##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 29, 2007
 Commission file number 0-4063
 G&K SERVICES, INC.
  MINNESOTA
    
    41-0449530(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 (952) 912-5500
 þ o
  þ o o
 o þ




---



##### 



G&K Services, Inc.
Form 10-Q
 Table of Contents
 PAGEPART I Financial InformationItem 1. Financial StatementsConsolidated Condensed Balance Sheets as of September 29, 2007 and June 30, 2007
    
    
    3Consolidated Condensed Statements of Operations for the three months ended September 29, 2007 and September 30, 2006
    
    
    4Consolidated Condensed Statements of Cash Flows for the three months ended September 29, 2007 and September 30, 2006
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART IIItem 1A Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 6. Exhibits
    
    
    22Signatures
    
    
    23Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




---



##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 G&K Services, Inc. and Subsidiaries
    
    September 29,
    
    
    June 30,2007
    
    
    2007(In thousands)
    
    (Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    14,465
    
    
    $
    22,759Accounts receivable, less allowance for doubtful
accounts of $3,584 and $3,405
    
    
    105,362
    
    
    
    98,276Inventories
    
    
    142,764
    
    
    
    140,780Prepaid expenses
    
    
    17,002
    
    
    
    14,912Total current assets
    
    
    279,593
    
    
    
    276,727Property, Plant and Equipment, net
    
    
    257,137
    
    
    
    255,996Goodwill, net
    
    
    414,463
    
    
    
    380,070Other Assets
    
    
    81,363
    
    
    
    79,021$
    1,032,556
    
    
    $
    991,814LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    22,337
    
    
    $
    21,911Accrued expenses
    
    
    67,017
    
    
    
    68,927Deferred income taxes
    
    
    6,786
    
    
    
    6,568Current maturities of long-term debt
    
    
    7,842
    
    
    
    65,838Total current liabilities
    
    
    103,982
    
    
    
    163,244Long-Term Debt, net of Current Maturities
    
    
    238,298
    
    
    
    149,005Deferred Income Taxes
    
    
    28,237
    
    
    
    34,298Accrued Income Taxes  Long Term
    
    
    11,004
    
    
    
    Other Noncurrent Liabilities
    
    
    47,849
    
    
    
    53,279Stockholders Equity
    
    
    603,186
    
    
    
    591,988$
    1,032,556
    
    
    $
    991,814
  3




---



##### Table of Contents



CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 G&K Services, Inc. and Subsidiaries
 For the Three Months EndedSeptember 29,
    
    
    September 30,(In thousands, except per share data)
    
    2007
    
    
    2006RevenuesRental operations
    
    $
    226,068
    
    
    $
    207,301Direct sales
    
    
    17,718
    
    
    
    15,827Total revenues
    
    
    243,786
    
    
    
    223,128Operating ExpensesCost of rental operations*
    
    
    142,986
    
    
    
    131,652Cost of direct sales*
    
    
    12,734
    
    
    
    12,039Selling and administrative
    
    
    52,201
    
    
    
    49,879Depreciation and amortization
    
    
    12,029
    
    
    
    11,218Total operating expenses
    
    
    219,950
    
    
    
    204,788Income from Operations
    
    
    23,836
    
    
    
    18,340Interest expense
    
    
    3,958
    
    
    
    3,393Income before Income Taxes
    
    
    19,878
    
    
    
    14,947Provision for income taxes
    
    
    7,514
    
    
    
    5,755Net Income
    
    $
    12,364
    
    
    $
    9,192Basic weighted average number
of shares outstanding
    
    
    21,108
    
    
    
    21,186Basic Earnings per Common Share
    
    $
    0.59
    
    
    $
    0.43Diluted weighted average number
of shares outstanding
    
    
    21,320
    
    
    
    21,365Diluted Earnings per Common Share
    
    $
    0.58
    
    
    $
    0.43Dividends per share
    
    $
    0.05
    
    
    $
    0.04
 
 *

    Excludes depreciation and amortization  4




---



##### Table of Contents



CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 G&K Services, Inc. and Subsidiaries
 For the Three Months EndedSeptember 29,
    
    
    September 30,(In thousands)
    
    2007
    
    
    2006Operating Activities:Net income
    
    $
    12,364
    
    
    $
    9,192Adjustments to reconcile net income to net cash
provided by operating activities -Depreciation and amortization
    
    
    12,029
    
    
    
    11,218Other adjustments
    
    
    (1,441
    )
    
    
    1,043Changes in current operating items, exclusive
of acquisitions
    
    
    (11,344
    )
    
    
    (15,170
    )Other assets and liabilities
    
    
    2,730
    
    
    
    624Net cash provided by operating activities
    
    
    14,338
    
    
    
    6,907Investing Activities:Property, plant and equipment additions, net
    
    
    (2,365
    )
    
    
    (9,769
    )Acquisitions of business assets, net
    
    
    (40,294
    )
    
    
    (30
    )Purchase of investments, net
    
    
    (1,348
    )
    
    
    (964
    )Net cash used for investing activities
    
    
    (44,007
    )
    
    
    (10,763
    )Financing Activities:Repayments of long-term debt
    
    
    (7,314
    )
    
    
    (7,293
    )Proceeds from short-term borrowings, net
    
    
    38,601
    
    
    
    14,901Cash dividends paid
    
    
    (1,074
    )
    
    
    Sale of common stock
    
    
    1,705
    
    
    
    74Repurchase of common stock shares
    
    
    (11,244
    )
    
    
    Net cash provided by financing activities
    
    
    20,674
    
    
    
    7,682(Decrease) Increase in Cash and Cash Equivalents
    
    
    (8,995
    )
    
    
    3,826Effect of Exchange Rates on Cash
    
    
    701
    
    
    
    10Cash and Cash Equivalents:Beginning of period
    
    
    22,759
    
    
    
    19,690End of period
    
    $
    14,465
    
    
    $
    23,526
  5




---



##### Table of Contents



The consolidated condensed financial statements included herein, except for the June 30,
2007 balance sheet which was derived from the audited consolidated financial statements for
the fiscal year ended June 30, 2007, have been prepared by us, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. In our opinion, the
accompanying unaudited consolidated condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly our financial
position as of September 29, 2007, and the results of our operations and our cash flows for
the three months ended September 29, 2007 and September 30, 2006. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
U.S. generally accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although we believe that the disclosures herein are adequate to
make the information presented not misleading. It is suggested that these consolidated
condensed financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in our latest report on Form 10-K.The results of operations for the three-month periods ended September 29, 2007 and September
30, 2006 are not necessarily indicative of the results to be expected for the full year.1.
    
    Summary of Significant Accounting PoliciesThe accounting policies we follow are set forth in Note 1 in our Annual Report on Form 10-K
for the fiscal year ended June 30, 2007.Nature of BusinessG&K Services, Inc. is a market leader in providing branded identity apparel and facility
services programs that enhance image and safety in the workplace. We serve a wide variety
of North American industries including automotive, warehousing, distribution,
transportation, energy, manufacturing, food processing, pharmaceutical, semi-conductor,
retail, restaurants and hospitality, and many others providing them with rented uniforms and
facility services products such as floor mats, dust mops, wiping towels, restroom supplies
and selected linen items. We also manufacture certain uniform garments that are used to
support our garment rental and direct purchase programs. We have two operating segments,
United States and Canada, which have been identified as components of our company that are
reviewed by our Chief Executive Officer to determine resource allocation and evaluate
performance.Principles of ConsolidationThe accompanying consolidated condensed financial statements include our accounts and those
of our subsidiaries, all of which are wholly owned. Material intercompany balances and
transactions have been eliminated in consolidation.InventoriesInventories consist of new goods and rental merchandise in service. New goods are stated at
lower of first-in, first-out (FIFO) 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, which results in a matching of the cost
of the merchandise with the weekly rental revenue generated by the merchandise. Estimated
lives of rental merchandise in service range from nine months to three years. In
establishing estimated lives for merchandise in service, management considers historical
experience and the intended use of the merchandise.
 6




---



##### Table of Contents



We estimate our reserves for inventory obsolescence by periodically examining our inventory
to determine if there are indicators that carrying values exceed the net realizable value.
Experience has shown that significant indicators that could require the need for additional
inventory write-downs are the age of the inventory, anticipated demand for our products,
historical inventory usage, revenue trends and current economic conditions. While we believe
that adequate reserves for inventory obsolescence have been made in the consolidated
financial statements, product lines and customer requirements may change and we could
experience additional inventory write-downs in the future. The components of inventory as
of September 29, 2007 and June 30, 2007 are as follows:
 September 29,
    
    
    June 30,2007
    
    
    2007Raw Materials
    
    $
    5,490
    
    
    $
    5,474Work in Process
    
    
    3,466
    
    
    
    4,370Finished Goods
    
    
    54,945
    
    
    
    52,970New Goods
    
    $
    63,901
    
    
    $
    62,814Merchandise In Service
    
    $
    78,863
    
    
    $
    77,966Total Inventories
    
    $
    142,764
    
    
    $
    140,780
 Revenue RecognitionOur rental operations business is largely based on written service agreements whereby we
agree 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, we recognize revenue from rental operations in the period in
which the services are provided. Revenue from rental operations also includes billings to
customers for lost or damaged merchandise. Direct sale revenue is recognized in the period
in which the product is shipped. Total revenues do not include sales tax as we consider
ourselves a pass-through conduit for collecting and remitting sales taxes.Derivative Financial InstrumentsIn the ordinary course of business, we enter into derivative transactions to manage our
interest rate and energy price risk and account for the derivatives in accordance with
Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133) and related authoritative guidance. All derivative
instruments are recorded as other assets or other liabilities at fair value and subsequent
changes in a derivatives fair value are recognized in income, unless specific hedge
accounting criteria are met.Derivative instruments that qualify for hedge accounting are classified as a hedge of the
variability of cash flows to be paid related to a recognized liability or a forecasted
transaction. We currently hedge a portion of both unleaded gasoline and diesel fuel over
approximately 18 months. Changes in the fair value of a derivative that is highly effective
and designated as a cash flow hedge are recognized in accumulated other comprehensive income
until expense from the cash flows of the hedged items are recognized. We perform an
assessment, at both the inception and on a quarterly basis thereafter, to determine whether
our derivatives are highly effective in offsetting changes in the value of the hedged items.
Any changes in the fair value resulting from hedge ineffectiveness is immediately
recognized as other income or expense.We do not engage in speculative transactions or fair value hedging nor do we hold or issue
financial instruments for trading purposes.
 7




---



##### Table of Contents



Per Share DataBasic earnings per common share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings per common
share was computed similarly to the computation of basic earnings per share, except that the
denominator is increased for the assumed exercise of dilutive options and other dilutive
securities, including non-vested restricted stock, using the treasury stock method.
 Three Months EndedSeptember 29,
    
    
    September 30,2007
    
    
    2006Weighted average number of common
shares outstanding used in
computation of basic earning per
share
    
    
    21,108
    
    
    
    21,186Weighted average effect of non-vested
restricted stock grants and assumed
exercise of options
    
    
    212
    
    
    
    179Shares used in computation of
diluted earnings per share
    
    
    21,320
    
    
    
    21,365
 Potential common shares related to our outstanding stock options and restricted stock grants
of 406,000 and 523,000 for the three months ended September 29, 2007 and September 30, 2006
were excluded from the computation of diluted earnings per share. Inclusion of these shares
would have been anti-dilutive as the exercise price of these shares exceeded their market
value.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.Adoption of New Accounting PronouncementsOn July 13, 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement
No. 109, which fundamentally changes the way that we are required to treat our uncertain
tax positions for financial accounting purposes and is effective for our fiscal year
starting July 1, 2007. FIN 48 prescribes rules regarding how we should recognize, measure
and disclose in our financial statements the tax positions that we have taken or will take
on our tax return that are reflected in measuring current or deferred income tax assets and
liabilities for interim or annual periods. Differences between tax positions taken in a tax
return and amounts recognized in the financial statements will generally result in an
increase in a liability for income taxes payable, or a reduction in a deferred tax asset or
an increase in a deferred tax liability.As a result of the implementation of FIN 48, we recognized a $1,559 decrease to the
beginning balance of retained earnings on our balance sheet. At the adoption date of July
1, 2007, we had $13,690 of unrecognized tax benefits, of which $4,223 would favorably affect
our effective tax rate in any future periods, if recognized.We or one or more of our subsidiaries files income tax returns in the U.S., Canada and
multiple state jurisdictions. We have substantially concluded on all U.S. Federal and
Canadian income tax examinations through fiscal years 2004 and 2003, respectively. With few
exceptions, we are no longer subject to state and local income tax examinations for years
before fiscal year 2003.
 8




---



##### Table of Contents



We continue to recognize interest and penalties related to uncertain tax positions as a
component of income tax expense. Upon adoption of FIN 48, we had $1,832 of accrued interest
and penalties related to uncertain tax positions, of which $1,351 would favorably affect our
effective tax rate in any future periods, if recognized.We are not aware of any tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next 12 months.Accounting Pronouncements Not Yet AdoptedIn September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurement (SFAS 157). SFAS 157 provides a definition of fair value, provides
guidance for measuring fair value in U.S. GAAP and expands disclosures about fair value
measurement. SFAS 157 will be effective at the beginning of fiscal 2009.In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at
fair value. SFAS 159 will be effective at the beginning of fiscal 2009.We are currently evaluating the impact of SFAS 157 and SFAS 159 on our consolidated financial
statements.2.
    
    Comprehensive IncomeFor the three-month periods ended September 29, 2007 and September 30, 2006, the components
of comprehensive income were as follows:
 Three Months EndedSeptember 29,
    
    
    September 30,2007
    
    
    2006Net income
    
    $
    12,364
    
    
    $
    9,192Other comprehensive income:Foreign currency translation
adjustments, net of tax
    
    
    9,958
    
    
    
    (13
    )Net unrealized holding loss on
derivative financial instruments,
net of tax
    
    
    (1,120
    )
    
    
    (1,237
    )Comprehensive income
    
    $
    21,202
    
    
    $
    7,942
 3.
    
    Goodwill and Intangible Assets
 Goodwill includes the following:
 United States
    
    
    Canada
    
    
    TotalBalance as of June 30, 2007
    
    $
    315,756
    
    
    $
    64,314
    
    
    $
    380,070Acquisitions, net of purchase
accounting adjustments
    
    
    30,315
    
    
    
    33
    
    
    
    30,348Currency exchange and other
    
    
    
    
    
    
    4,045
    
    
    
    4,045Balance as of September 29, 2007
    
    $
    346,071
    
    
    $
    68,392
    
    
    $
    414,463
 The net increase in goodwill includes an increase of approximately $30,000 related to the
acquisition of an entity in the first quarter of fiscal 2008 and an increase of
approximately $4,000 from change in foreign currency exchange rates.
 9




---



##### Table of Contents



Information regarding our other intangible assets, which are included in other assets on the
consolidated condensed balance sheet, are as follows:
 September 29, 2007
    
    
    June 30, 2007Other Intangible Assets:Customer Contracts
    
    $
    117,733
    
    
    $
    111,740Accumulated Amortization
    
    
    (71,773
    )
    
    
    (68,484
    )Net
    
    $
    45,960
    
    
    $
    43,256Non-Competition Agreements
    
    $
    11,141
    
    
    $
    11,094Accumulated Amortization
    
    
    (9,676
    )
    
    
    (9,422
    )Net
    
    $
    1,465
    
    
    $
    1,672
 The customer contracts include the combined value of the written service agreements and the
related customer relationship. It has been determined that there are no customer
relationships with a significant separate value.Amortization expense was $2,830 and $2,719 for the three months ended September 29, 2007 and
September 30, 2006, respectively. Estimated amortization expense for each of the next five
fiscal years based on the intangible assets as of September 29, 2007 is as follows:
 2008 remaining
    
    $
    8,2722009
    
    
    7,4262010
    
    
    7,2532011
    
    
    6,5752012
    
    
    5,8102013
    
    
    4,295
 4.
    
    Long-Term DebtWe maintain a $325,000 unsecured revolving credit facility. As of September 29, 2007,
borrowings outstanding under the revolving credit facility were $90,100. The unused portion
of the revolver may be used for general corporate purposes, acquisitions, share repurchases,
working capital needs and to provide up to $50,000 in letters of credit. As of September
29, 2007, letters of credit outstanding against the revolver were $21,065.Borrowings under the revolving credit facility bear interest at 0.55% to 1.50% over the
London Interbank Offered Rate (LIBOR), or the Canadian prime rate for Canadian borrowings,
based on a leverage ratio calculated on a quarterly basis. Advances outstanding as of
September 29, 2007 bear interest at a rate of 5.96%. We also pay a fee on the unused daily
balance of the revolving credit facility based on a leverage ratio calculated on a quarterly
basis.We have issued $50,000 of 8.4% unsecured fixed rate private placement notes with certain
institutional investors. The 10-year notes have an eight-year average life with a final
maturity on July 20, 2010. Beginning on July 20, 2004, and annually thereafter to maturity,
we will repay $7,143 of the principal amount at par. As of September 29, 2007, the
outstanding balance was $21,429.We maintain a loan agreement that expired on October 23, 2007 which was immediately renewed
with a termination date of October 21, 2010. Under the loan agreement, the lender will make
loans to us on a revolving basis up to
$60,000. We are required to pay interest on outstanding loan balances at a rate per annum
of one month LIBOR plus a margin or, if the lender is funding the loan through the issuance
of commercial paper to third parties, at a rate per annum equal to a margin plus the average
annual interest rate for such commercial paper. In connection with the loan agreement, we
granted a first priority security interest in certain of our U.S. based receivables. The
amount of funds available under the loan agreement will be based on the amount of eligible
receivables less various reserve requirements. We used the net proceeds of this loan to
reduce indebtedness under our unsecured credit facilities. At September 29, 2007, there was
$58,000 outstanding under the agreement at a current interest rate of 5.29%.
 10




---



##### Table of Contents



We have $75,000 of unsecured variable rate private placement notes. The notes bear interest
at 0.60% over LIBOR and are scheduled to mature on June 30, 2015. The notes do not require
principal payments until maturity. The interest rate and interest payments are reset and
paid on a quarterly basis. As of September 29, 2007, the outstanding balance of the notes
was $75,000 at a current rate of 5.96%.5.
    
    Share-Based CompensationWe grant share-based awards, including restricted stock and options to purchase our common
stock. Stock option grants are for a fixed number of shares to employees and directors with
an exercise price equal to the fair value of the shares at the date of grant. Share-based
compensation for awards is recognized in the consolidated statements of operations on a
straight-line basis over the requisite service period. The amortization of share-based
compensation reflects estimated forfeitures adjusted for actual forfeiture experiences. Our
estimated forfeiture rate is reviewed and updated on an annual basis. As share-based
compensation expense is recognized, a deferred tax asset is recorded that represents an
estimate of the future tax deduction from the exercise of stock options or release of
restrictions on the restricted stock. At the time share-based awards are exercised,
cancelled, expire or restrictions lapse, we recognize adjustments to income tax expense.
Total compensation expense related to share-based awards was $1,163 and $929 for the three
months ended September 29, 2007 and September 30, 2006. The number of options that have
been exercised and restricted stock that vested since June 30, 2007, was 96,306 shares.6.
    
    Employee Benefit PlansThe components of net periodic pension cost are as follows for the three months ended
September 29, 2007 and September 30, 2006:
 Supplemental ExecutivePension Plan
    
    
    Retirement PlanThree Months Ended
    
    
    Three Months EndedSeptember 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    
    
    
    $
    706
    
    
    $
    
    
    
    $
    65Interest cost
    
    
    816
    
    
    
    1,528
    
    
    
    175
    
    
    
    143Expected return on assets
    
    
    (793
    )
    
    
    (1,388
    )
    
    
    
    
    
    
    Prior service cost
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    2Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    23
    
    
    $
    850
    
    
    $
    175
    
    
    $
    210
 Effective January 1, 2007, we froze our pension and Supplemental Executive Retirement Plan
(SERP). As a result, future growth in benefits will no longer occur after December 31,
2006, and the net periodic pension cost will be significantly reduced.
 11




---



##### Table of Contents



7.
    
    Segment InformationWe have two operating segments, United States and Canada, which have been identified as
components of our company that are reviewed by our Chief Executive Officer to determine
resource allocation and evaluate performance. Each operating segment derives revenues
from the branded identity apparel and facility services industry, which includes garment
rental and non-apparel items such as floor mats, dust mops, wiping towels, selected
linen items and restroom products. No single customers transactions accounted for more
than 1.5% of our consolidated quarterly revenue.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. We evaluate performance based on income from
operations. Financial information by geographic location for the three-month periods
ended September 29, 2007 and September 30, 2006 is as follows:
 UnitedFor the Three Months Ended
    
    States
    
    
    Canada
    
    
    TotalFirst Quarter Fiscal Year 2008:Revenues
    
    $
    200,278
    
    
    $
    43,508
    
    
    $
    243,786Income from operations
    
    
    14,411
    
    
    
    9,425
    
    
    
    23,836Depreciation and amortization
expense
    
    
    10,244
    
    
    
    1,785
    
    
    
    12,029First Quarter Fiscal Year 2007:Revenues
    
    $
    183,310
    
    
    $
    39,818
    
    
    $
    223,128Income from operations
    
    
    11,990
    
    
    
    6,350
    
    
    
    18,340Depreciation and amortization
expense
    
    
    9,606
    
    
    
    1,612
    
    
    
    11,218
 The Canada segment results in the first quarter of fiscal 2008 include a gain on the sale of
a property in Canada, offset by expenses associated with a fire at our Vancouver facility.
The net effect of these two items on the Canada segment was approximately $1,600 of income.
These items were further offset by expenses in our United States segment during the first
quarter of fiscal 2008 which included severance associated with the restructuring of our
manufacturing operations and certain management positions, an increase in our inventory
reserves and expenses associated with certain legal matters. The net effect of
these three items on the United States segment was approximately $1,700 of expense.
 12




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



Income Taxes
  Results of Operations
  PercentageThree Months
    
    
    ChangeEnded
    
    
    Three MonthsSeptember 29,
    
    
    September 30,
    
    
    Fiscal Year 20082007
    
    
    2006
    
    
    vs. Fiscal Year 2007Revenues:Rental
    
    
    92.7
    %
    
    
    92.9
    %
    
    
    9.1
    %Direct
    
    
    7.3
    
    
    
    7.1
    
    
    
    11.9Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    9.3Expenses:Cost of rental sales
    
    
    63.2
    
    
    
    63.5
    
    
    
    8.6Cost of direct sales
    
    
    71.9
    
    
    
    76.1
    
    
    
    5.8Total cost of sales
    
    
    63.9
    
    
    
    64.4
    
    
    
    8.4Selling and administrative
    
    
    21.4
    
    
    
    22.4
    
    
    
    4.7Depreciation and
amortization
    
    
    4.9
    
    
    
    5.0
    
    
    
    7.2Income from operations
    
    
    9.8
    
    
    
    8.2
    
    
    
    30.0Interest expense
    
    
    1.6
    
    
    
    1.5
    
    
    
    16.7Income before income taxes
    
    
    8.2
    
    
    
    6.7
    
    
    
    33.0Provision for income taxes
    
    
    3.1
    
    
    
    2.6
    
    
    
    30.6Net income
    
    
    5.1
    %
    
    
    4.1
    %
    
    
    34.5
    %
 Three months ended September 29, 2007 compared to three months ended September 30, 2006
 Revenues.
 15




---



##### Table of Contents



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




---



##### Table of Contents



Cash Obligations.
   Off Balance Sheet Arrangements
  17




---



##### Table of Contents



Pension Obligations
     Litigation
  Share-Based Compensation
  Adoption of New Accounting Pronouncements
  18




---



##### Table of Contents



Accounting Pronouncements Not Yet Adopted
    Cautionary Statements Regarding Forward-Looking Statements
  19




---



##### Table of Contents



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




---



##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 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 August 4,
2007)
    
    
    6,800
    
    
    $
    38.86
    
    
    
    6,800
    
    
    $
    90,822,000Month #2 (Fiscal month
ending September 1,
2007)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    90,822,000Month #3 (Fiscal month
ending September
29, 2007)
    
    
    250,500
    
    
    $
    39.68
    
    
    
    250,500
    
    
    $
    80,873,000
  21




---



##### Table of Contents



ITEM 6. EXHIBITS
      22




---



##### Table of Contents



G&K SERVICES, INC.
(Registrant)Date: November 2, 2007

    By:
    /s/ Jeffrey L. WrightJeffrey L. WrightSenior Vice President and
Chief Financial Officer

(Principal Financial Officer)By:
    /s/ Thomas J. DietzThomas J. DietzVice President and Controller

(Principal Accounting Officer) 
 23