##### Table of Contents



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 October 1, 2005 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.)
 
 
  þ o
  þ o
  o þ
  CLASS A
Common Stock, par value $0.50 per share
    
    Outstanding November 1, 2005
19,942,032CLASS B
Common Stock, par value $0.50 per share
    
    Outstanding November 1, 2005
1,275,829




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G&K Services, Inc.
 Form 10-Q
 Table of Contents
 PAGEPART IItem 1.
    
    Financial StatementsConsolidated Condensed Balance Sheets as of October 1, 2005 and July 2, 2005
    
    
    3Consolidated Statements of Operations for the three months ended October 1, 2005 and October 2, 2004
    
    
    4Consolidated Condensed Statements of Cash Flows for the three months ended October 1, 2005 and October 2, 2004
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20PART IIItem 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    21Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    21Signatures
    
    
    
    
    23Certification of CEO Pursuant to Section 302Certification of CFO Pursuant 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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PART I
FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED CONDENSED BALANCE SHEETS  G&K Services, Inc. and Subsidiaries
 October 1,
    
    
    July 2,2005
    
    
    2005(In thousands)
    
    (Unaudited)
    
    
    (Restated)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    18,331
    
    
    $
    15,345Accounts receivable, less allowance for doubtful
accounts of $3,270 and $2,890
    
    
    87,268
    
    
    
    83,459Inventories
    
    
    123,733
    
    
    
    121,120Prepaid expenses
    
    
    16,922
    
    
    
    16,587Total current assets
    
    
    246,254
    
    
    
    236,511Property, Plant and Equipment, net
    
    
    246,087
    
    
    
    243,307Goodwill, net
    
    
    341,316
    
    
    
    338,701Other Assets
    
    
    84,592
    
    
    
    84,650$
    918,249
    
    
    $
    903,169LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    24,769
    
    
    $
    25,695Accrued expenses
    
    
    69,952
    
    
    
    81,523Deferred income taxes
    
    
    9,226
    
    
    
    8,971Current maturities of long-term debt
    
    
    7,882
    
    
    
    26,537Total current liabilities
    
    
    111,829
    
    
    
    142,726Long-Term Debt, net of Current Maturities
    
    
    233,430
    
    
    
    210,462Deferred Income Taxes
    
    
    31,144
    
    
    
    30,887Other Noncurrent Liabilities
    
    
    41,032
    
    
    
    37,651Stockholders Equity
    
    
    500,814
    
    
    
    481,443$
    918,249
    
    
    $
    903,169
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CONSOLIDATED STATEMENTS OF OPERATIONS
 G&K Services, Inc. and Subsidiaries
  For the Three Months EndedOctober 2,October 1,
    
    
    2004(In thousands, except per share data)
    
    2005
    
    
    (Restated)RevenuesRental operations
    
    $
    194,068
    
    
    $
    176,291Direct sales
    
    
    13,880
    
    
    
    6,141Total revenues
    
    
    207,948
    
    
    
    182,432Operating ExpensesCost of rental operations
    
    
    124,506
    
    
    
    111,009Cost of direct sales
    
    
    10,201
    
    
    
    4,896Selling and administrative
    
    
    43,745
    
    
    
    39,314Depreciation and amortization
    
    
    10,599
    
    
    
    10,158Total operating expenses
    
    
    189,051
    
    
    
    165,377Income from Operations
    
    
    18,897
    
    
    
    17,055Interest expense
    
    
    3,015
    
    
    
    2,548Income before Income Taxes
    
    
    15,882
    
    
    
    14,507Provision for income taxes
    
    
    5,511
    
    
    
    5,440Net Income
    
    $
    10,371
    
    
    $
    9,067Basic weighted average number
of shares outstanding
    
    
    20,992
    
    
    
    20,825Basic Earnings per Common Share
    
    $
    0.49
    
    
    $
    0.44Diluted weighted average number
of shares outstanding
    
    
    21,148
    
    
    
    21,066Diluted Earnings per Common Share
    
    $
    0.49
    
    
    $
    0.43Dividends per share
    
    $
    0.0175
    
    
    $
    0.0175
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 G&K Services, Inc. and Subsidiaries
  For the Three Months EndedOctober 2,October 1,
    
    
    2004(In thousands)
    
    2005
    
    
    (Restated)Operating Activities:Net income
    
    $
    10,371
    
    
    $
    9,067Adjustments to reconcile net income to net cash
provided by operating activities -Depreciation and amortization
    
    
    10,599
    
    
    
    10,158Stock-based compensation
    
    
    1,007
    
    
    
    972Deferred income taxes
    
    
    394
    
    
    
    285Changes in current operating items, exclusive
of acquisitions
    
    
    (15,210
    )
    
    
    (6,307
    )Other assets and liabilities
    
    
    148
    
    
    
    490Net cash provided by operating activities
    
    
    7,309
    
    
    
    14,665Investing Activities:Property, plant and equipment additions, net
    
    
    (8,506
    )
    
    
    586Acquisitions of business assets and other
    
    
    (832
    )
    
    
    (19,864
    )Net cash used for investing activities
    
    
    (9,338
    )
    
    
    (19,278
    )Financing Activities:Repayments of long-term debt
    
    
    (7,309
    )
    
    
    (12,877
    )Proceeds from short-term borrowings, net
    
    
    11,600
    
    
    
    1,100Cash dividends paid
    
    
    (369
    )
    
    
    (365
    )Sale of common stock
    
    
    658
    
    
    
    1,035Net cash provided by (used for) financing activities
    
    
    4,580
    
    
    
    (11,107
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    2,551
    
    
    
    (15,720
    )Effect of Exchange Rates on Cash
    
    
    435
    
    
    
    578Cash and Cash Equivalents:Beginning of period
    
    
    15,345
    
    
    
    26,931End of period
    
    $
    18,331
    
    
    $
    11,789
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The consolidated condensed financial statements included herein, except for the July 2, 2005
balance sheet which was derived from the audited consolidated financial statements for the
fiscal year ended July 2, 2005, 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 October
1, 2005, and the results of its operations and its cash flows for the three months ended
October 1, 2005 and October 2, 2004. 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-month periods ended October 1, 2005 and October 2,
2004 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 July 2, 2005.Nature of BusinessG&K Services, Inc. (the Company) is a market leader in providing branded identity apparel
and facility services programs that enhance image and safety in the workplace. The Company
serves a wide variety of industrial, service and high-technology companies providing them
with rented uniforms or purchase options as well as facility services products 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. The Company has two operating segments, 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.Principles of ConsolidationThe accompanying consolidated condensed financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. Significant intercompany
balances and transactions have been eliminated in consolidation.Revenue RecognitionThe Companys rental operations business is largely based on written service agreements
whereby it agrees 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, the Company recognizes revenue from rental
operations in the period in which the services are provided. Revenue from rental operations
also includes billings to customers for lost or abused merchandise. Direct sale revenue is
recognized in the period in which the product is shipped.
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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 balance 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 sheets 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 generally recorded based on fixed interest rates.The Company also uses derivative financial instruments to manage the risk that changes in
gasoline cost will affect the future financial results of the Company. The Company
purchases gasoline futures contracts to effectively hedge a portion of anticipated actual
gasoline purchases. The gasoline futures 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) or in the
statements of operations depending on the effectiveness of the hedge. Upon settlement of
each contract, the actual gain or loss is reflected in gasoline expense.The Company may periodically hedge firm 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 first quarter of fiscal 2006 or 2005.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 nonvested restricted stock, using the treasury stock method.
 Three Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004Weighted average number of common
shares outstanding used in computation
of basic earning per share
    
    
    20,992
    
    
    
    20,825Weighted
average effect of nonvested restricted
stock grants and assumed
exercise of options
    
    
    156
    
    
    
    241Shares used in computation of
diluted earnings per share
    
    
    21,148
    
    
    
    21,066
 Potential common shares of 448,000 and 385,000 related to the Companys outstanding
stock options and restricted stock grants were excluded from the computation of diluted
earnings per share for the three months ended October 1, 2005 and October 2, 2004,
respectively. Inclusion of these shares would have been anti-dilutive as the exercise price
of these shares exceeded market value.
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2.
    
    Comprehensive IncomeFor the three-month periods ended October 1, 2005 and October 2, 2004, the components of
comprehensive income were as follows:
 Three Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004Net income
    
    $
    10,371
    
    
    $
    9,067Other comprehensive incomeForeign currency translation
adjustments, net of tax
    
    
    7,034
    
    
    
    4,958Net unrealized holding gain on
derivative financial
instruments, net of tax
    
    
    672
    
    
    
    2Comprehensive income
    
    $
    18,077
    
    
    $
    14,027
 3.
    
    Goodwill and Intangible AssetsThe changes in the carrying amount of goodwill for the three months ended October 1, 2005,
by operating segment, are as follows:
 United States
    
    
    Canada
    
    
    TotalBalance as of July 2, 2005
    
    $
    286,313
    
    
    $
    52,388
    
    
    $
    338,701Other, primarily foreign
currency translation
    
    
    (84
    )
    
    
    2,699
    
    
    
    2,615Balance as of October 1, 2005
    
    $
    286,229
    
    
    $
    55,087
    
    
    $
    341,316
 Information regarding the Companys other intangible assets, which are included in
other assets on the consolidated condensed balance sheet, are as follows:
 As of October 1, 2005Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer contracts
    
    $
    102,770
    
    
    $
    50,519
    
    
    $
    52,251Non-competition agreements
    
    
    10,861
    
    
    
    7,610
    
    
    
    3,251Total
    
    $
    113,631
    
    
    $
    58,129
    
    
    $
    55,502
 As of July 2, 2005Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer contracts
    
    $
    102,021
    
    
    $
    47,821
    
    
    $
    54,200Non-competition agreements
    
    
    10,829
    
    
    
    7,239
    
    
    
    3,590Total
    
    $
    112,850
    
    
    $
    55,060
    
    
    $
    57,790
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The customer contracts include the combined value of the written service agreements and
the related customer relationship. It has been determined that there is no significant
separate value in any customer relationships.Amortization expense was $2,657 and $2,036 for the three months ended October 1, 2005 and
October 2, 2004, respectively. Estimated amortization expense for each of the five
succeeding fiscal years based on the intangible assets as of October 1, 2005 is as follows:
 2006 remaining
    
    $
    8,1812007
    
    
    10,6322008
    
    
    10,0542009
    
    
    6,3462010
    
    
    6,0972011
    
    
    5,378
 4.
    
    Long-Term DebtOn August 31, 2005, the Company amended and restated its revolving credit facility. The
amended and restated revolving credit facility of $325,000 expires on August 31, 2010. As
of October 1, 2005, borrowings outstanding under the revolving credit facility were $67,850.
The unused portion of the revolver may be used for general corporate purposes,
acquisitions, working capital needs and to provide up to $50,000 in letters of credit. As
of October 1, 2005, letters of credit outstanding against the revolver were $28,165.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
October 1, 2005 bear interest at LIBOR plus 0.75%. The Company also pays a fee on the
unused daily balance of the revolver based on a leverage ratio calculated each quarter.5.
    
    Stock-Based CompensationThe Company maintains Stock Option and Compensation Plans (the Employee Plans) to grant
certain stock awards, including stock options at fair market value and restricted shares, to
key employees of the Company. Exercise periods for stock options are limited to a maximum
of 10 years and a minimum of one year. A maximum of 3,000,000 stock awards can be granted
under the Employee Plans and 1,048,318 awards were available for grant as of October 1,
2005.The Company also maintains the 1996 Director Stock Option Plan (the Directors Plan). The
Directors Plan provides for automatic grant of 3,000 nonqualified stock options
(initial grants) to nonemployee directors of the Company as of the later of August 1996 or
the date such individuals became directors of the Company and 1,000 nonqualified stock
options on each subsequent annual shareholder meeting date. The Company has reserved
100,000 shares of Class A common stock for issuance under the Directors Plan. These
options expire within 10 years of grant and are exercisable one year from the date of grant,
except for the initial grants, of which, one-third of the total options are exercisable each
year beginning with the first anniversary of the date of grant. The option price will be
the average market price of the Class A common stock during the 10 business days preceding
the date of grant.The Company has adopted the provisions of the Statement of Financial Accounting Standards
No. 123 (revised 2004) Share-Based Payment (SFAS 123(r)) in the first quarter of fiscal
2006 under the modified retrospective transition method. SFAS 123(r) eliminates accounting
for share-based compensation
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transactions using the intrinsic value method prescribed in APB
Opinion No. 25, Accounting for Stock Issued to Employees, and requires instead that the
fair value of all share-based transactions, including grants of employee stock options, be
recognized in the income statement. Under the modified retrospective transition method, all
prior period financial statements were restated to recognize compensation cost in the
amounts previously reported in the Notes to Consolidated Financial Statements.As a result of adopting SFAS 123(r) on July 3, 2005, income before income taxes and net
income for the quarter ended October 2, 2004 have been restated by $695 and $433,
respectively. Basic and diluted earnings per share have each been restated by $0.02 per
share. The beginning balances of deferred taxes, paid in capital and retained earnings have
been restated by $6,013, $18,496 and $12,483, respectively, to recognize compensation cost
for fiscal years 1996 through 2005 in the amounts previously reported in the Notes to
Consolidated Financial Statements under provisions of SFAS No.123, Accounting for
Stock-Based Compensation.The following schedule summarizes activity in the plans for the three months ended October
1, 2005:
 Stock OptionsWeightedEmployee
    
    
    Directors
    
    
    
    
    
    
    AveragePlans
    
    
    Plan
    
    
    Grant Price
    
    
    Exercise PriceOutstanding at July 2, 2005
    
    
    1,161,547
    
    
    
    55,000
    
    
    $
    25.00 - 53.34
    
    
    $
    34.21Granted
    
    
    227,163
    
    
    
    3,000
    
    
    
    38.25 - 42.97
    
    
    
    42.78Exercised
    
    
    (21,118
    )
    
    
    
    
    
    
    25.75 - 41.56
    
    
    
    33.59Canceled
    
    
    (5,993
    )
    
    
    
    
    
    
    27.95 - 46.00
    
    
    
    35.81Outstanding at October 1, 2005
    
    
    1,361,599
    
    
    
    58,000
    
    
    $
    25.00 - 53.34
    
    
    $
    35.64Exercisable at October 1, 2005
    
    
    844,597
    
    
    
    42,000
    
    
    $
    25.00 - 53.34
    
    
    $
    33.84
 The following schedule summarizes the information related to stock options outstanding at
October 1, 2005:
 Options Outstanding
    
    
    Options ExercisableAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    Number
    
    
    Option Life
    
    
    Average
    
    
    Number
    
    
    AverageExercise Price
    
    Outstanding
    
    
    (Years)
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$16.50 - 25.00
    
    
    49,000
    
    
    
    4.7
    
    
    $
    25.00
    
    
    
    49,000
    
    
    $
    25.0025.01 - 37.00
    
    
    919,009
    
    
    
    7.2
    
    
    
    32.53
    
    
    
    641,170
    
    
    
    31.4837.01 - 53.34
    
    
    451,590
    
    
    
    6.7
    
    
    
    43.14
    
    
    
    196,427
    
    
    
    43.721,419,599
    
    
    
    7.0
    
    
    $
    35.64
    
    
    
    886,597
    
    
    $
    33.84
 The weighted average fair value of options granted in the three months ended October 1, 2005
and October 2, 2004 was $10.79 and $10.64, respectively. The weighted average exercise
price was $33.59 and $29.65 for the three months ended October 1, 2005 and October 2, 2004,
respectively.The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average assumptions used:
risk-free interest rates of 3.82% and 3.33% for the three months ended October 1, 2005 and
October 2, 2004, respectively; expected annual dividends of $0.07 per share; expected lives
of 4 years and 5 years for the three months ended October 1, 2005 and
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October 2, 2004, respectively; and expected volatility of 24.44% and 26.48% for the three months ended
October 1, 2005 and October 2, 2004, respectively.Compensation cost for stock options is recognized on a straight-line basis over the
requisite service period of the award (or to an employees eligible retirement date, if
earlier). Total compensation expense related to stock options was $782 and $695 for the
three months ended October 1, 2005 and October 2, 2004, respectively.Under the Employee Plans, the Company grants restricted stock to key employees for nominal
consideration. The restrictions lapse over periods up to seven years. During the three
months ended October 1, 2005 and October 2, 2004 the Company granted 72,895 and 12,250
shares of restricted stock, respectively. The weighted average grant date fair value per
share of restricted stock granted during the three months ended October 1, 2005 and October
2, 2004 was $42.55 and $36.41, respectively. The Company records deferred compensation to
stockholders equity at the time of grant for the difference between the par value and fair
market value as of the grant date. Compensation expense is recognized as the restrictions
are removed from the stock for the difference between the par value and fair market value as
of the grant date. Total compensation expense related to restricted stock was $225 and $277
for the three months ended October 1, 2005 and October 2, 2004, respectively.6.
    
    Employee Benefit PlansThe components of net periodic pension cost are as follows for the three months ended
October 1, 2005 and October 2, 2004:
 Supplemental ExecutivePension Plan
    
    Retirement PlanThree Months Ended
    
    Three Months EndedOct 1,
    
    Oct 2,
    
    Oct 1,
    
    Oct 2,2005
    
    2004
    
    2005
    
    2004Service cost
    
    $
    1,190
    
    
    $
    1,154
    
    
    $
    234
    
    
    $
    226Interest cost
    
    
    809
    
    
    
    829
    
    
    
    188
    
    
    
    196Expected return on assets
    
    
    (616
    )
    
    
    (663
    )
    
    
    
    
    
    
    Prior service cost
    
    
    13
    
    
    
    17
    
    
    
    11
    
    
    
    12Loss
    
    
    340
    
    
    
    157
    
    
    
    76
    
    
    
    66Net periodic pension cost
    
    $
    1,736
    
    
    $
    1,494
    
    
    $
    509
    
    
    $
    500
 7.
    
    Segment InformationThe Company has two operating segments, 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 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 several restroom products. No
one customers transactions account for 1.0% or more of the Companys revenues.
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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-month periods ended October 1, 2005 and October 2, 2004 is as follows:
 UnitedFor the Three Months Ended
    
    States
    
    
    Canada
    
    
    TotalFirst Quarter Fiscal Year 2006:Revenues
    
    $
    173,196
    
    
    $
    34,752
    
    
    $
    207,948Income from operations
    
    
    12,823
    
    
    
    6,074
    
    
    
    18,897Capital expenditures
    
    
    7,750
    
    
    
    756
    
    
    
    8,506Depreciation and amortization
expense
    
    
    9,108
    
    
    
    1,491
    
    
    
    10,599First Quarter Fiscal Year 2005:Revenues
    
    $
    155,870
    
    
    $
    26,562
    
    
    $
    182,432Income from operations
    
    
    12,158
    
    
    
    4,897
    
    
    
    17,055Capital expenditures
    
    
    (1,120
    )
    
    
    534
    
    
    
    (586
    )Depreciation and amortization
expense
    
    
    8,901
    
    
    
    1,257
    
    
    
    10,158
 12




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Overview
    Critical Accounting Policies
   Revenue Recognition and Allowance for Doubtful Accounts
  13




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##### Table of Contents



Inventories
  Goodwill, Intangibles and Other Long-Lived Assets
   Insurance
  Income Taxes
  14




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##### Table of Contents



Results of Operations
  Three Months
    
    PercentageEnded
    
    ChangeThree MonthsOct 1,
    
    Oct 2,
    
    FY 20062005
    
    2004
    
    vs. FY 2005Revenues:Rental
    
    
    93.3
    %
    
    
    96.6
    %
    
    
    10.1
    %Direct
    
    
    6.7
    
    
    
    3.4
    
    
    
    126.0Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    14.0Expenses:Cost of rental sales
    
    
    64.2
    
    
    
    63.0
    
    
    
    12.2Cost of direct sales
    
    
    73.5
    
    
    
    79.7
    
    
    
    108.4Total cost of sales
    
    
    64.8
    
    
    
    63.5
    
    
    
    16.2Selling and administrative
    
    
    21.0
    
    
    
    21.6
    
    
    
    11.3Depreciation and amortization
    
    
    5.1
    
    
    
    5.6
    
    
    
    4.3Income from operations
    
    
    9.1
    
    
    
    9.3
    
    
    
    10.8Interest expense
    
    
    1.5
    
    
    
    1.3
    
    
    
    18.3Income before income taxes
    
    
    7.6
    
    
    
    8.0
    
    
    
    9.5Provision for income taxes
    
    
    2.6
    
    
    
    3.0
    
    
    
    1.3Net income
    
    
    5.0
    %
    
    
    5.0
    %
    
    
    14.4
    %
 Three months ended October 1, 2005 compared to three months ended October 2, 2004
 Revenues.
 15




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##### Table of Contents



Cost of Rental and Direct Sale.
  Selling and Administrative.
 Depreciation and Amortization
 Income
from Operations
 Interest Expense
 Provision for Income Taxes
 Liquidity, Capital Resources and Financial Condition
  Operating Activities.
 16




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##### Table of Contents



Investing Activities.
 Financing Activities.
   Cash Obligations.
  2011 and2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    There-Remaining
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    
    
    
    after
    
    
    TotalVariable rate term loan and
revolving
credit facility
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    67,850
    
    
    
    
    
    
    $
    
    
    
    $
    67,850Variable rate notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    75,000Variable rate loan
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Fixed rate notes
    
    
    
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    
    
    
    
    7,142
    
    
    
    35,714Other debt arrangements, including
capital leases
    
    
    484
    
    
    
    12,101
    
    
    
    121
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,748Operating leases
    
    
    12,481
    
    
    
    14,458
    
    
    
    11,237
    
    
    
    7,366
    
    
    
    5,087
    
    
    
    
    
    
    
    3,750
    
    
    
    54,379Total contractual cash obligations
    
    $
    12,965
    
    
    $
    33,702
    
    
    $
    68,501
    
    
    $
    14,551
    
    
    $
    80,080
    
    
    
    
    
    
    $
    85,892
    
    
    $
    295,691
  17




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##### Table of Contents



Pension Obligations
    Impact of Inflation
   Litigation
  18




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##### Table of Contents



Stock-Based Compensation
   Cautionary Statements Regarding Forward-Looking Statements
   19




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Interest Rate Risk
  Energy Cost Risk
  Foreign Currency Exchange Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
   20




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
  Maximum Number(or ApproximateTotal Number of
    
    Dollar Value) ofShares (or Units)
    
    Shares (or Units) thatTotal Number of
    
    Average Price
    
    Purchased as Part of
    
    May Yet beShares (or Units)
    
    Paid per Share
    
    Publicly Announced
    
    Purchased Under thePeriod
    
    Purchased
    
    (or Unit)
    
    Plans or Programs
    
    Plans or ProgramsMonth #1(Fiscal month
ending August 6,
2005)
    
    
    
    
    
    
    
    Month #2(Fiscal month
ending September 3,
2005)
    
    
    
    
    
    
    
    Month #3(Fiscal month
ending October 1,
2005)
    
    
    
    
    
    
    
    
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
      21




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22




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##### Table of Contents



G&K SERVICES, INC.
(Registrant)Date: November 4, 2005
    By:
    /s/ Jeffrey L. WrightJeffrey L. WrightSenior Vice President and Chief
Financial Officer
(Principal Financial Officer)By:
    /s/ Michael F. WoodardMichael F. WoodardVice President and Controller
(Principal Accounting Officer) 23