares of approximately 19.5 million.
(2) The cash consideration for share-based awards is the product of the agreed-upon cash per share price of $97.50 and the total number of restricted stock outstanding and the “in the money” stock options net of the weighted average exercise price.
(3) The cash consideration for G&K revolving debt reflects the repayment of the outstanding obligation.
(4) Represents G&K legal and professional fees that were incurred prior to acquisition and were due upon the closing of the transaction.
(5) Represents the G&K cash balance acquired at acquisition.
Preliminary Purchase Price Allocation
Cintas accounted for the G&K acquisition using the acquisition method. The preliminary allocation of the purchase price was determined by management with the assistance of third-party valuation specialists, and is based on estimates of the fair value of assets acquired and liabilities assumed as of March 21, 2017. Cintas is continuing to obtain information to determine the fair value of acquired assets and liabilities, includingwithholding tax assets, liabilities and other attributes. The components of the preliminary purchase price allocation, at fair value, are as follows:
Assets:March 21, 2017
Accounts receivable$95,846
Inventories30,254
Uniforms and other rental items in service93,659
Income taxes, current14,626
Prepaid expenses and other current assets43,235
Property and equipment254,035
Goodwill1,493,211
Service contracts519,000
Trade names17,000
Other assets15,585
Liabilities: 
Accounts payable(53,220)
Accrued compensation and related liabilities

(9,594)
Accrued liabilities(115,109)
Long term accrued liabilities(28,380)
G&K Senior notes(105,359)
Deferred income taxes(186,371)
Total consideration$2,078,418
The preliminary fair value of the intangible assets has been estimated using the income approach through a discounted cash flow analysis (except as noted below with respect to the trade names) with the cash flow projections discounted using a rate of 9.5%. The cash flows are based on estimates used to price the G&K acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from Cintas’ pricing model and the weighted average cost of capital.
The G&K service contract intangible asset will be amortized over a period of 15 years, which represents the estimated useful life of the economic benefit and the asset amortization is based on the annual economic valuesource of the underlying asset which generally decreases over the 15-year term. The trade names represent the G&K corporate trade name


and all of the branded variations thereof. Cintas applied the income approach through a relief from royalty method analysis to determine the preliminary fair value of the trade name assets.
The table below sets forth the preliminary valuation and amortization period of identifiable intangible assets:
Identifiable intangible assets:Preliminary ValuationAmortization Period
   
Service contracts$519,000
15 years
Trade names17,000
3 years
Total$536,000
 
Cintas estimated the preliminary fair value of the acquired property, plant and equipment using a combination of the cost and market approaches, depending on the type of asset. The preliminary fair value of property, plant and equipment consisted of real property of $141.8 million and personal property of $112.2 million.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. None of the goodwill is expected to be deductible for income tax purposes. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the G&K acquisition. These benefits include improved service capabilities, an enhanced footprint in the markets that we serve, attractive synergy opportunities and value creation. The goodwill is entirely allocated to the Uniform Rental and Facility Services reportable operating segment.
The following unaudited pro forma information presents the combined financial results for Cintas and G&K as if the G&K acquisition had been completed at the beginning of Cintas’ prior fiscal year, June 1, 2015. Prior to the acquisition, G&K used a 52-week or 53-week fiscal year ending on the Saturday nearest June 30. The pro forma financial information set forth below for the year ended May 31, 2016 includes G&K's annual results for the period of June 28, 2015 through July 2, 2016 adjusted for number of working days in Cintas' fiscal 2016. The pro forma financial information for the year ended May 31, 2017 includes G&K's publicly reported results for the period of July 2, 2016 through December 31, 2016 annualized and adjusted for the number of work days in the stub period of June 1, 2016 through March 21, 2017 and the actual results from March 22, 2017 through May 31, 2017. Actual net sales and net income of the acquired G&K business included in reported fiscal 2017 results were $187.7 million and $5.7 million, respectively.
In thousands except per share data2017 2016
    
Net sales$6,107,109
 $5,762,741
Net income$488,482
 $520,224
    
Earnings per common share - diluted$4.45
 $4.66
The information above does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, and does not reflect future events that may occur after May 31, 2017 or any operating efficiencies or inefficiencies that may result from the G&K acquisition and related financing. Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that Cintas will experience going forward.
Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). The working capital assets and liabilities,these earnings, as well as the property and equipment acquired, were valued using Level 2 inputsexpected means through which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill, service contracts and other intangibles were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flow using a discount rate of 9.5% (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement.  Management utilizes third-party valuation firms to assist inearnings may be taxed; however, the determination of purchase accounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firms to ensure that the transaction-specific assumptions are appropriate for Cintas.unrecorded tax is immaterial.





ZEE Acquisition
On August 1, 2015, the Company acquired all of the shares of ZEE for acquisition-date fair value consideration of$134.0 million, consisting of cash of $120.6 million and contingent consideration, subject to certain holdback provisions of $13.4 million. ZEE operates within the First Aid and Safety Services reportable operating segment. This acquisition has expanded our footprint in van delivered first aid, safety, training and emergency products and will allow us to serve an even greater number of customers in North America.
Purchase Price Allocation
Cintas accounted for the ZEE acquisition using the acquisition method. The final purchase price allocation was determined by management with the assistance of third-party valuation specialists, and was based on estimates of the fair value of assets acquired and liabilities assumed as of August 1, 2015. The components of the final purchase price allocation, at fair value, are as follows:
Assets: 
Cash and cash equivalents$333
Accounts receivable16,705
Inventory5,987
Other current assets1,443
Property, plant and equipment849
Goodwill87,442
Service contracts34,000
Other intangibles4,500
Liabilities: 
Accounts payable(7,195)
Accrued liabilities(4,428)
Deferred income taxes(5,636)
Total consideration$134,000
The fair value of the intangible assets was estimated using the income approach through a discounted cash flow analysis with the cash flow projections discounted using a rate of 11%. The cash flows are based on estimates used to price the ZEE acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from Cintas’ pricing model and the weighted average cost of capital. The ZEE service contract intangible asset will be amortized over a period of 10 years.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. None of the goodwill is deductible for income tax purposes. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the ZEE acquisition. These benefits include improved service capabilities, an enhanced footprint in the markets that we serve, attractive synergy opportunities and value creation. The goodwill is entirely allocated to the First Aid and Safety reportable operating segment.
Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). The working capital assets and liabilities, as well as the property and equipment acquired, were valued using Level 2 inputs which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill, service contracts and other intangibles were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flow using a discount rate of 11% (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement. Management utilizes third-party valuation firms to assist in the determination of purchase accounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firms to ensure that the transaction-specific assumptions are appropriate for Cintas. The results of operations of ZEE are not material to the consolidated financial statements.


The results of operations for the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The pro forma revenue, net income and earnings per share information relating to acquired businesses, excluding G&K, are not presented because they are not significant to Cintas.
Divestitures
In fiscal 2014, Cintas completed the Shredding Transaction with Shred-it International, Inc. to combine Cintas’ Shredding with Shred-it International Inc.’s shredding business and created the Shred-it Partnership. In fiscal 2016, Cintas sold Shred-it. In fiscal 2015, Cintas sold Storage. Storage, excluding related real estate owned by Cintas, was sold in three separate transactions to three separate buyers. In fiscal 2016, Cintas sold the remaining Storage assets classified as held for sale. Both Shredding and Storage were previously included in the former Document Management Services operating segment. As a result of the transactions noted above, the results from Shredding, Shred-it and Storage are reported under discontinued operations for all periods presented and are excluded from continuing operations and from operating segment results for all periods presented. See Note 16 entitled Discontinued Operations for additional information.

10.  Employee Benefit Plans
Pension Plans
In conjunction with the acquisition of G&K, Cintas assumed G&K's noncontributory defined benefit pension plan (the Pension Plan) that covers substantially all legacy G&K employees who were employed as of July 1, 2005, except certain employees who were covered by union-administered plans. Benefits are based on the number of years of service and each employee’s compensation near retirement. We will make annual contributions to the Pension Plan consistent with federal funding requirements. The Pension Plan was frozen by G&K effective December 31, 2006. Future growth in benefits will not occur beyond this date. Applicable accounting standards require that the Consolidated Balance Sheetconsolidated balance sheet reflect the funded status of the pension plan.Pension Plan. The funded status of the Pension Plan is measured as the difference between the plan assets at fair value and the projected benefit obligation. We do not expect to make any contributions toPBO. The PBO represents the Pension Plan over the next 12 months that exceed the fairactuarial present value of plan assets asbenefits expected to be paid upon retirement based on estimated future compensation levels. The measurement of May 31, 2017.the PBO is based on the Company’s estimates and actuarial valuations. The net pension liability at May 31, 20172020 and 2019 is included in the Long-Term Accrued Liabilitieslong-term accrued liabilities on the Consolidated Balance Sheet.consolidated balance sheet. Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in Accumulated Other Comprehensive Incomeaccumulated other comprehensive loss in our Consolidated Balance Sheet.consolidated balance sheet. The difference between actual amounts and estimates based on actuarial assumptions are recognized in other comprehensive (loss) income in the period in which they occur. The estimated amortization from accumulated other comprehensive incomeloss into net periodic benefit cost during fiscal year 20182021 is immaterial.
Obligations and Funded Status atMay 31, 2017
58

Obligations and Funded Status at May 31:
(In thousands)
Obligations and Funded Status at May 31:
(In thousands)
20202019
Change in benefit obligation:  Change in benefit obligation:
Projected benefit obligation, beginning of year $—
Projected benefit obligation, beginning of year$91,935  $86,341  
Projected benefit obligation acquired in G&K acquisition 84,553
Interest cost 562
Interest cost2,881  3,124  
Actuarial loss 2,750
Actuarial loss13,662  5,455  
Benefits paid (478)Benefits paid(3,121) (2,985) 
Projected benefit obligation, end of year $87,387
Projected benefit obligation, end of year$105,357  $91,935  
  
Change in plan assets:  
Change in plan assets:  
Fair value of plan assets, beginning of year $—
Fair value of plan assets, beginning of year$62,267  $58,781  
Plan assets acquired in G&K acquisition 57,747
Actual return on plan assets 2,127
Actual return on plan assets7,097  2,437  
Employer contributionsEmployer contributions2,098  4,034  
Benefits paid (478)Benefits paid(3,121) (2,985) 
Fair value of plan assets, end of year $59,396
Fair value of plan assets, end of year$68,341  $62,267  
  
Funded status-net amount recognized $(27,991)Funded status-net amount recognized$(37,016) $(29,668) 

The accrued benefitnet pension liability of $28.0$37.0 million and $29.7 million was included in long-term accrued liabilities on the Consolidated Balance Sheetconsolidated balance sheet as of May 31, 2017. The2020 and 2019, respectively. An unrecognized net actuarial loss of $1.2$16.2 million and $6.7 million related to the Pension Plan was included in "other" within the accumulated other comprehensive loss on the Consolidated Balance Sheet as ofconsolidated balance sheet at May 31, 2017.2020 and 2019, respectively.



Components of Net Periodic Pension (Benefit) Cost
(In thousands)
20202019
Interest cost$2,881  $3,124  
Expected return on assets(2,961) (2,882) 
Net periodic pension (benefit) cost$(80) $242  
Components of Net Periodic Benefit Cost
  
2017 (1)
Interest cost $562
Expected return on assets (590)
Amortization of net loss —
Net periodic benefit cost $(28)
(1) Represents the net periodic benefit cost for the period subsequent to the acquisition of G&K on March 21, 2017 through May 31, 2017.


Assumptions
The following weighted average assumptions were used to determine benefit obligations for the Pension Plan atfor the fiscal years ended May 31 2017::  
20202019
Discount rate2.54 %3.54 %
Rate of compensation increaseN/AN/A
Discount rate3.79%
Rate of compensation increaseN/A

The following weighted average assumptions were used to determine net periodic benefitpension (benefit) cost for the Pension Plan for the fiscal yearyears ended May 31, 2017:31:  
20202019
Discount rate3.54 %3.95 %
Expected return on plan assets4.80 %4.90 %
Rate of compensation increaseN/AN/A

59
Discount rate4.00%
Expected return on plan assets5.40%
Rate of compensation increaseN/A

Plan Assets
The target asset allocation and actual asset allocation ofallocations in the Pension Plan at May 31, 20172020 and 2019 are as follows: 
202020202019
 
Target Asset
Allocation
 
Actual Asset
Allocation
 Target Asset
Allocation		Actual Asset
Allocation		Actual Asset
Allocation
International equity 8.0% 8.3%
Large cap equity 26.0% 26.3%Large cap equity26.0 %25.0 %26.4 %
Small cap equity 5.0% 5.3%Small cap equity5.0 %4.4 %5.3 %
International equityInternational equity8.0 %6.7 %7.8 %
Fixed incomeFixed income45.0 %51.5 %45.0 %
Absolute return strategy funds 16.0% 16.2%Absolute return strategy funds16.0 %11.9 %13.3 %
Fixed income 45.0% 43.6%
Long/short equity fund —% 0.3%
CashCash— %0.5 %2.2 %
Total 100% 100%Total100.0 %100.0 %100.0 %
Our investment committee, assisted by outside consultants, evaluates the objectives and investment policies concerning our long-term investment goals and asset allocation strategies. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. To develop the expected long-term rate of return on asset assumptions, we consider the historical returns and future expectations of returns for each asset class, as well as the target asset allocation, changes in investments expenses and investment goals of the pension portfolio. This resulted in the selection of 5.40%4.80% expected return on plan assets for fiscal year 2017.2020 and 4.90% expected return on plan assets for fiscal year 2019. The investment goals are (1) to meet or exceed the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet future obligations. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Pension plan assets for our qualified pension plans are held in a trust for the benefit of the plan participants and are invested in a diversified portfolio of equity investments, fixed income investments and cash. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established defining permitted investments within each asset class.
The implementation of the investment strategy discussed above is executed through a variety of investment types, including U.S. government securities, corporate debt and mutual funds. TheseThe mutual fund investments are valued at the closing price reported on the active market on which the individual securities are traded.


traded and are not adjusted from the quoted active market price at the consolidated balance sheet date. The remaining investments, primarily corporate debt, are valued using unadjusted observable inputs such as third-party quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for the assets or liabilities.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reportingconsolidated balance sheet date.
The following table presentsInformation on the Pension Plan investments as of May 31, 20172020 and 2019, using the fair value hierarchy discussed in Note 1 entitled Significant Accounting Polices:  Polices, is as follows:  
May 31, 2020
(In thousands)Level 1Level 2Level 3Total
Cash equivalents$585  $—  $—  $585  
U.S. government securities2,733  4,327  —  7,060  
Corporate debt—  27,666  —  27,666  
Mutual funds:
   U.S. securities28,455  —  —  28,455  
   International securities4,575  —  —  4,575  
Total$36,348  $31,993  $—  $68,341  
60

  (Level 1) (Level 2) (Level 3) Total
Cash equivalents $629
 $—
 $—
 $629
U.S. government securities 1,874
 3,401
 —
 5,275
Corporate debt —
 20,210
 —
 20,210
Mutual funds 

 

 

 

   U.S. securities 28,353
 —
 —
 28,353
   International securities 4,929
 —
 —
 4,929
Total $35,785
 $23,611
 $—
 $59,396

May 31, 2019
(In thousands)Level 1Level 2Level 3Total
Cash equivalents$1,379  $—  $—  $1,379  
U.S. government securities2,113  3,974  —  6,087  
Corporate debt—  21,970  —  21,970  
Mutual funds:
   U.S. securities27,984  —  —  27,984  
   International securities4,847  —  —  4,847  
Total$36,323  $25,944  $—  $62,267  

We don't expect to make any contributions of approximately $4.4 million to the Pension Plan during the next 12 months. The Pension Plan benefit payments expected to be paid for each of the next five years and thereafter are $3.9 million, $4.1 million, $4.2 million, $4.4 million, $4.5 million and $24.3 million, respectively.

Future changes in plan asset returns, assumed discount rates and various other factors related to the Pension Plan will impact future net periodic pension expensecost and liabilities. We cannot predict the impact of these changes in the future, and any changes may have a material impact on our consolidated results of operations and consolidated financial position.
Estimated Future Benefit Payments
The following Pension Plan benefit payments are expected to be paid:
2018 $2,966
2019 3,110
2020 3,317
2021 3,548
2022 3,686
2023 to 2027 20,423

Cintas administers a pension plan that was assumed in a previous acquisition and has historically been deemed immaterial for disclosure purposes. As of May 31, 20172020 and 2016,2019, the fair value of this pension plan's total assets was $7.1$7.3 million and $6.5$7.3 million, respectively, and the projected benefit obligationPBO was $7.5$9.4 million and $7.7 million, respectively. For the years ended May 31, 2017 and 2016, the net periodic benefit cost recorded for this plan was an expense of $0.1 million and income of $0.1$7.9 million, respectively.


Non-Contributory Retirement Plans
Cintas' Partners' Plan (the Plan) is a non-contributory profit sharing plan and Employee Stock Ownership Plan (ESOP) for the benefit of substantially all U.S. Cintas employee-partners who have completed one year of service. The Plan also includes a 401(k) savings feature covering substantially all U.S. employee-partners. The amounts of contributions to the Plan and ESOP, as well as the matching contribution to the 401(k), are made at the discretion of the Board of Directors. Total contributions, including Cintas' matching contributions, which approximate cost, were $47.5$74.3 million, $43.1$67.6 million and $38.4$56.7 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively. The expense associated with these contributions was recorded in selling general and administrative expenses on the consolidated statements of income.

Cintas has a non-contributory deferred profit sharing plan (DPSP), which covers substantially all Canadian employee-partners. In addition, a registered retirement savings plan (RRSP) is offered to those employees. The amounts of contributions to the DPSP, as well as the matching contribution to the RRSP, are made at the discretion of the Board of Directors. Total contributions, which approximate cost, were $1.8$2.6 million, $1.6$2.5 million and $1.5$2.8 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively.

Cintas has a supplemental executive retirement plan (SERP) subject to Section 409A of the Internal Revenue Code for the benefit of certain highly compensated Cintas employee-partners. The SERP allows participants to defer the receipt of compensation which would otherwise become payable to them. Matching contributions are made at the discretion of the Board of Directors. Total matching contributions were $6.9$8.4 million, $6.6$8.6 million and $6.1$8.2 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively.




61

Note 11.  Earnings per Share
Cintas uses the two-class method to calculate basic and diluted earnings per share as a result of outstanding participating securities in the form of restricted stock awards. See Note 12 entitled Stock-Based Compensation for additional information on restricted stock awards. The following table sets forth the computation of basic and diluted earnings per share from continuing operations using the two-class method for amounts attributable to Cintas' common shares:shares for the fiscal years ended May 31:
Basic Earnings per Share from Continuing Operations
(In thousands except per share data)
202020192018
Income from continuing operations$876,360  $882,635  $783,932  
Less: income from continuing operations allocated to
    participating securities
8,158  9,568  11,794  
Income from continuing operations available to common shareholders$868,202  $873,067  $772,138  
Basic weighted average common shares outstanding103,816  106,080  106,593  
Basic earnings per share from continuing operations$8.36  $8.23  $7.24  
(In thousands except per share data)2017 2016 2015
      
Basic Earnings per Share from Continuing Operations     
Income from continuing operations$457,286
 $448,605
 $402,553
Less: income from continuing operations allocated to
    participating securities
8,168
 7,131
 3,771
Income from continuing operations available to common shareholders$449,118
 $441,474
 $398,782
Basic weighted average common shares outstanding104,964
 108,221
 115,900
      
Basic earnings per share from continuing operations$4.27
 $4.08
 $3.44


Diluted Earnings per Share from Continuing Operations
(In thousands except per share data)
202020192018
Income from continuing operations$876,360  $882,635  $783,932  
Less: income from continuing operations allocated to
   participating securities
8,158  9,568  11,794  
Income from continuing operations available to common
   shareholders
$868,202  $873,067  $772,138  
Basic weighted average common shares outstanding103,816  106,080  106,593  
Effect of dilutive securities – employee stock options3,196  3,415  3,217  
Diluted weighted average common shares outstanding107,012  109,495  109,810  
Diluted earnings per share from continuing operations$8.11  $7.97  $7.03  
(In thousands except per share data)2017 2016 2015
      
Diluted Earnings per Share from Continuing Operations     
Income from continuing operations$457,286
 $448,605
 $402,553
Less: income from continuing operations allocated to
   participating securities
8,168
 7,131
 3,771
Income from continuing operations available to common shareholders$449,118
 $441,474
 $398,782
Basic weighted average common shares outstanding104,964
 108,221
 115,900
Effect of dilutive securities – employee stock options2,819
 1,735
 1,643
Diluted weighted average common shares outstanding107,783
 109,956
 117,543
      
Diluted earnings per share from continuing operations$4.17
 $4.02
 $3.39

Basic and diluted earnings per share from discontinued operations were calculated using the two-class method. Basic earnings per share from discontinued operations were $0.22, $2.22rounded to $0.00, $0.02 and $0.24$0.54 for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively. Diluted earnings per share from discontinued operations were $0.21, $2.19rounded to $0.00, $0.02 and $0.24$0.53 for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively.

For the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, options granted to purchase 0.60.2 million,, 0.5 million and 0.60.8 million shares of Cintas common stock, respectively, were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common shares (anti-dilutive).

On July 30, 2013, Cintas announced that the Board of Directors authorized a $500.0 million share buyback program. This program was completed in February 2015. On January 13, 2015,August 2, 2016, we announced that the Board of Directors authorized a $500.0 million share buyback program. This program was completed in September 2015.November 2018. On August 4, 2015,October 30, 2018, we announced that the Board of Directors authorized a $500.0 million$1.0 billion share buyback program. This program, was completed in June 2016.which does not have an expiration date. On August 6, 2016,October 29, 2019, we announced that the Board of Directors authorized a new $500.0 million$1.0 billion share buyback program.program, which does not have an expiration date. The following table summarizes the buyback activity by program and fiscal period:year ended May 31:
202020192018
Buyback Program
(In thousands except
   per share data)
SharesAvg. Price per SharePurchase PriceSharesAvg. Price per SharePurchase PriceSharesAvg. Price per SharePurchase Price
August 2, 2016—  $—  $—  2,130  $192.55  $410,003  518  $173.51  $89,997  
October 30, 20181,607  $246.19  $395,681  2,673  $203.30  $543,442  —  $—  $—  
October 29, 2019—  $—  $—  —  $—  $—  —  $—  $—  
1,607  $246.19  $395,681  4,803  $198.53  $953,445  518  $173.51  $89,997  
62
(In thousands except per share data)2017 2016 2015
Buyback ProgramShares Avg. Price per Share Purchase Price Shares Avg. Price per Share Purchase Price Shares Avg. Price per Share Purchase Price
                  
July 30, 2013—
 $—
 $—
 —
 $—
 $—
 3,981
 $75.49
 $300,500
January 13, 2015—
 $—
 $—
 3,078
 $85.44
 $262,928
 2,870
 $82.60
 $237,072
August 4, 201539
 $94.09
 $3,691
 5,649
 $87.85
 $496,309
 —
 $—
 $—
August 6, 2016—
 $—
 $—
 —
 $—
 $—
 —
 $—
 $—
 39
 $94.09
 $3,691
 8,727

$87.00

$759,237

6,851

$78.47

$537,572



There were no share buybacks in the period subsequent to May 31, 20172020 through July 31, 2017.29, 2020, under any share buyback program. From the inception of the October 30, 2018 program through July 29, 2020, Cintas has purchased a total of 4.3 million shares of Cintas common stock at an average price of $219.42 per share for a total purchase price of $939.1 million.

In addition to the buyback program,programs, Cintas acquired shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. For the fiscal year ended May 31, 2017,2020, Cintas acquired 0.20.3 million shares at an average price of $101.37$260.89 per share for a total purchase price of $17.0$68.8 million. For the fiscal year ended May 31, 2016,2019, Cintas acquired 0.20.3 million shares at an average price of $86.07$204.50 per share for a total purchase price of $20.9$62.9 million. For the fiscal year ended May 31, 2018, Cintas acquired 0.3 million shares at an average price of $130.30 per share for a total purchase price of $37.3 million.


Note 12.  Stock-Based Compensation
On August 2, 2016, the Board of Directors approved and adopted the Cintas Corporation 2016 Equity and Incentive Compensation Plan (the 2016 Plan) to replace the Cintas' 2005 Equity Compensation Plan, as amended (the 2005 Plan). The 2016 Plan was approved by Cintas shareholders at its Annual Meeting on October 18, 2016, at which time the 2016 Plan became effective. Under the 2016 Plan, Cintas may grant officers and key employee-partners equity compensation in the form of stock options, stock appreciation rights, restricted and unrestricted stock awards, performance awards and other stock unit awards representing up to an aggregate of 12,500,000 shares of Cintas' common stock. Any shares of common stock that remained available under the 2005 Plan became part of the total available share balance of 12,500,000 shares under the 2016 Plan. At May 31, 2017, 12,444,8262020, 7,239,070 shares of common stock arewere reserved for future issuance under the 2016 Plan. Total compensation cost for stock-based awards for continuing operations was $87.5$115.4 million,, $77.8 $139.2 million and $43.8$110.7 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively. Cintas accounts for forfeitures of stock-based awards as they occur. The total income tax benefit recognized in the consolidated income statement for share-based compensation arrangements for continuing operations was $32.5$29.2 million,, $28.3 $34.0 million and $16.3$32.3 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively.

Stock Options
Stock options are granted at the fair market value of the underlying common stock on the date of grant. The option terms are determined by the Compensation Committee of the Board of Directors, but no stock option may be exercised later than 10 years after the date of the grant. The option awards generally have 10-year10-year terms with graded vesting in years 3 through 5 based on continuous service during that period. Cintas recognizes compensation expense for these options using the straight-line recognition method over the vesting period.

The fair value of options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:assumptions for the fiscal years ended May 31:
202020192018
Risk-free interest rate1.9 %2.7 %1.8 %
Dividend yield1.1 %1.2 %1.2 %
Expected volatility of Cintas' common stock19.0 %17.9 %17.2 %
Expected life of the option in years6.06.06.5
 2017 2016 2015
      
Risk-free interest rate1.2% 2.0% 2.0%
Dividend yield1.3% 1.4% 1.6%
Expected volatility of Cintas' common stock21.6% 23.3% 28.0%
Expected life of the option in years7.5
 7.5
 7.5


The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the stock options. The determination of expected volatility is based on historical volatility of Cintas' common stock over the period commensurate with the expected term of stock options, as well as other relevant factors. The weighted average expected term was determined based on the historical employee exercise behavior of the options. The weighted-average fair value of stock options granted during fiscal 2017, 20162020, 2019 and 20152018 was $25.59, $22.20$46.87, $47.68 and $20.64,$37.62, respectively.

63


The information presented in the following table relates primarily to stock options granted and outstanding under either the 2016 Plan or under previously adopted plans:
SharesWeighted
Average
Exercise Price
Outstanding, June 1, 2017 (1,795,898 shares exercisable)8,588,050  $74.77  
Granted1,664,867  175.86  
Canceled(7,809) 45.10  
Forfeited(255,627) 94.73  
Exercised(1,059,295) 44.06  
Outstanding, May 31, 2018 (2,006,922 shares exercisable)8,930,186  96.71  
Granted1,013,005  219.37  
Canceled(3,045) 58.03  
Forfeited(397,304) 155.39  
Exercised(1,333,908) 54.14  
Outstanding, May 31, 2019 (1,919,976 shares exercisable)8,208,934  123.80  
Granted575,813  250.50  
Canceled(5,432) 72.17  
Forfeited(312,391) 185.08  
Exercised(1,361,525) 70.03  
Outstanding, May 31, 2020 (1,913,374 shares exercisable)7,105,399  $145.54  
 Shares 
Weighted
Average
Exercise
Price
    
Outstanding, June 1, 2014 (1,583,413 shares exercisable)8,025,794
 $43.12
Granted1,590,185
 84.59
Canceled(486,720) 55.50
Exercised(1,293,689) 38.11
Outstanding, May 31, 2015 (1,426,550 shares exercisable)7,835,570
 51.59
Granted1,739,767
 93.55
Canceled(235,455) 60.01
Exercised(919,975) 35.07
Outstanding, May 31, 2016 (1,649,236 shares exercisable)8,419,907
 61.83
Granted1,500,465
 123.20
Canceled(328,105) 83.03
Exercised(1,004,217) 35.95
Outstanding, May 31, 2017 (1,795,898 shares exercisable)8,588,050
 $74.77


The intrinsic value of stock options exercised was $76.5$262.1 million,, $48.5 $193.6 million and $44.3$110.9 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively. The total cash received from employees as a result of employee stock option exercises for the fiscal years ended May 31, 2017, 20162020, 2019 and 20152018 was $31.9$90.5 million,, $28.2 $65.4 million and $40.2$41.8 million, respectively.

The fair value of stock options vested was $12.7$27.8 million,, $11.0 $22.4 million and $10.9$17.9 million for the fiscal years ended May 31, 2017, 20162020, 2019 and 2015,2018, respectively.

The following table summarizes the information related to stock options outstanding at May 31, 2017:2020:
  Outstanding OptionsExercisable Options
Range of
Exercise Prices		Number
Outstanding		Average
Remaining
Option
Life		Weighted
Average
Exercise
Price		Number
Exercisable		Weighted
Average
Exercise
Price
$25.88 - $86.091,312,4853.12$51.39  1,293,021  $50.87  
$86.10 - $115.641,782,6275.7398.76  565,553  94.72  
$115.65 - $205.741,593,8067.29143.10  54,800  145.02  
$205.75 - $278.972,416,4818.86232.80  —  —  
$25.88 - $278.977,105,3996.66$145.54  1,913,374  $66.53  
   Outstanding Options Exercisable Options
Range of
Exercise Prices
Number
Outstanding
 
Average
Remaining
Option
Life
 
Weighted
Average
Exercise
Price
 
Number
Exercisable
 
Weighted
Average
Exercise
Price
  $ 22.42 – $ 46.911,972,643 4.37 $35.38
 1,488,169
 $34.04
    46.92 – 66.272,204,240 6.79 58.09
 278,065
 51.63
    66.28 –  89.781,604,071 8.12 85.51
 15,324
 71.17
    89.79  –  126.542,807,096 9.54 116.29
 14,340
 90.68
  $ 22.42 – $ 126.548,588,050 7.38 $74.77
 1,795,898
 $37.53


At May 31, 2017,2020, the aggregate intrinsic value of stock options outstanding and exercisable was $419.6$727.7 million and $158.7$347.1 million,, respectively. The weighted-average remaining contractual term of stock options exercisable is 4.53.9 years.
64

Restricted Stock Awards
Restricted stock awards consist of Cintas' common stock that is subject to such conditions, restrictions and limitations as the Compensation Committee of the Board of Directors determines to be appropriate. The vesting period is generally three years after the grant date. The recipient of restricted stock awards will have all rights of a shareholder of Cintas, including the right to vote and the right to receive cash dividends during the vesting period. Cintas recognizes compensation expense for these restricted stock awards using the straight-line recognition method over the vesting period.



The information presented in the following table relates to restricted stock awards granted and outstanding under either the 2016 Plan or under previously adopted plans:
SharesWeighted
Average
Grant Price
Outstanding, unvested grants at June 1, 20172,742,074  $91.91  
Granted669,932  183.83  
Forfeited(69,416) 102.96  
Vested(701,476) 64.64  
Outstanding, unvested grants at May 31, 20182,641,114  122.18  
Granted425,614  221.27  
Forfeited(109,393) 169.48  
Vested(765,647) 93.37  
Outstanding, unvested grants at May 31, 20192,191,688  149.12  
Granted228,292  248.39  
Forfeited(135,934) 208.37  
Vested(658,831) 113.93  
Outstanding, unvested grants at May 31, 20201,625,215  $199.73  
 Shares 
Weighted
Average
Grant Price
    
Outstanding, unvested grants at June 1, 20142,158,778
 $45.04
Granted627,033
 80.73
Canceled(50,277) 49.33
Vested(525,421) 34.39
Outstanding, unvested grants at May 31, 20152,210,113
 57.60
Granted1,069,748
 92.10
Canceled(70,998) 65.79
Vested(605,427) 38.76
Outstanding, unvested grants at May 31, 20162,603,436
 75.94
Granted681,461
 125.29
Canceled(114,151) 89.28
Vested(428,672) 48.67
Outstanding, unvested grants at May 31, 20172,742,074
 $95.09


The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 20172020 was $204.5 million.$199.3 million. The weighted-average period of time over which this cost will be recognized is 1.81.9 years.


65

Note 13.  Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss), net of tax:
(In thousands)Foreign
Currency		Unrealized
Income (Loss) on Interest
Rate Hedges		OtherTotal
Balance at June 1, 2018$6,550  $10,449  $(656) $16,343  
Other comprehensive loss before reclassifications(21,572) (27,659) (5,085) (54,316) 
Amounts reclassified from accumulated other
comprehensive income (loss)		—  (1,179) —  (1,179) 
Net current period other comprehensive loss(21,572) (28,838) (5,085) (55,495) 
Balance at May 31, 2019(15,022) (18,389) (5,741) (39,152) 
Cumulative effect of change in accounting principle (1)
—  2,058  (83) 1,975  
Other comprehensive loss before reclassifications(11,321) (94,954) (8,495) (114,770) 
Amounts reclassified from accumulated other
comprehensive income (loss)		—  (1,433) —  (1,433) 
Net current period other comprehensive loss(11,321) (96,387) (8,495) (116,203) 
Balance at May 31, 2020$(26,343) $(112,718) $(14,319) $(153,380) 
(In thousands)Foreign Currency 
Unrealized
(Loss) Gain on Cash Flow Hedges
 Other Total
        
Balance at May 31, 2015$2,987
 $(10,626) $(832) $(8,471)
Other comprehensive loss before reclassifications(11,933) (12,156) (738) (24,827)
Amounts reclassified from accumulated other
   comprehensive income (loss)
6,472
 1,952
 —
 8,424
Net current period other comprehensive loss(5,461) (10,204) (738) (16,403)
Balance at May 31, 2016(2,474) (20,830) (1,570) (24,874)
Other comprehensive (loss) income before
   reclassifications
(10,252) 31,136
 (115) 20,769
Amounts reclassified from accumulated other
   comprehensive income (loss)
—
 1,076
 —
 1,076
Net current period other comprehensive (loss) income(10,252) 32,212
 (115) 21,845
Balance at May 31, 2017$(12,726) $11,382
 $(1,685) $(3,029)
(1) See new accounting pronouncements in Note 1 entitled Significant Accounting Policies for more information.


The following table summarizes the reclassifications out of accumulated other comprehensive income (loss) during the fiscal years ended May 31:

Details about Accumulated
Other Comprehensive
Income (Loss) Components		Amount Reclassified from
Accumulated Other
Comprehensive Income (Loss)		Affected Line in the
Consolidated
Statements of Income
(In thousands)20202019
Amortization of interest rate locks$1,896  $1,896  Interest expense
Tax expense(463) (717) Income taxes
Amortization of interest rate locks, net of tax$1,433  $1,179  Net of tax



66
Reclassifications out of Accumulated Other Comprehensive Income (Loss)
       
Details about Accumulated
Other Comprehensive
Income (Loss) Components
 Amount Reclassified from Accumulated Other Comprehensive Income (Loss) 
Affected Line in the
Consolidated
 Statements of Income
       
(in thousands) 2017 2016  
Amortization of interest rate locks $(1,714) $(3,130) Interest expense
Tax benefit 638
 1,178
 Income taxes
Amortization of interest rate locks, net of tax $(1,076) $(1,952) Net of tax
       
(in thousands) 2017 2016  
Cumulative translation adjustment on
    Shred-it (1)
 $—
 $(10,381) Income from discontinued operations
Tax benefit —
 3,909
 Income from discontinued operations
Cumulative translation adjustment on
    Shred-it, net of tax (1)
 $—
 $(6,472) Net of tax


(1) The cumulative translation adjustment was reclassified out of accumulated other comprehensive income due to the sale of Shred-it in fiscal 2016.

Note 14.  Operating Segment Information
U.S. GAAP requires companies to evaluate their reportable operating segments periodically and when certain events occur. As a result of our evaluation, effective June 1, 2015, Cintas realigned its organizational structure and updated its reportable operating segments in light of certain changes in its business including the acquisition of ZEE in the first quarter of fiscal 2016. Cintas’ updated reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and Facility Services reportable operating segment, which includes G&K, consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies, carpet and tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ business,operating segments, which consists of the Fire Protection Services operating segment and itsthe Uniform Direct Sale business,operating segment, is included in All Other.
Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment revenue and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Significant Accounting Policies. Information related to the operations of Cintas' reportable operating segments and All Other is set forth below:

(In thousands)Uniform Rental
and Facility Services		First Aid
and Safety Services		All Other
Corporate (1)
Total
May 31, 2020     
Revenue$5,643,494  $708,569  $733,057  $—  $7,085,120  
Gross margin$2,588,349  $338,661  $306,738  $—  $3,233,748  
Selling and administrative expenses1,583,791  231,769  255,492  —  2,071,052  
Interest expense, net—  —  —  104,405  104,405  
Income before income taxes$1,004,558  $106,892  $51,246  $(104,405) $1,058,291  
Depreciation and amortization$317,699  $38,516  $22,838  $—  $379,053  
Capital expenditures$183,364  $35,678  $11,247  $—  $230,289  
Total assets$6,531,673  $611,205  $381,605  $145,402  $7,669,885  
May 31, 2019 
Revenue$5,552,430  $619,470  $720,403  $—  $6,892,303  
Gross margin$2,524,831  $297,074  $306,683  $—  $3,128,588  
Selling and administrative expenses1,533,711  206,990  239,943  —  1,980,644  
G&K Services, Inc. integration expenses14,410  —  —  —  14,410  
Gain on sale of a cost method investment—  —  —  69,373  69,373  
Interest expense, net—  —  —  100,508  100,508  
Income before income taxes$976,710  $90,084  $66,740  $(31,135) $1,102,399  
Depreciation and amortization$301,328  $36,824  $21,941  $—  $360,093  
Capital expenditures$220,373  $36,783  $19,563  $—  $276,719  
Total assets$6,442,461  $504,920  $392,636  $96,645  $7,436,662  
May 31, 2018 
Revenue$5,247,124  $564,706  $664,802  $—  $6,476,632  
Gross margin$2,360,165  $265,785  $282,573  $—  $2,908,523  
Selling and administrative expenses1,500,644  190,567  225,581  —  1,916,792  
G&K Services, Inc. integration expenses41,897  —  —  —  41,897  
Interest expense, net—  —  —  108,833  108,833  
Income before income taxes$817,624  $75,218  $56,992  $(108,833) $841,001  
Depreciation and amortization$236,773  $21,898  $20,745  $—  $279,416  
Capital expenditures$225,694  $27,932  $18,073  $—  $271,699  
Total assets$5,977,314  $471,165  $371,011  $138,724  $6,958,214  

(In thousands)Uniform Rental and Facility Services 
First Aid
 and Safety Services
 All Other 
Corporate (1)
 Total
May 31, 2017         
Revenue$4,202,490
 $508,233
 $612,658
 $—
 $5,323,381
Gross margin$1,894,716
 $230,166
 $255,413
 $—
 $2,380,295
Selling and administrative expenses1,138,345
 177,378
 211,657
 —
 1,527,380
G&K Services, Inc. transaction and
   integration expenses
79,224
       79,224
Interest expense, net—
 —
 —
 86,287
 86,287
Income before income taxes$677,147
 $52,788
 $43,756
 $(86,287) $687,404
Depreciation and amortization$156,998
 $19,962
 $17,905
 $1,730
 $196,595
Capital expenditures$232,832
 $26,863
 $12,645
 $977
 $273,317
Total assets$5,801,680
 $444,717
 $367,562
 $230,098
 $6,844,057
          
May 31, 2016         
Revenue$3,759,524
 $461,783
 $574,465
 $—
 $4,795,772
Gross margin$1,666,691
 $197,010
 $237,639
 $—
 $2,101,340
Selling and administrative expenses994,590
 147,503
 190,306
 —
 1,332,399
Interest expense, net—
 —
 —
 63,626
 63,626
Income before income taxes$672,101
 $49,507
 $47,333
 $(63,626) $705,315
Depreciation and amortization$130,421
 $16,021
 $16,879
 $1,958
 $165,279
Capital expenditures$237,871
 $22,364
 $14,840
 $310
 $275,385
Total assets$3,104,822
 $421,697
 $322,474
 $249,822
 $4,098,815
          
May 31, 2015         
Revenue$3,519,199
 $326,593
 $523,885
 $—
 $4,369,677
Gross margin$1,526,534
 $152,339
 $214,050
 $—
 $1,892,923
Selling and administrative expenses922,582
 107,226
 179,476
 —
 1,209,284
Gain on sale of stock of an equity
   method investment
—
 —
 —
 21,739
 21,739
Interest expense, net—
 —
 —
 64,822
 64,822
Income before income taxes$603,952
 $45,113
 $34,574
 $(43,083)
$640,556
Depreciation and amortization$123,129
 $9,774
 $16,909
 $2,783
 $152,595
Capital expenditures$184,200
 $13,589
 $18,528
 $1,403
 $217,720
Total assets$2,831,978
 $254,707
 $299,885
 $799,104
 $4,185,674

(1)  Corporate assets includerepresent the consolidated cash and marketable securitiesbalance in all periods presented. Corporate assets as of May 31, 2017 and 2016 also include the assets of Discontinued Services. Corporate assets as of May 31, 2015 also include assets of Discontinued Services, Shred-it and real estate assets of Storage that were not included in the sale transactions. Corporate depreciation and amortization includes depreciation and amortization of Discontinued Services.


67

Note 15.  Quarterly Financial Data (Unaudited)
The following is a summary of the consolidated results of operation for each of the quarters within the fiscal years ended May 31, 20172020 and 2016:2019:
May 31, 2020
(In thousands)
First
Quarter		Second
Quarter		Third
Quarter		Fourth
Quarter
Revenue$1,811,139  $1,843,749  $1,810,648  $1,619,584  
Gross margin$849,142  $852,391  $824,395  $707,820  
Income from continuing operations$250,812  $246,443  $234,520  $144,585  
Basic earnings per share, continuing operations$2.40  $2.35  $2.23  $1.38  
Diluted earnings per share, continuing operations$2.32  $2.27  $2.16  $1.35  
Weighted average number of shares outstanding103,543  103,959  104,245  103,758  

May 31, 2019
(In thousands)
First
Quarter		Second
Quarter		Third
Quarter		Fourth
Quarter
Revenue$1,697,975  $1,718,268  $1,682,330  $1,793,730  
Gross margin$774,712  $775,158  $755,153  $823,565  
Income from continuing operations$212,547  $242,994  $200,923  $226,171  
Basic earnings per share, continuing operations$1.96  $2.25  $1.89  $2.13  
Diluted earnings per share, continuing operations$1.89  $2.18  $1.83  $2.06  
Weighted average number of shares outstanding106,835  106,475  105,080  105,018  

May 31, 2017 (in thousands)
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
        
Revenue$1,266,650
 $1,271,077
 $1,255,367
 $1,530,287
Gross margin$576,427
 $565,218
 $559,924
 $678,726
Net income, continuing operations$136,208
 $121,950
 $116,954
 $82,174
Basic earnings per share, continuing operations$1.27
 $1.15
 $1.09
 $0.76
Diluted earnings per share, continuing operations$1.24
 $1.12
 $1.06
 $0.75
Weighted average number of shares outstanding104,483
 104,957
 105,093
 105,325

May 31, 2016 (in thousands) (1)
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
        
Revenue$1,170,564
 $1,191,121
 $1,190,539
 $1,243,548
Gross margin$516,895
 $520,221
 $517,853
 $546,371
Net income, continuing operations$104,325
 $113,447
 $115,122
 $115,711
Basic earnings per share, continuing operations$0.93
 $1.03
 $1.05
 $1.07
Diluted earnings per share, continuing operations$0.92
 $1.01
 $1.03
 $1.06
Weighted average number of shares outstanding110,597
 108,301
 107,843
 106,136

(1) The figures for fiscal 2016 reflect the change in classification of Discontinued Services as discontinued operations within the Consolidated Statements of Income. See Note 16 entitled Discontinued Operations for additional information.

16.  Discontinued Operations
At May 31, 2017,In fiscal 2018, Cintas has classifiedsold a significant business referred to as Discontinued Services as held forand received $127.8 million of proceeds from the sale. Prior to meeting the held for sale, criteria, Discontinued Services was primarily included in All Other. Additionally, the results of Shred-itOther and Shredding arewas classified as discontinued operationsheld for all periods presented as a result of entering into a definitive agreement duringsale. In fiscal 2016, to sell the investment. During fiscal 2015, Cintas sold Storage and, as a result, its operations are also classified as discontinued operations for all periods presented. Shredding and Storage were previously includedthe investment in the former Document Management Services reportable operating segment.Shred-it Partnership (Shred-it). In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of Discontinued Services Shredding and StorageShred-it have been excluded from both continuing operations and operating segment results for all periods presented.
At May 31, 2015, the carrying value of Shred-it was $210.1 million. In the fourth quarter of fiscal 2015, the Company received a dividend from Shred-it of $113.4 million, which reduced the carrying value of the investment. As of May 31, 2015, Cintas’ carrying value of Shred-it exceeded its share of the underlying equity in the net assets of the Shred-it Partnership by approximately $94.0 million (basis difference). The remaining basis difference was to be amortized over the weighted average estimated useful lives of the underlying assets which generated the basis difference (approximately 9 years) and recorded as a reduction in the income (loss) on Shred-it, net of tax. Cintas recorded its share of the partnership's income on a one-month lag. For the fiscal year ended May 31, 2015, Cintas recorded a net loss on Shred-it of $5.5 million, which included amortization of basis differences of approximately $11.0 million. In conjunction with the Shred-it partnership agreement, Cintas agreed to provide certain transition services such as information technology and accounting in support of Shred-it. The agreement expired in September 2015.





Cintas provides the following unaudited summary information regarding the Shred-it Partnership's results of operations for the twelve months ended April 30, 2015:
Summary Income Statement InformationFor the 12 Months Ended
(in thousands)April 30, 2015
  
Net sales$695,628
Gross profit$432,532
Net income$10,385
In fiscal 2015, Cintas received additional proceeds related to the Shred-it Transaction. The Company realized a $4.1 million gain, net of tax, as a result of the additional consideration received. During fiscal 2015, we also recorded a loss related to the Shred-it Transaction due to the settlement of an outstanding Shredding-related legal claim. The expense, net of tax, was $1.0 million.
In fiscal 2016, we completed the transaction to sell Shred-it. Cintas’ share of the proceeds from the sale were $578.3 million. During the fourth quarter of fiscal 2016, Cintas received additional proceeds2020 and consideration related to the sale of Shred-it. The Company realized a pre-tax gain of $4.3 million as a result of the additional consideration received. During the fiscal year ended May 31, 2016, Cintas recorded a net loss on Shred-it of $24.3 million, which included amortization of basis differences of approximately $4.8 million. After the sale of Shred-it, the basis differences no longer exist and Cintas no longer records income or loss from Shred-it.
In fiscal 2017,2019, we received additional proceeds related to the sale of Shred-it. Cintas realized a pre-tax gain of $25.5 million as a result of the additional consideration received. Cintas still has the opportunity to receive additional consideration, subject to certain holdback provisions. Because of the uncertainty surrounding the holdback provisions, this opportunity represents a gain contingency that has not been recorded as of May 31, 2017.
In fiscal 2015, Cintas sold Storage, excluding certain real estate owned by Cintas, in three separate transactions to three separate buyers. Certain real estate assets and related liabilities were not included in the Storage transactions in 2015 and were classified as held for sale as of May 31, 2015. This real estate was leased by a buyer of part of Storage. These lease payments did not represent a material direct cash flow of the disposed Storage business, and therefore, do not impact the classification of the Storage business as a discontinued operation. For the fiscal year ended May 31, 2015, cash proceeds received at the closing of each transaction or upon the settlement of contingencies totaled $158.4 million, net of cash contributed. Each transaction involved contingent consideration and the Company had opportunities to receive additional proceeds if specified future events occurred. Because of the uncertainty surrounding the future events, these amounts represented gain contingencies and were not recorded until realized. During fiscal 2016, Cintas received additional proceeds on the sale of Storage related to the contingent considerationShred-it and realized a pre-tax gain of $10.9 million. During fiscal 2016, Cintas also sold the remaining Storage assets classified as held for sale. Cintas received proceeds of $24.4$0.2 million from the sale of these assets and realized a pretax gain of $4.8 million. In fiscal 2017, Cintas received additional proceeds related to the sale of Storage and recorded a pre-tax gain of $2.4 million.$3.2 million, respectively.

Following is selected financial information included in net income from discontinued operations for the Discontinued Services Shredding and Storage businesses:
(In thousands)2017 
2016(1)
 
2015(1)
      
Revenue$105,559
 $109,686
 $138,584
      
Income before income taxes, excluding gains (losses) from sale transactions and investments10,622
 13,242
 9,253
      
Gain on Storage transactions2,400
 15,786
 38,573
Gain (loss) on Shred-it25,457
 354,071
 (3,851)
Income tax expense(15,057) (138,184) (15,910)
Net income from discontinued operations$23,422
 $244,915
 $28,065
(1) ResultsShred-it for the fiscal years ended May 31, 2016 and 2015 related to Discontinued Services were previously presented in continuing operations and were reclassified to discontinued operations as previously discussed.31:


(In thousands)202020192018
Revenue$—  $—  $10,773  
Loss before income taxes, excluding gains from sale
transactions and investments		(646) (97) (2,433) 
Income tax benefit160  24  706  
Gain on sale of business216  3,200  96,400  
Income tax expense on net gain(53) (781) (36,019) 
Net (loss) income from discontinued operations$(323) $2,346  $58,654  


68

Note 17.  G&K Services, Inc. Transaction and Integration Expenses
As a result of the acquisition of G&K in fiscal 2017, the Company incurred $79.2$14.4 million and $41.9 million, in transaction and integration expenses. These expenses consisted of asset impairment charges of $23.3 million and other transaction and integration expenses of $55.9 million. These asset impairment chargesin fiscal 2019 and other transaction and integration expenses are included2018, respectively. NaN such costs were incurred in a single line in the Consolidated Statements of Income and are reported by operating segment in Note 14 entitled Operating Segment Information. Our accounting policy for long-lived assets is described in Note 1 entitled Significant Accounting Policies. The asset impairment charges of $23.3 million relate to the write-down of machinery and equipment and other fixed assets to their fair value in G&K plants and branches that were identified byfiscal 2020. In fiscal 2019, the Company on April 30, 2017 for future closure. The Company has determined that these assets cannot be used for other purposes, and the undiscounted projected future cash flows associated with these assets are less than their carrying value at April 30, 2017. The fair value utilized for purposes of the asset impairment analysis was determined by using Level 2 inputs based on both the cost and market approaches.
The other transaction andincurred integration expenses consisted of the following: $17.4 million of legal and professional fees directly related to the acquisition $31.0of $16.9 million, which primarily consisted of facility closure expenses, partially offset by a $2.5 million adjustment to the accrual for employee termination expenses previously recognized under ASC Topic 712, "Compensation - Nonretirement Postemployment Benefits," $5.5 million write-off of excess inventory and $2.0Benefits" (Topic 712). The $41.9 million of costs incurred in fiscal 2018 related to lease cancellation costs, facility closure expenses and other miscellaneous integration expenses. expenses directly related to the acquisition.

The integration expenses for all fiscal years are included in a single line in the consolidated statements of income and are reported by operating segment in Note 14 entitled Operating Segment Information.

The amount of employee termination benefits paid in fiscal 2017 was $6.7 million, resulting in a related liability balance as of May 31, 2017 of $24.3 million.



18.  Supplemental Guarantor Information
Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $3,156.0 million aggregate principal amount of outstanding debt, which is unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.
As allowed by SEC rules, the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the following condensed consolidating financial statements has been fully consolidated in Cintas' consolidated financial statements. The following condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of Cintas and notes thereto of which this note is an integral part. During fiscal 2017, the Company merged a legal entity previously included in subsidiary guarantors into Corp. 2. This restructuring has been reflected as of the beginning of the earliest period presented herein. Additionally, in conjunction with the G&K acquisition, the acquired U.S. legal entities are included in Corp. 2 and the acquired Canadian legal entities are included with the Non-guarantors.
Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages:
Condensed Consolidating Income Statement
Year Ended May 31, 2017 (in thousands)
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Revenue:           
Uniform rental and facility
    services
$—
 $3,511,483
 $604,679
 $257,288
 $(170,960) $4,202,490
Other—
 1,604,877
 1,810
 73,006
 (558,802) 1,120,891
Equity in net income of
   affiliates
457,286
 —
 —
 —
 (457,286) —
 457,286
 5,116,360
 606,489
 330,294
 (1,187,048) 5,323,381
Costs and expenses (income):           
Cost of uniform rental and facility services—
 2,021,365
 378,404
 164,969
 (256,964) 2,307,774
Cost of other—
 1,070,780
 (41,509) 56,210
 (450,169) 635,312
Selling and administrative expenses—
 1,686,209
 (220,887) 87,672
 (25,614) 1,527,380
     G&K Services, Inc.
        transaction and integration
        expenses
—
 51,868
 19,060
 8,296
 —
 79,224
Operating income457,286
 286,138
 471,421
 13,147
 (454,301) 773,691
            
Interest income—
 (26) (191) (22) 2
 (237)
Interest expense (income)—
 89,706
 (2,978) (204) —
 86,524
            
Income before income taxes457,286
 196,458
 474,590
 13,373
 (454,303) 687,404
Income taxes—
 65,829
 159,025
 5,365
 (101) 230,118
Income from continuing
       operations
457,286
 130,629
 315,565
 8,008
 (454,202) 457,286
Income from discontinued
       operations, net of tax
23,422
 22,287
 —
 1,135
 (23,422) 23,422
Net income$480,708
 $152,916
 $315,565
 $9,143
 $(477,624) $480,708



Condensed Consolidating Income Statement

Year Ended May 31, 2016 (in thousands)
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Revenue:           
Uniform rental and facility
    services
$—
 $3,147,844
 $553,414
 $213,526
 $(155,260) $3,759,524
Other—
 1,484,556
 8,540
 66,270
 (523,118) 1,036,248
Equity in net income of
affiliates
448,605
 —
 —
 —
 (448,605) —
 448,605
 4,632,400
 561,954
 279,796
 (1,126,983) 4,795,772
Costs and expenses (income):           
Cost of uniform rental and facility services—
 1,835,835
 350,500
 142,601
 (236,103) 2,092,833
Cost of other—
 1,001,576
 (40,741) 48,539
 (407,775) 601,599
Selling and administrative expenses—
 1,497,106
 (206,889) 69,257
 (27,075) 1,332,399
Operating income448,605
 297,883
 459,084
 19,399
 (456,030) 768,941
            
Interest income—
 —
 (666) (232) 2
 (896)
Interest expense (income)—
 65,534
 (1,027) 15
 —
 64,522
            
Income before income taxes448,605
 232,349
 460,777
 19,616
 (456,032) 705,315
Income taxes—
 82,783
 164,169
 9,874
 (116) 256,710
Income from continuing
    operations
448,605
 149,566
 296,608
 9,742
 (455,916) 448,605
Income (loss) from discontinued
    operations, net of tax
244,915
 250,625
 —
 (5,837) (244,788) 244,915
Net income$693,520
 $400,191
 $296,608
 $3,905
 $(700,704) $693,520


Condensed Consolidating Income Statement

Year Ended May 31, 2015 (in thousands)
Cintas
Corporation
 Corp. 2 Subsidiary Guarantors 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Revenue:           
Uniform rental and facility
    services
$—
 $2,919,526
 $507,481
 $229,391
 $(137,199) $3,519,199
Other—
 1,303,204
 (8,173) 57,349
 (501,902) 850,478
Equity in net income of
affiliates
402,553
 —
 —
 —
 (402,553) —
 402,553
 4,222,730
 499,308
 286,740
 (1,041,654) 4,369,677
Costs and expenses (income):           
Cost of uniform rental and facility services—
 1,781,651
 271,512
 154,601
 (215,099) 1,992,665
Cost of other—
 830,459
 11,028
 37,628
 (395,026) 484,089
Selling and administrative expenses—
 1,343,361
 (182,290) 74,523
 (26,310) 1,209,284
Operating income402,553
 267,259
 399,058
 19,988
 (405,219) 683,639
            
Gain on sale of stock of an
    equity method investment
—
 —
 21,739
 —
 —
 21,739
            
Interest income—
 (12) (250) (79) 2
 (339)
Interest expense (income)—
 66,298
 (1,134) (3) —
 65,161
            
Income before income taxes402,553
 200,973
 422,181
 20,070
 (405,221) 640,556
Income taxes

 74,307
 156,097
 7,665
 (66) 238,003
Income from continuing
    operations
402,553
 126,666
 266,084
 12,405
 (405,155) 402,553
Income from discontinued
    operations, net of tax
28,065
 23,271
 —
 4,596
 (27,867) 28,065
Net income$430,618
 $149,937
 $266,084
 $17,001
 $(433,022) $430,618


Condensed Consolidating Statement of Comprehensive Income

Year Ended May 31, 2017
(in thousands)
Cintas
Corporation
 Corp. 2 Subsidiary Guarantors 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Net income$480,708
 $152,916
 $315,565
 $9,143
 $(477,624) $480,708
            
Other comprehensive (loss) income, net of tax:          
    Foreign currency translation
        adjustments
(10,252) —
 —
 (10,252) 10,252
 (10,252)
     Change in fair value of cash
         flow hedges
31,136
 31,136
 —
 —
 (31,136) 31,136
     Amortization of interest rate
         lock agreements
1,076
 1,076
 —
 —
 (1,076) 1,076
Other(115) —
 (115) —
 115
 (115)
            
Other comprehensive income (loss)21,845
 32,212
 (115) (10,252) (21,845) 21,845
            
Comprehensive income (loss)$502,553
 $185,128
 $315,450
 $(1,109) $(499,469) $502,553


Condensed Consolidating Statement of Comprehensive Income

Year Ended May 31, 2016
(in thousands)
Cintas
Corporation
 Corp. 2 Subsidiary Guarantors 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Net income$693,520
 $400,191
 $296,608
 $3,905
 $(700,704) $693,520
            
Other comprehensive (loss) income, net of tax:           
    Foreign currency translation
        adjustments
—
 —
 —
 (11,933) —
 (11,933)
     Cumulative translation
         adjustment on Shred-it
—
 5,875
 —
 597
 —
 6,472
     Change in fair value of cash
         flow hedges
—
 (12,156) —
 —
 —
 (12,156)
     Amortization of interest rate
         lock agreements
—
 1,952
 —
 —
 —
 1,952
Other—
 —
 (730) (8) —
 (738)
            
Other comprehensive loss—
 (4,329) (730) (11,344) —
 (16,403)
            
Comprehensive income (loss)$693,520
 $395,862
 $295,878
 $(7,439) $(700,704) $677,117


Condensed Consolidating Statement of Comprehensive Income

Year Ended May 31, 2015
(in thousands)
Cintas
Corporation
 Corp. 2 Subsidiary Guarantors 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Net income$430,618
 $149,937
 $266,084
 $17,001
 $(433,022) $430,618
            
Other comprehensive (loss) income, net of tax:           
    Foreign currency translation
       adjustments
—
 —
 —
 (38,538) —
 (38,538)
     Change in fair value of cash
         flow hedges
—
 —
 —
 37
 —
 37
     Amortization of interest rate
         lock agreements
—
 1,952
 —
 —
 —
 1,952
 Other—
 —
 (361) 11
 —
 (350)
            
Other comprehensive income (loss)—
 1,952
 (361) (38,490) —
 (36,899)
            
Comprehensive income (loss)$430,618
 $151,889
 $265,723
 $(21,489) $(433,022) $393,719



Condensed Consolidating Balance Sheet

As of May 31, 2017
(in thousands)
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Assets           
Current assets:           
Cash and cash equivalents$—
 $48,658
 $17,302
 $103,306
 $—
 $169,266
Marketable securities—
 —
 —
 22,219
 —
 22,219
Accounts receivable, net—
 543,769
 137,881
 54,358
 —
 736,008
Inventories, net—
 243,677
 21,466
 14,461
 (1,386) 278,218
Uniforms and other rental items in service—
 531,295
 78,012
 45,388
 (18,993) 635,702
Income taxes, current—
 16,173
 25,138
 3,009
 —
 44,320
Prepaid expenses and other
     current assets
—
 13,234
 16,188
 710
 —
 30,132
Assets held for sale—
 23,095
 15,518
 —
 —
 38,613
Total current assets—
 1,419,901
 311,505
 243,451
 (20,379) 1,954,478
            
Property and equipment, at cost, net—
 851,018
 364,724
 107,759
 —
 1,323,501
            
Investments (1)
321,083
 3,605,457
 929,657
 1,711,070
 (6,402,479) 164,788
Goodwill—
 —
 2,742,898
 39,549
 (112) 2,782,335
Service contracts, net—
 505,698
 —
 81,290
 —
 586,988
Other assets, net1,516,463
 14,705
 3,489,653
 11,983
 (5,000,837) 31,967
 $1,837,546
 $6,396,779
 $7,838,437
 $2,195,102
 $(11,423,807) $6,844,057
            
Liabilities and
Shareholders' Equity
           
Current liabilities:           
Accounts payable$(465,247) $(1,596,731) $2,292,388
 $(91,467) $38,108
 $177,051
Accrued compensation and related liabilities—
 94,505
 42,866
 12,264
 —
 149,635
Accrued liabilities—
 191,819
 219,303
 18,687
 —
 429,809
Liabilities held for sale—
 11,457
 —
 —
 —
 11,457
Debt due within one year—
 362,900
 —
 —
 —
 362,900
Total current liabilities(465,247) (936,050) 2,554,557
 (60,516) 38,108
 1,130,852
            
Long-term liabilities: 
  
  
  
  
  
Debt due after one year—
 2,770,234
 —
 390
 —
 2,770,624
Deferred income taxes—
 —
 436,613
 32,715
 —
 469,328
Accrued liabilities—
 28,384
 140,923
 1,153
 —
 170,460
Total long-term liabilities—
 2,798,618
 577,536
 34,258
 —
 3,410,412
Total shareholders' equity2,302,793
 4,534,211
 4,706,344
 2,221,360
 (11,461,915) 2,302,793
 $1,837,546
 $6,396,779
 $7,838,437
 $2,195,102
 $(11,423,807) $6,844,057
(1) Investments include inter company investment activity. Corp 2 and Subsidiary Guarantors hold $29.0 million and $135.8 million, respectively, of the $164.8 million consolidated net investments.


Condensed Consolidating Balance Sheet

As of May 31, 2016
(in thousands)
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Assets           
Current assets:           
Cash and cash equivalents$—
 $57,894
 $55,391
 $26,072
 $—
 $139,357
Marketable securities—
 —
 —
 70,405
 —
 70,405
Accounts receivable, net—
 413,645
 97,516
 35,327
 —
 546,488
Inventories, net—
 222,822
 19,150
 11,235
 (3,845) 249,362
Uniforms and other rental items in service—
 448,395
 73,001
 36,612
 (19,722) 538,286
Income taxes, current—
 (151) 1,215
 648
 —
 1,712
Prepaid expenses and other
     current assets
—
 6,708
 18,278
 962
 —
 25,948
Assets held for sale—
 19,021
 —
 —
 —
 19,021
Total current assets—
 1,168,334
 264,551
 181,261
 (23,567) 1,590,579
            
Property and equipment, at cost, net—
 614,111
 305,636
 73,945
 —
 993,692
            
Investments (1)
321,083
 1,770,303
 901,772
 941,396
 (3,809,602) 124,952
Goodwill—
 —
 1,241,145
 35,043
 (112) 1,276,076
Service contracts, net—
 75,941
 13
 2,240
 —
 78,194
Other assets, net1,081,203
 —
 3,338,742
 9,110
 (4,414,772) 14,283
Long-term assets held for sale—
 5,521
 15,518
 —
 —
 21,039
 $1,402,286
 $3,634,210
 $6,067,377
 $1,242,995
 $(8,248,053) $4,098,815
            
Liabilities and
Shareholders' Equity
           
Current liabilities:           
Accounts payable$(465,247) $(1,775,092) $2,296,493
 $16,781
 $38,005
 $110,940
Accrued compensation and  related liabilities—
 72,959
 23,052
 5,380
 —
 101,391
Accrued liabilities—
 78,471
 251,217
 13,578
 —
 343,266
Liabilities held for sale—
 9,958
 —
 —
 —
 9,958
Debt due within one year—
 250,000
 —
 —
 —
 250,000
Total current liabilities(465,247) (1,363,704) 2,570,762
 35,739
 38,005
 815,555
            
Long-term liabilities: 
  
  
  
  
  
Debt due after one year—
 1,044,032
 —
 390
 —
 1,044,422
Deferred income taxes—
 (427) 252,149
 7,753
 —
 259,475
Accrued liabilities—
 19,628
 116,091
 985
 —
 136,704
Total long-term liabilities—
 1,063,233
 368,240
 9,128
 —
 1,440,601
Total shareholders' equity1,867,533
 3,934,681
 3,128,375
 1,198,128
 (8,286,058) 1,842,659
 $1,402,286
 $3,634,210
 $6,067,377
 $1,242,995
 $(8,248,053) $4,098,815
(1) Investments include inter company investment activity. Corp 2 and Subsidiary Guarantors hold $15.5 million and $109.5 million, respectively, of the $125.0 million consolidated net investments.



Condensed Consolidating Statement of Cash Flows
Year Ended May 31, 2017
(in thousands)
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Cash flows from operating activities:           
Net income$480,708
 $152,916
 $315,565
 $9,143
 $(477,624) $480,708
Adjustments to reconcile net income to net cash provided by (used in) operating activities:           
Depreciation—
 117,578
 43,660
 10,327
 —
 171,565
Amortization of intangible assets—
 21,496
 1,178
 2,356
 —
 25,030
Stock-based compensation88,868
 —
 —
 —
 —
 88,868
Gain on Storage—
 (1,460) —
 —
 —
 (1,460)
Gain on Shred-it—
 (23,516) —
 (1,941) —
 (25,457)
Asset impairment charge—
 20,966
 —
 2,365
 —
 23,331
G&K Services, Inc. transaction and integration costs—
 26,453
 —
 4,992
 —
 31,445
Short-term debt financing fees included in net
   income
—
 17,062
 —
 —
 —
 17,062
Settlement of cash flow hedges—
 30,194
 —
 —
 —
 30,194
Deferred income taxes—
 (26,289) 26,058
 4,133
 —
 3,902
Changes in current assets and liabilities, net of acquisitions of businesses:           
Accounts receivable, net—
 (50,012) (40,380) (3,165) —
 (93,557)
Inventories, net—
 7,787
 (2,317) (3,679) (2,459) (668)
Uniforms and other rental items in service—
 (4,951) (5,011) 1,959
 (729) (8,732)
Prepaid expenses and other current assets—
 21,119
 2,775
 307
 —
 24,201
Accounts payable—
 1,765,713
 (1,509,215) (242,875) 103
 13,726
Accrued compensation and related liabilities—
 (7,498) 19,815
 1,337
 —
 13,654
Accrued liabilities and other—
 2,813
 (5,675) 2,361
 —
 (501)
Income taxes, current—
 (5,205) (22,445) (1,774) —
 (29,424)
Net cash provided by (used in) operating activities569,576
 2,065,166
 (1,175,992) (214,154) (480,709) 763,887
            
Cash flows from investing activities:           
Capital expenditures—
 (153,963) (102,682) (16,672) —
 (273,317)
Proceeds from redemption of marketable securities—
 —
 —
 218,324
 —
 218,324
Purchase of marketable securities and investments—
 18,150
 (797,559) 598,344
 —
 (181,065)
Proceeds from sale of Storage—
 2,400
 —
 —
 —
 2,400
Proceeds from sale of Shred-it—
 23,935
 —
 1,941
 —
 25,876
Acquisitions of businesses, net of cash acquired—
 (2,112,015) —
 9,644
 —
 (2,102,371)
Other, net(438,344) (1,562,294) 2,039,740
 (520,007) 480,709
 (196)
Net cash (used in) provided by investing activities(438,344) (3,783,787) 1,139,499
 291,574
 480,709
 (2,310,349)
            
Cash flows from financing activities:           
Proceeds from issuance of commercial paper, net—
 50,500
 —
 —
 —
 50,500
Proceeds from issuance of debt, net—
 1,932,229
 (2,000) 2,000
 —
 1,932,229
Repayment of debt—
 (250,000) —
 —
 —
 (250,000)
Payment of short-term debt financing fees—
 (17,062) —
 —
 —
 (17,062)
Proceeds from exercise of stock-based
   compensation awards
31,870
 —
 —
 —
 —
 31,870
Dividends paid(142,378) —
 —
 (55) —
 (142,433)
Repurchase of common stock(20,724) —
 —
 —
 —
 (20,724)
Other, net—
 (6,282) 404
 —
 —
 (5,878)
Net cash (used in) provided by financing activities(131,232) 1,709,385
 (1,596) 1,945
 —
 1,578,502
            
Effect of exchange rate changes on cash and cash equivalents—
 —
 —
 (2,131) —
 (2,131)
Net (decrease) increase in cash and cash equivalents—
 (9,236) (38,089) 77,234
 —
 29,909
Cash and cash equivalents at beginning of year—
 57,894
 55,391
 26,072
 —
 139,357
Cash and cash equivalents at end of year$—
 $48,658
 $17,302
 $103,306
 $—
 $169,266


Condensed Consolidating Statement of Cash Flows
Year Ended May 31, 2016
(in thousands)
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Cash flows from operating activities:           
Net income$693,520
 $400,191
 $296,608
 $3,905
 $(700,704) $693,520
Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
           
Depreciation—
 102,443
 37,883
 9,365
 —
 149,691
Amortization of intangible assets—
 14,830
 304
 454
 —
 15,588
Stock-based compensation79,293
 —
 —
 —
 —
 79,293
Gain on Storage transactions—
 (12,547) —
 (3,239) —
 (15,786)
Gain (loss) on Shred-it—
 (366,460) —
 12,389
 —
 (354,071)
Deferred income taxes—
 (83,648) 22,025
 2,321
 —
 (59,302)
Changes in current assets and liabilities, net of acquisitions of businesses:           
Accounts receivable, net—
 (30,381) (20,196) (2,185) —
 (52,762)
Inventories, net—
 (23,917) 2,011
 (2,454) 6,443
 (17,917)
Uniforms and other rental items in service—
 (3,193) (2,032) (1,840) 759
 (6,306)
Prepaid expenses and other current assets—
 (167) (914) 116
 —
 (965)
Accounts payable—
 (487,582) 491,918
 (4,884) (16) (564)
Accrued compensation and related liabilities—
 9,838
 3,103
 571
 —
 13,512
Accrued liabilities and other—
 (3,790) 25,625
 155
 724
 22,714
Income taxes, current—
 895
 (1,118) (577) —
 (800)
Net cash provided by (used in) operating activities772,813
 (483,488) 855,217
 14,097
 (692,794) 465,845
            
Cash flows from investing activities:           
Capital expenditures—
 (162,075) (100,380) (12,930) —
 (275,385)
Proceeds from redemption of marketable securities—
 —
 —
 434,179
 —
 434,179
Purchase of marketable securities and investments—
 (3,333) (12,085) (488,765) 10,037
 (494,146)
Proceeds from Storage transactions—
 32,099
 —
 3,239
 —
 35,338
Proceeds from sale of Shred-it—
 568,223
 —
 12,614
 —
 580,837
Acquisitions of businesses, net of cash acquired—
 (130,786) —
 (25,793) —
 (156,579)
Other, net94,344
 169,821
 (945,406) 1,897
 683,481
 4,137
Net cash provided by (used in) investing activities94,344
 473,949
 (1,057,871) (75,559) 693,518
 128,381
            
Cash flows from financing activities:           
Proceeds from the issuance of debt—
 —
 (165) 165
 —
 —
Repayment of debt—
 (9,151) 10,224
 (365) (724) (16)
Proceeds from exercise of stock-based compensation awards28,226
 —
 —
 —
 —
 28,226
Dividends paid(115,232) —
 —
 (41) —
 (115,273)
Repurchase of common stock(780,151) —
 —
 —
 —
 (780,151)
Other, net—
 1,952
 (730) (732) —
 490
Net cash (used in) provided by financing activities(867,157) (7,199) 9,329
 (973) (724) (866,724)
            
Effect of exchange rate changes on cash and cash equivalents—
 —
 —
 (5,218) —
 (5,218)
Net decrease in cash and cash equivalents—
 (16,738) (193,325) (67,653) —
 (277,716)
Cash and cash equivalents at beginning of year—
 74,632
 248,716
 93,725
 —
 417,073
Cash and cash equivalents at end of year$—
 $57,894
 $55,391
 $26,072
 $—
 $139,357


Condensed Consolidating Statement of Cash Flows
Year Ended May 31, 2015
(in thousands)
Cintas
Corporation
 Corp. 2 
Subsidiary
Guarantors
 
Non-
Guarantors
 Eliminations 
Cintas
Corporation
Consolidated
            
Cash flows from operating activities:           
Net income$430,618
 $149,937
 $266,084
 $17,001
 $(433,022) $430,618
Adjustments to reconcile net income to net cash provided by (used in) operating activities:           
Depreciation—
 92,133
 38,066
 10,425
 —
 140,624
Amortization of intangible assets—
 13,972
 60
 426
 —
 14,458
Stock-based compensation47,002
 —
 —
 —
 —
 47,002
Gain on Storage transactions—
 (31,113) —
 (7,460) —
 (38,573)
Loss on Shred-it—
 3,190
 —
 661
 —
 3,851
Gain on sale of stock in an equity method
   investment
—
 —
 (21,739) —
 —
 (21,739)
Deferred income taxes—
 67
 18,565
 2,234
 —
 20,866
Changes in current assets and liabilities, net of acquisitions of businesses:
          
Accounts receivable, net—
 2,416
 (5,141) 1,282
 —
 (1,443)
Inventories, net—
 22,405
 (405) (487) 2,272
 23,785
Uniforms and other rental items in service—
 (24,203) (5,154) (2,764) 127
 (31,994)
Prepaid expenses and other current assets—
 (317) (2,768) (117) —
 (3,202)
Accounts payable—
 (343,401) 310,050
 (98) 4
 (33,445)
Accrued compensation and related liabilities—
 3,345
 1,226
 (1,337) —
 3,234
Accrued liabilities and other—
 (15,160) 41,882
 6,322
 22
 33,066
Income taxes, current—
 142
 (5,939) (1,035) —
 (6,832)
Net cash provided by (used in) operating activities477,620
 (126,587) 634,787
 25,053
 (430,597) 580,276
            
Cash flows from investing activities:           
Capital expenditures—
 (117,545) (85,713) (14,462) —
 (217,720)
Proceeds from redemption of marketable securities—
 —
 —
 161,938
 —
 161,938
Purchase of marketable securities and investments—
 (1,827) 38,731
 (179,130) (53,245) (195,471)
Proceeds from Storage transactions, net of cash contributed—
 93,387
 —
 65,041
 —
 158,428
Proceeds from Shredding Transaction—
 3,344
 —
 —
 —
 3,344
Proceeds from sale of stock of an equity method investment—
 —
 29,933
 —
 —
 29,933
Dividends received on equity method investment—
 —
 5,247
 —
 —
 5,247
Dividends received on Shred-it—
 113,400
 —
 —
 —
 113,400
Acquisitions of businesses, net of cash acquired—
 (15,495) —
 —
 —
 (15,495)
Other, net235,951
 51,438
 (773,575) 3,705
 483,864
 1,383
Net cash provided by (used in) investing activities235,951
 126,702
 (785,377) 37,092
 430,619
 44,987
            
Cash flows from financing activities:           
Proceeds from the issuance of debt—
 —
 (2,615) 2,615
 —
 —
Repayment of debt—
 (1,178) 2,962
 (2,280) (22) (518)
Proceeds from exercise of stock-based compensation awards40,230
 —
 —
 —
 —
 40,230
Dividends paid(201,831) —
 —
 (60) —
 (201,891)
Repurchase of common stock(551,970) —
 —
 —
 —
 (551,970)
Other, net—
 1,952
 (363) —
 —
 1,589
Net cash (used in) provided by financing activities(713,571) 774
 (16) 275
 (22) (712,560)
            
Effect of exchange rate changes on cash and cash equivalents—
 —
 —
 (8,918) —
 (8,918)
Net increase (decrease) in cash and cash equivalents—
 889
 (150,606) 53,502
 —
 (96,215)
Cash and cash equivalents at beginning of year—
 73,743
 399,322
 40,223
 —
 513,288
Cash and cash equivalents at end of year$—
 $74,632
 $248,716
 $93,725
 $—
 $417,073


19.  Subsequent Event
On July 11, 2017, Cintas sold Discontinued Services for a total sale price of $130.0 million. Effective May 31, 2017, Discontinued Services was classified as held for sale and was presented in discontinued operations for all periods presented herein. Revenue and diluted earnings per share for Discontinued Services was $105.6 million and $0.07, respectively, forduring the fiscal year ended May 31, 2017, $109.72020, 2019 and 2018 was $0.7 million, $3.8 million and $0.07, respectively, for the fiscal year ended$15.2 million, respectively. The related liability balance was fully paid at May 31, 2016, respectively2020 and $107.2was $2.8 million and $0.07 for the fiscal year endedat May 31, 2015, respectively.2019. We do not expect to pay any additional employee termination benefits related to G&K.



69

Item 9.  Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.


Item 9A.  Controls and Procedures
Disclosure Controls and Procedures
With the participation of Cintas' management, including Cintas' Chairman and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) as of May 31, 2017. Our evaluation of internal control over financial reporting did not include the internal controls of G&K operations subsequent to the acquisition on March 21, 2017, which are included in the 2017 consolidated financial statements and constituted 37.6% of total assets (inclusive of acquired goodwill and identifiable intangible assets which represents 29.6% of total assets) as of May 31, 2017, and 3.5% of revenue for the year then ended.2020. Based on such evaluation, Cintas' management, including Cintas' Chairman and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas' disclosure controls and procedures were effective as of May 31, 2017,2020, in ensuring (i) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is accumulated and communicated to Cintas' management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting
Management's Report on Internal Control over Financial Reporting and the Report of Ernst & Young LLP, Independent Registered Public Accounting Firm thereon are set forth in Part II, Item 8 of this Annual Report on Form 10-K and are incorporated by reference herein.
There were no changes in Cintas' internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended May 31, 2017,2020, that have materially affected, or are reasonably likely to materially affect, Cintas' internal control over financial reporting.


Item 9B.  Other Information
None.




70

Part III


Item 10.  Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference to the material contained in Cintas' definitive proxy statement for the 20172020 annual meeting of shareholders to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the close of the fiscal year (the Proxy Statement).


Item 11.  Executive Compensation
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.


Item 12.  Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement, except that the information required by Item 201(d) of Regulation S-K can be found below.

The following table provides information about Cintas' common stock that may be issued under Cintas' equity compensation plans as of May 31, 2017.2020.
Equity Compensation Plan Information



Plan category
Number of shares
to be issued
upon exercise of
outstanding options (1)
Weighted average
exercise price of
outstanding options (1)
Number of shares
remaining available
for future issuance
under equity
compensation plans
Equity compensation plans approved by shareholders7,105,399  $145.54  7,239,070  
Equity compensation plans not approved by shareholders—  —  —  
Total7,105,399  $145.54  7,239,070  
Equity Compensation Plan Information



Plan category
Number of shares
to be issued
upon exercise of
outstanding options (1)
 
Weighted average
exercise price of
outstanding options (1)
 
Number of shares
remaining available
for future issuance
under equity
compensation plans
      
Equity compensation plans approved by shareholders8,588,050
 $74.77
 12,444,826
Equity compensation plans not approved by shareholders—
 —
 —
Total8,588,050
 $74.77
 12,444,826


(1)Excludes 2,742,0741,625,215 unvested restricted stock units.


Item 13.  Certain Relationships and Related
Related Transactions and Director Independence
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.


Item 14.  Principal Accountant Fees and Services
The information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.




71

Part IV


Item 15.  Exhibits and Financial Statement Schedules
(a) (1)Financial Statements. All financial statements required to be filed by Item 8 of Form 10-K and included in this Annual Report are listed in Item 8. No additional financial statements are filed because the requirements forof paragraph (d)(c) under Item 1415 are not applicable to Cintas.
(a) (2)Financial Statement Schedule:
For each of the three years in the period ended May 31, 2017.2020.
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or Notes thereto.
(a) (3)Exhibits.

All documents referenced below were filed pursuant to the Exchange Act by Cintas Corporation, file number 000-11399, unless otherwise noted.
Exhibit
Number		Description of Exhibit
Exhibit
Number2.1
Description of Exhibit
2.1
***JV Framework Agreement, dated March 18, 2014, by and among Cintas Corporation No.2, CC Shredding Holdco LLC and CC Dutch Shredding Holdco BV, each a wholly owned subsidiary of Cintas, and Shred-It International Inc., Boost JV LP, Boost Holdings LP and Boost GP Corp (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K dated March 19, 2014.)
2.2
***Securities Purchase Agreement, dated as of July 15, 2015, by and among Cintas, Shred-it International Inc., Stericycle, Inc. and the other parties thereto (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K dated October 1, 2015.)
2.3
***
Agreement and Plan of Merger, among Cintas Corporation, G&K Services, Inc. and Bravo Merger Sub, Inc., dated as of August 15, 2016 (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K datedfiled on August 16, 2016.)2016).
3.1

Restated Articles of Incorporation, as amended (Incorporated by reference to Exhibit 4.1 to Post Effective Amendment No. 1 to Cintas' Registration Statement No. 333-160926333-136631-09 on Form S-3 filed on December 3, 2007.)2007).
3.2

Amended and Restated By-laws (Incorporated by reference to Exhibit 33.1 to Cintas' Current Report on Form 8-K dated October 14, 2008.)filed on August 3, 2018).
4.1

Indenture dated as of May 28, 2002, among Cintas Corporation No. 2, as issuer, Cintas Corporation, as parent guarantor, the subsidiary guarantors thereto and Wachovia Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 to Cintas' Annual Report on Form 10-K for the year ended May 31, 2002.)2002).
4.2

Form of 6.15% Senior Note due 2036 (Incorporated by reference to Cintas' Current Report on Form 8-K dated August 17, 2006.)
Exhibit 4.3
Form of 6.125% Senior Note due 2017 (Incorporated by reference to Cintas' Current Report on Form 8-K dated December 6, 2007.)filed on August 21, 2006).
4.4
4.3

Form of 2.85% Senior Note due 2016 (Incorporated by reference to Cintas' Current Report on Form 8-K dated May 23, 2011.)
4.5
Form of 4.30% Senior Note due 2021 (Incorporated by reference to Exhibit 4.2 to Cintas' Current report on Form 8-K datedfiled on May 23, 2011.)2011).
4.6
4.4

Form of 3.25% Senior Note due 2022 (Incorporated by reference to Exhibit 4.1 to Cintas' Current Report on Form 8-K datedfiled on June 8, 2012.)2012).
4.7
4.5

Form of 2.900% Senior Notes due 2022 (Incorporated by reference to Exhibit 4.1 to Cintas' Current Report on Form 8-K datedfiled on March 14, 2017).
4.8
4.6

Form of 3.700% Senior Notes due 2027 (Incorporated by reference to Exhibit 4.2 to Cintas' Current Report on Form 8-K datedfiled on March 14, 2017).
4.9
4.7

Form of 3.250% Senior Notes due 2022 (Incorporated by reference to Cintas' Current Report on Form 8-K dated March 14, 2017).
10.1
Credit Agreement dated as of May 28, 2004 by and among Cintas Corporation No. 2, as Borrower, the lenders named in such Credit Agreement and KeyBank National Association, as agent for the lenders (Incorporated by reference to Cintas' Quarterly Report on Form 10-Q for the quarter ended February 28, 2011.)
10.2
First Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of February 24, 2006 (Incorporated by referenceExhibit 4.3 to Cintas' Current Report on Form 8-K dated October 1, 2010.)filed on March 14, 2017).
10.3
4.8

Second Amendment Agreement to the Credit Agreement dated as
Description of May 28, 2004, dated as of March 16, 2007 (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 1, 2010.)
10.4
Third Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of May 31, 2007 (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 1, 2010.)
10.5
Fourth Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of September 27, 2010 (Incorporated by reference to Cintas' Quarterly Report on Form 10-Q for the quarter ended February 28, 2011.)
10.6
Fifth Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of October 7, 2011 (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 7, 2011.)
10.7
Sixth Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of May 29, 2014Securities (Incorporated by reference to Exhibit 2.14.8 to Cintas' Current Report on CurrentAnnual Report on Form 8-K dated10-K for the year ended May 30, 2014.)31, 2019).
10.8
10.1

Seventh Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of June 23, 2016 (Incorporated by reference to Cintas’ Current Report on Form 8-K dated June 28, 2016.)
10.9
Second Amended and Restated Credit Agreement, dated as of September 16, 2016,May 24, 2019, among Cintas Corp. No. 2, the Lenders party thereto and KeyBank National Association, as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Cintas' Current Report on Form 8-K dated September 22, 2016)filed on May 30, 2019).
10.10
10.2

Amended and Restated Note Purchase Agreement, dated as of March 21, 2017, among G&K Services, Inc. and the Note holders (Incorporated by reference to Exhibit 4.1 to Cintas' Current Report on Form 8-K datedfiled on March 21, 2017).
10.1110.3 
*Incentive Stock OptionPartners' Plan (Incorporated by reference to Cintas' Registration Statement No. 33-23228Annual Report on Form S-8 filed under10-K for the Securities Act of 1933.)year ended May 31, 1993).
10.12
10.4

*		*
First Amendment to Partners' Plan as Amended (Incorporated by reference to Exhibit 4.2 to Cintas' Registration Statement No. 33-56623 on Form S-8 filed under the Securities Act of 1933.)on November 28, 1994).
10.13
10.5

*		*1999 Cintas Corporation Stock Option
Second Amendment to Partners' Plan (Incorporated by reference to Exhibit 4.3 to Cintas' Registration Statement No. 333-4465433-56623 on formForm S-8 filed under the Securities Act of 1933.)on November 28, 1994).
10.14
10.6

*		*
Directors' Deferred Compensation Plan (Incorporated by reference to Exhibit 10.12 to Cintas' Quarterly Report on Form 10-Q for the quarter ended November 30, 2000.)2000).
10.15
10.7

*		*Amended and Restated 2003 Directors' Stock Option Plan (Incorporated by reference to Cintas' Annual Report Form 10-K for the year ended May 31, 2004.)
10.16
*
Form of agreement signed by Officers, General/Branch Managers, Professionals and Key Managers, including Executive Officers (Incorporated by reference to Exhibit 10 to Cintas' Quarterly Report on Form 10-Q for the quarter ended February 28, 2005.)2005).
10.17
10.8

*		*
President and CEO Executive Compensation Plan (Incorporated by reference to Exhibit 10.18 to Cintas' Annual Report on Form 10-K for the year ended May 31, 2005.)2005).
10.18
10.9

*		*
2006 Executive Incentive Plan (Incorporated by reference to Exhibit 10.19 to Cintas' Annual Report on Form 10-K for the year ended May 31, 2005.)2005).
10.19
10.10

*		*
2005 Equity Compensation Plan (Incorporated by reference to Cintas' Definitive Proxy Statement on Schedule 14A filed on September 1, 2005.)2005).
10.20
10.11

*		*
Criteria for Performance Evaluation of the President and CEO (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2006.)
Exhibit 10.21
*2007 Executive Incentive Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2006.)2006).
10.22
10.12

*		*Amendment No. 1 to 2005 Equity Compensation
2007 Executive Incentive Plan (Incorporated by reference to Exhibit 10.22 to Cintas' Annual Report on Form 10-K for the year ended May 31, 2011.)2006).
10.23
10.13

*		*Form of Restricted Stock Agreement
Amendment No. 1 to 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.17 to Cintas' Annual Report on Form 10-K for the year ended May 31, 2011.)2011).
10.24
10.14

*		*
Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.18 to Cintas' Annual Report on Form 10-K for the year ended May 31, 2011).
10.15
*
Amendment No. 2 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.1 to Cintas' Current Report on Form 8-K datedfiled on July 27, 2012.)2012).
10.25
10.16

*		*
Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.2 to Cintas' Current Report on Form 8-K datedfiled on July 27, 2012.)2012).
10.26
10.17

*		*
Amendment No. 3 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.4 to Cintas' Current Report on Form 8-K datedfiled on October 23, 2013.)2013).
10.27
10.18

*		*
Amendment No. 4 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.5 to Cintas' Current Report on Form 8-K datedfiled on October 22, 2014.)2014).
10.28
10.19

*		*
Cintas Corporation Management Incentive Plan (Incorporated by reference to Exhibit 10.5 to Cintas' Current Report on Form 8-K datedfiled on October 23, 2013.)2013).
10.29
10.20

*		*
Cintas Corporation 2016 Equity and Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to Cintas' Current Report on Form 8-K datedfiled on October 20, 2016).
14
10.21

*
Amendment No. 1 to Cintas Corporation 2016 Equity and Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to Cintas' Quarterly Report on Form 10-Q for the quarter ended November 30, 2017).
14
Code of Ethics (Incorporated by reference to Exhibit 14 to Cintas' Annual Report on Form 10-K for the year ended May 31, 2004.)2004).
21

**		**
Subsidiaries of the RegistrantRegistrant.
23

**		**
Consent of Independent Registered Public Accounting FirmFirm.
31.1

**		**
Certification of Principal Executive Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19341934.
31.2

**		**
Certification of Principal Financial Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19341934.
32.1

**		**
32.2

**		**
101.INS
**XBRL Instance Document
101.SCH
**XBRL Taxonomy Extension Schema Document
101.CAL
**XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
**XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
**XBRL Taxonomy Extension Label Linkbase Document
101.PRE
**XBRL Taxonomy Extension Presentation Linkbase Document

*101 Management compensatory contractsThe following financial statements from Cintas' Annual Report on Form 10-K for the fiscal year ended May 31, 2020, formatted in Inline XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

**104 Filed herewithThe cover page from Cintas' Annual Report on Form 10-K for the fiscal year ended May 31, 2020, formatted in Inline XBRL (included as Exhibit 101).

***Certain exhibits and schedules have been omitted and Cintas agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits upon request.



*           Management compensatory contracts

**          Filed herewith

***    Pursuant to Item 601(a)(5), certain exhibits and schedules have been omitted and Cintas agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits upon request.
72

Item 16.  Form 10-K Summary
None.


Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.

CINTAS CORPORATION
CINTAS CORPORATIONBy:/s/Scott D. Farmer
By:/s/Scott D. Farmer
Scott D. Farmer
Chairman and Chief Executive Officer


DATE SIGNED: July 31, 201729, 2020


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SignatureCapacityCapacityDate
/s/
Scott D. Farmer
Scott D. Farmer
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)July 31, 201729, 2020
/s/
Ronald W. Tysoe
Ronald W. Tysoe
DirectorJuly 31, 201729, 2020
/s/
John F. Barrett
John F. Barrett
DirectorJuly 31, 201729, 2020
/s/
Karen L. Carnahan
Karen L. Carnahan
DirectorJuly 29, 2020
/s/
James J. Johnson
James J. Johnson
DirectorJuly 31, 201729, 2020
/s/
Robert E. Coletti
Robert E. Coletti
DirectorJuly 31, 2017
/s/
J. Michael Hansen
J. Michael Hansen
SeniorExecutive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)
July 31, 201729, 2020



73

Cintas Corporation
Schedule II — Valuation and Qualifying Accounts and Reserves
(In thousands)Balance at
Beginning of Year

Additions (1)

Deductions (2)
Balance at
End of Year
Allowance for Doubtful Accounts    
May 31, 2018$20,525  $13,358  $373  $33,510  
May 31, 2019$33,510  $10,761  $6,462  $37,809  
May 31, 2020$37,809  $40,789  $16,431  $62,167  
(In thousands)
Balance at
Beginning
of Year
 
(1)
Additions
 
(2)
Deductions
 
Balance at
End
of Year
        
Allowance for Doubtful Accounts       
May 31, 2015$14,262
 $5,289
 $4,054
 $15,497
May 31, 2016$15,497
 $8,274
 $4,668
 $19,103
May 31, 2017$19,103
 $6,446
 $5,024
 $20,525
        
Reserve for Obsolete Inventory       
May 31, 2015$30,459
 $2,952
 $2,880
 $30,531
May 31, 2016$30,531
 $5,195
 $3,010
 $32,716
May 31, 2017$32,716
 $10,049
 $4,460
 $38,305


(1)Represents amounts charged to expense to increase reserve for estimated future bad debts or to increase reserve for obsolete inventory. Amounts related to inventory are computed by performing a thorough analysis of future marketability by specific inventory item as well as an estimate based on Cintas' historical rates of obsolescence.

(2)Represents reductions in the balance sheet reserve due to the actual write-off of non-collectible accounts receivable or the physical disposal of obsolete inventory items. These amounts do not impact Cintas' consolidated income statement.


(1)Represents amounts charged to expense to increase reserve for estimated future bad debts.


Exhibit Index(2)Represents reductions in the balance sheet reserve due to the actual write-off of non-collectible accounts receivable. These amounts do not impact Cintas' consolidated income statement.


74
2.1
***JV Framework Agreement, dated March 18, 2014, by and among Cintas Corporation No.2, CC Shredding Holdco LLC and CC Dutch Shredding Holdco BV, each a wholly owned subsidiary of Cintas, and Shred-It International Inc., Boost JV LP, Boost Holdings LP and Boost GP Corp (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K dated March 19, 2014)
2.2
***Securities Purchase Agreement, dated as of July 15, 2015, by and among Cintas, Shred-it International Inc., Stericycle, Inc. and the other parties thereto (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K dated October 1, 2015.)
2.3
***Agreement and Plan of Merger, among Cintas Corporation, G&K Services, Inc. and Bravo Merger Sub, Inc., dated as of August 15, 2016 (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K dated August 16, 2016.)
3.1
Restated Articles of Incorporation, as amended (Incorporated by reference to Exhibit 4.1 to Cintas' Registration Statement No. 333-160926 on Form S-3 filed on December 3, 2007.)
3.2
Amended and Restated By-laws (Incorporated by reference to Exhibit 3 to Cintas' Current Report on Form 8-K dated October 14, 2008.)
4.1
Indenture dated as of May 28, 2002, among Cintas Corporation No. 2, as issuer, Cintas Corporation, as parent guarantor, the subsidiary guarantors thereto and Wachovia Bank, National Association, as trustee (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2002.)
4.2
Form of 6.15% Senior Note due 2036 (Incorporated by reference to Cintas' Current Report on Form 8-K dated August 17, 2006.)
4.3
Form of 6.125% Senior Note due 2017 (Incorporated by reference to Cintas' Current Report on Form 8-K dated December 6, 2007.)
4.4
Form of 2.85% Senior Note due 2016 (Incorporated by reference to Cintas' Current Report on Form 8-K dated May 23, 2011.)
4.5
Form of 4.30% Senior Note due 2021 (Incorporated by reference to Cintas' Current report on Form 8-K dated May 23, 2011.)
4.6
Form of 3.25% Senior Note due 2022 (Incorporated by reference to Cintas' Current Report on Form 8-K dated June 8, 2012.)
4.7
Form of 2.900% Senior Notes due 2022 (Incorporated by reference to Cintas' Current Report on Form 8-K dated March 14, 2017).
4.8
Form of 3.700% Senior Notes due 2027 (Incorporated by reference to Cintas' Current Report on Form 8-K dated March 14, 2017).
4.9
Form of 3.250% Senior Notes due 2022 (Incorporated by reference to Cintas' Current Report on Form 8-K dated March 14, 2017).
10.1
Credit Agreement dated as of May 28, 2004 by and among Cintas Corporation No. 2, as Borrower, the lenders named in such Credit Agreement and KeyBank National Association, as agent for the lenders (Incorporated by reference to Cintas' Quarterly Report on Form 10-Q for the quarter ended February 28, 2011.)
10.2
First Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of February 24, 2006 (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 1, 2010.)
10.3
Second Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of March 16, 2007 (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 1, 2010.)
10.4
Third Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of May 31, 2007 (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 1, 2010.)


10.5
Fourth Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of September 27, 2010 (Incorporated by reference to Cintas' Quarterly Report on Form 10-Q for the quarter ended February 28, 2011.)
10.6
Fifth Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of October 7, 2011 (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 7, 2011.)
10.7
Sixth Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of May 29, 2014 (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K dated May 30, 2014.)
10.8
Seventh Amendment Agreement to the Credit Agreement dated as of May 28, 2004, dated as of June 23, 2016 (Incorporated by reference to Cintas’ Current Report on Form 8-K dated June 28, 2016.)
10.9
Amended and Restated Credit Agreement, dated as of September 16, 2016, among Cintas Corp. No. 2, the Lenders party thereto and KeyBank National Association, as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Cintas' Current Report on Form 8-K dated September 22, 2016).
10.10
Amended and Restated Note Purchase Agreement, dated as of March 21, 2017, among G&K Services, Inc. and the Note holders (Incorporated by reference to Cintas' Current Report on Form 8-K dated March 21, 2017).
10.11
*Incentive Stock Option Plan (Incorporated by reference to Cintas' Registration Statement No. 33-23228 on Form S-8 filed under the Securities Act of 1933.)
10.12
*Partners' Plan, as Amended (Incorporated by reference to Cintas' Registration Statement No. 33-56623 on Form S-8 filed under the Securities Act of 1933.)
10.13
*1999 Cintas Corporation Stock Option Plan (Incorporated by reference to Cintas' Registration Statement No. 333-44654 on form S-8 filed under the Securities Act of 1933.)
10.14
*Directors' Deferred Compensation Plan (Incorporated by reference to Cintas' Quarterly Report on Form 10-Q for the quarter ended November 30, 2000.)
10.15
*Amended and Restated 2003 Directors' Stock Option Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2004.)
10.16
*Form of agreement signed by Officers, General/Branch Managers, Professionals and Key Managers, including Executive Officers (Incorporated by reference to Cintas' Quarterly Report on Form 10-Q for the quarter ended February 28, 2005.)
10.17
*President and CEO Executive Compensation Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2005.)
10.18
*2006 Executive Incentive Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2005.)
10.19
*2005 Equity Compensation Plan (Incorporated by reference to Cintas' Definitive Proxy Statement on Schedule 14A filed on September 1, 2005.)
10.20
*Criteria for Performance Evaluation of the President and CEO (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2006.)
10.21
*2007 Executive Incentive Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2006.)
10.22
*Amendment No. 1 to 2005 Equity Compensation Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2011.)
10.23
*Form of Restricted Stock Agreement (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2011.)
10.24
*Amendment No. 2 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Cintas' Current Report on Form 8-K dated July 27, 2012.)
10.25
*Form of Restricted Stock Agreement (Incorporated by reference to Cintas' Current Report on Form 8-K dated July 27, 2012.)


10.26
*Amendment No. 3 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.4 to Cintas' Current Report on Form 8-K dated October 23, 2013.)
10.27
*Amendment No. 4 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.5 to Cintas' Current Report on Form 8-K dated October 22, 2014.)
10.28
*Cintas Corporation Management Incentive Plan (Incorporated by reference to Exhibit 10.5 to Cintas' Current Report on Form 8-K dated October 23, 2013.)
10.29
*Cintas Corporation 2016 Equity and Incentive Compensation Plan (Incorporated by reference to Cintas' Current Report on Form 8-K dated October 20, 2016).
14
Code of Ethics (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 2004.)
21
**Subsidiaries of the Registrant
23
**Consent of Independent Registered Public Accounting Firm
31.1
**Certification of Principal Executive Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2
**Certification of Principal Financial Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1
**Certification of Chief Executive Officer, Pursuant to 18 U.S.C. § 1350
32.2
**Certification of Chief Financial Officer, Pursuant to 18 U.S.C. § 1350
101.INS
**XBRL Instance Document
101.SCH
**XBRL Taxonomy Extension Schema Document
101.CAL
**XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
**XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
**XBRL Taxonomy Extension Label Linkbase Document
101.PRE
**XBRL Taxonomy Extension Presentation Linkbase Document

*Management compensatory contracts
**Filed herewith
***Certain exhibits and schedules have been omitted and Cintas agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits upon request.

86