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.