##### 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 September 30, 2006
 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.)
 
 (952) 912-5500
 þ o
  þ o 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
September 30, 2006 and July 1, 2006
    
    
    3Consolidated Statements of Operations for the three months ended
September 30, 2006 and October 1, 2005
    
    
    4Consolidated Condensed Statements of Cash Flows for the three
months ended September 30, 2006 and October 1, 2005
    
    
    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
    
    
    20PART IIItem 1A Risk Factors
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Executive Employment AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 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
 September 30,
    
    
    July 1,2006
    
    
    2006(In thousands)
    
    (Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    23,526
    
    
    $
    19,690Accounts receivable, less allowance for doubtful
accounts of $3,540 and $3,011
    
    
    96,330
    
    
    
    94,964Inventories
    
    
    141,999
    
    
    
    141,031Prepaid expenses
    
    
    14,047
    
    
    
    15,552Total current assets
    
    
    275,902
    
    
    
    271,237Property, Plant and Equipment, net
    
    
    250,254
    
    
    
    249,001Goodwill, net
    
    
    349,479
    
    
    
    349,469Other Assets
    
    
    79,881
    
    
    
    81,385$
    955,516
    
    
    $
    951,092LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    30,102
    
    
    $
    27,404Accrued expenses
    
    
    62,078
    
    
    
    72,999Deferred income taxes
    
    
    10,418
    
    
    
    10,419Current maturities of long-term debt
    
    
    18,124
    
    
    
    18,199Total current liabilities
    
    
    120,722
    
    
    
    129,021Long-Term Debt, net of Current Maturities
    
    
    203,036
    
    
    
    195,355Deferred Income Taxes
    
    
    33,266
    
    
    
    34,343Other Noncurrent Liabilities
    
    
    43,009
    
    
    
    44,985Stockholders Equity
    
    
    555,483
    
    
    
    547,388$
    955,516
    
    
    $
    951,092
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CONSOLIDATED STATEMENTS OF OPERATIONS
 G&K Services, Inc. and Subsidiaries
 For the Three Months EndedSeptember 30,
    
    
    October 1,(In thousands, except per share data)
    
    2006
    
    
    2005RevenuesRental operations
    
    $
    207,301
    
    
    $
    194,068Direct sales
    
    
    15,827
    
    
    
    13,880Total revenues
    
    
    223,128
    
    
    
    207,948Operating ExpensesCost of rental operations
    
    
    131,652
    
    
    
    124,506Cost of direct sales
    
    
    12,039
    
    
    
    10,201Selling and administrative
    
    
    49,879
    
    
    
    43,745Depreciation and amortization
    
    
    11,218
    
    
    
    10,599Total operating expenses
    
    
    204,788
    
    
    
    189,051Income from Operations
    
    
    18,340
    
    
    
    18,897Interest expense
    
    
    3,393
    
    
    
    3,015Income before Income Taxes
    
    
    14,947
    
    
    
    15,882Provision for income taxes
    
    
    5,755
    
    
    
    5,511Net Income
    
    $
    9,192
    
    
    $
    10,371Basic weighted average number
of shares outstanding
    
    
    21,186
    
    
    
    20,992Basic Earnings per Common Share
    
    $
    0.43
    
    
    $
    0.49Diluted weighted average number
of shares outstanding
    
    
    21,365
    
    
    
    21,148Diluted Earnings per Common Share
    
    $
    0.43
    
    
    $
    0.49Dividends per share
    
    $
    0.0400
    
    
    $
    0.0175
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 G&K Services, Inc. and Subsidiaries
 For the Three Months EndedSeptember 30,
    
    
    October 1,(In thousands)
    
    2006
    
    
    2005Operating Activities:Net income
    
    $
    9,192
    
    
    $
    10,371Adjustments to reconcile net income to net cash
provided by operating activities -Depreciation and amortization
    
    
    11,218
    
    
    
    10,599Stock-based compensation
    
    
    929
    
    
    
    1,007Deferred income taxes
    
    
    114
    
    
    
    394Changes in current operating items, exclusive
of acquisitions
    
    
    (15,170
    )
    
    
    (15,210
    )Other assets and liabilities
    
    
    624
    
    
    
    148Net cash provided by operating activities
    
    
    6,907
    
    
    
    7,309Investing Activities:Property, plant and equipment additions, net
    
    
    (9,769
    )
    
    
    (8,506
    )Acquisitions of business assets and other
    
    
    (994
    )
    
    
    (832
    )Net cash used for investing activities
    
    
    (10,763
    )
    
    
    (9,338
    )Financing Activities:Repayments of long-term debt
    
    
    (7,293
    )
    
    
    (7,309
    )Proceeds from short-term borrowings, net
    
    
    14,901
    
    
    
    11,600Cash dividends paid
    
    
    
    
    
    
    (369
    )Sale of common stock
    
    
    74
    
    
    
    658Net cash provided by financing activities
    
    
    7,682
    
    
    
    4,580Increase in Cash and Cash Equivalents
    
    
    3,826
    
    
    
    2,551Effect of Exchange Rates on Cash
    
    
    10
    
    
    
    435Cash and Cash Equivalents:Beginning of period
    
    
    19,690
    
    
    
    15,345End of period
    
    $
    23,526
    
    
    $
    18,331
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The consolidated condensed financial statements included herein, except for the July 1, 2006
balance sheet which was derived from the audited consolidated financial statements for the
fiscal year ended July 1, 2006, 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
September 30, 2006, and the results of its operations and its cash flows for the three
months ended September 30, 2006 and October 1, 2005. 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 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 September 30, 2006 and October
1, 2005 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 1, 2006.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 North American industries including automotive, warehousing,
distribution, transportation, energy, manufacturing, food processing, pharmaceutical,
semi-conductor, retail, restaurants and hospitality, and many others providing them with
rented uniforms and facility services products such as floor mats, dust mops, wiping towels,
restroom supplies and selected linen items. 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 damaged 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 for contracts that cash flow hedge
accounting is achieved 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 have on the future financial results of the Company. The Company
purchases futures contracts to effectively hedge a portion of anticipated gasoline
purchases. The 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 cash flow hedge. Upon settlement of each
contract, the actual gain or loss is reflected in cost of rental operations.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 all such transactions
were not significant in the first quarter of fiscal 2007 or 2006.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 EndedSeptember 30,
    
    
    October 1,2006
    
    
    2005Weighted average number of common
shares outstanding used in
computation of basic earning per
share
    
    
    21,186
    
    
    
    20,992Weighted average effect of non-vested
restricted stock grants and assumed
exercise of options
    
    
    179
    
    
    
    156Shares used in computation of
diluted earnings per share
    
    
    21,365
    
    
    
    21,148
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Use of Estimates
  Recent Accounting Pronouncements
  
    
    Recognize in its statement of financial position the over-funded or under-funded
status of a defined benefit postretirement plan measured as the difference between
the fair value of plan assets and the benefit obligation.
    
    Recognize as a component of other comprehensive income, net of tax, the actuarial
gains and losses and the prior service costs and credits that arise during the
period but pursuant to FAS 87 and 106 are not recognized as components of net
periodic benefit cost.
    
    Recognize as an adjustment to the opening balance of retained earnings, net of
tax, any transition asset or transition obligation remaining from the initial
application of FAS 87 or 106.
    
    Measure defined benefit plan assets and defined benefit plan obligations as of
the date of the employers statement of financial position.
    
    Disclose additional information in the notes to financial statements about
certain effects on net periodic benefit cost in the upcoming fiscal year that arise
from delayed recognition of the actuarial gains and losses and the prior service
costs and credits.
 On July 13, 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes  an Interpretation of FASB
Statement 109, which fundamentally changes the way that an entity will be required to treat
their uncertain tax positions for financial accounting purposes. FIN 48 prescribes rules
regarding how an entity should recognize, measure and disclose in its financial statements
tax positions that an entity has taken or will take in its 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.The Company is currently evaluating the impact of these standards on its consolidated
financial statements.2.
    
    Comprehensive IncomeFor the three-month periods ended September 30, 2006 and October 1, 2005, the components of
comprehensive income were as follows:
 Three Months EndedSeptember 30,
    
    
    October 1,2006
    
    
    2005Net income
    
    $
    9,192
    
    
    $
    10,371Other comprehensive income:Foreign currency translation
adjustments, net of tax
    
    
    (13
    )
    
    
    7,034Net unrealized holding gain (loss)
on derivative financial
instruments, net of tax
    
    
    (1,237
    )
    
    
    672Comprehensive income
    
    $
    7,942
    
    
    $
    18,077
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3.
    
    Goodwill and Intangible AssetsThe changes in the carrying amount of goodwill for the three months ended September 30,
2006, by operating segment, are as follows:
 United States
    
    
    Canada
    
    
    TotalBalance as of July 1, 2006
    
    $
    286,170
    
    
    $
    63,299
    
    
    $
    349,469Goodwill acquired during the
period, net of purchase price
adjustments
    
    
    30
    
    
    
    
    
    
    
    30Other, primarily foreign
currency translation
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Balance as of September 30, 2006
    
    $
    286,200
    
    
    $
    63,279
    
    
    $
    349,479
  As of September 30, 2006Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer contracts
    
    $
    106,403
    
    
    $
    60,600
    
    
    $
    45,803Non-competition agreements
    
    
    10,908
    
    
    
    8,722
    
    
    
    2,186Total
    
    $
    117,311
    
    
    $
    69,322
    
    
    $
    47,989
 As of July 1, 2006Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer contracts
    
    $
    106,408
    
    
    $
    58,158
    
    
    $
    48,250Non-competition agreements
    
    
    10,908
    
    
    
    8,446
    
    
    
    2,462Total
    
    $
    117,316
    
    
    $
    66,604
    
    
    $
    50,712
   2007 remaining
    
    $
    7,9242008
    
    
    10,0592009
    
    
    6,3382010
    
    
    6,1662011
    
    
    5,4902012
    
    
    4,734
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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 September 30, 2006, borrowings outstanding under the revolving credit facility were
$52,700. 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 September 30, 2006, letters of credit outstanding against the revolver were $33,142.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
September 30, 2006 bear interest at a rate of 6.28% which is LIBOR plus 0.88%. The Company
also pays a fee on the unused daily balance of the revolving credit facility based on a
leverage ratio calculated on a quarterly basis.The Company has issued $50,000 of 8.4% unsecured fixed rate private placement notes with
certain institutional
investors. The 10-year notes have a seven-year average life with a final maturity on July
20, 2010. Each year until maturity, the Company will be required to repay $7,143 of the
principal amount at par. As of September 30, 2006, the outstanding balance was $28,572.The Company maintains a loan agreement expiring on October 23, 2007. Under the loan
agreement, the lender will make loans to the Company on a revolving basis up to $60,000.
The facility was amended on June 2, 2006 increasing the facility size from $50,000 to
$60,000. The Company will be 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, the Company granted a first priority security interest in certain of its
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. The Company
used the net proceeds of this loan to reduce indebtedness under its unsecured credit
facilities. At September 30, 2006, there was $53,000 outstanding under the agreement at a
current interest rate of 5.30%.The Company has $75,000 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 is reset and interest payments
are paid on a quarterly basis. As of September 30, 2006, the outstanding balance of the
notes was $75,000 at a current rate of 5.97%.5.
    
    Share-Based CompensationThe Company maintains Stock Option and Compensation Plans to grant certain stock awards,
including stock options and restricted shares of stock to key employees and external
directors of the Company. Stock options granted to employees generally vest annually in
equal amounts over three years and stock options granted on an annual basis to external
directors, vest over one year. The stock options have an exercise price equal to the market
price of the Companys common stock on the date of grant. Restricted stock granted to
employees prior to January 1, 2002, vest annually in equal amounts over seven years and
grants after January 1, 2002, vest annually in equal amounts over five years. Generally the
Company recognizes compensation expense for share-based compensation on a straight-line
basis over the pertinent vesting period. Total compensation expense related to share-based
awards was $929 and $1,007 for the three months ended September 30, 2006, and October 1,
2005, respectively. There were 22,079 and 23,328 shares of restricted stock and stock
options that vested during the three months ended September 30, 2006, and October 1, 2005,
respectively.
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6.
    
    Employee Benefit PlansThe components of net periodic pension cost are as follows for the three months ended
September 30, 2006 and October 1, 2005:
 Supplemental ExecutivePension Plan
    
    
    Retirement PlanThree Months Ended
    
    
    Three Months EndedSeptember 30,
2006
    
    
    October 1,2005
    
    
    September 30,2006
    
    
    October 1,2005Service cost
    
    $
    706
    
    
    $
    1,190
    
    
    $
    65
    
    
    $
    234Interest cost
    
    
    1,528
    
    
    
    809
    
    
    
    143
    
    
    
    188Expected return on assets
    
    
    (1,388
    )
    
    
    (616
    )
    
    
    
    
    
    
    Prior service cost
    
    
    4
    
    
    
    13
    
    
    
    2
    
    
    
    11Loss
    
    
    
    
    
    
    340
    
    
    
    
    
    
    
    76Net periodic pension cost
    
    $
    850
    
    
    $
    1,736
    
    
    $
    210
    
    
    $
    509
 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 certain restroom products. No
one customers transactions account for 1.5% 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-month periods ended September 30, 2006 and October 1, 2005 is as follows:
 UnitedFor the Three Months Ended
    
    States
    
    
    Canada
    
    
    TotalFirst Quarter Fiscal Year 2007:Revenues
    
    $
    183,310
    
    
    $
    39,818
    
    
    $
    223,128Income from operations
    
    
    11,990
    
    
    
    6,350
    
    
    
    18,340Capital expenditures
    
    
    9,070
    
    
    
    699
    
    
    
    9,769Depreciation and amortization
expense
    
    
    9,606
    
    
    
    1,612
    
    
    
    11,218First 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
    
    
    
    10,599
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8.
    
    InventoryThe components of inventory are as follows for the three months ended September 30, 2006 and
July 1, 2006:
 Three Months EndedSeptember 30,
    
    
    July 1,2006
    
    
    2006Raw Materials
    
    $
    4,266
    
    
    $
    5,742Work in Process
    
    
    5,679
    
    
    
    4,587Finished Goods
    
    
    53,674
    
    
    
    52,457New Goods
    
    $
    63,619
    
    
    $
    62,786Merchandise In Service
    
    $
    78,380
    
    
    $
    78,245Total Inventories
    
    $
    141,999
    
    
    $
    141,031
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
     Critical Accounting Policies
   12




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Revenue Recognition and Allowance for Doubtful Accounts
  Inventories
  Goodwill, Intangibles and Other Long-Lived Assets
   13




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Insurance
  Income Taxes
    14




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Results of Operations
  Three Months
    
    PercentageEnded
    
    ChangeThree MonthsSeptember 30,
    
    October 1,
    
    Fiscal Year 20072006
    
    2005
    
    vs. Fiscal Year 2006Revenues:Rental
    
    
    92.9
    %
    
    
    93.3
    %
    
    
    6.8
    %Direct
    
    
    7.1
    
    
    
    6.7
    
    
    
    14.0Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    7.3Expenses:Cost of rental sales
    
    
    63.5
    
    
    
    64.2
    
    
    
    5.7Cost of direct sales
    
    
    76.1
    
    
    
    73.5
    
    
    
    18.0Total cost of sales
    
    
    64.4
    
    
    
    64.8
    
    
    
    6.7Selling and administrative
    
    
    22.4
    
    
    
    21.0
    
    
    
    14.0Depreciation and
amortization
    
    
    5.0
    
    
    
    5.1
    
    
    
    5.8Income from operations
    
    
    8.2
    
    
    
    9.1
    
    
    
    (2.9
    )Interest expense
    
    
    1.5
    
    
    
    1.5
    
    
    
    12.5Income before income taxes
    
    
    6.7
    
    
    
    7.6
    
    
    
    (5.9
    )Provision for income taxes
    
    
    2.6
    
    
    
    2.6
    
    
    
    4.4Net income
    
    
    4.1
    %
    
    
    5.0
    %
    
    
    (11.4
    )%
 Three months ended September 30, 2006 compared to three months ended October 1, 2005
 Revenues.
   Cost of Rental and Direct Sale.
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Selling and Administrative.
 Depreciation and Amortization
 Interest Expense
 Provision for Income Taxes
 Liquidity, Capital Resources and Financial Condition
   Operating Activities.
 Investing Activities.
 Financing Activities.
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Cash Obligations.
   Off Balance Sheet Arrangements
  Pension Obligations
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##### Table of Contents



Impact of Inflation
   Litigation
  Share-Based Compensation
  Recent Accounting Pronouncements
  
    
    Recognize in our statement of financial position the over-funded or under-funded status
of a defined benefit postretirement plan measured as the difference between the fair value
of plan assets and the benefit obligation.
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
    
    Recognize as a component of other comprehensive income, net of tax, the actuarial gains
and losses and the prior service costs and credits that arise during the period but
pursuant to FAS 87 and 106 are not recognized as components of net periodic benefit cost.
    
    Recognize as an adjustment to the opening balance of retained earnings, net of tax, any
transition asset or transition obligation remaining from the initial application of FAS 87
or 106.
    
    Measure defined benefit plan assets and defined benefit plan obligations as of the date
of our statement of financial position.
    
    Disclose additional information in our notes to financial statements about certain
effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed
recognition of the actuarial gains and losses and the prior service costs and credits.
   Cautionary Statements Regarding Forward-Looking Statements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Interest Rate Risk
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Energy Cost Risk
  Foreign Currency Exchange Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
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PART II
 OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
  10.1
    
    Executive Employment Agreement with Richard L. Marcantonio entered into as of
August 31, 2004.31.1  Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a) 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-14(a)/15d-14(a) 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.
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G&K SERVICES, INC.
(Registrant)Date:      November 2, 2006
    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) 
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