Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Audited Consolidated Financial Statements for the Fiscal Years Ended May 31, 2018, 2017 and 2016

Management's Report on Internal Control over Financial Reporting	31
Reports of Independent Registered Public Accounting Firm	32
Consolidated Statements of Income	34
Consolidated Statements of Comprehensive Income	35
Consolidated Balance Sheets	36
Consolidated Statements of Shareholders' Equity	37
Consolidated Statements of Cash Flows	38
Notes to Consolidated Financial Statements	39

Management's Report on

Internal Control over Financial Reporting

To the Shareholders of Cintas Corporation:

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.

With the supervision of our Chairman and Chief Executive Officer and our Chief Financial Officer, management assessed our internal control over financial reporting as of May 31, 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 included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed by our internal audit function.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2018, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.

We reviewed the results of management's assessment with the Audit Committee of our Board of Directors. Additionally, our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of Cintas Corporation's internal control over financial reporting. Ernst & Young LLP has issued an attestation report, which is included in this Annual Report on Form 10-K.

		Scott D. Farmer Chairman and Chief Executive Officer
		J. Michael Hansen Executive Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Cintas Corporation

Opinion on Internal Control over Financial Reporting

We have audited Cintas Corporation’s internal control over financial reporting as of May 31, 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 May 31, 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), the consolidated balance sheets of the Company as of May 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended May 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated July 27, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

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

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

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

Definition and Limitations of Internal Control Over Financial Reporting

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

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

/s/ ERNST & YOUNG LLP

Cincinnati, Ohio

July 27, 2018

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Cintas Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cintas Corporation (the Company) as of May 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended May 31, 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 financial position 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 period ended 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), the Company’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), and our report dated July 27, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

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

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

/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 1968

Cincinnati, Ohio

July 27, 2018

Consolidated Statements 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			$	3,759,524
Other	1,229,508				1,120,891				1,036,248
	6,476,632				5,323,381				4,795,772
Costs and expenses:
Cost of uniform rental and facility services	2,886,959				2,307,774				2,092,833
Cost of other	681,150				635,312				601,599
Selling and administrative expenses	1,916,792				1,527,380				1,332,399
G&K Services, Inc. transaction and integration expenses	41,897				79,224				—
Operating income	949,834				773,691				768,941
Interest income	(1,342		)		(237		)		(896		)
Interest expense	110,175				86,524				64,522
Income before income taxes	841,001				687,404				705,315
Income taxes	57,069				230,118				256,710
Income from continuing operations	783,932				457,286				448,605
Income from discontinued operations, net of tax of $35,313, $15,057 and $138,184, respectively	58,654				23,422				244,915
Net income	$	842,586			$	480,708			$	693,520
Basic earnings per share:
Continuing operations	$	7.24			$	4.27			$	4.08
Discontinued operations	0.54				0.22				2.22
Basic earnings per share	$	7.78			$	4.49			$	6.30
Diluted earnings per share:
Continuing operations	$	7.03			$	4.17			$	4.02
Discontinued operations	0.53				0.21				2.19
Diluted earnings per share	$	7.56			$	4.38			$	6.21
Dividends declared and paid per share	$	1.62			$	1.33			$	1.05

See accompanying notes.

Consolidated Statements of 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 adjustments	19,276				(10,252		)		(11,933		)
Cumulative translation adjustment on Shred-it	—				—				6,472
Change in fair value of cash flow hedges	—				31,136				(12,156		)
Amortization of interest rate lock agreements	(933		)		1,076				1,952
Other	1,029				(115		)		(738		)
Other comprehensive income (loss), net of tax expense (benefit) of $690, $19,118 and ($9,813), respectively	19,372				21,845				(16,403		)
Comprehensive income	$	861,958			$	502,553			$	677,117

See accompanying notes.

Consolidated Balance Sheets
	As of May 31,
(In thousands except share data)	2018				2017
Assets
Current assets:
Cash and cash equivalents	$	138,724			$	169,266
Marketable securities	—				22,219
Accounts receivable, principally trade, less allowance of $33,510 and $20,525, respectively	804,583				736,008
Inventories, net	280,347				278,218
Uniforms and other rental items in service	702,261				635,702
Income taxes, current	19,634				44,320
Prepaid expenses and other current assets	32,383				30,132
Assets held for sale	—				38,613
Total current assets	1,977,932				1,954,478
Property and equipment, net	1,382,730				1,323,501
Investments	175,581				164,788
Goodwill	2,846,888				2,782,335
Service contracts, net	545,768				586,988
Other assets, net	29,315				31,967
	$	6,958,214			$	6,844,057
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	215,074			$	177,051
Accrued compensation and related liabilities	140,654				149,635
Accrued liabilities	420,129				429,809
Liabilities held for sale	—				11,457
Debt due within one year	—				362,900
Total current liabilities	775,857				1,130,852
Long-term liabilities:
Debt due after one year	2,535,309				2,770,624
Deferred income taxes	352,581				469,328
Accrued liabilities	277,941				170,460
Total long-term liabilities	3,165,831				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 outstanding	618,464				485,068
Paid-in capital	245,211				223,924
Retained earnings	5,837,827				5,170,830
Treasury 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' equity	3,016,526				2,302,793
	$	6,958,214			$	6,844,057

See accompanying notes.

Consolidated

Statements of Shareholders' Equity

	Common Stock							Paid-In Capital				Retained Earnings				Other Accumulated Comprehensive Income (Loss)				Treasury Stock							Total Shareholders' Equity
(In thousands)	Shares			Amount							Shares			Amount
Balance at June 1, 2015	178,117			$	329,248			$	157,183			$	4,227,620			$	(8,471	)		(66,414	)		$	(2,773,125	)		$	1,932,455
Net income	—			—				—				693,520				—				—			—				693,520
Comprehensive loss, net of tax	—			—				—				—				(16,403		)		—			—				(16,403		)
Dividends	—			—				—				(115,273		)		—				—			—				(115,273		)
Stock-based compensation	—			—				79,293				—				—				—			—				79,293
Vesting of stock-based compensation awards	605			52,208				(52,208		)		—				—				—			—				—
Stock options exercised, net of shares surrendered	876			28,226				—				—				—				—			—				28,226
Repurchase of common stock	—			—				—				—				—				(8,971	)		(780,151		)		(780,151		)
Other	—			—				20,992				—				—				—			—				20,992
Balance at May 31, 2016	179,598			409,682				205,260				4,805,867				(24,874		)		(75,385	)		(3,553,276		)		1,842,659
Net income	—			—				—				480,708				—				—			—				480,708
Comprehensive income, net of tax	—			—				—				—				21,845				—			—				21,845
Dividends	—			—				—				(142,433		)		—				—			—				(142,433		)
Stock-based compensation	—			—				88,868				—				—				—			—				88,868
Vesting of stock-based compensation awards	429			43,516				(43,516		)		—				—				—			—				—
Stock options exercised, net of shares surrendered	966			31,870				—				—				—				—			—				31,870
Repurchase of common stock	—			—				—				—				—				(207	)		(20,724		)		(20,724		)
Adoption of new accounting guidance	—			—				(26,688		)		26,688				—				—			—				—
Balance at May 31, 2017	180,993			485,068				223,924				5,170,830				(3,029		)		(75,592	)		(3,574,000		)		2,302,793
Net income	—			—				—				842,586				—				—			—				842,586
Comprehensive income, net of tax	—			—				—				—				19,372				—			—				19,372
Dividends	—			—				—				(175,589		)		—				—			—				(175,589		)
Stock-based compensation	—			—				112,835				—				—				—			—				112,835
Vesting of stock-based compensation awards	701			91,548				(91,548		)		—				—				—			—				—
Stock options exercised, net of shares surrendered	1,029			41,848				—				—				—				—			—				41,848
Repurchase of common stock	—			—				—				—				—				(805	)		(127,319		)		(127,319		)
Balance at May 31, 2018	182,723			$	618,464			$	245,211			$	5,837,827			$	16,343			(76,397	)		$	(3,701,319	)		$	3,016,526

See accompanying notes.

Consolidated Statements of Cash Flows
	Fiscal Years Ended May 31,
(In thousands)	2018				2017				2016
Cash flows from operating activities:
Net income	$	842,586			$	480,708			$	693,520
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	215,476				171,565				149,691
Amortization of intangible assets	63,940				25,030				15,588
Stock-based compensation	112,835				88,868				79,293
Gain 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 payable	35,275				13,726				(564		)
Accrued compensation and related liabilities	(9,392		)		13,654				13,512
Accrued liabilities and other	42,468				(501		)		22,714
Income taxes, current	26,082				(29,424		)		(800		)
Net cash provided by operating activities	964,160				763,887				465,845
Cash flows from investing activities:
Capital expenditures	(271,699		)		(273,317		)		(275,385		)
Proceeds from redemption of marketable securities and investments	179,857				218,324				434,179
Purchase of marketable securities and investments	(153,708		)		(181,065		)		(494,146		)
Proceeds from sale of business	127,835				—				—
Proceeds from Storage transactions	—				2,400				35,338
Proceeds from Shredding transactions	—				25,876				580,837
Acquisitions of businesses, net of cash acquired	(19,346		)		(2,102,371		)		(156,579		)
Other, net	1,363				(196		)		4,137
Net cash (used in) provided by investing activities	(135,698		)		(2,310,349		)		128,381
Cash 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 awards	41,848				31,870				28,226
Dividends paid	(175,589		)		(142,433		)		(115,273		)
Repurchase of common stock	(127,319		)		(20,724		)		(780,151		)
Other, net	(2,580		)		(5,878		)		490
Net cash (used in) provided by financing activities	(864,140		)		1,578,502				(866,724		)
Effect of exchange rate changes on cash and cash equivalents	5,136				(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 year	169,266				139,357				417,073
Cash and cash equivalents at end of year	$	138,724			$	169,266			$	139,357

See accompanying notes.

Notes to Consolidated Financial Statements

1. Significant Accounting Policies

Business description. Cintas Corporation (collectively with its majority-owned subsidiaries and any entities over which it has control, Cintas, 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 our customers’ 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 helps customers 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 a wholly-owned subsidiary of Cintas that operates within the Uniform Rental and Facility Services operating segment. To finance the G&K acquisition, Cintas used a combination of new senior notes, a term loan, other borrowings under its existing credit facility and cash on hand. G&K's results of operations are included in Cintas' consolidated financial statements as of and from the date of acquisition.

Cintas’ reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and Facility Services 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 tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ business, which consists of Fire Protection Services and its Uniform Direct Sale business, is included in All Other. Cintas evaluates operating segment performance based on revenue and income before income taxes. Revenue and income before income taxes for each of these reportable operating segments for the years ended May 31, 2018, 2017 and 2016 are presented in Note 14 entitled Operating Segment Information. The Company regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker (CODM) regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.

In fiscal 2018, Cintas sold a significant business referred to as "Discontinued Services." Prior to the sale of Discontinued Services, the operations were primarily included in All Other and classified as held for sale. In fiscal 2014, Cintas completed its partnership transaction with the shareholders of Shred-it International Inc. to combine Cintas' shredding business (Shredding) with the shredding business of Shred-it International Inc. (the Shredding Transaction). 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 of Shredding are classified as discontinued operations for all periods presented as a result of selling the investment during fiscal 2016. During fiscal 2015, Cintas sold the storage business (Storage) and, as a result, its operations are also classified as discontinued operations for all periods presented. In accordance with the applicable accounting guidance for the disposal of long-lived assets and discontinued operations, the results of Discontinued Services, Shredding and Storage have been excluded from both continuing operations and operating segment results for all periods presented. See Note 16 entitled Discontinued Operations for additional information.

Principles of consolidation. The consolidated financial statements include the accounts of Cintas controlled majority-owned subsidiaries and any entities over which Cintas has control. Intercompany balances and transactions have been eliminated as appropriate.

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 and accompanying notes. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of raw materials, can have a significant effect on operations. These factors and other events could cause actual results to differ from management's estimates.

Revenue recognition. Rental revenue, which is recorded in the Uniform Rental and Facility Services reportable operating segment, is recognized when services are performed. Other revenue, which is recorded in the First Aid and Safety Services reportable operating segment and All Other, is recognized when either services are performed or when 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, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. The Uniform Rental and Facility Services reportable operating segment inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and other costs of distribution are included in the cost of uniform rental and facility services.

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

Selling and administrative expenses. Selling and administrative expenses consist primarily of sales labor and commissions, management and administrative labor, payroll taxes, medical expense, insurance expense, legal and professional costs and amortization of finite-lived intangible assets.

G&K transaction and integration expenses. As a result of the acquisition of G&K in fiscal 2017, the Company incurred various transaction and integration expenses in both fiscal 2018 and fiscal 2017, which relate primarily to asset impairment charges, legal and professional fees, employee termination expenses, the write-off of excess inventory, location closure expenses and other miscellaneous expenses. See Note 17 entitled G&K Services, 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 restricted cash used as collateral associated with the general insurance program.

Marketable securities. Marketable securities are typically comprised of fixed income securities and are classified as available-for-sale.

Accounts receivable. Accounts receivable is comprised of amounts owed through product shipments and services provided and is presented net of an allowance for doubtful accounts. The allowance is an estimate based on historical rates of collections and allowances for specific accounts identified as uncollectible. The allowance that is an estimate based on Cintas' historical rates of collections is recorded for overdue amounts, beginning with a nominal percentage and increasing substantially as the account ages. The amount provided as the account ages will differ slightly between the Uniform Rental and Facility Services reportable operating segment, the First Aid and Safety Services reportable operating segment and All Other because of differences in customers served and the nature of each business. When an account is considered uncollectible, it is written 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 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 net realizable value. Inventory is comprised of the following amounts at May 31:

(In thousands)	2018				2017
Raw materials	$	17,042			$	17,528
Work in process	27,350				17,951
Finished goods	235,955				242,739
	$	280,347			$	278,218

Inventories are recorded net of reserves for obsolete inventory of $37.0 million and $38.3 million at May 31, 2018 and 2017, respectively. The inventory obsolescence reserve is determined by specific identification, as well as an estimate based on Cintas' historical rates of obsolescence.

Uniforms and other rental items in service. These items are valued at cost less amortization, calculated using the straight-line method. Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months. Uniforms acquired in the G&K acquisition were amortized over 12 months. Other rental items,

including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their useful lives, which range from 8 to 60 months. The amortization rates used are based on industry experience, Cintas' specific experience and wear tests performed by Cintas. These factors are critical to determining the amount of in service inventory and related cost of uniforms and facility services that are presented in the consolidated financial statements.

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

Buildings	30 to 40
Building improvements	5 to 20
Equipment	3 to 10
Leasehold improvements	2 to 15

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

Long-lived assets. When events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the estimated undiscounted future cash flows are compared to the carrying amount of the assets. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, an impairment loss is recorded based on the excess of the carrying amount of the assets over their respective fair values. Fair value is generally determined by discounted cash flows, prices of similar assets or third-party real estate valuations, as appropriate. During fiscal 2017, as a result of the identification of certain G&K plants and branches for future closure, an indicator of potential impairment was identified. Cintas recognized an impairment loss of $23.3 million during the fiscal year ended May 31, 2017, based on the excess of the carrying amount of asset over their respective fair values. The undiscounted cash flows used to test recoverability were performed, using Level 2 inputs based on both the cost and market approaches, at the lowest discernible level, which is at the location level. Cintas did not identify any 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 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. 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. Assumptions may include growth rates based on historical trends and margin improvement leveraged from such growth, as well as discount rates. We determine discount rates separately for each reporting unit using the weighted average cost of capital, which includes a calculation of cost of equity, which is developed using the capital asset pricing model and comparable company betas (a measure of systemic risk), and cost of debt. We also use comparable market earnings multiple data and our market capitalization to corroborate our reporting unit valuations. We test for goodwill impairment at the reporting unit level. Due to the fiscal 2018 executed sale of Discontinued Services and the ongoing integration of the acquired G&K operations within the legacy Cintas Uniform Rental and Facility Services operating segment, the composition for Cintas’ reporting units for the evaluation of goodwill impairment has changed. Discrete financial information of G&K ceased to exist in early fiscal 2018 and is now evaluated by the CODM within the consolidated Uniform Rental and Facility Services operating segment. Cintas has identified four reporting units for purposes of evaluating goodwill impairment: Uniform Rental and Facility Services, First Aid and Safety Services, and two reporting units within All Other. The Company evaluated impairment indicators for all reporting units, including those prior to and subsequent to the composition change in fiscal 2018, noting none. 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, 2018, 2017 or 2016. Cintas will continue to perform impairment tests as of March 1 in future years and when indicators of impairment exist.

Service contracts and other assets. Service contracts and other assets, which consist primarily of noncompete and consulting agreements obtained through acquisitions of businesses, are generally amortized by use of the straight-line method over the estimated lives of the agreements, which are generally 5 to 10 years. The G&K service contract asset is being amortized over a period of 15 years, which represents the estimated life of the economic benefit. The G&K service contract asset amortization is based on the annual economic value of the underlying asset which generally decreases over the 15-year term. Certain noncompete agreements, as well as all service contracts, require that a valuation be determined using a discounted cash flow model. The assumptions and judgments used in these models involve estimates of cash flows and discount rates, among other factors. Because of the assumptions used to value these intangible assets, actual results over time could vary from original estimates. Impairment of service contracts and other assets is accomplished through specific identification. No impairment has been recognized 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 liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income. See Note 9 entitled Acquisitions and Divestitures for a discussion of the G&K acquisition.

Debt Issuance Costs. Debt issuance costs for the revolving credit facility are included in other assets and all other debt issuance costs reduce the carrying amount of long-term debt.

Accrued liabilities. Current accrued liabilities are recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Current accrued liabilities include the following amounts at May 31:

(In thousands)	2018				2017
General insurance liabilities	$	163,400			$	153,743
Employee benefit related liabilities	112,801				110,104
Taxes and related liabilities	8,148				8,057
Accrued interest	24,763				36,638
Other	111,017				121,267
	$	420,129			$	429,809

General 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 through actuarial procedures of the insurance industry and by using industry assumptions, adjusted for specific expectations based on our claims history. Cintas records an increase or decrease in selling and administrative expenses related to development of prior claims, higher claims activity and other environmental factors in the period in which it becomes known. These changes in estimates may be material to the consolidated financial statements.

Long-term accrued liabilities consists primarily of reserves associated with unrecognized tax benefits, which are described in more detail in Note 8 entitled Income Taxes, retirement obligations, which are described in more detail in Note 10 entitled Employee Benefit Plans, and environmental obligations 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 be reasonably estimated, except for acquired environmental obligations which are recorded at fair value. Cintas’ environmental obligations are estimated based on an evaluation of various factors, including currently available facts, existing technology, presently enacted laws and regulations, and remediation experience. Where the available information is sufficient to estimate the amount of the obligation, that estimate has been recorded. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. Management actively monitors all locations for

compliance and changes in facts and circumstances. No one location or site is deemed to be material or in violation of the applicable laws and regulations, even though costs are being incurred. Costs estimated for environmental obligations are not discounted to their present value.

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

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

Derivatives and hedging activities. Cintas formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Derivatives are recorded at fair value on the consolidated balance sheet, and gains and losses are recorded as adjustments to income or other comprehensive income, as appropriate. For derivative financial instruments that are designated as a hedge, unrealized gains and losses related to the effective portion are either recognized in income immediately to offset the realized gain or loss on the hedged item, or are deferred and reported as a component of other comprehensive income in stockholders' equity and subsequently recognized in net income when the hedged item affects net income. The change in fair value of the ineffective portion of a derivative financial instrument is recognized in net income immediately.

Income taxes. The provision for income taxes includes taxes paid, currently payable or receivable, and those deferred. The Tax Cuts and Jobs Act of 2017 (the Tax Act) includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries and, as a result, previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. 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 for the types of items that give rise to significant deferred income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes. Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized.

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

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

Litigation and other contingencies. Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or consolidated results of operations of Cintas.

Fair value measurements. Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. It also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

	Level 1 —	Quoted prices in active markets for identical assets or liabilities.
	Level 2 —	Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
	Level 3 —	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Cintas' assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers between levels for the years ended May 31, 2018 or 2017. The carrying value of accounts receivable and accounts payable, and other current assets and liabilities, approximate fair value because of the short-term maturity of those instruments.

In order to meet the requirements of ASC 820, Cintas utilizes two basic valuation approaches to determine the fair value of its assets and liabilities required to be recorded on a recurring basis at fair value. The first approach is the cost approach. The cost approach is generally the value a market participant would expect to replace the respective asset or liability. The second approach is the market approach. The market approach looks at what a market participant would consider valuing an exact or similar asset or liability to that of Cintas, including those traded on exchanges.

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

New accounting pronouncements. In April 2014, the FASB issued Accounting Standard Update (ASU) 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which amended accounting guidance related to the reporting of discontinued operations and disclosures of disposals of components of an entity. The amended guidance changes the thresholds for disposals to qualify as discontinued operations and requires additional disclosures. Cintas adopted ASU 2014-08 during the quarter ended August 31, 2015 and applied the 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. The standard applies one comprehensive revenue recognition model across all contracts, entities and sectors. The core principal of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard includes cost guidance, whereby all direct and incremental costs to obtain or fulfill a contract will be capitalized and amortized over the corresponding period of benefit, determined on a contract by contract basis. This guidance is also 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. Cintas adopted this standard on June 1, 2018. The largest impacts to the Company’s financial statements will result from the new qualitative and quantitative disclosures that will be required upon adoption of the new standard. There will be two implementation adjustments upon adoption of the new standard related to the capitalization of certain direct and incremental contract costs and the timing of revenue recognition for certain contracts with customers that create an asset with no alternative use to the Company. The Company will apply the modified retrospective adoption alternative for this standard and anticipates recognizing a cumulative effect adjustment in the range of approximately $185.0 million to $215.0 million of an increase to retained earnings as of June 1, 2018, which primarily reflects the deferral of contract costs.

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

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Topic 842 supersedes the previous leases standard, ASC 840, "Leases." This guidance is effective for reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Cintas is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements. The Company currently expects the adoption of 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 to simplify accounting for share-based payments. Upon adoption, ASU 2016-09 requires excess tax benefits for share-based payments to be recorded as a reduction of income tax expense and reflected within operating cash flows rather than being recorded within equity and reflected within financing cash flows. The standard also permits the repurchase of more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. This update is effective for interim and annual periods beginning after December 15, 2016; however, early adoption is permitted. Cintas adopted ASU 2016-09 during the quarter ended August 31, 2016 and elected to make an accounting policy change to recognize forfeitures as they occur. The adoption impact on the consolidated balance sheet was a cumulative-effect adjustment of $26.7 million, increasing opening retained earnings and decreasing paid-in capital.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The adoption of this standard is not expected 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 Benefit Costs.” ASU 2017-07 continues to require the service component of pension and other postretirement benefit costs to be presented in the same line item as other employee compensation costs on the consolidated statement of income and changes the presentation of other components of net benefit cost so that these items will be presented outside of operating income within the consolidated statements of income. Cintas retrospectively adopted ASU 2017-07 on June 1, 2017. The adoption of this standard did not have a material effect on the consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows entities to elect to reclassify the income tax effects of the Tax Act on items within accumulated other comprehensive income to retained earnings and requires additional related disclosures. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Cintas is currently evaluating the impact that 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 consolidated financial statements.

2. Fair Value Disclosures

All financial instruments that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated balance sheet date. These financial instruments measured at fair value on a recurring basis are summarized below:

	As of May 31, 2018
(In thousands)	Level 1				Level 2				Level 3				Fair Value
Cash and cash equivalents	$	138,724			$	—			$	—			$	138,724
Total 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			$	—			$	—			$	169,266
Marketable securities:
Canadian treasury securities	—				22,219				—				22,219
Total assets at fair value	$	169,266			$	22,219			$	—			$	191,485

Cintas' cash and cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets, and financial instruments classified as Level 2 are based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The types of financial instruments Cintas classifies within Level 1 include most bank deposits and money market securities. Cintas does not adjust the quoted market price for such financial instruments.

The types of financial instruments Cintas classifies within Level 2 are primarily high grade domestic commercial paper and Canadian treasury securities (federal). The valuation technique used for Cintas’ marketable securities classified within Level 2 of the fair value hierarchy is primarily the market approach. The primary inputs to value Cintas’ marketable securities are the respective instrument's future cash flows based on its stated yield and the amount a market participant would pay for a similar instrument. Primarily all of Cintas’ marketable securities are actively traded and the recorded

fair value reflects current market conditions. However, due to the inherent volatility in the investment market, there is at least a possibility that recorded investment values may change in the near term.

Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of the securities sold is based on the specific identification method. There were no outstanding marketable securities as of May 31, 2018. The amortized cost basis of marketable securities as of May 31, 2017 was $22.2 million. Purchases of marketable securities were $143.9 million, $171.3 million and $488.8 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. All outstanding 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 different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated balance sheet dates.

In addition to assets and liabilities that are recorded at fair value on a recurring basis, Cintas records assets and liabilities at fair value on a nonrecurring basis as required under U.S. GAAP. Cintas' acquisition of G&K in fiscal 2017 was recorded at fair value. See Note 9 entitled Acquisitions and Divestitures for additional information on the measurement of the G&K assets acquired and liabilities assumed.

3. Property and Equipment

Cintas' property and equipment is summarized as follows at May 31:

(In thousands)	2018				2017
Land	$	177,281			$	173,166
Buildings and improvements	644,322				624,615
Equipment	2,070,009				1,930,018
Leasehold improvements	34,891				32,679
Construction in progress	119,937				79,400
	3,046,440				2,839,878
Less: accumulated depreciation	1,663,710				1,516,377
	$	1,382,730			$	1,323,501

Interest 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 in equipment at May 31, 2018 and 2017 were $253.8 million and $229.0 million, respectively, of internal use software. Depreciation of internal use software begins when the software is ready for service and continues on the straight-line method over the estimated useful life, generally 10 years. Accumulated 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. Investments

Investments at May 31, 2018 of $175.6 million include the cash surrender value of insurance policies of $154.0 million, equity method investments of $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 of insurance 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, no losses due to impairment were recorded.

5. Goodwill, Service Contracts and Other Assets

Changes in the carrying amount of goodwill and service contracts by reportable operating segment and All Other, are as follows:

Goodwill (in thousands)	Uniform Rental and Facility Services				First Aid and Safety Services				All Other				Total
Balance at June 1, 2016	$	949,730			$	241,448			$	84,898			$	1,276,076
Goodwill acquired	1,499,008				2,265				6,281				1,507,554
Foreign currency translation	(668		)		(601		)		(26		)		(1,295		)
Balance at May 31, 2017	$	2,448,070			$	243,112			$	91,153			$	2,782,335
Goodwill acquired (1)	55,152				370				5,939				61,461
Foreign currency translation	2,254				797				41				3,092
Balance 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 operating segment. 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 Rental and Facility Services				First Aid and Safety Services				All Other				Total
Balance at June 1, 2016	$	19,912			$	32,252			$	26,030			$	78,194
Service contracts acquired	521,708				1,632				5,895				529,235
Service contracts amortization	(11,636		)		(3,952		)		(4,922		)		(20,510		)
Foreign currency translation	(61		)		130				—				69
Balance at May 31, 2017	$	529,923			$	30,062			$	27,003			$	586,988
Service contracts acquired	4,098				985				4,310				9,393
Service contracts amortization	(45,296		)		(3,842		)		(4,906		)		(54,044		)
Foreign currency translation	3,342				89				—				3,431
Balance at May 31, 2018	$	492,067			$	27,294			$	26,407			$	545,768

Information regarding Cintas' service contracts and other assets is as follows:

	As of May 31, 2018
(In thousands)	Carrying Amount				Accumulated Amortization				Net
Service contracts	$	924,978			$	379,210			$	545,768
Noncompete and consulting agreements	$	41,710			$	39,877			$	1,833
Other	38,787				11,305				27,482
Total	$	80,497			$	51,182			$	29,315

	As of May 31, 2017
(In thousands)	Carrying Amount				Accumulated Amortization				Net
Service contracts	$	911,273			$	324,285			$	586,988
Noncompete and consulting agreements	$	40,743			$	39,244			$	1,499
Other	34,890				4,422				30,468
Total	$	75,633			$	43,666			$	31,967

Amortization expense for continuing operations was $61.2 million, $22.8 million and $14.2 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. Estimated amortization expense for continuing operations, excluding any future acquisitions, for each of the next five full fiscal 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 years and 4 years, respectively.

6. Debt and Derivatives

Cintas' debt is summarized as follows at May 31:

(In thousands)	Interest Rate			Fiscal Year Issued		Fiscal Year Maturity		2018				2017
Debt due within one year
Senior notes	6.13	%		2008		2018		$	—			$	300,000
Commercial paper	1.24	%	(1)	Various		Various		—				50,500
Current portion of term loan	2.00	%	(1)	2017		2018		—				12,500
Debt issuance costs								—				(100		)
Total debt due within one year								$	—			$	362,900
Debt due after one year
Senior notes	4.30	%		2012		2022		$	250,000			$	250,000
Senior notes	2.90	%		2017		2022		650,000				650,000
Senior notes	3.25	%		2013		2023		300,000				300,000
Senior notes (2)	2.78	%		2013		2023		52,119				52,554
Senior notes (3)	3.11	%		2015		2025		52,309				52,645
Senior notes	3.70	%		2017		2027		1,000,000				1,000,000
Senior notes	6.15	%		2007		2037		250,000				250,000
Long-term portion of term loan	2.00	%	(1)	2017		2022		—				237,500
Debt 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. The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%.

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

The average interest rate for all Cintas debt at May 31, 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 issuance costs. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' debt as of May 31, 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 principal amount 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 of commercial 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 the next 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. Interest paid in fiscal 2017 included the payment of $17.1 million in short-term debt financing fees, which were related to the acquisition of G&K and are not reoccurring.

The credit agreement that supports our commercial paper program was amended on September 16, 2016. The amendment increased the capacity of 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 full during the first quarter of fiscal 2018. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under either the revolving credit facility or the term loan facility of up to $250.0 million in the aggregate, subject to customary conditions. The maturity date of the agreement is September 15, 2021. No commercial paper or borrowings on our revolving credit facility were outstanding at May 31, 2018. As of May 31, 2017, there was $50.5 million of commercial paper outstanding with a weighted average interest rate of 1.24% and maturity dates less than 30 days and no borrowings on our revolving credit facility. The fair value of the commercial paper is estimated using Level 2 inputs based on general market prices. Given its short-term nature, the carrying value of the outstanding commercial paper approximates fair value.

Cintas uses interest rate locks to manage its overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2008, fiscal 2012, fiscal 2013 and fiscal 2017. The amortization of the cash flow hedges resulted in a decrease to other comprehensive 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 interest rate lock agreement with a notional value of $550.0 million for a forecasted debt issuance. As of the third quarter of fiscal 2017, Cintas had multiple interest rate lock agreements in place for forecasted long-term debt issuances. The notional value of the planned debt issuances was $500.0 million of 5-year senior notes and $1.0 billion of 10-year senior notes. In conjunction with the issuance of long-term debt in the fourth quarter of fiscal 2017, Cintas settled these interest rate lock agreements, which resulted in a deferred gain of $30.2 million. The effective portion of the gain was recorded in other comprehensive income to be amortized as a reduction to interest expense beginning in the fourth quarter of fiscal 2017 through the remaining life of the debt.

To hedge the exposure of movements in the foreign currency rates, Cintas may use foreign currency hedges. These hedges reduce the impact on cash flows from movements in the foreign currency exchange rates. Examples of foreign currency hedge instruments that Cintas may use are average rate options and forward contracts. These instruments did not impact foreign currency exchange during fiscal 2018, 2017 or 2016. Cintas had 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-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. Cintas was in compliance with all of the debt covenants for all periods presented.

7. Leases

Cintas conducts certain operations from leased facilities and leases certain equipment. Most leases contain renewal options for periods from 1 to 10 years. The lease agreements provide for increases in rent expense if the options are exercised based on increases in certain price level factors or other prearranged factors. Step rent provisions, escalation clauses, capital improvements funding and other lease concessions are taken into account in computing minimum lease payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. Lease payments are not dependent on an existing index or rate and are not included in minimum lease payments. It is anticipated that expiring leases will be renewed or replaced.

The minimum rental payments under noncancelable lease arrangements for each of the next five years and thereafter are $49.3 million, $41.6 million, $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 leased equipment as a result of the G&K acquisition.

8. Income Taxes

Income before income taxes for continuing operations consists of the following components:

(In thousands)	2018				2017				2016
U.S. operations	$	798,215			$	673,055			$	685,167
Foreign operations	42,786				14,349				20,148
	$	841,001			$	687,404			$	705,315

Income tax expense (benefit) for continuing operations consists of the following components:

(In thousands)	2018				2017				2016
Current:
Federal	$	137,601			$	187,134			$	272,663
State and local	19,582				27,197				25,428
Foreign	15,103				6,996				6,471
	172,286				221,327				304,562
Deferred	(115,217		)		8,791				(47,852		)
	$	57,069			$	230,118			$	256,710

Reconciliation 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			$	246,881
Permanent differences (1)	(47,137		)		(29,414		)		—
State and local income taxes, net of federal benefit	24,783				19,210				16,339
Other (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 repatriation	4,363				—				—
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.

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			$	7,707
Inventory obsolescence	8,668				16,096
Insurance and contingencies	36,727				54,489
Stock-based compensation	53,532				73,027
Net operating loss and foreign related carry-forwards (1)	11,910				37,814
Deferred compensation and other	31,093				25,891
	148,885				215,024
Valuation allowance	(11,302		)		(18,088		)
	137,583				196,936
Deferred tax liabilities:
Uniform and other rental items in service	143,580				210,766
Property and equipment	115,712				126,872
Service contracts and other intangible assets	183,000				290,049
Treasury locks	3,545				6,435
State taxes and other	44,327				32,142
	490,164				666,264
Net 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 net operating 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				626
Balance 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 income tax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods. The total amount accrued for interest and penalties as of May 31, 2018 and 2017, was $1.8 million and $0.9 million, respectively. Cintas records this tax liability in long-term accrued liabilities on the consolidated balance sheets, as appropriate.

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	$	16,531
Additions from G&K acquisition (1)	2,084
Additions for tax positions of prior years	2,520
Settlements (2)	(1,044		)
Statute expirations	(2,734		)
Balance at May 31, 2017	$	17,357
Additions for tax positions of the current year	10,164
Additions from G&K acquisition (1)	6,394
Additions for tax positions of prior years	5,675
Statute 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 in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results of operation in any given period.

All U.S. federal income tax returns are closed to audit through fiscal 2014. Cintas is currently in various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2013. Based on the resolution of the various audits and other potential regulatory developments, it is expected that the balance of unrecognized tax benefits will not change for the fiscal year ending May 31, 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 rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of foreign subsidiaries. The Tax Act also includes provisions that are expected to offset some of the benefit of the anticipated U.S. corporate tax rate reduction, including the repeal of the deduction for domestic production activities and the expansion of the limitation on the deduction of certain executive compensation. In addition, the Tax Act alters the landscape of taxation of non-U.S. operations and provides immediate deductions for certain new investments, among other provisions.

Provisional Deferred Tax Revaluation

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates occur, deferred tax assets and liabilities are adjusted through income 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 these balances or give rise to new deferred tax amounts. The provisional amount related to the revaluation of the net deferred tax liability balance was a benefit of $175.6 million, which was recognized as a component of income tax expense for the fiscal year ended May 31, 2018.

Provisional Transition Tax

The 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 income tax expense during the fiscal year ended May 31, 2018. Cintas is still revising the transition tax calculation, as the Company has not completed its final analysis of all provisions of the Tax Act. The provisional amount is subject to change based on computation of final fiscal 2018 E&P, the amounts held in cash and cash equivalents at the end of fiscal 2018, a historical E&P validation and foreign tax credit analysis.

Foreign Withholding Tax

Foreign withholding taxes of $3.7 million have been recognized and paid on certain non-U.S. earnings subject to repatriation that were previously tax 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 invested assertion (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 Tax Act.

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, and Cintas will continue to assess the impact of the Tax Act and will record adjustments through the income tax provision in the relevant period as amounts are known and reasonably estimable during the measurement period. Accordingly, Cintas has not completed the final analysis related to the tax impact of the Tax Act, consequently, the impact of the Tax Act may differ from Cintas' provisional estimates due to, and among other factors, 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 the effects 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 valuation allowances, will be realized.

9. Acquisitions and Divestitures

Acquisitions

The 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 in the First Aid and Safety Services reportable operating segment and six businesses included in All Other. During fiscal 2017, Cintas acquired three businesses included in the Uniform Rental and Facility Services reportable operating segment, including the G&K acquisition discussed below, four businesses included in the First Aid and Safety Services reportable operating segment, and eleven businesses included in All Other.

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			$	550,491
Fair value of service contracts acquired	9,271				529,235
Fair value of other intangibles acquired	892				17,556
Net goodwill recognized	12,094				1,507,554
Total fair value of assets acquired	22,678				2,604,836
Fair value of liabilities assumed	3,332				502,465
Total cash paid for acquisitions, net of cash acquired	$	19,346			$	2,102,371

G&K Acquisition

On March 21, 2017, Cintas completed the acquisition of G&K for consideration of approximately $2.1 billion. Pursuant to the merger agreement governing the acquisition, each share of common stock of G&K issued and outstanding immediately prior to the effective time of the G&K acquisition was canceled and converted into the right to receive $97.50 in cash. The total purchase price was $2,078.4 million, which was funded using a combination of new senior notes, a term loan, other borrowings under our existing credit facility and cash on hand. The net consideration transferred for G&K consisted of the following items:

(In thousands)
Cash consideration for common stock	$	1,901,845		(1)
Cash consideration for share-based awards	62,257			(2)
Cash consideration for G&K revolving debt	124,180			(3)
Cash consideration for transaction expenses	24,529			(4)
Total consideration	2,112,811
Cash acquired	(34,393		)	(5)
Net consideration transferred	$	2,078,418

(1) The cash consideration for outstanding shares of G&K common stock is the product of the agreed-upon cash per share price of $97.50 and total G&K outstanding shares of approximately 19.5 million.

(2) The cash consideration for share-based awards is the product of the agreed-upon cash per share price of $97.50 and the total number of restricted stock outstanding and the “in the money” stock options net of the weighted average exercise price.

(3) The cash consideration for G&K revolving debt reflects the repayment of the outstanding obligation.

(4) Represents G&K legal and professional fees that were incurred prior to acquisition and were due upon the closing of the transaction.

(5) Represents the G&K cash balance acquired at acquisition.

Purchase Price Allocation

Cintas accounted for the G&K acquisition using the acquisition method. The final allocation of the purchase price was determined by management with the assistance of third-party valuation specialists and is based on estimates of the fair value of assets acquired and liabilities assumed as of March 21, 2017. The components of the final purchase price allocation, at fair value, are as follows:

Assets:	2018
Accounts receivable	$	95,710
Inventories	28,813
Uniforms and other rental items in service	93,659
Income taxes, current	15,873
Prepaid expenses and other current assets	43,235
Property and equipment	253,346
Goodwill	1,545,905
Service contracts	519,000
Trade names	17,000
Other assets	15,585
Liabilities:
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	$	2,078,418

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 preliminary purchase price allocation to adjust the acquired environmental obligations of G&K to fair value (in accordance with ASC Topic 820) on the acquisition date and record the corresponding deferred income tax impact. Cintas has an environmental and legal group dedicated to the ongoing review and monitoring of environmental remediation sites, including those acquired by G&K. During the measurement period, the environmental group performed an evaluation of the G&K locations’ operational history and a consideration of alternative remedies and cost sharing arrangements resulted in Cintas’ calculation of the estimated fair value of the acquired obligations. Cintas’ environmental and legal group will continue to monitor the acquired environmental obligations and adjustments to these reserves could occur in the future. New environmental obligations will be recorded in 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 noted below with respect to the trade names) with the cash flow projections discounted using a rate of 9.5%. The cash flows are based on estimates used to price the G&K acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from Cintas’ pricing model and the weighted average cost of capital.

The G&K service contract intangible asset is being amortized over a period of 15 years, which represents the estimated useful life of the economic benefit, and the asset amortization is based on the annual economic value of the underlying asset, which generally decreases over the 15-year term. The trade names represent the G&K corporate trade name and all of the branded variations thereof. Cintas applied the income approach through a relief from royalty method analysis to determine the fair value of the trade name assets.

The table below sets forth the valuation and amortization period of identifiable intangible assets:

Identifiable intangible assets:	Valuation			Amortization Period
Service contracts	$	519,000		15 years
Trade names	17,000			3 years
Total	$	536,000

Cintas estimated the fair value of the acquired property, plant and equipment using a combination of the cost and market approaches, depending on the type of asset. The fair value of property, plant and equipment consisted of real property of $141.8 million and personal property of $111.5 million.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. None of the goodwill is deductible for income tax purposes. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the G&K acquisition. These benefits include improved service capabilities, an enhanced footprint in the markets that we serve, attractive synergy opportunities and value creation. The goodwill is entirely allocated to the Uniform Rental and Facility Services reportable operating segment.

The following unaudited pro forma information presents the combined financial results for Cintas and G&K as if the G&K acquisition had been completed at the beginning of Cintas’ fiscal 2016, June 1, 2015. Prior to the acquisition, G&K used a 52-week or 53-week fiscal year ending on the Saturday nearest June 30. The pro forma financial information set forth below for the year ended May 31, 2016 includes G&K's annual results for the period of June 28, 2015 through July 2, 2016 adjusted for number of working days in Cintas' fiscal 2016. The pro forma financial information for the year ended May 31, 2017 includes G&K's publicly reported results for the period of July 2, 2016 through December 31, 2016 annualized and adjusted for the number of work days in the stub period of June 1, 2016 through March 21, 2017 and the actual results from March 22, 2017 through May 31, 2017. Actual net sales and net income of the acquired G&K business included in reported fiscal 2017 results were $187.7 million and $5.7 million, respectively.

In thousands except per share data	2017				2016
Net sales	$	6,107,109			$	5,762,741
Net income	$	488,482			$	520,224
Earnings per common share - diluted	$	4.45			$	4.66

The information above does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, and does not reflect future events that may occur after May 31, 2017 or any operating efficiencies or inefficiencies that may result from the G&K acquisition and related financing. Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that Cintas will experience going forward.

Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated financial statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). The working capital assets and liabilities, as well as the property and equipment acquired, were valued using Level 2 inputs which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill, service contracts and other intangibles were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flow using a discount rate of 9.5% (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement. Management utilizes third-party valuation firms to assist in the determination of purchase accounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firms to ensure that the transaction-specific assumptions are appropriate for Cintas.

Divestitures

In fiscal 2018, Cintas sold a significant business referred to as Discontinued Services which was primarily included in All Other. Additionally, in fiscal 2014, Cintas completed the Shredding Transaction with Shred-it International, Inc. to combine Cintas’ Shredding with Shred-it International Inc.’s shredding business and created the Shred-it Partnership. In fiscal 2016, Cintas sold Shred-it. In fiscal 2015, Cintas sold Storage. Storage, excluding related real estate owned by Cintas, was sold in three separate transactions to three separate buyers. In fiscal 2016, Cintas sold the remaining Storage assets classified as held for sale. Both Shredding and Storage were previously included in the former Document Management Services operating segment. As a result of the transactions noted above, the results from Discontinued Services, Shredding, Shred-it and Storage are reported under discontinued operations for all periods presented and are excluded from continuing operations and from operating segment results for all periods presented. See Note 16 entitled Discontinued Operations for additional information.

10. Employee Benefit Plans

Pension Plans

In conjunction with the acquisition of G&K, Cintas assumed G&K's noncontributory defined benefit pension plan (the Pension Plan) that covers substantially all G&K employees who were employed as of July 1, 2005, except certain employees who were covered by union-administered plans. Benefits are based on the number of years of service and each employee’s compensation near retirement. We will make annual contributions to the Pension Plan consistent with federal funding requirements. The Pension Plan was frozen by G&K effective December 31, 2006. Future growth in benefits will not occur beyond this date. Applicable accounting standards require that the consolidated balance sheet reflect the funded status of the pension plan. The funded status of the Pension Plan is measured as the difference between the plan assets at fair value and the projected benefit obligation. The net pension liability at May 31, 2018 and 2017 is included in the long-term accrued liabilities on the consolidated balance sheet. Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in accumulated other comprehensive income in our consolidated balance sheet. The difference between actual amounts and estimates based on actuarial assumptions are recognized in other comprehensive income in the period in which they occur. The estimated amortization from accumulated other comprehensive 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		—				84,553
Interest cost		2,818				562
Actuarial (gain) loss		(940		)		2,750
Benefits 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		—				57,747
Actual return on plan assets		2,309				2,127
Benefits 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 of May 31, 2018 and 2017, respectively. An unrecognized net actuarial loss of $0.8 million and $1.2 million related to the Pension Plan was included in "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			$	562
Expected return on assets		(2,832		)		(590		)
Amortization of net loss		—				—
Net periodic benefit cost		$	(14	)		$	(28	)

Assumptions

The following weighted average assumptions were used to determine benefit obligations for the Pension Plan at May 31, 2018 and 2017:

		2018			2017
Discount rate		3.95	%		3.79	%
Rate of compensation increase		N/A			N/A

The following weighted average assumptions were used to determine net periodic benefit cost for the Pension Plan for the fiscal year ended May 31, 2018 and 2017:

		2018			2017
Discount rate		3.79	%		4.00	%
Expected return on plan assets		4.90	%		5.40	%
Rate of compensation increase		N/A			N/A

Plan Assets

The asset allocations in the Pension Plan at May 31, 2018 and 2017 are as follows:

		2018			2018			2017
		Target Asset Allocation			Actual Asset Allocation			Actual Asset Allocation
International 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-term investment goals and asset allocation strategies. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. To develop the expected long-term rate of return on asset assumptions, we consider the historical returns and future expectations of returns for each asset class, as well as the target asset allocation, changes in investments expenses and investment goals of the pension portfolio. This resulted in the selection of 4.90% expected return on plan assets for fiscal year 2018 and 5.40% expected return on plan assets for fiscal year 2017. The investment goals are (1) to meet or exceed the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet future obligations. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Pension plan assets for our qualified pension plans are held in a trust for the benefit of the plan participants and are invested in a diversified portfolio of equity investments, fixed income investments and cash. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established defining permitted investments within each asset class.

The implementation of the investment strategy discussed above is executed through a variety of investment types, including U.S. government securities, corporate debt and mutual funds. These investments are valued at the closing price reported on the active market on which the individual 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 fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Information on the Pension Plan investments as of May 31, 2018 and 2017, using the fair value hierarchy discussed in Note 1 entitled Significant Accounting Polices, is as follows:

		May 31, 2018
(in thousands)		Level 1				Level 2				Level 3				Total
Cash equivalents		$	487			$	—			$	—			$	487
U.S. government securities		2,426				3,458				—				5,884
Corporate debt		—				19,826				—				19,826
Mutual funds:
U.S. securities		27,901				—				—				27,901
International securities		4,683				—				—				4,683
Total		$	35,497			$	23,284			$	—			$	58,781

		May 31, 2017
(in thousands)		Level 1				Level 2				Level 3				Total
Cash equivalents		$	629			$	—			$	—			$	629
U.S. government securities		1,874				3,401				—				5,275
Corporate debt		—				20,210				—				20,210
Mutual funds:
U.S. securities		28,353				—				—				28,353
International securities		4,929				—				—				4,929
Total		$	35,785			$	23,611			$	—			$	59,396

We expect to make contributions of approximately $4.3 million to the Pension Plan during the next 12 months. The Pension Plan benefit payments expected to be paid for each of the next five years and thereafter are $3.2 million, $3.4 million, $3.6 million, $3.7 million, $3.9 million and $21.4 million, respectively.

Future changes in plan asset returns, assumed discount rates and various other factors related to the Pension Plan will impact future pension expense and liabilities. We cannot predict the impact of these changes in the future, and any changes may have a material impact on our results of operations and financial position.

Cintas administers a pension plan that was assumed in a previous acquisition and has historically been deemed immaterial for disclosure purposes. As of May 31, 2018 and 2017, the fair value of this pension plan's total assets was $7.5 million and $7.1 million, respectively, and the projected benefit obligation was $7.4 million and $7.5 million, respectively. For the years ended May 31, 2018 and 2017, the net periodic benefit cost recorded for this plan was income of $0.1 million and expense of $0.1 million, respectively.

Non-Contributory Retirement Plans

Cintas' Partners' Plan (the Plan) is a non-contributory profit sharing plan and Employee Stock Ownership Plan (ESOP) for the benefit of substantially all U.S. Cintas employee-partners who have completed one year of service. The Plan also includes a 401(k) savings feature covering substantially all U.S. employee-partners. The amounts of contributions to the Plan and ESOP, as well as the matching contribution to the 401(k), are made at the discretion of the Board of Directors. During fiscal 2018 the G&K 401(k) plan was merged into the Plan. There were no changes to the 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, a registered retirement savings plan (RRSP) is offered to those employees. The amounts of contributions to the DPSP, as well as the matching contribution to the RRSP, are made at the discretion of the Board of Directors. Total contributions, which approximate cost, were $2.8 million, $1.8 million 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 highly compensated Cintas employee-partners. The SERP allows participants to defer the receipt of compensation which would otherwise become payable to them. Matching contributions are made at the discretion of the Board of Directors. Total matching contributions were $8.2 million, $6.9 million and $6.6 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively.

11. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share from continuing operations using the two-class method for amounts attributable to Cintas' common shares:

Basic Earnings per Share from Continuing Operations (In thousands except per share data)	2018				2017				2016
Income from continuing operations	$	783,932			$	457,286			$	448,605
Less: income from continuing operations allocated to participating securities	11,794				8,168				7,131
Income from continuing operations available to common shareholders	$	772,138			$	449,118			$	441,474
Basic weighted average common shares outstanding	106,593				104,964				108,221
Basic earnings per share from continuing operations	$	7.24			$	4.27			$	4.08

Diluted Earnings per Share from Continuing Operations (In thousands except per share data)	2018				2017				2016
Income from continuing operations	$	783,932			$	457,286			$	448,605
Less: income from continuing operations allocated to participating securities	11,794				8,168				7,131
Income from continuing operations available to common shareholders	$	772,138			$	449,118			$	441,474
Basic weighted average common shares outstanding	106,593				104,964				108,221
Effect of dilutive securities – employee stock options	3,217				2,819				1,735
Diluted weighted average common shares outstanding	109,810				107,783				109,956
Diluted earnings per share from continuing operations	$	7.03			$	4.17			$	4.02

Basic and diluted earnings per share from discontinued operations were calculated using the two-class method. Basic earnings per share from discontinued operations were $0.54, $0.22 and $2.22 for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. Diluted earnings per share 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 Cintas common stock, respectively, were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common shares (anti-dilutive).

On January 13, 2015, Cintas announced that the Board of Directors authorized a $500.0 million share buyback program. This program was completed 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 share buyback program. The following table summarizes the buyback activity by program and fiscal period:

(In thousands except per share data)	2018											2017											2016
Buyback Program	Shares			Avg. Price per Share				Purchase Price				Shares			Avg. Price per Share				Purchase Price				Shares			Avg. Price per Share				Purchase Price
January 13, 2015	—			$	—			$	—			—			$	—			$	—			3,078			$	85.44			$	262,928
August 4, 2015	—			$	—			$	—			39			$	94.09			$	3,691			5,649			$	87.85			$	496,309
August 2, 2016	518			$	173.51			$	89,997			—			$	—			$	—			—			$	—			$	—
	518			$	173.51			$	89,997			39			$	94.09			$	3,691			8,727			$	87.00			$	759,237

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 total purchase 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 of Cintas 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 restricted stock 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 an average 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 million shares at an average price of $86.07 per share for a total purchase price of $20.9 million.

12. Stock-Based Compensation

On August 2, 2016, the Board of Directors approved and adopted the Cintas Corporation 2016 Equity and Incentive Compensation Plan (the 2016 Plan) to replace the Cintas' 2005 Equity Compensation Plan, as amended (the 2005 Plan). The 2016 Plan was approved by Cintas shareholders at its Annual Meeting on October 18, 2016, at which time the 2016 Plan became effective. Under the 2016 Plan, Cintas may grant officers and key employee-partners equity compensation in the form of stock options, stock appreciation rights, restricted and unrestricted stock awards, performance awards and other stock unit awards representing up to an aggregate of 12,500,000 shares of Cintas' common stock. Any shares of common stock that remained available under the 2005 Plan became part of the total available share balance of 12,500,000 shares under the 2016 Plan. At May 31, 2018, 10,595,954 shares of common stock were reserved for future issuance under the 2016 Plan. Total compensation cost for stock-based awards for continuing operations was $110.7 million, $87.5 million and $77.8 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. The total income tax benefit recognized in the consolidated income statement for share-based compensation arrangements 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 Options

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

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 rate	1.8	%		1.2	%		2.0	%
Dividend yield	1.2	%		1.3	%		1.4	%
Expected volatility of Cintas' common stock	17.2	%		21.6	%		23.3	%
Expected life of the option in years	6.5			7.5			7.5

The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the stock options. The determination of expected volatility is based on historical volatility of Cintas' common stock over the period commensurate with the expected term of stock options, as well as other relevant factors. The weighted average expected term was determined based on the historical employee exercise behavior of the options. The weighted-average fair value of stock options granted during fiscal 2018, 2017 and 2016 was $29.31, $23.34 and $22.20, respectively.

The information presented in the following table relates primarily to stock options granted and outstanding under either the 2016 Plan or under previously adopted plans:

	Shares			Weighted Average Exercise Price
Outstanding, June 1, 2015 (1,426,550 shares exercisable)	7,835,570			$	51.59
Granted	1,739,767			93.55
Canceled	(4,413	)		34.56
Forfeited	(231,042	)		60.57
Exercised	(919,975	)		35.07
Outstanding, May 31, 2016 (1,649,236 shares exercisable)	8,419,907			61.83
Granted	1,343,180			126.51
Canceled	(5,368	)		32.45
Forfeited	(165,452	)		73.43
Exercised	(1,004,217	)		35.95
Outstanding, May 31, 2017 (1,795,898 shares exercisable)	8,588,050			74.77
Granted	1,664,867			175.86
Canceled	(7,809	)		45.10
Forfeited	(255,627	)		94.73
Exercised	(1,059,295	)		44.06
Outstanding, May 31, 2018 (2,006,922 shares exercisable)	8,930,186			$	96.71

The 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 and 2016, 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 Options
Range of Exercise Prices	Number Outstanding		Average Remaining Option Life		Weighted Average Exercise Price				Number Exercisable			Weighted Average Exercise Price
$ 22.42 – $ 59.50	1,901,639		4.03		$	39.27			1,615,907			$	37.74
59.51 – 89.78	2,671,836		6.69		76.01				348,008			65.55
89.79 – 109.33	1,346,379		8.13		107.33				42,346			101.57
109.34 – 182.25	3,010,332		9.55		158.55				661			137.30
$ 22.42 – $ 182.25	8,930,186		7.31		$	100.73			2,006,922			$	43.94

At 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.

Restricted Stock Awards

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

The information presented in the following table relates to restricted stock awards granted and outstanding under either the 2016 Plan or under previously adopted plans:

	Shares			Weighted Average Grant Price
Outstanding, unvested grants at June 1, 2015	2,210,113			$	57.60
Granted	1,069,748			92.10
Forfeited	(70,998	)		65.79
Vested	(605,427	)		38.76
Outstanding, unvested grants at May 31, 2016	2,603,436			75.94
Granted	614,076			128.63
Forfeited	(46,766	)		81.23
Vested	(428,672	)		48.67
Outstanding, unvested grants at May 31, 2017	2,742,074			91.91
Granted	669,932			183.83
Forfeited	(69,416	)		102.96
Vested	(701,476	)		64.64
Outstanding, unvested grants at May 31, 2018	2,641,114			$	122.18

The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 2018 was $258.6 million. The weighted-average period of time over which this cost will be recognized is 1.9 years.

13. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss), net of tax:

(In thousands)	Foreign Currency				Unrealized (Loss) Gain on Cash Flow 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		)		20,769
Amounts reclassified from accumulated other comprehensive income (loss)	—				1,076				—				1,076
Net current period other comprehensive (loss) income	(10,252		)		32,212				(115		)		21,845
Balance at May 31, 2017	(12,726		)		11,382				(1,685		)		(3,029		)
Other comprehensive income before reclassifications	19,276				—				1,029				20,305
Amounts reclassified from accumulated other comprehensive income (loss)	—				(933		)		—				(933		)
Net current period other comprehensive income (loss)	19,276				(933		)		1,029				19,372
Balance at May 31, 2018	$	6,550			$	10,449			$	(656	)		$	16,343

The 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 Accumulated Other Comprehensive Income (Loss) Components		Amount Reclassified from Accumulated Other Comprehensive Income (Loss)								Affected Line in the Consolidated Statements of Income
(in thousands)		2018				2017
Amortization of interest rate locks		$	1,504			$	(1,714	)		Interest expense
Tax (expense) benefit		(571		)		638				Income taxes
Amortization of interest rate locks, net of tax		$	933			$	(1,076	)		Net of tax

14. Operating Segment Information

Cintas’ reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and Facility Services 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 tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ business, 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 operating segment revenue and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Significant Accounting Policies. Information related to the operations of Cintas' operating segments is set forth below:

(In thousands)	Uniform Rental and Facility Services				First Aid and Safety Services				All Other				Corporate (1)				Total
May 31, 2018
Revenue	$	5,247,124			$	564,706			$	664,802			$	—			$	6,476,632
Gross margin	$	2,360,165			$	265,785			$	282,573			$	—			$	2,908,523
Selling and administrative expenses	1,500,644				190,567				225,581				—				1,916,792
G&K Services, Inc. transaction and integration expenses	41,897				—				—				—				41,897
Interest expense, net	—				—				—				108,833				108,833
Income before income taxes	$	817,624			$	75,218			$	56,992			$	(108,833	)		$	841,001
Depreciation and amortization	$	236,773			$	21,898			$	20,745			$	—			$	279,416
Capital expenditures	$	225,694			$	27,932			$	18,073			$	—			$	271,699
Total assets	$	5,977,314			$	471,165			$	371,011			$	138,724			$	6,958,214
May 31, 2017
Revenue	$	4,202,490			$	508,233			$	612,658			$	—			$	5,323,381
Gross margin	$	1,894,716			$	230,166			$	255,413			$	—			$	2,380,295
Selling and administrative expenses	1,138,345				177,378				211,657				—				1,527,380
G&K Services, Inc. transaction and integration expenses	79,224				—				—				—				79,224
Interest expense, net	—				—				—				86,287				86,287
Income before income taxes	$	677,147			$	52,788			$	43,756			$	(86,287	)		$	687,404
Depreciation and amortization	$	156,998			$	19,962			$	17,905			$	1,730			$	196,595
Capital expenditures	$	232,832			$	26,863			$	12,645			$	977			$	273,317
Total assets	$	5,801,680			$	444,717			$	367,562			$	230,098			$	6,844,057
May 31, 2016
Revenue	$	3,759,524			$	461,783			$	574,465			$	—			$	4,795,772
Gross margin	$	1,666,691			$	197,010			$	237,639			$	—			$	2,101,340
Selling and administrative expenses	994,590				147,503				190,306				—				1,332,399
Interest expense, net	—				—				—				63,626				63,626
Income before income taxes	$	672,101			$	49,507			$	47,333			$	(63,626	)		$	705,315
Depreciation and amortization	$	130,421			$	16,021			$	16,879			$	1,958			$	165,279
Capital expenditures	$	237,871			$	22,364			$	14,840			$	310			$	275,385
Total assets	$	3,104,822			$	421,697			$	322,474			$	249,822			$	4,098,815

(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 Discontinued Services. Corporate depreciation and amortization includes depreciation and amortization of Discontinued Services.

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)	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Revenue	$	1,611,503			$	1,606,441			$	1,589,138			$	1,669,550
Gross margin	$	739,353			$	716,369			$	700,463			$	752,338
Net income, continuing operations	$	161,108			$	137,737			$	295,789			$	189,298
Basic earnings per share, continuing operations	$	1.50			$	1.27			$	2.73			$	1.74
Diluted earnings per share, continuing operations	$	1.45			$	1.24			$	2.66			$	1.68
Weighted average number of shares outstanding	105,740				106,340				106,558				106,593

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

16. Discontinued Operations

In fiscal 2018, Cintas sold a significant business referred to as Discontinued Services and received $127.8 million of proceeds from the sale. Prior to the sale, Discontinued Services was primarily included in All Other and was classified as held for sale. Additionally, the results of Shred-it and Shredding are classified as discontinued operations for all periods presented as a result of entering into a definitive agreement during fiscal 2016 to sell the investment. During fiscal 2015, Cintas sold Storage and, as a result, its operations are also classified as discontinued operations for all periods presented. Shredding and Storage were was previously included in the former Document Management Services reportable operating segment. 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 fourth quarter 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-it of $24.3 million, which included amortization of basis differences of approximately $4.8 million. After the sale of Shred-it, the basis differences no longer exist and Cintas no longer records income or loss from Shred-it.

In fiscal 2017, we received additional proceeds related to the sale of Shred-it. Cintas realized a pre-tax gain of $25.5 million as a result of the additional consideration received. Cintas still has the opportunity to receive additional consideration, subject to certain holdback provisions. Because of the uncertainty surrounding the holdback provisions, this opportunity represents a gain contingency that has not been recorded as of May 31, 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 $24.4 million from the sale of these assets and realized a pretax gain of $4.8 million. In fiscal 2017, Cintas received additional proceeds related to the sale of Storage and recorded a pre-tax gain of $2.4 million.

Following is selected financial information included in net income from discontinued operations for the Discontinued Services, Shredding and Storage 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				13,242
Income tax benefit (expense)	706				(3,930		)		(4,900		)
Gain on sale of business	96,400				—				—
Gain on Shred-it	—				25,457				354,071
Gain on Storage transactions	—				2,400				15,786
Income tax expense on net gain	(36,019		)		(11,127		)		(133,284		)
Net income from discontinued operations	$	58,654			$	23,422			$	244,915

17. G&K Services, Inc. Transaction and Integration Expenses

As 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 expenses in fiscal 2018 and 2017, respectively. The $41.9 million of costs incurred in fiscal 2018 related to lease cancellation costs, facility closure expenses 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 and professional 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 miscellaneous integration expenses.

These transaction and integration expenses for both fiscal years are included in a single line in the Consolidated Statements of Income and are reported by operating segment in Note 14 entitled Operating Segment Information. Our accounting policy for long-lived assets is described in Note 1 entitled Significant Accounting Policies. The asset impairment charges in fiscal 2017 of $23.3 million relate to the write-down of machinery and equipment and other fixed assets to their fair value in G&K plants and branches that were identified by the Company on April 30, 2017 for future closure. The Company determined that these assets cannot be used for other purposes, and the undiscounted projected future cash flows associated with these assets are less than their carrying value at April 30, 2017. The fair value utilized for purposes of the asset impairment analysis was determined by using Level 2 inputs based on both the cost and market approaches.

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 May 31, 2018. The amount of employee termination benefits paid in fiscal 2017 was $6.7 million, resulting in a related liability balance of $24.3 million as of May 31, 2017.

18. Supplemental Guarantor Information

Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the issuer of the $2,550.0 million aggregate principal amount of outstanding debt, which is unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly-owned, direct and indirect domestic subsidiaries.

As allowed by Securities and Exchange Commission rules, the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the following condensed consolidating financial statements has been fully consolidated in Cintas' consolidated financial statements. The following condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of Cintas and notes thereto of which this note is an integral part.

Condensed consolidating financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages:

Condensed Consolidating Income Statement

Year Ended May 31, 2018 (in thousands)	Cintas Corporation				Corp. 2				Subsidiary Guarantors				Non- Guarantors				Eliminations				Cintas Corporation Consolidated
Revenue:
Uniform rental and facility services	$	—			$	4,361,716			$	681,846			$	400,792			$	(197,230	)		$	5,247,124
Other	—				1,778,845				112				88,092				(637,541		)		1,229,508
Equity in net income of affiliates	783,932				—				—				—				(783,932		)		—
	783,932				6,140,561				681,958				488,884				(1,618,703		)		6,476,632
Costs and expenses (income):
Cost of uniform rental and facility services	—				2,511,854				418,722				254,718				(298,335		)		2,886,959
Cost of other	—				1,183,036				(57,220		)		62,368				(507,034		)		681,150
Selling and administrative expenses	—				2,093,655				(271,222		)		125,545				(31,186		)		1,916,792
G&K Services, Inc. transaction and integration expenses	—				15,383				22,148				4,366				—				41,897
Operating income	783,932				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 taxes	783,932				225,651				570,789				42,780				(782,151		)		841,001
Income tax (benefit) expense	—				(48,907		)		90,886				15,212				(122		)		57,069
Income from continuing operations	783,932				274,558				479,903				27,568				(782,029		)		783,932
Income (loss) from discontinued operations, net of tax	58,654				68,293				(9,688		)		—				(58,605		)		58,654
Net income	$	842,586			$	342,851			$	470,215			$	27,568			$	(840,634	)		$	842,586

Condensed Consolidating Income Statement

Year Ended May 31, 2017 (in thousands)	Cintas Corporation				Corp. 2				Subsidiary Guarantors				Non- Guarantors				Eliminations				Cintas Corporation Consolidated
Revenue:
Uniform rental and facility services	$	—			$	3,511,483			$	604,679			$	257,288			$	(170,960	)		$	4,202,490
Other	—				1,604,877				1,810				73,006				(558,802		)		1,120,891
Equity in net income of affiliates	457,286				—				—				—				(457,286		)		—
	457,286				5,116,360				606,489				330,294				(1,187,048		)		5,323,381
Costs and expenses (income):
Cost of uniform rental and facility services	—				2,021,365				378,404				164,969				(256,964		)		2,307,774
Cost of other	—				1,070,780				(41,509		)		56,210				(450,169		)		635,312
Selling and administrative expenses	—				1,686,209				(220,887		)		87,672				(25,614		)		1,527,380
G&K Services, Inc. transaction and integration expenses	—				51,868				19,060				8,296				—				79,224
Operating income	457,286				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 taxes	457,286				196,458				474,590				13,373				(454,303		)		687,404
Income taxes	—				65,829				159,025				5,365				(101		)		230,118
Income from continuing operations	457,286				130,629				315,565				8,008				(454,202		)		457,286
Income from discontinued operations, net of tax	23,422				22,287				—				1,135				(23,422		)		23,422
Net income	$	480,708			$	152,916			$	315,565			$	9,143			$	(477,624	)		$	480,708

Condensed Consolidating Income Statement

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

Condensed Consolidating Statement of Comprehensive Income

Year Ended May 31, 2018 (in thousands)	Cintas Corporation				Corp. 2				Subsidiary Guarantors				Non- Guarantors				Eliminations				Cintas Corporation Consolidated
Net income	$	842,586			$	342,851			$	470,215			$	27,568			$	(840,634	)		$	842,586
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	19,276				—				—				19,276				(19,276		)		19,276
Amortization of interest rate lock agreements	(933		)		(933		)		—				—				933				(933		)
Other	1,029				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	)		$	861,958

Condensed Consolidating Statement of Comprehensive Income

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

Condensed Consolidating Statement of Comprehensive Income

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

Condensed Consolidating Balance Sheet

As of May 31, 2018 (in thousands)	Cintas Corporation				Corp. 2				Subsidiary Guarantors				Non- Guarantors				Eliminations				Cintas Corporation Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—			$	44,499			$	60,310			$	33,915			$	—			$	138,724
Accounts receivable, net	—				620,920				120,767				62,896				—				804,583
Inventories, net	—				225,581				38,844				15,922				—				280,347
Uniforms and other rental items in service	—				585,108				81,494				54,248				(18,589		)		702,261
Income taxes, current	—				5,546				9,258				4,830				—				19,634
Prepaid expenses and other current assets	—				9,453				21,688				1,242				—				32,383
Total 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		)		175,581
Goodwill	—				—				2,579,769				267,231				(112		)		2,846,888
Service contracts, net	—				468,283				—				77,485				—				545,768
Other assets, net	2,230,196				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 and Shareholders' Equity
Current liabilities:
Accounts payable	$	(465,247	)		$	(1,724,844	)		$	2,395,434			$	(28,216	)		$	37,947			$	215,074
Accrued compensation and related liabilities	—				104,560				24,878				11,216				—				140,654
Accrued liabilities	—				88,949				308,485				22,695				—				420,129
Total 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				—				2,535,309
Deferred income taxes	—				215,881				104,559				32,141				—				352,581
Accrued liabilities	—				63,073				198,181				16,687				—				277,941
Total long-term liabilities	—				2,813,873				302,740				49,218				—				3,165,831
Total shareholders' equity	3,016,526				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 consolidated net investments.

Condensed Consolidating Balance Sheet

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

(1) Investments include inter company investment activity. Corp 2 and Subsidiary Guarantors hold $29.0 million and $135.8 million, respectively, of the $164.8 million consolidated net investments.

Condensed Consolidating Statement of Cash Flows

Year Ended May 31, 2018 (in thousands)	Cintas Corporation				Corp. 2				Subsidiary Guarantors				Non- Guarantors				Eliminations				Cintas Corporation Consolidated
Cash flows from operating activities:
Net income	$	842,586			$	342,851			$	470,215			$	27,568			$	(840,634	)		$	842,586
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	—				143,301				58,206				13,969				—				215,476
Amortization of intangible assets	—				50,231				5,102				8,607				—				63,940
Stock-based compensation	112,835				—				—				—				—				112,835
Gain 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 of businesses:
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		)		35,275
Accrued compensation and related liabilities	—				9,522				(18,595		)		(319		)		—				(9,392		)
Accrued liabilities and other	—				(133,671		)		173,905				2,234				—				42,468
Income taxes, current	—				11,874				15,898				(1,690		)		—				26,082
Net cash provided by (used in) operating activities	955,421				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				—				179,857
Purchase of marketable securities and investments	—				9,789				(24,636		)		(143,861		)		5,000				(153,708		)
Proceeds from sale of business	—				127,835				—				—				—				127,835
Acquisitions of businesses, net of cash acquired	—				(19,346		)		—				—				—				(19,346		)
Other, net	(694,429		)		599,192				(633,629		)		(107,356		)		837,585				1,363
Net 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 awards	41,848				—				—				—				—				41,848
Dividends 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				—				5,136
Net (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				—				169,266
Cash and cash equivalents at end of year	$	—			$	44,499			$	60,310			$	33,915			$	—			$	138,724

Condensed Consolidating Statement of Cash Flows

Year Ended May 31, 2017 (in thousands)	Cintas Corporation				Corp. 2				Subsidiary Guarantors				Non- Guarantors				Eliminations				Cintas Corporation Consolidated
Cash flows from operating activities:
Net income	$	480,708			$	152,916			$	315,565			$	9,143			$	(477,624	)		$	480,708
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	—				117,578				43,660				10,327				—				171,565
Amortization of intangible assets	—				21,496				1,178				2,356				—				25,030
Stock-based compensation	88,868				—				—				—				—				88,868
Gain on Storage	—				(1,460		)		—				—				—				(1,460		)
Gain on Shred-it	—				(23,516		)		—				(1,941		)		—				(25,457		)
Asset impairment charge	—				20,966				—				2,365				—				23,331
G&K Services, Inc. transaction and integration costs	—				26,453				—				4,992				—				31,445
Short-term debt financing fees included in net income	—				17,062				—				—				—				17,062
Settlement of cash flow hedges	—				30,194				—				—				—				30,194
Deferred income taxes	—				(26,289		)		26,058				4,133				—				3,902
Changes in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	—				(50,012		)		(40,380		)		(3,165		)		—				(93,557		)
Inventories, net	—				7,787				(2,317		)		(3,679		)		(2,459		)		(668		)
Uniforms and other rental items in service	—				(4,951		)		(5,011		)		1,959				(729		)		(8,732		)
Prepaid expenses and other current assets	—				21,119				2,775				307				—				24,201
Accounts payable	—				1,765,713				(1,509,215		)		(242,875		)		103				13,726
Accrued compensation and related liabilities	—				(7,498		)		19,815				1,337				—				13,654
Accrued liabilities and other	—				2,813				(5,675		)		2,361				—				(501		)
Income taxes, current	—				(5,205		)		(22,445		)		(1,774		)		—				(29,424		)
Net cash provided by (used in) operating activities	569,576				2,065,166				(1,175,992		)		(214,154		)		(480,709		)		763,887
Cash flows from investing activities:
Capital expenditures	—				(153,963		)		(102,682		)		(16,672		)		—				(273,317		)
Proceeds from redemption of marketable securities	—				—				—				218,324				—				218,324
Purchase of marketable securities and investments	—				18,150				(797,559		)		598,344				—				(181,065		)
Proceeds from sale of Storage	—				2,400				—				—				—				2,400
Proceeds from sale of Shred-it	—				23,935				—				1,941				—				25,876
Acquisitions of businesses, net of cash acquired	—				(2,112,015		)		—				9,644				—				(2,102,371		)
Other, net	(438,344		)		(1,562,294		)		2,039,740				(520,007		)		480,709				(196		)
Net cash (used in) provided by investing activities	(438,344		)		(3,783,787		)		1,139,499				291,574				480,709				(2,310,349		)
Cash flows from financing activities:
Proceeds from issuance of commercial paper, net	—				50,500				—				—				—				50,500
Proceeds from the issuance of debt, net	—				1,932,229				(2,000		)		2,000				—				1,932,229
Repayment of debt	—				(250,000		)		—				—				—				(250,000		)
Payment of short-term debt financing fees	—				(17,062		)		—				—				—				(17,062		)
Proceeds from exercise of stock-based compensation awards	31,870				—				—				—				—				31,870
Dividends paid	(142,378		)		—				—				(55		)		—				(142,433		)
Repurchase of common stock	(20,724		)		—				—				—				—				(20,724		)
Other, net	—				(6,282		)		404				—				—				(5,878		)
Net cash (used in) provided by financing activities	(131,232		)		1,709,385				(1,596		)		1,945				—				1,578,502
Effect of exchange rate changes on cash and cash equivalents	—				—				—				(2,131		)		—				(2,131		)
Net (decrease) increase in cash and cash equivalents	—				(9,236		)		(38,089		)		77,234				—				29,909
Cash and cash equivalents at beginning of year	—				57,894				55,391				26,072				—				139,357
Cash and cash equivalents at end of year	$	—			$	48,658			$	17,302			$	103,306			$	—			$	169,266

Condensed Consolidating Statement of Cash Flows

Year Ended May 31, 2016 (in thousands)	Cintas Corporation				Corp. 2				Subsidiary Guarantors				Non- Guarantors				Eliminations				Cintas Corporation Consolidated
Cash flows from operating activities:
Net income	$	693,520			$	400,191			$	296,608			$	3,905			$	(700,704	)		$	693,520
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	—				102,443				37,883				9,365				—				149,691
Amortization of intangible assets	—				14,830				304				454				—				15,588
Stock-based compensation	79,293				—				—				—				—				79,293
Gain on Storage transactions	—				(12,547		)		—				(3,239		)		—				(15,786		)
(Gain) loss on Shred-it	—				(366,460		)		—				12,389				—				(354,071		)
Deferred income taxes	—				(83,648		)		22,025				2,321				—				(59,302		)
Changes in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	—				(30,381		)		(20,196		)		(2,185		)		—				(52,762		)
Inventories, net	—				(23,917		)		2,011				(2,454		)		6,443				(17,917		)
Uniforms and other rental items in service	—				(3,193		)		(2,032		)		(1,840		)		759				(6,306		)
Prepaid expenses and other current assets	—				(167		)		(914		)		116				—				(965		)
Accounts payable	—				(487,582		)		491,918				(4,884		)		(16		)		(564		)
Accrued compensation and related liabilities	—				9,838				3,103				571				—				13,512
Accrued liabilities and other	—				(3,790		)		25,625				155				724				22,714
Income taxes, current	—				895				(1,118		)		(577		)		—				(800		)
Net cash provided by (used in) operating activities	772,813				(483,488		)		855,217				14,097				(692,794		)		465,845
Cash flows from investing activities:
Capital expenditures	—				(162,075		)		(100,380		)		(12,930		)		—				(275,385		)
Proceeds from redemption of marketable securities	—				—				—				434,179				—				434,179
Purchase of marketable securities and investments	—				(3,333		)		(12,085		)		(488,765		)		10,037				(494,146		)
Proceeds from Storage transactions, net of cash contributed	—				32,099				—				3,239				—				35,338
Proceeds from sale of Shred-it	—				568,223				—				12,614				—				580,837
Acquisitions of businesses, net of cash acquired	—				(130,786		)		—				(25,793		)		—				(156,579		)
Other, net	94,344				169,821				(945,406		)		1,897				683,481				4,137
Net cash provided by (used in) investing activities	94,344				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 awards	28,226				—				—				—				—				28,226
Dividends paid	(115,232		)		—				—				(41		)		—				(115,273		)
Repurchase of common stock	(780,151		)		—				—				—				—				(780,151		)
Other, net	—				1,952				(730		)		(732		)		—				490
Net cash (used in) provided by financing activities	(867,157		)		(7,199		)		9,329				(973		)		(724		)		(866,724		)
Effect of exchange rate changes on cash and cash equivalents	—				—				—				(5,218		)		—				(5,218		)
Net decrease in cash and cash equivalents	—				(16,738		)		(193,325		)		(67,653		)		—				(277,716		)
Cash and cash equivalents at beginning of year	—				74,632				248,716				93,725				—				417,073
Cash and cash equivalents at end of year	$	—			$	57,894			$	55,391			$	26,072			$	—			$	139,357