##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 29, 2008
 Commission file number 0-4063
 G&K SERVICES, INC.
  MINNESOTA
    
    41-0449530(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 (952) 912-5500
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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G&K Services, Inc.
Form 10-Q
 Table of Contents
 PAGEPART IItem 1.
    
    Financial StatementsConsolidated Condensed Balance Sheets as of
March 29, 2008 and June 30, 2007
    
    
    3Consolidated Condensed Statements of Operations for the three and nine
months ended March 29, 2008 and March 31, 2007
    
    
    4Consolidated Condensed Statements of Cash Flows for the nine
months ended March 29, 2008 and March 31, 2007
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART IIItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 6.
    
    Exhibits
    
    
    21Signatures
    
    
    22302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
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PART I
 FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 G&K Services, Inc. and Subsidiaries
 March 29,
    
    
    June 30,2008
    
    
    2007(In thousands)
    
    (Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    18,038
    
    
    $
    22,759Accounts receivable, less allowance for doubtful
accounts of $4,271 and $3,405
    
    
    112,754
    
    
    
    98,276Inventories, net
    
    
    139,073
    
    
    
    140,780Other current assets
    
    
    20,576
    
    
    
    14,912Total current assets
    
    
    290,441
    
    
    
    276,727Property, Plant and Equipment, net
    
    
    253,566
    
    
    
    255,996Goodwill
    
    
    434,414
    
    
    
    380,070Other Assets
    
    
    75,170
    
    
    
    79,021$
    1,053,591
    
    
    $
    991,814LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    27,873
    
    
    $
    21,911Accrued expenses
    
    
    80,579
    
    
    
    68,927Deferred income taxes
    
    
    7,400
    
    
    
    6,568Current maturities of long-term debt
    
    
    7,837
    
    
    
    65,838Total current liabilities
    
    
    123,689
    
    
    
    163,244Long-Term Debt, net of Current Maturities
    
    
    281,474
    
    
    
    149,005Deferred Income Taxes
    
    
    28,443
    
    
    
    34,298Accrued Income Taxes  Long Term
    
    
    12,319
    
    
    
    Other Noncurrent Liabilities
    
    
    43,749
    
    
    
    53,279Stockholders Equity
    
    
    563,917
    
    
    
    591,988$
    1,053,591
    
    
    $
    991,814
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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 G&K Services, Inc. and Subsidiaries
 For the Three Months Ended
    
    
    For the Nine Months EndedMarch 29,
    
    
    March 31,
    
    
    March 29,
    
    
    March 31,(In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesRental operations
    
    $
    233,001
    
    
    $
    211,842
    
    
    $
    691,277
    
    
    $
    628,273Direct sales
    
    
    18,140
    
    
    
    23,400
    
    
    
    58,918
    
    
    
    60,861Total revenues
    
    
    251,141
    
    
    
    235,242
    
    
    
    750,195
    
    
    
    689,134Operating ExpensesCost of rental operations*
    
    
    148,870
    
    
    
    136,951
    
    
    
    439,927
    
    
    
    403,436Cost of direct sales*
    
    
    14,367
    
    
    
    16,923
    
    
    
    43,593
    
    
    
    44,579Selling and administrative
    
    
    53,770
    
    
    
    50,110
    
    
    
    160,559
    
    
    
    150,031Depreciation and amortization
    
    
    12,579
    
    
    
    11,326
    
    
    
    36,993
    
    
    
    33,776Total operating expenses
    
    
    229,586
    
    
    
    215,310
    
    
    
    681,072
    
    
    
    631,822Income from Operations
    
    
    21,555
    
    
    
    19,932
    
    
    
    69,123
    
    
    
    57,312Interest expense
    
    
    3,828
    
    
    
    3,647
    
    
    
    11,776
    
    
    
    10,526Income before Income Taxes
    
    
    17,727
    
    
    
    16,285
    
    
    
    57,347
    
    
    
    46,786Provision for income taxes
    
    
    7,080
    
    
    
    4,136
    
    
    
    21,899
    
    
    
    15,801Net Income
    
    $
    10,647
    
    
    $
    12,149
    
    
    $
    35,448
    
    
    $
    30,985Basic weighted average number
of shares outstanding
    
    
    19,621
    
    
    
    21,304
    
    
    
    20,452
    
    
    
    21,227Basic Earnings per Common Share
    
    $
    0.54
    
    
    $
    0.57
    
    
    $
    1.73
    
    
    $
    1.46Diluted weighted average number
of shares outstanding
    
    
    19,742
    
    
    
    21,445
    
    
    
    20,590
    
    
    
    21,394Diluted Earnings per Common Share
    
    $
    0.54
    
    
    $
    0.57
    
    
    $
    1.72
    
    
    $
    1.45Dividends per share
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.15
    
    
    $
    0.12
  *  Excludes depreciation and intangible amortization  4




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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 G&K Services, Inc. and Subsidiaries
 For the Nine Months EndedMarch 29,
    
    
    March 31,(In thousands)
    
    2008
    
    
    2007Operating Activities:Net income
    
    $
    35,448
    
    
    $
    30,985Adjustments to reconcile net income to net cash
provided by operating activities -Depreciation and amortization
    
    
    36,993
    
    
    
    33,776Other Adjustments
    
    
    1,829
    
    
    
    3,340Changes in current operating items, exclusive of acquisitions
    
    
    (5,504
    )
    
    
    (18,772
    )Other assets and liabilities
    
    
    4,211
    
    
    
    1,862Net cash provided by operating activities
    
    
    72,977
    
    
    
    51,191Investing Activities:Property, plant and equipment additions, net
    
    
    (16,576
    )
    
    
    (23,214
    )Acquisitions of business assets, net
    
    
    (63,687
    )
    
    
    (47,543
    )Purchase of investments, net
    
    
    (2,521
    )
    
    
    (2,043
    )Net cash used for investing activities
    
    
    (82,784
    )
    
    
    (72,800
    )Financing Activities:Repayments of long-term debt
    
    
    (7,341
    )
    
    
    (7,579
    )Proceeds from short-term borrowings, net
    
    
    81,801
    
    
    
    26,446Cash dividends paid
    
    
    (3,082
    )
    
    
    (2,575
    )Sale of common stock
    
    
    4,220
    
    
    
    3,004Repurchase of common stock shares
    
    
    (70,735
    )
    
    
    Net cash provided by financing activities
    
    
    4,863
    
    
    
    19,296Decrease in Cash and Cash Equivalents
    
    
    (4,944
    )
    
    
    (2,313
    )Effect of Exchange Rates on Cash
    
    
    223
    
    
    
    (619
    )Cash and Cash Equivalents:Beginning of period
    
    
    22,759
    
    
    
    19,690End of period
    
    $
    18,038
    
    
    $
    16,758
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1.
    
    Basis of Presentation for Interim Financial StatementsThe consolidated condensed financial statements included herein, except for the June 30,
2007 balance sheet which was derived from the audited consolidated financial statements for
the fiscal year ended June 30, 2007, have been prepared by us, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. In our opinion, the
accompanying unaudited consolidated condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly our financial
position as of March 29, 2008, and the results of our operations for the three and nine
months ended and our cash flows for the nine months ended March 29, 2008 and March 31, 2007.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although we believe 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 our latest report on
Form 10-K.The accounting policies we follow are set forth in Note 1 in our Annual Report on Form 10-K
for the fiscal year ended June 30, 2007.The results of operations for the three and nine month periods ended March 29, 2008 and
March 31, 2007 are not necessarily indicative of the results to be expected for the full
year.2.
    
    Adoption of New Accounting PronouncementsOn July 13, 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes  an Interpretation of FASB
Statement No. 109, which fundamentally changes the way that we are required to account for
our uncertain tax positions for financial accounting purposes and is effective for our
fiscal year beginning July 1, 2007. FIN 48 prescribes rules regarding how we should
recognize, measure and disclose in our financial statements the tax positions that we have
taken or will take on our tax return that are reflected in measuring current or deferred
income tax assets and liabilities for interim or annual periods. Differences between tax
positions taken in a tax return and amounts recognized in the financial statements will
generally result in an increase in a liability for income taxes payable, or a reduction in a
deferred tax asset or an increase in a deferred tax liability.As a result of the implementation of FIN 48, we recognized a $1.6 million decrease to the
beginning balance of retained earnings on our balance sheet. At the adoption date of July
1, 2007, we had $13.7 million of unrecognized tax benefits, of which $4.2 million would
favorably affect our effective tax rate in any future periods, if recognized. At March 29,
2008, we had $16.0 million of unrecognized tax benefits, of which $4.6 million would
favorably affect our effective tax rate in any future periods, if recognized.We or one or more of our subsidiaries file income tax returns in the U.S., Canada and
multiple state jurisdictions. We have substantially concluded on all U.S. Federal and
Canadian income tax examinations through fiscal years 2004 and 2003, respectively. With few
exceptions, we are no longer subject to state and local income tax examinations for years
before fiscal year 2003.We continue to recognize interest and penalties related to uncertain tax positions as a
component of income tax expense. Upon adoption of FIN 48, we had $1.8 million of accrued
interest and penalties related to uncertain tax positions, of which $1.4 million would
favorably affect our effective tax rate in any future periods, if recognized. At March 29,
2008, we had $2.6 million of accrued interest and penalties related to uncertain tax
positions, of which $1.7 million would favorably affect our effective tax rate in any future
periods, if recognized.We are not aware of any tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next 12 months.
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Accounting Pronouncements Not Yet AdoptedIn September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
157, Fair Value Measurement (SFAS 157). SFAS 157 provides a definition of fair value,
provides guidance for measuring fair value in U.S. GAAP and expands disclosures about fair
value measurement. SFAS 157 will be effective at the beginning of fiscal 2009.In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at
fair value. SFAS 159 will be effective at the beginning of fiscal 2009.In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141
(revised 2007), Business Combinations (SFAS 141(R)). SFAS 141(R) will change how business
acquisitions are accounted for and will impact financial statements both on the acquisition
date and in subsequent periods. SFAS 141(R) will be effective at the beginning of fiscal
2010.We are currently evaluating the impact of SFAS 157, SFAS 159 and SFAS 141(R) on our
consolidated financial statements.3.
    
    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 similarly 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 non-vested restricted stock, using the treasury stock method.
 Three Months Ended
    
    
    Nine Months EndedMarch 29,
    
    
    March 31,
    
    
    March 29,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average number of common
shares outstanding used in computation
of basic earnings per share
    
    
    19.6
    
    
    
    21.3
    
    
    
    20.5
    
    
    
    21.2Weighted average effect of non-vested
restricted stock grants and assumed
exercise of options
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.2Shares used in computation of
diluted earnings per share
    
    
    19.7
    
    
    
    21.4
    
    
    
    20.6
    
    
    
    21.4
 Potential common shares related to our outstanding stock options and restricted stock grants
of 1.3 million and 0.8 million for the three months ended March 29, 2008 and March 31, 2007,
respectively, and 0.9 million and 0.6 million for the nine months ended March 29, 2008 and
March 31, 2007, respectively, were excluded from the computation of diluted earnings per
share. Inclusion of these shares would have been anti-dilutive as the exercise price of
these shares exceeded their market value.
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4.
    
    Comprehensive IncomeFor the three and nine month periods ended March 29, 2008 and March 31, 2007, the components
of comprehensive income were as follows:
 Three Months Ended
    
    
    Nine Months EndedMarch 29,
    
    
    March 31,
    
    
    March 29,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    10.6
    
    
    $
    12.1
    
    
    $
    35.4
    
    
    $
    31.0Other comprehensive income:Foreign currency translation
adjustments, net of tax
    
    
    (6.2
    )
    
    
    1.5
    
    
    
    6.4
    
    
    
    (5.3
    )Net unrealized holding gain (loss) on
derivative financial instruments,
net of tax
    
    
    (2.2
    )
    
    
    0.5
    
    
    
    (4.1
    )
    
    
    (1.0
    )Comprehensive income
    
    $
    2.2
    
    
    $
    14.1
    
    
    $
    37.7
    
    
    $
    24.7
 5.
    
    InventoriesThe components of inventory as of March 29, 2008 and June 30, 2007 are as follows:
 March 29,
    
    
    June 30,2008
    
    
    2007Raw Materials
    
    $
    5.2
    
    
    $
    5.5Work in Process
    
    
    3.8
    
    
    
    4.4Finished Goods
    
    
    49.0
    
    
    
    52.9New Goods
    
    $
    58.0
    
    
    $
    62.8Merchandise In Service
    
    $
    81.1
    
    
    $
    78.0Total Inventories
    
    $
    139.1
    
    
    $
    140.8
 6.
    
    Goodwill and Intangible AssetsGoodwill includes the following:
 United States
    
    
    Canada
    
    
    TotalBalance as of June 30, 2007
    
    $
    315.8
    
    
    $
    64.3
    
    
    $
    380.1Acquisitions, net of purchase
accounting adjustments
    
    
    51.6
    
    
    
    
    
    
    
    51.6Currency exchange and other
    
    
    
    
    
    
    2.7
    
    
    
    2.7Balance as of March 29, 2008
    
    $
    367.4
    
    
    $
    67.0
    
    
    $
    434.4
 The net increase in goodwill includes an increase of approximately $51.6 million related to
acquisitions in fiscal 2008 and an increase of approximately $2.7 million resulting from a
change in foreign currency exchange rates.
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Our other intangible assets, which are included in other assets on the consolidated
condensed balance sheet, are as follows:
 March 29,
    
    
    June 30,2008
    
    
    2007Other Intangible Assets:Customer Contracts
    
    $
    119.3
    
    
    $
    111.7Accumulated Amortization
    
    
    (76.8
    )
    
    
    (68.5
    )Net
    
    $
    42.5
    
    
    $
    43.2Non-Competition Agreements
    
    $
    11.1
    
    
    $
    11.1Accumulated Amortization
    
    
    (9.9
    )
    
    
    (9.4
    )Net
    
    $
    1.2
    
    
    $
    1.7
 The customer contracts include the combined value of the written service agreements and the
related customer relationship.Amortization expense was $8.4 million and $8.1 million for the nine months ended March 29,
2008 and March 31, 2007, respectively. Estimated amortization expense for each of the next
five fiscal years based on the intangible assets as of March 29, 2008 is as follows:
 2008 remaining
    
    $
    2.62009
    
    
    7.62010
    
    
    7.42011
    
    
    6.72012
    
    
    6.02013
    
    
    4.5
 7.
    
    Long-Term DebtWe maintain a $325.0 million unsecured revolving credit facility which expires in August
2010. As of March 29, 2008, borrowings outstanding under the revolving credit facility were
$146.3 million. The unused portion of the revolver may be used for general corporate
purposes, acquisitions, share repurchases, working capital needs and to provide up to $50.0
million in letters of credit. As of March 29, 2008, letters of credit outstanding against
the revolver were $21.1 million.Borrowings under the revolving credit facility bear interest at 0.55% to 1.50% over the
London Interbank Offered Rate (LIBOR), or the Canadian prime rate for Canadian borrowings,
based on a leverage ratio calculated on a quarterly basis. Advances outstanding as of March
29, 2008 bear interest at a rate of 3.99%. We also pay a fee on the unused daily balance of
the revolving credit facility based on a leverage ratio calculated on a quarterly basis.We have issued $50.0 million of 8.4% unsecured fixed rate private placement notes with
certain institutional investors. The 10-year notes have a nine-year average life with a
final maturity on July 20, 2010. Beginning on July 20, 2004, and annually thereafter to
maturity, we will repay $7.1 million of the principal amount at par. As of March 29, 2008,
the outstanding balance was $21.4 million.We maintain a loan agreement whereby the lender will make loans to us on a revolving basis
up to $60.0 million. This agreement has a termination date of October 21, 2010. We are
required to pay interest on outstanding loan balances at a rate per annum of one month LIBOR
plus a margin or, if the lender is funding the loan through the issuance of commercial paper
to third parties, at a rate per annum equal to a margin plus the average annual interest
rate for such commercial paper. In connection with the loan agreement, we granted a first
priority security interest in certain of our U.S. based receivables. The amount of funds
available under the loan agreement will be based on the amount of eligible receivables less
various reserve requirements. We used the net proceeds of this loan to reduce
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indebtedness under our unsecured credit facilities. At March 29, 2008, there was $45.0
million outstanding under the agreement at a current interest rate of 3.28%.We have $75.0 million of unsecured variable rate private placement notes. The notes bear
interest at 0.60% over LIBOR and are scheduled to mature on June 30, 2015. The notes do not
require principal payments until maturity. The interest rate and interest payments are
reset and paid on a quarterly basis. As of March 29, 2008, the outstanding balance of the
notes was $75.0 million at a current rate of 5.46%.8.
    
    Share-Based CompensationWe grant share-based awards, including restricted stock and options to purchase our common
stock. Stock option grants are for a fixed number of shares to employees and directors with
an exercise price equal to the fair value of the shares at the date of grant. Share-based
compensation for awards is recognized in the consolidated statements of operations on a
straight-line basis over the requisite service period. The amortization of share-based
compensation reflects estimated forfeitures adjusted for actual forfeiture experiences. Our
estimated forfeiture rate is reviewed and updated on an annual basis. As share-based
compensation expense is recognized, a deferred tax asset is recorded that represents an
estimate of the future tax deduction from the exercise of stock options or release of
restrictions on the restricted stock. At the time share-based awards are exercised,
cancelled, expire or restrictions lapse, we recognize adjustments to income tax expense.
Total compensation expense related to share-based awards was $1.8 million and $1.5 million
for the three months ended and $4.4 million and $3.6 million for the nine months ended March
29, 2008 and March 31, 2007. The number of options that have been exercised and restricted
stock that vested since June 30, 2007, was 0.2 million shares.9.
    
    Employee Benefit PlansThe components of net periodic pension cost are as follows for the three months ended March
29, 2008 and March 31, 2007:
 Supplemental ExecutivePension Plan
    
    
    Retirement PlanThree Months Ended
    
    
    Three Months EndedMarch 29,
    
    
    March 31,
    
    
    March 29,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest cost
    
    $
    0.8
    
    
    $
    0.8
    
    
    $
    0.2
    
    
    $
    0.2Expected return on assets
(Favorable)/Unfavorable
    
    
    (0.9
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    Net periodic pension (income) cost
    
    $
    (0.1
    )
    
    $
    0.1
    
    
    $
    0.2
    
    
    $
    0.2
 The components of net periodic pension cost are as follows for the nine months ended March
29, 2008 and March 31, 2007:
 Supplemental ExecutivePension Plan
    
    
    Retirement PlanNine Months Ended
    
    
    Nine Months EndedMarch 29,
    
    
    March 31,
    
    
    March 29,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    
    
    
    $
    1.5
    
    
    $
    
    
    
    $
    0.3Interest cost
    
    
    2.4
    
    
    
    2.3
    
    
    
    0.5
    
    
    
    0.5Expected return on assets
(Favorable)/Unfavorable
    
    
    (2.8
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    Net periodic pension (income) cost
    
    $
    (0.4
    )
    
    $
    1.7
    
    
    $
    0.5
    
    
    $
    0.8
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10.
    
    Segment InformationWe have two operating segments, United States and Canada, which have been identified as
components of our Company that are reviewed by our Chief Executive Officer to determine
resource allocation and evaluate performance. Each operating segment derives revenues
from the branded 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 restroom products. No single customer accounted for more than 1.5% of
our consolidated revenue.Corporate expenses are allocated to the segments based on segment revenue. We evaluate
performance based on income from operations. Financial information by geographic
location for the three and nine month periods ended March 29, 2008 and March 31, 2007 is
as follows:
 UnitedFor the Three Months Ended
    
    States
    
    
    Canada
    
    
    TotalThird Quarter Fiscal Year 2008:Revenues
    
    $
    204.8
    
    
    $
    46.3
    
    
    $
    251.1Income from operations
    
    
    14.5
    
    
    
    7.1
    
    
    
    21.6Depreciation and amortization
expense
    
    
    10.9
    
    
    
    1.7
    
    
    
    12.6Third Quarter Fiscal Year 2007:Revenues
    
    $
    195.8
    
    
    $
    39.4
    
    
    $
    235.2Income from operations
    
    
    13.8
    
    
    
    6.1
    
    
    
    19.9Depreciation and amortization
expense
    
    
    9.8
    
    
    
    1.5
    
    
    
    11.3
 UnitedFor the Nine Months Ended
    
    States
    
    
    Canada
    
    
    TotalFiscal Year 2008:Revenues
    
    $
    613.4
    
    
    $
    136.8
    
    
    $
    750.2Income from operations
    
    
    44.8
    
    
    
    24.3
    
    
    
    69.1Depreciation and amortization
expense
    
    
    31.7
    
    
    
    5.3
    
    
    
    37.0Fiscal Year 2007:Revenues
    
    $
    570.1
    
    
    $
    119.0
    
    
    $
    689.1Income from operations
    
    
    38.3
    
    
    
    19.0
    
    
    
    57.3Depreciation and amortization
expense
    
    
    29.0
    
    
    
    4.8
    
    
    
    33.8
 For the nine months ended March 29, 2008, the Canada segment results were positively
impacted by $0.7 million resulting from the net effect of a gain on the sale of
property, offset by expenses associated with fires at two of our production facilities.
The net Canadian impact was offset by expenses in our United States segment during the
nine months ended March 29, 2008, which included severance associated with the
restructuring of our manufacturing operations and certain management positions, an
increase in our inventory reserves and expenses associated with certain legal matters
all of which occurred in the first quarter of fiscal 2008. The net effect of these items
on the United States segment was approximately $1.7 million of expense for the nine
months ended March 29, 2008.11.
    
    Stock RepurchaseIn May 2007, our Board of Directors authorized the repurchase of up to $100.0 million of G&K
Services outstanding common stock. For the three months ended March 29, 2008, we purchased
a total of 621,250 shares totaling $23.5 million and for the nine months ended March 29,
2008, we purchased 1,791,735 shares totaling $69.7 million. Cash used for the purchase of
shares totaled $23.5 million for the three months ended and $70.7 million for the nine
months ended March 29, 2008. The cash used during the nine month period ending March 29,
2008 included $1.0 million for
shares repurchased in the fourth quarter of fiscal year 2007 but not paid until July 2,
2007. As of March 29, 2008, we had $21.4 million remaining under this authorization.
 11




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
      Critical Accounting Policies
   12




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Results of Operations
  Three Months
    
    Nine Months
    
    PercentageEnded
    
    Ended
    
    ChangeThree Months
    
    Nine MonthsMarch 29,
    
    March 31,
    
    March 29,
    
    March 31,
    
    FY 2008
    
    FY 20082008
    
    2007
    
    2008
    
    2007
    
    vs. FY 2007
    
    vs. FY 2007Revenues:Rental
    
    
    92.8
    %
    
    
    90.1
    %
    
    
    92.1
    %
    
    
    91.2
    %
    
    
    10.0
    %
    
    
    10.0
    %Direct
    
    
    7.2
    
    
    
    9.9
    
    
    
    7.9
    
    
    
    8.8
    
    
    
    (22.5
    )
    
    
    (3.2
    )Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    6.8
    
    
    
    8.9Expenses:Cost of rental sales
    
    
    63.9
    
    
    
    64.6
    
    
    
    63.6
    
    
    
    64.2
    
    
    
    8.7
    
    
    
    9.0Cost of direct sales
    
    
    79.2
    
    
    
    72.3
    
    
    
    74.0
    
    
    
    73.2
    
    
    
    (15.1
    )
    
    
    (2.2
    )Total cost of sales
    
    
    65.0
    
    
    
    65.4
    
    
    
    64.5
    
    
    
    65.0
    
    
    
    6.1
    
    
    
    7.9Selling and administrative
    
    
    21.4
    
    
    
    21.3
    
    
    
    21.4
    
    
    
    21.8
    
    
    
    7.3
    
    
    
    7.0Depreciation and
amortization
    
    
    5.0
    
    
    
    4.8
    
    
    
    4.9
    
    
    
    4.9
    
    
    
    11.1
    
    
    
    9.5Income from operations
    
    
    8.6
    
    
    
    8.5
    
    
    
    9.2
    
    
    
    8.3
    
    
    
    8.1
    
    
    
    20.6Interest expense
    
    
    1.5
    
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.5
    
    
    
    5.0
    
    
    
    11.9Income before income taxes
    
    
    7.1
    
    
    
    6.9
    
    
    
    7.6
    
    
    
    6.8
    
    
    
    8.9
    
    
    
    22.6Provision for income taxes
    
    
    2.9
    
    
    
    1.7
    
    
    
    2.9
    
    
    
    2.3
    
    
    
    71.2
    
    
    
    38.6Net income
    
    
    4.2
    %
    
    
    5.2
    %
    
    
    4.7
    %
    
    
    4.5
    %
    
    
    (12.4
    )%
    
    
    14.4
    %
 Three months ended March 29, 2008 compared to three months ended March 31, 2007
 Revenues
   Cost of Rental
 13




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Cost of Direct Sales
 Selling and Administrative
 Depreciation and Amortization
 Interest Expense
 Provision for Income Taxes
 Nine months ended March 29, 2008 compared to nine months ended March 31, 2007
 Revenues
   Cost of Rental and Direct Sale  Selling and Administrative
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Depreciation and Amortization.
 Interest Expense
 Provision for Income Taxes
 Liquidity, Capital Resources and Financial Condition
   Operating Activities.
 Investing Activities.
 Financing Activities.
    15




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Cash Obligations.
   Off Balance Sheet Arrangements
  Pension Obligations
    16




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Litigation
    Share-Based Compensation
  17




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Adoption of New Accounting Pronouncements
      Accounting Pronouncements Not Yet Adopted
     Cautionary Statements Regarding Forward-Looking Statements
  18




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Interest Rate Risk
  Energy Cost Risk
  Foreign Currency Exchange Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
   19




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PART II
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    
 ITEM 1A. RISK FACTORS
  20




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Maximum NumberTotal Number of
    
    (or ApproximateShares (or Units)
    
    Dollar Value) ofPurchased as
    
    Shares (or Units)Total Number
    
    Average
    
    Part of Publicly
    
    that May Yet beof Shares
    
    Price Paid
    
    Announced
    
    Purchased Under(or Units)
    
    per Share
    
    Plans or
    
    the Plans orPeriod
    
    Purchased
    
    (or Unit)
    
    Programs
    
    ProgramsMonth #1
(Fiscal month
beginning December
30, 2007 and ending 
February 2, 2008)
    
    
    576,150
    
    
    $
    37.73
    
    
    
    576,150
    
    
    $
    23,135,383Month #2
(Fiscal month
beginning February
3, 2008 and ending 
March 1, 2008)
    
    
    45,100
    
    
    $
    38.85
    
    
    
    45,100
    
    
    $
    21,381,867Month #3
(Fiscal month
beginning March 2,
2008 and ending 
March 29, 2008)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
  
 ITEM 6. EXHIBITS
       21




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G&K SERVICES, INC.
(Registrant)Date: May 2, 2008
    By:
    /s/ Jeffrey L. WrightJeffrey L. WrightSenior Vice President and
Chief Financial Officer
(Principal Financial Officer) By:
    /s/ Thomas J. DietzThomas J. DietzVice President and Controller
(Principal Accounting Officer) 22