Cintas
Annual Report 2015

Plain-text annual report

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 May 31, 2015 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-11399 WASHINGTON (State or Other Jurisdiction of Incorporation or Organization) CINTAS CORPORATION (Exact Name of Registrant as Specified in Its Charter) 31-1188630 (I.R.S. Employer Identification No.) 6800 Cintas Boulevard P.O. Box 625737 Cincinnati, Ohio 45262-5737 (Address of Principal Executive Offices) (513) 459-1200 (Registrant’s telephone number, including area code) Title of each class Name of each exchange on which registered Securities registered pursuant to Section 12(b) of the Act: Common Stock, no par value The 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. YES (cid:1) NO Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO (cid:1) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES (cid:1) NO 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). YES (cid:1) NO 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, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer (cid:1) Filer (Do not check if a smaller reporting company.) Smaller Reporting Company Accelerated Filer Non-Accelerated Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO (cid:1) The aggregate market value of the Registrant’s Common Stock held by non-affiliates as of November 28, 2014, was $8,579,254,230 based on a closing sale price of $73.15 per share. As of June 30, 2015, 178,170,012 shares of the Registrant’s Common Stock were issued and 110,211,359 shares were outstanding. Documents Incorporated by Reference Portions of the Registrant’s Proxy Statement to be filed with the Commission for its 2015 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K. CINTAS CORPORATION 1 Cintas Corporation Index to Annual Report on Form 10-K Part I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 13. Certain Relationships and Related Transactions, and Director Independence . Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3 6 11 12 12 12 13 16 17 32 33 81 81 81 82 82 82 82 82 Part IV Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . 83 2 CINTAS CORPORATION Part I Item 1. Business Cintas Corporation (‘‘Cintas,’’ ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’), a Washington corporation, provides highly specialized products and services to businesses of all types primarily throughout North America, as well as Latin America, Europe and Asia. Cintas’ products and services are designed to enhance its customers’ images and brand identification, as well as provide a safe and efficient workplace. 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. Effective August 31, 2014, Cintas classifies its businesses into three reportable operating segments (‘‘operating segments’’) based on the types of products and services provided. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items. The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services. Previously, Cintas classified its businesses into four operating segments. The Document Management Services operating segment is no longer considered an operating segment. This operating segment consisted of document destruction services (‘‘Shredding’’) and document imaging and retention services (‘‘Storage’’). On April 30, 2014, Cintas completed its partnership transaction with the shareholders of Shred-it International Inc. (Shred-it) to combine Cintas’ Shredding with Shred-it’s shredding business (‘‘the Shredding Transaction’’). Due to the deconsolidation of Shredding, fiscal 2015 results exclude the results of Shredding. Shredding remains reported in continuing operations for fiscal 2014 (through April 30, 2014 as previously discussed) and 2013. Based on the change in reportable operating segments, the results of Shredding for the year ended May 31, 2014 are presented within Corporate. Additionally, effective August 31, 2014, Storage is reported as a discontinued operation for all periods presented and has been excluded from continuing operations and from operating segment results for all periods presented. In the quarter ended November 30, 2014, Cintas sold Storage in a series of transactions (‘‘Storage Transactions’’). Please see Note 17 entitled Discontinued Operations of ‘‘Notes to Consolidated Financial Statements’’ for additional information. On April 30, 2014, the Shredding Transaction was completed. Cintas Shredding represented approximately 76%, 80%, and 70% of Cintas’ Document Management Services operating segment’s assets, revenue, and income before income taxes, respectively, as of and for the quarter ended February 28, 2014. Under the agreement, Cintas and Shred-it each contributed its shredding business to a newly formed partnership owned 42% by Cintas and 58% by the shareholders of Shred-it (‘‘the Shred-it Partnership’’). In addition to its 42% ownership of the Shred-it Partnership, Cintas received $180.0 million in cash at the closing of the Shredding Transaction. Cintas’ equity interest in the partnership is accounted for under the equity method of accounting as prescribed by U.S. generally accepted accounting principles (‘‘GAAP’’). CINTAS CORPORATION 3 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. The following table sets forth Cintas’ total revenue and the revenue derived from each operating segment: Fiscal Year Ended May 31, (in thousands) (1) 2015 2014 2013 Rental Uniforms and Ancillary Products $3,454,956 $3,223,930 $3,044,587 Uniform Direct Sales First Aid, Safety and Fire Protection Services Corporate (2) Total Revenue 453,653 568,277 — 455,485 514,429 275,721 461,328 460,592 279,457 $4,476,886 $4,469,565 $4,245,964 (1) The figures for all years presented reflect the change in classification of Storage to discontinued operations within the Consolidated Statements of Income. See Note 17 entitled Discontinued Operations of ‘‘Notes to Consolidated Financial Statements.’’ (2) Corporate results for the fiscal years ended 2014 and 2013 include Shredding revenue. Fiscal year 2014 includes only eleven months of Shredding revenue as the Shredding Transaction closed on April 30, 2014. Additional information regarding each operating segment is also included in Note 15 entitled Operating Segment Information of ‘‘Notes to Consolidated Financial Statements.’’ The primary markets served by all Cintas operating segments 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 operating segments. Within the Rental Uniforms and Ancillary Products operating segment, Cintas provides its products and services to customers via local delivery routes originating from rental processing plants and branches. Within the Uniform Direct Sales and First Aid, Safety and Fire Protection Services operating segments, Cintas provides its products and services via its distribution network and local delivery routes or local representatives. In total, Cintas has approximately 8,000 local delivery routes, 364 operational facilities and eight distribution centers. At May 31, 2015, Cintas employed approximately 32,000 employees, of which approximately 200 were represented by labor unions. Cintas sources finished products from many outside suppliers. In addition, Cintas operates five manufacturing facilities that provide for standard uniform needs. Cintas purchases fabric, used in its manufacturing process, 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 $12 million in fiscal 2015 and approximately $21 million in fiscal 2014. Capital expenditures to limit or monitor hazardous substances totaled approximately $4 million in fiscal 2015, and there were no capital expenditures in fiscal 2014. 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. 4 CINTAS CORPORATION 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 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 and its Code of Business Conduct can be found on the Investor Information page of its website at www.cintas-corp.com/ company/investor_information/highlights.aspx. 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. CINTAS CORPORATION 5 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, the successful completion of the sale of Cintas’ investment in the Shred-it Partnership within the expected timeframe or at all; 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; fluctuations in costs of materials and labor including increased medical costs 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 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; disruptions caused by the inaccessibility of computer systems data, including cybersercurity 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; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; the reactions of competitors in terms of price and service; and the ultimate impact of the Affordable Care Act. 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 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, labor shortages or shortages of skilled labor, 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 ancillary products and other services and selling and administrative expenses. As a result, these factors could adversely affect our sales and consolidated results of operations. 6 CINTAS CORPORATION 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 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 depends in part on our ability to integrate the acquired company. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our management’s attention and our financial and other resources. 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 successfully integrate these acquired businesses or to discover such liabilities could adversely affect our consolidated results of operations. Increases in fuel and energy costs could adversely affect our financial condition and 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 oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries, regional production patterns, limits on refining capacities, natural disasters and environmental concerns. Increases in fuel and energy costs could adversely affect our consolidated financial condition and consolidated results of operations. Unionization campaigns could adversely affect our results of operations. Cintas has 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 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 CINTAS CORPORATION 7 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. 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 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 financial condition and results of operations. We earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including the Canadian dollar, British pound, and the euro. In fiscal years 2015, 2014 and 2013, 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 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, and under the Occupational Safety and Health Act of 1970, as amended, or 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 regulations to which we are subject. Changes in laws, regulations and the related interpretations 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 financial condition and results of operations. We are party to various litigation claims and legal proceedings. We discuss these lawsuits and other litigation to which we are party in greater detail under the caption ‘‘Item 3. Legal Proceedings’’ and in Note 13 entitled Litigation and Other Contingencies of ‘‘Notes to Consolidated Financial Statements.’’ 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. 8 CINTAS CORPORATION Compliance with environmental laws and regulations could result in significant costs that adversely affect our 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 to process transactions, maintain information and manage our businesses. Disruptions in the availability of computer systems, or privacy breaches involving computer systems, could impact our ability to service our customers and adversely affect our sales, results of operations and reputation and expose us to litigation risk. Our businesses rely on our computer 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 are subject to damage or interruption due to system conversions, 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- 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. CINTAS CORPORATION 9 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, 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 disrupt our operations and adversely affect our results of operations. Unexpected events, including fires or explosions at facilities, natural disasters such as hurricanes and tornadoes, war or terrorist activities, unplanned outages, supply disruptions, failure of equipment or systems or changes in laws and/or regulations impacting our businesses, could adversely affect our 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. We may recognize impairment charges, which could adversely affect our financial condition and results of operations. We assess our goodwill and other intangible assets and our long-lived assets for impairment when required by U.S. generally accepted accounting principles. 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 economic 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 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 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. 10 CINTAS CORPORATION We may not be able to successfully complete the pending sale of our interest in the Shred-It Partnership, in which case we may encounter difficulties. On July 15, 2015, Cintas announced that it entered into a definitive agreement to sell its investment in the Shred-it Partnership to Stericycle, Inc., a global business to business compliance solutions provider specializing in complex and highly regulated arenas. Upon closing of the transaction, the Shred-it Partnership will become a wholly owned subsidiary of Stericycle. The transaction is expected to close in the second quarter of fiscal 2016, subject to obtaining regulatory approvals and satisfaction of other customary closing conditions. However, we may not be able to complete the proposed sale within the expected timeframe or at all. If we are not able to complete the proposed sale of our equity investment in the Shred-it Partnership, we will encounter risks related to the Shred-it Partnership, including difficulties in the combination of operations, services, and personnel, and may divert management’s attention from business operations. The inability of the Shred-it Partnership to successfully combine the businesses in a manner that permits the entity to achieve the full revenue and cost synergies could adversely impact the value of our investment. The loss of revenue due to the Shred-it Partnership may have a dilutive impact that we may be unable to offset. We may also incur unexpected costs, including impairment charges, litigation, and other liabilities. As a minority partner in the partnership, our ability to influence our partner may be limited, and non-alignment of interests on various strategic decisions in the partnership may adversely impact our business. For example, our partner may: (i) have economic or business interests or goals that are inconsistent with ours; (ii) take actions contrary to our policies or objectives; (iii) undergo a change of control; (iv) experience financial and other difficulties; or (v) be unable or unwilling to fulfill its obligations under the agreements governing the Shred-it Partnership, which may affect our consolidated financial condition or consolidated results of operations. Item 1B. Unresolved Staff Comments None. CINTAS CORPORATION 11 Item 2. Properties Cintas occupies 377 facilities located in 286 cities. Cintas leases 184 of these facilities for various terms ranging from monthly to the year 2027. Cintas expects that it will be able to renew or replace its leases on satisfactory terms. Of the five manufacturing facilities noted below, Cintas controls the operations of one manufacturing facility, but does not own or lease the real estate related to the operation. All other facilities are owned. 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 eight distribution centers and five manufacturing facilities. Cintas also operates first aid, safety and fire protection and and direct sales offices. Cintas considers the facilities it operates to be adequate for their intended use. Cintas owns or leases approximately 13,600 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 Plants Rental Branches First Aid, Safety and Fire Protection Facilities Distribution Centers Manufacturing Facilities Direct Sales Offices Corporate Total 165 111 68 8* 5 15 5 377 Rental processing plants, rental branches, distribution centers and manufacturing facilities are used in Cintas’ Rental Uniforms and Ancillary Products operating segment. Rental processing plants, rental branches, distribution centers, manufacturing facilities and direct sales offices are all used in the Uniform Direct Sales operating segment. First aid, safety and fire protection facilities, rental processing facilities and distribution centers are used in the First Aid, Safety and Fire Protection Services operating segment. Corporate facilities include facilities previously utilized in the former Document Management Services operating segment that were excluded from the Storage Transactions. * Includes the principal executive office, which is attached to the distribution center in Cincinnati, Ohio. Item 3. Legal Proceedings We discuss material legal proceedings (other than ordinary routine litigation incidental to our business) pending against us in ‘‘Item 8. Financial Statements and Supplementary Data,’’ in Note 13 entitled Litigation and Other Contingencies of ‘‘Notes to Consolidated Financial Statements.’’ We refer you to and incorporate by reference into this Item 3 that discussion for important information concerning those legal proceedings, including the basis for such actions and, where known, the relief sought. Item 4. Mine Safety Disclosures Not applicable. 12 CINTAS CORPORATION 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 2015 Quarter Ended May 2015 February 2015 November 2014 August 2014 Fiscal 2014 Quarter Ended May 2014 February 2014 November 2013 August 2013 Holders High Low $ 88.23 84.18 73.95 66.50 $ 79.51 70.61 65.79 61.70 High Low $ 62.26 63.28 57.99 49.42 $ 55.65 53.83 47.64 44.55 At May 31, 2015, there were approximately 2,000 shareholders on record of Cintas’ common stock. Cintas believes that this represents approximately 46,000 beneficial owners. Dividends Dividends on Cintas’ outstanding common stock have been paid annually and amounted to $1.70 per share, $0.77 per share, and $0.64 per share in fiscal 2015, 2014 and 2013, 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. CINTAS CORPORATION 13 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 companies. 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 group used in the performance graph combines four publicly traded companies in the business services industry that have similar characteristics as Cintas, such as route based delivery of products and services. The companies included in the Peer Group are G & K Services, Inc., UniFirst Corporation, ABM Industries, Inc., and Iron Mountain, Inc. Total shareholder return was based on the increase in the price of the common stock and assumed reinvestment of all dividends. Further, total return was weighted according to market capitalization of each company. The companies in the Peer Group 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 Cintas Corporation S&P 500 Peer Group Aug '10 Nov '10 Feb '11 May '11 Aug '11 Nov '11 Feb '12 May '12 Aug '12 Nov '12 Feb '13 May '13 Aug '13 Nov '13 Feb '14 May '14 Aug '14 Nov '14 Feb '15 May '15 Periods Ending 31JUL201513184595 Dollars 400 350 300 250 200 150 100 50 0 May '10 14 CINTAS CORPORATION Purchases of Equity Securities by the Issuer and Affiliated Purchases Period (In millions, except share and per share data) March 1 – 31, 2015 (2) April 1 – 30, 2015 (3) May 1 – 31, 2015 (4) Total Total number of shares purchased 1,249 1,013,371 1,858,306 2,872,926 Average price paid per share $ 82.74 81.93 82.97 $ 82.60 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) — $ 500.0 1,013,024 1,856,934 417.0 262.9 2,869,958 $ 262.9 (1) On January 13, 2015, Cintas announced that the Board of Directors authorized a new $500.0 million share buyback program, which does not have an expiration date. From the inception of the January 13, 2015 share buyback program through May 31, 2015, Cintas has purchased a total of 2.9 million shares of Cintas common stock at an average price of $82.60 per share for a total purchase price of $237.1 million. (2) During March 2015, Cintas acquired 1,249 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 $82.74 per share for a total purchase price of $0.1 million. (3) During April 2015, Cintas acquired 347 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 $81.62 per share for a total purchase price of less than $0.1 million. (4) During May 2015, Cintas acquired 1,372 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 $86.01 per share for a total purchase price of $0.1 million. CINTAS CORPORATION 15 Item 6. Selected Financial Data Five-Year Financial Summary (In thousands except per share and percentage data) Fiscal Years Ended May 31, 2011 (1) 2012 (1) 2013 (1) 2014 (1)(2) 2015 (1) Revenue 3,748,957 4,032,464 4,245,964 4,469,565 4,476,886 Net Income, Continuing Operations 249,536 300,468 316,586 374,285 408,077 Compound Annual Growth (2011-2015) 4.5% 13.1% Net (Loss) Income, Discontinued Operations (2,547) (2,831) (1,144) 157 22,541 72.5% Net Income 246,989 297,637 315,442 374,442 430,618 14.9% Basic Earnings (Loss) Per Share: Continuing Operations Discontinued Operations Basic Earnings per Share Diluted Earnings (Loss) Per Share: Continuing Operations Discontinued Operations Diluted Earnings (Loss) Per Share Dividends Per Share Total Assets Shareholders’ Equity Return on Average Equity (3) 1.69 (0.01) 1.68 1.69 (0.01) 1.68 0.49 2.29 (0.02) 2.27 2.29 (0.02) 2.27 0.54 2.54 (0.01) 2.53 2.53 (0.01) 2.52 0.64 3.08 0.00 3.08 3.05 0.00 3.05 0.77 3.49 0.19 3.68 3.44 0.19 3.63 1.70 4,351,940 4,165,706 4,345,632 4,462,452 4,192,460 2,302,649 2,139,135 2,201,492 2,192,858 1,932,455 10.3% 13.5% 14.6% 17.0% 19.8% 19.9% 108.8% 21.7% 19.4% 108.8% 21.2% 36.5% (0.9)% (4.3)% Long-Term Debt 1,284,790 1,059,166 1,300,979 1,300,477 1,300,000 (1) Effective August 31, 2014, the Storage business was classified as discontinued operations. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of Storage have been excluded from continuing operations for all periods presented. Please see Note 17 entitled Discontinued Operations of ‘‘Notes to Consolidated Financial Statements’’ for additional information. (2) On April 30, 2014, the Shredding Transaction was completed with the shareholders of Shred-it to combine Cintas’ Shredding with Shred-it’s shredding business. Under the agreement, Cintas and Shred-it each contributed its shredding business to a newly formed partnership owned 42% by Cintas and 58% by the shareholders of Shred-it. In addition to its 42% ownership of the Shred-it Partnership, Cintas received $180.0 million in cash at the closing of the Shredding Transaction. The Company realized a $106.4 million gain on deconsolidation of Shredding. In addition, as a result of the Shredding Transaction, the Company recorded an asset impairment charge of $16.1 million and other transaction costs of $28.5 million. Please see Note 9 entitled Acquisitions and Deconsolidations of ‘‘Notes to Consolidated Financial Statements’’ for additional information. (3) Return on average equity is computed as net income from continuing operations divided by the average of shareholders’ equity. We believe that this calculation gives management and shareholders a good indication of Cintas’ historical performance. 16 CINTAS CORPORATION Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Business Strategy Cintas provides highly specialized products and services to businesses of all types primarily throughout North America, as well as Latin America, Europe and Asia. We bring value to our customers by helping them provide a cleaner, safer and more pleasant atmosphere for their customers and employees. Our products and services are designed to improve our customers’ images. We also help our customers protect their employees and their company by enhancing workplace safety and helping to ensure legal compliance in key areas of their business. We are North America’s leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, and first aid, safety 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 Effective August 31, 2014, Cintas classifies its businesses into three operating segments based on the types of products and services provided. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items. The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services. Cintas evaluates operating segment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these operating segments for the years ended May 31, 2015, 2014, and 2013 are presented in note 15 entitled Operating Segment Information of ‘‘Notes to Consolidated Financial 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. CINTAS CORPORATION 17 Previously, Cintas classified its businesses into four operating segments. The Document Management Services operating segment is no longer considered an operating segment. This operating segment consisted of document destruction services (‘‘Shredding’’) and document imaging and retention services (‘‘Storage’’). On April 30, 2014, Cintas completed its partnership transaction with the shareholders of Shred-it International Inc. (Shred-it) to combine Cintas’ Shredding with Shred-it’s shredding business. Due to the deconsolidation of Shredding, fiscal 2015 results exclude the results of Shredding. Shredding remains reported in continuing operations for fiscal 2014 (through April 30, 2014) and fiscal 2013. Based on the change in reportable operating segments, the results of Shredding for the years ended May 31, 2014 and 2013 are presented in Corporate. Additionally, effective August 31, 2014, Storage is reported as a discontinued operation for all periods presented and has been excluded from continuing operations and from operating segment results for all periods presented. In the quarter ended November 30, 2014, Cintas sold Storage in a series of transactions (‘‘Storage Transactions’’). Please see Note 17 entitled Discontinued Operations of ‘‘Notes to Consolidated Financial Statements’’ for additional information. The following table sets forth certain consolidated statements of income data as a percent of revenue by operating segment and in total for the fiscal years ended May 31: Revenue: Rental Uniforms and Ancillary Products Uniform Direct Sales First Aid, Safety and Fire Protection Services Corporate Total revenue Cost of sales: Rental Uniforms and Ancillary Products Uniform Direct Sales First Aid, Safety and Fire Protection Services Corporate Total cost of sales Gross margin: Rental Uniforms and Ancillary Products Uniform Direct Sales First Aid, Safety and Fire Protection Services Corporate Total gross margin Selling and administrative expenses: Rental Uniforms and Ancillary Products Uniform Direct Sales First Aid, Safety and Fire Protection Services Corporate Total selling and administrative expenses Gain on sale of stock of an equity method investment Gain on deconsolidation of Shredding, net of impairment charges and other transaction costs Interest expense, net Income before income taxes 2015 (1) 2014 (1)(2) 2013 (1)(2) 77.2% 10.1% 12.7% —% 72.1% 10.2% 11.5% 6.2% 71.7% 10.9% 10.8% 6.6% 100.0% 100.0% 100.0% 55.4% 71.5% 55.9% —% 57.1% 44.6% 28.5% 44.1% —% 42.9% 27.5% 18.8% 33.6% —% 27.4% 0.5% 0.1% 1.4% 14.7% 56.7% 71.5% 56.2% 55.1% 58.1% 43.3% 28.5% 43.8% 44.9% 41.9% 27.5% 18.3% 34.3% 42.7% 28.3% —% 1.4% 1.5% 13.5% 57.7% 70.7% 56.7% 53.2% 58.7% 42.3% 29.3% 43.3% 46.8% 41.3% 27.4% 17.7% 33.9% 40.8% 28.0% —% —% 1.5% 11.8% (1) The figures for all years presented reflect the change in classification of Storage to discontinued operations within the Consolidated Statements of Income. See Note 17 entitled Discontinued Operations of ‘‘Notes to Consolidated Financial Statements.’’ (2) Corporate results for the fiscal years ended 2014 and 2013 include Shredding. Fiscal year 2014 includes only eleven months of Shredding results as the Shredding Transaction closed on April 30, 2014. 18 CINTAS CORPORATION Fiscal 2015 Compared to Fiscal 2014 On April 30, 2014, Cintas completed the Shredding Transaction with Shred-it to combine Cintas’ Shredding with Shred-it’s shredding business (the ‘‘Shredding Transaction’’). Under the agreement, Cintas and Shred-it each contributed its shredding business to a newly formed partnership. Please see Note 9 entitled Acquisitions and Deconsolidations of ‘‘Notes to Consolidated Financial Statements’’ for additional information on the Shredding Transaction. Fiscal 2015 total revenue was $4.5 billion, an increase of 0.2% over the prior fiscal year. Revenue increased organically by 7.1% as a result of increased sales volume. Organic growth excludes the impact of acquisitions, disposals, deconsolidations and foreign currency exchange rate fluctuations. Revenue growth was negatively impacted by 6.6% because of the deconsolidation of Shredding, which contributed $275.7 million of revenue in fiscal year 2014, and 0.5% due to foreign currency exchange rate fluctuations. Acquisitions positively impacted the growth rate by 0.2%. Organic growth by quarter is shown in the table below. First Quarter Ending August 31, 2014 Second Quarter Ending November 30, 2014 Third Quarter Ending February 28, 2015 Fourth Quarter Ending May 31, 2015 For the Fiscal Year Ending May 31, 2015 Organic Growth 7.3% 7.2% 7.5% 6.0% 7.1% Rental Uniforms and Ancillary Products operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Rental Uniforms and Ancillary Products operating segment increased 7.2% compared to fiscal 2014. The increase resulted from an organic growth increase in revenue of 7.7%. 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 growth was negatively impacted by 0.5% due to foreign currency exchange rate fluctuations. Other Services revenue, consisting of revenue from the operating segments of Uniform Direct Sales, and First Aid, Safety and Fire Protection Services as well as Shredding (through April 30, 2014), decreased 18.0% compared to fiscal 2014. Revenue increased organically by 5.0%. Revenue growth was negatively impacted by 23.3% due to the deconsolidation of Shredding and by 0.3% due to foreign currency exchange rate fluctuations. Acquisitions positively impacted the growth rate by 0.6%. Cost of rental uniforms and ancillary products increased 4.6% compared to fiscal 2014. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The cost of rental uniforms and ancillary products increase compared to fiscal 2014 was due to increased Rental Uniforms and Ancillary Products operating segment sales volume. Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid, safety and fire protection products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment, and Shredding through April 30, 2014. Cost of other services decreased 16.2% in fiscal 2015 compared to fiscal 2014. The decrease was primarily due to the deconsolidation of Shredding partially offset by increases resulting from higher First Aid, Safety and Fire Protection Services operating segment sales volume. CINTAS CORPORATION 19 Selling and administrative expenses decreased $39.9 million, or 3.2%, compared to fiscal 2014 due primarily to the deconsolidation of Shredding partially offset by increases resulting from higher Rental Uniforms and Ancillary Products and First Aid, Safety and Fire Protection Services operating segment sales volume. Cintas realized a gain on the Shredding Transaction of $5.0 million in fiscal 2015 primarily as a result of receiving certain additional proceeds. Also 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. Net interest expense (interest expense less interest income) was $64.8 million in fiscal 2015 compared to $65.6 million in fiscal 2014. The decrease in net interest expense is primarily due to the capitalization of $0.6 million of interest in fiscal year 2015 versus no capitalization of interest in fiscal 2014. Income before income taxes was $658.3 million, an increase of $53.2 million, or 8.8%, compared to fiscal 2014. Income before income taxes was positively impacted by a $5.0 million gain on the Shredding Transaction as a result of receiving certain additional proceeds and by a $21.7 million gain from the sale of the equity method investment. The remaining $26.5 million increase in income before income taxes was due primarily to revenue growing at a faster rate than expenses. Cintas’ effective tax rate on continuing operations was 37.2% for fiscal 2015 compared to 38.3% in fiscal 2014. Excluding the impact of the Shredding Transaction, the effective tax rate for fiscal 2014 would have been 37.2%. See Note 8 entitled Income Taxes of ‘‘Notes to Consolidated Financial Statements’’ for more information. During fiscal 2015, Cintas recorded a net loss on the investment in the Shred-it Partnership of $5.5 million. This loss was net of a tax benefit of $3.3 million. The Shred-it Partnership results in the period were adversely affected by integration costs and foreign currency exchange rate fluctuations due to the weakened Canadian dollar. Net income from continuing operations for fiscal 2015 of $408.1 million was a 9.0% increase compared to fiscal 2014. Diluted earnings per share from continuing operations of $3.44 was a 12.8% increase compared to fiscal 2014. Diluted earnings per share from continuing operations increased due to an increase in earnings from continuing operations combined with a decrease in weighted average common shares outstanding. The decrease in weighted average common shares outstanding resulted from purchasing 10.3 million shares of common stock under the October 18, 2011, July 30, 2013 and January 13, 2015 share buyback programs during fiscal 2015 and the fourth quarter of fiscal 2014. Rental Uniforms and Ancillary Products Operating Segment Rental Uniforms and Ancillary Products operating segment revenue increased $231.0 million, or 7.2%, and the cost of rental uniforms and ancillary products increased $84.0 million, or 4.6%. The operating segment’s fiscal 2015 gross margin was 44.6% of revenue compared to 43.3% in fiscal 2014. The 130 basis point improvement 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. In addition, lower energy-related expenses increased gross margin 40 basis points. Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment increased $61.0 million in fiscal 2015 compared to fiscal 2014 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expense as a percent of revenue for fiscal 2015 was 27.5% for both fiscal 2015 and 2014. Income before income taxes increased $86.0 million to $593.0 million for fiscal 2015 compared to fiscal 2014. Income before income taxes as a percent of revenue, at 17.2%, increased 150 basis points from 15.7% in fiscal 2014. This increase is primarily due to the increase in gross margin discussed above. 20 CINTAS CORPORATION Uniform Direct Sales Operating Segment Uniform Direct Sales operating segment revenue decreased $1.8 million in fiscal 2015, a 0.4% decrease compared to fiscal 2014. Revenue increased organically by 0.2% due to slightly increased sales volume. Revenue growth was negatively impacted by 0.6% due to foreign currency exchange rate fluctuations. Cost of uniform direct sales decreased $1.3 million, or 0.4%, compared to fiscal 2014. The gross margin as a percent of revenue was 28.5% for both fiscal 2015 and 2014. Selling and administrative expenses increased $2.0 million, or 2.4%, in fiscal 2015 compared to fiscal 2014 due in large part to foreign currency exchange rate fluctuations. Selling and administrative expenses as a percent of revenue, at 18.8%, increased 50 basis points compared to fiscal 2014, mainly due to lower operating segment revenue and foreign currency exchange rate fluctuations. Income before income taxes was $44.1 million in fiscal 2015, a decrease of $2.6 million, or 5.5%, compared to fiscal 2014. Income before income taxes as a percent of revenue, at 9.7%, decreased from 10.3% in fiscal 2014. This decrease was due to the reasons discussed above. First Aid, Safety and Fire Protection Services Operating Segment First Aid, Safety and Fire Protection Services operating segment revenue increased $53.8 million in fiscal 2015, a 10.5% increase compared to fiscal 2014. Revenue increased organically by 9.2% as a result of increased sales volume. Acquisitions resulted in revenue growth of 1.3%. Cost of First Aid, Safety and Fire Protection Services increased $28.7 million, or 9.9%, in fiscal 2015, due primarily to increased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 44.1% for fiscal 2015 compared to 43.8% in fiscal 2014. Energy-related expenses decreased 40 basis points from fiscal 2014 and were the primary driver of gross margin improvement in fiscal 2015. Selling and administrative expenses increased by $14.9 million, or 8.4%, in fiscal 2015 compared to fiscal 2014 primarily due to an increase in labor and other employee-partner related expenses. Selling and administrative expenses as a percent of revenue, at 33.6%, decreased from 34.3% in fiscal 2014, as revenue growth outpaced the increase in expenses. Income before income taxes was $59.2 million in fiscal 2015, an increase of $10.3 million, or 21.0%, compared to fiscal 2014. Income before income taxes as a percent of revenue, at 10.4%, increased from 9.5% in fiscal 2014, due to the reasons discussed above. CINTAS CORPORATION 21 Fiscal 2014 Compared to Fiscal 2013 Fiscal 2014 total revenue was $4.5 billion, an increase of 5.3% compared to fiscal 2013. The increase primarily resulted from an organic growth increase of 6.2%. Organic growth excludes the impact of acquisitions, disposals, deconsolidations, foreign currency exchange rate fluctuations and adjusts for the appropriate number of workdays. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday compared to fiscal 2013 and negatively by 0.4% due to foreign currency exchange rate fluctuations. The Shredding Transaction had a negative impact of 0.4% which was offset by the positive impact of 0.3% from acquisitions. Organic growth by quarter is shown in the table below. First Quarter Ending August 31, 2013 Second Quarter Ending November 30, 2013 Third Quarter Ending February 28, 2014 Fourth Quarter Ending May 31, 2014 For the Fiscal Year Ending May 31, 2014 Organic Growth 7.2% 7.4% 3.6% 6.4% 6.2% Rental Uniforms and Ancillary Products operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Rental Uniforms and Ancillary Products operating segment increased 5.9% compared to fiscal 2013. The increase resulted from an organic growth increase in revenue of 6.7%. 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 in fiscal 2014 was negatively impacted by 0.4% due to one less workday and negatively by 0.4% due to foreign currency exchange rate fluctuations. Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Shredding (through April 30, 2014), increased 3.7% compared to fiscal 2013. The increase primarily resulted from an organic growth increase of 4.7%, which was due largely to improved sales representative productivity. Revenue in fiscal 2014 was negatively impacted by 0.4% due to the deconsolidation of Shredding, negatively by 0.4% due to one less workday and negatively by 0.2% due to foreign currency exchange rate fluctuations. Cost of rental uniforms and ancillary products increased 4.2% compared to fiscal 2013. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The increase in the cost of rental uniforms and ancillary products compared to fiscal 2013 was due to increased Rental Uniforms and Ancillary Products operating segment sales volume. Cost of other services increased 4.1% compared to fiscal 2013. Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment and the First Aid, Safety and Fire Protection Services operating segment and Shredding (through April 30, 2014). The increase from fiscal 2013 was primarily due to increased Other Services sales volume. Selling and administrative expenses increased $77.5 million, or 6.5%, compared to fiscal 2013 due primarily to increases in labor and other employee-partner related expenses. 22 CINTAS CORPORATION As a result of the Shredding Transaction, the Company recorded in fiscal 2014 an asset impairment charge of $16.1 million and other transaction costs of $28.5 million. The impairment charge was related to the abandonment of information systems assets that were not contributed to the Shred-it Partnership and cannot be used by the Company for other purposes. The other transaction costs consisted of the following: $4.7 million of professional and legal fees; $0.7 million of employee termination benefit costs; $12.4 million of stock compensation expense resulting from the immediate vesting of Cintas stock options and awards of employees contributed to the Shred-it Partnership; a $4.2 million charge for information systems contracts for which no future economic benefit exists; and $6.5 million of incremental profit sharing and employee compensation resulting from the gain, net of the impairment charge and other transaction costs. Operating income of $564.2 million in fiscal 2014 decreased $1.8 million, or 0.3%, compared to fiscal 2013. Fiscal 2014 operating income was negatively impacted by $44.6 million due to the asset impairment charge and other transaction costs previously described. In the fourth quarter of fiscal 2014, the Company realized a $106.4 million gain on the Shredding Transaction. The gain was computed as follows: the fair value of consideration received of $180.0 million plus the fair value of Cintas’ retained non-controlling interest in the Shred-it Partnership of $339.4 million less the carrying amount of Shredding of $413.0 million. Net interest expense (interest expense less interest income) of $65.6 million in fiscal 2014 was comparable to fiscal 2013. Income before income taxes was $605.0 million, an increase of $104.4 million, or 20.8%, compared to fiscal 2013. Income before income taxes was positively impacted by $61.8 million due to the Shredding Transaction. The remaining $42.6 million of increased income before income taxes was due to revenue growing at a faster rate than expenses. The impact of the Shredding Transaction increased Cintas’ effective tax rate in fiscal 2014 from 37.2% to 38.3% compared to an effective tax rate of 36.8% in fiscal 2013. See Note 8 entitled Income Taxes of ‘‘Notes to Consolidated Financial Statements’’ for more information on income taxes. During fiscal 2014, Cintas recorded a net gain on the investment in the Shred-it Partnership of $1.2 million. This gain was net of taxes of $0.8 million. Net income from continuing operations for fiscal 2014 of $374.3 million was an 18.2% increase compared to fiscal 2013. Diluted earnings per share from continuing operations of $3.05 was a 20.6% increase compared to fiscal 2013. 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 7.3 million shares of common stock under the October 18, 2011 and July 30, 2013 share buyback programs during fiscal 2014 and the fourth quarter of fiscal 2013. Rental Uniforms and Ancillary Products Operating Segment Rental Uniforms and Ancillary Products operating segment revenue increased $179.3 million, or 5.9%, and the cost of rental uniforms and ancillary products increased $73.1 million, or 4.2%. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday and by 0.4% due to foreign currency exchange rate changes compared to fiscal 2013. The operating segment’s fiscal 2014 gross margin was 43.3% of revenue compared to 42.3% in fiscal 2013. The increase in gross margin as a percent of revenue over fiscal 2013 was due to route efficiencies and increased revenue covering fixed costs including our plant infrastructure. Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment increased $52.2 million in fiscal 2014 compared to fiscal 2013 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expense as a percent of revenue for fiscal 2014 was 27.5% compared CINTAS CORPORATION 23 to 27.4% in fiscal 2013. The fiscal 2013 percentage was positively impacted by approximately 20 basis points from a gain on sale of stock of an equity method investment. Income before income taxes increased $54.0 million to $507.1 million for fiscal 2014 compared to fiscal 2013. Income before income taxes as a percent of revenue, at 15.7%, increased 80 basis points from 14.9% in fiscal 2013. This increase is primarily due to the increase in gross margin. Uniform Direct Sales Operating Segment Uniform Direct Sales operating segment revenue decreased $5.8 million, or 1.3%, compared to fiscal 2013. Revenue in fiscal 2014 decreased organically by 0.5%. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday and by 0.4% due to foreign currency exchange rate changes compared to fiscal 2013. In fiscal 2013, the Company had some very large national account program sales that by their nature did not repeat in fiscal 2014. The fiscal 2013 activity included the largest customer program roll-out in Cintas history. Cost of uniform direct sales decreased $0.9 million, or 0.3%, compared to fiscal 2013. The gross margin as a percent of revenue was 28.5% for fiscal 2014 compared to 29.3% in fiscal 2013. The fiscal 2013 gross margin benefited significantly from the revenue from our all-time largest customer program roll-out. Selling and administrative expenses increased $1.6 million, or 1.9%, in fiscal 2014 compared to fiscal 2013 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expenses as a percent of revenue, at 18.3%, increased from 17.7% in fiscal 2013 mainly due to lower revenue. Income before income taxes was $46.7 million in fiscal 2014, a decrease of $6.5 million, or 12.3%, compared to fiscal 2013. Income before income taxes as a percent of revenue, at 10.3%, decreased from 11.5% in fiscal 2013. This decrease was primarily due to the decrease in revenue discussed above. First Aid, Safety and Fire Protection Services Operating Segment First Aid, Safety and Fire Protection Services operating segment revenue increased $53.8 million in fiscal 2014, a 11.7% increase compared to fiscal 2013. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday compared to fiscal 2013. Revenue increased organically by 9.4% due to improvements in sales representative productivity. Acquisitions resulted in revenue growth of 2.7%. Cost of first aid, safety and fire protection services increased $27.9 million, or 10.7%, in fiscal 2014, due primarily to increased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 43.8% for fiscal 2014 compared to 43.3% in fiscal 2013. The margin increased due to an improved mix of higher gross margin revenue. Selling and administrative expenses increased by $20.1 million, or 12.8%, in fiscal 2014 compared to fiscal 2013 primarily due to an increase in labor and other employee-partner related expenses. Selling and administrative expenses as a percent of revenue, at 34.3%, increased from 33.9% in fiscal 2013. The fiscal 2013 percentage was positively impacted by approximately 20 basis points from a gain on sale of stock of an equity method investment. Income before income taxes was $49.0 million in fiscal 2014, an increase of $5.9 million, or 13.6%, compared to fiscal 2013. Income before income taxes as a percent of revenue, at 9.5%, increased from 9.4% in fiscal 2013. 24 CINTAS CORPORATION Liquidity and Capital Resources The following is a summary of our cash flows and cash, cash equivalents and marketable securities as of and for the fiscal years ending May 31: (In thousands) Net cash provided by operating activities Net cash provided by (used in) investing activities Net cash used in financing activities Cash and cash equivalents at the end of the period Marketable securities at the end of the period 2015 2014 $ 580,276 $ 44,987 $ (712,560) $ 605,969 $ (14,543) $ (429,735) $ 417,073 $ 16,081 $ 513,288 — $ Cash, cash equivalents, and marketable securities as of May 31, 2015 and 2014 include $109.8 million and $40.2 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. 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, expansion activities and dividends on our common stock. We may also use cash flows provided by operating activities, as well as proceeds from long-term debt and short-term borrowings, to fund growth and expansion opportunities, as well as other cash requirements such as the repurchase of our common stock. Net cash provided by operating activities was $580.3 million for fiscal 2015, which was a decrease of $25.7 million compared to fiscal 2014. Although net income increased, cash flow was negatively impacted by changes in working capital resulting from the timing of vendor and other payments compared to prior year. Net cash of $45.0 million was provided by investing activities in fiscal 2015 compared to net cash of $14.5 million used in investing activities in fiscal 2014. Capital expenditures were $217.7 million and $145.6 million for fiscal 2015 and fiscal 2014, respectively. Capital expenditures for fiscal 2015 included $183.5 million for the Rental Uniforms and Ancillary Products operating segment and $23.9 million for the First Aid, Safety and Fire Protection Services operating segment. Cash paid for acquisitions of businesses was $15.5 million and $33.4 million for fiscal 2015 and fiscal 2014, respectively. The acquisitions in fiscal 2015 occurred in our First Aid, Safety and Fire Protection Services and Rental Uniforms and Ancillary Products operating segments. Acquisitions in fiscal 2014 occurred in our First Aid, Safety and Fire Protection Services operating segment and the former Document Management Services operating segment. In fiscal 2015, net cash provided by investing activities include $35.2 million cash received from the sale of stock of an equity method investment plus receipt of dividends on the same investment. The Company sold Storage during fiscal 2015, receiving proceeds, net of cash contributed, of $158.4 million. Also, during fiscal 2015, net cash provided by investing activities include a dividend received from the Shred-it Partnership of $113.4 million. In fiscal 2014, Cintas completed the Shredding Transaction. In addition to its 42% ownership of the Shred-it Partnership, Cintas received $180.0 million in cash at the closing of the transaction. Net cash provided by (used in) investing activities for fiscal 2015 and 2014 include net purchases of marketable securities and investments of $33.5 million and $9.7 million, respectively. Net cash used in financing activities was $712.6 million and $429.7 million for fiscal 2015 and 2014, respectively. On October 18, 2011, we announced that the Board of Directors authorized a $500.0 million share buyback program. During fiscal 2014, under the October 18, 2011 share buyback program, Cintas purchased a total of 3.3 million shares of Cintas common stock at an average price of $48.87 per share for a total purchase price of $162.5 million. These purchases completed the October 18, 2011 share buyback program. For the fiscal year ended May 31, 2014, Cintas acquired 0.2 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 $50.45 per share for a total purchase price of $8.6 million. On July 30, 2013, Cintas announced that the Board of Directors CINTAS CORPORATION 25 approved a new $500.0 million share buyback program. From April 2014 through February 28, 2015, Cintas purchased a total of 7.3 million shares of Cintas common stock at an average price of $68.29 per share for a total purchase price of $500.0 million. These purchases completed the July 30, 2013 share buyback program. On January 13, 2015, Cintas announced that the Board of Directors authorized a new $500.0 million share buyback program, which does not have an expiration date. From the inception of the January 13, 2015 share buyback program, through May 31, 2015, Cintas has purchased a total of 2.9 million shares of Cintas common stock at an average price of $82.60 per share for a total purchase price of $237.1 million. Under the January 13, 2015 program, through July 30, 2015, Cintas has purchased a total of 4.4 million shares of Cintas common stock at an average price of $83.82 per share for a total purchase price of $370.0 million. For the fiscal year ended May 31, 2015, Cintas acquired 0.2 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 $64.58 per share for a total purchase price of $14.4 million. On October 21, 2014, Cintas declared an annual cash dividend of $0.85 per share on outstanding common stock, a 10.4% increase over the dividend paid in the prior year. In addition, due to the receipt of $180.0 million at the closing of the Shredding Transaction, Cintas declared an additional $0.85 per share special dividend. The total dividend of $1.70 per share was paid on December 5, 2014, to shareholders of record as of November 7, 2014. This marked the 32nd consecutive year that Cintas has increased its annual dividend, every year since going public in 1983. As of May 31, 2015, we had $1,300.0 million aggregate principal amount in fixed rate senior notes outstanding with maturities ranging from 2016 to 2036. These senior notes are comprised of $250 million of 30-year senior notes issued in fiscal 2007 at a rate of 6.15%, $300 million of 10-year senior notes issued in fiscal 2008 at a rate of 6.125%, $250 million of 5-year senior notes issued in fiscal 2011 at a rate of 2.85%, $250 million of 10-year senior notes issued in 2011 at a rate of 4.30% and $250 million of 10-year senior notes issued in fiscal 2012 at a rate of 3.25%. Cintas’ commercial paper program has a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group. This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million. The revolving credit facility was amended on May 29, 2014 to extend that maturity date from October 6, 2016 to May 28, 2019, to adjust the applicable margin used to calculate the interest payable on any outstanding loans, and to adjust the facility fee payable under the agreement. We believe that this program, along with cash generated from operations, will be adequate to provide necessary funding for our future cash requirements. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2015 or 2014. Cintas has certain covenants related to debt agreements. These covenants limit our ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas’ assets. These covenants also require Cintas to maintain certain debt to 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. As of May 31, 2015, Cintas was in compliance with all debt covenants. Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity. We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. Our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, 26 CINTAS CORPORATION on the ratings assigned by the credit rating agencies to our indebtedness. As of May 31, 2015, our ratings were as follows: Rating Agency Standard & Poor’s Moody’s Investors Service Outlook Positive Stable Commercial Paper Long-term Debt A(cid:2)2 P(cid:2)1 BBB(cid:3) A2 On June 26, 2015, Standard & Poor’s rating agency raised its long-term credit rating for Cintas to A(cid:2)/Stable. In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected. In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above. The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies. To monitor our credit rating and our capacity for long-term financing, we consider various qualitative and quantitative factors. One such factor is the ratio of our total debt to EBITDA. For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and long-term obligations under capital leases. CINTAS CORPORATION 27 Long-Term Contractual Obligations (In thousands) Payments Due by Period Total One year or less Two to three years Four to five years After five years Long-term debt (1) Operating leases (2) Interest payments (3) Unconditional purchase obligations $1,300,000 $ — $550,000 $ — $ 750,000 98,655 524,636 — 26,962 64,104 — 38,088 102,179 — 18,731 73,080 — 14,874 285,273 — Total long-term contractual cash obligations $1,923,291 $91,066 $690,267 $91,811 $1,050,147 Cintas also makes payments to defined contribution plans. The amount of contributions made to the defined contribution plans are at the discretion of the Board of Directors of Cintas. Future contributions are expected to be $41.9 million in the next year, $90.3 million in the next two to three years, and $99.5 million in the next four to five years. (1) Long-term debt primarily consists of $1,300.0 million in senior notes (reference Note 6 entitled Long-Term Debt and Derivatives of ‘‘Notes to Consolidated Financial Statements’’ for a detailed discussion of long-term debt). (2) Operating leases consist primarily of operational facility leases. (3) Interest payments could include interest on both fixed and variable rate debt. As of May 31, 2015, Cintas did not have commercial paper outstanding, and therefore did not have any variable rate debt. Other Commitments (In thousands) Amount of Commitment Expiration per Period Total One year or less Two to three years Four to five years After five Years Lines of credit (1) Standby letters of credit (2) $ 299,899 $ — 82,665 82,665 Total other commitments $ 382,564 $ 82,665 $ — — $ — $ 299,899 — $ 299,899 $ — — $ — (1) Back-up facility for the commercial paper program (reference Note 6 entitled Long-Term Debt and Derivatives of ‘‘Notes to Consolidated Financial Statements’’ for further discussion). (2) Support certain outstanding debt (reference Note 6 entitled Long-Term Debt and Derivatives of ‘‘Notes to Consolidated Financial Statements’’), self-insured workers’ compensation and general liability insurance programs. Inflation and Changing Prices Changes in wages, benefits and energy costs have the potential to materially impact Cintas’ consolidated financial results. Management believes inflation has not had a material impact on Cintas’ consolidated financial condition or a negative impact on consolidated results of operations. Litigation and Other Contingencies Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or consolidated results of operations of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business. Please refer to ‘‘Part I, Item 3. Legal Proceedings’’ and Note 13 entitled Litigation and Other Contingencies of ‘‘Notes to Consolidated Financial Statements’’ for a detailed discussion of certain specific litigation. 28 CINTAS CORPORATION New Accounting Standards In February 2013, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) 2013-02, ‘‘Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.’’ ASU 2013-02 requires an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income if the item reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For reclassification items not required under GAAP to be reclassified directly to net income in their entirety in the same reporting period, an entity is required to cross-reference to other disclosures currently required under GAAP that provide additional detail about those amounts. The Company adopted ASU 2013-02 effective June 1, 2013. See Note 14 entitled Accumulated Other Comprehensive Income (Loss) of ‘‘Notes to Consolidated Financial Statements’’ for details of the required disclosure. 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. Cintas is currently evaluating the impact that ASU 2014-09 will have 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 GAAP requires management to make estimates and judgments that have a significant effect on the amounts reported in the consolidated financial statements and accompanying notes. These critical accounting policies should be read in conjunction with Note 1 entitled Significant Accounting Policies of ‘‘Notes to Consolidated Financial Statements.’’ Significant changes, estimates or assumptions related to any of the following critical accounting policies could possibly have a material impact on the consolidated financial statements. Revenue recognition Rental revenue, which is recorded in the Rental Uniforms and Ancillary Products operating segment, is recognized when services are performed. Other services revenue, which is recorded in the Uniform Direct Sales operating segment, First Aid, Safety and Fire Protection Services operating segment, Shredding until April 30, 2014 and the Storage business that is reported as discontinued operations, is recognized when either services are performed or when products are shipped and the title and risks of ownership pass to the customer. Allowance for doubtful accounts Cintas establishes an allowance for doubtful accounts. This allowance includes an estimate based on historical rates of collections and allowances for specific accounts identified as uncollectible. The allowance that is an estimate based on the Company’s 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 Rental Uniforms and Ancillary Products operating segment and the other operating segments because of differences in customers served and the nature of each operating segment. CINTAS CORPORATION 29 Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Cintas applies a commonly accepted practice of using inventory turns to apply variances between actual and standard costs to the inventory balances. The judgments and estimates used to calculate inventory turns will have an impact on the valuation of inventories at the lower of cost or market. An inventory obsolescence reserve is determined by specific identification, as well as an estimate based on the Company’s historical rates of obsolescence. Uniforms and other rental items in service Uniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method. Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months. Other rental items, including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their useful lives, which range from 8 to 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 that is presented in the consolidated financial statements. Property and equipment Depreciation is calculated using the straight-line method over the estimated useful lives of the assets based on industry and Company specific experience, which is typically 30 to 40 years for buildings, 5 to 20 years for building improvements, 3 to 10 years for equipment and 2 to 15 years for leasehold improvements. When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows or based on prices of similar assets, as appropriate. Investments Investments consists primarily of cash surrender value of life insurance policies and equity method investments. 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. 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. Goodwill Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test which may include 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. We test for goodwill impairment at the reporting unit level, which for the Company is at the operating segment level. We determined that our reporting units are our Rental Uniforms and Ancillary Products, Uniform Direct Sales, and First Aid, Safety and Fire Protection Services operating segments. The test may also include 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 leveraged from such growth, as well as discount rates. 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, 2015, 2014 or 2013. Cintas will continue to perform impairment tests as of March 1 in future years or when indicators of impairment exist. 30 CINTAS CORPORATION Service contracts and other assets Service contracts and other assets, which consist primarily of noncompete and consulting agreements obtained through acquisitions of businesses, are amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years. Certain noncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contracts and other assets is accomplished through specific identification. No impairment has been recognized by Cintas for the fiscal years ended May 31, 2015, 2014 or 2013. General insurance liabilities General insurance liabilities represent the estimated ultimate cost of all asserted and unasserted claims incurred, primarily related to worker’s compensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves are estimated through actuarial procedures 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. 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 to Consolidated Financial Statements’’ for further information. Litigation and environmental matters Cintas is subject to legal proceedings and claims related to environmental matters arising from the ordinary course of business. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. While a significant change in assumptions and judgments could have a material impact on the amounts recorded for contingent liabilities, Cintas does not believe that they will result in a material adverse effect on the consolidated financial statements. A detailed discussion of litigation matters is discussed in Note 13 entitled Litigation and Other Contingencies of ‘‘Notes to Consolidated Financial Statements.’’ Income taxes Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. See Note 8 entitled Income Taxes of ‘‘Notes to Consolidated Financial Statements’’ for the types of items that give rise to significant deferred income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes. Deferred income taxes that are not related to an asset or liability for financial reporting are classified according to the expected reversal date. Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized. CINTAS CORPORATION 31 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Earnings are affected by changes in short-term interest rates due to investments 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 $0.3 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. 32 CINTAS CORPORATION Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Audited Consolidated Financial Statements for the Fiscal Years Ended May 31, 2015, 2014 and 2013 Management’s Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . 34 Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 CINTAS CORPORATION 33 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 Chief Executive Officer and our Chief Financial Officer, management assessed our internal control over financial reporting as of May 31, 2015. 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. Based on our assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2015, 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 Chief Executive Officer J. Michael Hansen Vice President and Chief Financial Officer 34 CINTAS CORPORATION Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Cintas Corporation We have audited Cintas Corporation’s internal control over financial reporting as of May 31, 2015, 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). Cintas Corporation’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. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit 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 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. 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. In our opinion, Cintas Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2015, based on the 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, 2015 and 2014 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, 2015 and our report dated July 30, 2015 expressed an unqualified opinion thereon. Cincinnati, Ohio July 30, 2015 /s/ ERNST & YOUNG LLP CINTAS CORPORATION 35 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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 31, 2015, 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, 2015, 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 30, 2015 expressed an unqualified opinion thereon. Cincinnati, Ohio July 30, 2015 /s/ ERNST & YOUNG LLP 36 CINTAS CORPORATION Consolidated Statements of Income (In thousands except per share data) 2015 2014 2013 Revenue: Rental uniforms and ancillary products Other services $ 3,454,956 1,021,930 $ 3,223,930 1,245,635 $ 3,044,587 1,201,377 Fiscal Years Ended May 31, Costs and expenses: Cost of rental uniforms and ancillary products Cost of other services Selling and administrative expenses Shredding Transaction asset impairment charge Shredding Transaction costs Operating income Gain on deconsolidation of Shredding Gain on sale of stock of an equity method investment Interest income Interest expense Income before income taxes Income taxes (Loss) gain on investment in Shred-it Partnership, net of tax benefit of $3,264 and tax of $766, respectively Income from continuing operations Income (loss) from discontinued operations, net of tax of $12,320, $658, and $377, respectively 4,476,886 4,469,565 4,245,964 1,913,466 642,083 1,224,930 1,829,427 766,484 1,264,836 1,756,297 736,358 1,187,331 — — 696,407 4,952 21,739 (339) 65,161 658,276 244,660 (5,539) 408,077 16,143 28,481 564,194 106,441 — (229) 65,822 605,042 231,991 1,234 374,285 — — 565,978 — — (409) 65,712 500,675 184,089 — 316,586 22,541 157 (1,144) Net income $ 430,618 $ 374,442 $ 315,442 Basic earnings (loss) per share Continuing operations Discontinued operations Basic earnings per share Diluted earnings (loss) per share Continuing operations Discontinued operations Diluted earnings per share Dividends declared and paid per share $ $ $ $ $ 3.49 0.19 3.68 3.44 0.19 3.63 1.70 $ $ $ $ $ 3.08 0.00 3.08 3.05 0.00 3.05 0.77 $ $ $ $ $ 2.54 (0.01) 2.53 2.53 (0.01) 2.52 0.64 See accompanying notes. CINTAS CORPORATION 37 Consolidated Statements of Comprehensive Income (In thousands) Net income Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments Change in fair value of derivatives Amortization of interest rate lock agreements Other Other comprehensive (loss) income Fiscal Years Ended May 31, 2015 2014 2013 $ 430,618 $ 374,442 $ 315,442 (38,538) 37 1,952 (350) (36,899) (9,787) (228) 1,952 (1,632) (9,695) (1,087) (187) 1,952 782 1,460 Comprehensive income $ 393,719 $ 364,747 $ 316,902 See accompanying notes. 38 CINTAS CORPORATION Consolidated Balance Sheets (In thousands except share data) Assets Current assets: Cash and cash equivalents Marketable securities Accounts receivable, principally trade, less allowance of $15,674 and $14,906, respectively Inventories, net Uniforms and other rental items in service Income taxes, current Assets held for sale Prepaid expenses and other current assets Total current assets Property and equipment, at cost, net Investments Goodwill Service contracts, net Other assets, net Liabilities and Shareholders’ Equity Current liabilities: Accounts payable Accrued compensation and related liabilities Accrued liabilities Income taxes, current Deferred tax liability Liabilities held for sale Long-term debt due within one year Total current liabilities Long-term liabilities: Long-term debt due after one year Deferred income taxes Accrued liabilities Total long-term liabilities Shareholders’ equity: Preferred stock, no par value: 100,000 shares authorized, none outstanding Common stock, no par value: 425,000,000 shares authorized 2015: 178,117,334 shares issued and 111,702,949 shares outstanding 2014: 176,378,412 shares issued and 117,037,784 shares outstanding Paid-in capital Retained earnings Treasury stock: 2015: 66,414,385 shares 2014: 59,340,628 shares Accumulated other comprehensive (loss) income Total shareholders’ equity As of May 31, 2015 2014 $ 417,073 16,081 $ 513,288 — 496,130 226,211 534,005 936 21,341 24,030 1,735,807 871,421 329,692 1,195,612 42,434 17,494 508,427 251,239 506,537 — — 26,190 1,805,681 855,702 458,357 1,267,411 55,675 19,626 $ 4,192,460 $ 4,462,452 $ 109,607 88,423 309,935 — 112,389 704 — 621,058 1,300,000 226,938 112,009 1,638,947 $ 150,070 85,026 299,727 5,960 88,845 — 503 630,131 1,300,477 246,044 92,942 1,639,463 — — 329,248 157,183 4,227,620 (2,773,125) (8,471) 1,932,455 251,753 134,939 3,998,893 (2,221,155) 28,428 2,192,858 $ 4,192,460 $ 4,462,452 See accompanying notes. CINTAS CORPORATION 39 Consolidated Statements of Shareholders’ Equity (In thousands) Balance at June 1, 2012 Net income Comprehensive income, net of tax Dividends Stock-based compensation Vesting of stock-based compensation awards Stock options exercised, net of shares surrendered Repurchase of common stock Other Common Stock Shares Amount Paid-In Capital Retained Earnings 173,746 $148,255 $107,019 $3,482,073 315,442 — (79,744) — — — — — — — — 23,310 — — — — Other Accumulated Comprehensive Income (Loss) $ 36,663 — 1,460 — — Treasury Stock Shares Amount Total Shareholders’ Equity (47,226) $(1,634,875) $2,139,135 315,442 1,460 (79,744) 23,310 — — — — — — — — 610 23,270 (23,270) 430 — — 14,807 — — — — 2,763 — — — — — — — — — — — — (5,279) — — (215,681) — 14,807 (215,681) 2,763 Balance at May 31, 2013 174,786 186,332 109,822 3,717,771 38,123 (52,505) (1,850,556) 2,201,492 Net income Comprehensive loss, net of tax Dividends Stock-based compensation Vesting of stock-based compensation awards Stock options exercised, net of shares surrendered Repurchase of common stock Other — — — — — — — — — — — 44,746 374,442 — (93,320) — — (9,695) — — 465 23,519 (23,519) 1,127 — — 41,902 — — — — 3,890 — — — — — — — — — — — — — — — — — — 374,442 (9,695) (93,320) 44,746 — — (6,836) — — (370,599) — 41,902 (370,599) 3,890 Balance at May 31, 2014 176,378 251,753 134,939 3,998,893 28,428 (59,341) (2,221,155) 2,192,858 Net income Comprehensive loss, net of tax Dividends Stock-based compensation Vesting of stock-based compensation awards Stock options exercised, net of shares surrendered Repurchase of common stock Other — — — — — — — — 47,002 430,618 — — — — (201,891) — — (36,899) — — 575 37,265 (37,265) 1,164 — — — 40,230 — — — 12,507 — — — — — — — — — — — — — 430,618 — (36,899) — — (201,891) 47,002 — — — — (7,073) — — (551,970) — 40,230 (551,970) 12,507 Balance at May 31, 2015 178,117 $329,248 $157,183 $4,227,620 $ (8,471) (66,414) $(2,773,125) $1,932,455 See accompanying notes. 40 CINTAS CORPORATION Consolidated Statements of Cash Flows (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Fiscal Years Ended May 31, 2015 2014 2013 $ 430,618 $ 374,442 $ 315,442 Depreciation Amortization of intangible assets Stock-based compensation Gain on sale of Storage Gain on deconsolidation of Shredding Gain on sale of stock of an equity method investment Loss (gain) on investment in Shred-it Partnership Shredding Transaction asset impairment charge Shredding Transaction costs Deferred income taxes Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net Inventories, net Uniforms and other rental items in service Prepaid expenses and other current assets Accounts payable Accrued compensation and related liabilities Accrued liabilities and other Income taxes, current 140,624 14,458 47,002 (38,573) (4,952) (21,739) 8,803 — — 20,866 (1,443) 23,785 (31,994) (3,202) (33,445) 3,234 33,066 (6,832) 168,220 22,642 29,875 — (106,441) — (2,000) 16,143 26,057 47,109 (56,231) (11,062) (11,435) (2,177) 30,446 10,931 54,237 15,213 165,664 23,713 23,310 — — — — — — 48,023 (42,704) 10,997 (44,179) (3,281) 25,023 (13,161) 31,873 12,028 Net cash provided by operating activities 580,276 605,969 552,748 Cash flows from investing activities: Capital expenditures Proceeds from redemption of marketable securities Purchase of marketable securities and investments Proceeds from Storage Transactions, net of cash contributed Proceeds from Shredding Transaction, net of cash contributed Proceeds from sale of stock of an equity method investment Dividends received on equity method investment Dividends received on Shred-it Partnership investment Acquisitions of businesses, net of cash acquired Other Net cash provided by (used in) investing activities Cash flows from financing activities: Proceeds from issuance of debt Repayment of debt Proceeds from exercise of stock-based compensation awards Dividends paid Repurchase of common stock Other Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year (217,720) 161,938 (195,471) 158,428 (145,580) 54,196 (63,858) — 3,344 179,359 29,933 5,247 113,400 (15,495) 1,383 44,987 — (518) 40,230 (201,891) (551,970) 1,589 (712,560) (8,918) (96,215) 513,288 — — — (33,441) (5,219) (14,543) — (8,187) 41,902 (93,320) (370,599) 469 (429,735) (676) 161,015 352,273 (196,486) 161,478 (178,464) — — — — — (69,370) (1,339) (284,181) 250,000 (225,636) 14,807 (79,744) (215,681) 196 (256,058) (61) 12,448 339,825 Cash and cash equivalents at end of year $ 417,073 $ 513,288 $ 352,273 See accompanying notes. CINTAS CORPORATION 41 Notes to Consolidated Financial Statements 1. Significant Accounting Policies Business description. Cintas Corporation (collectively with its majority-owned subsidiaries and any entities over which it has control, ‘‘Cintas’’) provides highly specialized products and services to businesses of all types primarily throughout North America, as well as Latin America, Europe and Asia. Cintas is 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, and first aid, safety and fire protection products and services. Cintas’ products and services are designed to enhance its customers’ images and to provide additional safety and protection in the workplace. Effective August 31, 2014, Cintas classifies its businesses into three reportable operating segments (‘‘operating segments’’) based on the types of products and services provided. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items. The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services. Previously, Cintas classified its businesses into four operating segments. The Document Management Services operating segment is no longer considered an operating segment for fiscal 2015 and beyond. This operating segment consisted of document destruction services (‘‘Shredding’’) and document imaging and retention services (‘‘Storage’’). On April 30, 2014, Cintas completed its partnership transaction with the shareholders of Shred-it International Inc. (‘‘Shred-it’’) to combine Cintas’ Shredding with Shred-it’s shredding business (‘‘the Shredding Transaction’’). Due to the deconsolidation of Shredding, fiscal 2015 results exclude the results of Shredding. Shredding remains reported in continuing operations for fiscal 2014 (through April 30, 2014 as previously discussed) and 2013. Based on the change in reportable operating segments, the results of Shredding for the year ended May 31, 2014 are presented in Corporate. Additionally, effective August 31, 2014, Storage is reported as a discontinued operation for all periods presented and has been excluded from continuing operations and from operating segment results for all periods presented. In the quarter ended November 30, 2014, Cintas sold Storage through a series of transactions. (‘‘Storage Transactions’’). Please see Note 17 entitled Discontinued Operations for additional information. As previously mentioned, on April 30, 2014, the Shredding Transaction was completed. Cintas Shredding represented approximately 76%, 80%, and 70% of Cintas’ Document Management Services operating segment’s assets, revenue, and income before income taxes, respectively, as of and for the quarter ended February 28, 2014. Under the agreement, Cintas and Shred-it each contributed its shredding business to a newly formed partnership owned 42% by Cintas and 58% by the shareholders of Shred-it (‘‘the Shred-it Partnership’’). In addition to its 42% ownership of the Shred-it Partnership, Cintas received $180.0 million in cash at the closing of the transaction. Cintas’ equity interest in the partnership is accounted for under the equity method of accounting as prescribed by U.S. generally accepted accounting principles (‘‘GAAP’’). 42 CINTAS CORPORATION 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. Financial Statement Presentation. We have reclassified certain prior-year amounts to conform to the current year’s presentation. Use of estimates. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Revenue recognition. Rental revenue, which is recorded in the Rental Uniforms and Ancillary Products operating segment, is recognized when services are performed. Other Services revenue, which is recorded in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment, Shredding until April 30, 2014 and the Storage business that is reported as discontinued operations, is recognized when either services are performed or when products are shipped and the title and risks of ownership pass to the customer. Cost of rental uniforms and ancillary products. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The Rental Uniforms and Ancillary Products operating segment inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution are included in the cost of rental uniforms and ancillary products. Cost of other services. Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses. Cost of other services 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. 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, 2015 and 2014, cash and cash equivalents includes $43.0 million and $33.5 million, respectively, of restricted cash used as collateral associated with the general insurance program. 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 is an estimate based on historical rates of collections and allowances for specific accounts identified as uncollectible. 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 Rental Uniforms and Ancillary Products operating segment and the two other operating segments because of differences in customers served and the nature of each operating segment. When an account is considered uncollectible, it is written off against the allowance for doubtful accounts. CINTAS CORPORATION 43 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. Inventory is comprised of the following amounts: (In thousands) Raw materials Work in process Finished goods 2015 2014 $ 16,935 $ 17,984 17,079 192,197 14,304 218,951 $ 226,211 $ 251,239 Inventories are recorded net of reserves for obsolete inventory of $30.7 million at both May 31, 2015 and 2014. The inventory obsolescence reserve is determined by specific identification, as well as an estimate based on Cintas’ historical rates of obsolescence. 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. 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. Property and equipment. Property and equipment is stated at cost, less accumulated depreciation. 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: Buildings Building improvements Equipment Leasehold improvements 30 to 40 5 to 20 3 to 10 2 to 15 Investments. Investments consists primarily of equity method investments and the cash surrender value of life insurance policies. 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 or based on prices of similar assets, as appropriate. 44 CINTAS CORPORATION Goodwill. Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test, which may include 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. We test for goodwill impairment at the reporting unit level, which for the Company is at the operating segment level. We determined that our reporting units are our Rental Uniforms and Ancillary Products, Uniform Direct Sales, and First Aid, Safety and Fire Protection Services operating segments. The test may also include 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 leveraged from such growth, as well as discount rates. In addition to the annual test in fiscal 2014, Cintas was required to perform an impairment test as of April 30, 2014 on the business remaining within the former Document Management Services operating segment as a result of the Shredding Transaction. Based on the results of this test and the annual impairment tests, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2015, 2014 or 2013. 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. 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, 2015, 2014 or 2013. 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 include the following amounts: (In thousands) General insurance liabilities Employee benefit related liabilities Taxes and related liabilities Accrued interest Other 2015 2014 $ 113,714 $ 106,083 68,907 6,064 26,628 94,622 64,445 7,531 26,726 94,942 $ 309,935 $ 299,727 General insurance liabilities represent the estimated ultimate cost of all asserted and unasserted claims incurred, primarily related to worker’s compensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves are estimated through actuarial procedures 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. 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 Defined Contribution Plans. CINTAS CORPORATION 45 Stock-based compensation. Compensation expense is recognized for all share-based payments to employees, including stock options and restricted stock awards, in the consolidated statements of income based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model. Measured compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period of the related share-based compensation award. 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. Income taxes. Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. See Note 8 entitled Income Taxes of ‘‘Notes to Consolidated Financial Statements’’ for the types of items that give rise to significant deferred income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes. Deferred income taxes that are not related to an asset or liability for financial reporting are classified according to the expected reversal date. Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized. Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas’ evaluation of current tax positions, Cintas believes its tax related accruals are appropriate. Fair Value Measurements. Financial Accounting Standards Board (‘‘FASB’’) Accounting Standard 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. 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. 46 CINTAS CORPORATION 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 and liabilities acquired in a business acquisition unless otherwise noted in Note 2 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 February 2013, the FASB issued Accounting Standards Update (‘‘ASU’’) 2013-02, ‘‘Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.’’ ASU 2013-02 requires an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income if the item reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For reclassification items not required under GAAP to be reclassified directly to net income in their entirety in the same reporting period, an entity is required to cross- reference to other disclosures currently required under GAAP that provide additional detail about those amounts. The Company adopted ASU 2013-02 effective June 1, 2013. See Note 14 entitled Accumulated Other Comprehensive Income (Loss) for details of required disclosure. 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. Cintas is currently evaluating the impact that ASU 2014-09 will have 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. CINTAS CORPORATION 47 2. Fair Value Disclosures All financial instruments that are measured at fair value on a recurring basis (at least annually) have been segregated into 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: (In thousands) Level 1 Level 2 Level 3 Fair Value As of May 31, 2015 Cash and cash equivalents Marketable securities: Canadian treasury securities Total assets at fair value $ 417,073 $ 16,081 — 16,081 — $ — 16,081 $ 433,154 $ 417,073 $ — $ — $ 417,073 (In thousands) Level 1 Level 2 Level 3 Fair Value As of May 31, 2014 Cash and cash equivalents $ 513,288 $ — Total assets at fair value $ 513,288 $ — Current accrued liabilities Total liabilities at fair value $ $ — — $ $ 286 286 $ — $ — $ — $ — $ 513,288 $ 513,288 $ $ 286 286 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 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 is 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 securities 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 securities as of May 31, 2015 was $16.1 million. There were no outstanding marketable securities as of May 31, 2014. Purchases of marketable securities were $179.2 million, $48.5 million and $167.1 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. All outstanding marketable securities as of May 31, 2015 had contractual maturities due within one year. 48 CINTAS CORPORATION Foreign currency forward contracts were included in current accrued liabilities as of May 31, 2014. The fair value of Cintas’ foreign currency forward contracts are based on similar exchange traded derivatives (market approach) and are, therefore, included within Level 2 of the fair value hierarchy. 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 date. In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a nonrecurring basis as required under GAAP. As a result of the Shredding Transaction, Cintas recorded an asset impairment charge of $16.1 million in fiscal 2014 related to the abandonment of certain information systems assets. These assets were measured at a fair value of $5.4 million as of April 30, 2014 determined as the price that a market participant would be willing to pay for the continued use of the assets over their remaining useful lives. Also as a result of the Shredding Transaction and in accordance with GAAP requirements, Cintas’ equity method investment in the Shred-it Partnership was initially measured at fair value. See Note 4 entitled Investments for additional information on the measurement of the investment in the Shred-it Partnership. 3. Property and Equipment (In thousands) Land Buildings and improvements Equipment Leasehold improvements Construction in progress Less: accumulated depreciation 2015 2014 $ 116,172 $ 116,989 501,742 1,446,041 26,023 104,300 2,194,278 1,322,857 521,113 1,427,356 35,821 42,384 2,143,663 1,287,961 $ 871,421 $ 855,702 Interest expense is net of capitalized interest of $0.6 million for the fiscal year ended May 31, 2015. Interest was not capitalized during the fiscal years ended May 31, 2014 and 2013. CINTAS CORPORATION 49 4. Investments Investments at May 31, 2015 of $329.7 million include the cash surrender value of insurance policies of $101.8 million, equity method investments of $225.7 million, and cost method investments of $2.2 million. Investments at May 31, 2014 of $458.4 million include the cash surrender value of insurance policies of $86.5 million, equity method investments of $371.1 million, and cost method investments of $0.8 million. Investments are evaluated for impairment on an annual basis or when indicators of impairment exist. For fiscal years 2015, 2014, and 2013, no losses due to impairment were recorded. On April 30, 2014, Cintas completed the Shredding Transaction to combine Cintas’ Shredding with Shred-it’s shredding business. Under the agreement, Cintas and Shred-it each contributed its shredding business to the newly formed Shred-it Partnership owned 42% by Cintas and 58% by Shred-it. The resulting equity method investment (Level 3) in the Shred-it Partnership was initially recorded at fair value at $339.4 million derived with a primary reliance upon the income approach utilizing various discounted cash flow models. Fair value was determined by an independent valuation specialist. Management ultimately oversees the independent valuation specialist to ensure that the transaction-specific assumptions are appropriate for Cintas. The following table details quantitative information about significant unobservable inputs used in the initial valuation of Cintas’ investment in the Shred-it Partnership: (Dollars in millions) Fair Value at April 30, 2014 Valuation Technique Input Range Low High Equity method investment — Shred-it Partnership $339.4 Discounted Cash Flow EBITDA margin 20.0% 22.0% Ratio of capital expenditures to revenues Long-term revenue growth WACC rate 4.5% 1.5% 9.0% 5.5% 2.0% 9.0% The carrying value of the investment in the Shred-it Partnership was $210.1 million and $341.4 million at May 31, 2015 and 2014, respectively. In May 2015, the Company received a dividend on our investment in the Shred-it Partnership of $113.4 million, which reduced the carrying value of the investment. As of May 31, 2015, Cintas’ carrying value of its investment in the Shred-it Partnership 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 is being amortized over the weighted average estimated useful lives of the underlying assets which generated the basis difference (approximately 9 years) and is recorded as a reduction in the income (loss) on the investment in the Shred-it Partnership, net of tax. Cintas records 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 the investment in the Shred-it Partnership of $5.5 million, which included amortization of basis differences of approximately $11.0 million. For the fiscal year ended May 31, 2014, Cintas recorded a net gain on the investment in the Shred-it Partnership of $1.2 million. 50 CINTAS CORPORATION Cintas provides the following unaudited summary information regarding the Shred-it Partnership’s financial position and results of operations as of and for the twelve months ended April 30, 2015: Summary Balance Sheet Information (in thousands) As of April 30, 2015 As of April 30, 2014 Assets Current assets Non-current assets Liabilities Current liabilities Non-current liabilities Summary Income Statement Information (in thousands) Net sales Gross profit Net income $ 150,792 $ 968,956 $ 108,377 $ 924,196 $ 73,971 $ 532,673 $ 57,241 $ 427,569 For the 12 Months Ended April 30, 2015 $ 695,628 $ 432,532 $ 10,385 Also 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. CINTAS CORPORATION 51 5. Goodwill, Service Contracts and Other Assets Effective August 31, 2014, Storage was classified as discontinued operations. As a result, goodwill and service contracts related to this business, which were previously included in the former Document Management Services operating segment, are included within Corporate. Storage was sold in three separate transactions during the quarter ended November 30, 2014 (‘‘Storage Transactions’’). See Note 17 entitled Discontinued Operations for more information. Changes in the carrying amount of goodwill and service contracts for the fiscal years ended May 31, 2015 and 2014, by operating segment, are as follows: Goodwill (in thousands) Rental Uniforms & Ancillary Products Uniform Direct Sales First Aid, Safety & Fire Protection Corporate Total Balance as of June 1, 2013 $ 944,325 $ 23,942 $ 216,989 $ 332,304 $ 1,517,560 Goodwill acquired Goodwill divested in Shredding Transaction Foreign currency translation — — (809) — — (37) 4,922 8,794 13,716 — (265,487) (265,487) — 2,468 1,622 Balance as of May 31, 2014 $ 943,516 $ 23,905 $ 221,911 $ 78,079 $ 1,267,411 Goodwill acquired Goodwill divested in Storage Transactions 70 — — — Foreign currency translation (2,141) (227) 8,578 — 8,648 — — (75,660) (75,660) (2,419) (4,787) Balance as of May 31, 2015 $ 941,445 $ 23,678 $ 230,489 $ — $ 1,195,612 Service Contracts (in thousands) Balance as of June 1, 2013 Service contracts acquired Service contracts divested in Shredding Transaction Service contracts amortization Foreign currency translation Balance as of May 31, 2014 Service contracts acquired Service contracts divested in Storage Transactions Service contracts amortization Foreign currency translation Rental Uniforms & Ancillary Products $ 23,135 $ — — (5,961) (3) $ 17,171 $ 313 — (5,619) (3) Balance as of May 31, 2015 $ 11,862 $ Uniform Direct Sales First Aid, Safety & Fire Protection Corporate Total — — — — — — — — — — — $ 32,811 $ 36,207 $ 92,153 3,149 4,589 7,738 — (7,926) — (23,990) (6,908) 572 $ 28,034 $ 10,470 $ 9,543 265 — (9,570) (7,005) — (597) (568) (23,990) (20,795) 569 55,675 10,121 (9,570) (13,221) (571) $ 30,572 $ — $ 42,434 52 CINTAS CORPORATION Information regarding Cintas’ service contracts and other assets is as follows: (In thousands) Service contracts Noncompete and consulting agreements Other Total (In thousands) Service contracts Noncompete and consulting agreements Other Total Carrying Amount As of May 31, 2015 Accumulated Amortization Net $ 340,816 $ 298,382 $ 42,434 $ 41,828 23,595 $ 40,379 7,550 $ 1,449 16,045 $ 65,423 $ 47,929 $ 17,494 Carrying Amount As of May 31, 2014 Accumulated Amortization Net $ 360,634 $ 304,959 $ 55,675 $ 49,080 23,826 $ 47,036 6,244 $ 2,044 17,582 $ 72,906 $ 53,280 $ 19,626 Amortization expense for continuing operations was $13.7 million, $19.8 million and $20.4 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. Estimated amortization expense for continuing operations, excluding any future acquisitions, for each of the next five years is $11.0 million, $6.9 million, $5.9 million, $5.6 million and $5.2 million, respectively. The decreases in goodwill, service contracts, noncompete and consulting agreements since May 31, 2013 primarily relate to the consummation of the Shredding Transaction and Storage Transactions. See Note 9 entitled Acquisitions and Deconsolidations for more information. CINTAS CORPORATION 53 6. Long-Term Debt and Derivatives (In thousands) 2015 2014 Unsecured term notes due through 2036 at an average rate of 4.6% Less: amounts due within one year $ 1,300,000 $ 1,300,980 — 503 $ 1,300,000 $ 1,300,477 Cintas’ senior notes are recorded at cost. The fair value of the senior notes is estimated using level 2 inputs based on general market prices. The carrying value and fair value of Cintas’ long-term debt as of May 31, 2015 were $1,300.0 million and $1,418.6 million, respectively, and as of May 31, 2014 were $1,301.0 million and $1,421.0 million, respectively. Letters of credit outstanding were $82.7 million and $85.1 million at May 31, 2015 and 2014, respectively. Maturities of long-term debt during each of the next five years are zero, $250.0 million, $300.0 million, zero and zero, respectively. Interest paid was $65.3 million, $65.9 million and $68.4 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. Cintas’ commercial paper program has a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group. This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million. The revolving credit facility was amended on May 29, 2014, to extend the maturity date from October 6, 2016 to May 28, 2019, and to adjust the applicable margin used to calculate the interest payable on any outstanding loans and the facility fee payable under the agreement. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2015 or 2014. 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 and fiscal 2013. The amortization of the cash flow hedges resulted in an increase to other comprehensive income of $2.0 million, $2.0 million and $2.0 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. 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. Cintas had foreign currency forward contracts included in current accrued liabilities of $0.3 million at May 31, 2014. These instruments did not impact foreign currency exchange during fiscal 2015, 2014 or 2013. 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 EBITDA and interest coverage ratios. Cross-default provisions exist between certain debt instruments. Cintas is in compliance with all of the debt covenants for all periods presented. 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. 54 CINTAS CORPORATION 7. Leases Cintas conducts certain operations from leased facilities and leases certain equipment. Most leases contain renewal options for periods from 1 to 10 years. The lease agreements provide for increases in rent expense if the options are exercised 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. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. Lease payments are not dependent on an existing index or rate and are not included 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 $27.0 million, $21.2 million, $16.9 million, $11.1 million, $7.6 million and $14.9 million, respectively. Rent expense for continuing operations under operating leases during the fiscal years ended May 31, 2015, 2014 and 2013, was $34.9 million, $43.5 million and $41.9 million, respectively. 8. Income Taxes (In thousands) 2015 2014 2013 Income before income taxes for continuing operations consists of the following components: U.S. operations Foreign operations $ 630,740 18,733 $ 594,840 12,202 $ 482,679 17,996 $ 649,473 $ 607,042 $ 500,675 (In thousands) 2015 2014 2013 Income tax expense for continuing operations consists of the following components: Current: Federal State and local Deferred $ 201,992 25,230 227,222 14,174 $ 162,679 21,268 183,947 48,810 $ 109,739 12,453 122,192 61,897 $ 241,396 $ 232,757 $ 184,089 (In thousands) 2015 2014 2013 Reconciliation of income tax expense for continuing operations using the statutory rate and actual income tax expense is as follows: Income taxes at the U.S. federal statutory rate $ 227,316 $ 212,464 $ 175,237 State and local income taxes, net of federal benefit Other 16,623 (2,543) 20,252 41 12,211 (3,359) $ 241,396 $ 232,757 $ 184,089 CINTAS CORPORATION 55 The components of deferred income taxes included on the consolidated balance sheets are as follows: (In thousands) Deferred tax assets: Allowance for doubtful accounts Inventory obsolescence Insurance and contingencies Stock-based compensation Foreign related carry-forwards Treasury locks Other Valuation allowance Deferred tax liabilities: In service inventory Property Intangibles Investment in partnerships State taxes and other Net deferred tax liability 2015 2014 $ 4,857 $ 4,835 12,266 38,522 29,910 16,862 5,829 9,461 11,682 36,032 23,890 19,129 6,924 15,663 117,707 (14,690) 118,155 (13,358) 103,017 104,797 169,629 150,439 77,871 84,218 86,098 24,528 90,155 81,215 93,227 24,650 442,344 439,686 $ 339,327 $ 334,889 On April 30, 2014, Cintas completed the Shredding Transaction. Due to differences in accounting for the book and tax basis in the Shred-it Partnership and other partnerships, a deferred tax liability was recorded. Additionally, Cintas re-characterized the existing deferred tax liabilities associated with Shredding assets contributed to the partnership from ‘‘Property’’ and ‘‘Intangibles’’ to ‘‘Investment in Partnerships.’’ Although realization is not assured, 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: (In thousands) Balance at beginning of year Additions Subtractions Balance at end of year 2015 2014 $ (13,358) $ (12,789) (2,433) 1,101 (1,701) 1,132 $ (14,690) $ (13,358) Income taxes paid were $236.7 million, $172.5 million and $122.2 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. Undistributed earnings of foreign subsidiaries were approximately $147.1 million, $172.7 million and $194.0 million as of May 31, 2015, 2014 and 2013, respectively, for which deferred taxes have not been provided. Such earnings 56 CINTAS CORPORATION 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, 2015 and 2014, there was $11.9 million and $9.7 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, 2015 and 2014, was $0.9 million and $0.7 million, respectively. Cintas records this tax liability as current and 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 increased by $1.4 million in fiscal 2015 and decreased by $0.2 million and $29.2 million in fiscal 2014 and 2013, respectively. Accrued interest increased by $0.2 million in fiscal 2015 and decreased by $0.4 million and $0.9 million in fiscal 2014 and 2013, respectively. 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, 2012 Additions based on tax positions related to the current year Additions for tax positions of prior years Change in tax regulations Statute expirations Balance at May 31, 2013 Additions for tax positions of prior years Statute expirations Settlements Balance at May 31, 2014 Additions for tax positions of prior years Statute expirations Settlements Balance at May 31, 2015 $ 44,531 1,843 2,960 (33,600) (2,025) $ 13,709 2,586 (1,963) (1,270) $ 13,062 4,001 (1,603) (48) $ 15,412 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 ending May 31, 2015, and there was not a material impact on the consolidated financial statements. 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. CINTAS CORPORATION 57 All U.S. federal income tax returns are closed to audit through fiscal 2011. Cintas is currently in advanced stages of various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2009. Based on the resolution of the various audits and other potential regulatory developments, it is reasonably possible that the balance of unrecognized tax benefits will not change for the fiscal year ending May 31, 2016. 9. Acquisitions and Deconsolidations Acquisitions The purchase price paid for each acquisition has been allocated to the fair value of the assets acquired and liabilities assumed. During fiscal 2015, Cintas acquired one Rental Uniforms and Ancillary Products operating segment business and eleven First Aid, Safety and Fire Protection Services operating segment businesses. During fiscal 2014, Cintas acquired three First Aid, Safety and Fire Protection Services operating segment businesses and three businesses in the former Document Management Services operating segment. The following summarizes the aggregate purchase price for all businesses acquired: (In thousands) Fair value of tangible assets acquired Fair value of service contracts acquired Fair value of other intangibles acquired Net goodwill recognized Total fair value of assets acquired Fair value of liabilities assumed (settled) and incurred 2015 2014 $ 177 9,856 945 8,648 19,626 4,131 $ 11,415 6,343 924 13,865 32,547 (894) Total cash paid for acquisitions $ 15,495 $ 33,441 The results of operations for the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The proforma revenue, net income and earnings per share information relating to acquired businesses are not presented because they are not significant to Cintas. Deconsolidations On April 30, 2014, Cintas completed the Shredding Transaction. Under the agreement, Cintas and Shred-it each contributed its shredding business to the newly formed Shred-it Partnership. In fiscal 2014,the Company realized a $106.4 million gain on the deconsolidation of Shredding, which is primarily related to the remeasurement of its retained interest in Shredding as part of its investment in the Shred-it Partnership. The gain was computed as follows: the fair value of consideration received of $180.0 million plus the fair value of Cintas’ retained non- controlling interest in the Shred-it Partnership of $339.4 million less the carrying amount of Shredding of $413.0 million. During fiscal 2015, the Company realized a pre-tax gain of $5.0 million related to the Shred-it Transaction primarily as a result of receiving additional proceeds. 58 CINTAS CORPORATION As a result of the Shredding Transaction, in fiscal 2014 the Company recorded an asset impairment charge of $16.1 million and other transaction costs of $28.5 million. The impairment charge was related to the abandonment of information systems assets that were not contributed to the Shred-it Partnership and cannot be used by the Company for other purposes. The other transaction costs consisted of the following: $4.7 million of professional and legal fees; $0.7 million of employee termination benefit costs; $12.4 million of stock compensation expense resulting from the immediate vesting of Cintas stock options and awards of employees contributed to the Shred-it Partnership; a $4.2 million charge for information systems contracts for which no future economic benefit exists; and $6.5 million of incremental profit sharing and employee compensation resulting from the gain net of the impairment charge and other transaction costs. If applicable, these amounts were settled in fiscal 2015 at amounts that approximated their recorded values. In conjunction with the partnership agreement, Cintas agreed to provide certain transition services such as information technology and accounting in support of the Shred-it Partnership. This agreement is set to expire on September 30, 2015. Additionally, in fiscal 2015, Cintas sold Storage. Storage, excluding related real estate owned by Cintas, was sold in three separate transactions to three separate buyers. The business was previously included in the former Document Management Services operating segment. See Note 17 entitled Discontinued Operations for additional information. 10. Defined Contribution 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 $38.4 million, $33.7 million and $28.4 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. 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 $1.5 million, $1.6 million and $1.4 million for the fiscal years ended May 31, 2015, 2014 and 2013, 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 $6.1 million, $6.0 million and $4.7 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. CINTAS CORPORATION 59 11. Earnings per Share 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: (In thousands except per share data) 2015 2014 2013 Basic Earnings per Share from Continuing Operations Income from continuing operations $ 408,077 $ 374,285 $ 316,586 Less: income from continuing operations allocated to participating securities 3,877 3,450 2,547 Income from continuing operations available to common shareholders $ 404,200 $ 370,835 $ 314,039 Basic weighted average common shares outstanding 115,900 120,377 123,956 Basic earnings per share from continuing operations $ 3.49 $ 3.08 $ 2.54 (In thousands except per share data) 2015 2014 2013 Diluted Earnings per Share from Continuing Operations Income from continuing operations $ 408,077 $ 374,285 $ 316,586 Less: income from continuing operations allocated to participating securities 3,877 3,450 2,547 Income from continuing operations available to common shareholders $ 404,200 $ 370,835 $ 314,039 Basic weighted average common shares outstanding 115,900 120,377 123,956 Effect of dilutive securities — employee stock options & awards 1,643 1,263 575 Diluted weighted average common shares outstanding 117,543 121,640 124,531 Diluted earnings per share from continuing operations $ 3.44 $ 3.05 $ 2.53 Basic and diluted earnings (loss) per share from discontinued operations were $0.19, $0.00 and $(0.01) for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. For the fiscal years ended May 31, 2015, 2014 and 2013, options granted to purchase 0.6 million, 0.7 million and 0.7 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 October 18, 2011, Cintas announced that the Board of Directors authorized a $500 million share buyback program. This program was completed in April 2014. On July 30, 2013, we announced that the Board of Directors authorized a $500.0 million share buyback program. This program was completed in February 2015. On January 13, 60 CINTAS CORPORATION 2015, we announced that the Board of Directors authorized a new $500.0 million share buyback program, which does not have an expiration date. The following table summarizes the buyback activity by program and fiscal year: (In thousands except per share data) Buyback Program Shares 2015 Avg. Price per Share Purchase Price October 18, 2011 July 30, 2013 January 13, 2015 — $ — $ — $ 75.49 $ 300,500 3,981 2,870 $ 82.60 $ 237,072 — $ — $ — 2014 Avg. Price per Share Purchase Price $ 48.87 $ 162,460 $ 59.72 $ 199,500 Shares 3,324 3,341 6,851 $ 78.47 537,572 6,665 $ 54.31 $ 361,960 In June 2015, we purchased 1.5 million shares at an average price of $86.08 per share for a total purchase price of $132.9 million. Under the January 13, 2015 program through July 30, 2015, Cintas has purchased a total of 4.4 million shares of Cintas common stock at an average price of $83.82 per share for a total purchase price of $370.0 million. In addition to the buyback program, 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, 2015, Cintas acquired 0.2 million shares at an average price of $64.58 per share for a total purchase price of $14.4 million. For the fiscal year ended May 31, 2014, Cintas acquired 0.2 million shares at an average price of $50.45 per share for a total purchase price of $8.6 million. 12. Stock-Based Compensation Under the 2005 Equity Compensation Plan, as amended, 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 up to an aggregate of 21,000,000 shares of Cintas’ common stock. At May 31, 2015, 9,281,640 shares of common stock are reserved for future issuance under the 2005 Equity Compensation Plan. As a result of the Shredding Transaction in the fiscal year ended May 31, 2014, we immediately vested 249,335 options and 71,882 restricted stock awards held by employees contributed to the Shred-it Partnership. The immediate vesting resulted in $12.4 million of additional stock compensation expense for the fiscal year ended May 31, 2014. Total compensation cost for stock-based awards for continuing operations was $44.9 million, $44.2 million and $23.0 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. The total income tax benefit recognized in the consolidated income statement for share-based compensation arrangements for continuing operations was $16.7 million, $16.9 million and $8.4 million for the fiscal years ended May 31, 2015, 2014 and 2013, 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-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. CINTAS CORPORATION 61 Except for the options that early vested as a result of the Shredding Transaction in fiscal 2014, the fair value of options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions: Risk-free interest rate Dividend yield Expected volatility of Cintas’ common stock Expected life of the option in years 2015 2.0% 1.6% 28.0% 7.5 2014 2.0% 1.7% 28.0% 7.5 2013 1.3% 1.8% 28.0% 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 2015, 2014 and 2013 was $22.64, $16.63 and $9.60, respectively. The information presented in the following table relates primarily to stock options granted and outstanding under either the 2005 Equity Compensation Plan or under previously adopted plans: Outstanding, June 1, 2012 (2,105,705 shares exercisable) Granted Canceled Exercised Outstanding, May 31, 2013 (1,815,795 shares exercisable) Granted Canceled Exercised Outstanding, May 31, 2014 (1,583,413 shares exercisable) Granted Canceled Exercised Shares 7,609,117 1,722,081 (884,384) (561,176) 7,885,638 2,111,649 (699,314) (1,272,179) 8,025,794 1,590,185 (486,720) (1,293,689) Weighted Average Exercise Price $ 36.04 44.67 38.69 36.44 37.60 61.04 42.42 39.03 43.12 84.59 55.50 38.11 Outstanding, May 31, 2015 (1,426,550 shares exercisable) 7,835,570 $ 51.59 The intrinsic value of stock options exercised was $44.3 million, $19.8 million and $3.7 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. The total cash received from employees as a result of employee stock option exercises for the fiscal years ended May 31, 2015, 2014 and 2013 was $40.2 million, $41.9 million and $14.8 million, respectively. The fair value of stock options vested was $10.9 million, $17.7 million and $13.2 million for the fiscal years ended May 31, 2015, 2014 and 2013, respectively. 62 CINTAS CORPORATION The following table summarizes the information related to stock options outstanding at May 31, 2015: Range of Exercise Prices $ 20.29 – $ 34.45 34.46 – 42.58 42.59 – 62.88 62.89 – 86.09 Number Outstanding 1,845,741 1,685,350 1,360,216 2,944,263 $ 20.29 – $ 86.09 7,835,570 Outstanding Options Exercisable Options Average Remaining Option Life 5.35 6.15 7.62 9.55 7.49 Weighted Average Exercise Price $ 30.16 38.19 48.57 74.50 Number Exercisable 928,968 255,562 223,399 18,621 Weighted Average Exercise Price $ 28.43 38.55 50.34 63.45 $ 51.59 1,426,550 $ 34.13 At May 31, 2015, the aggregate intrinsic value of stock options outstanding and exercisable was $269.1 million and $74.1 million, respectively. The weighted-average remaining contractual term of stock options exercisable is 4.6 years. 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 2005 Equity Compensation Plan or under previously adopted plans: Outstanding, unvested grants at June 1, 2012 1,888,996 $ 29.93 Weighted Average Grant Price Shares Granted Canceled Vested Outstanding, unvested grants at May 31, 2013 Granted Canceled Vested Outstanding, unvested grants at May 31, 2014 Granted Canceled Vested 810,453 (73,856) (610,570) 2,015,023 661,514 (52,124) (465,635) 2,158,778 627,033 (50,277) (525,421) 41.72 31.78 25.40 35.97 60.66 37.95 28.76 45.04 80.73 49.33 34.39 Outstanding, unvested grants at May 31, 2015 2,210,113 $ 57.60 The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 2015 was $105.0 million. The weighted-average period of time over which this cost will be recognized is 2.1 years. CINTAS CORPORATION 63 13. 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. Cintas records an accrual for legal contingencies when Cintas determines that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. During the fourth quarter of fiscal year 2014, Cintas accrued additional sums, in excess of its other legal contingency accruals, for adverse jury verdicts arising in the ordinary course of its business. The aggregate liability will not materially affect the consolidated financial position, consolidated results of operations or consolidated cash flows of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business, including the litigation discussed below. Cintas is a defendant in a purported Equal Employment Opportunity Commission (EEOC) systemic gender discrimination lawsuit, Mirna E. Serrano, et al. v. Cintas Corporation (Serrano), filed on May 10, 2004, and pending in the United States District Court, Eastern District of Michigan, Southern Division. The Serrano plaintiffs alleged that Cintas discriminated against women in hiring into various service sales representative (SSR) positions in the Rental Uniforms and Ancillary Products operating segment. On November 15, 2005, the (EEOC) intervened in the Serrano lawsuit. The Serrano plaintiffs seek lost pay, injunctive relief, compensatory damages, punitive damages, attorneys’ fees and other remedies on behalf of unsuccessful female candidates for SSR positions. On October 27, 2008, the United States District Court in the Eastern District of Michigan granted summary judgment in favor of Cintas limiting the scope of the action to female applicants for SSR positions at Cintas locations within the state of Michigan. Consequently, all claims brought by or on behalf of female applicants for SSR positions outside of the state of Michigan were dismissed. Similarly, any claims brought by the EEOC on behalf of similarly situated female applicants outside of the state of Michigan have also been dismissed from the Serrano lawsuit. In September 2010, the Court in Serrano dismissed all private individual claims and all claims of the EEOC and the 13 individuals it claimed to represent. The EEOC appealed the District Court’s summary judgment decisions and various other rulings to the United States Court of Appeals for the Sixth Circuit. On November 9, 2012, the Sixth Circuit Court of Appeals reversed the District Court’s opinion and remanded the claims back to the District Court. On April 16, 2013, Cintas filed with the United States Supreme Court a Petition for a Writ of Certiorari seeking to review the judgment of the United States Court of Appeals for the Sixth Circuit. On October 7, 2013, the Court denied Cintas’ Petition, thus remanding the claims back to the District Court consistent with the Sixth Circuit Court’s November 9, 2012 decision. The litigation discussed above, if decided or settled adversely to Cintas, may result in liability material to Cintas’ consolidated financial condition, consolidated results of operation or consolidated cash flows and could increase costs of operations on an ongoing basis. Any estimated liability relating to these proceedings is not determinable at this time. Cintas may enter into discussions regarding settlement of these and other lawsuits, and may enter into settlement agreements if it believes such settlement is in the best interest of Cintas’ shareholders. 64 CINTAS CORPORATION 14. 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 Loss on Derivatives Other Total Balance at May 31, 2013 $ 51,312 $ (14,339) $ 1,150 $ 38,123 Other comprehensive loss before reclassifications Amounts reclassified from accumulated other comprehensive income (loss) Net current period other comprehensive (loss) income Balance at May 31, 2014 Other comprehensive (loss) income before reclassifications Amounts reclassified from accumulated other comprehensive income (loss) Net current period other comprehensive (loss) income (9,787) (228) (1,632) (11,647) — 1,952 — 1,952 (9,787) 41,525 1,724 (12,615) (1,632) (482) (9,695) 28,428 (38,538) 37 (350) (38,851) — 1,952 — 1,952 (38,538) 1,989 (350) (36,899) Balance at May 31, 2015 $ 2,987 $ (10,626) $ (832) $ (8,471) The following table summarizes the reclassifications out of accumulated other comprehensive income (loss) during the fiscal years 2015 and 2014: Reclassifications out of Accumulated Other Comprehensive Income (Loss) Details about Accumulated Other Comprehensive Income (Loss) Components (In thousands) Amortization of interest rate locks Tax benefit Amortization of interest rate locks, net of tax Amount Reclassified from Accumulated Other Comprehensive Income (Loss) 2015 $ (3,130) 1,178 2014 $ (3,130) 1,178 Affected Line in the Consolidated Condensed Statements of Income Interest expense Income taxes $ (1,952) $ (1,952) Net of tax CINTAS CORPORATION 65 15. Operating Segment Information Cintas classifies its businesses into three operating segments based on the types of products and services provided. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items. The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services. Prior to August 31, 2014, Cintas classified its business into four operating segments. The Document Management Services operating segment is no longer considered an operating segment for fiscal 2015 and beyond. This operating segment consisted of the Shredding and Storage businesses. On April 30, 2014, Cintas completed the Shredding Transaction. Shredding is reported in Corporate for fiscal years ended 2014 and 2013. Additionally, effective August 31, 2014, Storage is classified as discontinued operations. Storage has been excluded from segment results for all periods presented. Please see Note 17 entitled Discontinued Operations for additional information. 66 CINTAS CORPORATION 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’ operating segments is set forth below: (In thousands) May 31, 2015 Revenue Gross margin Selling and admin. expenses Gain on deconsolidation of Shredding Gain on sale of stock of an equity method investment Interest expense, net Income (loss) before income taxes Depreciation and amortization Capital expenditures Total assets May 31, 2014 Revenue Gross margin Selling and admin. expenses Gain on deconsolidation of Shredding, net of impairment charges and other transaction costs Interest expense, net Income before income taxes Depreciation and amortization Capital expenditures Total assets May 31, 2013 Revenue Gross margin Selling and admin. expenses Interest expense, net Income (loss) before income taxes Depreciation and amortization Capital expenditures Total assets Rental Uniforms & Ancillary Products Uniform Direct Sales First Aid, Safety & Fire Protection Corporate(1) Total $ 3,454,956 $ 453,653 $ 568,277 $ 1,541,490 948,455 — $ 129,446 85,317 — $ 250,401 191,158 — — — — — — — $ $ $ 593,035 121,743 183,459 $ $ $ 44,129 8,391 9,495 $ $ $ 59,243 22,461 23,864 $ 2,856,716 $ 123,044 $ 436,651 $ 3,223,930 $ 455,485 $ 514,429 $ 1,394,503 887,444 $ 130,018 83,309 $ 225,238 176,286 — — — — — — $ $ $ 507,059 117,869 94,190 $ $ $ 46,709 8,307 2,482 $ $ $ 48,952 21,113 14,512 $ $ $ $ $ $ $ $ $ $ $ — $ 4,476,886 — $ 1,921,337 1,224,930 — 4,952 4,952 21,739 64,822 21,739 64,822 (38,131) $ 658,276 — $ 152,595 902 $ 217,720 776,049 $ 4,192,460 275,721 $ 4,469,565 123,895 $ 1,873,654 1,264,836 117,797 61,817 65,593 61,817 65,593 2,322 $ 605,042 33,756 $ 181,045 34,396 $ 145,580 $ 2,875,014 $ 142,033 $ 422,015 $ 1,023,390 $ 4,462,452 $ 3,044,587 $ 461,328 $ 460,592 $ 1,288,290 835,249 — $ 134,985 81,739 — $ 199,314 156,232 — $ $ $ 453,041 116,867 140,327 $ $ $ 53,246 8,049 6,908 $ $ $ 43,082 20,832 11,809 $ 2,830,941 $ 152,551 $ 398,614 $ $ $ $ $ $ 279,457 $ 4,245,964 130,720 $ 1,753,309 1,187,331 114,111 65,303 65,303 (48,694) $ 500,675 34,161 $ 179,909 37,442 $ 196,486 963,526 $ 4,345,632 (1) Corporate assets as of May 31, 2015 include the investment in the Shred-it Partnership. Corporate assets also include the real estate assets of Storage that were not included in the sale transactions. Corporate results and assets as of and for the fiscal year ended 2014 include the revenue ($275.7 million), loss before income taxes ($38.5 million) and assets ($344.3 million) of Shredding. Corporate results and assets as of and for the fiscal year ended 2013 include the revenue ($279.5 million), income before income taxes ($16.6 million) and assets ($456.3 million) of Shredding. Corporate assets as of May 31, 2014 and 2013 include the assets of Storage. CINTAS CORPORATION 67 16. Quarterly Financial Data (Unaudited) The following is a summary of the results of operation for each of the quarters within the fiscal years ended May 31, 2015 and 2014: May 31, 2015 (in thousands) (1)(2)(3) First Quarter Second Quarter Third Quarter Fourth Quarter Revenue Gross margin Net income, continuing operations Basic earnings per share, continuing operations Diluted earnings per share, continuing operations Weighted average number of shares outstanding $1,102,077 $ 477,946 $ 109,791 $ $ 0.94 0.93 $1,123,379 $ 481,424 $ 103,446 $ $ 0.87 0.86 $1,108,847 $ 475,307 $ $ $ 93,636 0.80 0.79 $1,142,583 $ 486,660 $ 101,204 $ $ 0.88 0.86 116,659 117,115 116,178 113,666 May 31, 2014 (in thousands)(1)(2)(4) First Quarter Second Quarter Third Quarter Fourth Quarter Revenue Gross margin Net income, continuing operations Basic earnings per share, continuing operations Diluted earnings per share, continuing operations Weighted average number of shares outstanding $1,100,246 $ 456,095 $1,123,931 $ 467,079 $1,110,973 $ 469,634 $ $ $ 77,398 0.63 0.63 $ $ $ 84,456 0.70 0.69 $ $ $ 84,326 0.70 0.69 $1,134,415 $ 480,847 $ 128,105 $ $ 1.05 1.04 122,130 119,907 119,913 119,541 (1) The figures for both fiscal 2015 and 2014 reflect the change in classification of Storage to discontinued operations within the Consolidated Statements of Income. See Note 17 entitled Discontinued Operations for additional information. (2) As a result of the Shredding Transaction, Cintas no longer includes Shredding results in its reported revenue, gross margin and operating income. After April 30, 2014, Cintas recognized its share of the Shred-it Partnership income, net of tax, in net income from continuing operations and diluted earnings per share (‘‘EPS’’) from continuing operations. As a result of its investment in the Shred-it Partnership, Cintas recognized a net loss of $5.5 million and a net gain of $1.2 million during the years end May 31, 2015 and 2014, respectively. (3) During the fiscal 2015 first quarter, Cintas recognized a gain on the sale of stock in an equity method investment in the net amount of $13.6 million. In the fiscal 2015 first quarter, Cintas also recorded an net gain of $4.1 million, related to the Shredding Transaction completed in fiscal 2014 as a result of receiving certain additional proceeds. Finally, in the fourth quarter of fiscal 2015, Cintas recorded a net loss of $1.0 million related to the Shredding Transaction completed in fiscal 2014 due to the settlement of an outstanding Shredding-related legal claim. (4) In accordance with GAAP, the fiscal 2014 Shredding revenue, gross margin, operating income, net income and EPS must continue to be included in the reported fiscal 2014 results because of Cintas’ continuing ownership in the Shred-it Partnership. In addition, the fiscal 2014 results also included the following related to the Shredding Transaction: a $106.4 million gain on deconsolidation of Shredding, an asset impairment charge of $16.1 million and transaction costs of $28.5 million. All of these impacts were recorded in the fourth quarter except for $2.2 million of transaction costs that were recorded in the third quarter. Please see Note 9 entitled Acquisitions and Deconsolidations for additional information on the transaction. 68 CINTAS CORPORATION 17. Discontinued Operations Effective August 31, 2014, Cintas’ Storage was classified as discontinued operations. The business was previously included in the former Document Management Services operating segment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of Storage have been excluded from both continuing operations and segment results for all periods presented. In the quarter ended November 30, 2014, Cintas sold Storage. Storage, excluding related real estate owned by Cintas, was sold in three separate transactions to three separate buyers. 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 has opportunities to receive additional proceeds if specified future events occur. Because of the uncertainty surrounding the future events, these amounts represent gain contingencies that have not been recorded. Certain real estate owned by Cintas is being leased by the buyers. These lease payments do not represent a material direct cash flow of the disposed Storage business and therefore do not impact the classification of Storage as a discontinued operation. Following is selected financial information included in net income (loss) from discontinued operations for Storage: (In thousands) Revenue (Loss) income before income taxes Income tax (benefit) expense Gain on sale of business Income tax expense on gain 2015 2014 2013 $ 31,379 $ 82,246 $ 70,507 (3,712) (3,232) 38,573 15,552 815 658 — — (767) 377 — — Net income (loss) from discontinued operations $ 22,541 $ 157 $ (1,144) Certain real estate assets and related liabilities were not included in the Storage Transactions and are classified as held for sale as of May 31, 2015. As allowed under applicable accounting guidance, the May 31, 2014 balance sheet amounts for these assets and liabilities remain in their natural classifications. On July 10, 2015, Cintas sold the remaining Storage assets classified as held for sale. Proceeds from the transaction were $24.4 million. It is anticipated that Cintas will recognize a gain of approximately $4.5 million before taxes. CINTAS CORPORATION 69 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 $1,300.0 million of long-term senior notes, which are 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. 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, 2015 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Revenue: Rental uniforms and ancillary products Other services Equity in net income of affiliates Costs and expenses (income): Cost of rental uniforms and ancillary products Cost of other services Selling and administrative expenses $ — $ 2,657,177 $ 719,122 31,222 — 1,421,861 $ 215,491 $ (136,834) $ 3,454,956 1,021,930 (502,402) 71,249 408,077 — — — (408,077) — 408,077 4,079,038 750,344 286,740 (1,047,313) 4,476,886 — 1,600,457 949,694 — 441,171 (17,547) 148,075 44,153 (276,237) (334,217) 1,913,466 642,083 — 1,276,745 (100,025) 74,524 (26,314) 1,224,930 Operating income 408,077 252,142 426,745 19,988 (410,545) 696,407 Gain on deconsolidation of Shredding Gain on sale of stock of an equity method investment Interest income Interest expense (income) Income before income taxes Income taxes Loss on investment in Shred-it Partnership, net of tax Income from continuing operations Income from discontinued operations, net of tax — — — — 4,952 — — — (12) 66,298 21,739 (250) (1,134) — (79) (3) — — 2 — 4,952 21,739 (339) 65,161 408,077 — 190,808 68,516 449,868 168,708 20,070 7,502 (410,547) (66) 658,276 244,660 — (5,123) — (416) — (5,539) 408,077 117,169 281,160 12,152 (410,481) 408,077 22,541 17,692 — 4,849 (22,541) 22,541 Net income $ 430,618 $ 134,861 $ 281,160 $ 17,001 $ (433,022) $ 430,618 70 CINTAS CORPORATION Condensed Consolidating Income Statement Year Ended May 31, 2014 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Revenue: Rental uniforms and ancillary products Other services Equity in net income of affiliates Costs and expenses (income): Cost of rental uniforms and ancillary products Cost of other services Selling and administrative expenses Shredding Transaction asset impairment charge Shredding Transaction costs Operating income Gain (loss) on deconsolidation of Shredding Interest income Interest expense (income) $ — $ 2,460,666 $ 663,512 $ 220,969 $ (121,217) $ 3,223,930 — 1,600,265 31,511 86,263 (472,404) 1,245,635 374,285 — — — (374,285) — 374,285 4,060,931 695,023 307,232 (967,906) 4,469,565 — 1,520,893 417,388 153,726 (262,580) 1,829,427 — 1,041,990 (15,441) 54,426 (314,491) 766,484 — 1,282,356 (81,765) 82,348 (18,103) 1,264,836 — — — — 16,143 28,481 — — — — 16,143 28,481 374,285 215,692 330,217 16,732 (372,732) 564,194 Income before income taxes 374,285 260,935 331,030 Income taxes Gain on investment in Shred-it Partnership — — 99,789 126,021 1,141 — 93 — — — 111,661 (43) 66,461 — (178) (635) (5,220) (15,279) (4) 26,795 6,260 — 106,441 15,271 — (388,003) (79) — (229) 65,822 605,042 231,991 1,234 Income from continuing operations Income (loss) from discontinued operations, net of tax 374,285 162,287 205,009 20,628 (387,924) 374,285 157 (24) — 181 (157) 157 Net income $ 374,442 $ 162,263 $ 205,009 $ 20,809 $ (388,081) $ 374,442 CINTAS CORPORATION 71 Condensed Consolidating Income Statement Year Ended May 31, 2013 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Revenue: Rental uniforms and ancillary products Other services Equity in net income of affiliates Costs and expenses (income): Cost of rental uniforms and ancillary products Cost of other services Selling and administrative expenses Operating income Interest income Interest expense (income) Income before income taxes Income taxes Income from continuing operations (Loss) income from discontinued operations, net of tax $ — $ 2,314,386 $ 616,726 31,210 — 1,552,687 $ 220,946 88,040 $ (107,471) $ 3,044,587 1,201,377 (470,560) 316,586 — — — (316,586) — 316,586 3,867,073 647,936 308,986 (894,617) 4,245,964 — 1,454,791 — 1,000,471 392,134 (12,440) 155,490 55,703 (246,118) (307,376) 1,756,297 736,358 — 1,192,205 (66,640) 81,671 (19,905) 1,187,331 316,586 — 219,606 (40) 334,882 (272) 16,122 (28,334) (321,218) 28,237 565,978 (409) — 66,584 (875) 3 — 65,712 316,586 — 153,062 54,350 336,029 119,302 44,453 10,480 (349,455) (43) 500,675 184,089 316,586 98,712 216,727 33,973 (349,412) 316,586 (1,144) 36 — (1,180) 1,144 (1,144) Net income $ 315,442 $ 98,748 $ 216,727 $ 32,793 $ (348,268) $ 315,442 72 CINTAS CORPORATION 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 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments Change in fair value of derivatives Amortization of interest rate lock agreements Other Other comprehensive income (loss) Comprehensive income (loss) $ 430,618 $ 134,861 $ 281,160 $ 17,001 $ (433,022) $ 430,618 — — — — — — — 1,952 — — — — (361) (38,538) 37 — 11 1,952 (361) (38,490) — — — — — (38,538) 37 1,952 (350) (36,899) $ 430,618 $ 136,813 $ 280,799 $ (21,489) $ (433,022) $ 393,719 Condensed Consolidating Statement of Comprehensive Income Year Ended May 31, 2014 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Net income Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments Change in fair value of derivatives Amortization of interest rate lock agreements Other Other comprehensive income (loss) $ 374,442 $ 162,263 $ 205,009 $ 20,809 $ (388,081) $ 374,442 — — — — — — — — — 1,952 — — (1,629) (9,787) (228) — (3) 1,952 (1,629) (10,018) — — — — — (9,787) (228) 1,952 (1,632) (9,695) Comprehensive income $ 374,442 $ 164,215 $ 203,380 $ 10,791 $ (388,081) $ 364,747 CINTAS CORPORATION 73 Condensed Consolidating Statement of Comprehensive Income Year Ended May 31, 2013 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Net income Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments Change in fair value of derivatives Amortization of interest rate lock agreements Other Other comprehensive income (loss) $ 315,442 $ 98,748 $ 216,727 $ 32,793 $ (348,268) $ 315,442 — — — — — (12) (187) 1,952 — — — — 782 (1,075) — — — 1,753 782 (1,075) — — — — — (1,087) (187) 1,952 782 1,460 Comprehensive income $ 315,442 $ 100,501 $ 217,509 $ 31,718 $ (348,268) $ 316,902 74 CINTAS CORPORATION Condensed Consolidating Balance Sheet As of May 31, 2015 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Assets Current assets: Cash and cash equivalents $ — $ 74,145 $ 249,203 $ 93,725 $ — $ 417,073 Marketable securities Accounts receivable, net Inventories, net Uniforms and other rental items in service Income taxes, current Assets held for sale Prepaid expenses and other current assets — — — — — — — — 358,560 193,594 — 104,964 21,149 16,081 32,606 8,870 — — 2,598 16,081 496,130 226,211 399,017 117,473 36,478 (18,963) 534,005 1,191 21,341 (339) — 84 — 5,514 17,492 1,024 — — — 936 21,341 24,030 Total current assets — 1,053,362 509,942 188,868 (16,365) 1,735,807 Property and equipment, at cost, net Investments Goodwill Service contracts, net Other assets, net Liabilities and Shareholders’ Equity Current liabilities: — 523,690 321,083 1,956,320 275,072 895,393 72,659 — 956,461 (3,799,565) 871,421 329,692 — 1,180,527 15,197 (112) 1,195,612 42,400 34 — — 1,154,596 12,373 2,741,950 3,572 (3,894,997) 42,434 17,494 — — $ 1,475,679 $ 3,588,145 $ 5,602,918 $ 1,236,757 $ (7,711,039) $ 4,192,460 Accounts payable $ (465,247) $ (877,042) $ 1,391,999 $ 21,876 $ 38,021 $ 109,607 Accrued compensation and related liabilities Accrued liabilities Deferred tax (asset) liability Liabilities held for sale Long-term debt due within one year — — — — — 59,752 65,022 (299) 704 23,989 232,500 104,663 — 293 (293) 4,682 13,137 8,025 — — — (724) — — — 88,423 309,935 112,389 704 — Total current liabilities (465,247) (751,570) 1,752,858 47,720 37,297 621,058 Long-term liabilities: Long-term debt due after one year Deferred income taxes Accrued liabilities — 1,308,452 (9,766) — — (5) — 229,266 111,105 590 (2,323) 904 724 1,300,000 — — 226,938 112,009 Total long-term liabilities — 1,308,447 330,605 (829) 724 1,638,947 Total shareholders’ equity 1,940,926 3,031,268 3,519,455 1,189,866 (7,749,060) 1,932,455 $ 1,475,679 $ 3,588,145 $ 5,602,918 $ 1,236,757 $ (7,711,039) $ 4,192,460 CINTAS CORPORATION 75 Condensed Consolidating Balance Sheet As of May 31, 2014 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Assets Current assets: Cash and cash equivalents $ — $ 73,540 $ 399,525 $ 40,223 $ — $ 513,288 Accounts receivable, net Inventories, net Uniforms and other rental items in service Income taxes, current Prepaid expenses and other current assets — — — — — 366,629 215,974 97,869 20,745 43,929 9,650 — 4,870 508,427 251,239 374,666 112,467 38,240 (18,836) 506,537 1,549 (1,549) — 7,058 14,752 4,380 — — — 26,190 Total current assets — 1,039,416 643,809 136,422 (13,966) 1,805,681 Property and equipment, at cost, net Investments Goodwill Service contracts, net Other assets, net Liabilities and Shareholders’ Equity Current liabilities: — 533,665 225,677 96,360 — 321,083 2,081,094 893,647 1,015,343 (3,852,810) 855,702 458,357 — 1,211,716 55,807 (112) 1,267,411 51,248 53 1,378,100 8,900 2,189,527 4,374 9,044 — (3,565,945) 55,675 19,626 — — $ 1,699,183 $ 3,714,323 $ 5,164,429 $ 1,317,350 $ (7,432,833) $ 4,462,452 Accounts payable $ (465,247) $ (545,526) $ 1,092,545 $ 30,281 $ 38,017 $ 150,070 Accrued compensation and related liabilities Accrued liabilities Income taxes, current Deferred tax (asset) liability Long-term debt due within one year — — — — — 56,581 79,614 — (510) 22,590 208,983 4,915 80,575 5,855 11,876 1,045 8,780 773 (270) — — (746) — — — 85,026 299,727 5,960 88,845 503 Total current liabilities (465,247) (409,068) 1,409,338 57,837 37,271 630,131 Long-term liabilities: Long-term debt due after one year Deferred income taxes Accrued liabilities — 1,309,611 (10,380) — — (6) — 251,924 92,069 500 (5,874) 873 746 1,300,477 — — 246,044 92,942 Total long-term liabilities — 1,309,605 333,613 (4,501) 746 1,639,463 Total shareholders’ equity 2,164,430 2,813,786 3,421,478 1,264,014 (7,470,850) 2,192,858 $ 1,699,183 $ 3,714,323 $ 5,164,429 $ 1,317,350 $ (7,432,833) $ 4,462,452 76 CINTAS CORPORATION 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 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation Amortization of intangible assets Stock-based compensation Gain on sale of Storage Gain on deconsolidation of Shredding Gain on sale of stock of an equity method investment Loss on investment in Shred-it Partnership Deferred income taxes Changes in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net Inventories, net Uniforms and other rental items in service Prepaid expenses and other current assets Accounts payable Accrued compensation and related liabilities Accrued liabilities and other Income taxes, current Net cash provided by (used in) operating activities Cash flows from investing activities: Capital expenditures Proceeds from redemption of marketable securities Purchase of marketable securities and investments Proceeds from Storage Transactions, net of cash contributed Proceeds from Shredding Transaction, net of cash contributed Proceeds from sale of stock of an equity method investment Dividends received on equity method investment Dividends received on Shred-it Partnership investment Acquisitions of businesses, net of cash acquired Other Net cash provided by (used in) investing activities Cash flows from financing activities: Proceeds from the issuances of debt Repayment of debt Proceeds from exercise of stock- based compensation awards Dividends paid Repurchase of common stock Other Net cash (used in) provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ 430,618 $ 134,861 $ 281,160 $ 17,001 $ (433,022) $ 430,618 — — 47,002 — — — — — — — — — — — — — 87,186 13,972 — (31,113) (4,952) 43,013 60 — — — — (21,739) 8,142 67 — 18,565 4,370 22,405 (24,351) (345) (322,461) 3,171 (15,829) 358 (7,095) (405) (5,006) (2,740) 289,110 1,400 42,551 (6,155) 10,425 426 — (7,460) — — 661 2,234 1,282 (487) (2,764) (117) (98) (1,337) 6,322 (1,035) — — — — — — — — 140,624 14,458 47,002 (38,573) (4,952) (21,739) 8,803 20,866 — 2,272 (1,443) 23,785 127 (31,994) — 4 — 22 — (3,202) (33,445) 3,234 33,066 (6,832) 477,620 (124,519) 632,719 25,053 (430,597) 580,276 — — — — — — — — — 235,951 (110,658) (92,600) (14,462) — — 161,938 — — (217,720) 161,938 (1,827) 38,731 (179,130) (53,245) (195,471) 93,387 3,344 — — 113,400 (15,495) 42,199 — — 29,933 5,247 — 65,041 — — — — — — — — — — (764,336) — 3,705 — 483,864 158,428 3,344 29,933 5,247 113,400 (15,495) 1,383 235,951 124,350 (783,025) 37,092 430,619 44,987 — — 40,230 (201,831) (551,970) — (713,571) — — — — (1,178) — — — 1,952 774 — 605 (2,615) 2,962 2,615 (2,280) — — — (363) (16) — — (60) — — 275 (8,918) (150,322) 53,502 73,540 399,525 40,223 — (22) — — — — — (518) 40,230 (201,891) (551,970) 1,589 (22) (712,560) — — — (8,918) (96,215) 513,288 $ — $ 74,145 $ 249,203 $ 93,725 $ — $ 417,073 CINTAS CORPORATION 77 Condensed Consolidating Statement of Cash Flows Year Ended May 31, 2014 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization of intangible assets Stock-based compensation (Gain) loss on deconsolidation of Shredding Gain on investment in Shred-it Partnership Shredding Transaction asset impairment charge Shredding Transaction costs Deferred income taxes Changes in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net Inventories, net Uniforms and other rental items in service Prepaid expenses and other current assets Accounts payable Accrued compensation and related liabilities Accrued liabilities and other Income taxes, current Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Proceeds from redemption of marketable securities Purchase of marketable securities and investments Proceeds from Shredding Transaction, net of cash contributed Acquisitions of businesses, net of cash acquired Other Net cash provided by (used in) investing activities Cash flows from financing activities: Proceeds from the issuance of debt Repayment of debt Proceeds from exercise of stock- based compensation awards Dividends paid Repurchase of common stock Other Net cash (used in) provided by financing $ 374,442 $ 162,263 $ 205,009 $ 20,809 $ (388,081) $ 374,442 — — 29,875 — — — — — — — — — — — — — 110,100 20,547 — (111,661) (1,850) — — (2) (53,053) (14,735) (11,004) (386) 25,573 5,778 50,008 2,621 44,856 153 — — — 16,143 26,057 47,373 (1,300) 4,839 557 (1,844) 23,246 4,947 4,897 9,902 13,264 1,942 — 5,220 (150) — — (262) (1,878) 450 (973) 53 (18,374) 206 (689) 2,690 — — — — — — — — 168,220 22,642 29,875 (106,441) (2,000) 16,143 26,057 47,109 — (1,616) (56,231) (11,062) (15) (11,435) — 1 — 21 — (2,177) 30,446 10,931 54,237 15,213 404,317 184,199 384,835 22,308 (389,690) 605,969 — — — — — 13,783 (123,978) (9,591) (12,011) — 5,659 48,537 — — (145,580) 54,196 (151,063) (242,956) (48,387) 378,548 (63,858) 180,000 (13,199) (50,446) — — 8,108 (641) — 179,359 (20,242) 12,173 — 11,163 (33,441) (5,219) 13,783 (158,686) (238,780) (20,571) 389,711 (14,543) — — 41,902 (93,293) (370,599) 3,890 — (8,436) — — — 1,952 (2,445) (106) — — — 8,951 2,445 376 — (27) — (14,324) — (21) — — — — — (8,187) 41,902 (93,320) (370,599) 469 activities (418,100) (6,484) 6,400 (11,530) (21) (429,735) Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year — — — — — (676) 19,029 152,455 (10,469) 54,511 247,070 50,692 — — — (676) 161,015 352,273 $ — $ 73,540 $ 399,525 $ 40,223 $ — $ 513,288 78 CINTAS CORPORATION Condensed Consolidating Statement of Cash Flows Year Ended May 31, 2013 (in thousands) Cintas Corporation Corp. 2 Subsidiary Guarantors Non- Guarantors Eliminations Cintas Corporation Consolidated Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization of intangible assets Stock-based compensation Deferred income taxes Changes in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net Inventories, net Uniforms and other rental items in service Prepaid expenses and other current assets Accounts payable Accrued compensation and related liabilities Accrued liabilities and other Income taxes, current Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Proceeds from redemption of marketable securities Purchase of marketable securities and investments Acquisitions of businesses, net of cash acquired Other $ 315,442 $ 98,748 $ 216,727 $ 32,793 $ (348,268) $ 315,442 — — 23,310 — 16,647 21,077 — — 135,345 200 — 53,916 13,672 2,436 — (5,893) — — — — 165,664 23,713 23,310 48,023 — — — — — — — — (25,206) 9,034 (15,326) (5,292) (2,172) 626 — 6,629 (42,704) 10,997 (26,364) (11,590) (4,077) (2,148) (44,179) 507 (55,802) (9,206) (5,416) 1,110 (3,620) 75,034 (3,977) 38,099 206 (168) 5,794 22 (829) 10,712 — (3) — 19 — (3,281) 25,023 (13,161) 31,873 12,028 338,752 25,129 479,722 52,916 (343,771) 552,748 — — — (39,975) (131,208) (25,303) — 13,899 147,579 — — (196,486) 161,478 (683) (31,075) (158,378) 11,672 (178,464) — (60,918) (67,431) 58,589 112 (315,519) (2,051) (15,609) — 332,118 (69,370) (1,339) Net cash used in investing activities (60,918) (49,500) (463,791) (53,762) 343,790 (284,181) Cash flows from financing activities: Proceeds from the issuance of debt Repayment of debt Proceeds from exercise of stock- based compensation awards Dividends paid Repurchase of common stock Other — — 250,000 (225,866) 14,807 (79,723) (215,681) 2,763 — — — (3,989) 638 445 — — — 769 Net cash (used in) provided by financing activities (277,834) 20,145 1,852 Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year — — — — — (4,226) 17,783 (1,109) 58,737 229,287 51,801 (638) (196) — (21) — 653 (202) (61) — (19) — — — — 250,000 (225,636) 14,807 (79,744) (215,681) 196 (19) (256,058) — — — (61) 12,448 339,825 $ — $ 54,511 $ 247,070 $ 50,692 $ — $ 352,273 CINTAS CORPORATION 79 19. Subsequent Events On June 29, 2015, Cintas entered into an agreement to acquire the shares of an entity for approximately $130 million in cash consideration. The entity will operate within the First Aid, Safety and Fire Protection Services operating segment and is expected to have annual revenues between $110 million and $120 million. The transaction is pending regulatory approval. The transaction is expected to close in the first quarter of fiscal 2016. On July 15, 2015, Cintas announced that it entered into a definitive agreement to sell its investment in the Shred-it Partnership to Stericycle, Inc. (Nasdaq: SRCL), a global business to business compliance solutions provider specializing in complex and highly regulated arenas, for consideration of approximately $550 million to $600 million before taxes. The transaction is expected to close in the second quarter of fiscal 2016, subject to obtaining regulatory approvals and satisfaction of other customary closing conditions. Upon closing of the transaction, the Shred-it Partnership will become a wholly owned subsidiary of Stericycle. 80 CINTAS CORPORATION 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’ 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 Exchange Act) as of May 31, 2015. Based on such evaluation, Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas’ disclosure controls and procedures were effective as of May 31, 2015, 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, 2015, that have materially affected, or are reasonably likely to materially affect, Cintas’ internal control over financial reporting. Item 9B. Other Information None. CINTAS CORPORATION 81 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 2015 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, 2015. Equity Compensation Plan Information Plan category Equity compensation plans approved by shareholders Equity compensation plans not approved by shareholders Total (1) Excludes 2,210,113 unvested restricted stock units. 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 7,835,570 $ 51.59 9,281,640 — — — 7,835,570 $ 51.59 9,281,640 Item 13. Certain Relationships and 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. 82 CINTAS CORPORATION 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 for paragraph (d) under Item 14 are not applicable to Cintas. (a) (2) Financial Statement Schedule: For each of the three years in the period ended May 31, 2015. Schedule II: Valuation and Qualifying Accounts and Reserves. 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 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) 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 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.) Amended and Restated By-laws (Incorporated by reference to Exhibit 3 to Cintas’ Form 8-K dated October 14, 2008.) 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’ Form 10-Q for the quarter ended February 28, 2005.) Form of 6% Senior Note due 2012 (Incorporated by reference to Cintas’ Form 10-Q for the quarter ended February 28, 2005.) Form of 6.15% Senior Note due 2036 (Incorporated by reference to Cintas’ Form 8-K dated August 17, 2006.) Form of 6.125% Senior Note due 2017 (Incorporated by reference to Cintas’ Form 8-K dated December 6, 2007.) Form of 2.85% Senior Note due 2016 (Incorporated by reference to Cintas’ Form 8-K dated May 23, 2011.) Form of 4.30% Senior Note due 2021 (Incorporated by reference to Cintas’ Form 8-K dated May 23, 2011.) CINTAS CORPORATION 83 4.7 Form of 3.25% Senior Note due 2022 (Incorporated by reference to Cintas’ Form 8-K dated June 8, 2012.) 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’ 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’ 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’ 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’ 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’ 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’ 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* 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.) 10.9* 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.) 10.10* 1999 Cintas Corporation Stock Option Plan (Incorporated by reference to Cintas’ Form 10-Q for the quarter ended November 30, 2000.) 10.11* Directors’ Deferred Compensation Plan (Incorporated by reference to Cintas’ Form 10-Q for the quarter ended November 30, 2001.) 10.12* Amended and Restated 2003 Directors’ Stock Option Plan (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2004.) 10.13* Form of agreement signed by Officers, General/Branch Managers, Professionals and Key Managers, including Executive Officers (Incorporated by reference to Cintas’ Form 10-Q for the quarter ended February 28, 2005.) 10.14* President and CEO Executive Compensation Plan (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2005.) 10.15* 2006 Executive Incentive Plan (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2005.) 10.16* 2005 Equity Compensation Plan (Incorporated by reference to Cintas’ Definitive Proxy Statement on Schedule 14A filed on September 1, 2005.) 10.17* Criteria for Performance Evaluation of the President and CEO (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2006.) 84 CINTAS CORPORATION 10.18* 2007 Executive Incentive Plan (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2006.) 10.19* Amendment No. 1 to 2005 Equity Compensation Plan (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2011.) 10.20* Form of Restricted Stock Agreement (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2011.) 10.21* Amendment No. 2 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Cintas’ Form 8-K dated July 27, 2012.) 10.22* Form of Restricted Stock Agreement (Incorporated by reference to Cintas’ Form 8-K dated July 27, 2012.) 10.23* Amendment No. 3 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.4 to Cintas’ Form 8-K dated October 23, 2013.) 10.24* 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.) 10.25* Cintas Corporation Management Incentive Plan (Incorporated by reference to Exhibit 10.5 to Cintas’ Form 8-K dated October 23, 2013.) 14 21** 23** Code of Ethics (Incorporated by reference to Cintas’ Form 10-K for the year ended May 31, 2004.) Subsidiaries of the Registrant 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** 32.2** Certification of Chief Executive Officer, Pursuant to 18 U.S.C. § 1350 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. CINTAS CORPORATION 85 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 By: /s/ Scott D. Farmer Scott D. Farmer Chief Executive Officer DATE SIGNED: July 30, 2015 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. Signature Capacity Date /s/ Robert J. Kohlhepp Chairman of the Board of Directors July 30, 2015 Robert J. Kohlhepp /s/ Scott D. Farmer Chief Executive Officer and Director July 30, 2015 Scott D. Farmer (Principal Executive Officer) /s/ Ronald W. Tysoe Director Ronald W. Tysoe /s/ John F. Barrett John F. Barrett Director /s/ James J. Johnson Director James J. Johnson July 30, 2015 July 30, 2015 July 30, 2015 /s/ J. Michael Hansen Vice President and Chief Financial Officer July 30, 2015 J. Michael Hansen (Principal Financial and Accounting Officer) 86 CINTAS CORPORATION Cintas Corporation Schedule II — Valuation and Qualifying Accounts and Reserves (In thousands) Allowance for Doubtful Accounts May 31, 2013 May 31, 2014 May 31, 2015 Reserve for Obsolete Inventory May 31, 2013 May 31, 2014 May 31, 2015 Additions (1) Charged to Costs and Expenses (2) Charged to Other Accounts Balance at Beginning of Year (3) Deductions Balance at End of Year $ 17,017 $ 2,804 $ 202 $ 4,168 $ 15,855 $ 15,855 $ 5,607 $ (2,965) $ 3,591 $ 14,906 $ 14,906 $ 5,718 $ (738) $ 4,212 $ 15,674 $ 29,376 $ 4,041 $ (2,223) $ 1,707 $ 29,487 $ 29,487 $ 3,147 $ 30,673 $ 3,278 $ $ (144) $ 1,817 $ 30,673 (364) $ 2,880 $ 30,707 (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 a change in the appropriate balance sheet reserve due to acquisitions and deconsolidations during the respective period. (3) 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. CINTAS CORPORATION 87 Exhibit 31.1 Certification of Principal Executive Officer Pursuant to Rule 13a–14(a) I, Scott D. Farmer, certify that: 1. I have reviewed this Annual Report on Form 10-K of Cintas Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: July 30, 2015 /s/ Scott D. Farmer Scott D. Farmer Chief Executive Officer (Principal Executive Officer) 88 CINTAS CORPORATION Exhibit 31.2 Certification of Principal Financial Officer Pursuant to Rule 13a–14(a) I, J. Michael Hansen, certify that: 1. I have reviewed this Annual Report on Form 10-K of Cintas Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: July 30, 2015 /s/ J. Michael Hansen J. Michael Hansen Vice President and Chief Financial Officer CINTAS CORPORATION 89 Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing with the Securities and Exchange Commission of the Report of Cintas Corporation (the ‘‘Company’’) on Form 10-K for the period ending May 31, 2015 (the ‘‘Report’’), I, Scott D. Farmer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company as of and for the periods presented. /s/ Scott D. Farmer Scott D. Farmer Principal Executive Officer July 30, 2015 90 CINTAS CORPORATION Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing with the Securities and Exchange Commission of the Report of Cintas Corporation (the ‘‘Company’’) on Form 10-K for the period ending May 31, 2015 (the ‘‘Report’’), I, J. Michael Hansen, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company as of and for the periods presented. /s/ J. Michael Hansen J. Michael Hansen Principal Financial Officer July 30, 2015 CINTAS CORPORATION 91 Shareholder Information Board of Directors Executive Offices Annual Meeting October 14, 2015 Cintas Corporation Corporate Headquarters 6800 Cintas Boulevard Cincinnati, OH 45262-5737 10:00 a.m. Company Information For financial information regarding Cintas Corporation, please visit our website at www.cintas.com. Additional financial information is available at www.nasdaq.com. Security Holder Information May 31, 2015, there were approximately 2,000 shareholders of record of Cintas’ Common Stock. Cintas believes that this represents approximately 46,000 beneficial owners. Cintas Corporation 6800 Cintas Boulevard P.O. Box 625737 Cincinnati, OH 45262-5737 Auditors Ernst & Young LLP 1900 Scripps Center 312 Walnut Street Cincinnati, OH 45202 Market for Registrant’s Common Stock Cintas Corporation Common Stock is traded on the Nasdaq Global Select Market. The symbol is CTAS. Registrar and Transfer Agent Wells Fargo Bank 161 North Concord Exchange South St. Paul, MN 55075 (800) 468-9716 Gerald S. Adolph Principal of PWC Strategy& John F. Barrett Chairman, President and Chief Executive Officer of Western & Southern Financial Group Melanie W. Barstad Retired President of Women’s Health Initiatives, Johnson & Johnson Family of Companies Richard T. Farmer Chairman Emeritus of the Board of the Corporation Scott D. Farmer Chief Executive Officer of the Corporation James J. Johnson Retired Chief Legal Officer and Secretary, the Procter & Gamble Company Robert J. Kohlhepp Chairman of the Board of the Corporation Joseph Scaminace Chairman, President and Chief Executive Officer of the OM Group, Inc. Ronald W. Tysoe Retired Vice Chairman, Finance and Real Estate Macy’s, Inc. CINTAS CORPORATION 6800 Cintas Boulevard Cincinnati, OH 45262-5737 513.459.1200 www.cintas.com 3SEP201015443351 

Continue reading text version or see original annual report in PDF format above