Item 7. Management's Discussion and Analysis

of Financial Condition and Results of Operations

Business Strategy

Cintas provides highly specialized products and services to businesses of all types primarily throughout North America, as well as Latin America, Europe and Asia. We bring value to our customers by helping them provide a cleaner, safer and more pleasant atmosphere for their customers and employees. Our products and services are designed to improve our customers' images. We also help our customers protect their employees and their company by enhancing workplace safety and helping to ensure legal compliance in key areas of their business.

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

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

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

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

Results of Operations

Effective August 31, 2014, Cintas classifies its businesses into three operating segments based on the types of products and services provided. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and carpet and tile cleaning services are also provided within this operating segment. The Uniform Direct Sales operating segment consists of the direct sale of uniforms and related items. The First Aid, Safety and Fire Protection Services operating segment consists of first aid, safety and fire protection products and services. Cintas evaluates operating segment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these operating segments for the years ended May 31, 2015, 2014, and 2013 are presented in note 15 entitled Operating Segment Information of "Notes to Consolidated Financial Statements." The Company regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.

Previously, Cintas classified its businesses into four operating segments. The Document Management Services operating segment is no longer considered an operating segment. This operating segment consisted of document destruction services ("Shredding") and document imaging and retention services ("Storage"). On April 30, 2014, Cintas completed its partnership transaction with the shareholders of Shred-it International Inc. (Shred-it) to combine Cintas' Shredding with Shred-it's shredding business. Due to the deconsolidation of Shredding, fiscal 2015 results exclude the results of Shredding. Shredding remains reported in continuing operations for fiscal 2014 (through April 30, 2014) and fiscal 2013. Based on the change in reportable operating segments, the results of Shredding for the years ended May 31, 2014 and 2013 are presented in Corporate. Additionally, effective August 31, 2014, Storage is reported as a discontinued operation for all periods presented and has been excluded from continuing operations and from operating segment results for all periods presented. In the quarter ended November 30, 2014, Cintas sold Storage in a series of transactions ("Storage Transactions"). Please see Note 17 entitled Discontinued Operations of "Notes to Consolidated Financial Statements" for additional information.

The following table sets forth certain consolidated statements of income data as a percent of revenue by operating segment and in total for the fiscal years ended May 31:

	2015(1)			2014(1)(2)			2013(1)(2)
Revenue:
Rental Uniforms and Ancillary Products	77.2	%		72.1	%		71.7	%
Uniform Direct Sales	10.1	%		10.2	%		10.9	%
First Aid, Safety and Fire Protection Services	12.7	%		11.5	%		10.8	%
Corporate	—	%		6.2	%		6.6	%
Total revenue	100.0	%		100.0	%		100.0	%
Cost of sales:
Rental Uniforms and Ancillary Products	55.4	%		56.7	%		57.7	%
Uniform Direct Sales	71.5	%		71.5	%		70.7	%
First Aid, Safety and Fire Protection Services	55.9	%		56.2	%		56.7	%
Corporate	—	%		55.1	%		53.2	%
Total cost of sales	57.1	%		58.1	%		58.7	%
Gross margin:
Rental Uniforms and Ancillary Products	44.6	%		43.3	%		42.3	%
Uniform Direct Sales	28.5	%		28.5	%		29.3	%
First Aid, Safety and Fire Protection Services	44.1	%		43.8	%		43.3	%
Corporate	—	%		44.9	%		46.8	%
Total gross margin	42.9	%		41.9	%		41.3	%
Selling and administrative expenses:
Rental Uniforms and Ancillary Products	27.5	%		27.5	%		27.4	%
Uniform Direct Sales	18.8	%		18.3	%		17.7	%
First Aid, Safety and Fire Protection Services	33.6	%		34.3	%		33.9	%
Corporate	—	%		42.7	%		40.8	%
Total selling and administrative expenses	27.4	%		28.3	%		28.0	%
Gain on sale of stock of an equity method investment	0.5	%		—	%		—	%
Gain on deconsolidation of Shredding, net of impairment charges and other transaction costs	0.1	%		1.4	%		—	%
Interest expense, net	1.4	%		1.5	%		1.5	%
Income before income taxes	14.7	%		13.5	%		11.8	%

(1)	The figures for all years presented reflect the change in classification of Storage to discontinued operations within the Consolidated Statements of Income. See Note 17 entitled Discontinued Operations of "Notes to Consolidated Financial Statements."

(2)	Corporate results for the fiscal years ended 2014 and 2013 include Shredding. Fiscal year 2014 includes only eleven months of Shredding results as the Shredding Transaction closed on April 30, 2014.

Fiscal 2015 Compared to Fiscal 2014

On April 30, 2014, Cintas completed the Shredding Transaction with Shred-it to combine Cintas’ Shredding with Shred-it’s shredding business (the "Shredding Transaction"). Under the agreement, Cintas and Shred-it each contributed its shredding business to a newly formed partnership. Please see Note 9 entitled Acquisitions and Deconsolidations of "Notes to Consolidated Financial Statements" for additional information on the Shredding Transaction.

Fiscal 2015 total revenue was $4.5 billion, an increase of 0.2% over the prior fiscal year. Revenue increased organically by 7.1% as a result of increased sales volume. Organic growth excludes the impact of acquisitions, disposals, deconsolidations and foreign currency exchange rate fluctuations. Revenue growth was negatively impacted by 6.6% because of the deconsolidation of Shredding, which contributed $275.7 million of revenue in fiscal year 2014, and 0.5% due to foreign currency exchange rate fluctuations. Acquisitions positively impacted the growth rate by 0.2%.

Organic growth by quarter is shown in the table below.

	Organic Growth
First Quarter Ending August 31, 2014	7.3	%
Second Quarter Ending November 30, 2014	7.2	%
Third Quarter Ending February 28, 2015	7.5	%
Fourth Quarter Ending May 31, 2015	6.0	%
For the Fiscal Year Ending May 31, 2015	7.1	%

Rental Uniforms and Ancillary Products operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Rental Uniforms and Ancillary Products operating segment increased 7.2% compared to fiscal 2014. The increase resulted from an organic growth increase in revenue of 7.7%. The amount of new business grew, resulting from an increase in the number and productivity of sales representatives. Generally, sales productivity improvements are the result of increased tenure and improved training, which result in a higher number of products and services sold. Revenue growth was negatively impacted by 0.5% due to foreign currency exchange rate fluctuations.

Other Services revenue, consisting of revenue from the operating segments of Uniform Direct Sales, and First Aid, Safety and Fire Protection Services as well as Shredding (through April 30, 2014), decreased 18.0% compared to fiscal 2014. Revenue increased organically by 5.0%. Revenue growth was negatively impacted by 23.3% due to the deconsolidation of Shredding and by 0.3% due to foreign currency exchange rate fluctuations. Acquisitions positively impacted the growth rate by 0.6%.

Cost of rental uniforms and ancillary products increased 4.6% compared to fiscal 2014. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The cost of rental uniforms and ancillary products increase compared to fiscal 2014 was due to increased Rental Uniforms and Ancillary Products operating segment sales volume.

Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid, safety and fire protection products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment, the First Aid, Safety and Fire Protection Services operating segment, and Shredding through April 30, 2014. Cost of other services decreased 16.2% in fiscal 2015 compared to fiscal 2014. The decrease was primarily due to the deconsolidation of Shredding partially offset by increases resulting from higher First Aid, Safety and Fire Protection Services operating segment sales volume.

Selling and administrative expenses decreased $39.9 million, or 3.2%, compared to fiscal 2014 due primarily to the deconsolidation of Shredding partially offset by increases resulting from higher Rental Uniforms and Ancillary Products and First Aid, Safety and Fire Protection Services operating segment sales volume.

Cintas realized a gain on the Shredding Transaction of $5.0 million in fiscal 2015 primarily as a result of receiving certain additional proceeds. Also during fiscal 2015, Cintas sold stock in an equity method investment. In conjunction with the sale of the equity method investment, the Company received a cash dividend. The sale resulted in the recording of a gain of $21.7 million in fiscal 2015.

Net interest expense (interest expense less interest income) was $64.8 million in fiscal 2015 compared to $65.6 million in fiscal 2014. The decrease in net interest expense is primarily due to the capitalization of $0.6 million of interest in fiscal year 2015 versus no capitalization of interest in fiscal 2014.

Income before income taxes was $658.3 million, an increase of $53.2 million, or 8.8%, compared to fiscal 2014. Income before income taxes was positively impacted by a $5.0 million gain on the Shredding Transaction as a result of receiving certain additional proceeds and by a $21.7 million gain from the sale of the equity method investment. The remaining $26.5 million increase in income before income taxes was due primarily to revenue growing at a faster rate than expenses.

Cintas' effective tax rate on continuing operations was 37.2% for fiscal 2015 compared to 38.3% in fiscal 2014. Excluding the impact of the Shredding Transaction, the effective tax rate for fiscal 2014 would have been 37.2%. See Note 8 entitled Income Taxes of "Notes to Consolidated Financial Statements" for more information.

During fiscal 2015, Cintas recorded a net loss on the investment in the Shred-it Partnership of $5.5 million. This loss was net of a tax benefit of $3.3 million. The Shred-it Partnership results in the period were adversely affected by integration costs and foreign currency exchange rate fluctuations due to the weakened Canadian dollar.

Net income from continuing operations for fiscal 2015 of $408.1 million was a 9.0% increase compared to fiscal 2014. Diluted earnings per share from continuing operations of $3.44 was a 12.8% increase compared to fiscal 2014. Diluted earnings per share from continuing operations increased due to an increase in earnings from continuing operations combined with a decrease in weighted average common shares outstanding. The decrease in weighted average common shares outstanding resulted from purchasing 10.3 million shares of common stock under the October 18, 2011, July 30, 2013 and January 13, 2015 share buyback programs during fiscal 2015 and the fourth quarter of fiscal 2014.

Rental Uniforms and Ancillary Products Operating Segment

Rental Uniforms and Ancillary Products operating segment revenue increased $231.0 million, or 7.2%, and the cost of rental uniforms and ancillary products increased $84.0 million, or 4.6%. The operating segment's fiscal 2015 gross margin was 44.6% of revenue compared to 43.3% in fiscal 2014. The 130 basis point improvement was driven by many factors, including new business sold by sales representatives, penetration of additional products and services into existing customers, and continuously improving the efficiency of internal processes. In addition, lower energy-related expenses increased gross margin 40 basis points.

Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment increased $61.0 million in fiscal 2015 compared to fiscal 2014 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expense as a percent of revenue for fiscal 2015 was 27.5% for both fiscal 2015 and 2014.

Income before income taxes increased $86.0 million to $593.0 million for fiscal 2015 compared to fiscal 2014. Income before income taxes as a percent of revenue, at 17.2%, increased 150 basis points from 15.7% in fiscal 2014. This increase is primarily due to the increase in gross margin discussed above.

Uniform Direct Sales Operating Segment

Uniform Direct Sales operating segment revenue decreased $1.8 million in fiscal 2015, a 0.4% decrease compared to fiscal 2014. Revenue increased organically by 0.2% due to slightly increased sales volume. Revenue growth was negatively impacted by 0.6% due to foreign currency exchange rate fluctuations.

Cost of uniform direct sales decreased $1.3 million, or 0.4%, compared to fiscal 2014. The gross margin as a percent of revenue was 28.5% for both fiscal 2015 and 2014.

Selling and administrative expenses increased $2.0 million, or 2.4%, in fiscal 2015 compared to fiscal 2014 due in large part to foreign currency exchange rate fluctuations. Selling and administrative expenses as a percent of revenue, at 18.8%, increased 50 basis points compared to fiscal 2014, mainly due to lower operating segment revenue and foreign currency exchange rate fluctuations.

Income before income taxes was $44.1 million in fiscal 2015, a decrease of $2.6 million, or 5.5%, compared to fiscal 2014. Income before income taxes as a percent of revenue, at 9.7%, decreased from 10.3% in fiscal 2014. This decrease was due to the reasons discussed above.

First Aid, Safety and Fire Protection Services Operating Segment

First Aid, Safety and Fire Protection Services operating segment revenue increased $53.8 million in fiscal 2015, a 10.5% increase compared to fiscal 2014. Revenue increased organically by 9.2% as a result of increased sales volume. Acquisitions resulted in revenue growth of 1.3%.

Cost of First Aid, Safety and Fire Protection Services increased $28.7 million, or 9.9%, in fiscal 2015, due primarily to increased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 44.1% for fiscal 2015 compared to 43.8% in fiscal 2014. Energy-related expenses decreased 40 basis points from fiscal 2014 and were the primary driver of gross margin improvement in fiscal 2015.

Selling and administrative expenses increased by $14.9 million, or 8.4%, in fiscal 2015 compared to fiscal 2014 primarily due to an increase in labor and other employee-partner related expenses. Selling and administrative expenses as a percent of revenue, at 33.6%, decreased from 34.3% in fiscal 2014, as revenue growth outpaced the increase in expenses.

Income before income taxes was $59.2 million in fiscal 2015, an increase of $10.3 million, or 21.0%, compared to fiscal 2014. Income before income taxes as a percent of revenue, at 10.4%, increased from 9.5% in fiscal 2014, due to the reasons discussed above.

Fiscal 2014 Compared to Fiscal 2013

Fiscal 2014 total revenue was $4.5 billion, an increase of 5.3% compared to fiscal 2013. The increase primarily resulted from an organic growth increase of 6.2%. Organic growth excludes the impact of acquisitions, disposals, deconsolidations, foreign currency exchange rate fluctuations and adjusts for the appropriate number of workdays. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday compared to fiscal 2013 and negatively by 0.4% due to foreign currency exchange rate fluctuations. The Shredding Transaction had a negative impact of 0.4% which was offset by the positive impact of 0.3% from acquisitions.

Organic growth by quarter is shown in the table below.

	Organic Growth
First Quarter Ending August 31, 2013	7.2	%
Second Quarter Ending November 30, 2013	7.4	%
Third Quarter Ending February 28, 2014	3.6	%
Fourth Quarter Ending May 31, 2014	6.4	%
For the Fiscal Year Ending May 31, 2014	6.2	%

Rental Uniforms and Ancillary Products operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments, including flame resistant clothing, and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services. Revenue from the Rental Uniforms and Ancillary Products operating segment increased 5.9% compared to fiscal 2013. The increase resulted from an organic growth increase in revenue of 6.7%. The amount of new business grew, resulting from an increase in the number and productivity of sales representatives. Generally, sales productivity improvements are the result of increased tenure and improved training, which result in a higher number of products and services sold. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday and negatively by 0.4% due to foreign currency exchange rate fluctuations.

Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Shredding (through April 30, 2014), increased 3.7% compared to fiscal 2013. The increase primarily resulted from an organic growth increase of 4.7%, which was due largely to improved sales representative productivity. Revenue in fiscal 2014 was negatively impacted by 0.4% due to the deconsolidation of Shredding, negatively by 0.4% due to one less workday and negatively by 0.2% due to foreign currency exchange rate fluctuations.

Cost of rental uniforms and ancillary products increased 4.2% compared to fiscal 2013. Cost of rental uniforms and ancillary products consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, mops, shop towels and other ancillary items. The increase in the cost of rental uniforms and ancillary products compared to fiscal 2013 was due to increased Rental Uniforms and Ancillary Products operating segment sales volume.

Cost of other services increased 4.1% compared to fiscal 2013. Cost of other services consists primarily of cost of goods sold (predominantly uniforms and first aid products), delivery expenses and distribution expenses in the Uniform Direct Sales operating segment and the First Aid, Safety and Fire Protection Services operating segment and Shredding (through April 30, 2014). The increase from fiscal 2013 was primarily due to increased Other Services sales volume.

Selling and administrative expenses increased $77.5 million, or 6.5%, compared to fiscal 2013 due primarily to increases in labor and other employee-partner related expenses.

As a result of the Shredding Transaction, the Company recorded in fiscal 2014 an asset impairment charge of $16.1 million and other transaction costs of $28.5 million. The impairment charge was related to the abandonment of information systems assets that were not contributed to the Shred-it Partnership and cannot be used by the Company for other purposes. The other transaction costs consisted of the following: $4.7 million of professional and legal fees; $0.7 million of employee termination benefit costs; $12.4 million of stock compensation expense resulting from the immediate vesting of Cintas stock options and awards of employees contributed to the Shred-it Partnership; a $4.2 million charge for information systems contracts for which no future economic benefit exists; and $6.5 million of incremental profit sharing and employee compensation resulting from the gain, net of the impairment charge and other transaction costs.

Operating income of $564.2 million in fiscal 2014 decreased $1.8 million, or 0.3%, compared to fiscal 2013. Fiscal 2014 operating income was negatively impacted by $44.6 million due to the asset impairment charge and other transaction costs previously described.

In the fourth quarter of fiscal 2014, the Company realized a $106.4 million gain on the Shredding Transaction. The gain was computed as follows: the fair value of consideration received of $180.0 million plus the fair value of Cintas' retained non-controlling interest in the Shred-it Partnership of $339.4 million less the carrying amount of Shredding of $413.0 million.

Net interest expense (interest expense less interest income) of $65.6 million in fiscal 2014 was comparable to fiscal

Income before income taxes was $605.0 million, an increase of $104.4 million, or 20.8%, compared to fiscal 2013. Income before income taxes was positively impacted by $61.8 million due to the Shredding Transaction. The remaining $42.6 million of increased income before income taxes was due to revenue growing at a faster rate than expenses.

The impact of the Shredding Transaction increased Cintas' effective tax rate in fiscal 2014 from 37.2% to 38.3% compared to an effective tax rate of 36.8% in fiscal 2013. See Note 8 entitled Income Taxes of "Notes to Consolidated Financial Statements" for more information on income taxes.

During fiscal 2014, Cintas recorded a net gain on the investment in the Shred-it Partnership of $1.2 million. This gain was net of taxes of $0.8 million.

Net income from continuing operations for fiscal 2014 of $374.3 million was an 18.2% increase compared to fiscal 2013. Diluted earnings per share from continuing operations of $3.05 was a 20.6% increase compared to fiscal 2013. The increase in diluted earnings per share is higher than the increase in net income due to a decrease in weighted average common stock outstanding as a result of Cintas purchasing 7.3 million shares of common stock under the October 18, 2011 and July 30, 2013 share buyback programs during fiscal 2014 and the fourth quarter of fiscal 2013.

Rental Uniforms and Ancillary Products Operating Segment

Rental Uniforms and Ancillary Products operating segment revenue increased $179.3 million, or 5.9%, and the cost of rental uniforms and ancillary products increased $73.1 million, or 4.2%. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday and by 0.4% due to foreign currency exchange rate changes compared to fiscal 2013. The operating segment's fiscal 2014 gross margin was 43.3% of revenue compared to 42.3% in fiscal 2013. The increase in gross margin as a percent of revenue over fiscal 2013 was due to route efficiencies and increased revenue covering fixed costs including our plant infrastructure.

Selling and administrative expenses for the Rental Uniforms and Ancillary Products operating segment increased $52.2 million in fiscal 2014 compared to fiscal 2013 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expense as a percent of revenue for fiscal 2014 was 27.5% compared to 27.4% in fiscal 2013. The fiscal 2013 percentage was positively impacted by approximately 20 basis points from a gain on sale of stock of an equity method investment.

Income before income taxes increased $54.0 million to $507.1 million for fiscal 2014 compared to fiscal 2013. Income before income taxes as a percent of revenue, at 15.7%, increased 80 basis points from 14.9% in fiscal 2013. This increase is primarily due to the increase in gross margin.

Uniform Direct Sales Operating Segment

Uniform Direct Sales operating segment revenue decreased $5.8 million, or 1.3%, compared to fiscal 2013. Revenue in fiscal 2014 decreased organically by 0.5%. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday and by 0.4% due to foreign currency exchange rate changes compared to fiscal 2013. In fiscal 2013, the Company had some very large national account program sales that by their nature did not repeat in fiscal 2014. The fiscal 2013 activity included the largest customer program roll-out in Cintas history. Cost of uniform direct sales decreased $0.9 million, or 0.3%, compared to fiscal 2013. The gross margin as a percent of revenue was 28.5% for fiscal 2014 compared to 29.3% in fiscal 2013. The fiscal 2013 gross margin benefited significantly from the revenue from our all-time largest customer program roll-out.

Selling and administrative expenses increased $1.6 million, or 1.9%, in fiscal 2014 compared to fiscal 2013 primarily due to increases in labor and other employee-partner related expenses. Selling and administrative expenses as a percent of revenue, at 18.3%, increased from 17.7% in fiscal 2013 mainly due to lower revenue.

Income before income taxes was $46.7 million in fiscal 2014, a decrease of $6.5 million, or 12.3%, compared to fiscal 2013. Income before income taxes as a percent of revenue, at 10.3%, decreased from 11.5% in fiscal 2013. This decrease was primarily due to the decrease in revenue discussed above.

First Aid, Safety and Fire Protection Services Operating Segment

First Aid, Safety and Fire Protection Services operating segment revenue increased $53.8 million in fiscal 2014, a 11.7% increase compared to fiscal 2013. Revenue in fiscal 2014 was negatively impacted by 0.4% due to one less workday compared to fiscal 2013. Revenue increased organically by 9.4% due to improvements in sales representative productivity. Acquisitions resulted in revenue growth of 2.7%.

Cost of first aid, safety and fire protection services increased $27.9 million, or 10.7%, in fiscal 2014, due primarily to increased First Aid, Safety and Fire Protection Services operating segment volume. Gross margin for the First Aid, Safety and Fire Protection Services operating segment is defined as revenue less cost of goods, warehouse expenses, service expenses and training expenses. The gross margin as a percent of revenue was 43.8% for fiscal 2014 compared to 43.3% in fiscal 2013. The margin increased due to an improved mix of higher gross margin revenue.

Selling and administrative expenses increased by $20.1 million, or 12.8%, in fiscal 2014 compared to fiscal 2013 primarily due to an increase in labor and other employee-partner related expenses. Selling and administrative expenses as a percent of revenue, at 34.3%, increased from 33.9% in fiscal 2013. The fiscal 2013 percentage was positively impacted by approximately 20 basis points from a gain on sale of stock of an equity method investment.

Income before income taxes was $49.0 million in fiscal 2014, an increase of $5.9 million, or 13.6%, compared to fiscal 2013. Income before income taxes as a percent of revenue, at 9.5%, increased from 9.4% in fiscal 2013.

Liquidity and Capital Resources

The following is a summary of our cash flows and cash, cash equivalents and marketable securities as of and for the fiscal years ending May 31:

(In thousands)	2015				2014
Net cash provided by operating activities	$	580,276			$	605,969
Net cash provided by (used in) investing activities	$	44,987			$	(14,543	)
Net cash used in financing activities	$	(712,560	)		$	(429,735	)
Cash and cash equivalents at the end of the period	$	417,073			$	513,288
Marketable securities at the end of the period	$	16,081			$	—

Cash, cash equivalents, and marketable securities as of May 31, 2015 and 2014 include $109.8 million and $40.2 million, respectively, that is located outside of the United States. We expect to use these amounts to fund our international operations and international expansion activities.

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

Net cash provided by operating activities was $580.3 million for fiscal 2015, which was a decrease of $25.7 million compared to fiscal 2014. Although net income increased, cash flow was negatively impacted by changes in working capital resulting from the timing of vendor and other payments compared to prior year.

Net cash of $45.0 million was provided by investing activities in fiscal 2015 compared to net cash of $14.5 million used in investing activities in fiscal 2014. Capital expenditures were $217.7 million and $145.6 million for fiscal 2015 and fiscal 2014, respectively. Capital expenditures for fiscal 2015 included $183.5 million for the Rental Uniforms and Ancillary Products operating segment and $23.9 million for the First Aid, Safety and Fire Protection Services operating segment. Cash paid for acquisitions of businesses was $15.5 million and $33.4 million for fiscal 2015 and fiscal 2014, respectively. The acquisitions in fiscal 2015 occurred in our First Aid, Safety and Fire Protection Services and Rental Uniforms and Ancillary Products operating segments. Acquisitions in fiscal 2014 occurred in our First Aid, Safety and Fire Protection Services operating segment and the former Document Management Services operating segment. In fiscal 2015, net cash provided by investing activities include $35.2 million cash received from the sale of stock of an equity method investment plus receipt of dividends on the same investment. The Company sold Storage during fiscal 2015, receiving proceeds, net of cash contributed, of $158.4 million. Also, during fiscal 2015, net cash provided by investing activities include a dividend received from the Shred-it Partnership of $113.4 million. In fiscal 2014, Cintas completed the Shredding Transaction. In addition to its 42% ownership of the Shred-it Partnership, Cintas received $180.0 million in cash at the closing of the transaction. Net cash provided by (used in) investing activities for fiscal 2015 and 2014 include net purchases of marketable securities and investments of $33.5 million and $9.7 million, respectively.

Net cash used in financing activities was $712.6 million and $429.7 million for fiscal 2015 and 2014, respectively. On October 18, 2011, we announced that the Board of Directors authorized a $500.0 million share buyback program. During fiscal 2014, under the October 18, 2011 share buyback program, Cintas purchased a total of 3.3 million shares of Cintas common stock at an average price of $48.87 per share for a total purchase price of $162.5 million. These purchases completed the October 18, 2011 share buyback program. For the fiscal year ended May 31, 2014, Cintas acquired 0.2 million shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $50.45 per share for a total purchase price of $8.6 million. On July 30, 2013, Cintas announced that the Board of Directors approved a new $500.0 million share buyback program. From April 2014 through February 28, 2015, Cintas purchased a total of 7.3 million shares of Cintas common stock at an average price of $68.29 per share for a total purchase price of $500.0 million. These purchases completed the July 30, 2013 share buyback program. On January 13, 2015, Cintas announced that the Board of Directors authorized a new $500.0 million share buyback program, which does not have an expiration date. From the inception of the January 13, 2015 share buyback program, through May 31, 2015, Cintas has purchased a total of 2.9 million shares of Cintas common stock at an average price of $82.60 per share for a total purchase price of $237.1 million. Under the January 13, 2015 program, through July 30, 2015, Cintas has purchased a total of 4.4

million shares of Cintas common stock at an average price of $83.82 per share for a total purchase price of $370.0 million. For the fiscal year ended May 31, 2015, Cintas acquired 0.2 million shares of Cintas common stock in satisfaction of employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $64.58 per share for a total purchase price of $14.4 million.

On October 21, 2014, Cintas declared an annual cash dividend of $0.85 per share on outstanding common stock, a 10.4% increase over the dividend paid in the prior year. In addition, due to the receipt of $180.0 million at the closing of the Shredding Transaction, Cintas declared an additional $0.85 per share special dividend. The total dividend of $1.70 per share was paid on December 5, 2014, to shareholders of record as of November 7, 2014. This marked the 32nd consecutive year that Cintas has increased its annual dividend, every year since going public in 1983.

As of May 31, 2015, we had $1,300.0 million aggregate principal amount in fixed rate senior notes outstanding with maturities ranging from 2016 to 2036. These senior notes are comprised of $250 million of 30-year senior notes issued in fiscal 2007 at a rate of 6.15%, $300 million of 10-year senior notes issued in fiscal 2008 at a rate of 6.125%, $250 million of 5-year senior notes issued in fiscal 2011 at a rate of 2.85%, $250 million of 10-year senior notes issued in 2011 at a rate of 4.30% and $250 million of 10-year senior notes issued in fiscal 2012 at a rate of 3.25%.

Cintas' commercial paper program has a capacity of $300.0 million that is fully supported by a backup revolving credit facility through a credit agreement with its banking group. This revolving credit facility has an accordion feature that allows for a maximum borrowing capacity of $450.0 million. The revolving credit facility was amended on May 29, 2014 to extend that maturity date from October 6, 2016 to May 28, 2019, to adjust the applicable margin used to calculate the interest payable on any outstanding loans, and to adjust the facility fee payable under the agreement. We believe that this program, along with cash generated from operations, will be adequate to provide necessary funding for our future cash requirements. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2015 or 2014.

Cintas has certain covenants related to debt agreements. These covenants limit our ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. As of May 31, 2015, Cintas was in compliance with all debt covenants.

Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity. We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. Our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness. As of May 31, 2015, our ratings were as follows:

Rating Agency		Outlook		Commercial Paper		Long-term Debt
Standard & Poor's		Positive		A-2		BBB+
Moody's Investors Service		Stable		P-1		A2

On June 26, 2015, Standard & Poor's rating agency raised its long-term credit rating for Cintas to A-/Stable.

In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected. In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above. The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.

To monitor our credit rating and our capacity for long-term financing, we consider various qualitative and quantitative factors. One such factor is the ratio of our total debt to EBITDA. For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and long-term obligations under capital leases.

Long-Term Contractual Obligations

	Payments Due by Period
(In thousands)	Total				One year or less				Two to three years				Four to five years				After five years
Long-term debt (1)	$	1,300,000			$	—			$	550,000			$	—			$	750,000
Operating leases (2)	98,655				26,962				38,088				18,731				14,874
Interest payments (3)	524,636				64,104				102,179				73,080				285,273
Unconditional purchase obligations	—				—				—				—				—
Total long-term contractual cash obligations	$	1,923,291			$	91,066			$	690,267			$	91,811			$	1,050,147

Cintas also makes payments to defined contribution plans. The amount of contributions made to the defined contribution plans are at the discretion of the Board of Directors of Cintas. Future contributions are expected to be $41.9 million in the next year, $90.3 million in the next two to three years, and $99.5 million in the next four to five years.

(1)	Long-term debt primarily consists of $1,300.0 million in senior notes (reference Note 6 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements" for a detailed discussion of long-term debt).

(2)	Operating leases consist primarily of operational facility leases.

(3)	Interest payments could include interest on both fixed and variable rate debt. As of May 31, 2015, Cintas did not have commercial paper outstanding, and therefore did not have any variable rate debt.

Other Commitments

	Amount of Commitment Expiration per Period
(In thousands)	Total				One year or less				Two to three years				Four to five years				After five Years
Lines of credit (1)	$	299,899			$	—			$	—			$	299,899			$	—
Standby letters of credit (2)	82,665				82,665				—				—				—
Total other commitments	$	382,564			$	82,665			$	—			$	299,899			$	—

(1)	Back-up facility for the commercial paper program (reference Note 6 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements" for further discussion).

(2)	Support certain outstanding debt (reference Note 6 entitled Long-Term Debt and Derivatives of "Notes to Consolidated Financial Statements"), self-insured workers' compensation and general liability insurance programs.

Inflation and Changing Prices

Changes in wages, benefits and energy costs have the potential to materially impact Cintas' consolidated financial results. Management believes inflation has not had a material impact on Cintas' consolidated financial condition or a negative impact on consolidated results of operations.

Litigation and Other Contingencies

Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or consolidated results of operations of Cintas. Cintas is party to additional litigation not considered in the ordinary course of business. Please refer to "Part I, Item 3. Legal Proceedings" and Note 13 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements" for a detailed discussion of certain specific litigation.

New Accounting Standards

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." ASU 2013-02 requires an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income if the item reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For reclassification items not required under GAAP to be reclassified

directly to net income in their entirety in the same reporting period, an entity is required to cross-reference to other disclosures currently required under GAAP that provide additional detail about those amounts. The Company adopted ASU 2013-02 effective June 1, 2013. See Note 14 entitled Accumulated Other Comprehensive Income (Loss) of "Notes to Consolidated Financial Statements" for details of the required disclosure.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," to clarify revenue recognition principles. This guidance is intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that is recognized from contracts with customers. This guidance will be effective for reporting periods beginning after December 15, 2017 and will be required to be applied retrospectively. Early application of the amendments in this update is not permitted. Cintas is currently evaluating the impact that ASU 2014-09 will have on its consolidated financial statements.

No other new accounting pronouncement recently issued or newly effective had or is expected to have a material

impact on the Consolidated Financial Statements.

Critical Accounting Policies and Estimates

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

Revenue recognition

Rental revenue, which is recorded in the Rental Uniforms and Ancillary Products operating segment, is recognized when services are performed. Other services revenue, which is recorded in the Uniform Direct Sales operating segment, First Aid, Safety and Fire Protection Services operating segment, Shredding until April 30, 2014 and the Storage business that is reported as discontinued operations, is recognized when either services are performed or when products are shipped and the title and risks of ownership pass to the customer.

Allowance for doubtful accounts

Cintas establishes an allowance for doubtful accounts. This allowance includes an estimate based on historical rates of collections and allowances for specific accounts identified as uncollectible. The allowance that is an estimate based on the Company's historical rates of collections is recorded for overdue amounts, beginning with a nominal percentage and increasing substantially as the account ages. The amount provided as the account ages will differ slightly between the Rental Uniforms and Ancillary Products operating segment and the other operating segments because of differences in customers served and the nature of each operating segment.

Inventories

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

Uniforms and other rental items in service

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

Property and equipment

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets based on industry and Company specific experience, which is typically 30 to 40 years for buildings, 5 to 20 years for building improvements, 3 to 10 years for equipment and 2 to 15 years for leasehold improvements. When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows or based on prices of similar assets, as appropriate.

Investments

Investments consists primarily of cash surrender value of life insurance policies and equity method investments. In general, equity method investments are initially measured at cost. However, an equity method investment resulting from a transaction in which a controlled group of assets that constitutes a business is deconsolidated is initially measured at fair value. Cintas recognizes its share of the investee’s earnings or losses in income. Cintas also adjusts its share of the investee's earnings for intra-entity transactions, basis differences, investee capital transactions and other comprehensive income. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

Goodwill

Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment. Cintas completes an annual impairment test which may include an assessment of qualitative factors including, but not limited to, macroeconomic conditions, industry and market conditions, and entity specific factors such as strategies and financial performance. We test for goodwill impairment at the reporting unit level, which for the Company is at the operating segment level. We determined that our reporting units are our Rental Uniforms and Ancillary Products, Uniform Direct Sales, and First Aid, Safety and Fire Protection Services operating segments. The test may also include the determination of the estimated fair value of Cintas reporting units via comparisons to current market values, where available, and discounted cash flow analyses. Significant assumptions may include growth rates based on historical trends and margin improvement leveraged from such growth, as well as discount rates. Based on the results of the annual impairment tests, Cintas was not required to recognize an impairment of goodwill for the fiscal years ended May 31, 2015, 2014 or 2013. Cintas will continue to perform impairment tests as of March 1 in future years or when indicators of impairment exist.

Service contracts and other assets

Service contracts and other assets, which consist primarily of noncompete and consulting agreements obtained through acquisitions of businesses, are amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years. Certain noncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contracts and other assets is accomplished through specific identification. No impairment has been recognized by Cintas for the fiscal years ended May 31, 2015, 2014 or 2013.

General insurance liabilities

General insurance liabilities represent the estimated ultimate cost of all asserted and unasserted claims incurred, primarily related to worker's compensation, auto liability and other general liability exposure through the consolidated balance sheet dates. Our reserves are estimated through actuarial procedures of the insurance industry and by using industry assumptions, adjusted for specific expectations based on our claims history. Cintas records an increase or decrease in selling and administrative expenses related to development of prior claims, higher claims activity and other environmental factors in the period in which it becomes known. These changes in estimates may be material to the consolidated financial statements.

Stock-based compensation

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

Litigation and environmental matters

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

A detailed discussion of litigation matters is discussed in Note 13 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements."

Income taxes

Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. See Note 8 entitled Income Taxes of "Notes to Consolidated Financial Statements" for the types of items that give rise to significant deferred income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes. Deferred income taxes that are not related to an asset or liability for financial reporting are classified according to the expected reversal date. Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized.

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

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