Summary of Significant Accounting Policies

Basis of Presentation for Interim Financial Statements

The Condensed Consolidated Financial Statements of G&K Services, Inc. (the "Company" or "G&K") as set forth in this quarterly report have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States can be condensed or omitted. Our accounting policies are described in "Notes to the Consolidated Financial Statements" in our Annual Report on Form 10-K for the fiscal year ended July 2, 2016 ("fiscal year 2016"). Management is responsible for the unaudited Condensed Consolidated Financial Statements included in this document. The Condensed Consolidated Financial Statements included in this document are unaudited but, in the opinion of management, include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of our financial position as of October 1, 2016, the results of our operations and cash flows for the three months ended October 1, 2016 and September 26, 2015.

The results of operations for the three month periods ended October 1, 2016 and September 26, 2015 are not necessarily indicative of the results to be expected for the full year.

This Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes included in our fiscal year 2016 Annual Report on Form 10-K.

Proposed Merger with Cintas Corporation

On August 15, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Cintas Corporation ("Cintas") and Bravo Merger Sub, Inc., a wholly owned subsidiary of Cintas (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company (the “Merger”). As a result of the Merger, Merger Sub will cease to exist and the Company will survive as a wholly owned subsidiary of Cintas. The Merger is currently expected to close not later than the second quarter of calendar year 2017, subject to customary closing conditions, including, without limitation, (i) the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the requisite approval from the Competition Bureau of Canada pursuant to the Canada Competition Act being obtained and (ii) the requisite shareholder approval being received. During the three months ended October 1, 2016, we incurred costs of $6,056 related to the pending Merger for employee-related expenses, professional services and regulatory fees. Many of these expenses are non-deductible for income tax purposes. The after-tax effect of these items is $4,737 which represents $0.24 per share. See Note 14, "Proposed Merger with Cintas Corporation," of Notes to the Condensed Consolidated Financial Statements for further details.

Inventory and Merchandise in Service

The components of inventory as of October 1, 2016 and July 2, 2016 are as follows:



	October 1, 2016		July 2, 2016
Raw Materials	$	6,569	$	6,424
Work in Process	1,594		1,431
Finished Goods	26,391		26,222
Inventory	$	34,554	$	34,077
Merchandise in service, net	$	130,529	$	131,801

We review the estimated useful lives of our merchandise in service assets on a periodic basis or when trends in our business indicate that the useful lives for certain products might have changed. The selection of estimated useful lives is a sensitive estimate in which a change in lives could have a material impact on our results of operations. There were no material changes to the estimated periods in which the assets will be in service for the three months ended October 1, 2016 and September 26, 2015.

Goodwill

Goodwill by segment is as follows:



	United States		Canada			Total
Balance as of July 2, 2016	$	270,045	$	54,475		$	324,520
Foreign currency translation	—		(913		)	(913		)
Balance as of October 1, 2016	$	270,045	$	53,562		$	323,607