##### Table of Contents



(G&K SERVICES LOGO) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   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 March 27, 2004 Commission file number 0-4063 G&K SERVICES, INC.  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    o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES  x        NO  o Indicate the number of shares outstanding of each of the issuers classes
of common stock as of the latest practicable date. CLASS A
    
    Outstanding May 3, 2004Common Stock, par value $0.50 per share
    
    19,392,506CLASS B
    
    Outstanding May 3, 2004Common Stock, par value $0.50 per share
    
    1,474,996




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G&K Services, Inc.
Form 10-Q Table of Contents PART I
    
    
    
    PAGEItem 1.
    
    Financial StatementsConsolidated Condensed Balance Sheets as ofMarch 27, 2004 and June 28, 2003
    
    
    3Consolidated Statements of Operations for the three and nine months endedMarch 27, 2004 and March 29, 2003
    
    
    4Consolidated Condensed Statements of Cash Flows for the ninemonths ended March 27, 2004 and March 29, 2003
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition andResults of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART IIItem 6.
    
    Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    
    
    21Certification of CEO - Section 302Certification of CFO - Section 302Certification of CEO - Section 906Certification of CFO - Section 906
  2




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PART I
FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS 
 CONSOLIDATED CONDENSED BALANCE SHEETS  G&K Services, Inc. and Subsidiaries
 March 27,
    
    June 28,(In thousands)
    
    2004
    
    2003(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    24,757
    
    
    $
    11,504Accounts receivable, less allowance for doubtful
accounts of $3,234 and $3,687
    
    
    68,462
    
    
    
    69,839Inventories
    
    
    90,911
    
    
    
    95,853Prepaid expenses
    
    
    8,688
    
    
    
    14,848Total current assets
    
    
    192,818
    
    
    
    192,044Property, Plant and Equipment, net
    
    
    244,028
    
    
    
    250,757Goodwill
    
    
    285,148
    
    
    
    266,140Other Assets
    
    
    72,901
    
    
    
    69,865$
    794,895
    
    
    $
    778,806LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    17,608
    
    
    $
    20,228Accrued expenses
    
    
    83,617
    
    
    
    68,679Deferred income taxes
    
    
    13,742
    
    
    
    13,459Current maturities of long-term debt
    
    
    24,321
    
    
    
    14,430Total current liabilities
    
    
    139,288
    
    
    
    116,796Long-Term Debt, net of Current Maturities
    
    
    193,899
    
    
    
    236,731Deferred Income Taxes
    
    
    30,627
    
    
    
    28,667Other Noncurrent Liabilities
    
    
    19,402
    
    
    
    16,343Stockholders Equity
    
    
    411,679
    
    
    
    380,269$
    794,895
    
    
    $
    778,806
 The accompanying notes are an integral part of these consolidated condensed
financial statements. 3




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CONSOLIDATED STATEMENTS OF OPERATIONSG&K Services, Inc. and Subsidiaries
(Unaudited) For the Three Months Ended
    
    For the Nine Months EndedMarch 27,
    
    March 29,
    
    March 27,
    
    March 29,(In thousands, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003RevenuesRental operations
    
    $
    173,531
    
    
    $
    171,065
    
    
    $
    521,431
    
    
    $
    508,149Direct sales
    
    
    5,494
    
    
    
    5,455
    
    
    
    18,736
    
    
    
    17,822Total revenues
    
    
    179,025
    
    
    
    176,520
    
    
    
    540,167
    
    
    
    525,971Operating ExpensesCost of rental operations
    
    
    110,382
    
    
    
    108,524
    
    
    
    331,289
    
    
    
    316,084Cost of direct sales
    
    
    4,061
    
    
    
    4,566
    
    
    
    14,145
    
    
    
    13,494Selling and administrative
    
    
    37,353
    
    
    
    40,070
    
    
    
    114,677
    
    
    
    115,552Depreciation and amortization
    
    
    9,865
    
    
    
    9,511
    
    
    
    29,328
    
    
    
    27,984Total operating expenses
    
    
    161,661
    
    
    
    162,671
    
    
    
    489,439
    
    
    
    473,114Income from Operations
    
    
    17,364
    
    
    
    13,849
    
    
    
    50,728
    
    
    
    52,857Interest expense
    
    
    2,826
    
    
    
    3,406
    
    
    
    8,914
    
    
    
    10,198Income before Income Taxes
    
    
    14,538
    
    
    
    10,443
    
    
    
    41,814
    
    
    
    42,659Provision for income taxes
    
    
    5,524
    
    
    
    4,073
    
    
    
    15,889
    
    
    
    16,637Net Income
    
    $
    9,014
    
    
    $
    6,370
    
    
    $
    25,925
    
    
    $
    26,022Basic weighted average number
of shares outstanding
    
    
    20,767
    
    
    
    20,608
    
    
    
    20,681
    
    
    
    20,574Basic Earnings per Common Share
    
    $
    0.43
    
    
    $
    0.31
    
    
    $
    1.25
    
    
    $
    1.26Diluted weighted average number
of shares outstanding
    
    
    20,974
    
    
    
    20,676
    
    
    
    20,851
    
    
    
    20,707Diluted Earnings per Common Share
    
    $
    0.43
    
    
    $
    0.31
    
    
    $
    1.24
    
    
    $
    1.26Dividends per share
    
    $
    0.0175
    
    
    $
    0.0175
    
    
    $
    0.0525
    
    
    $
    0.0525
 The accompanying notes are an integral part of these consolidated condensed
financial statements. 4




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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSG&K Services, Inc. and Subsidiaries
(Unaudited) For the Nine Months EndedMarch 27,
    
    March 29,(In thousands)
    
    2004
    
    2003Operating Activities:Net income
    
    $
    25,925
    
    
    $
    26,022Adjustments to reconcile net income to net cash
provided by operating activities -Depreciation and amortization
    
    
    29,328
    
    
    
    27,984Deferred income taxes
    
    
    671
    
    
    
    (320
    )Amortization of deferred compensation  restricted stock
    
    
    659
    
    
    
    768Changes in current operating items, exclusive of acquisitions
    
    
    24,758
    
    
    
    17,945Other, net
    
    
    308
    
    
    
    867Net cash provided by operating activities
    
    
    81,649
    
    
    
    73,266Investing Activities:Property, plant and equipment additions, net
    
    
    (12,790
    )
    
    
    (24,703
    )Acquisitions of business assets and other
    
    
    (26,082
    )
    
    
    (75,795
    )Net cash used for investing activities
    
    
    (38,872
    )
    
    
    (100,498
    )Financing Activities:Proceeds from debt financing
    
    
    141,026
    
    
    
    166,814Repayments of debt financing
    
    
    (173,428
    )
    
    
    (135,225
    )Cash dividends paid
    
    
    (1,090
    )
    
    
    (1,088
    )Sale of common stock
    
    
    3,714
    
    
    
    500Net cash provided by (used for) financing activities
    
    
    (29,778
    )
    
    
    31,001Increase in Cash and Cash Equivalents
    
    
    12,999
    
    
    
    3,769Effect of Exchange Rates on Cash
    
    
    254
    
    
    
    295
Cash and Cash Equivalents:Beginning of period
    
    
    11,504
    
    
    
    9,986End of period
    
    $
    24,757
    
    
    $
    14,050
 The accompanying notes are an integral part of these consolidated condensed
financial statements. 5




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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 nine month periods ended March 27, 2004 and March 29, 2003
(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 March 27,
2004, and the results of its operations for the three and nine months
ended and its cash flows for the nine months ended March 27, 2004 and
March 29, 2003. 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 nine month periods ended
March 27, 2004 and March 29, 2003 are not necessarily indicative of the
results to be expected for the full year.1.
    
    Summary of Significant Accounting PoliciesAccounting 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 BusinessG&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 ConsolidationThe 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 RecognitionThe 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. 6




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Derivative Financial InstrumentsThe 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 third quarter of fiscal 2004 or fiscal 2003. Notional
amounts outstanding under foreign currency contracts at March 27, 2004
were $424, all of which will mature during fiscal 2004. Notional amounts
outstanding under foreign currency contracts at March 29, 2003 were
$2,524, all of which matured during fiscal 2003. Foreign currency
contracts were recorded at fair value as of March 27, 2004.Per Share DataBasic 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
    
    Nine Months EndedMarch 27,
    
    March 29,
    
    March 27,
    
    March 29,2004
    
    2003
    
    2004
    
    2003Weighted average number of common
shares outstanding used in
computation
of basic earnings per share
    
    
    20,767
    
    
    
    20,608
    
    
    
    20,681
    
    
    
    20,574Weighted average effect of nonvested
restricted stock grants and assumed
exercise of options
    
    
    207
    
    
    
    68
    
    
    
    170
    
    
    
    133Shares used in computation of
diluted earnings per share
    
    
    20,974
    
    
    
    20,676
    
    
    
    20,851
    
    
    
    20,707
  Stock-Based CompensationThe 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 was $192 and $224 for the
three-month periods and 7




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$659 and $768 for the nine-month periods ended March 27, 2004 and March 29, 2003, 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
    
    Nine Months EndedMarch 27,
    
    March 29,
    
    March 27,
    
    March 29,2004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    9,014
    
    
    $
    6,370
    
    
    $
    25,925
    
    
    $
    26,022Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects
    
    
    (398
    )
    
    
    (298
    )
    
    
    (1,348
    )
    
    
    (1,228
    )Pro forma net income
    
    $
    8,616
    
    
    $
    6,072
    
    
    $
    24,577
    
    
    $
    24,794Basic net income per share:As reported
    
    $
    0.43
    
    
    $
    0.31
    
    
    $
    1.25
    
    
    $
    1.26Pro forma
    
    
    0.42
    
    
    
    0.29
    
    
    
    1.19
    
    
    
    1.21Diluted net income per share:As reported
    
    $
    0.43
    
    
    $
    0.31
    
    
    $
    1.24
    
    
    $
    1.26Pro forma
    
    
    0.41
    
    
    
    0.29
    
    
    
    1.18
    
    
    
    1.20
  Recent Accounting PronouncementsIn December 2003, the Financial Accounting Standards Board revised SFAS
No. 132, Employers Disclosures About Pensions and Other Postretirement
Benefits (SFAS 132). The FASBs revision of Statement No. 132 requires
new annual disclosures about the types of plan assets, investment
strategy, measurement date, plan obligations and cash flows as well as
the components of the net periodic benefit cost recognized in interim
periods. The Company adopted the disclosure requirements of SFAS 132
(revised) beginning with the third quarter ended March 27, 2004.2.
    
    Comprehensive IncomeFor the three and nine month periods ended March 27, 2004 and March 29,
2003, the components of comprehensive income were as follows: Three Months Ended
    
    Nine Months EndedMarch 27,
    
    March 29,
    
    March 27,
    
    March 29,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    9,014
    
    
    $
    6,370
    
    
    $
    25,925
    
    
    $
    26,022Other comprehensive incomeForeign currency
translation
adjustments,
net of tax
    
    
    (635
    )
    
    
    4,793
    
    
    
    1,867
    
    
    
    2,822Net unrealized
holding gain on
derivative
financial
instruments, net of
tax
    
    
    9
    
    
    
    128
    
    
    
    335
    
    
    
    98Comprehensive income
    
    $
    8,388
    
    
    $
    11,291
    
    
    $
    28,127
    
    
    $
    28,942
 8




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##### Table of Contents



3.
    
    Goodwill and Intangible AssetsIn 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 nine
months ended March 27, 2004, by operating segment, are as follows: United States
    
    Canada
    
    TotalBalance as of June 28, 2003
    
    $
    236,913
    
    
    $
    29,227
    
    
    $
    266,140Acquired goodwill
    
    
    18,458
    
    
    
    
    
    
    
    18,458Other, primarily foreign
currency translation
    
    
    
    
    
    
    550
    
    
    
    550Balance as of March 27, 2004
    
    $
    255,371
    
    
    $
    29,777
    
    
    $
    285,148
  Information regarding the Companys other intangible assets are as
follows: As of March 27, 2004Carrying
    
    AccumulatedAmount
    
    Amortization
    
    NetCustomer contracts and
related customer
relationships
    
    $
    81,896
    
    
    $
    37,214
    
    
    $
    44,682Non-competition agreements
    
    
    9,819
    
    
    
    5,772
    
    
    
    4,047Total
    
    $
    91,715
    
    
    $
    42,986
    
    
    $
    48,729
 As of June 28, 2003Carrying
    
    AccumulatedAmount
    
    Amortization
    
    NetCustomer contracts and
related customer
relationships
    
    $
    76,853
    
    
    $
    31,919
    
    
    $
    44,934Non-competition agreements
    
    
    9,721
    
    
    
    5,055
    
    
    
    4,666Total
    
    $
    86,574
    
    
    $
    36,974
    
    
    $
    49,600
  Amortization expense was $5,891 and $5,362 for the nine months ended
March 27, 2004 and March 29, 2003, respectively. Estimated amortization
expense for each of the five succeeding fiscal years based on the
intangible assets as of March 27, 2004 is as follows: 2004 remaining
    
    $
    2,0242005
    
    
    8,0652006
    
    
    7,7372007
    
    
    7,6122008
    
    
    7,2392009
    
    
    3,563
 9




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4.
    
    Long-Term DebtThe Company maintains a $325,000 term loan and revolving credit facility.
On December 17, 2003 the credit facility was amended to revise certain
restrictive covenants providing additional flexibility in meeting our
capital needs. 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
March 27, 2004, the Company was in compliance with all debt covenants.5.
    
    Employee Benefit PlansThe components of net periodic pension cost are as follows for the three
months ended March 27, 2004 and March 29, 2003: Supplemental ExecutivePension Plan
    
    Retirement PlanThree Months Ended
    
    Three Months EndedMarch 27,
    
    March 29,
    
    March 27,
    
    March 29,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    987
    
    
    $
    668
    
    
    $
    183
    
    
    $
    105Interest cost
    
    
    629
    
    
    
    516
    
    
    
    142
    
    
    
    152Expected return on assets
    
    
    (379
    )
    
    
    (386
    )
    
    
    
    
    
    
    Prior service cost
    
    
    14
    
    
    
    14
    
    
    
    9
    
    
    
    19(Gain) loss
    
    
    263
    
    
    
    
    
    
    
    78
    
    
    
    18Net periodic pension cost
    
    $
    1,514
    
    
    $
    812
    
    
    $
    412
    
    
    $
    294
  The components of net periodic pension cost are as follows for the nine
months ended March 27, 2004 and March 29, 2003: Supplemental ExecutivePension Plan
    
    Retirement PlanNine Months Ended
    
    Nine Months EndedMarch 27,
    
    March 29,
    
    March 27,
    
    March 29,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    2,969
    
    
    $
    1,873
    
    
    $
    547
    
    
    $
    263Interest cost
    
    
    1,890
    
    
    
    1,447
    
    
    
    428
    
    
    
    379Expected return on assets
    
    
    (1,139
    )
    
    
    (1,082
    )
    
    
    
    
    
    
    Prior service cost
    
    
    42
    
    
    
    40
    
    
    
    27
    
    
    
    47(Gain) loss
    
    
    791
    
    
    
    
    
    
    
    235
    
    
    
    45Net periodic pension cost
    
    $
    4,553
    
    
    $
    2,278
    
    
    $
    1,237
    
    
    $
    734
 10




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6.
    
    Segment InformationThe 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 nine month periods ended March 27, 2004 and March 29,
2003 is as follows: UnitedFor the Three Months Ended
    
    States
    
    Canada
    
    TotalThird Quarter Fiscal Year 2004:Revenues
    
    $
    153,696
    
    
    $
    25,329
    
    
    $
    179,025Income from operations
    
    
    12,442
    
    
    
    4,922
    
    
    
    17,364Property, plant and equipment
additions, net
    
    
    3,807
    
    
    
    611
    
    
    
    4,418Depreciation and amortization
    
    
    8,771
    
    
    
    1,094
    
    
    
    9,865Third Quarter Fiscal Year 2003:Revenues
    
    $
    154,793
    
    
    $
    21,727
    
    
    $
    176,520Income from operations
    
    
    11,000
    
    
    
    2,849
    
    
    
    13,849Property, plant and equipment
additions, net
    
    
    4,170
    
    
    
    2,459
    
    
    
    6,629Depreciation and amortization
    
    
    8,669
    
    
    
    842
    
    
    
    9,511
 UnitedFor the Nine Months Ended
    
    States
    
    Canada
    
    TotalFiscal Year 2004:Revenues
    
    $
    466,662
    
    
    $
    73,505
    
    
    $
    540,167Income from operations
    
    
    36,824
    
    
    
    13,904
    
    
    
    50,728Property, plant and equipment
additions, net
    
    
    11,278
    
    
    
    1,512
    
    
    
    12,790Depreciation and amortization
    
    
    26,069
    
    
    
    3,259
    
    
    
    29,328Fiscal Year 2003:Revenues
    
    $
    462,678
    
    
    $
    63,293
    
    
    $
    525,971Income from operations
    
    
    41,227
    
    
    
    11,630
    
    
    
    52,857Property, plant and equipment
additions, net
    
    
    17,011
    
    
    
    7,692
    
    
    
    24,703Depreciation and amortization
    
    
    25,420
    
    
    
    2,564
    
    
    
    27,984
 11




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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. 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 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. 12




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##### Table of Contents



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 nine 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 nine
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. 13




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##### Table of Contents



Results of Operations The percentage relationships to net sales of certain income and expense items
for the three and nine month periods ended March 27, 2004 and March 29, 2003,
and the percentage changes in these income and expense items between periods
are presented in the following table: Three Months
    
    Nine Months
    
    PercentageEnded
    
    Ended
    
    ChangeThree Months
    
    Nine MonthsMarch 27,
    
    March 29,
    
    March 27,
    
    March 29,
    
    FY 2004
    
    FY 20042004
    
    2003
    
    2004
    
    2003
    
    vs. FY 2003
    
    vs. FY 2003Revenues:Rental
    
    
    96.9
    %
    
    
    96.9
    %
    
    
    96.5
    %
    
    
    96.6
    %
    
    
    1.4
    %
    
    
    2.6
    %Direct
    
    
    3.1
    
    
    
    3.1
    
    
    
    3.5
    
    
    
    3.4
    
    
    
    0.7
    
    
    
    5.1Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    1.4
    
    
    
    2.7Expenses:Cost of rental sales
    
    
    63.6
    
    
    
    63.4
    
    
    
    63.5
    
    
    
    62.2
    
    
    
    1.7
    
    
    
    4.8Cost of direct sales
    
    
    73.9
    
    
    
    83.7
    
    
    
    75.5
    
    
    
    75.7
    
    
    
    (11.1
    )
    
    
    4.8Total cost of sales
    
    
    63.9
    
    
    
    64.1
    
    
    
    63.9
    
    
    
    62.7
    
    
    
    1.2
    
    
    
    4.8Selling and administrative
    
    
    20.9
    
    
    
    22.7
    
    
    
    21.2
    
    
    
    22.0
    
    
    
    (6.8
    )
    
    
    (0.8
    )Depreciation and
amortization
    
    
    5.5
    
    
    
    5.4
    
    
    
    5.5
    
    
    
    5.3
    
    
    
    3.7
    
    
    
    4.8Income from operations
    
    
    9.7
    
    
    
    7.8
    
    
    
    9.4
    
    
    
    10.0
    
    
    
    25.4
    
    
    
    (4.0
    )Interest expense
    
    
    1.6
    
    
    
    1.9
    
    
    
    1.7
    
    
    
    1.9
    
    
    
    (17.0
    )
    
    
    (12.6
    )Income before income taxes
    
    
    8.1
    
    
    
    5.9
    
    
    
    7.7
    
    
    
    8.1
    
    
    
    39.2
    
    
    
    (2.0
    )Provision for income taxes
    
    
    3.1
    
    
    
    2.3
    
    
    
    2.9
    
    
    
    3.2
    
    
    
    35.6
    
    
    
    (4.5
    )Net income
    
    
    5.0
    %
    
    
    3.6
    %
    
    
    4.8
    %
    
    
    4.9
    %
    
    
    41.5
    %
    
    
    (0.4
    )%
 Three months ended March 27, 2004 compared to three months ended March 29, 2003 Revenues.Total revenues in the third quarter of fiscal 2004 increased 1.4% to
$179.0 million from $176.5 million in the third quarter of fiscal 2003. Rental
revenue increased $2.5 million in the third quarter, or 1.4%. 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 up 0.7% over last year at $5.5 million in the third
quarter of fiscal 2004, largely consistent with the amount reported in the same
period of fiscal 2003. Cost of Rental and Direct Sale.Cost of rental operations increased 1.7% to
$110.4 million in the third quarter of fiscal 2004 from $108.5 million in the
same period of fiscal 2003. Gross margin from rental sales decreased to 36.4%
in the third quarter of fiscal 2004 from 36.6% in the third quarter of fiscal
2003. The decrease in rental gross margins was due to employee benefit costs
(including pension), higher energy costs and lost margin from lower employment
levels within our existing customer base. Both rental and direct sale margins
in the prior-year quarter were negatively impacted by the closing of the
Canadian manufacturing facility. Total one-time expenses related to closing
the facility reduced the overall combined margin by 0.6% in the quarter and
will have minimal impact on future results of operations. We have plans to shift
production of certain high-volume core products to our Dominican
Republic garment manufacturing facility. This will create excess
capacity at our United States manufacturing facility and allow us to
begin producing a variety of specialized garments currently sourced
from outside vendors. The impact of these changes is expected to
improve gross margins by approximately 50 basis points over the next
two years. 14




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Cost of direct sales decreased 11.1% to $4.1 million in the third quarter of
fiscal 2004 from $4.6 million in the same period of fiscal 2003. Gross margin
from direct sales increased to 26.1% in the third quarter of fiscal 2004 from
16.3% in the third quarter of fiscal 2003. The increase in gross margin was
due to the impact of liquidating remaining inventories with the closing of the
Canadian manufacturing facility in the third quarter of fiscal 2003. Selling and Administrative.Selling and administrative expenses decreased to
$37.4 million in the third quarter of fiscal 2004 from $40.1 million in the
same period of fiscal 2003. As a percentage of total revenues, selling and
administrative expenses decreased to 20.9% in the third quarter of fiscal 2004
from 22.7% in the third quarter of fiscal 2003. The decrease as a percent of
revenue was due to reduced expenses related to uncollectible accounts
receivable and selling expenses. Additionally, during the prior-year period,
we took actions to reduce certain selling and administrative costs, including
the closing of the Canadian manufacturing facility, and incurred severance and
other employee-related costs. These actions had an impact of increasing
selling and administrative expenses in the prior-year quarter as a percent of
total revenue by 0.5% and did not have a significant impact on results of
operations in subsequent periods. Depreciation and Amortization. Depreciation and amortization expense increased
3.7% to $9.9 million in the third 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 5.5% in the third quarter of
fiscal 2004 from 5.4% in the third quarter of fiscal 2003. Capital
expenditures, excluding acquisition of businesses, were $4.4 million in the
third quarter of fiscal 2004 compared to $6.6 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 $2.8 million in the third quarter of
fiscal 2004, down from $3.4 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
third quarter of fiscal 2004 from 39.0% in the same period of fiscal 2003
largely due to decreases in Canadian statutory income tax rates. Nine months ended March 27, 2004 compared to nine months ended March 29, 2003 Revenues.Total revenues for the first nine months of fiscal 2004 increased
2.7% to $540.2 million from $526.0 million for the same period of fiscal 2003.
Rental revenue increased $13.3 million in the first nine months, or 2.6%. 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 5.1% to $18.7 million in the first nine months of
fiscal 2004 compared to $17.8 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 4.8% to
$331.3 million in the first nine months of fiscal 2004 from $316.1 million in
the same period of fiscal 2003. Gross margin from rental sales decreased to
36.5% in the first nine months of fiscal 2004 from 37.8% in the same period of
fiscal 2003. The decrease in rental gross margins was due to employee benefit
costs (including pension), higher energy costs, acquisition integration,
expenses related to closing a manufacturing facility and plant consolidation
costs and lost margin from lower employment levels within our existing customer
base. Cost of direct sales increased 4.8% to $14.1 million in the first nine months
of fiscal 2004 from $13.5 million in the same period of fiscal 2003. Gross
margin from direct sales increased to 24.5% in the first nine months of fiscal
2004 from 24.3% in the same period of fiscal 2003. Selling and Administrative.Selling and administrative expenses decreased 0.8%
to $114.7 million in the first nine months of fiscal 2004 from $115.6 million
in the same period of fiscal 2003. As a percentage of total revenues, selling
and administrative expenses decreased to 21.2% in the first nine months of
fiscal 2004 from 22.0% in the same period of fiscal 2003. Reduced expense
related to uncollectible accounts 15




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##### Table of Contents



receivable, reduced selling expenses and severance costs included in the prior-year quarter were partially offset by
increased employee benefit costs, including pension. Depreciation and Amortization. Depreciation and amortization expense increased
4.8% to $29.3 million in the first nine months of fiscal 2004 from $28.0
million in the same period of fiscal 2003. As a percentage of total revenues,
depreciation and amortization expense increased to 5.5% in the first nine
months of fiscal 2004 from 5.3% in the same period of fiscal 2003. Capital
expenditures, excluding acquisition of businesses, were $12.8 million in the
first nine months of fiscal 2004 compared to $24.7 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 $8.9 million in the first nine months
of fiscal 2004, down from $10.2 million in the same period of fiscal 2003. Provision for Income Taxes. Our effective tax rate decreased to 38.0% in the
first nine 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 $81.6
million in the first nine months of fiscal 2004 and $73.3 million in the same
period of fiscal 2003. Operating cash flow was up over the prior year due to
effective working capital management including management of new and in-service
inventory levels, a continued focus on timely collection of accounts
receivable and timing of payments for various liabilities. Working capital at March 27, 2004 was $53.5 million, down 28.9% 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 $38.9 million
in the first nine months of fiscal 2004 and $100.5 million in the same period
of fiscal 2003. In both fiscal 2004 and 2003, cash was primarily used for
acquisition of business assets and property, plant and equipment additions. Financing Activities.Cash used for financing activities was $29.8 million in
the first nine months of fiscal 2004 and cash provided by financing activities
was $31.0 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 $1.1 million during the first nine
months of fiscal 2004. We maintain a $325.0 million term loan and revolving credit facility. On
December 17, 2003 the credit facility was amended to revise certain restrictive
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 March 27, 2004, 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. 16




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##### Table of Contents



The following table summarizes our fixed cash obligations as of March 27, 2004
for the fiscal years ending June (in thousands): 2009 and2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    There-Remaining
    
    2005
    
    2006
    
    2007
    
    2008
    
    after
    
    TotalVariable rate term loan and
revolving credit facility
    
    $
    2,813
    
    
    $
    15,000
    
    
    $
    18,750
    
    
    $
    22,500
    
    
    $
    105,000
    
    
    $
    
    
    
    $
    164,063Fixed rate term loan
    
    
    
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    21,428
    
    
    
    50,000Other debt arrangements, including
capital leases
    
    
    1,863
    
    
    
    1,734
    
    
    
    531
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    4,157Operating leases
    
    
    3,473
    
    
    
    12,920
    
    
    
    10,347
    
    
    
    8,475
    
    
    
    6,633
    
    
    
    4,121
    
    
    
    45,969Total contractual cash obligations
    
    $
    8,149
    
    
    $
    36,797
    
    
    $
    36,771
    
    
    $
    38,147
    
    
    $
    118,776
    
    
    $
    25,549
    
    
    $
    264,189
 Also, at March 27, 2004, we had stand-by letters of credit totaling $17.6
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 March 27, 2004, we had available cash on hand of $24.8 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 third
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. 17




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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. None of these legal actions are
expected to have a material adverse effect on our results of operations or
financial position. Recent Accounting Pronouncements In December 2003, the Financial Accounting Standards Board revised SFAS No.
132, Employers Disclosures About Pensions and Other Postretirement Benefits
(SFAS 132). The FASBs revision of Statement No. 132 requires new annual
disclosures about the types of plan assets, investment strategy, measurement
date, plan obligations and cash flows as well as the components of the net
periodic benefit cost recognized in interim periods. We adopted the
disclosure requirements of SFAS 132 (revised) beginning with the third quarter
ended March 27, 2004. 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 18




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##### Table of Contents



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 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 third quarter of fiscal 2004 by approximately $0.3 million. This
estimated exposure considers the mitigating effects of interest rate swap
agreements outstanding at March 27, 2004 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. 19




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PART II OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 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 20




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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:
    
    May 6, 2004
    
    
    
    By:
    
    /s/ Jeffrey L. WrightJeffrey L. WrightSenior Vice President, Chief
Financial Officer and
Secretary(Principal Financial Officer)By:
    
    /s/ Michael F. WoodardMichael F. WoodardController(Principal Accounting Officer)
 21