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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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F O R M 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended December 27, 2003 Commission file number 0-4063

|                                                      
|------------------------------------------------------
|G&K SERVICES, INC                                     
|                                                      
|(Exact name of registrant as specified in its charter)
|                                                      
|G&K Services Logo                                     

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|MINNESOTA                                                      |  | 41-0449530                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

|                                                        
|--------------------------------------------------------
|5995 OPUS PARKWAY, SUITE 500
MINNETONKA, MINNESOTA 55343
|                                                        
|(Address of principal executive offices and zip code)   

|                                                    
|----------------------------------------------------
|(952) 912-5500                                      
|                                                    
|(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

|    |  |   |  |    | 
|--- |  | - |  | -- | 
|YES |  | X |  | NO | 
|    |  |   |  |    | 

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

|    |  |   |  |    | 
|--- |  | - |  | -- | 
|YES |  | X |  | NO | 
|    |  |   |  |    | 

Indicate the number of shares outstanding of each of the issuers classes
of common stock as of the latest practicable date.

|                                                |  |                                        
|----------------------------------------------- |  | ---------------------------------------
|CLASS A
Common Stock, par value $0.50 per share |  | Outstanding February 2, 2004
19,373,542

|                                                |  |                                       
|----------------------------------------------- |  | --------------------------------------
|CLASS B
Common Stock, par value $0.50 per share |  | Outstanding February 2, 2004
1,474,996





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TABLE OF CONTENTS



|                                                   |                                                                                                           |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Table of Contents                                 
|PART I FINANCIAL INFORMATION                      
|                                                   | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited)
|PART II  OTHER INFORMATION                        
|SIGNATURES                                        
|Executive Employment Agreement - Jeffrey R. Kiesel
|First Amendment to Credit Agreement               
|Certification of CEO to Section 302               
|Certification of CFO to Section 302               
|Certification of CEO to Section 906               
|Certification of CFO to Section 906               



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##### Table of Contents



G&K Services, Inc.Form 10-Q




Table of Contents

|           |  |                                                                                                                     |  |  |    |      |    | 
|---------- |  | ------------------------------------------------------------------------------------------------------------------- |  |  | -- | ---- | -- | 
|           |  |                                                                                                                     |  |  |    | PAGE |   
|           |  |                                                                                                                     |  |  |    |      |   
|PART I     |  |                                                                                                                     |  |  |    |      |   
|Item 1.    |  | Financial Statements                                                                                                |  |  |    |     
|           |  | Consolidated
Condensed Balance Sheets as of    December 27, 2003 and June 28, 2003                                  |  |  | 3  |     
|           |  | Consolidated
Statements of Operations for the three and
six    months ended December 27, 2003 and December 28, 2002 |  |  | 4  |     
|           |  | Consolidated
Condensed Statements of Cash Flows for the six months
ended    December 27, 2003 and December 28, 2002 |  |  | 5  |     
|           |  | Notes to Consolidated Condensed Financial Statements                                                                |  |  | 6  |     
|Item 2.    |  | Management's
Discussion and Analysis of Financial Condition and    Results of Operations                            |  |  | 11 |     
|Item 3.    |  | Quantitative and Qualitative Disclosure About Market Risk                                                           |  |  | 18 |     
|Item 4.    |  | Controls and Procedures                                                                                             |  |  | 18 |     
|PART II    |  |                                                                                                                     |  |  |    |      |    | 
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                    |  |  | 19 |     
|Signatures |  |                                                                                                                     |  |  |    |      | 20 | 

2



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PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETSG&K Services, Inc. and Subsidiaries

|                                          |                           |                                                                                |         |              |        |          |         |         |        | 
|----------------------------------------- | ------------------------- | ------------------------------------------------------------------------------ | ------- | ------------ | ------ | -------- | ------- | ------- | ------ | 
|                                          |                           |                                                                                |         | December 27, |        |          |         |        
|                                          |                           |                                                                                |         | 2003         |        | June 28,
|(In thousands)                            |                           | (Unaudited)                                                                    |         | 2003        
|                                         
|ASSETS                                    |                           |                                                                                |         |              |        |          |         |        
|Current Assets                            |                           |                                                                                |         |              |        |          |         |        
|                                          |                           | Cash and cash equivalents                                                      |         | $            | 17,479 |          |         | $       | 11,504 | 
|                                          |                           | Accounts receivable, less allowance for doubtful
accounts of $3,721 and $3,687 |         |              | 72,196 |          |         |         | 69,839 | 
|                                          |                           | Inventories                                                                    |         |              | 91,956 |          |         |         | 95,853 | 
|                                          |                           | Prepaid expenses                                                               |         |              | 9,694  |          |         |         | 14,848 | 
|                                         
|                                          | Total current assets      |                                                                                |         | 191,325      |        |          |         | 192,044 |       
|                                         
|Property, Plant and Equipment, net        |                           |                                                                                | 242,591 |              |        |          | 250,757 |        
|Goodwill                                  |                           |                                                                                | 274,335 |              |        |          | 266,140 |        
|Other Assets                              |                           |                                                                                | 69,345  |              |        |          | 69,865  |        
|                                         
|                                          |                           | $                                                                              | 777,596 |              |        | $        | 778,806 |        
|                                         
|LIABILITIES AND STOCKHOLDERS EQUITY      |                           |                                                                                |         |              |        |          |         |        
|Current Liabilities                       |                           |                                                                                |         |              |        |          |         |        
|                                          |                           | Accounts payable                                                               |         | $            | 19,011 |          |         | $       | 20,228 | 
|                                          |                           | Accrued expenses                                                               |         |              | 78,103 |          |         |         | 68,679 | 
|                                          |                           | Deferred income taxes                                                          |         |              | 13,561 |          |         |         | 13,459 | 
|                                          |                           | Current maturities of long-term debt                                           |         |              | 23,367 |          |         |         | 14,430 | 
|                                         
|                                          | Total current liabilities |                                                                                |         | 134,042      |        |          |         | 116,796 |       
|                                         
|Long-Term Debt, net of Current Maturities |                           |                                                                                | 193,487 |              |        |          | 236,731 |        
|Deferred Income Taxes                     |                           |                                                                                | 29,327  |              |        |          | 28,667  |        
|Other Noncurrent Liabilities              |                           |                                                                                | 18,288  |              |        |          | 16,343  |        
|Stockholders Equity                      |                           |                                                                                | 402,452 |              |        |          | 380,269 |        
|                                         
|                                          |                           | $                                                                              | 777,596 |              |        | $        | 778,806 |        
|                                         

The accompanying notes are an integral part of these consolidated condensed
financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONSG&K Services, Inc. and Subsidiaries
(Unaudited)

|                                      |                                                       |      |                            |         |                          |      |         |         |         |   |        |         |  |   |        |         | 
|------------------------------------- | ----------------------------------------------------- | ---- | -------------------------- | ------- | ------------------------ | ---- | ------- | ------- | ------- | - | ------ | ------- |  | - | ------ | ------- | 
|                                      |                                                       |      | For the Three Months Ended |         | For the Six Months Ended
|                                      |                                                       |      |                            |         |                         
|                                      |                                                       |      | Dec 27,                    |         | Dec 28,                  |      | Dec 27, |         | Dec 28,
|(In thousands, except per share data) |                                                       | 2003 |                            | 2002    |                          | 2003 |         | 2002   
|                                     
|Revenues                              |                                                       |      |                            |         |                          |      |         |         |         |   |        |         |  |   |        |        
|                                      | Rental operations                                     |      | $                          | 174,620 |                          |      | $       | 171,633 |         |   | $      | 347,900 |  |   | $      | 337,084 | 
|                                      | Direct sales                                          |      |                            | 7,919   |                          |      |         | 8,020   |         |   |        | 13,242  |  |   |        | 12,367  | 
|                                     
|                                      | Total revenues                                        |      |                            | 182,539 |                          |      |         | 179,653 |         |   |        | 361,142 |  |   |        | 349,451 | 
|                                     
|Operating Expenses                    |                                                       |      |                            |         |                          |      |         |         |         |   |        |         |  |   |        |        
|                                      | Cost of rental operations                             |      |                            | 111,062 |                          |      |         | 106,090 |         |   |        | 220,907 |  |   |        | 207,560 | 
|                                      | Cost of direct sales                                  |      |                            | 5,783   |                          |      |         | 5,427   |         |   |        | 10,084  |  |   |        | 8,928   | 
|                                      | Selling and administrative                            |      |                            | 38,791  |                          |      |         | 38,827  |         |   |        | 77,324  |  |   |        | 75,482  | 
|                                      | Depreciation and amortization                         |      |                            | 9,773   |                          |      |         | 9,454   |         |   |        | 19,463  |  |   |        | 18,473  | 
|                                     
|                                      | Total operating expenses                              |      |                            | 165,409 |                          |      |         | 159,798 |         |   |        | 327,778 |  |   |        | 310,443 | 
|                                     
|Income from Operations                |                                                       |      | 17,130                     |         |                          |      | 19,855  |         |         |   | 33,364 |         |  |   | 39,008 |        
|                                      | Interest expense                                      |      |                            | 2,933   |                          |      |         | 3,531   |         |   |        | 6,088   |  |   |        | 6,792   | 
|                                     
|Income before Income Taxes            |                                                       |      | 14,197                     |         |                          |      | 16,324  |         |         |   | 27,276 |         |  |   | 32,216 |        
|                                      | Provision for income taxes                            |      |                            | 5,395   |                          |      |         | 6,366   |         |   |        | 10,365  |  |   |        | 12,564  | 
|                                     
|Net Income                            |                                                       | $    | 8,802                      |         |                          | $    | 9,958   |         |         | $ | 16,911 |         |  | $ | 19,652 |        
|                                     
|                                      | Basic weighted average number
of shares outstanding   |      |                            | 20,666  |                          |      |         | 20,567  |         |   |        | 20,638  |  |   |        | 20,556  | 
|Basic Earnings per Common Share       |                                                       | $    | 0.43                       |         |                          | $    | 0.48    |         |         | $ | 0.82   |         |  | $ | 0.96   |        
|                                     
|                                      | Diluted weighted average number
of shares outstanding |      |                            | 20,850  |                          |      |         | 20,759  |         |   |        | 20,789  |  |   |        | 20,722  | 
|Diluted Earnings per Common Share     |                                                       | $    | 0.42                       |         |                          | $    | 0.48    |         |         | $ | 0.81   |         |  | $ | 0.95   |        
|                                     
|Dividends per share                   |                                                       | $    | 0.0175                     |         |                          | $    | 0.0175  |         |         | $ | 0.0350 |         |  | $ | 0.0350 |        

The accompanying notes are an integral part of these consolidated condensed
financial statements.

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSG&K Services, Inc. and Subsidiaries
(Unaudited)

|                                                     |                                                                                    |              |         |                          |   |              |         |          |   | 
|---------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------ | ------- | ------------------------ | - | ------------ | ------- | -------- | - | 
|                                                     |                                                                                    |              |         | For the Six Months Ended
|                                                     |                                                                                    |              |         |                         
|                                                     |                                                                                    |              |         | December 27,             |   | December 28,
|(In thousands)                                       |                                                                                    | 2003         |         | 2002                    
|                                                    
|Operating Activities:                                |                                                                                    |              |         |                          |   |              |         |         
|                                                     | Net income                                                                         |              | $       | 16,911                   |   |              | $       | 19,652   |  
|                                                     | Adjustments
to reconcile net income to net cash
provided by operating activities - |              |         |                          |   |              |         |          |  
|                                                     | Depreciation and amortization                                                      |              |         | 19,463                   |   |              |         | 18,473   |  
|                                                     | Deferred income taxes                                                              |              |         | 562                      |   |              |         | (331     | )
|                                                     | Amortization of deferred compensation  restricted stock                           |              |         | 467                      |   |              |         | 544      |  
|                                                     | Changes in current operating items, exclusive of                                   |              |         | 15,314                   |   |              |         | 8,782    |  
|                                                     |                                                                                    | acquisitions |         |                          |   |              |         |          |   | 
|                                                     | Other, net                                                                         |              |         | 197                      |   |              |         | 240      |  
|                                                    
|Net cash provided by operating activities            |                                                                                    |              | 52,914  |                          |   |              | 47,360  |         
|                                                    
|Investing Activities:                                |                                                                                    |              |         |                          |   |              |         |         
|                                                     | Property, plant and equipment additions, net                                       |              |         | (8,372                   | ) |              |         | (18,074  | )
|                                                     | Acquisitions of business assets and other                                          |              |         | (7,137                   | ) |              |         | (71,797  | )
|                                                    
|Net cash used for investing activities               |                                                                                    |              | (15,509 | )                        |   |              | (89,871 | )       
|                                                    
|Financing Activities:                                |                                                                                    |              |         |                          |   |              |         |         
|                                                     | Proceeds from debt financing                                                       |              |         | 65,775                   |   |              |         | 163,209  |  
|                                                     | Repayments of debt financing                                                       |              |         | (99,557                  | ) |              |         | (112,839 | )
|                                                     | Cash dividends paid                                                                |              |         | (726                     | ) |              |         | (725     | )
|                                                     | Sale of common stock                                                               |              |         | 2,703                    |   |              |         | 384      |  
|                                                    
|Net cash provided by (used for) financing activities |                                                                                    |              | (31,805 | )                        |   |              | 50,029  |         
|                                                    
|Increase in Cash and Cash Equivalents                |                                                                                    |              | 5,600   |                          |   |              | 7,518   |         
|Effect of Exchange Rates on Cash                     |                                                                                    |              | 375     |                          |   |              | 69      |         
|Cash and Cash Equivalents:                           |                                                                                    |              |         |                          |   |              |         |         
|                                                     | Beginning of period                                                                |              |         | 11,504                   |   |              |         | 9,986    |  
|                                                    
|                                                     | End of period                                                                      |              | $       | 17,479                   |   |              | $       | 17,573   |  
|                                                    

The accompanying notes are an integral part of these consolidated condensed
financial statements.

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G&K SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
Three and six month periods ended December 27, 2003 and December 28, 2002
(Unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidated condensed financial statements included herein, except
for the June 28, 2003 balance sheet which was derived from the audited
consolidated financial statements for the fiscal year ended June 28,
2003, have been prepared by G&K Services, Inc. (the Company), without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Company, the accompanying
unaudited consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary
to present fairly the financial position of the Company as of December
27, 2003, and the results of its operations for the three and six months
ended and its cash flows for the six months ended December 27, 2003 and
December 28, 2002. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures herein are adequate to make the information
presented not misleading. It is suggested that these consolidated
condensed financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Companys latest report on Form 10-K.
|
| | The results of operations for the three and six month periods ended
December 27, 2003 and December 28, 2002 are not necessarily indicative of
the results to be expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

1.    Summary of Significant Accounting Policies



| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | Accounting policies followed by the Company are set forth in Note 1 in
the Companys Annual Report on Form 10-K for the fiscal year ended June
28, 2003.

Nature of Business



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | G&K Services, Inc. is a market leader in providing corporate identity
apparel and facility services programs to a wide variety of industrial,
service and high-technology companies. The Companys apparel programs
provide rental-lease or purchase options as well as non-apparel items
such as floor mats, dust mops, wiping towels, selected linen items and
several restroom products. The Company also manufactures certain uniform
garments that it uses to support its garment rental programs.

Principles of Consolidation



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying consolidated condensed financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly
owned. Intercompany balances and transactions have been eliminated in
consolidation.

Revenue Recognition



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company recognizes revenue from rental operations in the period in
which the services are provided. Direct sale revenue is recognized in
the period in which the product is shipped. Beginning in the third
quarter of fiscal 2003, the Company made a change in the classification
of billings to customers for lost or abused merchandise to a preferred
classification of including such billings in revenue. Accordingly, all
prior period billings for lost or abused garments have been reclassified
from a reduction of cost of rental operations to rental operations
revenue.

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Derivative Financial Instruments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company uses derivative financial instruments principally to manage
the risk that changes in interest rates will affect the amount of its
future interest payments. Interest rate swap contracts are used to
adjust the proportion of total debt that is subject to variable and fixed
interest rates. The interest rate swap contracts are reflected at fair
value in the consolidated condensed balance sheet and the related gains
or losses on these contracts are deferred in stockholders equity (as a
component of other comprehensive income). Amounts to be paid or received
under the contracts are accrued as interest rates change and are
recognized over the life of the contracts as an adjustment to interest
expense. The net effect of this accounting is that interest expense on
the portion of variable rate debt being hedged is at a fixed rate during
the interest rate swap contract period.
|
| | The Company may periodically hedge firm cash flow commitments with its
foreign subsidiary, generally with foreign currency contracts. These
agreements are recorded at current market values and the gains and losses
are included in earnings. Gains and losses on such transactions were not
significant in the second quarter of fiscal 2004 or fiscal 2003.
Notional amounts outstanding under foreign currency contracts at December
27, 2003 were $1,612, all of which will mature during fiscal 2004.
Notional amounts outstanding under foreign currency contracts at December
28, 2002 were $2,402, all of which matured during fiscal 2003. Foreign
currency contracts were recorded at fair value as of December 27, 2003.                                                                                                                                                                                     

Per Share Data



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Basic earnings per common share was computed by dividing net income by
the weighted average number of shares of common stock outstanding during
the period. Diluted earnings per common share was computed similar to
the computation of basic earnings per share, except that the denominator
is increased for the assumed exercise of dilutive options and other
dilutive securities, including nonvested restricted stock, using the
treasury stock method.

|                                                                                             |  |                    |        |                  |  |         |        |         |  |  |        |  |  |  |        | 
|-------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ------- | ------ | ------- |  |  | ------ |  |  |  | ------ | 
|                                                                                             |  | Three Months Ended |        | Six Months Ended
|                                                                                             |  |                    |        |                 
|                                                                                             |  | Dec 27,            |        | Dec 28,          |  | Dec 27, |        | Dec 28,
|                                                                                             |  | 2003               |        | 2002             |  | 2003    |        | 2002   
|                                                                                             |  |                   
|Weighted average number of common
shares outstanding                                         |  |                    | 20,666 |                  |  |         | 20,567 |         |  |  | 20,638 |  |  |  | 20,556 | 
|                                                                                             |  |                   
|Shares used in computation of
basic earnings per share                                       |  |                    | 20,666 |                  |  |         | 20,567 |         |  |  | 20,638 |  |  |  | 20,556 | 
|Weighted average effect of nonvested
restricted stock grants and assumed
exercise of options |  |                    | 184    |                  |  |         | 192    |         |  |  | 151    |  |  |  | 166    | 
|                                                                                             |  |                   
|Shares used in computation of
diluted earnings per share                                     |  |                    | 20,850 |                  |  |         | 20,759 |         |  |  | 20,789 |  |  |  | 20,722 | 
|                                                                                             |  |                   

Stock-Based Compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company maintains Stock Option and Compensation Plans (the Employee
Plans), which are more fully described in Note 6 in the Companys Annual
Report on Form 10-K for the fiscal year ended June 28, 2003. The Company
applies Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its
stock option plans. Accordingly, only compensation cost related to
restricted stock issued under the Employee Plans has been recognized in
the accompanying consolidated statements of operations. Compensation
cost related to the restricted shares

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | was $235 and $272 for the three-month periods and $467 and $544 for the
six-month periods ended December 27, 2003 and December 28, 2002,
respectively. Had compensation cost been recognized based on the fair
values of options at the grant dates consistent with the provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), the Companys net income and net
income per common share would have been adjusted as follows:

|                                                                                                                                            |             |   |                    |      |                  |   |              |      |              |   |        |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ------------------ | ---- | ---------------- | - | ------------ | ---- | ------------ | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                            |             |   | Three Months Ended |      | Six Months Ended
|                                                                                                                                            |             |   |                    |      |                 
|                                                                                                                                            |             |   | December 27,       |      | December 28,     |   | December 27, |      | December 28,
|                                                                                                                                            |             |   | 2003               |      | 2002             |   | 2003         |      | 2002        
|                                                                                                                                            |             |   |                   
|Net income, as reported                                                                                                                     |             | $ | 8,802              |      |                  | $ | 9,958        |      |              | $ | 16,911 |      |  | $ | 19,652 |     
|Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects |             |   | (506               | )    |                  |   | (511         | )    |              |   | (950   | )    |  |   | (931   | )   
|                                                                                                                                            |             |  
|Pro forma net income                                                                                                                        |             | $ | 8,296              |      |                  | $ | 9,447        |      |              | $ | 15,961 |      |  | $ | 18,721 |     
|                                                                                                                                            |             |  
|Basic net income per share:                                                                                                                 |             |   |                    |      |                  |   |              |      |              |   |        |      |  |   |        |     
|                                                                                                                                            | As reported |   | $                  | 0.43 |                  |   | $            | 0.48 |              |   | $      | 0.82 |  |   | $      | 0.96 | 
|                                                                                                                                            | Pro forma   |   |                    | 0.40 |                  |   |              | 0.46 |              |   |        | 0.77 |  |   |        | 0.91 | 
|Diluted net income per share:                                                                                                               |             |   |                    |      |                  |   |              |      |              |   |        |      |  |   |        |     
|                                                                                                                                            | As reported |   | $                  | 0.42 |                  |   | $            | 0.48 |              |   | $      | 0.81 |  |   | $      | 0.95 | 
|                                                                                                                                            | Pro forma   |   |                    | 0.40 |                  |   |              | 0.46 |              |   |        | 0.77 |  |   |        | 0.90 | 
|                                                                                                                                            |             |  

2.    Comprehensive Income



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | For the three and six month periods ended December 27, 2003 and December
28, 2002, the components of comprehensive income were as follows:

|                           |                                                                                    |   |                    |       |                  |   |         |     |         |   |        |       |  |   |        |        |  
|-------------------------- | ---------------------------------------------------------------------------------- | - | ------------------ | ----- | ---------------- | - | ------- | --- | ------- | - | ------ | ----- |  | - | ------ | ------ | -
|                           |                                                                                    |   | Three Months Ended |       | Six Months Ended
|                           |                                                                                    |   |                    |       |                 
|                           |                                                                                    |   | Dec 27,            |       | Dec 28,          |   | Dec 27, |     | Dec 28,
|                           |                                                                                    |   | 2003               |       | 2002             |   | 2003    |     | 2002   
|                           |                                                                                    |   |                   
|Net income                 |                                                                                    | $ | 8,802              |       |                  | $ | 9,958   |     |         | $ | 16,911 |       |  | $ | 19,652 |       
|Other comprehensive income |                                                                                    |   |                    |       |                  |   |         |     |         |   |        |       |  |   |        |       
|                           | Foreign currency
translation
adjustments,
net of tax                               |   |                    | 2,845 |                  |   |         | 581 |         |   |        | 2,502 |  |   |        | (1,971 | )
|                           | Net unrealized
holding gain (loss)
on derivative financial
instruments, net of
tax |   |                    | (45   | )                |   |         | 34  |         |   |        | 326   |  |   |        | (30    | )
|                           |                                                                                    |  
|Comprehensive income       |                                                                                    | $ | 11,602             |       |                  | $ | 10,573  |     |         | $ | 19,739 |       |  | $ | 17,651 |       
|                           |                                                                                    |  

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3.    Goodwill and Intangible Assets



| |                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In July 2001, the Company adopted the provisions of SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. The changes in the carrying amount of goodwill for the six
months ended December 27, 2003, by operating segment, are as follows:

|                                              |  |               |         |        |  |       |        |  |  |   |         | 
|--------------------------------------------- |  | ------------- | ------- | ------ |  | ----- | ------ |  |  | - | ------- | 
|                                              |  | United States |         | Canada |  | Total
|                                              |  |              
|Balance as of June 28, 2003                   |  | $             | 236,913 |        |  | $     | 29,227 |  |  | $ | 266,140 | 
|Acquired goodwill                             |  |               | 7,463   |        |  |       |       |  |  |   | 7,463   | 
|Other, primarily foreign
currency translation |  |               |        |        |  |       | 732    |  |  |   | 732     | 
|                                              |  |              
|Balance as of December 27, 2003               |  | $             | 244,376 |        |  | $     | 29,959 |  |  | $ | 274,335 | 
|                                              |  |              



| |                                                                            
| | ---------------------------------------------------------------------------
| | Information regarding the Companys other intangible assets are as
follows:

|                                                      |  |                         |        |              |  |     |        |  |  |   |        | 
|----------------------------------------------------- |  | ----------------------- | ------ | ------------ |  | --- | ------ |  |  | - | ------ | 
|                                                      |  | As of December 27, 2003
|                                                      |  |                        
|                                                      |  | Carrying                |        | Accumulated  |  |     |        | 
|                                                      |  | Amount                  |        | Amortization |  | Net
|                                                      |  |                        
|Customer contracts and
related customer
relationships |  | $                       | 77,869 |              |  | $   | 35,515 |  |  | $ | 42,354 | 
|Non-competition agreements                            |  |                         | 9,756  |              |  |     | 5,536  |  |  |   | 4,220  | 
|                                                      |  |                        
|Total                                                 |  | $                       | 87,625 |              |  | $   | 41,051 |  |  | $ | 46,574 | 
|                                                      |  |                        

|                                                      |  |                     |        |              |  |     |        |  |  |   |        | 
|----------------------------------------------------- |  | ------------------- | ------ | ------------ |  | --- | ------ |  |  | - | ------ | 
|                                                      |  | As of June 28, 2003 |       
|                                                      |  |                    
|                                                      |  | Carrying            |        | Accumulated  |  |     |        | 
|                                                      |  | Amount              |        | Amortization |  | Net
|                                                      |  |                    
|Customer contracts and
related customer
relationships |  | $                   | 76,853 |              |  | $   | 31,919 |  |  | $ | 44,934 | 
|Non-competition agreements                            |  |                     | 9,721  |              |  |     | 5,055  |  |  |   | 4,666  | 
|                                                      |  |                    
|Total                                                 |  | $                   | 86,574 |              |  | $   | 36,974 |  |  | $ | 49,600 | 
|                                                      |  |                    



| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amortization expense was $3,917 and $3,495 for the six months ended
December 27, 2003 and December 28, 2002, respectively. Estimated
amortization expense for each of the five succeeding fiscal years based
on the intangible assets as of December 27, 2003 is as follows:

|               |  |   |       | 
|-------------- |  | - | ----- | 
|              
|2004 remaining |  | $ | 3,923 | 
|2005           |  |   | 7,786 | 
|2006           |  |   | 7,458 | 
|2007           |  |   | 7,333 | 
|2008           |  |   | 6,960 | 
|2009           |  |   | 3,288 | 
|              

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4.    Long-Term Debt



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company maintains a $325,000 term loan and revolving credit facility.
On December 17, 2003 the credit facility was amended to revise certain
restricted covenants. Under the amended credit facility, the
Company is required to maintain a minimum fixed charge coverage ratio,
minimum stockholders equity and a maximum leverage ratio, all as
defined. As of December 27, 2003, the Company was in compliance with all
debt covenants.

5.    Segment Information



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has two operating segments under the guidelines of SFAS
No. 131: United States and Canada, which have been identified as
components of the Company that are reviewed by the Companys Chief
Executive Officer to determine resource allocation and evaluate
performance. Each operating segment derives revenues from the
corporate identity apparel and facility services industry, which
includes garment rental and non-apparel items such as floor mats,
dust mops, wiping towels, selected linen items and several restroom
products. No one customers transactions account for 1.0% or more of
the Companys revenues.
|
| | The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (see Note
1). Corporate expenses are allocated to the segments based on
segment revenue. The Company evaluates performance based on income
from operations. Financial information by geographic location for
the three and six month periods ended December 27, 2003 and December
28, 2002 is as follows:                                                                                                                                                                                                      

|                                 |                                              |        |        |         |  |       |   |        |  |  |   |         | 
|-------------------------------- | -------------------------------------------- | ------ | ------ | ------- |  | ----- | - | ------ |  |  | - | ------- | 
|                                 |                                              |        | United |         |  |       |   |        |  |  |  
|For the Three Months Ended       |                                              | States |        | Canada  |  | Total
|                                
|Second Quarter Fiscal Year 2004: |                                              |        |        |         |  |       |   |        |  |  |   |        
|                                 | Revenues                                     |        | $      | 157,209 |  |       | $ | 25,330 |  |  | $ | 182,539 | 
|                                 | Income from operations                       |        |        | 12,085  |  |       |   | 5,045  |  |  |   | 17,130  | 
|                                 | Property, plant and equipment
additions, net |        |        | 3,794   |  |       |   | 957    |  |  |   | 4,751   | 
|                                 | Depreciation and amortization                |        |        | 8,671   |  |       |   | 1,102  |  |  |   | 9,773   | 
|Second Quarter Fiscal Year 2003: |                                              |        |        |         |  |       |   |        |  |  |   |        
|                                 | Revenues                                     |        | $      | 158,527 |  |       | $ | 21,126 |  |  | $ | 179,653 | 
|                                 | Income from operations                       |        |        | 15,388  |  |       |   | 4,467  |  |  |   | 19,855  | 
|                                 | Property, plant and equipment
additions, net |        |        | 6,158   |  |       |   | 2,940  |  |  |   | 9,098   | 
|                                 | Depreciation and amortization                |        |        | 8,635   |  |       |   | 819    |  |  |   | 9,454   | 
|                                

|                         |                                              |        |        |         |  |       |   |        |  |  |   |         | 
|------------------------ | -------------------------------------------- | ------ | ------ | ------- |  | ----- | - | ------ |  |  | - | ------- | 
|                         |                                              |        | United |         |  |       |   |        |  |  |  
|For the Six Months Ended |                                              | States |        | Canada  |  | Total
|                        
|Fiscal Year 2004:        |                                              |        |        |         |  |       |   |        |  |  |   |        
|                         | Revenues                                     |        | $      | 312,967 |  |       | $ | 48,175 |  |  | $ | 361,142 | 
|                         | Income from operations                       |        |        | 24,382  |  |       |   | 8,982  |  |  |   | 33,364  | 
|                         | Property, plant and equipment
additions, net |        |        | 7,471   |  |       |   | 901    |  |  |   | 8,372   | 
|                         | Depreciation and amortization                |        |        | 17,298  |  |       |   | 2,165  |  |  |   | 19,463  | 
|Fiscal Year 2003:        |                                              |        |        |         |  |       |   |        |  |  |   |        
|                         | Revenues                                     |        | $      | 307,885 |  |       | $ | 41,566 |  |  | $ | 349,451 | 
|                         | Income from operations                       |        |        | 30,227  |  |       |   | 8,781  |  |  |   | 39,008  | 
|                         | Property, plant and equipment
additions, net |        |        | 12,841  |  |       |   | 5,233  |  |  |   | 18,074  | 
|                         | Depreciation and amortization                |        |        | 16,751  |  |       |   | 1,722  |  |  |   | 18,473  | 
|                        

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)

Overview

G&K Services, Inc., founded in 1902 and headquartered in Minnetonka, Minnesota,
is a market leader in providing corporate identity apparel and facility
services programs to a wide variety of North American industrial, service and
high-technology companies. We rent uniforms and other related products such as
floor mats, dust mops, wiping towels, restroom supplies and selected linen
items. We also sell uniforms and other apparel items to customers in our
direct sale programs. The North American rental market is approximately $6.3
billion, while the direct sales market, targeted by us, is approximately
$4.5-$5.0 billion in size.

Critical Accounting Policies

The discussion of the financial condition and results of operations are based
upon the consolidated condensed financial statements, which have been prepared
in conformity with accounting principles generally accepted in the United
States. As such, management is required to make certain estimates, judgments
and assumptions that are believed to be reasonable based on the information
available. These estimates and assumptions affect the reported amount of
assets and liabilities, revenues and expenses, and disclosure of contingent
assets and liabilities at the date of the financial statements. Actual results
may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. See Note 1 to
the consolidated condensed financial statements for additional discussion of
the application of these and other accounting policies.

Revenue Recognition and Allowance
for Doubtful Accounts

Our rental operations business is largely based on written service agreements
whereby we agree to collect, launder and deliver uniforms and other related
products. The service agreements provide for weekly billing upon completion of
the laundering process and delivery to the customer. Accordingly, we recognize
revenue from rental operations in the period in which the services are
provided. Direct sale revenue is recognized in the period in which the product
is shipped. Beginning in the third quarter of fiscal 2003, we made a change in
the classification of billings to customers for lost or abused merchandise to a
preferred classification of including such billings in revenue. Accordingly,
all prior period billings for lost or abused garments have been reclassified
from a reduction of cost of rental operations to rental operations revenue.

Estimates are used in determining the collectibility of billed accounts
receivable. Management analyzes specific accounts receivable and historical
bad debt experience, customer credit worthiness, current economic trends and
the age of outstanding balances when evaluating the adequacy of the allowance
for doubtful accounts. Significant management judgments and estimates are used
in connection with establishing the allowance in any accounting period.
Material differences may result in the amount and timing of bad debt expense
recognition for any given period if management makes different judgments or
utilizes different estimates.

Inventories

Our inventories consist of new goods and rental merchandise in service.
Estimates are used in determining the likelihood that new goods on hand can be
sold to customers or used in rental operations. Historical inventory usage and
current revenue trends are considered in estimating both obsolete and excess
inventories. New goods are stated at lower of cost or market, net of any
reserve for obsolete or excess inventory. Merchandise placed in service to
support rental operations is amortized into cost of rental operations over the
estimated useful lives of the underlying inventory items, primarily on a
straight-line basis, which results in a matching of the cost of the merchandise
with the weekly rental revenue generated by merchandise. Estimated lives of
rental merchandise in service range from nine

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months to three years. In establishing estimated lives for merchandise in
service, management considers historical experience and the intended use of the
merchandise. Material differences may result in the amount and timing of
operating profit for any period if management makes different judgments or
utilizes different estimates.

Goodwill, Intangibles and Other
Long-Lived Assets

We adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142) at the beginning of fiscal 2002 and as a
result no longer amortize goodwill. SFAS 142 also requires that companies test
goodwill for impairment on an annual basis and when events occur or
circumstances change that would more likely than not reduce the fair value of
the reporting unit to which goodwill is assigned below its carrying amount.
Our evaluation considers changes in the operating environment, competitive
information, market trends, operating performance and cash flow modeling.
Management completes its annual impairment test in the fourth quarter of each
fiscal year and there have been no impairments of goodwill or definite-lived
intangible assets in fiscal 2003 or through the first six months of fiscal
2004. Future events could cause management to conclude that impairment
indicators exist and that goodwill and other intangibles associated with
acquired businesses are impaired. Any resulting impairment loss could have a
material impact on our financial condition and results of operations.

Property, plant and equipment and definite-lived intangible assets are
depreciated or amortized over their useful lives. Useful lives are based on
management estimates of the period that the assets will generate revenue.
Long-lived assets are evaluated for impairment whenever events and
circumstances indicate an asset may be impaired. There have been no
write-downs of any long-lived assets in fiscal 2003 or through the first six
months of fiscal 2004.

Insurance

We self-insure for certain obligations related to health and workers
compensation programs. We purchase stop-loss insurance policies to protect us
from catastrophic losses. Estimates are used in determining the potential
liability associated with reported claims and for losses that have occurred,
but have not been reported. Management estimates consider historical claims
experience, escalating medical cost trends, expected timing of claim payments
and an actuarial analysis provided by a third party. Changes in the cost of
medical care, our ability to settle claims and the estimates and judgment used
by management could have a material impact on the amount and timing of expense
for any period.

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Results of Operations

The percentage relationships to net sales of certain income and expense items
for the three and six month periods ended December 27, 2003 and December 28,
2002, and the percentage changes in these income and expense items between
periods are presented in the following table:

|                           |                               |                     |     |              |       |            |      |            |       |         |     |             |       |             |      |      |       |  |       |              |     |            |       |      |     | 
|-------------------------- | ----------------------------- | ------------------- | --- | ------------ | ----- | ---------- | ---- | ---------- | ----- | ------- | --- | ----------- | ----- | ----------- | ---- | ---- | ----- |  | ----- | ------------ | --- | ---------- | ----- | ---- | --- | 
|                           |                               |                     |     | Three Months |       | Six Months |      | Percentage
|                           |                               |                     |     | Ended        |       | Ended      |      | Change    
|                           |                               |                     |     |              |       |            |      |           
|                           |                               |                     |     |              |       |            |      |            |       |         |     |             |       |             |      |      |       |  |       | Three Months |     | Six Months
|                           |                               |                     |     | Dec 27,      |       | Dec 28,    |      | Dec 27,    |       | Dec 28, |     | FY 2004     |       | FY 2004    
|                           |                               |                     |     | 2003         |       | 2002       |      | 2003       |       | 2002    |     | vs. FY 2003 |       | vs. FY 2003
|                           |                               |                     |     |             
|Revenues:                  |                               |                     |     |              |       |            |      |            |       |         |     |             |       |             |      |      |       |  |       |              |     |            |       |     
|                           | Rental                        |                     |     | 95.7         | %     |            |      | 95.5       | %     |         |     | 96.3        | %     |             |      | 96.5 | %     |  |       | 1.7          | %   |            |       | 3.2  | %  
|                           | Direct                        |                     |     | 4.3          |       |            |      | 4.5        |       |         |     | 3.7         |       |             |      | 3.5  |       |  |       | (1.3         | )   |            |       | 7.1  |    
|                           |                               |                     |     |              |       |            |      |            |       |         |    
|                           |                               | Total revenues      |     |              | 100.0 |            |      |            | 100.0 |         |     |             | 100.0 |             |      |      | 100.0 |  |       |              | 1.6 |            |       |      | 3.3 | 
|Expenses:                  |                               |                     |     |              |       |            |      |            |       |         |     |             |       |             |      |      |       |  |       |              |     |            |       |     
|                           | Cost of rental sales          |                     |     | 63.6         |       |            |      | 61.8       |       |         |     | 63.5        |       |             |      | 61.6 |       |  |       | 4.7          |     |            |       | 6.4  |    
|                           | Cost of direct sales          |                     |     | 73.0         |       |            |      | 67.7       |       |         |     | 76.2        |       |             |      | 72.2 |       |  |       | 6.6          |     |            |       | 12.9 |    
|                           |                               |                     |     |              |       |            |      |            |       |         |    
|                           |                               | Total cost of sales |     |              | 64.0  |            |      |            | 62.1  |         |     |             | 64.0  |             |      |      | 62.0  |  |       |              | 4.8 |            |       |      | 6.7 | 
|                           | Selling and administrative    |                     |     | 21.3         |       |            |      | 21.6       |       |         |     | 21.4        |       |             |      | 21.6 |       |  |       | (0.1         | )   |            |       | 2.4  |    
|                           | Depreciation and
amortization |                     |     | 5.3          |       |            |      | 5.2        |       |         |     | 5.4         |       |             |      | 5.2  |       |  |       | 3.4          |     |            |       | 5.4  |    
|                           |                               |                     |     |              |       |            |      |            |       |         |    
|Income from operations     |                               |                     | 9.4 |              |       |            | 11.1 |            |       |         | 9.2 |             |       |             | 11.2 |      |       |  | (13.7 | )            |     |            | (14.5 | )   
|Interest expense           |                               |                     | 1.6 |              |       |            | 2.0  |            |       |         | 1.6 |             |       |             | 2.0  |      |       |  | (16.9 | )            |     |            | (10.4 | )   
|                           |                               |                     |     |              |       |            |      |            |       |         |     |             |      
|Income before income taxes |                               |                     | 7.8 |              |       |            | 9.1  |            |       |         | 7.6 |             |       |             | 9.2  |      |       |  | (13.0 | )            |     |            | (15.3 | )   
|Provision for income taxes |                               |                     | 3.0 |              |       |            | 3.6  |            |       |         | 2.9 |             |       |             | 3.6  |      |       |  | (15.3 | )            |     |            | (17.5 | )   
|                           |                               |                     |     |              |       |            |      |            |       |         |    
|Net income                 |                               |                     | 4.8 | %            |       |            | 5.5  | %          |       |         | 4.7 | %           |       |             | 5.6  | %    |       |  | (11.6 | )%           |     |            | (13.9 | )%  
|                           |                               |                     |     |              |       |            |      |            |       |         |    

Three months ended December 27, 2003 compared to three months ended December 28, 2002

Revenues.Total revenues in the second quarter of fiscal 2004 increased 1.6%
to $182.5 million from $179.7 million in the second quarter of fiscal 2003.
Rental revenue increased $3.0 million in the second quarter, or 1.7%. The
organic industrial rental growth rate, which is calculated using industrial
rental revenue adjusted for foreign currency exchange rate differences and
revenue from newly acquired business compared to prior-period results, was
approximately negative 2.0%. We believe that the organic industrial rental
growth rate better reflects the growth of our existing industrial business and
is therefore useful in analyzing our financial condition and results of
operations.

Direct sale revenue was essentially flat to last year at $7.9 million in the
second quarter of fiscal 2004 compared to $8.0 million in the same period of
fiscal 2003.

Cost of Rental and Direct Sale.Cost of rental operations increased 4.7% to
$111.1 million in the second quarter of fiscal 2004 from $106.1 million in the
same period of fiscal 2003. Gross margin from rental sales decreased to 36.4%
in the second quarter of fiscal 2004 from 38.2% in the second quarter of fiscal
2003. The decrease in rental gross margins was due to higher energy costs,
employee benefit costs (including pension) and lost margin from lower
employment levels within our existing customer base. These items were
partially offset by improved labor productivity.

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Cost of direct sales increased 6.6% to $5.8 million in the second quarter of
fiscal 2004 from $5.4 million in the same period of fiscal 2003. Gross margin
from direct sales decreased to 27.0% in the second quarter of fiscal 2004 from
32.3% in the second quarter of fiscal 2003 due to product mix and pricing
pressures.

Selling and Administrative.Selling and administrative expenses remained
constant at $38.8 million in the second quarter of both fiscal 2004 and fiscal 2003. As a percentage of total revenues, selling and
administrative expenses decreased to 21.3% in the second quarter of fiscal 2004
from 21.6% in the second quarter of fiscal 2003. The decrease as a percent of
revenue was due to reduced selling expenses.

Depreciation and Amortization. Depreciation and amortization expense increased
3.4% to $9.8 million in the second quarter of fiscal 2004 from $9.5 million in
the same period of fiscal 2003. As a percentage of total revenues,
depreciation and amortization expense increased to 5.3% in the second quarter
of fiscal 2004 from 5.2% in the second quarter of fiscal 2003. Capital
expenditures, excluding acquisition of businesses, were $4.8 million in the
second quarter of fiscal 2004 compared to $9.1 million in the prior years
quarter. The lower level of capital expenditures was primarily due to timing
of new plant construction and a continued focus on asset utilization.

Interest Expense. Interest expense was $2.9 million in the second quarter of
fiscal 2004, down from $3.5 million in the same period of fiscal 2003. This
decrease was due primarily to lower debt levels.

Provision for Income Taxes. Our effective tax rate decreased to 38.0% in the
second quarter of fiscal 2004 from 39.0% in the same period of fiscal 2003
largely due to decreases in Canadian statutory income tax rates.

Six months ended December 27, 2003 compared to six months ended December 28, 2002

Revenues.Total revenues for the first six months of fiscal 2004 increased
3.3% to $361.1 million from $349.5 million for the same period of fiscal 2003.
Rental revenue increased $10.8 million in the first six months, or 3.2%. The
organic industrial rental growth rate, which is calculated using industrial
rental revenue adjusted for foreign currency exchange rate differences and
revenue from newly acquired business compared to prior-period results, was
approximately negative 1.7%. We believe that the organic industrial rental
growth rate better reflects the growth of our existing industrial business and
is therefore useful in analyzing our financial condition and results of
operations.

Direct sale revenue increased 7.1% to $13.2 million in the first six months of
fiscal 2004 compared to $12.4 million in the same period of fiscal 2003. The
increase in revenue was driven by a focused effort to provide direct sale
garment solutions to our existing rental customers.

Cost of Rental and Direct Sale.Cost of rental operations increased 6.4% to
$220.9 million in the first six months of fiscal 2004 from $207.6 million in
the same period of fiscal 2003. Gross margin from rental sales decreased to
36.5% in the first six months of fiscal 2004 from 38.4% in the same period of
fiscal 2003. The decrease in rental gross margins was due to higher energy
costs, employee benefit costs (including pension), acquisition integration and
plant consolidation costs and lost margin from lower employment levels within
our existing customer base.

Cost of direct sales increased 12.9% to $10.1 million in the first six months
of fiscal 2004 from $8.9 million in the same period of fiscal 2003. Gross
margin from direct sales decreased to 23.8% in the first six months of fiscal
2004 from 27.8% in the same period of fiscal 2003. This decrease in direct
sale gross margins was a result of product mix and pricing pressures.

Selling and Administrative.Selling and administrative expenses increased 2.4%
to $77.3 million in the first six months of fiscal 2004 from $75.5 million in
the same period of fiscal 2003. As a percentage of total revenues, selling and
administrative expenses decreased to 21.4% in the first six months of fiscal
2004 from 21.6% in the same period of fiscal 2003. Increased employee benefit
costs, including pension, were largely offset by reduced expense related to
uncollectible accounts receivable and reduced selling expenses.

Depreciation and Amortization. Depreciation and amortization expense increased
5.4% to $19.5 million in the first six months of fiscal 2004 from $18.5 million
in the same period of fiscal 2003. As a percentage of total revenues,
depreciation and amortization expense increased to 5.4% in the first six months
of fiscal 2004 from 5.2% in the same

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period of fiscal 2003. Capital expenditures, excluding acquisition of
businesses, were $8.4 million in the first six months of fiscal 2004 compared
to $18.1 million in the same period of fiscal 2003. The lower level of capital
expenditures was primarily due to timing of new plant construction and a
continued focus on asset utilization.

Interest Expense. Interest expense was $6.1 million in the first six months of
fiscal 2004, down from $6.8 million in the same period of fiscal 2003.

Provision for Income Taxes. Our effective tax rate decreased to 38.0% in the
first six months of fiscal 2004 from 39.0% in the same period of fiscal 2003
due largely to decreases in Canadian statutory income tax rates.

Liquidity, Capital Resources and Financial Condition

Our primary sources of cash are net cash flows from operations and borrowings
under our credit facilities. Primary uses of cash are interest payments on
indebtedness, capital expenditures, acquisitions and general corporate
purposes.

Operating Activities.Net cash provided by operating activities was $52.9
million in the first six months of fiscal 2004 and $47.4 million in the same
period of fiscal 2003. Operating cash flow was up over the prior year due to
effective working capital management including a continued focus on timely
collection of accounts receivable, management of new and in-service inventories
levels and timing of payments for various liabilities.

Working capital at December 27, 2003 was $57.3 million, down 23.9% from $75.2
million at June 28, 2003. The decrease is due to an increase in the current
maturities of long-term debt associated with scheduled debt payments and an
increase in income tax payable due to timing of payments.

Investing Activities.Net cash used in investing activities was $15.5 million
in the first six months of fiscal 2004 and $89.9 million in the same period of
fiscal 2003. In both fiscal 2004 and 2003, cash was primarily used for
property, plant and equipment additions and for acquisition of business assets.

Financing Activities.Cash used for financing activities was $31.8 million in
the first six months of fiscal 2004 and cash provided by financing activities
was $50.0 million in the same period of fiscal 2003. Cash used in fiscal 2004
was primarily related to the repayment of long-term debt. Cash provided in
fiscal 2003 was from debt proceeds used primarily for acquisitions of
businesses. The Company paid dividends of $0.7 million during the first six
months of fiscal 2004.

We maintain a $325,000 term loan and revolving credit facility. On December
17, 2003 the credit facility was amended to revise certain restricted covenants
providing additional flexibility in meeting our capital needs. Under the
amended credit facility, we are required to maintain a minimum fixed charge
coverage ratio, minimum stockholders equity and a maximum leverage ratio, all
as defined. As of December 27, 2003, we were in compliance with all debt
covenants.

Cash Obligations.Under various agreements, we are obligated to make future
cash payments in fixed amounts. These include payments under the variable rate
term loan and revolving credit facility, the fixed rate term loan, capital
lease obligations and rent payments required under non-cancelable operating
leases with initial or remaining terms in excess of one year.

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The following table summarizes our fixed cash obligations as of December 27,
2003 for the fiscal years ending June (in thousands):

|                                                      |           |   |        |  |      |   |        |  |      |   |             |  |       |   |        |  |  |   |          |  |  |   |        |  |  |   |         | 
|----------------------------------------------------- | --------- | - | ------ |  | ---- | - | ------ |  | ---- | - | ----------- |  | ----- | - | ------ |  |  | - | -------- |  |  | - | ------ |  |  | - | ------- | 
|                                                      | 2004      |   |        |  |      |   |        |  |      |   |             |  |       |   |        |  |  |   | 2009 and |  |  |   |       
|                                                      | Remaining |   | 2005   |  | 2006 |   | 2007   |  | 2008 |   | There-after |  | Total
|                                                     
|Variable rate term loan and
revolving credit facility |           | $ | 5,625  |  |      | $ | 15,000 |  |      | $ | 18,750      |  |       | $ | 22,500 |  |  | $ | 100,400  |  |  | $ |       |  |  | $ | 162,275 | 
|Fixed rate term loan                                  |           |   |       |  |      |   | 7,143  |  |      |   | 7,143       |  |       |   | 7,143  |  |  |   | 7,143    |  |  |   | 21,428 |  |  |   | 50,000  | 
|Other debt arrangements, including
capital leases     |           |   | 2,285  |  |      |   | 1,734  |  |      |   | 531         |  |       |   | 29     |  |  |   |         |  |  |   |       |  |  |   | 4,579   | 
|Operating leases                                      |           |   | 6,603  |  |      |   | 11,805 |  |      |   | 9,446       |  |       |   | 7,719  |  |  |   | 6,238    |  |  |   | 3,626  |  |  |   | 45,437  | 
|                                                     
|Total contractual cash obligations                    |           | $ | 14,513 |  |      | $ | 35,682 |  |      | $ | 35,870      |  |       | $ | 37,391 |  |  | $ | 113,781  |  |  | $ | 25,054 |  |  | $ | 262,291 | 
|                                                     

Also, at December 27, 2003, we had stand-by letters of credit totaling $15.4
million that have been issued and are outstanding, primarily in connection with
our property and casualty insurance programs. No amounts have been drawn upon
these letters of credit.

At December 27, 2003, we had available cash on hand of $17.5 million and over
$100.0 million of available capacity under our revolving credit facility. We
anticipate that we will generate sufficient cash flows from operations to
satisfy our cash commitments and capital requirements for fiscal 2004; however,
we may utilize borrowings under the revolving credit facility to supplement our
cash requirements from time to time.

The amount of cash flow generated from operations is subject to a number of
risks and uncertainties. In fiscal 2004, we may actively seek and consider
acquisitions of business assets, the consummation of any acquisition could
affect our liquidity profile and level of outstanding debt. We believe that
available capacity under our revolving credit facility will be adequate to
finance any such acquisitions and planned capital expenditures in fiscal 2004.

On October 22, 2003, we filed a registration statement with the Securities and
Exchange Commission to issue, at an indeterminate date, debt securities, Class
A Common Stock and securities warrants with an aggregate initial offering price
not to exceed $200 million. The SEC declared this registration statement
effective on November 5, 2003. The securities covered by the registration
statement, which may be offered in one or more offerings and in any
combination, would in each case be offered pursuant to a prospectus supplement
that will describe the specific types, amounts, price and other terms of the
offered securities. Unless the applicable prospectus supplement states
otherwise, the net proceeds from any sale of the offered securities would be
used for working capital, the repayment of indebtedness, the funding of certain
expenditures in connection with acquisitions and for general corporate
purposes. Currently, we have no specific plans to issue any securities under
the registration statement.

Pension Obligations

We account for our defined benefit pension plan using Statement of Financial
Accounting Standards No. 87 Employers Accounting for Pensions (SFAS 87).
Under SFAS 87, pension expense is recognized on an accrual basis over
employees approximate service periods. Pension expense calculated under SFAS
87 is generally independent of funding decisions or requirements. We recognized
expense for our defined benefit pension plan of $1.5 million in the second
quarter of fiscal 2004 and $0.8 million in the same period of fiscal 2003. At
June 28, 2003, the fair value of our pension plan assets totaled $16.8 million.
Lower investment returns, benefit payments and declining discount rates
resulted in additional minimum pension liability of $2.9 million (net of tax of
$1.7 million) as of June 28, 2003. We made a cash contribution of approximately
$2.8 million in the first quarter of fiscal 2004.

The calculation of pension expense and the corresponding liability requires the
use of a number of critical assumptions, including the expected long-term rate
of return on plan assets and the assumed discount rate. Changes in these
assumptions can result in different expense and liability amounts, and future
actual experience can differ from these assumptions. Pension expense increases
as the expected rate of return on pension plan assets decreases.

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At June 28, 2003, we estimated that the pension plan assets will generate a
long-term rate of return of 8.0%. This rate was developed by evaluating input
from our actuary as well as long-term inflation assumptions. The expected
long-term rate of return on plan assets at June 28, 2003 is based on an
allocation of U.S. equities and U.S. fixed income securities. Decreasing the
expected long-term rate of return by 0.5% (from 8.0% to 7.5%) would increase
our estimated fiscal 2004 pension expense by approximately $0.1 million.
Pension liability and future pension expense increase as the discount rate is
reduced. We discounted future pension obligations using a rate of 6.0% at June
28, 2003. The discount rate is determined based on the current rates earned on
high quality long-term bonds. Decreasing the discount rate by 0.5% (from 6.0%
to 5.5%) would have increased our accumulated benefit obligation at June 28,
2003 by approximately $3.4 million and increased the estimated fiscal 2004
pension expense by approximately $1.0 million.

Future changes in plan asset returns, assumed discount rates and various other
factors related to the participants in our pension plan will impact our future
pension expense and liabilities. We cannot predict with certainty what these
factors will be in the future.

Impact of Inflation

In general, management believes that our results of operations are not
dependent on moderate changes in the inflation rate. Historically, we have been
able to manage the impact of more significant changes in inflation rates
through our customer relationships, customer agreements that generally provide
for price increases consistent with the rate of inflation or 5.0%, whichever is
greater, and continued focus on improvements of operational productivity.

Significant increases in energy costs, specifically natural gas and gasoline,
can materially affect our results of operations and financial condition.
Currently, energy costs represent between 3-4% of our total revenue.

Litigation

We are involved in a variety of legal actions relating to personal injury,
customer contracts, employment, trade practices, environmental and other legal
matters that arise in the normal course of business. These legal actions
include lawsuits that challenge the practice of charging for certain
environmental services on invoices, being named, along with other defendants,
as a potentially responsible party at certain waste disposal sites where ground
water contamination has been detected or is suspected and a lawsuit in
California that alleges G&K violated certain state wage and hour laws
applicable to its route representatives. While we are unable to predict the
ultimate outcome of these legal actions, it is the opinion of management that
the disposition of these matters will not have a material adverse effect on our
consolidated financial statements taken as a whole.

Cautionary Statements Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the Act) provides
companies with a safe harbor when making forward-looking statements as a way
of encouraging them to furnish their shareholders with information regarding
expected trends in their operating results, anticipated business developments
and other prospective information. Statements made in this report concerning
our intentions, expectations or predictions about future results or events are
forward-looking statements within the meaning of the Act. These statements
reflect our current expectations or beliefs, and are subject to risks and
uncertainties that could cause actual results or events to vary from stated
expectations, which could be material and adverse. Given that circumstances
may change, and new risks to the business may emerge from time to time, having
the potential to negatively impact our business in ways we could not anticipate
at the time of making a forward-looking statement, you are cautioned not to
place undue reliance on these statements, and we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

Some of the factors that could cause actual results or events to vary from
stated expectations include, but are not limited to, the following: unforeseen
operating risks; the effects of overall economic conditions; fluctuations in
costs of insurance and energy; acquisition integration costs; the performance
of acquired businesses; preservation of positive labor relationships;
competition, including pricing, within the corporate identity apparel and
facility services industry; and the availability of capital to finance planned
growth. Additional information concerning potential

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factors that could effect future financial results is included in the Companys
Annual Report on Form 10-K for the fiscal year ended June 28, 2003.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates.
We use financial instruments, including fixed and variable rate debt, as well
as interest rate swaps to manage interest rate risk. Interest rate swap
agreements are entered into for periods consistent with related underlying
exposures and do not constitute positions independent of those exposures.
Assuming the current level of borrowings, a one percentage point increase in
interest rates under these borrowings would have increased our interest expense
for the second quarter of fiscal 2004 by approximately $0.3 million. This
estimated exposure considers the mitigating effects of interest rate swap
agreements outstanding at December 27, 2003 on the change in the cost of
variable rate debt.

Foreign Currency Exchange Risk

We have a significant foreign subsidiary located in Canada. The assets and
liabilities of this subsidiary are denominated in the Canadian dollar and as
such are translated into U.S. dollars at the exchange rate in effect at the
balance sheet date. Results of operations are translated using the average
exchange rates throughout the period. The effect of exchange rate fluctuations
on translation of assets and liabilities are recorded as a component of
stockholders equity. Gains and losses from foreign currency transactions are
included in results of operations.

ITEM 4.  CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
Form 10-Q. Based on their evaluation, our chief executive officer and chief
financial officer concluded that the Companys disclosure controls and
procedures are effective.

There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced above.

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PART II
 
OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



| | a. |  | The Company held its Annual
Meeting of Shareholders on
November 6, 2003.                                                                                                                                                                                                                                                                                               
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | The following three persons were elected as Class II
directors: Paul Baszucki, Richard L. Marcantonio and Alice M.
Richter. The following six persons comprise the other directors
whose terms of office continued after the Annual Meeting of
Shareholders: Michael G. Allen, Richard M. Fink, Wayne M. Fortun,
Donald W. Goldfus, Thomas Moberly and M. Lenny Pippin.
|
| | c. |  | 1.       Each director nominee received the following votes:                                                                                                                                                                                                                                                                                                           

|                |  |          |            |                    |  |  |           | 
|--------------- |  | -------- | ---------- | ------------------ |  |  | --------- | 
|                |  | Shares  
|                |  |         
|                |  | In Favor |            | Withhold Authority
|                |  |          |            |                   
|Mr. Baszucki    |  |          | 31,017,739 |                    |  |  | 1,965,605 | 
|Mr. Marcantonio |  |          | 32,284,947 |                    |  |  | 698,397   | 
|Ms. Richter     |  |          | 32,502,420 |                    |  |  | 480,924   | 



| | 2. |  | Shareholders ratified the appointment of Ernst & Young
LLP, Certified Public Accountants, as independent auditors of the
Company for 2004: 31,070,983 shares in favor, 1,798,303 shares
voting against and 114,058 shares abstaining.          
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3. |  | Shareholders voted against a shareholder proposal
recommending the declassification of the Companys Board of
Directors: 12,421,974 shares in favor, 17,939,006 shares voting
against, 139,630 shares abstaining and 2,482,734 broker non-vote.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



| | a. |  | Exhibits
| | -- |  | --------

|                                                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 Executive Employment Agreement between Registrant and Jeffrey
R. Kiesel, dated July 14, 2003.                                                                                                                                                                        
|                                                                                                                                                                                                                                                                          
|10.2 First Amendment, dated December 17, 2003, to Credit Agreement
dated June 25, 2002, among the Registrant, G&K Services Canada,
Inc., Bank One, N.A., Wachovia Bank, National Association, Wachovia
Securities, Inc, Banc One Capital Markets, Inc. and various lenders
|                                                                                                                                                                                                                                                                          
|31.1 Certification of Chief Executive Officer pursuant to
Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                          
|                                                                                                                                                                                                                                                                          
|31.2 Certification of Chief Financial Officer pursuant to
Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                          
|                                                                                                                                                                                                                                                                          
|32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                   
|                                                                                                                                                                                                                                                                          
|32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                   



| | b. |  | Reports on Form 8-K
| | -- |  | -------------------



| |     
| | ----
| | None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|      |  |                  |  |                                 |  |                                                                                                           
|----- |  | ---------------- |  | ------------------------------- |  | ----------------------------------------------------------------------------------------------------------
|      |  |                  |  | G&K SERVICES, INC.
(Registrant)
|     
|Date: |  | February 5, 2004 |  | By:                             |  | /s/ Jeffrey L. WrightJeffrey L. Wright
Chief Financial Officer and
Secretary
(Principal Financial Officer)
|     
|      |  |                  |  | By:                             |  | /s/ Michael F. WoodardMichael F. Woodard
Controller
(Principal Accounting Officer)                        

20