##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10 - Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For Quarter Ended December 31, 2005
 Commission file number 0-4063
 G&K SERVICES, INC.
  MINNESOTA
    
    41-0449530(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 
 
  þ o
  þ o
  o þ




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G&K Services, Inc.
Form 10-Q
 Table of Contents
 PAGEPART IItem 1. Financial StatementsConsolidated Condensed Balance Sheets as of
December 31, 2005 and July 2, 2005
    
    
    3Consolidated Statements of Operations for the three and six months ended
December 31, 2005 and January 1, 2005
    
    
    4Consolidated Condensed Statements of Cash Flows for the six
months ended December 31, 2005 and January 1, 2005
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART IIItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 6. Exhibits
    
    
    24Signatures
    
    
    25Employment AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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PART I
 FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 G&K Services, Inc. and Subsidiaries
 December 31,
    
    
    July 2,2005
    
    
    2005(In thousands)
    
    (Unaudited)
    
    
    (Restated)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    14,080
    
    
    $
    15,345Accounts receivable, less allowance for doubtful
accounts of $3,290 and $2,890
    
    
    94,651
    
    
    
    83,459Inventories
    
    
    131,501
    
    
    
    121,120Prepaid expenses
    
    
    15,107
    
    
    
    16,587Total current assets
    
    
    255,339
    
    
    
    236,511Property, Plant and Equipment, net
    
    
    248,234
    
    
    
    243,307Goodwill
    
    
    346,246
    
    
    
    338,701Other Assets
    
    
    84,014
    
    
    
    84,650$
    933,833
    
    
    $
    903,169LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    26,091
    
    
    $
    25,695Accrued expenses
    
    
    75,434
    
    
    
    81,523Deferred income taxes
    
    
    9,212
    
    
    
    8,971Current maturities of long-term debt
    
    
    7,595
    
    
    
    26,537Total current liabilities
    
    
    118,332
    
    
    
    142,726Long-Term Debt, net of Current Maturities
    
    
    231,073
    
    
    
    210,462Deferred Income Taxes
    
    
    30,735
    
    
    
    30,887Other Noncurrent Liabilities
    
    
    41,771
    
    
    
    37,651Stockholders Equity
    
    
    511,922
    
    
    
    481,443$
    933,833
    
    
    $
    903,169
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CONSOLIDATED STATEMENTS OF OPERATIONS
 G&K Services, Inc. and Subsidiaries
 For the Three Months Ended
    
    
    For the Six Months EndedJanuary 1,
    
    
    
    
    
    
    January 1,December 31,
    
    
    2005
    
    
    December 31,
    
    
    2005(In thousands, except per share data)
    
    2005
    
    
    (Restated)
    
    
    2005
    
    
    (Restated)RevenuesRental operations
    
    $
    199,355
    
    
    $
    183,110
    
    
    $
    393,423
    
    
    $
    359,401Direct sales
    
    
    19,993
    
    
    
    12,025
    
    
    
    33,873
    
    
    
    18,166Total revenues
    
    
    219,348
    
    
    
    195,135
    
    
    
    427,296
    
    
    
    377,567Operating ExpensesCost of rental operations
    
    
    127,672
    
    
    
    116,415
    
    
    
    252,178
    
    
    
    227,424Cost of direct sales
    
    
    14,155
    
    
    
    8,441
    
    
    
    24,356
    
    
    
    13,337Selling and administrative
    
    
    47,855
    
    
    
    41,980
    
    
    
    91,600
    
    
    
    81,294Depreciation and amortization
    
    
    10,644
    
    
    
    10,161
    
    
    
    21,243
    
    
    
    20,319Total operating expenses
    
    
    200,326
    
    
    
    176,997
    
    
    
    389,377
    
    
    
    342,374Income from Operations
    
    
    19,022
    
    
    
    18,138
    
    
    
    37,919
    
    
    
    35,193Interest expense
    
    
    3,302
    
    
    
    2,641
    
    
    
    6,317
    
    
    
    5,189Income before Income Taxes
    
    
    15,720
    
    
    
    15,497
    
    
    
    31,602
    
    
    
    30,004Provision for income taxes
    
    
    5,486
    
    
    
    5,769
    
    
    
    10,997
    
    
    
    11,209Net Income
    
    $
    10,234
    
    
    $
    9,728
    
    
    $
    20,605
    
    
    $
    18,795Basic weighted average number
of shares outstanding
    
    
    21,083
    
    
    
    20,911
    
    
    
    21,037
    
    
    
    20,868Basic Earnings per Common Share
    
    $
    0.49
    
    
    $
    0.46
    
    
    $
    0.98
    
    
    $
    0.90Diluted weighted average number
of shares outstanding
    
    
    21,221
    
    
    
    21,678
    
    
    
    21,185
    
    
    
    21,378Diluted Earnings per Common Share
    
    $
    0.48
    
    
    $
    0.45
    
    
    $
    0.97
    
    
    $
    0.88Dividends per share
    
    $
    0.0175
    
    
    $
    0.0175
    
    
    $
    0.0350
    
    
    $
    0.0350
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 G&K Services, Inc. and Subsidiaries
 For the Six Months EndedJanuary 1,December 31,
    
    
    2005(In thousands)
    
    2005
    
    
    (Restated)Operating Activities:Net income
    
    $
    20,605
    
    
    $
    18,795Adjustments to reconcile net income to net cash
provided by operating activities -Depreciation and amortization
    
    
    21,243
    
    
    
    20,319Stock-based compensation
    
    
    2,118
    
    
    
    1,972Deferred income taxes
    
    
    371
    
    
    
    922Changes in current operating items, exclusive of
acquisitions
    
    
    (21,198
    )
    
    
    (13,111
    )Other assets and liabilities
    
    
    977
    
    
    
    838Net cash provided by operating activities
    
    
    24,116
    
    
    
    29,735Investing Activities:Property, plant and equipment additions, net
    
    
    (16,482
    )
    
    
    (4,095
    )Acquisitions of business assets and other
    
    
    (12,763
    )
    
    
    (36,038
    )Net cash used for investing activities
    
    
    (29,245
    )
    
    
    (40,133
    )Financing Activities:Repayments of long-term debt
    
    
    (7,484
    )
    
    
    (17,114
    )Proceeds from short-term borrowings, net
    
    
    10,550
    
    
    
    7,400Cash dividends paid
    
    
    (747
    )
    
    
    (732
    )Sale of common stock
    
    
    1,250
    
    
    
    3,251Net cash provided by (used for) financing activities
    
    
    3,569
    
    
    
    (7,195
    )Decrease in Cash and Cash Equivalents
    
    
    (1,560
    )
    
    
    (17,593
    )Effect of Exchange Rates on Cash
    
    
    295
    
    
    
    1,620Cash and Cash Equivalents:Beginning of period
    
    
    15,345
    
    
    
    26,931End of period
    
    $
    14,080
    
    
    $
    10,958Supplemental Cash Flow Information:Non-Cash Transactions -Debt issued in connection with business acquisitions
    
    $
    (1,419
    )
    
    $
    11,890
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1.
    
    Summary of Significant Accounting PoliciesAccounting policies followed by the Company are set forth in Note 1 in the Companys Annual
Report on Form 10-K for the fiscal year ended July 2, 2005.Nature of BusinessG&K Services, Inc. (the Company) is a market leader in providing branded identity apparel
and facility services programs that enhance image and safety in the workplace. The Company
serves a wide variety of industrial, service and high-technology companies providing them
with rented uniforms or purchase options as well as facility services products such as floor
mats, dust mops, wiping towels, selected linen items and several restroom products. The
Company also manufactures certain uniform garments that it uses to support its garment
rental programs. The Company has two operating segments, United States and Canada, which
have been identified as components of the Company that are reviewed by the Companys Chief
Executive Officer to determine resource allocation and evaluate performance.Principles of ConsolidationThe accompanying consolidated condensed financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. Significant intercompany
balances and transactions have been eliminated in consolidation.Revenue RecognitionThe Companys rental operations business is largely based on written service agreements
whereby it agrees to collect, launder and deliver uniforms and other related products. The
service agreements provide for weekly billing upon completion of the laundering process and
delivery to the customer. Accordingly, the Company recognizes revenue from rental
operations in the period in which the services are provided. Revenue from rental operations
also includes billings to customers for lost or abused merchandise. Direct sale revenue is
recognized in the period in which the product is shipped.
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Derivative Financial Instruments
    Per Share Data
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,2005
    
    
    2005
    
    
    2005
    
    
    2005Weighted average number of common
shares outstanding used in computation
of basic earnings per share
    
    
    21,083
    
    
    
    20,911
    
    
    
    21,037
    
    
    
    20,868Weighted average effect of nonvested
restricted stock grants and assumed
exercise of options
    
    
    138
    
    
    
    767
    
    
    
    148
    
    
    
    510Shares used in computation of
diluted earnings per share
    
    
    21,221
    
    
    
    21,678
    
    
    
    21,185
    
    
    
    21,378
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2.
    
    Comprehensive IncomeFor the three and six month periods ended December 31, 2005 and January 1, 2005, the
components of comprehensive income were as follows:
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,2005
    
    
    2005
    
    
    2005
    
    
    2005Net income
    
    $
    10,234
    
    
    $
    9,728
    
    
    $
    20,605
    
    
    $
    18,795Other comprehensive incomeForeign currency translation
adjustments, net of tax
    
    
    (298
    )
    
    
    5,480
    
    
    
    6,736
    
    
    
    10,438Net unrealized holding gain on
derivative financial
instruments, net of tax
    
    
    (154
    )
    
    
    227
    
    
    
    518
    
    
    
    229Comprehensive income
    
    $
    9,782
    
    
    $
    15,435
    
    
    $
    27,859
    
    
    $
    29,462
 3.
    
    Goodwill and Intangible AssetsThe changes in the carrying amount of goodwill for the six months ended December 31, 2005,
by operating segment, are as follows:
 United States
    
    
    Canada
    
    
    TotalBalance as of July 2, 2005
    
    $
    286,313
    
    
    $
    52,388
    
    
    $
    338,701Goodwill acquired during the period
    
    
    1,143
    
    
    
    3,659
    
    
    
    4,802Other, primarily foreign currency
translation
    
    
    
    
    
    
    2,743
    
    
    
    2,743Balance as of December 31, 2005
    
    $
    287,456
    
    
    $
    58,790
    
    
    $
    346,246
  As of December 31, 2005Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer contracts
    
    $
    104,343
    
    
    $
    52,897
    
    
    $
    51,446Non-competition agreements
    
    
    10,880
    
    
    
    7,863
    
    
    
    3,017Total
    
    $
    115,223
    
    
    $
    60,760
    
    
    $
    54,463
 As of July 2, 2005Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer contracts
    
    $
    102,021
    
    
    $
    47,821
    
    
    $
    54,200Non-competition agreements
    
    
    10,829
    
    
    
    7,239
    
    
    
    3,590Total
    
    $
    112,850
    
    
    $
    55,060
    
    
    $
    57,790
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2006 remaining
    
    $
    5,6402007
    
    
    10,8212008
    
    
    10,2422009
    
    
    6,5342010
    
    
    6,2832011
    
    
    5,562
 4.
    
    Long-Term DebtOn August 31, 2005, the Company amended and restated its revolving credit facility. The
amended and restated revolving credit facility of $325,000 expires on August 31, 2010. As
of December 31, 2005, borrowings outstanding under the revolving credit facility were
$66,800. The unused portion of the revolver may be used for general corporate purposes,
acquisitions, working capital needs and to provide up to $50,000 in letters of credit. As
of December 31, 2005, letters of credit outstanding against the revolver were $31,760.Borrowings under the revolving credit facility bear interest at 0.55% to 1.50% over the
London Interbank Offered Rate (LIBOR), or the Canadian prime rate for Canadian borrowings,
based on a leverage ratio calculated on a quarterly basis. Advances outstanding as of
December 31, 2005 bear interest at LIBOR plus 0.875%. The Company also pays a fee on the
unused daily balance of the revolver based on a leverage ratio calculated each quarter.
 5.
    
    Stock-Based CompensationThe Company maintains Stock Option and Compensation Plans (the Employee Plans) to grant
certain stock awards, including stock options at fair market value and restricted shares, to
key employees of the Company. Exercise periods for stock options are limited to a maximum
of 10 years and a minimum of one year. A maximum of 3,000,000 stock awards can be granted
under the Employee Plans and 1,031,895 awards were available for grant as of December 31,
2005.The Company also maintains the 1996 Director Stock Option Plan (the Directors Plan). The
Directors Plan provides for automatic grant of 3,000 nonqualified stock options (initial
grants) to nonemployee directors of the Company as of the later of August 1996 or the date
such individuals became directors of the Company and 1,500 nonqualified stock options and
500 stock grants on each subsequent annual shareholder meeting date. The Company has
reserved 100,000 shares of Class A common stock for issuance under the Directors Plan.
These options expire within 10 years of grant and are exercisable one year from the date of
grant, except for the initial grants, of which, one-third of the total options are
exercisable each year beginning with the first anniversary of the date of grant. The option
price will be the average market price of the Class A common stock during the 10 business
days preceding the date of grant.The Company has adopted the provisions of the Statement of Financial Accounting Standards
No. 123 (revised 2004) Share-Based Payment (SFAS 123(r)) in the first quarter of fiscal
2006 under the modified retrospective transition method. SFAS 123(r) eliminates accounting
for share-based compensation transactions using the intrinsic value method prescribed in APB
Opinion No. 25,
Accounting for Stock Issued to Employees, and requires instead that the fair value of all
share-based transactions, including
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Stock OptionsWeightedEmployee
    
    
    Directors'
    
    
    
    
    
    
    AveragePlans
    
    
    Plan
    
    
    Grant Price
    
    
    Exercise PriceThree months:Outstanding at October 1, 2005
    
    
    1,361,599
    
    
    
    58,000
    
    
    $
    25.00 -- 53.34
    
    
    $
    35.64Granted
    
    
    30,502
    
    
    
    10,500
    
    
    
    38.33 -- 49.43
    
    
    
    38.50Exercised
    
    
    (12,559
    )
    
    
    (8,000
    )
    
    
    25.00 -- 36.41
    
    
    
    28.84Canceled
    
    
    (20,798
    )
    
    
    
    
    
    
    27.95 -- 46.00
    
    
    
    38.70Outstanding at December 31,
2005
    
    
    1,358,744
    
    
    
    60,500
    
    
    $
    25.00 -- 53.34
    
    
    $
    35.81Six months:Outstanding at July 2, 2005
    
    
    1,161,547
    
    
    
    55,000
    
    
    $
    25.00 -- 53.34
    
    
    $
    34.21Granted
    
    
    257,665
    
    
    
    13,500
    
    
    
    38.25 -- 49.43
    
    
    
    42.13Exercised
    
    
    (33,677
    )
    
    
    (8,000
    )
    
    
    25.00 -- 41.56
    
    
    
    31.25Canceled
    
    
    (26,791
    )
    
    
    
    
    
    
    27.95 -- 46.00
    
    
    
    38.05Outstanding at December 31, 2005
    
    
    1,358,744
    
    
    
    60,500
    
    
    $
    25.00 -- 53.34
    
    
    $
    35.81Exercisable at December 31, 2005
    
    
    851,560
    
    
    
    42,000
    
    
    $
    25.00 -- 53.34
    
    
    $
    34.00
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Options Outstanding
    
    
    Options ExercisableAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of Exercise
    
    Number
    
    
    Option Life
    
    
    Average
    
    
    Number
    
    
    AveragePrice
    
    Outstanding
    
    
    (Years)
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$16.50  25.00
    
    
    42,300
    
    
    
    4.4
    
    
    $
    25.00
    
    
    
    42,300
    
    
    $
    25.0025.01  37.00
    
    
    892,550
    
    
    
    7.3
    
    
    
    32.56
    
    
    
    650,904
    
    
    
    31.6237.01  53.34
    
    
    484,394
    
    
    
    6.2
    
    
    
    42.74
    
    
    
    200,356
    
    
    
    43.611,419,244
    
    
    
    6.8
    
    
    $
    35.81
    
    
    
    893,560
    
    
    $
    34.00
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6.
    
    Employee Benefit Plans
  Supplemental ExecutivePension Plan
    
    
    Retirement PlanThree Months Ended
    
    
    Three Months EndedDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,2005
    
    
    2005
    
    
    2005
    
    
    2005Service cost
    
    $
    1,191
    
    
    $
    741
    
    
    $
    234
    
    
    $
    164Interest cost
    
    
    809
    
    
    
    532
    
    
    
    189
    
    
    
    142Expected return on assets
    
    
    (617
    )
    
    
    (426
    )
    
    
    
    
    
    
    Prior service cost
    
    
    13
    
    
    
    11
    
    
    
    10
    
    
    
    9Loss
    
    
    340
    
    
    
    101
    
    
    
    76
    
    
    
    38Net periodic pension cost
    
    $
    1,736
    
    
    $
    959
    
    
    $
    509
    
    
    $
    353
  Supplemental ExecutivePension Plan
    
    
    Retirement PlanSix Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,2005
    
    
    2005
    
    
    2005
    
    
    2005Service cost
    
    $
    2,381
    
    
    $
    1,895
    
    
    $
    468
    
    
    $
    390Interest cost
    
    
    1,618
    
    
    
    1,361
    
    
    
    377
    
    
    
    338Expected return on assets
    
    
    (1,233
    )
    
    
    (1,089
    )
    
    
    
    
    
    
    Prior service cost
    
    
    26
    
    
    
    28
    
    
    
    21
    
    
    
    21Loss
    
    
    680
    
    
    
    258
    
    
    
    152
    
    
    
    104Net periodic pension cost
    
    $
    3,472
    
    
    $
    2,453
    
    
    $
    1,018
    
    
    $
    853
 7.
    
    Segment Information
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UnitedFor the Three Months Ended
    
    States
    
    
    Canada
    
    
    TotalSecond Quarter Fiscal Year 2006:Revenues
    
    $
    181,298
    
    
    $
    38,050
    
    
    $
    219,348Income from operations
    
    
    12,342
    
    
    
    6,680
    
    
    
    19,022Property, plant and equipment
additions, net
    
    
    7,426
    
    
    
    550
    
    
    
    7,976Depreciation and amortization
expense
    
    
    9,156
    
    
    
    1,488
    
    
    
    10,644Second Quarter Fiscal Year 2005:Revenues
    
    $
    163,175
    
    
    $
    31,960
    
    
    $
    195,135Income from operations
    
    
    11,594
    
    
    
    6,544
    
    
    
    18,138Property, plant and equipment
additions, net
    
    
    3,355
    
    
    
    1,326
    
    
    
    4,681Depreciation and amortization
expense
    
    
    8,806
    
    
    
    1,355
    
    
    
    10,161
 UnitedFor the Six Months Ended
    
    States
    
    
    Canada
    
    
    TotalFiscal Year 2006:Revenues
    
    $
    354,494
    
    
    $
    72,802
    
    
    $
    427,296Income from operations
    
    
    25,165
    
    
    
    12,754
    
    
    
    37,919Property, plant and equipment
additions, net
    
    
    15,176
    
    
    
    1,306
    
    
    
    16,482Depreciation and amortization
expense
    
    
    18,264
    
    
    
    2,979
    
    
    
    21,243Fiscal Year 2005:Revenues
    
    $
    319,044
    
    
    $
    58,523
    
    
    $
    377,567Income from operations
    
    
    23,752
    
    
    
    11,441
    
    
    
    35,193Property, plant and equipment
additions, net
    
    
    2,235
    
    
    
    1,860
    
    
    
    4,095Depreciation and amortization
expense
    
    
    17,707
    
    
    
    2,612
    
    
    
    20,319
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
     Critical Accounting Policies
   Revenue Recognition and Allowance for Doubtful Accounts
  14




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Inventories
  Goodwill, Intangibles and Other Long-Lived Assets
   Insurance
  Income Taxes
  15




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##### Table of Contents



Results of Operations
  Three Months
    
    
    Six Months
    
    
    PercentageEnded
    
    
    Ended
    
    
    ChangeThree Months
    
    
    Six MonthsDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,
    
    
    FY 2006
    
    
    FY 20062005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    vs. FY 2005
    
    
    vs. FY 2005Revenues:Rental
    
    
    90.9
    %
    
    
    93.8
    %
    
    
    92.1
    %
    
    
    95.2
    %
    
    
    8.9
    %
    
    
    9.5
    %Direct
    
    
    9.1
    
    
    
    6.2
    
    
    
    7.9
    
    
    
    4.8
    
    
    
    66.3
    
    
    
    86.5Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    12.4
    
    
    
    13.2Expenses:Cost of rental sales
    
    
    64.0
    
    
    
    63.6
    
    
    
    64.1
    
    
    
    63.3
    
    
    
    9.7
    
    
    
    10.9Cost of direct sales
    
    
    70.8
    
    
    
    70.2
    
    
    
    71.9
    
    
    
    73.4
    
    
    
    67.7
    
    
    
    82.6Total cost of sales
    
    
    64.7
    
    
    
    64.0
    
    
    
    64.7
    
    
    
    63.8
    
    
    
    13.6
    
    
    
    14.9Selling and administrative
    
    
    21.8
    
    
    
    21.5
    
    
    
    21.4
    
    
    
    21.5
    
    
    
    14.0
    
    
    
    12.7Depreciation and
amortization
    
    
    4.8
    
    
    
    5.2
    
    
    
    5.0
    
    
    
    5.4
    
    
    
    4.8
    
    
    
    4.5Income from operations
    
    
    8.7
    
    
    
    9.3
    
    
    
    8.9
    
    
    
    9.3
    
    
    
    4.9
    
    
    
    7.7Interest expense
    
    
    1.5
    
    
    
    1.4
    
    
    
    1.5
    
    
    
    1.4
    
    
    
    25.0
    
    
    
    21.7Income before income taxes
    
    
    7.2
    
    
    
    7.9
    
    
    
    7.4
    
    
    
    7.9
    
    
    
    1.4
    
    
    
    5.3Provision for income taxes
    
    
    2.5
    
    
    
    2.9
    
    
    
    2.6
    
    
    
    2.9
    
    
    
    (4.9
    )
    
    
    (1.9
    )Net income
    
    
    4.7
    %
    
    
    5.0
    %
    
    
    4.8
    %
    
    
    5.0
    %
    
    
    5.2
    %
    
    
    9.6
    %
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##### Table of Contents



Three months ended December 31, 2005 compared to three months ended January 1, 2005
 Revenues.
   Cost of Rental and Direct Sale.
  Selling and Administrative.
 Depreciation and Amortization
 Interest Expense
 Provision for Income Taxes
 Six months ended December 31, 2005 compared to six months ended January 1, 2005
 Revenues.
 17




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##### Table of Contents



Cost of Rental and Direct Sale.
  Selling and Administrative.
 Depreciation and Amortization
 Income from Operations.
 Interest Expense
 Provision for Income Taxes
 Liquidity, Capital Resources and Financial Condition
  Operating Activities.
 18




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##### Table of Contents



Investing Activities.
 Financing Activities.
   Cash Obligations.
  2006Remaining
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011 andThere-after
    
    
    TotalVariable rate term loan and
revolving
credit facility
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    66,800
    
    
    $
    
    
    
    $
    66,800Variable rate notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    75,000Variable rate loan
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Fixed rate notes
    
    
    
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    7,143
    
    
    
    7,142
    
    
    
    35,714Other debt arrangements, including
capital leases
    
    
    309
    
    
    
    10,682
    
    
    
    121
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    11,154Operating leases
    
    
    10,243
    
    
    
    15,142
    
    
    
    12,128
    
    
    
    7,924
    
    
    
    5,561
    
    
    
    4,174
    
    
    
    55,172Total contractual cash obligations
    
    $
    10,552
    
    
    $
    32,967
    
    
    $
    69,392
    
    
    $
    15,109
    
    
    $
    79,504
    
    
    $
    86,316
    
    
    $
    293,840
 19




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##### Table of Contents



Pension Obligations
    Impact of Inflation
   20




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##### Table of Contents



Litigation
  Stock-Based Compensation
   Cautionary Statements Regarding Forward-Looking Statements
   21




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Interest Rate Risk
  Energy Cost Risk
  Foreign Currency Exchange Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
   22




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Maximum Number(or ApproximateTotal Number of
    
    Dollar Value) ofShares (or Units)
    
    Shares (or Units)Total Number of
    
    Average Price
    
    Purchased as Part of
    
    that May Yet beShares (or Units)
    
    Paid per Share
    
    Publicly Announced
    
    Purchased Under thePeriod
    
    Purchased
    
    (or Unit)
    
    Plans or Programs
    
    Plans or ProgramsMonth #1 (Fiscal month ending
November 5, 2005)
    
    
    375
    
    
    $
    0.00
    
    
    
    
    
    
    
    Month #2
(Fiscal month ending
December 3, 2005)
    
    
    1,991
    
    
    $
    0.00
    
    
    
    
    
    
    
    Month #3
(Fiscal month ending
December 31, 2005)
    
    
    3,194
    
    
    $
    0.50
    
    
    
    
    
    
    
    
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 a.
    
    The Company held its Annual Meeting of Shareholders on November 10, 2005.b.
    
    The following three persons were elected as Class I directors: Michael G.
Allen, J. Patrick Doyle and M. Lenny Pippin. The following six persons comprise the
other directors whose terms of office continued after the Annual Meeting of
Shareholders: Paul Baszucki, John S. Bronson, Wayne M. Fortun, Richard L. Marcantonio,
Ernest J. Mrozek and Alice M. Richter.c.
    
    1. Each director nominee received the following votes:
 SharesIn Favor
    
    Withhold AuthorityMr. Allen
    
    
    29,461,026
    
    
    
    735,766Mr. Doyle
    
    
    28,726,543
    
    
    
    1,470,249Mr. Pippin
    
    
    28,703,507
    
    
    
    1,493,285
 23




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##### Table of Contents



2.
    
    Shareholders voted on a proposal to adopt the Amended and Restated 1996
Directors Stock Incentive Plan: 26,503,132 shares in favor, 1,170,134 shares
voting against and 34,089 shares abstaining.3.
    
    Shareholders ratified the appointment of Ernst & Young LLP, Independent
Registered Public Accounting Firm, as independent auditors of the Company for 2006:
29,627,072 shares in favor, 553,606 shares voting against and 16,115 shares
abstaining.
 
 ITEM 6. EXHIBITS
       24




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##### Table of Contents



G&K SERVICES, INC.
(Registrant)Date: February 3, 2006
    By:
    /s/ Jeffrey L. WrightJeffrey L. WrightSenior Vice President
and Chief Financial Officer
(Principal Financial Officer) By:
    /s/ Michael F. WoodardMichael F. WoodardVice President and Controller
(Principal Accounting Officer) 25