##### Table of Contents



(LOGO)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q

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

For Quarter Ended September 28, 2002 Commission file number 0-4063

G&K SERVICES, INC.
(Exact name of registrant as specified in its charter)

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

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

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

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

YES X                      NO

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

|                                        |  |                             
|--------------------------------------- |  | ----------------------------
|CLASS A                                 |  | Outstanding November 7, 2002
|Common Stock, par value $0.50 per share |  | 19,253,686                  

|                                        |  |                             
|--------------------------------------- |  | ----------------------------
|CLASS B                                 |  | Outstanding November 7, 2002
|Common Stock, par value $0.50 per share |  | 1,474,996                   





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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I                                            
|                                                   | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                                   |                                                                                               | CONSOLIDATED CONDENSED BALANCE SHEETS               
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS               
|                                                   |                                                                                               | CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS     
|                                                   |                                                                                               | NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|                                                   | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                   | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|                                                   | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II                                           
|                                                   | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                        
|CERTIFICATION                                     
|CERTIFICATION                                     
|EX-10.1 Promissory Note of Richard L. Marcantonio 
|EX-10.2 Stock Pledge Agreement                    
|EX-99.1 Certification Pursuant to 18 USC Sec. 1350



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##### Table of Contents



G&K Services, Inc.
Form 10-Q

Table of Contents

|               |  |                                                                                                                      |  |     
|-------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I         |  |                                                                                                                      |  | PAGE
|Item 1.        |  | Financial Statements                                                                                                 |  |     
|              
|              
|              
|              
|               |  |                                                                                                                      |  |     
|              
|              
|              
|              
|               |  | Consolidated Condensed Balance Sheets as of
September 28, 2002 and June 29, 2002                                     |  | 3   
|              
|              
|              
|              
|               |  |                                                                                                                      |  |     
|              
|              
|              
|              
|               |  | Consolidated Statements of Operations for the three months ended
September 28, 2002 and September 29, 2001           |  | 4   
|              
|              
|              
|              
|               |  |                                                                                                                      |  |     
|              
|              
|              
|              
|               |  | Consolidated Condensed Statements of Cash Flows for the three months ended
September 28, 2002 and September 29, 2001 |  | 5   
|              
|              
|              
|              
|               |  |                                                                                                                      |  |     
|              
|              
|              
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|               |  | Notes to Consolidated Condensed Financial Statements                                                                 |  | 6   
|              
|              
|              
|              
|               |  |                                                                                                                      |  |     
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|              
|              
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                                |  | 10  
|              
|              
|              
|              
|               |  |                                                                                                                      |  |     
|              
|              
|              
|              
|Item 3.        |  | Quantitative and Qualitative Disclosure About Market Risk                                                            |  | 15  
|              
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|              
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|               |  |                                                                                                                      |  |     
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|Item 4.        |  | Controls and Procedures                                                                                              |  | 15  
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|               |  |                                                                                                                      |  |     
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|PART II        |  |                                                                                                                      |  |     
|              
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|               |  |                                                                                                                      |  |     
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|              
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                                                     |  | 16  
|              
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|               |  |                                                                                                                      |  |     
|              
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|Signatures     |  |                                                                                                                      |  | 17  
|              
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|              
|               |  |                                                                                                                      |  |     
|              
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|              
|Certifications |  |                                                                                                                      |  | 18  

2



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##### Table of Contents






PART I

FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




CONSOLIDATED CONDENSED BALANCE SHEETSG&K Services, Inc. and Subsidiaries

|                                          |                                                                                |                           |         |               |         |          |         |        |         | 
|----------------------------------------- | ------------------------------------------------------------------------------ | ------------------------- | ------- | ------------- | ------- | -------- | ------- | ------ | ------- | 
|                                          |                                                                                |                           |         | September 28, |         |          |         |       
|                                          |                                                                                |                           |         | 2002          |         | June 29,
|(In thousands, except share data)         |                                                                                | (Unaudited)               |         | 2002         
|                                         
|ASSETS                                    |                                                                                |                           |         |               |         |          |         |       
|                                         
|                                         
|                                         
|                                         
|Current Assets                            |                                                                                |                           |         |               |         |          |         |       
|                                         
|                                         
|                                         
|                                         
|                                          | Cash and cash equivalents                                                      |                           | $       | 10,004        |         |          | $       | 9,986  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts receivable, less allowance for doubtful
accounts of $3,905 and $3,326 |                           |         | 72,073        |         |          |         | 66,555 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Inventories                                                                    |                           |         | 92,717        |         |          |         | 91,733 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Prepaid expenses                                                               |                           |         | 11,904        |         |          |         | 17,536 |        
|                                         
|                                          |                                                                                | Total current assets      |         |               | 186,698 |          |         |        | 185,810 | 
|                                         
|Property, Plant and Equipment, net        |                                                                                |                           | 231,422 |               |         |          | 230,530 |       
|                                         
|                                         
|                                         
|                                         
|Goodwill, net                             |                                                                                |                           | 207,011 |               |         |          | 200,140 |       
|                                         
|                                         
|                                         
|                                         
|Other Assets                              |                                                                                |                           | 64,535  |               |         |          | 65,219  |       
|                                         
|                                          |                                                                                | $                         | 689,666 |               |         | $        | 681,699 |       
|                                         
|LIABILITIES AND STOCKHOLDERS EQUITY      |                                                                                |                           |         |               |         |          |         |       
|                                         
|                                         
|                                         
|                                         
|Current Liabilities                       |                                                                                |                           |         |               |         |          |         |       
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts payable                                                               |                           | $       | 18,589        |         |          | $       | 17,361 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accrued expenses                                                               |                           |         | 53,975        |         |          |         | 52,026 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Deferred income taxes                                                          |                           |         | 11,093        |         |          |         | 11,157 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Current maturities of long-term debt                                           |                           |         | 11,450        |         |          |         | 9,443  |        
|                                         
|                                          |                                                                                | Total current liabilities |         |               | 95,107  |          |         |        | 89,987  | 
|                                         
|Long-Term Debt, net of Current Maturities |                                                                                |                           | 211,885 |               |         |          | 214,977 |       
|                                         
|                                         
|                                         
|                                         
|Deferred Income Taxes                     |                                                                                |                           | 21,186  |               |         |          | 21,570  |       
|                                         
|                                         
|                                         
|                                         
|Other Noncurrent Liabilities              |                                                                                |                           | 14,152  |               |         |          | 15,007  |       
|                                         
|                                         
|                                         
|                                         
|Stockholders Equity                      |                                                                                |                           | 347,336 |               |         |          | 340,158 |       
|                                         
|                                          |                                                                                | $                         | 689,666 |               |         | $        | 681,699 |       
|                                         

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

3



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##### Table of Contents






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

|                                      |                                                       |                          |        |                            |         |               |        |         |         | 
|------------------------------------- | ----------------------------------------------------- | ------------------------ | ------ | -------------------------- | ------- | ------------- | ------ | ------- | ------- | 
|                                      |                                                       |                          |        | For the Three Months Ended
|                                      |                                                       |                          |        |                           
|                                      |                                                       |                          |        | September 28,              |         | September 29,
|(In thousands, except per share data) |                                                       | 2002                     |        | 2001                      
|                                     
|Revenues                              |                                                       |                          |        |                            |         |               |        |        
|                                     
|                                     
|                                     
|                                     
|                                      | Rental operations                                     |                          | $      | 151,906                    |         |               | $      | 151,763 |        
|                                     
|                                     
|                                     
|                                     
|                                      | Direct sales                                          |                          |        | 4,347                      |         |               |        | 5,335   |        
|                                     
|                                      |                                                       | Total revenues           |        |                            | 156,253 |               |        |         | 157,098 | 
|                                     
|Operating Expenses                    |                                                       |                          |        |                            |         |               |        |        
|                                     
|                                     
|                                     
|                                     
|                                      | Cost of rental operations                             |                          |        | 87,925                     |         |               |        | 88,870  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Cost of direct sales                                  |                          |        | 3,501                      |         |               |        | 3,853   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Selling and administrative                            |                          |        | 36,655                     |         |               |        | 36,544  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation and amortization                         |                          |        | 9,019                      |         |               |        | 8,769   |        
|                                     
|                                      |                                                       | Total operating expenses |        |                            | 137,100 |               |        |         | 138,036 | 
|                                     
|Income from Operations                |                                                       |                          | 19,153 |                            |         |               | 19,062 |        
|                                     
|                                     
|                                     
|                                     
|                                      | Interest expense                                      |                          |        | 3,261                      |         |               |        | 3,830   |        
|                                     
|Income before Income Taxes            |                                                       |                          | 15,892 |                            |         |               | 15,232 |        
|                                     
|                                     
|                                     
|                                     
|                                      | Provision for income taxes                            |                          |        | 6,198                      |         |               |        | 6,017   |        
|                                     
|Net Income                            |                                                       | $                        | 9,694  |                            |         | $             | 9,215  |        
|                                     
|                                      | Basic weighted average number
of shares outstanding   |                          |        | 20,545                     |         |               |        | 20,481  |        
|                                     
|                                     
|                                     
|                                     
|Basic Earnings per Common Share       |                                                       | $                        | 0.47   |                            |         | $             | 0.45   |        
|                                     
|                                      | Diluted weighted average number
of shares outstanding |                          |        | 20,686                     |         |               |        | 20,504  |        
|                                     
|                                     
|                                     
|                                     
|Diluted Earnings per Common Share     |                                                       | $                        | 0.47   |                            |         | $             | 0.45   |        
|                                     

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

4



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##### Table of Contents






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

|                                                     |                                                                                    |                                                               |         |         |        |                            |         |               |        |  |  | 
|---------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------- | ------- | ------ | -------------------------- | ------- | ------------- | ------ |  |  | 
|                                                     |                                                                                    |                                                               |         |         |        | For the Three Months Ended
|                                                     |                                                                                    |                                                               |         |         |        |                           
|                                                     |                                                                                    |                                                               |         |         |        | September 28,              |         | September 29,
|(In thousands)                                       |                                                                                    | 2002                                                          |         | 2001   
|                                                    
|Operating Activities:                                |                                                                                    |                                                               |         |         |        |                            |         |              
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                                                                         |                                                               | $       | 9,694   |        |                            | $       | 9,215         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities - |                                                               |         |         |        |                            |         |               |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Depreciation and amortization                                 |         | 9,019   |        |                            |         | 8,769         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Deferred income taxes                                         |         | (410    | )      |                            |         | (1,148        | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Amortization of deferred compensation  restricted stock      |         | 272     |        |                            |         | 226           |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Changes in current operating items, exclusive of acquisitions |         | 2,635   |        |                            |         | 5,784         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other, net                                                                         |                                                               |         | (146    | )      |                            |         | 802           |       
|                                                    
|Net cash provided by operating activities            |                                                                                    |                                                               | 21,064  |         |        |                            | 23,648  |              
|                                                    
|Investing Activities:                                |                                                                                    |                                                               |         |         |        |                            |         |              
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Property, plant and equipment additions, net                                       |                                                               |         | (8,976  | )      |                            |         | (5,564        | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisition of business assets and other                                           |                                                               |         | (10,772 | )      |                            |         | (21,015       | )     
|                                                    
|Net cash used for investing activities               |                                                                                    |                                                               | (19,748 | )       |        |                            | (26,579 | )            
|                                                    
|Financing Activities:                                |                                                                                    |                                                               |         |         |        |                            |         |              
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from debt financing                                                       |                                                               |         | 22,105  |        |                            |         | 28,700        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments of debt financing                                                       |                                                               |         | (23,293 | )      |                            |         | (21,755       | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash dividends paid                                                                |                                                               |         | (363    | )      |                            |         | (362          | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of common stock                                                               |                                                               |         | 192     |        |                            |         | 42            |       
|                                                    
|Net cash provided by (used for) financing activities |                                                                                    |                                                               | (1,359  | )       |        |                            | 6,625   |              
|                                                    
|Increase (Decrease) in Cash and Cash Equivalents     |                                                                                    |                                                               | (43     | )       |        |                            | 3,694   |              
|                                                    
|                                                    
|                                                    
|                                                    
|Effect of Exchange Rates on Cash                     |                                                                                    |                                                               | 61      |         |        |                            | (379    | )            
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents:                           |                                                                                    |                                                               |         |         |        |                            |         |              
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Beginning of period                                           |         |         | 9,986  |                            |         |               | 15,317 | 
|                                                    
|                                                     |                                                                                    | End of period                                                 |         | $       | 10,004 |                            |         | $             | 18,632 | 
|                                                    

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

5



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##### Table of Contents



G&K SERVICES, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Three-month periods ended September 28, 2002 and September 29, 2001
(Unaudited)



|   |  | The consolidated condensed financial statements included herein, except
for the June 29, 2002 balance sheet which was extracted from the audited
consolidated financial statements for the fiscal year ended June 29,
2002, 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
28, 2002, and the results of its operations and its cash flows for the
three months ended September 28, 2002 and September 29, 2001. 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 annual
report on Form 10-K.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The results of operations for the three-month periods ended September 28,
2002 and September 29, 2001 are not necessarily indicative of the results
to be expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|1. |  | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Accounting policies followed by the Company are set forth in Note 1 in
the Companys Annual Report on Form 10-K for the fiscal year ended June
29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | G&K Services, Inc. is a market leader in providing corporate identity
apparel and facility services programs to a wide variety of industrial,
service and high-technology companies. The Companys programs provide
rental-lease or purchase options as well as non-apparel items such as
floor mats, dustmops and cloths, wiping towels, selected linen items and
several restroom products. The Company also manufactures certain uniform
garments that it uses to support its garment rental programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The accompanying consolidated condensed financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly
owned. Intercompany balances and transactions have been eliminated in
consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Derivative Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Company uses derivative financial instruments principally to manage
the risk that changes in interest rates will affect the amount of its
future interest payments. Interest rate swap contracts are used to
adjust the proportion of total debt that is subject to variable and fixed
interest rates. The interest rate swap contracts are reflected at fair
value in the consolidated condensed balance sheet and the related gains
or losses on these contracts are deferred in stockholders equity (as a
component of other comprehensive income). Amounts to be paid or received
under the contracts are accrued as interest rates change and are
recognized over the life of the contracts as an adjustment to interest
expense. The net effect of this accounting is that interest expense on the portion of variable rate debt
being hedged is generally recorded based on fixed interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

6



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##### Table of Contents





| |  | The Company may periodically hedge firm cash flow commitments with its foreign
subsidiary, generally with foreign currency contracts. These agreements
are recorded at current market values and the gains and losses are
included in earnings. Gains and losses on such transactions were not
significant in the first quarter of fiscal 2003. Notional amounts
outstanding under foreign currency contracts at September 28, 2002 were
$2,402, all of which will mature during fiscal 2003. No amounts were
outstanding under such contracts at September 29, 2001. The fair values
of the foreign currency contracts were not materially different as of
September 28, 2002.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Per Share Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Basic earnings per common share was computed by dividing net income by
the weighted average number of shares of common stock outstanding during
the year. Diluted earnings per common share was computed similar to the
computation of basic earnings per share, except that the denominator is
increased for the assumed exercise of dilutive options and other dilutive
securities, including nonvested restricted stock, using the treasury
stock method.                                                                                                                                                                                                                   

|                                                                                             |  |                    |            |               |  |  |            | 
|-------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | ------------- |  |  | ---------- | 
|                                                                                             |  | Three Months Ended
|                                                                                             |  |                   
|                                                                                             |  | September 28,      |            | September 29,
|                                                                                             |  | 2002               |            | 2001         
|                                                                                             |  |                    |            |              
|Weighted average number of common
shares outstanding                                         |  |                    | 20,545,000 |               |  |  | 20,481,000 | 
|                                                                                             |  |                    |            |               |  |  |            | 
|Shares used in computation of
basic earnings per share                                       |  |                    | 20,545,000 |               |  |  | 20,481,000 | 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Weighted average effect of nonvested
restricted stock grants and assumed
exercise of options |  |                    | 141,000    |               |  |  | 23,000     | 
|                                                                                             |  |                    |            |               |  |  |            | 
|Shares used in computation of
diluted earnings per share                                     |  |                    | 20,686,000 |               |  |  | 20,504,000 | 
|                                                                                             |  |                    |            |               |  |  |            | 



| |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement
of tangible long-lived assets and the associated asset retirement costs.
SFAS 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The Company adopted
SFAS 143 effective June 30, 2002. The impact of adopting SFAS 143 was
not material.                                                                                                                                                   
|
| |  | In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 establishes a single accounting model, based on the
framework established in SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS
121), for long-lived assets to be disposed of by sale. SFAS 144 also
resolves several significant implementation issues related to SFAS 121,
such as eliminating the requirement to allocate goodwill to long-lived
assets to be tested for impairment and establishing criteria to define
whether a long-lived asset is held for sale. The Company adopted SFAS
144 effective June 30, 2002. The impact of adopting SFAS 144 was not
material.

7



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|   |  | In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities. It nullifies Emerging
Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. SFAS
146 requires that a liability be recognized for costs associated with an
exit or disposal activity only when the liability is incurred. SFAS 146
also establishes fair value as the objective for initial measurement of
liabilities related to exit or disposal activities. SFAS 146 is
effective for exit or disposal activities that are initiated after
December 31, 2002. The Company does not believe that SFAS 146 will have
a material impact on its consolidated financial statements.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | For the three-month periods ended September 28, 2002 and September 29,
2001, the components of comprehensive income were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                           |                                                      |   |                    |     |               |   |        |      |  
|-------------------------- | ---------------------------------------------------- | - | ------------------ | --- | ------------- | - | ------ | ---- | -
|                           |                                                      |   | Three Months Ended
|                           |                                                      |   |                   
|                           |                                                      |   | September 28,      |     | September 29,
|                           |                                                      |   | 2002               |     | 2001         
|                           |                                                      |   |                    |     |              
|Net income                 |                                                      | $ | 9,694              |     |               | $ | 9,215  |     
|                          
|                          
|                          
|                          
|Other comprehensive income |                                                      |   |                    |     |               |   |        |     
|                          
|                          
|                          
|                          
|                           | Foreign currency translation adjustments,
net of tax |   | (2,552             | )   |               |   | (2,841 | )   
|                          
|                          
|                          
|                          
|                           | Net unrealized holding loss, net of tax              |   |                    | (64 | )             |   |        | (774 | )
|                           |                                                      |   |                    |     |               |   |        |     
|
|Comprehensive income       |                                                      | $ | 7,078              |     |               | $ | 5,600  |     
|                           |                                                      |   |                    |     |               |   |        |     



|3. |  | Goodwill and Intangible Assets                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In July 2001, the Company adopted the provisions of SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. The changes in the carrying amount of goodwill for the period
ended September 28, 2002, by operating segment, are as follows:

|                                              |  |               |         |        |  |       |        |   |  |   |         |  
|--------------------------------------------- |  | ------------- | ------- | ------ |  | ----- | ------ | - |  | - | ------- | -
|                                              |  | United States |         | Canada |  | Total
|                                              |  |               |         |        |  |      
|Balance as of June 29, 2002                   |  | $             | 173,707 |        |  | $     | 26,433 |   |  | $ | 200,140 |  
|                                             
|                                             
|                                             
|                                             
|Goodwill acquired during the period           |  |               | 7,704   |        |  |       |       |   |  |   | 7,704   |  
|                                             
|                                             
|                                             
|                                             
|Other, primarily foreign currency
translation |  |               |        |        |  |       | (833   | ) |  |   | (833    | )
|                                              |  |               |         |        |  |       |        |   |  |   |         |  
|Balance as of September 28, 2002              |  | $             | 181,411 |        |  | $     | 25,600 |   |  | $ | 207,011 |  
|                                              |  |               |         |        |  |       |        |   |  |   |         |  



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

|                      |  |                          |        |              |  |     |        |  |  |   |        | 
|--------------------- |  | ------------------------ | ------ | ------------ |  | --- | ------ |  |  | - | ------ | 
|                      |  | As of September 28, 2002
|                      |  |                         
|                      |  | Carrying                 |        | Accumulated  |  |     |        | 
|                      |  | Amount                   |        | Amortization |  | Net
|                      |  |                          |        |              |  |    
|Customer Lists        |  | $                        | 67,571 |              |  | $   | 26,237 |  |  | $ | 41,334 | 
|                     
|                     
|                     
|                     
|Restrictive Covenants |  |                          | 8,303  |              |  |     | 4,337  |  |  |   | 3,966  | 
|                      |  |                          |        |              |  |     |        |  |  |   |        | 
|Total                 |  | $                        | 75,874 |              |  | $   | 30,574 |  |  | $ | 45,300 | 
|                      |  |                          |        |              |  |     |        |  |  |   |        | 

|                      |  |                     |        |              |  |     |        |  |  |   |        | 
|--------------------- |  | ------------------- | ------ | ------------ |  | --- | ------ |  |  | - | ------ | 
|                      |  | As of June 29, 2002
|                      |  |                    
|                      |  | Carrying            |        | Accumulated  |  |     |        | 
|                      |  | Amount              |        | Amortization |  | Net
|                      |  |                     |        |              |  |    
|Customer Lists        |  | $                   | 66,470 |              |  | $   | 24,914 |  |  | $ | 41,556 | 
|                     
|                     
|                     
|                     
|Restrictive Covenants |  |                     | 7,979  |              |  |     | 4,184  |  |  |   | 3,795  | 
|                      |  |                     |        |              |  |     |        |  |  |   |        | 
|Total                 |  | $                   | 74,449 |              |  | $   | 29,098 |  |  | $ | 45,351 | 
|                      |  |                     |        |              |  |     |        |  |  |   |        | 



8



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| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amortization expense for the three months ended September 28, 2002 was
$1,637. Estimated amortization expense for each of the five succeeding
fiscal years based on the intangible assets as of September 28, 2002 is
as follows:

|               |  |   |       | 
|-------------- |  | - | ----- | 
|2003 remaining |  | $ | 4,955 | 
|              
|              
|              
|              
|2004           |  |   | 6,610 | 
|              
|              
|              
|              
|2005           |  |   | 6,542 | 
|              
|              
|              
|              
|2006           |  |   | 6,238 | 
|              
|              
|              
|              
|2007           |  |   | 6,116 | 
|              
|              
|              
|              
|2008           |  |   | 6,004 | 
|              



|4. |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company has two operating segments under the guidelines of SFAS
No. 131: United States and Canada, which have been identified as
components of the Company that are reviewed by the Companys Chief
Executive Officer to determine resource allocation and evaluate
performance. Each operating segment derives revenues from the
corporate identity apparel and facility services industry, which
includes garment rental and non-apparel items such as floor mats,
dust mops and cloths, wiping towels, selected linen items and several
restroom products. No one customers transactions account for 1.0%
or more of the Companys revenues.
|  
|   |  | The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (see Note
1). Corporate expenses are allocated to the segments based on
segment revenue. The Company evaluates performance based on income
from operations. Financial information by geographic location for
the three-month periods ended September 28, 2002 and September 29,
2001 is as follows:                                                                                                                                                                                                                       

|                  |                                       |  |        |         |        |  |       |        |  |  |   |         | 
|----------------- | ------------------------------------- |  | ------ | ------- | ------ |  | ----- | ------ |  |  | - | ------- | 
|                  |                                       |  | United |         |        |  |       |        |  |  |  
|                  |                                       |  | States |         | Canada |  | Total
|                 
|Fiscal Year 2003: |                                       |  |        |         |        |  |       |        |  |  |   |        
|                 
|                 
|                 
|                 
|                  | Revenues                              |  | $      | 137,276 |        |  | $     | 18,977 |  |  | $ | 156,253 | 
|                 
|                 
|                 
|                 
|                  | Income from operations                |  |        | 14,839  |        |  |       | 4,314  |  |  |   | 19,153  | 
|                 
|                 
|                 
|                 
|                  | Capital expenditures                  |  |        | 6,683   |        |  |       | 2,293  |  |  |   | 8,976   | 
|                 
|                 
|                 
|                 
|                  | Depreciation and amortization
expense |  |        | 8,116   |        |  |       | 903    |  |  |   | 9,019   | 
|                 
|                 
|                 
|                 
|Fiscal Year 2002: |                                       |  |        |         |        |  |       |        |  |  |   |        
|                 
|                 
|                 
|                 
|                  | Revenues                              |  | $      | 138,014 |        |  | $     | 19,084 |  |  | $ | 157,098 | 
|                 
|                 
|                 
|                 
|                  | Income from operations                |  |        | 14,185  |        |  |       | 4,877  |  |  |   | 19,062  | 
|                 
|                 
|                 
|                 
|                  | Capital expenditures                  |  |        | 5,408   |        |  |       | 156    |  |  |   | 5,564   | 
|                 
|                 
|                 
|                 
|                  | Depreciation and amortization
expense |  |        | 7,880   |        |  |       | 889    |  |  |   | 8,769   | 
|                 

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

Overview

G&K Services, Inc., founded in 1902 and headquartered in Minnetonka, Minnesota,
is a market leader in providing corporate identity apparel and facility
services programs to a wide variety of North American industrial, service and
high-technology companies. We rent uniforms and other related products such as
floor mats, dust mops, wiping towels, restroom supplies and selected linen
items. We also sell uniforms and other apparel items to customers in our
direct sale programs. The North American rental market is approximately $6.0
billion, while the direct sales market, targeted by us, is approximately
$4.5-$5.0 billion in size.

Critical Accounting Policies

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

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

Revenue Recognition and Allowance for Doubtful Accounts

We recognize revenue from rental operations in the period in which the services
are provided. Direct sale revenue is recognized in the period in which the
product is shipped. Estimates are used in determining the collectability of
billed accounts receivable. Management analyzes specific accounts receivable
and historical bad debt experience, customer credit worthiness, current
economic trends and the age of outstanding balances when evaluating the
adequacy of the allowance for doubtful accounts. Significant management
judgments and estimates are used in connection with establishing the allowance
in any accounting period. Material differences may result in the amount and
timing of bad debt expense recognition for any given period if management makes
different judgments or utilizes different estimates.

Inventories

Our inventories consist of new goods and rental merchandise in service.
Estimates are used in determining the likelihood that new goods on hand can be
sold to customers or used in rental operations. Historical inventory usage and
current revenue trends are considered in estimating both obsolete and excess
inventories. New goods are stated at lower of cost or market, net of any
reserve for obsolete or excess inventory. Merchandise placed in service to
support rental operations is amortized into cost of rental operations over the
estimated useful lives of the underlying inventory items, primarily on a
straight-line basis. Estimated lives of rental merchandise in service range
from nine months to three years. In establishing estimated lives for
merchandise in service, management considers manufacturer expectations,
historical experience and the intended use of the merchandise. Material
differences may result in the amount and timing of operating profit for any
period if management makes different judgments or utilizes different estimates.

Goodwill, Intangibles and Other Long-Lived Assets

We adopted SFAS 142 at the beginning of fiscal 2002 and as a result no longer
amortize goodwill. SFAS 142 also requires that companies test goodwill for
impairment on an annual basis and when events occur or circumstances change
that would more likely than not reduce the fair value of the reporting unit to
which goodwill is assigned below its carrying amount.
There have been no impairments of

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goodwill in
fiscal 2003 or 2002. Our evaluation considers changes in the operating
environment, competitive information, market trends, operating performance and
cash flow modeling. Future events could cause management to conclude that
impairment indicators exist and that goodwill and other intangibles associated
with acquired businesses are impaired. Any resulting impairment loss could
have a material impact on our financial condition and results of operations.

Property, plant and equipment and definite-lived intangible assets are
depreciated or amortized over their useful lives. Useful lives are based on
management estimates of the period that the assets will generate revenue.
Long-lived assets are evaluated for impairment whenever events and
circumstances indicate an asset may be impaired. There have been no
write-downs of any long-lived assets in fiscal 2003 or 2002.

Insurance

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

Results of Operations

The percentage relationships to net sales of certain income and expense items
for the three-month periods ended September 28, 2002 and September 29, 2001,
and the percentage changes in these income and expense items between periods
are presented in the following table:

|                           |                      |                               |      |                    |       |                    |      |         |       |  |       |                   |      |  
|-------------------------- | -------------------- | ----------------------------- | ---- | ------------------ | ----- | ------------------ | ---- | ------- | ----- |  | ----- | ----------------- | ---- | -
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       | Percentage       
|                           |                      |                               |      | Three Months Ended |       | Change            
|                           |                      |                               |      |                    |       |                   
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       | FY Q1 2003 vs. FY
|                           |                      |                               |      | September 28, 2002 |       | September 29, 2001 |      | Q1 2002
|                           |                      |                               |      |                    |       |                    |      |        
|Revenues:                  |                      |                               |      |                    |       |                    |      |         |       |  |       |                  
|                          
|                          
|                          
|                          
|                           | Rental               |                               |      | 97.2               | %     |                    |      | 96.6    | %     |  |       | 0.1               | %   
|                          
|                          
|                          
|                          
|                           | Direct               |                               |      | 2.8                |       |                    |      | 3.4     |       |  |       | (18.5             | )   
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       |                  
|                           |                      | Total revenues                |      |                    | 100.0 |                    |      |         | 100.0 |  |       |                   | (0.5 | )
|                          
|                          
|                          
|                          
|Expenses:                  |                      |                               |      |                    |       |                    |      |         |       |  |       |                  
|                          
|                          
|                          
|                          
|                           | Cost of rental sales |                               |      | 57.9               |       |                    |      | 58.6    |       |  |       | (1.1              | )   
|                          
|                          
|                          
|                          
|                           | Cost of direct sales |                               |      | 80.5               |       |                    |      | 72.2    |       |  |       | (9.1              | )   
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       |                  
|                           |                      | Total cost of sales           |      |                    | 58.5  |                    |      |         | 59.0  |  |       |                   | (1.4 | )
|                          
|                          
|                          
|                          
|                           |                      | Selling and administrative    |      |                    | 23.4  |                    |      |         | 23.3  |  |       |                   | 0.3  |  
|                          
|                          
|                          
|                          
|                           |                      | Depreciation and amortization |      |                    | 5.8   |                    |      |         | 5.6   |  |       |                   | 2.9  |  
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       |                  
|Income from operations     |                      |                               | 12.3 |                    |       |                    | 12.1 |         |       |  | 0.5   |                  
|                          
|                          
|                          
|                          
|Interest expense           |                      |                               | 2.1  |                    |       |                    | 2.4  |         |       |  | (14.9 | )                
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       |                  
|Income before income taxes |                      |                               | 10.2 |                    |       |                    | 9.7  |         |       |  | 4.3   |                  
|                          
|                          
|                          
|                          
|Provision for income taxes |                      |                               | 4.0  |                    |       |                    | 3.8  |         |       |  | 3.0   |                  
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       |                  
|Net income                 |                      |                               | 6.2  | %                  |       |                    | 5.9  | %       |       |  | 5.2   | %                
|                           |                      |                               |      |                    |       |                    |      |         |       |  |       |                  

11



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Three months ended September 28, 2002 compared to three months ended September 29, 2001

Revenues.Total revenues in the first quarter of fiscal 2003 decreased 0.5% to
$156.3 million from $157.1 million in the first quarter of fiscal 2002. Rental
revenue increased $0.1 million in the first quarter, or 0.1%. The net impact
of acquisitions and changes in foreign currency exchange rates increased rental
revenue 4.6%.

Direct sale revenue decreased 18.5% to $4.3 million in the first quarter of
fiscal 2003 compared to $5.3 million in the same period of fiscal 2002. Direct
sale revenue is down due to large initial stocking orders in the first quarter
of fiscal 2002 and the continued postponement of customer orders in the current
year quarter.

Cost of Rental and Direct Sale.Cost of rental operations decreased 1.1% to
$87.9 million in the first quarter of fiscal 2003 from $88.9 million in the
same period of fiscal 2002. Gross margin from rental sales increased to 42.1%
in the first quarter of fiscal 2003 from 41.4% in the first quarter of fiscal
2002. Improved operational productivity and lower merchandise expense
contributed to the improved rental gross margin.

Cost of direct sales decreased 9.1% to $3.5 million in the first quarter of
fiscal 2003 from $3.9 million in the same period of fiscal 2002. Gross margin
from direct sales decreased to 19.5% in the first quarter of fiscal 2003 from
27.8% in the first quarter of fiscal 2002. The decrease in gross margin is due
primarily to lower revenue.

Selling and Administrative.Selling and administrative expenses increased 0.3%
to $36.7 million in the first quarter of fiscal 2003 from $36.5 million in the
same period of fiscal 2002. As a percentage of total revenues, selling and
administrative expenses increased to 23.4% in the first quarter of fiscal 2003
from 23.3% in the same period of fiscal 2002. Sales and marketing expenses
focused on organic revenue growth and increasing property and casualty
insurance costs drove the majority of the increase.

Depreciation and Amortization.Depreciation and amortization expense increased
2.9% to $9.0 million in the first quarter of fiscal 2003 from $8.8 million in
the same period of fiscal 2002. As a percentage of total revenues,
depreciation and amortization expense increased to 5.8% in the first quarter of
fiscal 2003 from 5.6% in the same period of fiscal 2002. Capital expenditures,
excluding acquisition of businesses, was $9.0 million in the first quarter of
fiscal 2003 compared to $5.6 million in the prior years quarter.

Interest Expense.Interest expense was $3.3 million in the first quarter of
fiscal 2003, down from $3.8 million in the same period of fiscal 2002. The
decrease in interest expense is due primarily to lower effective interest
rates.

Provision for Income Taxes.Our effective tax rate decreased to 39.0% in the
first quarter of fiscal 2003 from 39.5% in the same period of fiscal 2002 due
largely to decreases in Canadian statutory income tax rates.

Liquidity, Capital Resources and Financial Condition

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

Operating Activities.Net cash provided by operating activities was $21.1
million in the first quarter of fiscal 2003 and $23.6 million in the same
period of fiscal 2002.

Working capital at September 28, 2002 was $91.6 million, down 4.4% from $95.8
million at June 29, 2002. The decrease was largely driven by an increase in
current maturities of long-term debt associated with debt amortization and
acquisitions in the first quarter of fiscal 2003.

Investing Activities.Net cash used in investing activities was $19.7 million
in the first quarter of fiscal 2003 and $26.6 million in the first quarter of
fiscal 2002. In both fiscal years 2003 and 2002, cash was largely used for
acquisitions and property, plant and equipment additions.

12



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Financing Activities.Cash used for financing activities was $1.4 million in
the first quarter of fiscal 2003 and cash provided by financing activities was
$6.6 million in the same period of fiscal 2002. Cash used in fiscal 2003 was
primarily related to repayment of long-term debt. Cash provided in fiscal 2002
was used primarily in acquisitions of businesses. We paid dividends of $0.4
million during the quarter.

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

The following table summarizes our fixed cash obligations as of September 28,
2002 for the fiscal years ending June (in millions):

|                                                      |  |                |        |      |  |      |        |      |  |      |        |                     |  |       |        |  |  |   |        |  |  |   |         |  |  |   |         | 
|----------------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ------------------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                                      |  | 2003 Remaining |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | 2008 and Thereafter |  | Total
|                                                     
|Variable rate term loan and revolving
credit facility |  | $              | 5,625  |      |  | $    | 13,125 |      |  | $    | 15,000 |                     |  | $     | 18,750 |  |  | $ | 22,500 |  |  | $ | 92,100  |  |  | $ | 167,100 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Fixed rate term loan                                  |  |                |       |      |  |      |       |      |  |      | 7,143  |                     |  |       | 7,143  |  |  |   | 7,143  |  |  |   | 28,571  |  |  |   | 50,000  | 
|                                                     
|                                                     
|                                                     
|                                                     
|Other debt arrangements, including
capital leases     |  |                | 1,519  |      |  |      | 1,183  |      |  |      | 1,286  |                     |  |       | 66     |  |  |   | 29     |  |  |   |        |  |  |   | 4,083   | 
|                                                     
|                                                     
|                                                     
|                                                     
|Operating leases                                      |  |                | 7,069  |      |  |      | 6,477  |      |  |      | 4,905  |                     |  |       | 3,485  |  |  |   | 2,432  |  |  |   | 1,894   |  |  |   | 26,262  | 
|                                                     
|Total contractual cash obligations                    |  | $              | 14,213 |      |  | $    | 20,785 |      |  | $    | 28,334 |                     |  | $     | 29,444 |  |  | $ | 32,104 |  |  | $ | 122,565 |  |  | $ | 247,445 | 
|                                                     

Also, at September 28, 2002, we had stand-by letters of credit totaling $11.1
million that have been issued and are outstanding, primarily in connection with
our property and casualty insurance programs. No amounts have been drawn upon
these letters of credit.

At September 28, 2002, we had available cash on hand of $10.0 million and
approximately $146.8 million of available capacity under our revolving credit
facility. We anticipate that we will generate sufficient cash flows from
operations to satisfy our cash commitments and capital requirements for fiscal
2003; however, we may utilize borrowings under the revolving credit facility to
supplement our cash requirements from time to time. We estimate that capital
expenditures in fiscal 2003 will be approximately $30.0 million to $35.0
million.

The amount of cash flow generated from operations is subject to a number of
risks and uncertainties. In fiscal 2003, we may actively seek and consider
acquisitions of business assets, the consummation of any acquisition could
affect our liquidity profile and level of outstanding debt. We believe that
available capacity under our revolving credit facility will be adequate to
finance any such acquisitions and planned capital expenditures in fiscal 2003.

Impact of Inflation

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

Litigation

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

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Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. We adopted SFAS 143 effective
June 30, 2002. The impact of adopting SFAS 143 was not material.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).
SFAS 144 establishes a single accounting model, based on the framework
established in SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of (SFAS 121), for long-lived
assets to be disposed of by sale. SFAS 144 also resolves several significant
implementation issues related to SFAS 121, such as eliminating the requirement
to allocate goodwill to long-lived assets to be tested for impairment and
establishing criteria to define whether a long-lived asset is held for sale.
We adopted SFAS 144 effective June 30, 2002. The impact of adopting SFAS 144
was not material.

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146).
SFAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities. It nullifies Emerging Issues Task Force Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity. SFAS 146 requires that a liability be
recognized for costs associated with an exit or disposal activity only when the
liability is incurred. SFAS 146 also establishes fair value as the objective
for initial measurement of liabilities related to exit or disposal activities.
SFAS 146 is effective for exit or disposal activities that are initiated after
December 31, 2002. We do not believe that SFAS 146 will have a material impact
on our consolidated financial statements.

Cautionary Statements Regarding Forward-Looking Statements

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

Some of the factors that could cause actual results or events to vary from
stated expectations include, but are not limited to, the following: unforeseen
operating risks; the effects of overall economic conditions; fluctuations in
costs of insurance and energy; acquisition integration costs; the performance
of acquired businesses; preservation of positive labor relationships;
competition, including pricing, within the corporate identity apparel and
facility services industry; and the availability of capital to finance planned
growth. Additional information concerning potential factors that could effect
future financial results is included in the Companys Annual Report on Form
10-K for the Fiscal Year Ended June 29, 2002.

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##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates.
We use financial instruments, including fixed and variable rate debt, as well
as interest rate swaps to manage interest rate risk. Interest rate swap
agreements are entered into for periods consistent with related underlying
exposures and do not constitute positions independent of those exposures.
Assuming the current level of borrowings, a 100 basis point increase in
interest rates under these borrowings would have increased our interest expense
for the first quarter of fiscal 2003 by approximately $1.3 million. This
estimated exposure considers the mitigating effects of interest rate swap
agreements outstanding at September 28, 2002 on the change in the cost of
variable rate debt.

Foreign Currency Exchange Risk

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

We may periodically hedge firm cash flow commitments with our 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 2003. Notional amounts outstanding under foreign
currency contracts at September 28, 2002 were $2.4 million, all of which will
mature during fiscal 2003. No amounts were outstanding under such contracts at
September 29, 2001. The fair values of the foreign currency contracts were not
materially different as of September 28, 2002.




ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including our
Chief Executive Officer and Chief Financial Officer, we performed an evaluation
of disclosure controls and procedures within 90 days of filing this quarterly
report (the Evaluation Date). After evaluating the effectiveness of
disclosure controls and procedures, the Chief Executive Officer and Chief
Financial Officer, along with other key management, have determined that
disclosure controls and procedures were effective and designed to ensure that
material information relating to G&K Services and its consolidated subsidiaries
would be made known to them on a timely basis. There were no significant
changes in internal controls or other factors that could significantly affect
these controls subsequent to the Evaluation Date.

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##### Table of Contents






PART II

OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.     Exhibits

| |  |                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10.1 Promissory Note of Richard L. Marcantonio dated July 26, 2002
and payable to the Registrant                                                                                          
|
|
|
|
| |  |                                                                                                                                                                                           
|
|
|
|
| |  | 10.2 Stock Pledge Agreement dated as of July 26, 2002, by and
between the Registrant and Richard L. Marcantonio                                                                           
|
|
|
|
| |  |                                                                                                                                                                                           
|
|
|
|
| |  | 99.1 Certification of the Companys Chief Executive Officer, Thomas
R. Moberly, and Chief Financial Officer, Jeffrey L. Wright,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b.     Reports on Form 8-K



| |                                                               
| | --------------------------------------------------------------
| | A Form 8-K, Item 5. Other Events was filed on October 4, 2002.

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##### Table of Contents






SIGNATURES

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

|                        |  |                                 |  |                                                                                      
|----------------------- |  | ------------------------------- |  | -------------------------------------------------------------------------------------
|Date: November 12, 2002 |  | G&K
SERVICES, INC.
(Registrant)
|                       
|                       
|                       
|                       
|                        |  |                                 |  |                                                                                      
|                       
|                       
|                       
|                       
|                        |  | By:                             |  | /s/ Jeffrey L. Wright                                                                
|                       
|                       
|                       
|                       
|                        |  |                                 |  | Jeffrey L. Wright
Chief Financial Officer and Secretary
(Principal Financial Officer)
|                       
|                       
|                       
|                       
|                        |  |                                 |  |                                                                                      
|                       
|                       
|                       
|                       
|                        |  | By:                             |  | /s/ Michael F. Woodard                                                               
|                       
|                       
|                       
|                       
|                        |  |                                 |  | Michael F. Woodard
Controller
(Principal Accounting Officer)                         

17



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##### Table of Contents






CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas R. Moberly, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of G&K Services, Inc.;                                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have;                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |     |  |                                                                        
|----------------------- |  | --- |  | -----------------------------------------------------------------------
|Date: November 12, 2002 |  |     | 
|                       
|                       
|                       
|                       
|                        |  |     |  |                                                                        
|                       
|                       
|                       
|                       
|                        |  | By: |  | /s/ Thomas R. Moberly                                                  
|                       
|                       
|                       
|                       
|                        |  |     |  | Thomas R. Moberly
Chief Executive Officer
(Principal Executive Officer)

18



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##### Table of Contents






CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey L. Wright, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of G&K Services, Inc.;                                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have;                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |     |  |                                                                                      
|----------------------- |  | --- |  | -------------------------------------------------------------------------------------
|Date: November 12, 2002 |  |     | 
|                       
|                       
|                       
|                       
|                        |  |     |  |                                                                                      
|                       
|                       
|                       
|                       
|                        |  | By: |  | /s/ Jeffrey L. Wright                                                                
|                       
|                       
|                       
|                       
|                        |  |     |  | Jeffrey L. Wright
Chief Financial Officer and Secretary
(Principal Financial Officer)

19