Stock-Based Compensation

Under the 2005 Equity Compensation Plan adopted by Cintas in fiscal 2006, Cintas may grant officers and key employee-partners equity compensation in the form of stock options, stock appreciation rights, restricted and unrestricted stock awards, performance awards and other stock unit awards up to an aggregate of 14,000,000 shares of Cintas' common stock. At May 31, 2013, 6,148,994 shares of common stock are reserved for future issuance under the 2005 Equity Compensation Plan. The compensation cost for stock-based awards was $23.3 million, $20.3 million and $15.2 million for the fiscal years ended May 31, 2013, 2012 and 2011, respectively. The total income tax benefit recognized in the consolidated income statement for share-based compensation arrangements was $6.6 million, $5.6 million and $4.5 million for the fiscal years ended May 31, 2013, 2012 and 2011, 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 10 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 these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:



	2013		2012		2011

Risk-free interest rate	1.3	%	2.4	%	2.5	%
Dividend yield	1.8	%	1.7	%	1.5	%
Expected volatility of Cintas' common stock	28.0	%	28.0	%	30.0	%
Expected life of the option in years	7.5		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 2013, 2012 and 2011 was $9.55, $9.48 and $8.04, respectively.

The information presented in the following table relates primarily to stock options granted and outstanding under either the 2005 Equity Compensation Plan or under previously adopted plans:



	Shares		Weighted Average Exercise Price

Outstanding, June 1, 2010 (1,838,530 shares exercisable)	6,467,206		$	37.63
Granted	2,030,764		32.42
Canceled	(833,267	)	38.76
Exercised	—		—
Outstanding, May 31, 2011 (1,945,207 shares exercisable)	7,664,703		36.12
Granted	1,638,907		36.26
Canceled	(1,591,480	)	36.90
Exercised	(103,013	)	32.66
Outstanding, May 31, 2012 (2,105,702 shares exercisable)	7,609,117		36.04
Granted	1,722,081		44.67
Canceled	(884,384	)	38.69
Exercised	(561,176	)	36.44
Outstanding, May 31, 2013 (1,815,795 shares exercisable)	7,885,638		$	37.60

The intrinsic value of stock options exercised was $3.7 million and $0.6 million for the fiscal years ended May 31, 2013 and 2012, respectively. The total cash received from employees as a result of employee stock option exercises for the fiscal years ended May 31, 2013 and 2012 was $14.8 million and $3.3 million, respectively. There were no stock options exercised during the fiscal year ended May 31, 2011.

The fair value of stock options vested was $13.2 million, $12.9 million and $9.0 million for the fiscal years ended May 31, 2013, 2012 and 2011, respectively.

The following table summarizes the information related to stock options outstanding at May 31, 2013:



		Outstanding Options			Exercisable Options
Range of Exercise Prices	Number Outstanding	Average Remaining Option Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$ 20.29 – $ 34.05	1,720,863	6.65	$	27.01	352,058	$	26.71
34.06 – 37.83	1,338,274	7.39	34.94		97,092	36.28
37.84 – 41.98	1,959,113	6.97	38.59		377,057	39.63
41.99 – 49.30	2,867,388	7.20	44.43		989,588	43.11
$ 20.29 – $ 49.30	7,885,638	7.05	$	37.60	1,815,795	$	38.85

At May 31, 2013, the aggregate intrinsic value of stock options outstanding and exercisable was $63.8 million and $12.4 million, respectively. The weighted-average remaining contractual term of stock options exercisable is 2.3 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 2005 Equity Compensation Plan or under previously adopted plans:



	Shares		Weighted Average Grant Price
Outstanding, unvested grants at June 1, 2010	1,407,351		$	27.45
Granted	712,721		31.59
Canceled	(66,754	)	25.54
Vested	(135,936	)	39.26
Outstanding, unvested grants at May 31, 2011	1,917,382		28.22
Granted	452,267		35.95
Canceled	(188,685	)	30.62
Vested	(291,968	)	27.60
Outstanding, unvested grants at May 31, 2012	1,888,996		29.93
Granted	810,453		41.72
Canceled	(73,856	)	31.78
Vested	(610,570	)	25.40
Outstanding, unvested grants at May 31, 2013	2,015,023		$	35.97

The remaining unrecognized compensation cost related to unvested stock options and restricted stock at May 31, 2013, was $62.3 million. The weighted-average period of time over which this cost will be recognized is 2.5 years.