Cintas
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-KXANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended May 31, 2018 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission File No. 0-11399CINTAS CORPORATION(Exact Name of Registrant as Specified in Its Charter)WASHINGTON 31-1188630(State or Other Jurisdiction ofIncorporation or Organization) (I.R.S. EmployerIdentification No.) 6800 Cintas BoulevardP.O. Box 625737Cincinnati, Ohio 45262-5737(Address of Principal Executive Offices) (513) 459-1200(Registrant's Telephone Number, Including Area Code)Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registeredCommon Stock, no par valueThe NASDAQ Stock Market LLC (NASDAQ Global Select Market)Securities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YESü 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 ü 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 preceding12 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. YESü NO Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted andposted 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 submitand post such files). YESü 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 theRegistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growthcompany. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.Large Accelerated FilerüAccelerated Filer Non-Accelerated Filer (Do not check if a smaller reporting company.)Smaller Reporting Company Emerging Growth Company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO ü The aggregate market value of the Registrant's Common Stock held by non-affiliates as of November 30, 2017, was $16,762,648,293 based on a closing sale price of $157.44per share. As of June 30, 2018, 182,752,319 shares of the Registrant's Common Stock were issued and 106,279,307 shares were outstanding.Documents Incorporated by ReferencePortions of the Registrant's Proxy Statement to be filed with the Commission for its 2018 Annual Meeting of Shareholders are incorporated by reference in Part III of thisForm 10-K.1Cintas CorporationIndex to Annual Report on Form 10-K PagePart I Item 1.Business3 Item 1A.Risk Factors5 Item 1B.Unresolved Staff Comments9 Item 2.Properties10 Item 3.Legal Proceedings10 Item 4.Mine Safety Disclosures10 Part II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities11 Item 6.Selected Financial Data14 Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations15 Item 7A.Quantitative and Qualitative Disclosures About Market Risk29 Item 8.Financial Statements and Supplementary Data30 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure81 Item 9A.Controls and Procedures81 Item 9B.Other Information81 Part III Item 10.Directors, Executive Officers and Corporate Governance82 Item 11.Executive Compensation82 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters82 Item 13.Certain Relationships and Related Transactions, and Director Independence82 Item 14.Principal Accountant Fees and Services82 Part IV Item 15.Exhibits and Financial Statement Schedules83 Item 16.Form 10-K Summary842Part I Item 1. BusinessCintas Corporation (Cintas, Company, we, us or our), a Washington corporation, helps more than one million businesses of all types and sizes,primarily in North America, as well as Latin America, Europe and Asia, get Ready™ to open their doors with confidence every day by providing awide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking theirbest. With products and services including uniforms, floor care, restroom supplies, first aid and safety products, fire extinguishers and testing, andsafety and compliance training, Cintas helps customers get Ready for the Workday™. Cintas was founded in 1968 by Richard T. Farmer,currently the Chairman Emeritus of the Board of Directors, when he left his family's industrial laundry business in order to develop uniformprograms using an exclusive new fabric. In the early 1970's, Cintas acquired the family industrial laundry business. Over the years, Cintasdeveloped additional products and services that complemented its core uniform business and broadened the scope of products and servicesavailable to its customers.On March 21, 2017, Cintas completed the acquisition of G&K Services, Inc. (G&K) for consideration of approximately $2.1 billion. G&K is awholly-owned subsidiary of Cintas that operates within the Uniform Rental and Facility Services operating segment. To finance the G&Kacquisition, Cintas used a combination of new senior notes, a term loan, other borrowings under its existing credit facility and cash on hand. G&K'sresults of operations are included in Cintas' consolidated financial statements as of and from the date of acquisition.Cintas’ reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and FacilityServices reportable 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, carpet and tilecleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. TheFirst Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’business, which consists of Fire Protection Services and its Uniform Direct Sale business, is included in All Other.In fiscal 2018, Cintas sold a significant business referred to as "Discontinued Services." Prior to the sale of Discontinued Services, the operationswere primarily included in All Other and classified as held for sale. In fiscal 2014, Cintas completed its partnership transaction with theshareholders of Shred-it International Inc. to combine Cintas' shredding business (Shredding) with the shredding business of Shred-it InternationalInc. (the Shredding Transaction). Pursuant to the Shredding Transaction, the newly formed partnership (the Shred-it Partnership) was owned 42%by Cintas and 58% by the shareholders of Shred-it International Inc. Cintas' investment in the Shred-it Partnership (Shred-it) and the results ofShredding are classified as discontinued operations for all periods presented as a result of selling the investment during fiscal 2016. During fiscal2015, Cintas sold the storage business (Storage) and, as a result, its operations are also classified as discontinued operations for all periodspresented. In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results ofDiscontinued Services, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periodspresented. Please see Note 16 entitled Discontinued Operations of "Notes to Consolidated Financial Statements" for additional information.We provide our products and services to over one million businesses of all types, from small service and manufacturing companies to majorcorporations that employ thousands of people. This diversity in customer base results in no individual customer accounting for greater than onepercent 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 reportable operating segment and All Other:Fiscal Year Ended May 31, (in thousands)2018 2017 2016 Uniform Rental and Facility Services$5,247,124 $4,202,490 $3,759,524First Aid and Safety Services564,706 508,233 461,783All Other664,802 612,658 574,465Total Revenue$6,476,632 $5,323,381 $4,795,7723Additional information regarding each reportable operating segment and All Other is also included in Note 14 entitled Operating SegmentInformation of "Notes to Consolidated Financial Statements."The primary markets served by all Cintas businesses are local in nature and highly fragmented. Cintas competes with national, regional and localproviders, and the level of competition varies at each of Cintas' local operations. Product, design, price, quality, service and convenience to thecustomer are the competitive elements in each of our businesses.Within the Uniform Rental and Facility Services reportable operating segment, Cintas provides its products and services to customers via localdelivery routes originating from rental processing plants and branches. Within the First Aid and Safety Services reportable operating segment andAll Other, Cintas provides its products and services via its distribution network and local delivery routes or local representatives. In total, Cintashas approximately 11,100 local delivery routes, 474 operational facilities and 11 distribution centers. At May 31, 2018, Cintas employedapproximately 41,000 employees, of which approximately 1,600 were represented by labor unions.Cintas sources finished products from many outside suppliers. In addition, Cintas operates five manufacturing facilities that provide for standarduniform needs. Cintas purchases fabric, used in its manufacturing process, from several suppliers. Cintas is not aware of any circumstances thatwould 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 environmentalcompliance is not a material component of its costs, Cintas must incur capital expenditures and associated operating costs, primarily for watertreatment and waste removal, on a regular basis. Environmental spending related to water treatment and waste removal was approximately $20million in fiscal 2018 and approximately $14 million in fiscal 2017. Capital expenditures to limit or monitor hazardous substances totaledapproximately $2 million in fiscal 2018 and approximately $3 million in fiscal 2017. As a result of the G&K acquisition in fiscal 2017, Cintas'environmental spend and the cost or environmental compliance could increase in future years; however, Cintas is not aware of any material non-compliance with environmental laws.Cintas uses its corporate website, www.cintas.com, as a channel for routine distribution of important information, including news releases, analystpresentations and financial information. Cintas files with or furnishes to the Securities and Exchange Commission (SEC) Annual Reports onForm 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 andannual reports to shareholders, and, from time to time, other documents. The reports and other documents filed with or furnished to the SEC areavailable to investors on or through our corporate website free of charge as soon as reasonably practicable after we electronically file them with orfurnish 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 Roomat 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 informationregarding issuers, such as Cintas, that file electronically with the SEC. Cintas' SEC filings can be found on the Investors page of its website atwww.cintas.com/investors/highlights.aspx and its Code of Conduct and Business Ethics can be found on the About Us page of its website atwww.cintas.com/company. These documents are available in print to any shareholder who requests a copy by writing or calling Cintas as set forthon the Investor Information page. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference intothis Form 10-K unless expressly noted.4Item 1A. Risk FactorsThe statements in this section describe the most significant risks that could materially and adversely affect our business, consolidated financialcondition 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 of1995.This Annual Report on Form 10-K contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harborfrom 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 versionsthereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon currentexpectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannotguarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurateassumptions and other factors that could cause actual results to differ from those set forth in or implied by this Annual Report. Factors that mightcause such a difference include, but are not limited to, risks inherent with the G&K transaction in the achievement of cost synergies and the timingthereof, including whether the transaction will be accretive and within the expected timeframe and the actual amounts of future integrationexpenses; the possibility of greater than anticipated operating costs including energy and fuel costs; lower sales volumes; loss of customers dueto outsourcing trends; the performance and costs of integration of acquisitions, including G&K; fluctuations in costs of materials and laborincluding increased medical costs; costs and possible effects of union organizing activities; failure to comply with government regulationsconcerning employment discrimination, employee pay and benefits and employee health and safety; the effect on operations of exchange ratefluctuations, tariffs and other political, economic and regulatory risks; uncertainties regarding any existing or newly-discovered expenses andliabilities related to environmental compliance and remediation; the cost, results and ongoing assessment of internal controls for financial reportingrequired by the Sarbanes-Oxley Act of 2002; the effect of new accounting pronouncements; costs of our SAP system implementation; disruptionscaused by the inaccessibility of computer systems data, including cybersecurity risks; the initiation or outcome of litigation, investigations or otherproceedings; higher assumed sourcing or distribution costs of products; the disruption of operations from catastrophic or extraordinary events; theamount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; and the reactions of competitorsin terms of price and service. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwiseupdate any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipateddevelopments arising after the date on which such statements are made, except otherwise as required by law. The risks and uncertaintiesdescribed herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to beimmaterial 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 ofunemployment, inflation, tax rates and other changes in tax laws and other economic factors could adversely affect the demand for Cintas’products and services. Increases in labor costs, including the cost to provide employee-partner related healthcare benefits, minimum wages, laborshortages or shortages of skilled labor, regulations regarding the classification of employees and/or their eligibility for overtime wages, highermaterial 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 facilityservices, cost of other services and selling and administrative expenses. As a result, these factors could adversely affect our sales andconsolidated results of operations.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 andconvenience to the customer are the competitive elements in these industries. If existing or future competitors seek to gain or retain market shareby reducing prices, Cintas may be required to lower prices, which would hurt its results of operations. Cintas' competitors also generally competewith Cintas for acquisition candidates, which can increase the price for acquisitions and reduce the number of available acquisition candidates. Inaddition, our customers and prospects may decide to perform certain services in-house instead of outsourcing these services to us. Thesecompetitive pressures could adversely affect our sales and consolidated results of operations.5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 thecapacity required for this expansion. Our ability to open new operating facilities depends on our ability to identify attractive locations, negotiateleases or real estate purchase agreements on acceptable terms, identify and obtain adequate utility and water sources and comply withenvironmental regulations, zoning laws and other similar factors. Any inability to effectively identify and manage these items may adversely affectour 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 maysupplement our internal growth. However, there can be no assurance that we will be able to locate and purchase suitable acquisitions. In addition,the success of any acquisition, including the ability to realize anticipated cost synergies, depends in part on our ability to integrate the acquiredcompany. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of ourmanagement's attention and our financial and other resources. If management is not able to effectively manage the integration process, or if anysignificant business activities are interrupted as a result of the integration process, we may not be able to realize anticipated cost synergiesresulting from acquisitions and our business could suffer. Although we conduct due diligence investigations prior to each acquisition, there can beno assurance that we will discover or adequately protect against all material liabilities of an acquired business for which we may be responsible asa successor owner or operator. The failure to identify suitable acquisitions and successfully integrate these acquired businesses, or to discoverliabilities associated with such businesses in the diligence process, could adversely affect our consolidated results of operations.Our indebtedness may limit cash flow available to invest in the ongoing needs of our business.Our outstanding indebtedness, including the indebtedness we incurred to consummate the G&K transaction, may have negative consequences onour business, such as requiring us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing theavailability of our cash flow to fund working capital, capital expenditures, acquisitions, dividend increases, stock buybacks and other generalcorporate purposes, as well as increase our vulnerability to adverse economic or industry conditions. In addition, it may limit our ability to obtainadditional financing in the future to enable us to react to changes in our business or industry or place us at a competitive disadvantage comparedto businesses in our industry that have less debt.Changes in the fuel and energy industry 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 fuel and other energy related products, actions by energy producers, war and unrest inoil producing countries, regional production patterns, limits on refining capacities, natural disasters and environmental concerns. Increases in fueland energy costs could adversely affect our consolidated financial condition and consolidated results of operations.Failure to preserve positive labor relationships with our employees could adversely affect our consolidated results of operations.Following the G&K transaction, more of our labor force is unionized. While we believe that our employee relations are good, we have been andcould continue to be the target of a unionization campaign by several unions. These unions have attempted to pressure Cintas into surrendering itsemployees' rights to a government-supervised election by unilaterally accepting union representation. We will continue to vigorously oppose anyunionization campaign and defend our employees' rights to a government-supervised election. Unionization campaigns could be materiallydisruptive 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 animportant 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, andto access products in a timely and efficient manner is a significant challenge, especially with respect to suppliers located and goods sourcedoutside 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,6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 foreigntrade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation ofcertain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond ourcontrol. 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 Canadiandollar, British pound, and the euro. In fiscal years 2018, 2017 and 2016, revenue denominated in currencies other than the U.S. dollar representedless than 10% of our consolidated revenue. Because our consolidated financial statements are presented in U.S. dollars, we must translaterevenue, 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 reportingperiod. Therefore, fluctuations in the value of the U.S. dollar against other major currencies, particularly in the event of significant increases inforeign 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 resultsof operations. Our business is subject to complex and stringent state and federal regulations, including employment laws and regulations, minimum wagerequirements, overtime requirements, working condition requirements, citizenship requirements, transportation and other laws and regulations. Inparticular, we are subject to the regulations promulgated by the U.S. Department of Transportation, or USDOT, and under the Occupational Safetyand Health Act of 1970, as amended, or OSHA. We have incurred, and will continue to incur, capital and operating expenditures and other costs inthe ordinary course of our business in complying with the USDOT, OSHA and other laws and regulations to which we are subject. Changes inlaws, regulations and the related interpretations, including any laws or regulations that may be enacted by the current U.S. presidentialadministration and Congress, may alter the landscape in which we do business and may affect our costs of doing business. The impact of newlaws and regulations cannot be predicted. Compliance with new laws and regulations may increase our operating costs or require significant capitalexpenditures. Any failure to comply with applicable laws or regulations could result in substantial fines by government authorities, payment ofdamages to private litigants, or possible revocation of our authority to conduct our operations, which could adversely affect our ability to servicecustomers 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 subject to various litigation claims and legal proceeding arising from the ordinary course of our business, including personal injury,customer contract, environmental and employment claims. Certain of these lawsuits or potential future lawsuits, if decided adversely to us orsettled by us, may result in liability and expense material to our consolidated financial condition and consolidated results of operations.Compliance with environmental laws and regulations could result in significant costs that adversely affect our results of operations.Our operating locations are subject to environmental laws and regulations relating to the protection of the environment and health and safetymatters, including those governing discharges of pollutants to the air and water, the management and disposal of hazardous substances andwastes and the clean-up of contaminated sites. The operation of our businesses entails risks under environmental laws and regulations. We couldincur significant costs, including clean-up costs, fines and sanctions and claims by third parties for property damage and personal injury, as aresult of violations of or liabilities under these laws and regulations. We are currently involved in a limited number of remedial investigations andactions at various locations, including those acquired in the G&K acquisition. While based on information currently known to us, we believe that wemaintain adequate reserves with respect to these matters, our liability could exceed forecasted amounts, and the imposition of additional clean-upobligations or the discovery of additional contamination at these or other sites could result in significant additional costs which could adverselyaffect our results of operations. In addition, potentially significant expenditures could be required to comply with environmental laws andregulations, 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 hazardousmaterials located on or emanating from property, whether or not the owner or operator knew of or was responsible for the presence of suchhazardous materials. While we regularly engage in environmental due diligence in connection with acquisitions, we can give no assurance thatlocations that have been acquired or leased7have been operated in compliance with environmental laws and regulations during prior periods or that future uses or conditions will not make usliable 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 availabilityof computer systems due to implementation of a new system or otherwise, or privacy breaches involving computer systems, could impact ourability 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 generalinformation 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, such as our current conversion to SAPenterprise system, power outages, computer or telecommunication failures, catastrophic events such as fires, tornadoes and hurricanes andusage errors by our employees. Although we believe that we have adopted appropriate measures to mitigate potential risks to our technology andour operations from these information technology-related and other potential disruptions, given the unpredictability of the timing, nature and scopeof such disruptions, we could potentially be subject to production downtimes, operational delays and interruptions in our ability to provide productsand services to our customers. Any disruption caused by the unavailability of our computer systems could adversely affect our sales, couldrequire us to make a significant investment to fix or replace them and, therefore, could adversely affect our consolidated results of operations. Inaddition, cyber-security attacks are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to dataand other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protectedinformation and corruption of data. If the network of security controls, policy enforcement mechanisms and monitoring systems to address thesethreats to our technology fails, the compromising of confidential or otherwise protected Company, customer, or employee information, destructionor corruption of data, security breaches, or other manipulation or improper use of our systems and networks could result in financial losses fromremedial actions, loss of business or potential liability and damage to our reputation.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, haveinherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to theconsolidated financial statement preparation and presentation. While we continue to evaluate our internal controls we cannot be certain that thesemeasures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. If we fail tomaintain the adequacy of our internal controls or if we or our independent registered public accounting firm were to discover material weaknessesin our internal controls, as such standards are modified, supplemented or amended, we may not be able to ensure that we can conclude on anongoing 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 orprevent fraud. This may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on ourstock 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 corporateorganization. This factor, along with our entire operation, depends on our ability to attract and retain key employees. Competitive pressures withinand outside our industry may make it more difficult and expensive for us to attract and retain key employees which could adversely affect ourbusinesses.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, couldadversely affect our consolidated results of operations. These events could result in customer disruption, physical damage to one or more keyoperating 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 AcceptedAccounting Principles (U.S. GAAP). These accounting principles require that we record an impairment charge if circumstances indicate that theasset carrying values exceed their estimated fair values. The8estimated fair value of these assets is impacted by general economic conditions in the locations in which we operate. Deterioration in thesegeneral economic conditions may result in: declining revenue, which can lead to excess capacity and declining operating cash flow; reductions inmanagement's estimates for future revenue and operating cash flow growth; increases in borrowing rates and other deterioration in factors thatimpact 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 ourconsolidated 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 increaseour 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 ourcredit ratings, which could increase our cost of borrowing. Increases in our cost of borrowing could adversely affect our consolidated results ofoperations.If we are unable to accurately predict our future tax liabilities or become subject to increased levels of taxation or our tax contingencies areunfavorably resolved, our results of operations and financial condition could be adversely affected.The United States recently adopted tax reform legislation commonly known as the Tax Cuts and Jobs Act, which will increase our effectiveincome tax rate by imposing a new tax regime impacting our non-U.S. operations. The U.S. tax changes also provide flexibility related torepatriating non-U.S. earnings to the United States without additional U.S. taxation, and as a result, we have changed classification of certainearnings that were previously deemed to be permanently reinvested offshore and recorded deferred tax liabilities for the associated withholdingtaxes. Other changes in tax laws or regulations in the jurisdictions in which we do business, including the United States, or changes in how theTax Cuts and Jobs Act or other tax laws are implemented or interpreted, could further increase our effective tax rate, further restrict our ability torepatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions on our current practices and reduce our net income andadversely affect our cash flows.We are also subject to tax audits, including with respect to transfer pricing, in the United States and other jurisdictions and our tax positions maybe challenged by tax authorities. Although we believe that our current tax provisions are reasonable and appropriate, there can be no assurancethat these items will be settled for the amounts accrued, that additional tax exposures will not be identified in the future or that additional taxreserves will not be necessary for any such exposures. Any increase in the amount of taxation incurred as a result of challenges to our tax filingpositions could result in a material adverse effect on our business, results of operations and financial condition.Item 1B. Unresolved Staff CommentsNone.9Item 2. PropertiesCintas occupies 485 facilities located in 330 cities. Cintas leases 251 of these facilities for various terms ranging from monthly to the year 2032.Cintas expects that it will be able to renew or replace its leases on satisfactory terms. Of the five manufacturing facilities noted below, Cintascontrols the operations of one manufacturing facility, but does not own or lease the real estate related to the operation. All remaining facilities areowned. 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 servicepersonnel and the necessary equipment involved in the cleaning of uniforms and bulk items, such as entrance mats and shop towels. Branchoperations provide administrative, sales and service functions. Cintas operates 11 distribution centers and five manufacturing facilities. Cintas alsooperates first aid and safety and fire protection facilities and direct sales offices. Cintas considers the facilities it operates to be adequate for theirintended use. Cintas owns or leases approximately 20,200 vehicles which are used for the route-based services and by the sales andmanagement employee-partners.The following chart provides additional information concerning Cintas' facilities:Type of Facility# of Facilities Rental Processing Plants210 Rental Branches151 First Aid and Safety Facilities55 All Other Facilities53 Distribution Centers11(1) Manufacturing Facilities5 Total485 (1) Includes the principal executive office, which is attached to the distribution center in Cincinnati, Ohio.Rental processing plants, rental branches, distribution centers and manufacturing facilities are used in Cintas' Uniform Rental and Facility Servicesreportable operating segment. First aid and safety facilities, rental processing plants and distribution centers are used in the First Aid and SafetyServices reportable operating segment. Rental processing plants, rental branches, first aid and safety facilities, fire protection facilities, directsales offices, distribution centers and manufacturing facilities are all utilized by the businesses included in All Other.Item 3. Legal ProceedingsCintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, includingpersonal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, withrespect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, consolidatedresults of operations or consolidated cash flows of Cintas.Item 4. Mine Safety DisclosuresNot applicable.10Part II Item 5. Market for Registrant's Common Equity,Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationCintas' common stock is traded on the NASDAQ Global Select Market under the symbol "CTAS." The following table provides the high and lowsales prices of shares of Cintas' common stock by quarter during the last two fiscal years:Fiscal 2018 Quarter EndedHigh Low May 2018$184.22 $162.11February 2018$172.91 $147.38November 2017$157.81 $131.75August 2017$139.74 $123.00 Fiscal 2017 Quarter EndedHigh Low May 2017$128.85 $117.21February 2017$122.21 $112.96November 2016$119.94 $102.07August 2016$117.69 $91.24HoldersAt May 31, 2018, there were approximately 2,000 shareholders of record of Cintas' common stock. Cintas believes that this representsapproximately 106,000 beneficial owners.DividendsDividends on Cintas' outstanding common stock have been paid annually and amounted to $1.62 per share, $1.33 per share and $1.05 per share infiscal 2018, 2017 and 2016, respectively.11Stock Performance GraphThe following graph summarizes the cumulative return on $100 invested in Cintas' common stock, the S&P 500 Stock Index and the commonstocks of a selected peer group of companies. Because our products and services are diverse, Cintas does not believe that any single publishedindustry index is appropriate for comparing shareholder return. Therefore, the peer group used in the performance graph combines publicly tradedcompanies in the business services industry that have similar characteristics as Cintas for each fiscal year, such as route based delivery ofproducts and services. The companies included in the Peer Group are UniFirst Corporation, ABM Industries, Inc. and Rollins, Inc.Total shareholder return was based on the increase in the price of the common stock and assumed reinvestment of all dividends. Further, totalreturn was weighted according to market capitalization of each company. The companies in the Peer Group are not the same as those consideredby the Compensation Committee of the Board of Directors.Total Shareholder ReturnsComparison of Five-Year Cumulative Total Return12Purchases of Equity Securities by the Issuer and Affiliated PurchasesPeriod(In millions, except share and per share data)Total numberof sharespurchased Averageprice paidper share Total number ofshares purchasedas part of thepublicly announcedplan (1) Maximumapproximate dollarvalue of shares thatmay yet bepurchased underthe plan (1) March 1 - 31, 2018 (2)548 $169.59 — $500.0April 1 - 30, 2018203,002 171.30 203,002 465.3May 1 - 31, 2018 (3)316,930 174.96 315,674 410.0Total520,480 $173.53 518,676 $410.0(1) On August 6, 2016, Cintas announced that the Board of Directors authorized a $500.0 million share buyback program, which does not have anexpiration date. From the inception of the August 6, 2016 share buyback program through May 31, 2018, Cintas has purchased a total of 0.5million shares of Cintas common stock at an average price of $173.51 per share for a total purchase price of $90.0 million.(2) During March 2018, Cintas acquired 548 shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stockawards that vested during the fiscal year. These shares were purchased at an average price of $169.59 per share for a total purchase price ofless than $0.1 million.(3) During May 2018, Cintas acquired 1,256 shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stockawards that vested during the fiscal year. These shares were purchased at an average price of $180.62 per share for a total purchase price of$0.2 million.13Item 6. Selected Financial DataFive-Year Financial Summary(In thousands except per share andpercentage data)Fiscal Years Ended May 31,2014(1) 2015(1) 2016(1) 2017(1)(2) 2018(1) CompoundAnnualGrowth(2014-2018) Revenue$4,091,204 $4,369,677 $4,795,772 $5,323,381 $6,476,632 12.2%Net Income, Continuing Operations330,541 402,553 448,605 457,286 783,932 24.1%Net Income, Discontinued Operations43,901 28,065 244,915 23,422 58,654 7.5%Net Income$374,442$430,618$693,520 $480,708 $842,586 22.5% Basic Earnings Per Share: Continuing Operations$2.72 $3.44 $4.08 $4.27 $7.24 27.7%Discontinued Operations0.36 0.24 2.22 0.22 0.54 10.7%Basic Earnings Per Share$3.08 $3.68 $6.30 $4.49 $7.78 26.1%Diluted Earnings Per Share: Continuing Operations$2.69 $3.39 $4.02 $4.17 $7.03 27.1%Discontinued Operations0.36 0.24 2.19 0.21 0.53 10.2%Diluted Earnings Per Share$3.05 $3.63 $6.21 $4.38 $7.56 25.5% Dividends Per Share$0.77 $1.70 $1.05 $1.33 $1.62 20.4%Total Assets (3)$4,454,457 $4,185,675 $4,098,815 $6,844,057 $6,958,214 11.8%Shareholders' Equity$2,192,858 $1,932,455 $1,842,659 $2,302,793 $3,016,526 8.3%Return on Average Equity (4)15.0% 19.5% 23.8% 22.1% 29.5% Long-Term Debt (3)$1,292,482 $1,293,215 $1,294,422 $ 3,133,524(5) $2,535,309 (1) In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results of Discontinued Services, Shreddingand Storage have been excluded from continuing operations for all periods presented. Please see Note 16 entitled Discontinued Operations of "Notes to ConsolidatedFinancial Statements" for additional information.(2) Includes G&K results of operations from March 21, 2017 through May 31, 2017. Historical periods presented prior to fiscal 2017 do not include G&K, and as a result, theinformation may not be comparable. Please see Note 9 entitled Acquisitions and Divestitures of "Notes to Consolidated Financial Statements" for additional informationregarding the G&K acquisition.(3) In accordance with the applicable accounting guidance for simplifying the presentation of debt issuance costs, the debt costs related to recognized debt liabilities havebeen excluded from Total Assets and reclassified to Long-Term Debt as a direct deduction from the carrying amount of the debt liabilities. The impact of this change inaccounting principle on balances previously reported for fiscal 2016, 2015 and 2014 were reclassifications of $5.6 million, $6.8 million and $8.0 million, respectively,from other assets to long-term liabilities.(4) Return on average equity is computed as net income from continuing operations divided by the average of shareholders' equity. We believe that disclosure of this non-GAAP financial measure gives management and shareholders a good indication of Cintas' historical performance.(5) Includes issuance of approximately $2.1 billion in debt to fund the G&K acquisition. Please see Note 6 entitled Debt and Derivatives of "Notes to Consolidated FinancialStatements" for additional information.14Item 7. Management's Discussion and Analysisof Financial Condition and Results of OperationsBusiness StrategyCintas helps more than one million businesses of all types and sizes, primarily in North America, as well as Latin America, Europe and Asia, getReady™ to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image andhelp keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care, restroomsupplies, first aid and safety products, fire extinguishers and testing, and safety and compliance training, Cintas helps customers get Ready forthe Workday™.We are North America's leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider ofrelated business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, first aid and safetyservices 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 workingpartners," and it provides the framework and focus for Cintas' business strategy. This strategy is to achieve revenue growth for all of our productsand services by increasing our penetration at existing customers and by broadening our customer base to include business segments to which wehave 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 aregular basis. This frequent contact with our customers enables us to develop close personal relationships. The combination of our distributionsystem 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 productsand services to prospects in all business segments. Our broad range of products and services allows our sales organization to consider any typeof business a prospect. We also broaden our customer base through geographic expansion, especially in our first aid and safety and fire protectionbusinesses. Finally, we evaluate strategic acquisitions as opportunities arise.Results of OperationsOn March 21, 2017, Cintas completed the acquisition of G&K for consideration of approximately $2.1 billion. G&K is a wholly-owned subsidiary ofCintas that operates within the Uniform Rental and Facility Services operating segment. To finance the G&K acquisition, Cintas used acombination of new senior notes, a term loan, other borrowings under its existing credit facility and cash on hand. G&K's results of operations areincluded in Cintas' consolidated financial statements as of and from the date of acquisition.Cintas’ reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and FacilityServices reportable 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, carpet and tilecleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. TheFirst Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’business, which consists of Fire Protection Services and its Uniform Direct Sale business, is included in All Other. Cintas evaluates operatingsegment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these reportableoperating segments for the years ended May 31, 2018, 2017 and 2016 are presented in Note 14 entitled Operating Segment Information of "Notesto Consolidated Financial Statements." The Company regularly reviews its operating segments for reporting purposes based on the information itschief operating decision maker regularly reviews for purposes of allocating resources and assessing performance and makes changes whenappropriate.15In fiscal 2018, Cintas sold a significant business referred to as Discontinued Services. Prior to the sale, Discontinued Services was primarilyincluded in All Other and classified as held for sale. In fiscal 2014, Cintas completed its partnership transaction with the shareholders of Shred-itInternational Inc. to combine Shredding with the shredding business of Shred-it International Inc. Pursuant to the Shredding Transaction, theShred-it Partnership was owned 42% by Cintas and 58% by the shareholders of Shred-it International Inc. Cintas' investment in Shred-it and theresults of Shredding are classified as discontinued operations for all periods presented as a result of selling the investment during fiscal 2016.During fiscal 2015, Cintas sold Storage and, as a result, its operations are also classified as discontinued operations for all periods presented. Inaccordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results of DiscontinuedServices, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented.Please see Note 16 entitled Discontinued Operations of "Notes to Consolidated Financial Statements" for additional information.The following table sets forth certain consolidated statements of income data as a percent of revenue by reportable operating segment, All Otherand in total for the fiscal years ended May 31: 2018 2017 2016 Revenue: Uniform Rental and Facility Services81.0% 79.0% 78.4%First Aid and Safety Services8.7% 9.5% 9.6%All Other10.3% 11.5% 12.0%Total revenue100.0% 100.0% 100.0% Cost of sales: Uniform Rental and Facility Services55.0% 54.9% 55.7%First Aid and Safety Services52.9% 54.7% 57.3%All Other57.5% 58.3% 58.6%Total cost of sales55.1% 55.3% 56.2% Gross margin: Uniform Rental and Facility Services45.0% 45.1% 44.3%First Aid and Safety Services47.1% 45.3% 42.7%All Other42.5% 41.7% 41.4%Total gross margin44.9% 44.7% 43.8% Selling and administrative expenses: Uniform Rental and Facility Services28.6% 27.1% 26.5%First Aid and Safety Services33.7% 34.9% 31.9%All Other33.9% 34.5% 33.1%Total selling and administrative expenses29.6% 28.7% 27.8% G&K Services, Inc. transaction and integration expenses0.6% 1.5% —% Interest expense, net1.7% 1.6% 1.3% Income from continuing operations before income taxes13.0%12.9%14.7%16Fiscal 2018 Compared to Fiscal 2017Fiscal 2018 total revenue was $6.5 billion, an increase of 21.7% over the prior fiscal year. Revenue increased organically by 7.1% as a result ofincreased sales volume. Organic growth adjusts for the impact of acquisitions, divestitures, workday differences and foreign currency exchangerate fluctuations. Total revenue was positively impacted by 14.3% due to acquisitions, primarily G&K. Revenue growth was positively impacted by0.3% due to foreign currency exchange rate fluctuations.Organic growth by quarter is shown in the table below. Organic Growth First Quarter Ended August 31, 20178.3%Second Quarter Ended November 30, 20177.7%Third Quarter Ended February 28, 20187.8%Fourth Quarter Ended May 31, 20185.1% For the Fiscal Year Ended May 31, 20187.1%Uniform Rental and Facility Services reportable operating segment revenue consists predominantly of revenue derived from the rental of corporateidentity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom suppliesand other rental services. Revenue from the Uniform Rental and Facility Services reportable operating segment increased 24.9% compared tofiscal 2017. Revenue was positively impacted by 17.9% due to acquisitions, primarily G&K. The remaining increase primarily resulted from anorganic growth increase in revenue of 6.7%. The amount of new business grew, resulting from an increase in the number and productivity of salesrepresentatives. Generally, sales productivity improvements are the result of increased tenure and improved training, which result in a highernumber of products and services sold. Revenue growth was positively impacted by 0.3% due to foreign currency exchange rate fluctuations.Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 9.7%compared to fiscal 2017. Revenue increased organically by 8.6% due primarily to improved sales representative productivity. Revenue growth waspositively impacted by 0.1% due to foreign currency exchange rate fluctuations. Acquisitions positively impacted revenue by 1.0%.Cost of uniform rental and facility services increased 25.1% compared to fiscal 2017. Cost of uniform rental and facility services consists primarilyof production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillaryitems. The cost of uniform rental and facility services increase compared to fiscal 2017 was due to increased Uniform Rental and Facility Servicesreportable operating segment sales volume from organic growth and the acquired G&K sales volume.Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms and fire protection products), deliveryexpenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other increased 7.2%in fiscal 2018 compared to fiscal 2017. The increase was primarily related to the increased sales volumes in the First Aid and Safety Servicesreportable operating segment and All Other.Selling and administrative expenses increased $389.4 million, or 25.5%, compared to fiscal 2017 due primarily to a one-time cash payment toemployee-partners, increased labor and other employee-partner related expenses as a result of the acquisition of G&K, increased amortizationexpense related to intangible assets acquired as a result of the G&K acquisition and increased costs related to investments in a new enterpriseresource planning system. The one-time cash payment to employee-partners was made following the enactment of The Tax Cuts and Jobs Act(the Tax Act) which was signed into legislation by the President on December 22, 2017. The one-time cash payment to employee-partnersamounted to an expense of approximately $40 million, or 0.6% of total revenue. Operating income for fiscal 2018 was negatively impacted by$41.9 million, or 0.6% of total revenue, from transaction and integration expenses incurred in connection with the G&K acquisition and $79.2million, or 1.5% of total revenue, in fiscal 2017.Net interest expense (interest expense less interest income) was $108.8 million in fiscal 2018 compared to $86.3 million in fiscal 2017. Theincrease in net interest expense is primarily due to the additional debt issued to finance the G&K acquisition.17Income before income taxes was $841.0 million, an increase of $153.6 million, or 22.3%, compared to fiscal 2017. The increase in income beforeincome taxes was primarily due to revenue growing at a faster pace than expenses.Cintas' effective tax rate on continuing operations was 6.8% for fiscal 2018 compared to 33.5% in fiscal 2017. The decrease was due to the impactof the Tax Act. The effective tax rate in fiscal 2017 was impacted by certain discrete items (primarily the tax accounting for stock-basedcompensation).Net income from continuing operations for fiscal 2018 of $783.9 million was a 71.4% increase compared to fiscal 2017.Diluted earnings per share from continuing operations of $7.03 was a 68.6% increase compared to fiscal 2017. Diluted earnings per share fromcontinuing operations increased primarily due to the lower effective tax rate as a result of the Tax Act, the gain on the sale of DiscontinuedServices and higher gross margin.Uniform Rental and Facility Services Reportable Operating SegmentUniform Rental and Facility Services reportable operating segment revenue increased $1,044.6 million, or 24.9%, and the cost of uniform rentaland facility services increased $579.2 million, or 25.1%, as previously discussed. The reportable operating segment's fiscal 2018 gross marginwas 45.0% of revenue compared to 45.1% in fiscal 2017. The slight decrease in gross margin was driven by the G&K acquisition, which had lowermargins than the legacy Cintas margins. In addition, we incurred expected integration inefficiencies which impacted margins in the short-term.Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $362.3 million in fiscal2018 compared to fiscal 2017. Selling and administrative expense as a percent of revenue for fiscal 2018 was 28.6% compared to 27.1% in fiscal2017. The increase in selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment was primarilyrelated to a one-time cash payment to employee-partners, increased labor and employee-partner related expenses as a result of the G&Kacquisition, increased amortization expense related to intangibles acquired as a result of the G&K acquisition and an investment in an enterpriseresource planning system.As a result of the G&K acquisition, the Uniform Rental and Facility Services reportable operating segment incurred $41.9 million of transaction andintegration expenses directly related to the acquisition. The expenses incurred in fiscal 2018 consisted of lease cancellation costs, facility closureexpenses and other integration related expenses.Income before income taxes increased $140.5 million to $817.6 million for fiscal 2018 compared to fiscal 2017. Income before income taxes as apercent of revenue at 15.6% decreased 50 basis points from 16.1% in fiscal 2017. The decrease is primarily due to the increase in selling andadministrative expenses as previously discussed.First Aid and Safety Services Reportable Operating SegmentFirst Aid and Safety Services reportable operating segment revenue increased $56.5 million in fiscal 2018, an 11.1% increase compared to fiscal2017. Revenue increased organically by 10.5% as a result of increased sales volume. Revenue growth was positively impacted by 0.5% due toacquisitions.Cost of first aid and safety services increased $20.9 million, or 7.5%, in fiscal 2018, due primarily to higher sales volume. Gross margin for theFirst Aid and Safety Services reportable operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses andtraining expenses. The gross margin as a percent of revenue was 47.1% for fiscal 2018 compared to 45.3% in fiscal 2017. The increase wasdriven primarily by improved sourcing, leveraging of existing warehouses and optimization of delivery routes.Selling and administrative expenses for the First Aid and Safety Services reportable operating segment increased by $13.2 million, or 7.4%, infiscal 2018 compared to fiscal 2017. The increase was due primarily to increased labor, including a one-time cash payment to employee-partners.Selling and administrative expenses as a percent of revenue were 33.7% in fiscal 2018 compared to 34.9% in fiscal 2017. The decrease in sellingand administrative expenses as a percent of revenue was due to revenue growing at a faster pace than labor and employee-partner relatedexpenses.Income before income taxes was $75.2 million in fiscal 2018, an increase of $22.4 million, or 42.5%, compared to fiscal 2017. Income beforeincome taxes as a percent of revenue at 13.3%, increased from 10.4% in fiscal 2017 due to the previously discussed growth in revenue,improvement in the gross margin percentage and improvement in selling and administrative expenses as a percent of revenue.18Fiscal 2017 Compared to Fiscal 2016Fiscal 2017 total revenue was $5.3 billion, an increase of 11.0% over the prior fiscal year. Revenue increased organically by 6.7% as a result ofincreased sales volume. Organic growth adjusts for the impact of acquisitions, divestitures, workday differences and foreign currency exchangerate fluctuations. Total revenue was positively impacted by 4.8% due to acquisitions, primarily through the acquisition of G&K. Revenue growthwas negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and 0.4% due to one less workday in fiscal 2017 compared tofiscal 2016.Organic growth by quarter is shown in the table below. Organic Growth First Quarter Ended August 31, 20166.0%Second Quarter Ended November 30, 20166.0%Third Quarter Ended February 28, 20176.6%Fourth Quarter Ended May 31, 20178.1% For the Fiscal Year Ended May 31, 20176.7%Uniform Rental and Facility Services reportable operating segment revenue consists predominantly of revenue derived from the rental of corporateidentity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom suppliesand other rental services. Revenue from the Uniform Rental and Facility Services reportable operating segment increased 11.8% compared tofiscal 2016. The increase resulted from an organic growth increase in revenue of 6.9%. The amount of new business grew, resulting from anincrease in the number and productivity of sales representatives. Generally, sales productivity improvements are the result of increased tenure andimproved training, which result in a higher number of products and services sold. Revenue growth was negatively impacted by 0.1% due to foreigncurrency exchange rate fluctuations and 0.4% due to one less workday in fiscal 2017 compared to the same period in the prior fiscal year.Revenue was positively impacted by 5.4% due to acquisitions, primarily G&K.Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 8.2%compared to fiscal 2016. Revenue increased organically by 6.1% due primarily to improved sales representative productivity. Revenue growth wasnegatively impacted by 0.1% due to foreign currency exchange rate fluctuations and 0.4% due to one less workday in fiscal 2017 compared tofiscal 2016. Acquisitions positively impacted revenue by 2.6%.Cost of uniform rental and facility services increased 10.3% compared to fiscal 2016. Cost of uniform rental and facility services consists primarilyof production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillaryitems. The cost of uniform rental and facility services increase compared to fiscal 2016 was due to increased Uniform Rental and Facility Servicesreportable operating segment sales volume from internal growth and the acquired G&K sales volume.Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms and fire protection products), deliveryexpenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other increased 5.6%in fiscal 2017 compared to fiscal 2016. The increase was primarily related to the increased sales volumes in the First Aid and Safety Servicesreportable operating segment and All Other.Selling and administrative expenses increased $195.0 million, or 14.6%, compared to fiscal 2016 due primarily to increases in labor and otheremployee-partner related expenses. As a result of the acquisition of G&K in fiscal 2017, the Company incurred various transaction and integrationexpenses, which related primarily to asset impairment charges, legal and professional fees, employee termination expenses, the write-off ofexcess inventory and other miscellaneous expenses. In fiscal 2017, G&K transaction and integration expenses were $79.2 million or 1.5% of totalrevenue.Net interest expense (interest expense less interest income) was $86.3 million in fiscal 2017 compared to $63.6 million in fiscal 2016. Theincrease in net interest expense was primarily due to the additional debt issued to finance the G&K acquisition and $17.1 million of short-term debtfinancing fees incurred in connection with the acquisition.19Income before income taxes was $687.4 million, a decrease of $17.9 million, or 2.5%, compared to fiscal 2016. The decrease in income beforeincome taxes was due to the G&K transaction and integration expenses and the increase in interest expense previously mentioned. Theseimpacts were partially offset by the increase in gross margin.Cintas' effective tax rate on continuing operations was 33.5% for fiscal 2017 compared to 36.4% in fiscal 2016. The decrease was primarily due tothe adoption of Accounting Standard Update (ASU) 2016-09, "Improvements to Employee Share-Based Payment Accounting." The effective taxrate in fiscal 2017 included a benefit of $29.4 million as a result of the adoption of ASU 2016-09. This benefit was partially offset by the election torecognize forfeitures as they occur, which resulted in additional stock compensation expense of $8.3 million when compared to our historicalpractice of estimating forfeiture for expense purposes. The adoption of ASU 2016-09 also resulted in an increase in the effect of dilutive securitiesin fiscal 2017 of 0.8 million shares. For fiscal 2017, the net impact on diluted earnings per share from the adoption of ASU 2016-09 was anincrease of $0.19 per share over what diluted earnings per share would have been if ASU 2016-09 was not adopted in fiscal 2017.Net income from continuing operations for fiscal 2017 of $457.3 million was a 1.9% increase compared to fiscal 2016. Diluted earnings per sharefrom continuing operations of $4.17 was a 3.7% increase compared to fiscal 2016. Diluted earnings per share from continuing operations increaseddue to the lower effective tax rate combined with the decrease in weighted average common shares outstanding. The decrease in weightedaverage common shares outstanding resulted from purchasing 8.8 million shares of common stock under the January 13, 2015 and August 4,2015 share buyback programs since the beginning of fiscal 2016.Uniform Rental and Facility Services Reportable Operating SegmentUniform Rental and Facility Services reportable operating segment revenue increased $443.0 million, or 11.8%, and the cost of uniform rental andfacility services increased $214.9 million, or 10.3%, as previously discussed. The reportable operating segment's fiscal 2017 gross margin was45.1% of revenue compared to 44.3% in fiscal 2016. The 80 basis point improvement was driven by many factors, including new business sold bysales representatives, penetration of additional products and services into existing customers and continuously improving the efficiency of internalprocesses.Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $143.8 million in fiscal2017 compared to fiscal 2016. Selling and administrative expense as a percent of revenue for fiscal 2017 was 27.1% compared to 26.5% in fiscal2016. The increase in selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment was primarilyrelated to the G&K acquisition.As a result of the G&K acquisition, the Uniform Rental and Facility Services reportable operating segment incurred $79.2 million of transaction andintegration expenses. These expenses consisted of the following: asset impairment charges of $23.3 million, legal and professional fees directlyrelated to the acquisition of $17.4 million, employee termination expenses recognized under Accounting Standard Codification (ASC) Topic 712,"Compensation - Nonretirement Postemployment Benefits" of $31.0 million, write-off of excess inventory of $5.5 million and $2.0 million of othermiscellaneous integration expenses.Income before income taxes increased $5.0 million to $677.1 million for fiscal 2017 compared to fiscal 2016. Income before income taxes as apercent of revenue at 16.1%, decreased 180 basis points from 17.9% in fiscal 2016. The decrease is primarily due to the G&K transaction andintegration expenses mentioned above.First Aid and Safety Services Reportable Operating SegmentFirst Aid and Safety Services reportable operating segment revenue increased $46.5 million in fiscal 2017, a 10.1% increase compared to fiscal2016. Revenue increased organically by 5.9% as a result of increased sales volume. Revenue growth was positively impacted by 4.6% due toacquisitions. One less workday in fiscal 2017 compared to the prior year negatively impacted growth by 0.4%.Cost of first aid and safety services increased $13.3 million, or 5.0%, in fiscal 2017, due primarily to increased First Aid and Safety Servicesreportable operating segment volume. Gross margin for the First Aid and Safety Services reportable operating segment is defined as revenue lesscost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 45.3% for fiscal2017 compared to 42.7% in fiscal 2016. The increase in gross margin was due to the benefits realized as a result of the integration of ZEE MedicalInc. (ZEE). These benefits included improved delivery efficiencies and improved sourcing of goods.20Selling and administrative expenses for the First Aid and Safety Services reportable operating segment increased by $29.9 million, or 20.3%, infiscal 2017 compared to fiscal 2016. Selling and administrative expenses as a percent of revenue were 34.9% in fiscal 2017 compared to 31.9% infiscal 2016. The increase in selling and administrative expenses was primarily the result of the investment in selling resources to grow theacquired ZEE customer base and increases in various employee-partner related expenses.Income before income taxes was $52.8 million in fiscal 2017, an increase of $3.3 million, or 6.6%, compared to fiscal 2016. Income before incometaxes as a percent of revenue at 10.4%, decreased from 10.7% in fiscal 2016, due primarily to the investment in selling resources mentionedabove.Liquidity and Capital ResourcesThe 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)2018 2017 Net cash provided by operating activities$964,160 $763,887Net cash used in investing activities$(135,698) $(2,310,349)Net cash (used in) provided by financing activities$(864,140) $1,578,502 Cash and cash equivalents at the end of the period$138,724 $169,266Marketable securities at the end of the period$— $22,219Cash, cash equivalents and marketable securities as of May 31, 2018 and 2017 include $33.9 million and $125.5 million, respectively, that islocated outside of the United States.Cash flows provided by operating activities have historically supplied us with a significant source of liquidity. We generally use these cash flows tofund most, if not all, of our operations and dividends on our common stock. We may also use cash flows provided by operating activities, as wellas proceeds from long-term debt and short-term borrowings, to fund growth and expansion opportunities, as well as other cash requirements suchas the repurchase of our common stock.Net cash provided by operating activities was $964.2 million for fiscal 2018, which was an increase of $200.3 million compared to fiscal 2017. Theincrease was the result of higher net income offset by the $96.4 million gain on the sale of Discontinued Services, changes in deferred taxes as aresult of the Tax Act and changes in working capital.Net cash used in investing activities was $135.7 million in fiscal 2018 compared to $2,310.3 million in fiscal 2017. Capital expenditures were$271.7 million and $273.3 million for fiscal 2018 and fiscal 2017, respectively. Capital expenditures for fiscal 2018 included $225.7 million for theUniform Rental and Facility Services reportable operating segment and $27.9 million for the First Aid and Safety Services reportable operatingsegment. Cash paid for acquisitions of businesses, net of cash acquired, was $19.3 million and $2,102.4 million for fiscal 2018 and fiscal 2017,respectively. The acquisitions in both fiscal 2018 and 2017 occurred in our Uniform Rental and Facility Services reportable operating segment,which included G&K in fiscal 2017, our First Aid and Safety Services reportable operating segment and our Fire Protection business, which isincluded in All Other. Net cash used in investing activities in fiscal 2018 and fiscal 2017 included proceeds of $127.8 million related to the sale ofDiscontinued Services and $28.3 million related to the Storage and Shredding transactions. Net cash used in investing activities for fiscal 2018and 2017 also included net proceeds of $26.1 million and $37.3 million, respectively, from purchases and redemptions of marketable securities andinvestments.Net cash used in financing activities was $864.1 million for fiscal 2018, compared to $1,578.5 million of net cash provided by financing activities infiscal 2017. The decrease in fiscal 2018 from fiscal 2017 is primarily due to the net payment of $600.5 million of debt compared to a net issuanceof $1,732.7 million of debt in fiscal 2017. To finance the G&K acquisition in fiscal 2017, Cintas issued various forms of debt, totaling $2,091.2million, net.21On August 2, 2016, we announced that the Board of Directors authorized a $500.0 million share buyback program, which does not have anexpiration date. During fiscal 2018, under the August 2, 2016 share buyback program, we purchased 0.5 million shares at an average price of$173.51 per share for a total purchase price of $90.0 million. During fiscal 2017, we purchased 0.1 million shares at an average price of $94.09 pershare for a total purchase price of $3.7 million under a previously authorized share buyback program. Subsequent to May 31, 2018 through July27, 2018, Cintas purchased 0.3 million shares at an average price of $199.15 per share for a total purchase price of $60.0 million. Under theAugust 2, 2016 program through July 27, 2018, Cintas has purchased a total of 0.8 million shares of Cintas common stock at an average price of$182.93 per share for a total purchase price of $150.0 million. For the fiscal year ended May 31, 2018, Cintas acquired 0.3 million shares of Cintascommon stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares wereacquired at an average price of $130.30 per share for a total purchase price of $37.3 million.On October 17, 2017, Cintas declared an annual cash dividend of $1.62 per share on outstanding common stock, a21.8% increase over the annual dividend paid in the prior year. The dividend was paid on December 8, 2017 to shareholders of record as ofNovember 10, 2017. This marked the 35th consecutive year that Cintas has increased its annual dividend, every year since going public in 1983.On March 21, 2017, the Company completed the acquisition of G&K. To finance the G&K acquisition, Cintas used a combination of new seniornotes, a term loan, other borrowings under its existing credit facility and cash on hand.During the fiscal year ended May 31, 2018, Cintas paid a net total of $50.5 million of commercial paper and paid off the term loan balance of$250.0 million with cash on hand. On December 1, 2017, Cintas paid the $300.0 million aggregate principal amount of its 6.13% 10-year seniornotes that matured on that date with cash on hand and $265.0 million in proceeds from the issuance of commercial paper. On June 1, 2016, Cintaspaid the $250.0 million aggregate principal amount of five-year senior notes that matured on that date with cash on hand and proceeds from theissuance of commercial paper.The following table summarizes Cintas' outstanding debt at May 31:(In thousands)Interest Rate Fiscal YearIssued Fiscal YearMaturity 2018 2017 Debt due within one year Senior notes6.13% 2008 2018 $— $300,000Commercial paper1.24%(1) Various Various — 50,500Current portion of term loan2.00%(1) 2017 2018 — 12,500Debt issuance costs — (100)Total debt due within one year $— $362,900 Debt due after one year Senior notes4.30% 2012 2022 $250,000 $250,000Senior notes2.90% 2017 2022 650,000 650,000Senior notes3.25% 2013 2023 300,000 300,000Senior notes (2)2.78% 2013 2023 52,119 52,554Senior notes (3)3.11% 2015 2025 52,309 52,645Senior notes3.70% 2017 2027 1,000,000 1,000,000Senior notes6.15% 2007 2037 250,000 250,000Long-term portion of term loan2.00%(1) 2017 2022 — 237,500Debt issuance costs (19,119) (22,075) Total debt due after one year $2,535,309 $2,770,624(1) Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2017.(2) Cintas assumed these senior notes with the acquisition of G&K, and they were recorded at fair value. The interest rate shown above is the effective interest rate. Theprincipal amount of these notes is $50.0 million with a stated interest rate of 3.73%.(3) Cintas assumed these senior notes with the acquisition of G&K, and they were recorded at fair value. The interest rate shown above is the effective interest rate. Theprincipal amount of these notes is $50.0 million with a stated interest rate of 3.88%.22The credit agreement that supports our commercial paper program was amended on September 16, 2016. The amendment increased the capacityof the revolving credit facility from $450.0 million to $600.0 million and added a $250.0 million term loan facility. The existing term loan facility waspaid in full during the first quarter of fiscal 2018. The credit agreement has an accordion feature that provides Cintas the ability to requestincreases to the borrowing commitments under either the revolving credit facility or the term loan of up to $250.0 million in the aggregate, subjectto customary conditions. The maturity date of the agreement is September 15, 2021. No commercial paper or borrowings on our revolving creditfacility were outstanding at May 31, 2018. As of May 31, 2017, there was $50.5 million of commercial paper outstanding with a weighted averageinterest rate of 1.24% and maturity dates less than 30 days and no borrowings on our revolving credit facility.Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leasebacktransactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certaindebt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisionsexist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of thematurity of the indebtedness, impair liquidity and limit the ability to raise future capital. Cintas was in compliance with all of the debt covenants forall periods presented.Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity. We do not anticipate havingdifficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. Ourability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to asignificant degree, on the ratings assigned by the credit rating agencies to our indebtedness. As of May 31, 2018, our ratings were as follows:Rating Agency Outlook Commercial Paper Long-term Debt Standard & Poor’s Stable A-2 BBB+Moody’s Investors Service Stable P-2 A3 On June 11, 2018, Standard & Poor's rating agency updated their ratings as follows:Rating Agency Outlook Commercial Paper Long-term Debt Standard & Poor’s Positive A-2 BBB+In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for anyreason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if weno longer had investment grade ratings, our ability to access the debt markets may be adversely affected. In addition, in such a case, our cost offunds 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 newissues been at or above the level of the ratings noted above. The rating agency ratings are not recommendations to buy, sell or hold ourcommercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization andshould 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 isthe 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 duewithin one year, obligations under capital leases due in one year, long-term debt and long-term obligations under capital leases. On December 22, 2017, the United States adopted tax reform legislation commonly known as the Tax Act, which is generally effective January 1,2018. The Tax Act includes a number of changes to U.S. tax law, including lowering the U.S. corporate income tax rate from a maximum of 35%to 21% and changing or limiting certain tax deductions. In addition, the Tax Act alters the landscape of taxation of non-U.S. operations andprovides immediate deductions for certain new investments, among other provisions.23Cintas has reasonably estimated the effects of the Tax Act to be a net income tax benefit of $161.4 million for fiscal 2018. The significantcomponents of this income tax benefit include (i) the remeasurement of net deferred tax liabilities at the lower enacted U.S. corporate tax rate,which resulted in a net $175.6 million decrease in income tax expense; (ii) a $4.4 million net tax expense comprised of foreign withholding taxesrelated to certain non-U.S. earnings subject to repatriation; and (iii) $9.8 million in transition tax related to certain non-U.S. earnings subject torepatriation that were previously tax deferred.The overall net impact of the Tax Act resulted in a net decrease in Cintas’ effective tax rates in fiscal 2018, and we anticipate the net impact ofthe Tax Act on future periods to also be a net decrease in our effective tax rates. While the reduction in the U.S. federal tax rate from 35% to 21%in fiscal 2018 and beyond will result in lower income tax expense, other elements of the Tax Act will partially offset this reduction. Elements of theTax Act that will cause an increase in future income tax expense include:• The Tax Act expands the limitation on the deduction of certain executive compensation. This expansion is subject to transition rules thatprovide relief for previously awarded compensation. We estimate that this deduction limitation will adversely impact our effective rate infuture periods.• The Tax Act limits certain entertainment deductions.• The Tax Act eliminates the Section 199 deduction.The estimated impacts of the Tax Act recorded during fiscal 2018 as well as the forward-looking estimates are provisional in nature, and Cintas willcontinue to assess the impact of the Tax Act and provide additional information and record adjustments through the income tax provision in therelevant period as amounts are known and reasonably estimable during the measurement period. Accordingly, the impact of the Tax Act may differfrom our provisional estimates due to, among other factors, information currently not available, changes in interpretations and the issuance ofadditional guidance, as well as changes in assumptions Cintas has made, including actions Cintas may take in fiscal 2019 as a result of the TaxAct.Contractual Obligations Payments Due by Period(In thousands)Total One yearor less Two tothree years Four tofive years After fiveyears Debt (1)$2,550,000 $— $— $1,250,000 $1,300,000Operating leases (2)196,774 49,313 75,336 44,409 27,716Interest payments (3)797,243 95,530 191,060 151,210 359,443Unconditional purchase obligations— — — — —Total contractual cash obligations$3,544,017 $144,843 $266,396 $1,445,619 $1,687,159(1) See Note 6 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for a detailed presentation of Cintas' debt.(2) Operating leases consist primarily of operational facility leases.(3) Interest payments could include interest on both fixed and variable rate debt. As of May 31, 2018, Cintas did not have commercial paper outstanding, and therefore did nothave any variable rate debt.Cintas also makes payments to defined contribution plans and may make payments to defined benefit plans to satisfy minimum fundingrequirements. The amount of contributions made to the defined contribution plans are at the discretion of the Board of Directors of Cintas. Futurecontributions to the defined contribution plans are expected to be $62.5 million in the next year, $134.5 million in the next two to three years and$148.3 million in the next four to five years. Future contributions to the defined benefit plans are expected to be $4.3 million in the next year, $5.6million in the next two to three years and $5.6 million in the next four to five years.24Other Commitments Amount of Commitment Expiration per Period(In thousands)Total One yearor less Two tothree years Four tofive years After fiveyears Lines of credit (1)$599,876 $— $— $599,876 $—Standby letters of credit and surety bonds (2)143,035 143,035 — — —Total other commitments$742,911 $143,035 $— $599,876 $—(1) Back-up facility for the commercial paper program (reference Note 6 entitled Debt and Derivatives of "Notes to Consolidated Financial Statements" for further discussion).(2) These standby letters of credit and surety bonds support certain outstanding debt (reference Note 6 entitled Debt and Derivatives of "Notes to Consolidated FinancialStatements"), self-insured workers' compensation and general liability insurance programs.Inflation and Changing PricesChanges in wages, benefits and energy costs have the potential to materially impact Cintas' consolidated financial results. Management believesinflation has not had a material impact on Cintas' consolidated financial condition or a negative impact on consolidated results of operations.Litigation and Other ContingenciesCintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, includingpersonal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, withrespect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, consolidatedresults of operations or consolidated cash flows of Cintas.New Accounting StandardsIn April 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures ofDisposals of Components of an Entity,” which amended accounting guidance related to the reporting of discontinued operations and disclosures ofdisposals of components of an entity. The amended guidance changes the thresholds for disposals to qualify as discontinued operations andrequires additional disclosures. Cintas adopted ASU 2014-08 during the quarter ended August 31, 2015 and applied the amended accountingguidance to Shred-it and all subsequent transactions, as appropriate.In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," to clarify revenue recognition principles. Thestandard applies one comprehensive revenue recognition model across all contracts, entities and sectors. The core principal of the new standardis that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. The standard includes cost guidance, whereby alldirect and incremental costs to obtain or fulfill a contract will be capitalized and amortized over the corresponding period of benefit, determined ona contract by contract basis. This guidance is also intended to improve disclosure requirements and enhance the comparability of revenuerecognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that isrecognized from contracts with customers. Cintas adopted this standard on June 1, 2018. The largest impacts to the Company’s financialstatements will result from the new qualitative and quantitative disclosures that will be required upon adoption of the new standard. There will betwo implementation adjustments upon adoption of the new standard related to the capitalization of certain direct and incremental contract costsand the timing of revenue recognition for certain contracts with customers that create an asset with no alternative use to the Company. TheCompany will apply the modified retrospective adoption alternative for this standard and anticipates recognizing a cumulative effect adjustment inthe range of approximately $185.0 million to $215.0 million of an increase to retained earnings as of June 1, 2018, which primarily reflects thedeferral of contract costs.In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt IssuanceCosts." ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the consolidated condensed balancesheet as a direct deduction from the carrying amount of25that debt liability, consistent with debt discounts. This guidance is effective for annual and interim periods beginning after December 15, 2015. Theguidance is applied retrospectively and early adoption is permitted. Cintas adopted ASU 2015-03 during the quarter ended August 31, 2016 andhas applied this amended accounting guidance to its long-term debt and other assets for all periods presented.In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement,presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dualapproach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financedpurchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on astraight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leaseswith a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar toexisting guidance for operating leases today. Topic 842 supersedes the previous leases standard, ASC 840, "Leases." This guidance is effectivefor reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities are required to use a modified retrospectiveapproach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Cintas iscurrently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements. The Company currently expects the adoptionof this standard to result in a material increase to the assets and liabilities on the consolidated balance sheets.In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 is intended tosimplify accounting for share-based payments. Upon adoption, ASU 2016-09 requires excess tax benefits for share-based payments to berecorded as a reduction of income tax expense and reflected within operating cash flows rather than being recorded within equity and reflectedwithin financing cash flows. The standard also permits the repurchase of more of an employee’s shares for tax withholding purposes withouttriggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as afinancing activity on our cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. This update iseffective for interim and annual periods beginning after December 15, 2016; however, early adoption is permitted. Cintas adopted ASU 2016-09during the quarter ended August 31, 2016 and elected to make an accounting policy change to recognize forfeitures as they occur. The adoptionimpact on the consolidated balance sheet was a cumulative-effect adjustment of $26.7 million, increasing opening retained earnings anddecreasing paid-in capital. In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step processthat required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would bedetermined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). Thisstandard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The adoption of this standard is notexpected to have a material impact on the consolidated financial statements.In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement BenefitCosts.” ASU 2017-07 continues to require the service component of pension and other postretirement benefit costs to be presented in the sameline item as other employee compensation costs on the consolidated statement of income and changes the presentation of other components ofnet benefit cost so that these items will be presented outside of operating income within the consolidated statements of income. Cintasretrospectively adopted ASU 2017-07 on June 1, 2017. The adoption of this standard did not have a material effect on the consolidated financialstatements.In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of CertainTax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows entities to elect to reclassify the income tax effects of the TaxAct on items within accumulated other comprehensive income to retained earnings and requires additional related disclosures. This standard iseffective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Cintas is currently evaluating the impactthat ASU 2018-02 will have on its consolidated condensed financial statements.No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the consolidatedfinancial statements.26Critical Accounting Policies and EstimatesThe preparation of Cintas' consolidated financial statements in conformity with U.S. GAAP requires management to make estimates andjudgments that have a significant effect on the amounts reported in the consolidated financial statements and accompanying notes. These criticalaccounting policies should be read in conjunction with Note 1 entitled Significant Accounting Policies of "Notes to Consolidated FinancialStatements." Significant changes, estimates or assumptions related to any of the following critical accounting policies could possibly have amaterial impact on the consolidated financial statements.Revenue recognitionRental revenue, which is recorded in the Uniform Rental and Facility Services reportable operating segment, is recognized when services areperformed. Other revenue, which is recorded in the First Aid and Safety Services reportable operating segments and All Other, is recognized wheneither services are performed or when products are shipped and the title and risks of ownership pass to the customer.InventoriesInventories are valued at the lower of cost (first-in, first-out) or net realizable value. Cintas applies a commonly accepted practice of usinginventory turns to apply variances between actual and standard costs to the inventory balances. The judgments and estimates used to calculateinventory turns will have an impact on the valuation of inventories at the lower of cost or net realizable value. An inventory obsolescence reserveis determined by specific identification, as well as an estimate based on the Company's historical rates of obsolescence.Uniforms and other rental items in serviceUniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method. Uniforms in service(other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months. Uniforms acquired in the G&K acquisitionwere amortized over 12 months. Other rental items, including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens andrestroom dispensers, are amortized over their useful lives, which range from 8 to 60 months. The amortization rates used are based on industryexperience, Cintas' specific experience and wear tests performed by Cintas. These factors are critical to determining the amount of in serviceinventory and related cost of uniforms and ancillary products that are presented in the consolidated financial statements.Property and equipmentDepreciation is calculated using the straight-line method over the estimated useful lives of the assets based on industry and Cintas specificexperience, 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 yearsfor leasehold improvements. When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, theestimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows areless than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over theirrespective fair values. Fair value is generally determined by discounted cash flows or based on prices of similar assets, as appropriate. As a resultof the identification of certain G&K plants and branches for future closure, an indicator of potential impairment was identified. Cintas recognized animpairment loss of $23.3 million during the fiscal year ended May 31, 2017, based on the excess of the carrying amount of asset over theirrespective fair values. The undiscounted cash flows were estimated, using Level 2 inputs based on both the cost and market approaches, at thelowest discernible level, which is at the location level. Cintas did not identify any indicators of impairment for the fiscal years ended May 31, 2018and 2016.GoodwillGoodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test, whichmay include an assessment of qualitative factors including, but not limited to, macroeconomic conditions, industry and market conditions, andentity specific factors such as strategies and financial performance. The test may also include the determination of the estimated fair value ofCintas' reporting units via comparisons to current market values, where available, and discounted cash flow analyses. Significant assumptionsmay include growth rates based on historical trends and margin improvement leveraged from such growth, as well as discount rates. We determinediscount rates separately for each reporting unit using the weighted average cost of capital, which includes a calculation of cost of equity, which isdeveloped using the capital asset pricing model and comparable company betas (a measure of systemic risk), and cost of debt. We also usecomparable market earnings27multiple data and our market capitalization to corroborate our reporting unit valuations. We test for goodwill impairment at the reporting unit level.Cintas has identified four reporting units for purposes of evaluating goodwill impairment: Uniform Rental and Facility Services, First Aid and SafetyServices, and two reporting units within All Other. Based on the results of the annual impairment tests, Cintas was not required to recognize animpairment of goodwill for the fiscal years ended May 31, 2018, 2017 or 2016. Cintas will continue to perform impairment tests as of March 1 infuture years and when indicators of impairment exist.Service contracts and other assetsService contracts and other assets, which consist primarily of noncompete and consulting agreements obtained through acquisitions ofbusinesses, are amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years. TheG&K service contract asset is being amortized over a period of 15 years, which represents the estimated life of the economic benefit and theasset amortization is based on the annual economic value of the underlying asset which generally decreases over the 15-year term. Certainnoncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. Theassumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of theassumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contractsand other assets is accomplished through specific identification. No impairment has been recognized by Cintas for the fiscal years ended May 31,2018, 2017 or 2016.Business CombinationsAccounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisitiondate fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fairvalues of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquiredand liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain andsubject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustmentsto the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or finaldetermination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to ourconsolidated statements of income. See Note 9 entitled Acquisitions and Divestitures of the "Notes to Consolidated Financial Statements" for adiscussion of the G&K acquisition.General insurance liabilitiesGeneral insurance liabilities represent the estimated ultimate cost of all asserted and unasserted claims incurred, primarily related to worker'scompensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves are estimated throughactuarial 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 andother environmental factors in the period in which it becomes known. These changes in estimates may be material to the consolidated financialstatements.Stock-based compensationCompensation expense is recognized for all share-based payments to employees, including stock options and restricted stock awards, in theconsolidated statements of income based on the fair value of the awards that are granted. The fair value of stock options is estimated at the dateof grant using the Black-Scholes option-pricing model. Generally, measured compensation cost, net of estimated forfeitures, is recognized on astraight-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 other contingenciesCintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract,environmental and employment claims. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability hasoccurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, aswell as the amount to be recorded. While a significant change in assumptions and judgments could have a material impact on the amountsrecorded for contingent liabilities, Cintas does not believe that they will result in a material adverse effect on the consolidated financial statements.28Income taxesDeferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the taxbasis of assets and liabilities. See Note 8 entitled Income Taxes of "Notes to Consolidated Financial Statements" for the types of items that giverise to significant deferred income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classificationof the related asset or liability for financial reporting purposes. Cintas regularly reviews deferred tax assets for recoverability based upon projectedfuture taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, managementbelieves it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized.Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return shouldbe recorded in the consolidated financial statements. Companies may recognize the tax benefit from an uncertain tax position only if it is morelikely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Thetax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has agreater 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 questionsregarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associatedwith various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas' evaluation of current tax positions, Cintas believesits tax related accruals are appropriate.Item 7A. Quantitative and Qualitative Disclosures About Market RiskEarnings are affected by changes in short-term interest rates due to investments in marketable securities and money market accounts andperiodic issuances of commercial paper. If short-term rates changed by one-half percent (or 50 basis points), Cintas' income before income taxeswould not be impacted because we had no variable rate debt as of May 31, 2018. 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 acurrency other than the functional currency and from foreign denominated revenue and profit translated into U.S. dollars. Foreign denominatedrevenue and profit represents less than 10% of Cintas' consolidated revenue and profit. Cintas periodically uses foreign currency hedges such asaverage rate options and forward contracts to mitigate the risk of foreign currency exchange rate movements resulting from foreign currencyrevenue and from international cash flows. The primary foreign currency to which Cintas is exposed is the Canadian dollar.29Item 8. Financial Statements and Supplementary DataIndex to Consolidated Financial StatementsAudited Consolidated Financial Statements for the Fiscal Years Ended May 31, 2018, 2017 and 2016Management's Report on Internal Control over Financial Reporting31 Reports of Independent Registered Public Accounting Firm32 Consolidated Statements of Income34 Consolidated Statements of Comprehensive Income35 Consolidated Balance Sheets36 Consolidated Statements of Shareholders' Equity37 Consolidated Statements of Cash Flows38 Notes to Consolidated Financial Statements3930Management's Report onInternal 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) and15(d)-15(f) under the Securities Exchange Act of 1934) to provide reasonable assurance regarding the reliability of our financial reporting and thepreparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internalcontrol over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receiptsand 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 assetsthat 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financialreporting will provide only reasonable assurance with respect to financial statement preparation.With the supervision of our Chairman and Chief Executive Officer and our Chief Financial Officer, management assessed our internal control overfinancial reporting as of May 31, 2018. 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 includedevaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accountingpolicies 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, 2018, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reportingpurposes 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 registeredpublic accounting firm, Ernst & Young LLP, independently assessed the effectiveness of Cintas Corporation's internal control over financialreporting. Ernst & Young LLP has issued an attestation report, which is included in this Annual Report on Form 10-K. Scott D. FarmerChairman and Chief Executive Officer J. Michael HansenExecutive Vice President and Chief Financial Officer31Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Cintas CorporationOpinion on Internal Control over Financial ReportingWe have audited Cintas Corporation’s internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).In our opinion, Cintas Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of May31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated balance sheets of the Company as of May 31, 2018 and 2017, and the related consolidated statements of income, comprehensiveincome, shareholders’ equity, and cash flows for each of the three years in the period ended May 31, 2018, and the related notes and financialstatement schedule listed in the Index at Item 15(a), and our report dated July 27, 2018, expressed an unqualified opinion thereon. Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting included in the accompanying “Report of Management”. Our responsibility is to express anopinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOBand are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable 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 proceduresas we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate./s/ ERNST & YOUNG LLP Cincinnati, OhioJuly 27, 201832Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Cintas Corporation Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Cintas Corporation (the Company) as of May 31, 2018 and 2017, and therelated consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the periodended May 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financialposition of the Company at May 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the periodended May 31, 2018, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theCompany’s internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated July 27, 2018,expressed an unqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, aswell as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ ERNST & YOUNG LLP We have served as the Company’s auditor since 1968Cincinnati, OhioJuly 27, 201833ConsolidatedStatements of Income Fiscal Years Ended May 31,(In thousands except per share data)2018 2017 2016 Revenue: Uniform rental and facility services$5,247,124 $4,202,490 $3,759,524Other1,229,508 1,120,891 1,036,248 6,476,632 5,323,381 4,795,772Costs and expenses: Cost of uniform rental and facility services2,886,959 2,307,774 2,092,833Cost of other681,150 635,312 601,599Selling and administrative expenses1,916,792 1,527,380 1,332,399G&K Services, Inc. transaction and integration expenses41,897 79,224 —Operating income949,834 773,691 768,941 Interest income(1,342) (237) (896)Interest expense110,175 86,524 64,522 Income before income taxes841,001 687,404 705,315Income taxes57,069 230,118 256,710Income from continuing operations783,932 457,286 448,605Income from discontinued operations, net of tax of $35,313, $15,057 and $138,184, respectively58,654 23,422 244,915Net income$842,586 $480,708 $693,520 Basic earnings per share: Continuing operations$7.24 $4.27 $4.08Discontinued operations0.54 0.22 2.22Basic earnings per share$7.78 $4.49 $6.30 Diluted earnings per share: Continuing operations$7.03 $4.17 $4.02Discontinued operations0.53 0.21 2.19Diluted earnings per share$7.56 $4.38 $6.21 Dividends declared and paid per share$1.62 $1.33 $1.05See accompanying notes.34Consolidated Statementsof Comprehensive Income Fiscal Years Ended May 31,(In thousands)2018 2017 2016 Net income$842,586 $480,708 $693,520 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments19,276 (10,252) (11,933)Cumulative translation adjustment on Shred-it— — 6,472Change in fair value of cash flow hedges— 31,136 (12,156)Amortization of interest rate lock agreements(933) 1,076 1,952Other1,029 (115) (738) Other comprehensive income (loss), net of tax expense (benefit) of $690, $19,118 and ($9,813), respectively19,372 21,845 (16,403) Comprehensive income$861,958 $502,553 $677,117See accompanying notes.35ConsolidatedBalance Sheets As of May 31,(In thousands except share data)2018 2017 Assets Current assets: Cash and cash equivalents$138,724 $169,266Marketable securities— 22,219Accounts receivable, principally trade, less allowance of $33,510 and $20,525, respectively804,583 736,008Inventories, net280,347 278,218Uniforms and other rental items in service702,261 635,702Income taxes, current19,634 44,320Prepaid expenses and other current assets32,383 30,132Assets held for sale— 38,613Total current assets1,977,932 1,954,478 Property and equipment, net1,382,730 1,323,501 Investments175,581 164,788Goodwill2,846,888 2,782,335Service contracts, net545,768 586,988Other assets, net29,315 31,967 $6,958,214 $6,844,057Liabilities and Shareholders' Equity Current liabilities: Accounts payable$215,074 $177,051Accrued compensation and related liabilities140,654 149,635Accrued liabilities420,129 429,809Liabilities held for sale— 11,457Debt due within one year— 362,900Total current liabilities775,857 1,130,852 Long-term liabilities: Debt due after one year2,535,309 2,770,624Deferred income taxes352,581 469,328Accrued liabilities277,941 170,460Total long-term liabilities3,165,831 3,410,412 Shareholders' equity: Preferred stock, no par value: 100,000 shares authorized, none outstanding— —Common stock, no par value: 425,000,000 shares authorized 2018: 182,723,471 shares issued and 106,326,383 shares outstanding 2017: 180,992,605 shares issued and 105,400,629 shares outstanding618,464 485,068Paid-in capital245,211 223,924Retained earnings5,837,827 5,170,830Treasury stock: 2018: 76,397,088 shares 2017: 75,591,976 shares(3,701,319) (3,574,000)Accumulated other comprehensive income (loss)16,343 (3,029)Total shareholders' equity3,016,526 2,302,793 $6,958,214 $6,844,057See accompanying notes.36ConsolidatedStatements of Shareholders' Equity Common Stock Paid-InCapital RetainedEarnings OtherAccumulatedComprehensiveIncome (Loss) Treasury Stock TotalShareholders'Equity(In thousands)Shares Amount Shares Amount Balance at June 1, 2015178,117 $329,248 $157,183 $4,227,620 $(8,471) (66,414) $(2,773,125) $1,932,455Net income— — — 693,520 — — — 693,520Comprehensive loss, net of tax— — — — (16,403) — — (16,403)Dividends— — — (115,273) — — — (115,273)Stock-based compensation— — 79,293 — — — — 79,293Vesting of stock-based compensationawards605 52,208 (52,208) — — — — —Stock options exercised, net ofshares surrendered876 28,226 — — — — — 28,226Repurchase of common stock— — — — — (8,971) (780,151) (780,151)Other— — 20,992 — — — — 20,992Balance at May 31, 2016179,598 409,682 205,260 4,805,867 (24,874) (75,385) (3,553,276) 1,842,659Net income— — — 480,708 — — — 480,708Comprehensive income, net of tax— — — — 21,845 — — 21,845Dividends— — — (142,433) — — — (142,433)Stock-based compensation— — 88,868 — — — — 88,868Vesting of stock-based compensationawards429 43,516 (43,516) — — — — —Stock options exercised, net ofshares surrendered966 31,870 — — — — — 31,870Repurchase of common stock— — — — — (207) (20,724) (20,724)Adoption of new accountingguidance— — (26,688) 26,688 — — — —Balance at May 31, 2017180,993 485,068 223,924 5,170,830 (3,029) (75,592) (3,574,000) 2,302,793Net income— — — 842,586 — — — 842,586Comprehensive income, net of tax— — — — 19,372 — — 19,372Dividends— — — (175,589) — — — (175,589)Stock-based compensation— — 112,835 — — — — 112,835Vesting of stock-based compensationawards701 91,548 (91,548) — — — — —Stock options exercised, net ofshares surrendered1,029 41,848 — — — — — 41,848Repurchase of common stock— — — — — (805) (127,319) (127,319)Balance at May 31, 2018182,723 $618,464 $245,211 $5,837,827 $16,343 (76,397) $(3,701,319) $3,016,526See accompanying notes.37ConsolidatedStatements of Cash Flows Fiscal Years Ended May 31,(In thousands)2018 2017 2016Cash flows from operating activities: Net income$842,586 $480,708 $693,520Adjustments to reconcile net income to net cash provided by operating activities: Depreciation215,476 171,565 149,691Amortization of intangible assets63,940 25,030 15,588Stock-based compensation112,835 88,868 79,293Gain on sale of business(96,400) — —Gain on Storage— (1,460) (15,786)Gain on Shred-it— (25,457) (354,071)Asset impairment charge— 23,331 —G&K Services, Inc. transaction and integration costs— 31,445 —Short-term debt financing fees included in net income— 17,062 —Settlement of cash flow hedges— 30,194 —Deferred income taxes(119,295) 3,902 (59,302)Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net(66,267) (93,557) (52,762)Inventories, net(3,323) (668) (17,917)Uniforms and other rental items in service(64,299) (8,732) (6,306)Prepaid expenses and other current assets(15,526) 24,201 (965)Accounts payable35,275 13,726 (564)Accrued compensation and related liabilities(9,392) 13,654 13,512Accrued liabilities and other42,468 (501) 22,714Income taxes, current26,082 (29,424) (800)Net cash provided by operating activities964,160 763,887 465,845Cash flows from investing activities: Capital expenditures(271,699) (273,317) (275,385)Proceeds from redemption of marketable securities and investments179,857 218,324 434,179Purchase of marketable securities and investments(153,708) (181,065) (494,146)Proceeds from sale of business127,835 — —Proceeds from Storage transactions— 2,400 35,338Proceeds from Shredding transactions— 25,876 580,837Acquisitions of businesses, net of cash acquired(19,346) (2,102,371) (156,579)Other, net1,363 (196) 4,137Net cash (used in) provided by investing activities(135,698) (2,310,349) 128,381Cash flows from financing activities: (Payments) issuance of commercial paper, net(50,500) 50,500 —Proceeds from issuance of debt, net— 1,932,229 —Repayment of debt(550,000) (250,000) (16)Payment of short-term debt financing fees— (17,062) —Proceeds from exercise of stock-based compensation awards41,848 31,870 28,226Dividends paid(175,589) (142,433) (115,273)Repurchase of common stock(127,319) (20,724) (780,151)Other, net(2,580) (5,878) 490Net cash (used in) provided by financing activities(864,140) 1,578,502 (866,724)Effect of exchange rate changes on cash and cash equivalents5,136 (2,131) (5,218)Net (decrease) increase in cash and cash equivalents(30,542) 29,909 (277,716)Cash and cash equivalents at beginning of year169,266 139,357 417,073Cash and cash equivalents at end of year$138,724 $169,266 $139,357See accompanying notes.38Notes to Consolidated Financial Statements 1. Significant Accounting PoliciesBusiness description. Cintas Corporation (collectively with its majority-owned subsidiaries and any entities over which it has control, Cintas,Company, we, us or our) helps more than one million businesses of all types and sizes, primarily in North America, as well as Latin America,Europe and Asia, get Ready™ to open their doors with confidence every day by providing a wide range of products and services that enhance ourcustomers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms,floor care, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety and compliance training, Cintas helpscustomers get Ready for the Workday™.On March 21, 2017, Cintas completed the acquisition of G&K Services, Inc. (G&K) for consideration of approximately $2.1 billion. G&K is awholly-owned subsidiary of Cintas that operates within the Uniform Rental and Facility Services operating segment. To finance the G&Kacquisition, Cintas used a combination of new senior notes, a term loan, other borrowings under its existing credit facility and cash on hand. G&K'sresults of operations are included in Cintas' consolidated financial statements as of and from the date of acquisition.Cintas’ reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and FacilityServices reportable 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, carpet and tilecleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. TheFirst Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’business, which consists of Fire Protection Services and its Uniform Direct Sale business, is included in All Other. Cintas evaluates operatingsegment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these reportableoperating segments for the years ended May 31, 2018, 2017 and 2016 are presented in Note 14 entitled Operating Segment Information. TheCompany regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker (CODM)regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.In fiscal 2018, Cintas sold a significant business referred to as "Discontinued Services." Prior to the sale of Discontinued Services, the operationswere primarily included in All Other and classified as held for sale. In fiscal 2014, Cintas completed its partnership transaction with theshareholders of Shred-it International Inc. to combine Cintas' shredding business (Shredding) with the shredding business of Shred-it InternationalInc. (the Shredding Transaction). Pursuant to the Shredding Transaction, the newly formed partnership (the Shred-it Partnership) was owned 42%by Cintas and 58% by the shareholders of Shred-it International Inc. Cintas' investment in the Shred-it Partnership (Shred-it) and the results ofShredding are classified as discontinued operations for all periods presented as a result of selling the investment during fiscal 2016. During fiscal2015, Cintas sold the storage business (Storage) and, as a result, its operations are also classified as discontinued operations for all periodspresented. In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results ofDiscontinued Services, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periodspresented. See Note 16 entitled Discontinued Operations for additional information.Principles of consolidation. The consolidated financial statements include the accounts of Cintas controlled majority-owned subsidiaries andany entities over which Cintas has control. Intercompany balances and transactions have been eliminated as appropriate.Use of estimates. The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (U.S.GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements andaccompanying notes. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic conditions,such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of rawmaterials, can have a significant effect on operations. These factors and other events could cause actual results to differ from management'sestimates.39Revenue recognition. Rental revenue, which is recorded in the Uniform Rental and Facility Services reportable operating segment, is recognizedwhen services are performed. Other revenue, which is recorded in the First Aid and Safety Services reportable operating segment and All Other, isrecognized when either services are performed or when products are shipped and the title and risks of ownership pass to the customer.Cost of uniform rental and facility services. Cost of uniform rental and facility services consists primarily of production expenses, deliveryexpenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. The Uniform Rental andFacility Services reportable operating segment inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs andother costs of distribution are included in the cost of uniform rental and facility services.Cost of other. Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms and fire protectionproducts), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost ofother 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 andadministrative labor, payroll taxes, medical expense, insurance expense, legal and professional costs and amortization of finite-lived intangibleassets.G&K transaction and integration expenses. As a result of the acquisition of G&K in fiscal 2017, the Company incurred various transaction andintegration expenses in both fiscal 2018 and fiscal 2017, which relate primarily to asset impairment charges, legal and professional fees, employeetermination expenses, the write-off of excess inventory, location closure expenses and other miscellaneous expenses. See Note 17 entitled G&KServices, Inc. Transaction and Integration Expenses.Cash and cash equivalents. Cintas considers all highly liquid domestic investments with a maturity of three months or less, at date of purchase,to be cash equivalents. At May 31, 2018 and 2017, cash and cash equivalents includes $30.9 million and $30.6 million, respectively, of restrictedcash 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 netof an allowance for doubtful accounts. The allowance is an estimate based on historical rates of collections and allowances for specific accountsidentified 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 slightlybetween the Uniform Rental and Facility Services reportable operating segment, the First Aid and Safety Services reportable operating segmentand All Other because of differences in customers served and the nature of each business. When an account is considered uncollectible, it iswritten off against the allowance for doubtful accounts.Inventories. Inventories are valued at the lower of cost (first-in, first-out) or net realizable value. Cintas applies a commonly accepted practice ofusing inventory turns to apply variances between actual and standard costs to the inventory balances. The judgments and estimates used tocalculate inventory turns will have an impact on the valuation of inventories at the lower of cost or net realizable value. Inventory is comprised ofthe following amounts at May 31:(In thousands)2018 2017 Raw materials$17,042 $17,528Work in process27,350 17,951Finished goods235,955 242,739 $280,347 $278,218Inventories are recorded net of reserves for obsolete inventory of $37.0 million and $38.3 million at May 31, 2018 and 2017, respectively. Theinventory 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. Uniforms acquired in theG&K acquisition were amortized over 12 months. Other rental items,40including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their usefullives, which range from 8 to 60 months. The amortization rates used are based on industry experience, Cintas' specific experience and wear testsperformed by Cintas. These factors are critical to determining the amount of in service inventory and related cost of uniforms and facility servicesthat are presented in the consolidated financial statements.Property and equipment. Property and equipment is stated at cost, less accumulated depreciation or at fair value upon acquisition. Depreciationis calculated using the straight-line method primarily over the following estimated useful lives of the assets based on industry and Cintas specificexperience, in years:Buildings30 to 40Building improvements5 to 20Equipment3 to 10Leasehold improvements2 to 15Investments. Investments consists primarily of the cash surrender value of life insurance policies and equity method investments. The equitymethod is used to account for an investment if our investment gives us the ability to exercise significant influence over the operating and financialpolicies of the investee. In general, equity method investments are initially measured at cost. However, an equity method investment resultingfrom a transaction in which a controlled group of assets that constitutes a business is deconsolidated is initially measured at fair value. Cintasrecognizes its share of the investee’s earnings or losses in income. Cintas also adjusts its share of the investee's earnings for intra-entitytransactions, basis differences, investee capital transactions and other comprehensive income through income or other comprehensive income asappropriate. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carryingamount 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 estimatedundiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less thanthe carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respectivefair values. Fair value is generally determined by discounted cash flows, prices of similar assets or third-party real estate valuations, asappropriate. During fiscal 2017, as a result of the identification of certain G&K plants and branches for future closure, an indicator of potentialimpairment was identified. Cintas recognized an impairment loss of $23.3 million during the fiscal year ended May 31, 2017, based on the excessof the carrying amount of asset over their respective fair values. The undiscounted cash flows used to test recoverability were performed, usingLevel 2 inputs based on both the cost and market approaches, at the lowest discernible level, which is at the location level. Cintas did not identifyany indicators of impairment for the fiscal years ended May 31, 2018 and 2016.Goodwill. Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairmenttest, which may include an assessment of qualitative factors including, but not limited to, macroeconomic conditions, industry and marketconditions, and entity specific factors such as strategies and financial performance. The test may also include the determination of the estimatedfair value of Cintas' reporting units via comparisons to current market values, where available, and discounted cash flow analyses. Assumptionsmay include growth rates based on historical trends and margin improvement leveraged from such growth, as well as discount rates. We determinediscount rates separately for each reporting unit using the weighted average cost of capital, which includes a calculation of cost of equity, which isdeveloped using the capital asset pricing model and comparable company betas (a measure of systemic risk), and cost of debt. We also usecomparable market earnings multiple data and our market capitalization to corroborate our reporting unit valuations. We test for goodwillimpairment at the reporting unit level. Due to the fiscal 2018 executed sale of Discontinued Services and the ongoing integration of the acquiredG&K operations within the legacy Cintas Uniform Rental and Facility Services operating segment, the composition for Cintas’ reporting units forthe evaluation of goodwill impairment has changed. Discrete financial information of G&K ceased to exist in early fiscal 2018 and is now evaluatedby the CODM within the consolidated Uniform Rental and Facility Services operating segment. Cintas has identified four reporting units forpurposes of evaluating goodwill impairment: Uniform Rental and Facility Services, First Aid and Safety Services, and two reporting units within AllOther. The Company evaluated impairment indicators for all reporting units, including those prior to and subsequent to the composition change infiscal 2018, noting none. Based on the results of the annual impairment tests, Cintas was not required to recognize an impairment of goodwill forthe fiscal years ended May 31, 2018, 2017 or 2016. Cintas will continue to perform impairment tests as of March 1 in future years and whenindicators of impairment exist.41Service contracts and other assets. Service contracts and other assets, which consist primarily of noncompete and consulting agreementsobtained through acquisitions of businesses, are generally amortized by use of the straight-line method over the estimated lives of theagreements, which are generally 5 to 10 years. The G&K service contract asset is being amortized over a period of 15 years, which represents theestimated life of the economic benefit. The G&K service contract asset amortization is based on the annual economic value of the underlyingasset which generally decreases over the 15-year term. Certain noncompete agreements, as well as all service contracts, require that a valuationbe determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows anddiscount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary fromoriginal estimates. Impairment of service contracts and other assets is accomplished through specific identification. No impairment has beenrecognized by Cintas for the fiscal years ended May 31, 2018, 2017 and 2016.Business Combinations. Accounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilitiesassumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over thenet of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions toaccurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, ourestimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from theacquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon theconclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, anysubsequent adjustments are recorded to our consolidated statements of income. See Note 9 entitled Acquisitions and Divestitures for a discussionof the G&K acquisition.Debt Issuance Costs. Debt issuance costs for the revolving credit facility are included in other assets and all other debt issuance costs reducethe carrying amount of long-term debt.Accrued liabilities. Current accrued liabilities are recorded when it is probable that a liability has occurred and the amount of the liability can bereasonably estimated. Current accrued liabilities include the following amounts at May 31:(In thousands)2018 2017 General insurance liabilities$163,400 $153,743Employee benefit related liabilities112,801 110,104Taxes and related liabilities8,148 8,057Accrued interest24,763 36,638Other111,017 121,267 $420,129 $429,809General insurance liabilities represent the estimated ultimate cost of all asserted and unasserted claims incurred, primarily related to workers'compensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves are estimated throughactuarial 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 andother environmental factors in the period in which it becomes known. These changes in estimates may be material to the consolidated financialstatements.Long-term accrued liabilities consists primarily of reserves associated with unrecognized tax benefits, which are described in more detail in Note 8entitled Income Taxes, retirement obligations, which are described in more detail in Note 10 entitled Employee Benefit Plans, and environmentalobligations acquired primarily through the G&K acquisition, which are further described below.Environmental Obligations. Environmental obligations are recorded when it is probable that obligations have been incurred and the costs can bereasonably estimated, except for acquired environmental obligations which are recorded at fair value. Cintas’ environmental obligations areestimated based on an evaluation of various factors, including currently available facts, existing technology, presently enacted laws andregulations, and remediation experience. Where the available information is sufficient to estimate the amount of the obligation, that estimate hasbeen recorded. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely thanany other, the lower end of the range has been used. Management actively monitors all locations for42compliance and changes in facts and circumstances. No one location or site is deemed to be material or in violation of the applicable laws andregulations, even though costs are being incurred. Costs estimated for environmental obligations are not discounted to their present value.Pension Plans. The Company assumed G&K's noncontributory, defined benefit pension plan (the Pension Plan) covering substantially allemployees who were employed as of July 1, 2005, except certain employees who are covered by union-administered plans. Benefits are based onthe number of years of service and each employee's compensation near retirement. G&K froze the Pension Plan effective December 31, 2006.Future growth in benefits will not occur after this date. The Company's funding policy provides for contributions of an amount between the minimumrequired and maximum amount that can be deducted for federal income tax purposes. The funded status is measured as the difference betweenthe fair value of plan assets and the benefit obligation at May 31, the measurement date. The benefit obligation is the projected benefit obligation(PBO). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensationlevels. The measurement of the PBO is based on the Company’s estimates and actuarial valuations. The fair value of plan assets represents thecurrent market value of assets held by an irrevocable trust fund for the sole benefit of participants. These valuations reflect the terms of thePension Plan and use participant-specific information such as compensation, age and years of service, as well as certain assumptions that requiresignificant judgment, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest creditingrates and mortality rates. We recognize, as of a measurement date, any unrecognized actuarial net gains or losses that exceed ten percent of thelarger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts inside the corridor are amortized over the planparticipants' life expectancy. We determine the expected return on assets using the fair value of plan assets.Stock-based compensation. Compensation expense is recognized for all share-based payments to employees, including stock options andrestricted stock awards, in the consolidated statements of income based on the fair value of the awards that are granted. The fair value of stockoptions is estimated at the date of grant using the Black-Scholes option-pricing model. Generally, measured compensation cost, net of actualforfeitures, 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 itsrisk management objective and strategy for undertaking various hedge transactions. Derivatives are recorded at fair value on the consolidatedbalance sheet, and gains and losses are recorded as adjustments to income or other comprehensive income, as appropriate. For derivativefinancial instruments that are designated as a hedge, unrealized gains and losses related to the effective portion are either recognized in incomeimmediately to offset the realized gain or loss on the hedged item, or are deferred and reported as a component of other comprehensive income instockholders' equity and subsequently recognized in net income when the hedged item affects net income. The change in fair value of theineffective portion of a derivative financial instrument is recognized in net income immediately.Income taxes. The provision for income taxes includes taxes paid, currently payable or receivable, and those deferred. The Tax Cuts and JobsAct of 2017 (the Tax Act) includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries and, as a result, previouslyunremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Deferred tax assets and liabilitiesare determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. SeeNote 8 entitled Income Taxes for the types of items that give rise to significant deferred income tax assets and liabilities. Deferred income taxesare classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes. Cintas regularlyreviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existingtemporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets,as adjusted for valuation allowances, will be realized.Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return shouldbe recorded in the consolidated financial statements. Companies may recognize the tax benefit from an uncertain tax position only if it is morelikely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Thetax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has agreater 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 questionsregarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associatedwith various filing positions, Cintas records reserves as deemed appropriate. Based on Cintas' evaluation of current tax positions, Cintas believesits tax related accruals are appropriate.43Litigation and other contingencies. Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, includingpersonal injury, customer contract, environmental and employment claims. U.S. GAAP requires that a liability for contingencies be recorded whenit is probable that a liability has occurred and the amount of the liability can be reasonably estimated. In the opinion of management, the aggregateliability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financialposition or consolidated results of operations of Cintas.Fair value measurements. Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 820 defines fair valueas 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 marketfor the asset or liability in an orderly transaction between market participants at the measurement date. When determining the fair valuemeasurements for assets and liabilities, the Company considers the principal or most advantageous market in which the Company would transactand the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk,transfer restrictions and credit risk. It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. Thishierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs usedto 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 andliabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are notactive; 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 ofthe assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similartechniques 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 inthe fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair valuemeasurement in its entirety. Cintas' assessment of the significance of a particular input to the fair value measurement in its entirety requiresjudgment and considers factors specific to the asset or liability. There were no transfers between levels for the years ended May 31, 2018 or 2017.The carrying value of accounts receivable and accounts payable, and other current assets and liabilities, approximate fair value because of theshort-term maturity of those instruments.In order to meet the requirements of ASC 820, Cintas utilizes two basic valuation approaches to determine the fair value of its assets and liabilitiesrequired to be recorded on a recurring basis at fair value. The first approach is the cost approach. The cost approach is generally the value amarket participant would expect to replace the respective asset or liability. The second approach is the market approach. The market approachlooks at what a market participant would consider valuing an exact or similar asset or liability to that of Cintas, including those traded onexchanges.Cintas' non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis primarily relate to assets andliabilities acquired in a business acquisition unless otherwise noted in Note 2 entitled Fair Value Disclosures. Cintas is required to provideadditional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets andliabilities 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, primarilyvalued using Level 2 inputs, property and equipment, also primarily valued using Level 2 inputs and goodwill and other identified intangible assetsvalued using Level 3 inputs. In general, non-recurring fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active marketsfor identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values determined by Level 2 inputsutilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fairvalues determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, marketactivity for the asset or liability, such as internal estimates of future cash flows and company specific discount rates.44New accounting pronouncements. In April 2014, the FASB issued Accounting Standard Update (ASU) 2014-08, “Reporting DiscontinuedOperations and Disclosures of Disposals of Components of an Entity,” which amended accounting guidance related to the reporting of discontinuedoperations and disclosures of disposals of components of an entity. The amended guidance changes the thresholds for disposals to qualify asdiscontinued operations and requires additional disclosures. Cintas adopted ASU 2014-08 during the quarter ended August 31, 2015 and appliedthe amended accounting guidance to Shred-it and all subsequent transactions, as appropriate.In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," to clarify revenue recognition principles. Thestandard applies one comprehensive revenue recognition model across all contracts, entities and sectors. The core principal of the new standardis that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. The standard includes cost guidance, whereby alldirect and incremental costs to obtain or fulfill a contract will be capitalized and amortized over the corresponding period of benefit, determined ona contract by contract basis. This guidance is also intended to improve disclosure requirements and enhance the comparability of revenuerecognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that isrecognized from contracts with customers. Cintas adopted this standard on June 1, 2018. The largest impacts to the Company’s financialstatements will result from the new qualitative and quantitative disclosures that will be required upon adoption of the new standard. There will betwo implementation adjustments upon adoption of the new standard related to the capitalization of certain direct and incremental contract costsand the timing of revenue recognition for certain contracts with customers that create an asset with no alternative use to the Company. TheCompany will apply the modified retrospective adoption alternative for this standard and anticipates recognizing a cumulative effect adjustment inthe range of approximately $185.0 million to $215.0 million of an increase to retained earnings as of June 1, 2018, which primarily reflects thedeferral of contract costs.In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt IssuanceCosts." ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the consolidated condensed balancesheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective for annual andinterim periods beginning after December 15, 2015. The guidance is applied retrospectively and early adoption is permitted. Cintas adopted ASU2015-03 during the quarter ended August 31, 2016 and has applied this amended accounting guidance to its long-term debt and other assets for allperiods presented.In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement,presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dualapproach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financedpurchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on astraight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leaseswith a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar toexisting guidance for operating leases today. Topic 842 supersedes the previous leases standard, ASC 840, "Leases." This guidance is effectivefor reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities are required to use a modified retrospectiveapproach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Cintas iscurrently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements. The Company currently expects the adoptionof this standard to result in a material increase to the assets and liabilities on the consolidated balance sheets.In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 is intended tosimplify accounting for share-based payments. Upon adoption, ASU 2016-09 requires excess tax benefits for share-based payments to berecorded as a reduction of income tax expense and reflected within operating cash flows rather than being recorded within equity and reflectedwithin financing cash flows. The standard also permits the repurchase of more of an employee’s shares for tax withholding purposes withouttriggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as afinancing activity on our cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. This update iseffective for interim and annual periods beginning after December 15, 2016; however, early adoption is permitted. Cintas adopted ASU 2016-09during the quarter ended August 31, 2016 and elected to make an accounting policy change to recognize forfeitures as they occur. The adoptionimpact on the consolidated balance sheet was a cumulative-effect adjustment of $26.7 million, increasing opening retained earnings anddecreasing paid-in capital. 45In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step processthat required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would bedetermined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). Thisstandard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The adoption of this standard is notexpected to have a material impact on the consolidated financial statements.In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement BenefitCosts.” ASU 2017-07 continues to require the service component of pension and other postretirement benefit costs to be presented in the sameline item as other employee compensation costs on the consolidated statement of income and changes the presentation of other components ofnet benefit cost so that these items will be presented outside of operating income within the consolidated statements of income. Cintasretrospectively adopted ASU 2017-07 on June 1, 2017. The adoption of this standard did not have a material effect on the consolidated financialstatements.In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of CertainTax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows entities to elect to reclassify the income tax effects of the TaxAct on items within accumulated other comprehensive income to retained earnings and requires additional related disclosures. This standard iseffective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Cintas is currently evaluating the impactthat ASU 2018-02 will have on its consolidated condensed financial statements.No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the consolidatedfinancial statements.2. Fair Value DisclosuresAll financial instruments that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriatelevel within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated balance sheet date. These financialinstruments measured at fair value on a recurring basis are summarized below: As of May 31, 2018(In thousands)Level 1 Level 2 Level 3 Fair Value Cash and cash equivalents$138,724 $— $— $138,724Total assets at fair value$138,724 $— $— $138,724 As of May 31, 2017(In thousands)Level 1 Level 2 Level 3 Fair Value Cash and cash equivalents$169,266 $— $— $169,266Marketable securities: Canadian treasury securities— 22,219 — 22,219Total assets at fair value$169,266 $22,219 $— $191,485Cintas' cash and cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy. Financialinstruments classified as Level 1 are based on quoted market prices in active markets, and financial instruments classified as Level 2 are basedon quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The types offinancial instruments Cintas classifies within Level 1 include most bank deposits and money market securities. Cintas does not adjust the quotedmarket price for such financial instruments.The types of financial instruments Cintas classifies within Level 2 are primarily high grade domestic commercial paper and Canadian treasurysecurities (federal). The valuation technique used for Cintas’ marketable securities classified within Level 2 of the fair value hierarchy is primarilythe market approach. The primary inputs to value Cintas’ marketable securities are the respective instrument's future cash flows based on itsstated yield and the amount a market participant would pay for a similar instrument. Primarily all of Cintas’ marketable securities are activelytraded and the recorded46fair value reflects current market conditions. However, due to the inherent volatility in the investment market, there is at least a possibility thatrecorded investment values may change in the near term.Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included ininterest income or expense. The cost of the securities sold is based on the specific identification method. There were no outstanding marketablesecurities as of May 31, 2018. The amortized cost basis of marketable securities as of May 31, 2017 was $22.2 million. Purchases of marketablesecurities were $143.9 million, $171.3 million and $488.8 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. Alloutstanding marketable securities as of May 31, 2017 had contractual maturities due within one year.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 differentmethodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at theconsolidated balance sheet dates.In addition to assets and liabilities that are recorded at fair value on a recurring basis, Cintas records assets and liabilities at fair value on anonrecurring basis as required under U.S. GAAP. Cintas' acquisition of G&K in fiscal 2017 was recorded at fair value. See Note 9 entitledAcquisitions and Divestitures for additional information on the measurement of the G&K assets acquired and liabilities assumed.3. Property and EquipmentCintas' property and equipment is summarized as follows at May 31:(In thousands)2018 2017 Land$177,281 $173,166Buildings and improvements644,322 624,615Equipment2,070,009 1,930,018Leasehold improvements34,891 32,679Construction in progress119,937 79,400 3,046,440 2,839,878Less: accumulated depreciation1,663,710 1,516,377 $1,382,730 $1,323,501Interest expense is net of capitalized interest of $1.0 million, $2.1 million and $1.1 million for the fiscal years ended May 31, 2018, 2017 and 2016,respectively. Cintas capitalizes certain expenditures for software that are purchased or internally developed for use in business. Included inequipment at May 31, 2018 and 2017 were $253.8 million and $229.0 million, respectively, of internal use software. Depreciation of internal usesoftware begins when the software is ready for service and continues on the straight-line method over the estimated useful life, generally 10 years.Accumulated depreciation related to internal use software included in accumulated depreciation were $88.8 million and $78.3 million at May 31,2018 and 2017, respectively.4. InvestmentsInvestments at May 31, 2018 of $175.6 million include the cash surrender value of insurance policies of $154.0 million, equity method investmentsof $16.4 million and cost method investments of $5.2 million. Investments at May 31, 2017 of $164.8 million include the cash surrender value ofinsurance policies of $144.0 million, equity method investments of $15.8 million and cost method investments of $5.0 million.Investments are evaluated for impairment on an annual basis or when indicators of impairment exist. For fiscal years 2018, 2017 and 2016, nolosses due to impairment were recorded.475. Goodwill, Service Contracts and Other AssetsChanges in the carrying amount of goodwill and service contracts by reportable operating segment and All Other, are as follows:Goodwill (in thousands)Uniform Rentaland FacilityServices First Aid and Safety Services AllOther Total Balance at June 1, 2016$949,730 $241,448 $84,898 $1,276,076Goodwill acquired1,499,008 2,265 6,281 1,507,554Foreign currency translation(668) (601) (26) (1,295)Balance at May 31, 2017$2,448,070 $243,112 $91,153 $2,782,335Goodwill acquired (1)55,152 370 5,939 61,461Foreign currency translation2,254 797 41 3,092Balance at May 31, 2018$2,505,476 $244,279 $97,133 $2,846,888(1) Adjustments to the G&K preliminary purchase price allocation represents $52.7 million of the acquired goodwill in the Uniform Rental and Facility Services reportable operatingsegment. See Note 9 entitled Acquisitions and Divestitures for more information.Assets held for sale at May 31, 2017 include $15.5 million of goodwill associated with Discontinued Services.Service Contracts (in thousands)Uniform Rentaland FacilityServices First Aid and Safety Services AllOther Total Balance at June 1, 2016$19,912 $32,252 $26,030 $78,194Service contracts acquired521,708 1,632 5,895 529,235Service contracts amortization(11,636) (3,952) (4,922) (20,510)Foreign currency translation(61) 130 — 69Balance at May 31, 2017$529,923 $30,062 $27,003 $586,988Service contracts acquired4,098 985 4,310 9,393Service contracts amortization(45,296) (3,842) (4,906) (54,044)Foreign currency translation3,342 89 — 3,431Balance at May 31, 2018$492,067 $27,294 $26,407 $545,768Information regarding Cintas' service contracts and other assets is as follows: As of May 31, 2018(In thousands)CarryingAmount AccumulatedAmortization Net Service contracts$924,978 $379,210 $545,768 Noncompete and consulting agreements$41,710 $39,877 $1,833Other38,787 11,305 27,482Total$80,497 $51,182 $29,315 As of May 31, 2017(In thousands)CarryingAmount AccumulatedAmortization Net Service contracts$911,273 $324,285 $586,988 Noncompete and consulting agreements$40,743 $39,244 $1,499Other34,890 4,422 30,468Total$75,633 $43,666 $31,96748Amortization expense for continuing operations was $61.2 million, $22.8 million and $14.2 million for the fiscal years ended May 31, 2018, 2017and 2016, respectively. Estimated amortization expense for continuing operations, excluding any future acquisitions, for each of the next five fullfiscal years and thereafter is $62.5 million, $61.1 million, $55.2 million, $53.2 million, $44.9 million and $283.4 million, respectively. At May 31,2018, the weighted average amortization period for service contracts, noncompete and consulting agreements and other was 12.8 years, 5 yearsand 4 years, respectively.6. Debt and DerivativesCintas' debt is summarized as follows at May 31:(In thousands)Interest Rate Fiscal YearIssued Fiscal YearMaturity 2018 2017 Debt due within one year Senior notes6.13% 2008 2018 $— $300,000Commercial paper1.24%(1) Various Various — 50,500Current portion of term loan2.00%(1) 2017 2018 — 12,500Debt issuance costs — (100)Total debt due within one year $— $362,900 Debt due after one year Senior notes4.30% 2012 2022 $250,000 $250,000Senior notes2.90% 2017 2022 650,000 650,000Senior notes3.25% 2013 2023 300,000 300,000Senior notes (2)2.78% 2013 2023 52,119 52,554Senior notes (3)3.11% 2015 2025 52,309 52,645Senior notes3.70% 2017 2027 1,000,000 1,000,000Senior notes6.15% 2007 2037 250,000 250,000Long-term portion of term loan2.00%(1) 2017 2022 — 237,500Debt issuance costs (19,119) (22,075) Total debt due after one year $2,535,309 $2,770,624(1) Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2017.(2) Cintas assumed these senior notes with the acquisition of G&K, and they were recorded at fair value. The interest rate shown above is the effective interest rate. Theprincipal amount of these notes is $50.0 million with a stated interest rate of 3.73%.(3) Cintas assumed these senior notes with the acquisition of G&K, and they were recorded at fair value. The interest rate shown above is the effective interest rate. Theprincipal amount of these notes is $50.0 million with a stated interest rate of 3.88%.The average interest rate for all Cintas debt at May 31, 2018 was 3.8% with maturity dates through fiscal year 2037. Cintas' senior notes,excluding the G&K senior notes assumed with the acquisition of G&K in fiscal 2017, and term loan are recorded at cost, net of debt issuancecosts. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value ofCintas' debt as of May 31, 2018 were $2,550.0 million and $2,582.0 million, respectively, and as of May 31, 2017 were $3,156.0 million and$3,296.8 million, respectively. On December 1, 2017, in accordance with the terms of the notes, Cintas paid the $300.0 million aggregate principalamount of its 6.13%, 10-year senior notes that matured on that date with cash on hand and $265.0 million in proceeds from the issuance ofcommercial paper. During the twelve months ended May 31, 2018, Cintas paid a net total of $50.5 million of commercial paper.Letters of credit outstanding were $143.0 million and $110.9 million at May 31, 2018 and 2017, respectively. Maturities of debt during each of thenext five years are $0.0 million, $0.0 million, $0.0 million, $900.0 million and $350.0 million, respectively.Interest paid was $122.1 million, $76.6 million and $64.5 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. Interestpaid in fiscal 2017 included the payment of $17.1 million in short-term debt financing fees, which were related to the acquisition of G&K and are notreoccurring.49The credit agreement that supports our commercial paper program was amended on September 16, 2016. The amendment increased the capacityof the revolving credit facility from $450.0 million to $600.0 million and added a $250.0 million term loan. The term loan facility was paid in fullduring the first quarter of fiscal 2018. The credit agreement has an accordion feature that provides Cintas the ability to request increases to theborrowing commitments under either the revolving credit facility or the term loan facility of up to $250.0 million in the aggregate, subject tocustomary conditions. The maturity date of the agreement is September 15, 2021. No commercial paper or borrowings on our revolving creditfacility were outstanding at May 31, 2018. As of May 31, 2017, there was $50.5 million of commercial paper outstanding with a weighted averageinterest rate of 1.24% and maturity dates less than 30 days and no borrowings on our revolving credit facility. The fair value of the commercialpaper is estimated using Level 2 inputs based on general market prices. Given its short-term nature, the carrying value of the outstandingcommercial paper approximates fair value.Cintas uses interest rate locks to manage its overall interest expense as interest rate locks effectively change the interest rate of specific debtissuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasteddebt issuances. Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its seniornotes in fiscal 2007, fiscal 2008, fiscal 2012, fiscal 2013 and fiscal 2017. The amortization of the cash flow hedges resulted in a decrease to othercomprehensive income of $0.9 million in the fiscal year ended May 31, 2018 and an increase to other comprehensive income of $1.1 million and$2.0 million in the fiscal years ended May 31, 2017 and 2016, respectively. During the third quarter of fiscal 2016, Cintas entered into an interestrate lock agreement with a notional value of $550.0 million for a forecasted debt issuance. As of the third quarter of fiscal 2017, Cintas hadmultiple interest rate lock agreements in place for forecasted long-term debt issuances. The notional value of the planned debt issuances was$500.0 million of 5-year senior notes and $1.0 billion of 10-year senior notes. In conjunction with the issuance of long-term debt in the fourthquarter of fiscal 2017, Cintas settled these interest rate lock agreements, which resulted in a deferred gain of $30.2 million. The effective portion ofthe gain was recorded in other comprehensive income to be amortized as a reduction to interest expense beginning in the fourth quarter of fiscal2017 through the remaining life of the debt.To hedge the exposure of movements in the foreign currency rates, Cintas may use foreign currency hedges. These hedges reduce the impact oncash flows from movements in the foreign currency exchange rates. Examples of foreign currency hedge instruments that Cintas may use areaverage rate options and forward contracts. These instruments did not impact foreign currency exchange during fiscal 2018, 2017 or 2016. Cintashad no foreign currency forward contracts as of May 31, 2018 or 2017.Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leasebacktransactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certaindebt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisionsexist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of thematurity of the indebtedness, impair liquidity and limit the ability to raise future capital. Cintas was in compliance with all of the debt covenants forall periods presented.7. LeasesCintas conducts certain operations from leased facilities and leases certain equipment. Most leases contain renewal options for periods from 1 to10 years. The lease agreements provide for increases in rent expense if the options are exercised based on increases in certain price level factorsor other prearranged factors. Step rent provisions, escalation clauses, capital improvements funding and other lease concessions are taken intoaccount 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 expiringleases will be renewed or replaced.The minimum rental payments under noncancelable lease arrangements for each of the next five years and thereafter are $49.3 million, $41.6million, $33.7 million, $25.5 million, $18.9 million and $27.7 million, respectively.Rent expense for continuing operations under operating leases during the fiscal years ended May 31, 2018, 2017 and 2016, was $70.0 million,$49.6 million and $40.8 million, respectively. The increase in the year ended May 31, 2018, is related to increases in leased facilities and leasedequipment as a result of the G&K acquisition.508. Income TaxesIncome before income taxes for continuing operations consists of the following components:(In thousands)2018 2017 2016 U.S. operations$798,215 $673,055 $685,167Foreign operations42,786 14,349 20,148 $841,001 $687,404 $705,315Income tax expense (benefit) for continuing operations consists of the following components:(In thousands)2018 2017 2016 Current: Federal$137,601 $187,134 $272,663State and local19,582 27,197 25,428Foreign15,103 6,996 6,471 172,286 221,327 304,562Deferred(115,217) 8,791 (47,852) $57,069 $230,118 $256,710Reconciliation of income tax expense for continuing operations using the statutory rate and actual income tax expense is as follows:(In thousands)2018 2017 2016 Income taxes at the U.S. federal statutory rate$245,322 $240,677 $246,881Permanent differences (1)(47,137) (29,414) —State and local income taxes, net of federal benefit24,783 19,210 16,339Other (2)(4,451) (355) (6,510)Impact of the Tax Act: Deemed repatriation of non-U.S. earnings, net of foreign tax credits and other (collectively, transition tax)9,768 — —Non-U.S. withholding taxes related to certain non-U.S. earnings subject to repatriation4,363 — —Remeasurement of U.S. net deferred tax liabilities from 35% to 21%(175,579) — — $57,069 $230,118 $256,710(1) Includes the impact of ASU 2016-09.(2) Primarily consists of adjustments for uncertain tax positions, deferred adjustments and return to provision adjustments.51The components of deferred income taxes included on the consolidated balance sheets are as follows:(In thousands)2018 2017 Deferred tax assets: Allowance for doubtful accounts$6,955 $7,707Inventory obsolescence8,668 16,096Insurance and contingencies36,727 54,489Stock-based compensation53,532 73,027Net operating loss and foreign related carry-forwards (1)11,910 37,814Deferred compensation and other31,093 25,891 148,885 215,024Valuation allowance(11,302) (18,088) 137,583 196,936Deferred tax liabilities: Uniform and other rental items in service143,580 210,766Property and equipment115,712 126,872Service contracts and other intangible assets183,000 290,049Treasury locks3,545 6,435State taxes and other44,327 32,142 490,164 666,264Net deferred tax liability$352,581 $469,328(1) The decrease in fiscal 2018 from fiscal 2017 is primarily due to the utilization of the net operating loss related to the G&K acquisition in fiscal 2017. The majority of these netoperating losses have a five-year expiration period.The progression of the valuation allowance is as follows:(In thousands)2018 2017 Balance at beginning of year$(18,088) $(17,047)Additions(3,268) (1,667)Subtractions (1)10,054 626Balance at end of year$(11,302)$(18,088)(1) Primarily related to expiration of net operating loss carryforwards and application of the Tax Act.Income taxes paid were $175.3 million, $269.6 million and $452.6 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively.As of May 31, 2018 and 2017, there was $26.9 million and $12.6 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 incometax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods. The totalamount accrued for interest and penalties as of May 31, 2018 and 2017, was $1.8 million and $0.9 million, respectively. Cintas records this taxliability in long-term accrued liabilities on the consolidated balance sheets, as appropriate.52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, 2016$16,531Additions from G&K acquisition (1)2,084Additions for tax positions of prior years2,520Settlements (2)(1,044)Statute expirations(2,734)Balance at May 31, 2017$17,357Additions for tax positions of the current year10,164Additions from G&K acquisition (1)6,394Additions for tax positions of prior years5,675Statute expirations(2,943)Balance at May 31, 2018$36,647(1) Increase in unrecognized tax benefit associated with unrecognized benefits assumed in the G&K acquisition.(2) Decrease in unrecognized tax benefit associated with the settlement of a fiscal 2012 Internal Revenue Service audit.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 ina majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, bynature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either areduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results ofoperation in any given period.All U.S. federal income tax returns are closed to audit through fiscal 2014. Cintas is currently in various audits in certain foreign jurisdictions andcertain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2013. Based on the resolution of the variousaudits and other potential regulatory developments, it is expected that the balance of unrecognized tax benefits will not change for the fiscal yearending May 31, 2019.On December 22, 2017, the President signed into legislation the Tax Act. Among other changes, the Tax Act reduced the U.S. corporate tax ratefrom 35% to 21% and requires companies to pay a one-time transition tax on earnings of foreign subsidiaries. The Tax Act also includesprovisions that are expected to offset some of the benefit of the anticipated U.S. corporate tax rate reduction, including the repeal of the deductionfor domestic production activities and the expansion of the limitation on the deduction of certain executive compensation. In addition, the Tax Actalters the landscape of taxation of non-U.S. operations and provides immediate deductions for certain new investments, among other provisions.Provisional Deferred Tax RevaluationDeferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporarydifferences are expected to be recovered or settled. As changes in tax laws or rates occur, deferred tax assets and liabilities are adjusted throughincome tax expense in the period changes are enacted. Cintas revalued its deferred tax assets and liabilities based on the newly enacted 21%U.S. corporate tax rate. Cintas will continue to revise certain aspects of the calculation, which could potentially affect the measurement of thesebalances or give rise to new deferred tax amounts. The provisional amount related to the revaluation of the net deferred tax liability balance was abenefit of $175.6 million, which was recognized as a component of income tax expense for the fiscal year ended May 31, 2018.Provisional Transition TaxThe one-time transition tax is based on Cintas' post-1986 earnings and profits (E&P) of foreign subsidiaries that were previously deferred for U.S.income tax purposes. Cintas recorded a transition tax liability, net of foreign tax credits, of $9.8 million that was recognized as additional incometax expense during the fiscal year ended May 31, 2018. Cintas is still revising the transition tax calculation, as the Company has not completed itsfinal analysis of all provisions of the Tax Act. The provisional amount is subject to change based on computation of final fiscal 2018 E&P, theamounts held in cash and cash equivalents at the end of fiscal 2018, a historical E&P validation and foreign tax credit analysis.53Foreign Withholding TaxForeign withholding taxes of $3.7 million have been recognized and paid on certain non-U.S. earnings subject to repatriation that were previouslytax deferred. We will continue to monitor all foreign E&P we believe to be permanently reinvested in foreign operations, if any.Given the impact of the G&K acquisition to Cintas' Canadian operations in fiscal 2018, Cintas has revised its position to a partially investedassertion (only a portion of future E&P is no longer deemed to not be permanently reinvested). Cintas has accrued a withholding tax estimate of$0.7 million related to fiscal 2018 earnings not deemed to be permanently reinvested as it relates to E&P generated after the enactment of the TaxAct.As of May 31, 2018, the estimated impacts of the Tax Act recorded during the twelve months ended May 31, 2018 are provisional in nature, andCintas will continue to assess the impact of the Tax Act and will record adjustments through the income tax provision in the relevant period asamounts are known and reasonably estimable during the measurement period. Accordingly, Cintas has not completed the final analysis related tothe tax impact of the Tax Act, consequently, the impact of the Tax Act may differ from Cintas' provisional estimates due to, and among otherfactors, information currently not available, changes in interpretations and the issuance of additional guidance, as well as changes in assumptions,including actions Cintas may take in future periods as a result of the Tax Act. However, Cintas has recognized a reasonable estimate of theeffects of its deferred tax balances and one-time transition tax that are recorded within the financial statements for the fiscal year ended May 31,2018.Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, net of valuationallowances, will be realized.9. Acquisitions and DivestituresAcquisitionsThe purchase price paid for each acquisition has been allocated to the fair value of the assets acquired and liabilities assumed. During fiscal 2018,Cintas acquired five businesses included in the Uniform Rental and Facility Services reportable operating segment, three businesses included inthe First Aid and Safety Services reportable operating segment and six businesses included in All Other. During fiscal 2017, Cintas acquired threebusinesses included in the Uniform Rental and Facility Services reportable operating segment, including the G&K acquisition discussed below,four businesses included in the First Aid and Safety Services reportable operating segment, and eleven businesses included in All Other.The following summarizes the aggregate purchase price and fair value allocations for all businesses acquired:(In thousands)2018 2017 Fair value of tangible assets acquired$421 $550,491Fair value of service contracts acquired9,271 529,235Fair value of other intangibles acquired892 17,556Net goodwill recognized12,094 1,507,554Total fair value of assets acquired22,678 2,604,836Fair value of liabilities assumed3,332 502,465Total cash paid for acquisitions, net of cash acquired$19,346 $2,102,37154G&K AcquisitionOn March 21, 2017, Cintas completed the acquisition of G&K for consideration of approximately $2.1 billion. Pursuant to the merger agreementgoverning the acquisition, each share of common stock of G&K issued and outstanding immediately prior to the effective time of the G&Kacquisition was canceled and converted into the right to receive $97.50 in cash. The total purchase price was $2,078.4 million, which was fundedusing a combination of new senior notes, a term loan, other borrowings under our existing credit facility and cash on hand. The net considerationtransferred for G&K consisted of the following items:(In thousands) Cash consideration for common stock$1,901,845(1) Cash consideration for share-based awards62,257(2) Cash consideration for G&K revolving debt124,180(3) Cash consideration for transaction expenses24,529(4) Total consideration2,112,811 Cash acquired(34,393)(5) Net consideration transferred$2,078,418 (1) The cash consideration for outstanding shares of G&K common stock is the product of the agreed-upon cash per share price of $97.50 and total G&K outstanding shares ofapproximately 19.5 million.(2) The cash consideration for share-based awards is the product of the agreed-upon cash per share price of $97.50 and the total number of restricted stock outstanding andthe “in the money” stock options net of the weighted average exercise price.(3) The cash consideration for G&K revolving debt reflects the repayment of the outstanding obligation.(4) Represents G&K legal and professional fees that were incurred prior to acquisition and were due upon the closing of the transaction.(5) Represents the G&K cash balance acquired at acquisition.Purchase Price AllocationCintas accounted for the G&K acquisition using the acquisition method. The final allocation of the purchase price was determined by managementwith the assistance of third-party valuation specialists and is based on estimates of the fair value of assets acquired and liabilities assumed as ofMarch 21, 2017. The components of the final purchase price allocation, at fair value, are as follows:Assets:2018Accounts receivable$95,710Inventories28,813Uniforms and other rental items in service93,659Income taxes, current15,873Prepaid expenses and other current assets43,235Property and equipment253,346Goodwill1,545,905Service contracts519,000Trade names17,000Other assets15,585Liabilities: Accounts payable(53,220)Accrued compensation and related liabilities(9,594)Accrued liabilities(108,198)Long term accrued liabilities(85,688)G&K senior notes(105,359)Deferred income taxes(187,649)Total consideration$2,078,41855As a result of the finalization of the G&K purchase price allocation in the fourth quarter of fiscal 2018, adjustments were made to the preliminarypurchase price allocation to adjust the acquired environmental obligations of G&K to fair value (in accordance with ASC Topic 820) on theacquisition date and record the corresponding deferred income tax impact. Cintas has an environmental and legal group dedicated to the ongoingreview and monitoring of environmental remediation sites, including those acquired by G&K. During the measurement period, the environmentalgroup performed an evaluation of the G&K locations’ operational history and a consideration of alternative remedies and cost sharing arrangementsresulted in Cintas’ calculation of the estimated fair value of the acquired obligations. Cintas’ environmental and legal group will continue to monitorthe acquired environmental obligations and adjustments to these reserves could occur in the future. New environmental obligations will be recordedin accordance with Cintas’ accounting policy, as described in Note 1 under "Environmental Obligations."The fair value of the intangible assets has been estimated using the income approach through a discounted cash flow analysis (except as notedbelow with respect to the trade names) with the cash flow projections discounted using a rate of 9.5%. The cash flows are based on estimatesused to price the G&K acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from Cintas’pricing model and the weighted average cost of capital.The G&K service contract intangible asset is being amortized over a period of 15 years, which represents the estimated useful life of the economicbenefit, and the asset amortization is based on the annual economic value of the underlying asset, which generally decreases over the 15-yearterm. The trade names represent the G&K corporate trade name and all of the branded variations thereof. Cintas applied the income approachthrough a relief from royalty method analysis to determine the fair value of the trade name assets.The table below sets forth the valuation and amortization period of identifiable intangible assets:Identifiable intangible assets:ValuationAmortization Period Service contracts$519,00015 yearsTrade names17,0003 yearsTotal$536,000 Cintas estimated the fair value of the acquired property, plant and equipment using a combination of the cost and market approaches, dependingon the type of asset. The fair value of property, plant and equipment consisted of real property of $141.8 million and personal property of $111.5million.Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economicbenefits arising from other assets acquired that could not be individually identified and separately recognized. None of the goodwill is deductible forincome tax purposes. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefitsthat are expected to be realized from the G&K acquisition. These benefits include improved service capabilities, an enhanced footprint in themarkets that we serve, attractive synergy opportunities and value creation. The goodwill is entirely allocated to the Uniform Rental and FacilityServices reportable operating segment.The following unaudited pro forma information presents the combined financial results for Cintas and G&K as if the G&K acquisition had beencompleted at the beginning of Cintas’ fiscal 2016, June 1, 2015. Prior to the acquisition, G&K used a 52-week or 53-week fiscal year ending on theSaturday nearest June 30. The pro forma financial information set forth below for the year ended May 31, 2016 includes G&K's annual results forthe period of June 28, 2015 through July 2, 2016 adjusted for number of working days in Cintas' fiscal 2016. The pro forma financial information forthe year ended May 31, 2017 includes G&K's publicly reported results for the period of July 2, 2016 through December 31, 2016 annualized andadjusted for the number of work days in the stub period of June 1, 2016 through March 21, 2017 and the actual results from March 22, 2017through May 31, 2017. Actual net sales and net income of the acquired G&K business included in reported fiscal 2017 results were $187.7 millionand $5.7 million, respectively.In thousands except per share data2017 2016 Net sales$6,107,109 $5,762,741Net income$488,482 $520,224 Earnings per common share - diluted$4.45 $4.6656The information above does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information,and does not reflect future events that may occur after May 31, 2017 or any operating efficiencies or inefficiencies that may result from the G&Kacquisition and related financing. Therefore, the information is not necessarily indicative of results that would have been achieved had thebusinesses been combined during the periods presented or the results that Cintas will experience going forward.Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each majorcategory of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). The working capital assets andliabilities, as well as the property and equipment acquired, were valued using Level 2 inputs which included data points that are observable, suchas definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill, service contracts andother intangibles were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flow using adiscount rate of 9.5% (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in asignificantly lower (higher) fair value measurement. Management utilizes third-party valuation firms to assist in the determination of purchaseaccounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firmsto ensure that the transaction-specific assumptions are appropriate for Cintas.DivestituresIn fiscal 2018, Cintas sold a significant business referred to as Discontinued Services which was primarily included in All Other. Additionally, infiscal 2014, Cintas completed the Shredding Transaction with Shred-it International, Inc. to combine Cintas’ Shredding with Shred-it InternationalInc.’s shredding business and created the Shred-it Partnership. In fiscal 2016, Cintas sold Shred-it. In fiscal 2015, Cintas sold Storage. Storage,excluding related real estate owned by Cintas, was sold in three separate transactions to three separate buyers. In fiscal 2016, Cintas sold theremaining Storage assets classified as held for sale. Both Shredding and Storage were previously included in the former Document ManagementServices operating segment. As a result of the transactions noted above, the results from Discontinued Services, Shredding, Shred-it and Storageare reported under discontinued operations for all periods presented and are excluded from continuing operations and from operating segmentresults for all periods presented. See Note 16 entitled Discontinued Operations for additional information.5710. Employee Benefit PlansPension PlansIn conjunction with the acquisition of G&K, Cintas assumed G&K's noncontributory defined benefit pension plan (the Pension Plan) that coverssubstantially all G&K employees who were employed as of July 1, 2005, except certain employees who were covered by union-administered plans.Benefits are based on the number of years of service and each employee’s compensation near retirement. We will make annual contributions tothe Pension Plan consistent with federal funding requirements. The Pension Plan was frozen by G&K effective December 31, 2006. Future growthin benefits will not occur beyond this date. Applicable accounting standards require that the consolidated balance sheet reflect the funded status ofthe pension plan. The funded status of the Pension Plan is measured as the difference between the plan assets at fair value and the projectedbenefit obligation. The net pension liability at May 31, 2018 and 2017 is included in the long-term accrued liabilities on the consolidated balancesheet. Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in accumulated othercomprehensive income in our consolidated balance sheet. The difference between actual amounts and estimates based on actuarial assumptionsare recognized in other comprehensive income in the period in which they occur. The estimated amortization from accumulated othercomprehensive income into net periodic benefit cost during fiscal year 2019 is immaterial.Obligations and Funded Status at May 31: (in thousands) 2018 2017 Change in benefit obligation: Projected benefit obligation, beginning of year $87,387 $—Projected benefit obligation acquired in G&K acquisition — 84,553Interest cost 2,818 562Actuarial (gain) loss (940) 2,750Benefits paid (2,924) (478)Projected benefit obligation, end of year $86,341 $87,387 Change in plan assets: Fair value of plan assets, beginning of year $59,396 $—Plan assets acquired in G&K acquisition — 57,747Actual return on plan assets 2,309 2,127Benefits paid (2,924) (478)Fair value of plan assets, end of year $58,781 $59,396 Funded status-net amount recognized $(27,560) $(27,991)The accrued benefit liability of $27.6 million and $28.0 million was included in long-term accrued liabilities on the consolidated balance sheet as ofMay 31, 2018 and 2017, respectively. An unrecognized net actuarial loss of $0.8 million and $1.2 million related to the Pension Plan was includedin "other" within in the accumulated other comprehensive loss on the Consolidated Balance Sheet at May 31, 2018 and 2017, respectively.Components of Net Periodic Benefit Cost (in thousands) 2018 2017 Interest cost $2,818 $562Expected return on assets (2,832) (590)Amortization of net loss — —Net periodic benefit cost $(14) $(28)58AssumptionsThe following weighted average assumptions were used to determine benefit obligations for the Pension Plan at May 31, 2018 and 2017: 2018 2017Discount rate 3.95% 3.79%Rate of compensation increase N/A N/AThe following weighted average assumptions were used to determine net periodic benefit cost for the Pension Plan for the fiscal year ended May31, 2018 and 2017: 2018 2017Discount rate 3.79% 4.00%Expected return on plan assets 4.90% 5.40%Rate of compensation increase N/A N/APlan AssetsThe asset allocations in the Pension Plan at May 31, 2018 and 2017 are as follows: 2018 2018 2017 Target AssetAllocation Actual AssetAllocation Actual AssetAllocationInternational equity 8.0% 7.9% 8.3%Large cap equity 26.0% 26.5% 26.3%Small cap equity 5.0% 5.6% 5.3%Absolute return strategy funds 16.0% 15.8% 16.2%Fixed income 45.0% 44.2% 43.6%Long/short equity fund —% —% 0.3%Total 100% 100% 100%Our investment committee, assisted by outside consultants, evaluates the objectives and investment policies concerning our long-terminvestment goals and asset allocation strategies. Plan assets are invested in various asset classes that are expected to produce a sufficient levelof diversification and investment return over the long term. To develop the expected long-term rate of return on asset assumptions, we considerthe historical returns and future expectations of returns for each asset class, as well as the target asset allocation, changes in investmentsexpenses and investment goals of the pension portfolio. This resulted in the selection of 4.90% expected return on plan assets for fiscal year 2018and 5.40% expected return on plan assets for fiscal year 2017. The investment goals are (1) to meet or exceed the assumed actuarial rate ofreturn over the long term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet futureobligations. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, areconsidered when determining an appropriate asset allocation to achieve the investment objectives. Pension plan assets for our qualified pensionplans are held in a trust for the benefit of the plan participants and are invested in a diversified portfolio of equity investments, fixed incomeinvestments and cash. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designedto ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established definingpermitted investments within each asset class.The implementation of the investment strategy discussed above is executed through a variety of investment types, including U.S. governmentsecurities, corporate debt and mutual funds. These investments are valued at the closing price reported on the active market on which theindividual securities are traded.The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fairvalues. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of differentmethodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at thereporting date.59Information on the Pension Plan investments as of May 31, 2018 and 2017, using the fair value hierarchy discussed in Note 1 entitled SignificantAccounting Polices, is as follows: May 31, 2018(in thousands) Level 1 Level 2 Level 3 TotalCash equivalents $487 $— $— $487U.S. government securities 2,426 3,458 — 5,884Corporate debt — 19,826 — 19,826Mutual funds: U.S. securities 27,901 — — 27,901 International securities 4,683 — — 4,683Total $35,497 $23,284 $— $58,781 May 31, 2017(in thousands) Level 1 Level 2 Level 3 TotalCash equivalents $629 $— $— $629U.S. government securities 1,874 3,401 — 5,275Corporate debt — 20,210 — 20,210Mutual funds: U.S. securities 28,353 — — 28,353 International securities 4,929 — — 4,929Total $35,785 $23,611 $— $59,396We expect to make contributions of approximately $4.3 million to the Pension Plan during the next 12 months. The Pension Plan benefit paymentsexpected to be paid for each of the next five years and thereafter are $3.2 million, $3.4 million, $3.6 million, $3.7 million, $3.9 million and $21.4million, respectively.Future changes in plan asset returns, assumed discount rates and various other factors related to the Pension Plan will impact future pensionexpense and liabilities. We cannot predict the impact of these changes in the future, and any changes may have a material impact on our resultsof operations and financial position.Cintas administers a pension plan that was assumed in a previous acquisition and has historically been deemed immaterial for disclosurepurposes. As of May 31, 2018 and 2017, the fair value of this pension plan's total assets was $7.5 million and $7.1 million, respectively, and theprojected benefit obligation was $7.4 million and $7.5 million, respectively. For the years ended May 31, 2018 and 2017, the net periodic benefitcost recorded for this plan was income of $0.1 million and expense of $0.1 million, respectively.Non-Contributory Retirement PlansCintas' Partners' Plan (the Plan) is a non-contributory profit sharing plan and Employee Stock Ownership Plan (ESOP) for the benefit ofsubstantially all U.S. Cintas employee-partners who have completed one year of service. The Plan also includes a 401(k) savings feature coveringsubstantially 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. During fiscal 2018 the G&K 401(k) plan was merged into the Plan. There were no changes tothe Plan as as a result of the merger. Total contributions, including Cintas' matching contributions, which approximate cost, were $56.7 million,$47.5 million and $43.1 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively.Cintas has a non-contributory deferred profit sharing plan (DPSP), which covers substantially all Canadian employee-partners. In addition, aregistered retirement savings plan (RRSP) is offered to those employees. The amounts of contributions to the DPSP, as well as the matchingcontribution to the RRSP, are made at the discretion of the Board of Directors. Total contributions, which approximate cost, were $2.8 million, $1.8million and $1.6 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively.Cintas has a supplemental executive retirement plan (SERP) subject to Section 409A of the Internal Revenue Code for the benefit of certain highlycompensated Cintas employee-partners. The SERP allows participants to defer the receipt of compensation which would otherwise becomepayable to them. Matching contributions are made at the discretion of the Board of Directors. Total matching contributions were $8.2 million, $6.9million and $6.6 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively.6011. Earnings per ShareThe following table sets forth the computation of basic and diluted earnings per share from continuing operations using the two-class method foramounts attributable to Cintas' common shares:Basic Earnings per Share from Continuing Operations(In thousands except per share data)2018 2017 2016 Income from continuing operations$783,932 $457,286 $448,605Less: income from continuing operations allocated to participating securities11,794 8,168 7,131Income from continuing operations available to common shareholders$772,138 $449,118 $441,474Basic weighted average common shares outstanding106,593 104,964 108,221 Basic earnings per share from continuing operations$7.24 $4.27 $4.08Diluted Earnings per Share from Continuing Operations(In thousands except per share data)2018 2017 2016 Income from continuing operations$783,932 $457,286 $448,605Less: income from continuing operations allocated to participating securities11,794 8,168 7,131Income from continuing operations available to common shareholders$772,138 $449,118 $441,474Basic weighted average common shares outstanding106,593 104,964 108,221Effect of dilutive securities – employee stock options3,217 2,819 1,735Diluted weighted average common shares outstanding109,810 107,783 109,956 Diluted earnings per share from continuing operations$7.03 $4.17 $4.02Basic and diluted earnings per share from discontinued operations were calculated using the two-class method. Basic earnings per share fromdiscontinued operations were $0.54, $0.22 and $2.22 for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. Diluted earnings pershare from discontinued operations were $0.53, $0.21 and $2.19 for the fiscal years ended May 31, 2018, 2017 and 2016, respectively.For the fiscal years ended May 31, 2018, 2017 and 2016, options granted to purchase 0.8 million, 0.6 million and 0.5 million shares of Cintascommon stock, respectively, were excluded from the computation of diluted earnings per share. The exercise prices of these options were greaterthan the average market price of the common shares (anti-dilutive).On January 13, 2015, Cintas announced that the Board of Directors authorized a $500.0 million share buyback program. This program wascompleted in September 2015. On August 4, 2015, we announced that the Board of Directors authorized a $500.0 million share buyback program.This program was completed in June 2016. On August 2, 2016, we announced that the Board of Directors authorized a new $500.0 million sharebuyback program. The following table summarizes the buyback activity by program and fiscal period:(In thousands except pershare data)2018 2017 2016Buyback ProgramShares Avg. Priceper Share PurchasePrice Shares Avg. Priceper Share Purchase Price Shares Avg. Priceper Share PurchasePrice January 13, 2015— $— $— — $— $— 3,078 $85.44 $262,928August 4, 2015— $— $— 39 $94.09 $3,691 5,649 $87.85 $496,309August 2, 2016518 $173.51 $89,997 — $— $— — $— $— 518 $173.51 $89,997 39$94.09$3,6918,727$87.00$759,23761Subsequent to May 31, 2018 through July 27, 2018, Cintas purchased 0.3 million shares at an average price of $199.15 per share for a totalpurchase price of $60.0 million. Under the August 2, 2016 program through July 27, 2018, Cintas has purchased a total of 0.8 million shares ofCintas common stock at an average price of $182.93 per share for a total purchase price of $150.0 million.In addition to the buyback program, Cintas acquired shares of Cintas common stock in satisfaction of employee payroll taxes due on restrictedstock awards that vested during the fiscal year. For the fiscal year ended May 31, 2018, Cintas acquired 0.3 million shares at an average price of$130.30 per share for a total purchase price of $37.3 million. For the fiscal year ended May 31, 2017, Cintas acquired 0.2 million shares at anaverage price of $101.37 per share for a total purchase price of $17.0 million. For the fiscal year ended May 31, 2016, Cintas acquired 0.2 millionshares at an average price of $86.07 per share for a total purchase price of $20.9 million.12. Stock-Based CompensationOn August 2, 2016, the Board of Directors approved and adopted the Cintas Corporation 2016 Equity and Incentive Compensation Plan (the 2016Plan) to replace the Cintas' 2005 Equity Compensation Plan, as amended (the 2005 Plan). The 2016 Plan was approved by Cintas shareholders atits Annual Meeting on October 18, 2016, at which time the 2016 Plan became effective. Under the 2016 Plan, Cintas may grant officers and keyemployee-partners equity compensation in the form of stock options, stock appreciation rights, restricted and unrestricted stock awards,performance awards and other stock unit awards representing up to an aggregate of 12,500,000 shares of Cintas' common stock. Any shares ofcommon stock that remained available under the 2005 Plan became part of the total available share balance of 12,500,000 shares under the 2016Plan. At May 31, 2018, 10,595,954 shares of common stock were reserved for future issuance under the 2016 Plan. Total compensation cost forstock-based awards for continuing operations was $110.7 million, $87.5 million and $77.8 million for the fiscal years ended May 31, 2018, 2017and 2016, respectively. The total income tax benefit recognized in the consolidated income statement for share-based compensationarrangements for continuing operations was $32.3 million, $32.5 million and $28.3 million for the fiscal years ended May 31, 2018, 2017 and 2016,respectively.Stock OptionsStock options are granted at the fair market value of the underlying common stock on the date of grant. The option terms are determined by theCompensation Committee of the Board of Directors, but no stock option may be exercised later than 10 years after the date of the grant. Theoption awards generally have 10-year terms with graded vesting in years 3 through 5 based on continuous service during that period. Cintasrecognizes compensation expense for these options using the straight-line recognition method over the vesting period.The fair value of options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions: 2018 2017 2016 Risk-free interest rate1.8% 1.2% 2.0%Dividend yield1.2% 1.3% 1.4%Expected volatility of Cintas' common stock17.2% 21.6% 23.3%Expected life of the option in years6.5 7.5 7.5The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the stock options. Thedetermination of expected volatility is based on historical volatility of Cintas' common stock over the period commensurate with the expected termof stock options, as well as other relevant factors. The weighted average expected term was determined based on the historical employeeexercise behavior of the options. The weighted-average fair value of stock options granted during fiscal 2018, 2017 and 2016 was $29.31, $23.34and $22.20, respectively.62The information presented in the following table relates primarily to stock options granted and outstanding under either the 2016 Plan or underpreviously adopted plans: Shares WeightedAverageExercisePrice Outstanding, June 1, 2015 (1,426,550 shares exercisable)7,835,570 $51.59Granted1,739,767 93.55Canceled(4,413) 34.56Forfeited(231,042) 60.57Exercised(919,975) 35.07Outstanding, May 31, 2016 (1,649,236 shares exercisable)8,419,907 61.83Granted1,343,180 126.51Canceled(5,368) 32.45Forfeited(165,452) 73.43Exercised(1,004,217) 35.95Outstanding, May 31, 2017 (1,795,898 shares exercisable)8,588,050 74.77Granted1,664,867 175.86Canceled(7,809) 45.10Forfeited(255,627) 94.73Exercised(1,059,295) 44.06Outstanding, May 31, 2018 (2,006,922 shares exercisable)8,930,186 $96.71The intrinsic value of stock options exercised was $110.9 million, $76.5 million and $48.5 million for the fiscal years ended May 31, 2018, 2017 and2016, respectively. The total cash received from employees as a result of employee stock option exercises for the fiscal years ended May 31,2018, 2017 and 2016 was $41.8 million, $31.9 million and $28.2 million, respectively.The fair value of stock options vested was $17.9 million, $12.7 million and $11.0 million for the fiscal years ended May 31, 2018, 2017 and 2016,respectively.The following table summarizes the information related to stock options outstanding at May 31, 2018: Outstanding Options Exercisable OptionsRange ofExercise PricesNumberOutstanding AverageRemainingOptionLife WeightedAverageExercisePrice NumberExercisable WeightedAverageExercisePrice $ 22.42 – $ 59.501,901,639 4.03 $39.27 1,615,907 $37.74 59.51 – 89.782,671,836 6.69 76.01 348,008 65.55 89.79 – 109.331,346,379 8.13 107.33 42,346 101.57 109.34 – 182.253,010,332 9.55 158.55 661 137.30 $ 22.42 – $ 182.258,930,186 7.31 $100.73 2,006,922 $43.94At May 31, 2018, the aggregate intrinsic value of stock options outstanding and exercisable was $728.0 million and $277.6 million, respectively.The weighted-average remaining contractual term of stock options exercisable is 4.3 years.63Restricted Stock AwardsRestricted stock awards consist of Cintas' common stock that is subject to such conditions, restrictions and limitations as the CompensationCommittee of the Board of Directors determines to be appropriate. The vesting period is generally three years after the grant date. The recipient ofrestricted stock awards will have all rights of a shareholder of Cintas, including the right to vote and the right to receive cash dividends during thevesting period. Cintas recognizes compensation expense for these restricted stock awards using the straight-line recognition method over thevesting period.The information presented in the following table relates to restricted stock awards granted and outstanding under either the 2016 Plan or underpreviously adopted plans: Shares WeightedAverageGrant Price Outstanding, unvested grants at June 1, 20152,210,113 $57.60Granted1,069,748 92.10Forfeited(70,998) 65.79Vested(605,427) 38.76Outstanding, unvested grants at May 31, 20162,603,436 75.94Granted614,076 128.63Forfeited(46,766) 81.23Vested(428,672) 48.67Outstanding, unvested grants at May 31, 20172,742,074 91.91Granted669,932 183.83Forfeited(69,416) 102.96Vested(701,476) 64.64Outstanding, unvested grants at May 31, 20182,641,114 $122.18The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 2018 was $258.6 million. Theweighted-average period of time over which this cost will be recognized is 1.9 years.6413. Accumulated Other Comprehensive Income (Loss)The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income(loss), net of tax:(In thousands)ForeignCurrency Unrealized(Loss) Gain on CashFlow Hedges Other Total Balance at May 31, 2016$(2,474) $(20,830) $(1,570) $(24,874)Other comprehensive (loss) income before reclassifications(10,252) 31,136 (115) 20,769Amounts reclassified from accumulated other comprehensive income (loss)— 1,076 — 1,076Net current period other comprehensive (loss) income(10,252) 32,212 (115) 21,845Balance at May 31, 2017(12,726) 11,382 (1,685) (3,029)Other comprehensive income before reclassifications19,276 — 1,029 20,305Amounts reclassified from accumulated other comprehensive income (loss)— (933) — (933)Net current period other comprehensive income (loss)19,276 (933) 1,029 19,372Balance at May 31, 2018$6,550 $10,449 $(656) $16,343The following table summarizes the reclassifications out of accumulated other comprehensive income (loss) during the fiscal years ended May 31:Reclassifications out of Accumulated Other Comprehensive Income (Loss) Details about AccumulatedOther ComprehensiveIncome (Loss) Components Amount Reclassified fromAccumulated OtherComprehensive Income (Loss) Affected Line in theConsolidated Statements of Income (in thousands) 2018 2017 Amortization of interest rate locks $1,504 $(1,714) Interest expenseTax (expense) benefit (571) 638 Income taxesAmortization of interest rate locks, net of tax $933 $(1,076) Net of tax6514. Operating Segment InformationCintas’ reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and FacilityServices reportable 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, carpet and tilecleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. TheFirst Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’business, which consists of Fire Protection Services and its Uniform Direct Sale business, is included in All Other.Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operatingsegment revenue and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1entitled Significant Accounting Policies. Information related to the operations of Cintas' operating segments is set forth below:(In thousands)Uniform Rentaland Facility Services First Aid and SafetyServices All Other Corporate (1) TotalMay 31, 2018 Revenue$5,247,124 $564,706 $664,802 $— $6,476,632Gross margin$2,360,165 $265,785 $282,573 $— $2,908,523Selling and administrative expenses1,500,644 190,567 225,581 — 1,916,792G&K Services, Inc. transaction and integration expenses41,897 — — — 41,897Interest expense, net— — — 108,833 108,833Income before income taxes$817,624 $75,218 $56,992 $(108,833) $841,001Depreciation and amortization$236,773 $21,898 $20,745 $— $279,416Capital expenditures$225,694 $27,932 $18,073 $— $271,699Total assets$5,977,314 $471,165 $371,011 $138,724 $6,958,214 May 31, 2017 Revenue$4,202,490 $508,233 $612,658 $— $5,323,381Gross margin$1,894,716 $230,166 $255,413 $— $2,380,295Selling and administrative expenses1,138,345 177,378 211,657 — 1,527,380G&K Services, Inc. transaction and integration expenses79,224 — — — 79,224Interest expense, net— — — 86,287 86,287Income before income taxes$677,147 $52,788 $43,756 $(86,287) $687,404Depreciation and amortization$156,998 $19,962 $17,905 $1,730 $196,595Capital expenditures$232,832 $26,863 $12,645 $977 $273,317Total assets$5,801,680 $444,717 $367,562 $230,098 $6,844,057 May 31, 2016 Revenue$3,759,524 $461,783 $574,465 $— $4,795,772Gross margin$1,666,691 $197,010 $237,639 $— $2,101,340Selling and administrative expenses994,590 147,503 190,306 — 1,332,399Interest expense, net— — — 63,626 63,626Income before income taxes$672,101 $49,507 $47,333$(63,626)$705,315Depreciation and amortization$130,421 $16,021 $16,879 $1,958 $165,279Capital expenditures$237,871 $22,364 $14,840 $310 $275,385Total assets$3,104,822 $421,697 $322,474 $249,822 $4,098,815(1) Corporate assets include cash and marketable securities in all periods presented. Corporate assets as of May 31, 2017 and 2016 also include the assets of DiscontinuedServices. Corporate depreciation and amortization includes depreciation and amortization of Discontinued Services.6615. 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, 2018 and 2017:May 31, 2018 (in thousands)FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue$1,611,503 $1,606,441 $1,589,138 $1,669,550Gross margin$739,353 $716,369 $700,463 $752,338Net income, continuing operations$161,108 $137,737 $295,789 $189,298Basic earnings per share, continuing operations$1.50 $1.27 $2.73 $1.74Diluted earnings per share, continuing operations$1.45 $1.24 $2.66 $1.68Weighted average number of shares outstanding105,740 106,340 106,558 106,593May 31, 2017 (in thousands)FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue$1,266,650 $1,271,077 $1,255,367 $1,530,287Gross margin$576,427 $565,218 $559,924 $678,726Net income, continuing operations$136,208 $121,950 $116,954 $82,174Basic earnings per share, continuing operations$1.27 $1.15 $1.09 $0.76Diluted earnings per share, continuing operations$1.24 $1.12 $1.06 $0.75Weighted average number of shares outstanding104,483 104,957 105,093 105,3256716. Discontinued OperationsIn fiscal 2018, Cintas sold a significant business referred to as Discontinued Services and received $127.8 million of proceeds from the sale. Priorto the sale, Discontinued Services was primarily included in All Other and was classified as held for sale. Additionally, the results of Shred-it andShredding are classified as discontinued operations for all periods presented as a result of entering into a definitive agreement during fiscal 2016 tosell the investment. During fiscal 2015, Cintas sold Storage and, as a result, its operations are also classified as discontinued operations for allperiods presented. Shredding and Storage were was previously included in the former Document Management Services reportable operatingsegment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of Discontinued Services,Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented.In fiscal 2016, we completed the transaction to sell Shred-it. Cintas’ share of the proceeds from the sale were $578.3 million. During the fourthquarter of fiscal 2016, Cintas received additional proceeds and consideration related to the sale of Shred-it. The Company realized a pre-tax gain of$4.3 million as a result of the additional consideration received. During the fiscal year ended May 31, 2016, Cintas recorded a net loss on Shred-itof $24.3 million, which included amortization of basis differences of approximately $4.8 million. After the sale of Shred-it, the basis differences nolonger exist and Cintas no longer records income or loss from Shred-it.In fiscal 2017, we received additional proceeds related to the sale of Shred-it. Cintas realized a pre-tax gain of $25.5 million as a result of theadditional consideration received. Cintas still has the opportunity to receive additional consideration, subject to certain holdback provisions.Because of the uncertainty surrounding the holdback provisions, this opportunity represents a gain contingency that has not been recorded as ofMay 31, 2018.During fiscal 2016, Cintas received additional proceeds on the sale of Storage related to the contingent consideration and realized a pre-tax gain of$10.9 million. During fiscal 2016, Cintas also sold the remaining Storage assets classified as held for sale. Cintas received proceeds of $24.4million from the sale of these assets and realized a pretax gain of $4.8 million. In fiscal 2017, Cintas received additional proceeds related to thesale of Storage and recorded a pre-tax gain of $2.4 million.Following is selected financial information included in net income from discontinued operations for the Discontinued Services, Shredding andStorage businesses:(In thousands)2018 2017 2016 Revenue$10,773 $105,559 $109,686 (Loss) income before income taxes, excluding gains from sale transactions and investments(2,433) 10,622 13,242Income tax benefit (expense)706 (3,930) (4,900)Gain on sale of business96,400 — —Gain on Shred-it— 25,457 354,071Gain on Storage transactions— 2,400 15,786Income tax expense on net gain(36,019) (11,127) (133,284)Net income from discontinued operations$58,654 $23,422 $244,9156817. G&K Services, Inc. Transaction and Integration ExpensesAs a result of the acquisition of G&K in fiscal 2017, the Company incurred $41.9 million and $79.2 million in transaction and integration expensesin fiscal 2018 and 2017, respectively. The $41.9 million of costs incurred in fiscal 2018 related to lease cancellation costs, facility closureexpenses and other integration expenses directly related to the acquisition. In fiscal 2017, the expenses related to asset impairment charges of$23.3 million and other transaction and integration expenses of $55.9 million, which consisted of the following: $17.4 million of legal andprofessional fees directly related to the acquisition, $31.0 million of employee termination expenses recognized under ASC Topic 712,"Compensation - Nonretirement Postemployment Benefits," $5.5 million write-off of excess inventory and $2.0 million of other miscellaneousintegration expenses.These transaction and integration expenses for both fiscal years are included in a single line in the Consolidated Statements of Income and arereported by operating segment in Note 14 entitled Operating Segment Information. Our accounting policy for long-lived assets is described in Note1 entitled Significant Accounting Policies. The asset impairment charges in fiscal 2017 of $23.3 million relate to the write-down of machinery andequipment and other fixed assets to their fair value in G&K plants and branches that were identified by the Company on April 30, 2017 for futureclosure. The Company determined that these assets cannot be used for other purposes, and the undiscounted projected future cash flowsassociated with these assets are less than their carrying value at April 30, 2017. The fair value utilized for purposes of the asset impairmentanalysis was determined by using Level 2 inputs based on both the cost and market approaches.In fiscal 2018, the amount of employee termination benefits paid was $15.2 million, resulting in a related liability balance of $9.1 million as of May31, 2018. The amount of employee termination benefits paid in fiscal 2017 was $6.7 million, resulting in a related liability balance of $24.3 millionas of May 31, 2017.6918. Supplemental Guarantor InformationCintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $2,550.0million aggregate principal amount of outstanding debt, which is unconditionally guaranteed, jointly and severally, by Cintas Corporation and itswholly-owned, direct and indirect domestic subsidiaries.As allowed by Securities and Exchange Commission rules, the following condensed consolidating financial statements are provided as analternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the following condensed consolidatingfinancial statements has been fully consolidated in Cintas' consolidated financial statements. The following condensed consolidating financialstatements should be read in conjunction with the consolidated financial statements of Cintas and notes thereto of which this note is an integralpart.Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the followingpages:Condensed Consolidating Income StatementYear Ended May 31, 2018(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Revenue: Uniform rental and facility services$— $4,361,716 $681,846 $400,792 $(197,230) $5,247,124Other— 1,778,845 112 88,092 (637,541) 1,229,508Equity in net income of affiliates783,932 — — — (783,932) — 783,932 6,140,561 681,958 488,884 (1,618,703) 6,476,632Costs and expenses (income): Cost of uniform rental and facility services— 2,511,854 418,722 254,718 (298,335) 2,886,959Cost of other— 1,183,036 (57,220) 62,368 (507,034) 681,150Selling and administrative expenses— 2,093,655 (271,222) 125,545 (31,186) 1,916,792G&K Services, Inc. transaction and integration expenses— 15,383 22,148 4,366 — 41,897Operating income783,932 336,633 569,530 41,887 (782,148) 949,834 Interest income— (310) (242) (793) 3 (1,342)Interest expense (income)— 111,292 (1,017) (100) — 110,175 Income before income taxes783,932 225,651 570,789 42,780 (782,151) 841,001Income tax (benefit) expense— (48,907) 90,886 15,212 (122) 57,069Income from continuing operations783,932 274,558 479,903 27,568 (782,029) 783,932Income (loss) from discontinued operations, net of tax58,654 68,293 (9,688) — (58,605) 58,654Net income$842,586 $342,851 $470,215 $27,568 $(840,634) $842,58670Condensed Consolidating Income StatementYear Ended May 31, 2017(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Revenue: Uniform rental and facility services$— $3,511,483 $604,679 $257,288 $(170,960) $4,202,490Other— 1,604,877 1,810 73,006 (558,802) 1,120,891Equity in net income of affiliates457,286 — — — (457,286) — 457,286 5,116,360 606,489 330,294 (1,187,048) 5,323,381Costs and expenses (income): Cost of uniform rental and facility services— 2,021,365 378,404 164,969 (256,964) 2,307,774Cost of other— 1,070,780 (41,509) 56,210 (450,169) 635,312Selling and administrative expenses— 1,686,209 (220,887) 87,672 (25,614) 1,527,380G&K Services, Inc. transaction and integration expenses— 51,868 19,060 8,296 — 79,224Operating income457,286 286,138 471,421 13,147 (454,301) 773,691 Interest income— (26) (191) (22) 2 (237)Interest expense (income)— 89,706 (2,978) (204) — 86,524 Income before income taxes457,286 196,458 474,590 13,373 (454,303) 687,404Income taxes— 65,829 159,025 5,365 (101) 230,118Income from continuing operations457,286 130,629 315,565 8,008 (454,202) 457,286Income from discontinued operations, net of tax23,422 22,287 — 1,135 (23,422) 23,422Net income$480,708 $152,916 $315,565 $9,143 $(477,624) $480,70871Condensed Consolidating Income StatementYear Ended May 31, 2016(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Revenue: Uniform rental and facility services$— $3,147,844 $553,414 $213,526 $(155,260) $3,759,524Other— 1,484,556 8,540 66,270 (523,118) 1,036,248Equity in net income of affiliates448,605 — — — (448,605) — 448,605 4,632,400 561,954 279,796 (1,126,983) 4,795,772Costs and expenses (income): Cost of uniform rental and facility services— 1,835,835 350,500 142,601 (236,103) 2,092,833Cost of other— 1,001,576 (40,741) 48,539 (407,775) 601,599Selling and administrative expenses— 1,497,106 (206,889) 69,257 (27,075) 1,332,399Operating income448,605 297,883 459,084 19,399 (456,030) 768,941 Interest income— — (666) (232) 2 (896)Interest expense (income)— 65,534 (1,027) 15 — 64,522 Income before income taxes448,605 232,349 460,777 19,616 (456,032) 705,315Income taxes— 82,783 164,169 9,874 (116) 256,710Income from continuing operations448,605 149,566 296,608 9,742 (455,916) 448,605Income (loss) from discontinued operations, net of tax244,915 250,625 — (5,837) (244,788) 244,915Net income$693,520 $400,191 $296,608 $3,905 $(700,704) $693,52072Condensed Consolidating Statement of Comprehensive IncomeYear Ended May 31, 2018(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Net income$842,586 $342,851 $470,215 $27,568 $(840,634) $842,586 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments19,276 — — 19,276 (19,276) 19,276Amortization of interest rate lock agreements(933) (933) — — 933 (933)Other1,029 267 762 — (1,029) 1,029 Other comprehensive income (loss)19,372 (666) 762 19,276 (19,372) 19,372 Comprehensive income$861,958 $342,185 $470,977 $46,844 $(860,006) $861,95873Condensed Consolidating Statement of Comprehensive IncomeYear Ended May 31, 2017(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Net income$480,708 $152,916 $315,565 $9,143 $(477,624) $480,708 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments(10,252) — — (10,252) 10,252 (10,252)Change in fair value of cash flow hedges31,136 31,136 — — (31,136) 31,136Amortization of interest rate lock agreements1,076 1,076 — — (1,076) 1,076Other(115) — (115) — 115 (115) Other comprehensive income (loss)21,845 32,212 (115) (10,252) (21,845) 21,845 Comprehensive income (loss)$502,553 $185,128 $315,450 $(1,109) $(499,469) $502,55374Condensed Consolidating Statement of Comprehensive IncomeYear Ended May 31, 2016(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Net income$693,520 $400,191 $296,608 $3,905 $(700,704) $693,520 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments— — — (11,933) — (11,933)Cumulative translation adjustment on Shred-it— 5,875 — 597 — 6,472Change in fair value of cash flow hedges— (12,156) — — — (12,156)Amortization of interest rate lock agreements— 1,952 — — — 1,952 Other— — (730) (8) — (738) Other comprehensive loss— (4,329) (730) (11,344) — (16,403) Comprehensive income (loss)$693,520 $395,862 $295,878 $(7,439) $(700,704) $677,11775Condensed Consolidating Balance SheetAs of May 31, 2018 (in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Assets Current assets: Cash and cash equivalents$— $44,499 $60,310 $33,915 $— $138,724Accounts receivable, net— 620,920 120,767 62,896 — 804,583Inventories, net— 225,581 38,844 15,922 — 280,347Uniforms and other rental items in service— 585,108 81,494 54,248 (18,589) 702,261Income taxes, current— 5,546 9,258 4,830 — 19,634Prepaid expenses and other current assets— 9,453 21,688 1,242 — 32,383Total current assets— 1,491,107 332,361 173,053 (18,589) 1,977,932 Property and equipment, net— 900,014 370,186 112,530 — 1,382,730 Investments (1)321,083 3,595,668 950,239 1,716,070 (6,407,479) 175,581Goodwill— — 2,579,769 267,231 (112) 2,846,888Service contracts, net— 468,283 — 77,485 — 545,768Other assets, net2,230,196 593 4,381,476 8,656 (6,591,606) 29,315 $2,551,279 $6,455,665 $8,614,031 $2,355,025 $(13,017,786) $6,958,214 Liabilities andShareholders' Equity Current liabilities: Accounts payable$(465,247) $(1,724,844) $2,395,434 $(28,216) $37,947 $215,074Accrued compensation and related liabilities— 104,560 24,878 11,216 — 140,654Accrued liabilities— 88,949 308,485 22,695 — 420,129Total current liabilities(465,247) (1,531,335) 2,728,797 5,695 37,947 775,857 Long-term liabilities: Debt due after one year— 2,534,919 — 390 — 2,535,309Deferred income taxes— 215,881 104,559 32,141 — 352,581Accrued liabilities— 63,073 198,181 16,687 — 277,941Total long-term liabilities— 2,813,873 302,740 49,218 — 3,165,831Total shareholders' equity3,016,526 5,173,127 5,582,494 2,300,112 (13,055,733) 3,016,526 $2,551,279 $6,455,665 $8,614,031 $2,355,025 $(13,017,786) $6,958,214(1) Investments include inter company investment activity. Corp 2 and Subsidiary Guarantors hold $17.6 million and $158.0 million, respectively, of the $175.6 million consolidatednet investments.76Condensed Consolidating Balance SheetAs of May 31, 2017(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Assets Current assets: Cash and cash equivalents$— $48,658 $17,302 $103,306 $— $169,266Marketable securities— — — 22,219 — 22,219Accounts receivable, net— 543,769 137,881 54,358 — 736,008Inventories, net— 243,677 21,466 14,461 (1,386) 278,218Uniforms and other rental items in service— 531,295 78,012 45,388 (18,993) 635,702Income taxes, current— 16,173 25,138 3,009 — 44,320Prepaid expenses and other current assets— 13,234 16,188 710 — 30,132Assets held for sale— 23,095 15,518 — — 38,613Total current assets— 1,419,901 311,505 243,451 (20,379) 1,954,478 Property and equipment, net— 851,018 364,724 107,759 — 1,323,501 Investments (1)321,083 3,605,457 929,657 1,711,070 (6,402,479) 164,788Goodwill— — 2,742,898 39,549 (112) 2,782,335Service contracts, net— 505,698 — 81,290 — 586,988Other assets, net1,516,463 14,705 3,489,653 11,983 (5,000,837) 31,967 $1,837,546 $6,396,779 $7,838,437 $2,195,102 $(11,423,807) $6,844,057 Liabilities andShareholders' Equity Current liabilities: Accounts payable$(465,247) $(1,596,731) $2,292,388 $(91,467) $38,108 $177,051Accrued compensation and related liabilities— 94,505 42,866 12,264 — 149,635Accrued liabilities— 191,819 219,303 18,687 — 429,809Liabilities held for sale— 11,457 — — — 11,457Debt due within one year— 362,900 — — — 362,900Total current liabilities(465,247) (936,050) 2,554,557 (60,516) 38,108 1,130,852 Long-term liabilities: Debt due after one year— 2,770,234 — 390 — 2,770,624Deferred income taxes— — 436,613 32,715 — 469,328Accrued liabilities— 28,384 140,923 1,153 — 170,460Total long-term liabilities— 2,798,618 577,536 34,258 — 3,410,412Total shareholders' equity2,302,793 4,534,211 4,706,344 2,221,360 (11,461,915) 2,302,793 $1,837,546 $6,396,779 $7,838,437 $2,195,102 $(11,423,807) $6,844,057(1) Investments include inter company investment activity. Corp 2 and Subsidiary Guarantors hold $29.0 million and $135.8 million, respectively, of the $164.8 million consolidatednet investments.77Condensed Consolidating Statement of Cash FlowsYear Ended May 31, 2018(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Cash flows from operating activities: Net income$842,586 $342,851 $470,215 $27,568 $(840,634) $842,586Adjustments to reconcile net income to net cash provided by(used in) operating activities: Depreciation— 143,301 58,206 13,969 — 215,476Amortization of intangible assets— 50,231 5,102 8,607 — 63,940Stock-based compensation112,835 — — — — 112,835Gain on sale of business— (111,921) 15,521 — (96,400)Deferred income taxes— (80,328) (38,906) (61) — (119,295)Changes in current assets and liabilities, net of acquisitions ofbusinesses: Accounts receivable, net— (76,945) 17,129 (6,451) — (66,267)Inventories, net— 15,080 (17,377) 360 (1,386) (3,323)Uniforms and other rental items in service— (51,682) (3,483) (8,730) (404) (64,299)Prepaid expenses and other current assets— 3,676 (19,421) 219 — (15,526)Accounts payable— (60,978) 108,724 (12,310) (161) 35,275Accrued compensation and related liabilities— 9,522 (18,595) (319) — (9,392)Accrued liabilities and other— (133,671) 173,905 2,234 — 42,468Income taxes, current— 11,874 15,898 (1,690) — 26,082Net cash provided by (used in) operating activities955,421 61,010 766,918 23,396 (842,585) 964,160 Cash flows from investing activities: Capital expenditures— (192,668) (65,211) (13,820) — (271,699)Proceeds from redemption of marketable securities— 13,589 (1,189) 167,457 — 179,857Purchase of marketable securities and investments— 9,789 (24,636) (143,861) 5,000 (153,708)Proceeds from sale of business— 127,835 — — — 127,835Acquisitions of businesses, net of cash acquired— (19,346) — — — (19,346)Other, net(694,429) 599,192 (633,629) (107,356) 837,585 1,363Net cash (used in) provided by investing activities(694,429) 538,391 (724,665) (97,580) 842,585 (135,698) Cash flows from financing activities: Payments of commercial paper, net— (50,500) — — — (50,500)Repayment of debt— (550,000) — — — (550,000)Proceeds from exercise of stock-based compensation awards41,848 — — — — 41,848Dividends paid(175,521) — — (68) — (175,589)Repurchase of common stock(127,319) — — — — (127,319)Other, net— (3,060) 755 (275) — (2,580)Net cash (used in) provided by financing activities(260,992) (603,560) 755 (343) — (864,140) Effect of exchange rate changes on cash and cash equivalents— — — 5,136 — 5,136Net (decrease) increase in cash and cash equivalents— (4,159) 43,008 (69,391) — (30,542)Cash and cash equivalents at beginning of year— 48,658 17,302 103,306 — 169,266Cash and cash equivalents at end of year$— $44,499 $60,310 $33,915 $— $138,72478Condensed Consolidating Statement of Cash FlowsYear Ended May 31, 2017(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Cash flows from operating activities: Net income$480,708 $152,916 $315,565 $9,143 $(477,624) $480,708Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation— 117,578 43,660 10,327 — 171,565Amortization of intangible assets— 21,496 1,178 2,356 — 25,030Stock-based compensation88,868 — — — — 88,868Gain on Storage— (1,460) — — — (1,460)Gain on Shred-it— (23,516) — (1,941) — (25,457)Asset impairment charge— 20,966 — 2,365 — 23,331G&K Services, Inc. transaction and integration costs— 26,453 — 4,992 — 31,445Short-term debt financing fees included in net income— 17,062 — — — 17,062Settlement of cash flow hedges— 30,194 — — — 30,194Deferred income taxes— (26,289) 26,058 4,133 — 3,902Changes in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net— (50,012) (40,380) (3,165) — (93,557)Inventories, net— 7,787 (2,317) (3,679) (2,459) (668)Uniforms and other rental items in service— (4,951) (5,011) 1,959 (729) (8,732)Prepaid expenses and other current assets— 21,119 2,775 307 — 24,201Accounts payable— 1,765,713 (1,509,215) (242,875) 103 13,726Accrued compensation and related liabilities— (7,498) 19,815 1,337 — 13,654Accrued liabilities and other— 2,813 (5,675) 2,361 — (501)Income taxes, current— (5,205) (22,445) (1,774) — (29,424)Net cash provided by (used in) operating activities569,576 2,065,166 (1,175,992) (214,154) (480,709) 763,887 Cash flows from investing activities: Capital expenditures— (153,963) (102,682) (16,672) — (273,317)Proceeds from redemption of marketable securities— — — 218,324 — 218,324Purchase of marketable securities and investments— 18,150 (797,559) 598,344 — (181,065)Proceeds from sale of Storage— 2,400 — — — 2,400Proceeds from sale of Shred-it— 23,935 — 1,941 — 25,876Acquisitions of businesses, net of cash acquired— (2,112,015) — 9,644 — (2,102,371)Other, net(438,344) (1,562,294) 2,039,740 (520,007) 480,709 (196)Net cash (used in) provided by investing activities(438,344) (3,783,787) 1,139,499 291,574 480,709 (2,310,349) Cash flows from financing activities: Proceeds from issuance of commercial paper, net— 50,500 — — — 50,500Proceeds from the issuance of debt, net— 1,932,229 (2,000) 2,000 — 1,932,229Repayment of debt— (250,000) — — — (250,000)Payment of short-term debt financing fees— (17,062) — — — (17,062)Proceeds from exercise of stock-based compensation awards31,870 — — — — 31,870Dividends paid(142,378) — — (55) — (142,433)Repurchase of common stock(20,724) — — — — (20,724)Other, net— (6,282) 404 — — (5,878)Net cash (used in) provided by financing activities(131,232) 1,709,385 (1,596) 1,945 — 1,578,502 Effect of exchange rate changes on cash and cash equivalents— — — (2,131) — (2,131)Net (decrease) increase in cash and cash equivalents— (9,236) (38,089) 77,234 — 29,909Cash and cash equivalents at beginning of year— 57,894 55,391 26,072 — 139,357Cash and cash equivalents at end of year$— $48,658 $17,302 $103,306 $— $169,26679Condensed Consolidating Statement of Cash FlowsYear Ended May 31, 2016(in thousands)CintasCorporation Corp. 2 SubsidiaryGuarantors Non-Guarantors Eliminations CintasCorporationConsolidated Cash flows from operating activities: Net income$693,520 $400,191 $296,608 $3,905 $(700,704) $693,520Adjustments to reconcile net income to net cash provided by(used in) operating activities: Depreciation— 102,443 37,883 9,365 — 149,691Amortization of intangible assets— 14,830 304 454 — 15,588Stock-based compensation79,293 — — — — 79,293Gain on Storage transactions— (12,547) — (3,239) — (15,786)(Gain) loss on Shred-it— (366,460) — 12,389 — (354,071)Deferred income taxes— (83,648) 22,025 2,321 — (59,302)Changes in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net— (30,381) (20,196) (2,185) — (52,762)Inventories, net— (23,917) 2,011 (2,454) 6,443 (17,917)Uniforms and other rental items in service— (3,193) (2,032) (1,840) 759 (6,306)Prepaid expenses and other current assets— (167) (914) 116 — (965)Accounts payable— (487,582) 491,918 (4,884) (16) (564)Accrued compensation and related liabilities— 9,838 3,103 571 — 13,512Accrued liabilities and other— (3,790) 25,625 155 724 22,714Income taxes, current— 895 (1,118) (577) — (800)Net cash provided by (used in) operating activities772,813 (483,488) 855,217 14,097 (692,794) 465,845 Cash flows from investing activities: Capital expenditures— (162,075) (100,380) (12,930) — (275,385)Proceeds from redemption of marketable securities— — — 434,179 — 434,179Purchase of marketable securities and investments— (3,333) (12,085) (488,765) 10,037 (494,146)Proceeds from Storage transactions, net of cash contributed— 32,099 — 3,239 — 35,338Proceeds from sale of Shred-it— 568,223 — 12,614 — 580,837Acquisitions of businesses, net of cash acquired— (130,786) — (25,793) — (156,579)Other, net94,344 169,821 (945,406) 1,897 683,481 4,137Net cash provided by (used in) investing activities94,344 473,949 (1,057,871) (75,559) 693,518 128,381 Cash flows from financing activities: Proceeds from the issuance of debt— — (165) 165 — —Repayment of debt— (9,151) 10,224 (365) (724) (16)Proceeds from exercise of stock-based compensation awards28,226 — — — — 28,226Dividends paid(115,232) — — (41) — (115,273)Repurchase of common stock(780,151) — — — — (780,151)Other, net— 1,952 (730) (732) — 490Net cash (used in) provided by financing activities(867,157) (7,199) 9,329 (973) (724) (866,724) Effect of exchange rate changes on cash and cash equivalents— — — (5,218) — (5,218)Net decrease in cash and cash equivalents— (16,738) (193,325) (67,653) — (277,716)Cash and cash equivalents at beginning of year— 74,632 248,716 93,725 — 417,073Cash and cash equivalents at end of year$— $57,894 $55,391 $26,072 $— $139,35780Item 9. Changes in and Disagreements withAccountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresDisclosure Controls and ProceduresWith the participation of Cintas' management, including Cintas' Chairman and Chief Executive Officer, Chief Financial Officer, General Counsel andControllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934 (the Exchange Act) as of May 31, 2018. Based on such evaluation, Cintas' management, including Cintas'Chairman and Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, have concluded that Cintas' disclosure controlsand procedures were effective as of May 31, 2018, in ensuring (i) information required to be disclosed by Cintas in the reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and formsand (ii) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is accumulated andcommunicated to Cintas' management, including its principal executive and principal financial officers, or persons performing similar functions, asappropriate to allow timely decisions regarding required disclosure.Internal Control over Financial ReportingManagement's Report on Internal Control over Financial Reporting and the Report of Ernst & Young LLP, Independent Registered PublicAccounting 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, 2018, that have materially affected, or are reasonably likely to materially affect, Cintas' internal control overfinancial reporting.Item 9B. Other InformationNone.81Part III Item 10. Directors, Executive Officers and Corporate GovernanceThe information required under this item is incorporated herein by reference to the material contained in Cintas' definitive proxy statement for the2018 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 CompensationThe information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.Item 12. Security Ownership of Certain BeneficialOwners and Management and Related Stockholder MattersThe information required under this item is incorporated herein by reference to the material contained in the Proxy Statement, except that theinformation 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 31,2018.Equity Compensation Plan InformationPlan categoryNumber of sharesto be issuedupon exercise ofoutstanding options (1) Weighted averageexercise price ofoutstanding options (1) Number of sharesremaining availablefor future issuanceunder equitycompensation plans Equity compensation plans approved by shareholders8,930,186 $96.71 10,595,954Equity compensation plans not approved by shareholders— — —Total8,930,186 $96.71 10,595,954(1) Excludes 2,641,114 unvested restricted stock units.Item 13. Certain Relationships andRelated Transactions and Director IndependenceThe information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.Item 14. Principal Accountant Fees and ServicesThe information required under this item is incorporated herein by reference to the material contained in the Proxy Statement.82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 Reportare listed in Item 8. No additional financial statements are filed because the requirements of paragraph (c) under Item 15 arenot applicable to Cintas. (a) (2) Financial Statement Schedule: For each of the three years in the period ended May 31, 2018. 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 isincluded 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. ExhibitNumber Description of Exhibit2.1***JV Framework Agreement, dated March 18, 2014, by and among Cintas Corporation No.2, CC Shredding Holdco LLC and CCDutch Shredding Holdco BV, each a wholly owned subsidiary of Cintas, and Shred-It International Inc., Boost JV LP, BoostHoldings LP and Boost GP Corp (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K filed onMarch 19, 2014). 2.2***Securities Purchase Agreement, dated as of July 15, 2015, by and among Cintas, Shred-it International Inc., Stericycle, Inc.and the other parties thereto (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K filed on October1, 2015). 2.3***Agreement and Plan of Merger, among Cintas Corporation, G&K Services, Inc. and Bravo Merger Sub, Inc., dated as ofAugust 15, 2016 (Incorporated by reference to Exhibit 2.1 to Cintas' Current Report on Form 8-K filed on August 16, 2016). 3.1 Restated Articles of Incorporation, as amended (Incorporated by reference to Exhibit 4.1 to Post Effective Amendment No. 1to Cintas' Registration Statement No. 333-136631-09 on Form S-3 filed on December 3, 2007). 3.2 Amended and Restated By-laws (Incorporated by reference to Exhibit 3 to Cintas' Current Report on Form 8-K filed onOctober 14, 2008). 4.1 Indenture dated as of May 28, 2002, among Cintas Corporation No. 2, as issuer, Cintas Corporation, as parent guarantor, thesubsidiary guarantors thereto and Wachovia Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1to Cintas' Annual Report on Form 10-K for the year ended May 31, 2002). 4.2 Form of 6.15% Senior Note due 2036 (Incorporated by reference to Exhibit 4.3 to Cintas' Current Report on Form 8-K filed onAugust 21, 2006). 4.3 Form of 4.30% Senior Note due 2021 (Incorporated by reference to Exhibit 4.2 to Cintas' Current report on Form 8-K filed onMay 23, 2011). 4.4 Form of 3.25% Senior Note due 2022 (Incorporated by reference to Exhibit 4.1 to Cintas' Current Report on Form 8-K filed onJune 8, 2012). 4.5 Form of 2.900% Senior Notes due 2022 (Incorporated by reference to Exhibit 4.1 to Cintas' Current Report on Form 8-K filedon March 14, 2017). 4.6 Form of 3.700% Senior Notes due 2027 (Incorporated by reference to Exhibit 4.2 to Cintas' Current Report on Form 8-K filedon March 14, 2017). 4.7 Form of 3.250% Senior Notes due 2022 (Incorporated by reference to Exhibit 4.3 to Cintas' Current Report on Form 8-K filedon March 14, 2017).10.1 Amended and Restated Credit Agreement, dated as of September 16, 2016, among Cintas Corp. No. 2, the Lenders partythereto and KeyBank National Association, as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Cintas'Current Report on Form 8-K filed on September 22, 2016). 10.2 Amended and Restated Note Purchase Agreement, dated as of March 21, 2017, among G&K Services, Inc. and the Noteholders (Incorporated by reference to Exhibit 4.1 to Cintas' Current Report on Form 8-K filed on March 21, 2017). 10.3*Partners' Plan (Incorporated by reference to Cintas' Annual Report on Form 10-K for the year ended May 31, 1993). 10.4*First Amendment to Partners' Plan (Incorporated by reference to Exhibit 4.2 to Cintas' Registration Statement No. 33-56623on Form S-8 filed on November 28, 1994). 10.5*Second Amendment to Partners' Plan (Incorporated by reference to Exhibit 4.3 to Cintas' Registration Statement No. 33-56623 on Form S-8 filed on November 28, 1994). 10.6*Directors' Deferred Compensation Plan (Incorporated by reference to Exhibit 10.12 to Cintas' Quarterly Report on Form 10-Qfor the quarter ended November 30, 2000). 10.7*Form of agreement signed by Officers, General/Branch Managers, Professionals and Key Managers, including ExecutiveOfficers (Incorporated by reference to Exhibit 10 to Cintas' Quarterly Report on Form 10-Q for the quarter ended February 28,2005). 10.8*President and CEO Executive Compensation Plan (Incorporated by reference to Exhibit 10.18 to Cintas' Annual Report onForm 10-K for the year ended May 31, 2005). 10.9*2006 Executive Incentive Plan (Incorporated by reference to Exhibit 10.19 to Cintas' Annual Report on Form 10-K for the yearended May 31, 2005). 10.10*2005 Equity Compensation Plan (Incorporated by reference to Cintas' Definitive Proxy Statement on Schedule 14A filed onSeptember 1, 2005). 10.11*Criteria for Performance Evaluation of the President and CEO (Incorporated by reference to Exhibit 10.21 to Cintas' AnnualReport on Form 10-K for the year ended May 31, 2006). 10.12*2007 Executive Incentive Plan (Incorporated by reference to Exhibit 10.22 to Cintas' Annual Report on Form 10-K for the yearended May 31, 2006). 10.13*Amendment No. 1 to 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.17 to Cintas' Annual Report onForm 10-K for the year ended May 31, 2011). 10.14*Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.18 to Cintas' Annual Report on Form 10-K forthe year ended May 31, 2011). 10.15*Amendment No. 2 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.1 to Cintas'Current Report on Form 8-K filed on July 27, 2012). 10.16*Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.2 to Cintas' Current Report on Form 8-K filed onJuly 27, 2012). 10.17*Amendment No. 3 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.4 to Cintas'Current Report on Form 8-K filed on October 23, 2013). 10.18*Amendment No. 4 to Cintas Corporation 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.5 to Cintas'Current Report on Form 8-K filed on October 22, 2014). 10.19*Cintas Corporation Management Incentive Plan (Incorporated by reference to Exhibit 10.5 to Cintas' Current Report on Form8-K filed on October 23, 2013). 10.20*Cintas Corporation 2016 Equity and Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to Cintas' CurrentReport on Form 8-K filed on October 20, 2016). 10.21*Amendment No. 1 to Cintas Corporation 2016 Equity and Incentive Compensation Plan (Incorporated by reference to Exhibit10.1 to Cintas' Quarterly Report on Form 10-Q for the quarter ended November 30, 2017). 14 Code of Ethics (Incorporated by reference to Exhibit 14 to Cintas' Annual Report on Form 10-K for the year ended May 31,2004). 21**Subsidiaries of the Registrant. 23**Consent of Independent Registered Public Accounting Firm. 31.1**Certification of Principal Executive Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.2**Certification of Principal Financial Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 32.1**Certification of Chief Executive Officer, Pursuant to 18 U.S.C. § 1350. 32.2**Certification of Chief Financial Officer, Pursuant to 18 U.S.C. § 1350. 101.INS**XBRL Instance Document. 101.SCH**XBRL Taxonomy Extension Schema Document. 101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF**XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB**XBRL Taxonomy Extension Label Linkbase Document. 101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document.*Management compensatory contracts**Filed herewith***Certain exhibits and schedules have been omitted and Cintas agrees to furnish supplementally to the Securities and ExchangeCommission a copy of any omitted exhibits upon request.83Item 16. Form 10-K SummaryNone.SignaturesPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.CINTAS CORPORATION By:/s/Scott D. Farmer Scott D. Farmer Chairman and Chief Executive OfficerDATE SIGNED: July 27, 2018Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.Signature Capacity Date /s/Scott D. FarmerScott D. Farmer Chairman of the Board of Directors and Chief Executive Officer(Principal Executive Officer) July 27, 2018 /s/Ronald W. TysoeRonald W. Tysoe Director July 27, 2018 /s/John F. BarrettJohn F. Barrett Director July 27, 2018 /s/James J. JohnsonJames J. Johnson Director July 27, 2018 /s/Robert E. ColettiRobert E. Coletti Director July 27, 2018 /s/J. Michael HansenJ. Michael Hansen Executive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) July 27, 201884Cintas CorporationSchedule II — Valuation and Qualifying Accounts and Reserves(In thousands)Balance atBeginning of Year Additions (1) Deductions (2) Balance atEnd of Year Allowance for Doubtful Accounts May 31, 2016$15,497 $8,274 $4,668 $19,103May 31, 2017$19,103 $6,446 $5,024 $20,525May 31, 2018$20,525 $13,358 $373 $33,510 Reserve for Obsolete Inventory May 31, 2016$30,531 $5,195 $3,010 $32,716May 31, 2017$32,716 $10,049 $4,460 $38,305May 31, 2018$38,305 $1,335 $2,597 $37,043(1) Represents amounts charged to expense to increase reserve for estimated future bad debts or to increase reserve for obsolete inventory. Amounts related to inventoryare computed by performing a thorough analysis of future marketability by specific inventory item as well as an estimate based on Cintas' historical rates of obsolescence.(2) Represents reductions in the balance sheet reserve due to the actual write-off of non-collectible accounts receivable or the physical disposal of obsolete inventory items.These amounts do not impact Cintas' consolidated income statement.85Exhibit 21SubsidiariesNAME STATE OR OTHER JURISDICTION OF INCORPORATION Cintas Corporation No. 3 NevadaCintas Corporation No. 2 NevadaCintas Corporate Services, Inc. OhioThe Millennium Mat Company, LLC OhioGrupo Cintas de Mexico S.A. de C.V. MexicoCintas Cleanroom Resources de Mexico, S.A. de C.V. MexicoCintas Service Transportation LLC OhioCintas C.V. Holdings, LLC OhioCintas Corporation Hong Kong Limited Hong KongCintas Distribution LLC OhioCDS Equipment Holdings, LLC OhioCintas Netherlands Holdings C.V. NetherlandsCintas Macau Limited MacauCintas de Honduras, S.A. HondurasEmpresa Cintas de Mexico, S.A. de C.V. MexicoEnsambles de Coahuila, S.A. de C.V. MexicoCintas Manufacturing LLC OhioCintas Holdings LLC OhioCintas Netherlands Holdings B.V. NetherlandsCintas Canada Limited Ontario, Canada3065521 Nova Scotia Company Nova Scotia, Canada3065520 Nova Scotia Company Nova Scotia, CanadaCintas Canada Investment Limited Partnership Alberta, CanadaCintas China Holding Limited Hong KongCintas (Suzhou) Enterprise Services Co., Ltd China3057314 Nova Scotia Company Nova Scotia, CanadaCintas Image Apparel Co., Ltd. Shanghai, ChinaCintas Property Holding Belgium BVBA BelgiumCintas (Tianjian) Enterprise Services Co., Ltd. ChinaDocument & Data Management Limited EnglandSquirrel Storage Limited EnglandCintas Holland BV NetherlandsCintas Hospitality UK Limited EnglandCC Shredding Holdco, LLC DelawareCC Dutch Shredding Holdco B.V. NetherlandsCC Dutch Holding B.V. NetherlandsCC Canada Holdco Limited CanadaCC Dutch Storage B.V. NetherlandsCC Dutch Property Holding B.V. NetherlandsZee Medical Distributors LLC OhioCintas (Guangzhou) Enterprise Services Co., Ltd ChinaG&K Services, LLC MinnesotaLeef Bros., LLC South Dakota912501 Ontario Inc. CanadaG&K Services Co., LLC MinnesotaGrand Rapids Coat & Apron Service, LLC MichiganRental Uniform Service of Somerset, KY, LLC KentuckyAlltex Uniform Rental Service, LLC New HampshireG&K Services Holdings, LLC Minnesota3305236 Nova Scotia Company CanadaExhibit 23Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-44654) pertaining to the 1999 Stock Option Plan,(2)Registration Statement (Form S-8 No. 333-110221) pertaining to the 2003 Directors’ Stock Option Plan,(3)Registration Statement (Form S-8 No. 333-121459),(4)Registration Statement (Form S-8 No. 333-131375) pertaining to the 2005 Equity Compensation Plan,(5)Registration Statement (Form S-8 No. 333-216147) pertaining to the 2016 Equity and Incentive Compensation Plan, and(6)Registration Statement (Form S-3 No. 333-216462)of our reports dated July 27, 2018, with respect to the consolidated financial statements and schedule of Cintas Corporation and the effectivenessof internal control over financial reporting of Cintas Corporation included in this Annual Report (Form 10-K) of Cintas Corporation for the year endedMay 31, 2018. /s/ Ernst & Young LLP Cincinnati, OhioJuly 27, 2018Exhibit 31.1Certification 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 tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant'smost recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalentfunctions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: July 27, 2018/s/Scott D. FarmerScott D. FarmerChairman and Chief Executive Officer(Principal Executive Officer)Exhibit 31.2Certification 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 tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant'smost recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalentfunctions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: July 27, 2018/s/J. Michael Hansen J. Michael Hansen Executive Vice President and Chief Financial OfficerExhibit 32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350,as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002In connection with the filing with the Securities and Exchange Commission of the Report of Cintas Corporation (the "Company") on Form 10-K forthe period ending May 31, 2018 (the "Report"), I, Scott D. Farmer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of theSarbanes-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 ofthe Company as of and for the periods presented./s/Scott D. FarmerScott D. FarmerPrincipal Executive Officer July 27, 2018 Exhibit 32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350,as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002In connection with the filing with the Securities and Exchange Commission of the Report of Cintas Corporation (the "Company") on Form 10-K forthe period ending May 31, 2018 (the "Report"), I, J. Michael Hansen, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of theSarbanes-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 ofthe Company as of and for the periods presented./s/J. Michael HansenJ. Michael HansenPrincipal Financial Officer July 27, 2018 

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