10-Q

 

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.

(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
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 þ                     NO o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES þ                     NO o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o                     NO þ

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

Common Stock, par value $0.50 per share, outstanding
February 1, 2006 was 21,234,126 shares.

G&K Services, Inc.
Form 10-Q

Table of Contents

	PAGE
PART I
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of December 31, 2005 and July 2, 2005		3
Consolidated Statements of Operations for the three and six months ended December 31, 2005 and January 1, 2005		4
Consolidated Condensed Statements of Cash Flows for the six months ended December 31, 2005 and January 1, 2005		5
Notes to Consolidated Condensed Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosure About Market Risk		22
Item 4. Controls and Procedures		22
PART II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 4. Submission of Matters to a Vote of Security Holders		23
Item 6. Exhibits		24
Signatures		25
Employment Agreement
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

2

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)
ASSETS
Current Assets
Cash and cash equivalents	$	14,080	$	15,345
Accounts receivable, less allowance for doubtful accounts of $3,290 and $2,890		94,651		83,459
Inventories		131,501		121,120
Prepaid expenses		15,107		16,587
Total current assets		255,339		236,511
Property, Plant and Equipment, net		248,234		243,307
Goodwill		346,246		338,701
Other Assets		84,014		84,650
	$	933,833	$	903,169
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	26,091	$	25,695
Accrued expenses		75,434		81,523
Deferred income taxes		9,212		8,971
Current maturities of long-term debt		7,595		26,537
Total current liabilities		118,332		142,726
Long-Term Debt, net of Current Maturities		231,073		210,462
Deferred Income Taxes		30,735		30,887
Other Noncurrent Liabilities		41,771		37,651
Stockholders’ Equity		511,922		481,443
	$	933,833	$	903,169

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

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CONSOLIDATED STATEMENTS OF OPERATIONS

G&K Services, Inc. and Subsidiaries
(Unaudited)

	For the Three Months Ended				For the Six Months Ended
			January 1,				January 1,
	December 31,		2005		December 31,		2005
(In thousands, except per share data)	2005		(Restated)		2005		(Restated)
Revenues
Rental operations	$	199,355	$	183,110	$	393,423	$	359,401
Direct sales		19,993		12,025		33,873		18,166
Total revenues		219,348		195,135		427,296		377,567
Operating Expenses
Cost of rental operations		127,672		116,415		252,178		227,424
Cost of direct sales		14,155		8,441		24,356		13,337
Selling and administrative		47,855		41,980		91,600		81,294
Depreciation and amortization		10,644		10,161		21,243		20,319
Total operating expenses		200,326		176,997		389,377		342,374
Income from Operations		19,022		18,138		37,919		35,193
Interest expense		3,302		2,641		6,317		5,189
Income before Income Taxes		15,720		15,497		31,602		30,004
Provision for income taxes		5,486		5,769		10,997		11,209
Net Income	$	10,234	$	9,728	$	20,605	$	18,795
Basic weighted average number of shares outstanding		21,083		20,911		21,037		20,868
Basic Earnings per Common Share	$	0.49	$	0.46	$	0.98	$	0.90
Diluted weighted average number of shares outstanding		21,221		21,678		21,185		21,378
Diluted Earnings per Common Share	$	0.48	$	0.45	$	0.97	$	0.88
Dividends per share	$	0.0175	$	0.0175	$	0.0350	$	0.0350

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

4

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

G&K Services, Inc. and Subsidiaries
(Unaudited)

	For the Six Months Ended
				January 1,
	December 31,			2005
(In thousands)	2005			(Restated)
Operating Activities:
Net income	$	20,605		$	18,795
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		21,243			20,319
Stock-based compensation		2,118			1,972
Deferred income taxes		371			922
Changes in current operating items, exclusive of acquisitions		(21,198	)		(13,111	)
Other assets and liabilities		977			838
Net cash provided by operating activities		24,116			29,735
Investing 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			7,400
Cash dividends paid		(747	)		(732	)
Sale of common stock		1,250			3,251
Net 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			1,620
Cash and Cash Equivalents:
Beginning of period		15,345			26,931
End of period	$	14,080		$	10,958
Supplemental Cash Flow Information:
Non-Cash Transactions -
Debt issued in connection with business acquisitions	$	(1,419	)	$	11,890

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

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G&K SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

Three and six month periods ended December 31, 2005 and January 1, 2005

(Unaudited)

The consolidated condensed financial statements included herein, except for the July 2, 2005 balance sheet which was derived from the audited consolidated financial statements for the fiscal year ended July 2, 2005, 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 December 31, 2005, and the results of its operations for the three and six months ended and its cash flows for the six months ended December 31, 2005 and January 1, 2005. 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 report on Form 10-K.

The results of operations for the three and six month periods ended December 31, 2005 and January 1, 2005 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 July 2, 2005.
	Nature of Business
	G&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 Consolidation
	The 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 Recognition
	The 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

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 balance the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swap contracts are reflected at fair value in the consolidated condensed balance sheets and the related gains or losses on these contracts are deferred in stockholders’ equity (as a component of other comprehensive income). Amounts to be paid or received under the contracts are accrued as interest rates change and are recognized over the life of the contracts as an adjustment to interest expense. The net effect of this accounting is that interest expense on the portion of variable rate debt being hedged is generally recorded based on fixed interest rates.

The Company also uses derivative financial instruments to manage the risk that changes in gasoline cost will affect the future financial results of the Company. The Company purchases gasoline futures contracts to effectively hedge a portion of anticipated actual gasoline purchases. The gasoline futures contracts are reflected at fair value in the consolidated condensed balance sheet and the related gains or losses on these contracts are deferred in stockholders’ equity (as a component of other comprehensive income) or in the statements of operations depending on the effectiveness of the hedge. Upon settlement of each contract, the actual gain or loss is reflected in gasoline expense.

The Company may periodically hedge firm commitments with its foreign subsidiary, generally with foreign currency contracts. These agreements are recorded at current market values and the gains and losses are included in earnings. Gains and losses on such transactions were not significant in the second quarter of fiscal 2006 or 2005.

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 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 nonvested restricted stock, using the treasury stock method.

	Three Months Ended				Six Months Ended
	December 31,		January 1,		December 31,		January 1,
	2005		2005		2005		2005
Weighted average number of common shares outstanding used in computation of basic earnings per share		21,083		20,911		21,037		20,868
Weighted average effect of nonvested restricted stock grants and assumed exercise of options		138		767		148		510
Shares used in computation of diluted earnings per share		21,221		21,678		21,185		21,378

Potential common shares related to the Company’s outstanding stock options and restricted stock grants of 522,000 and 161,000 for the three month periods, and 485,000 and 273,000 for the six month periods ended December 31, 2005 and January 1, 2005, respectively, 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 market value.

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2.	Comprehensive Income
	For 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 Ended
	December 31,			January 1,		December 31,		January 1,
	2005			2005		2005		2005
Net income	$	10,234		$	9,728	$	20,605	$	18,795
Other comprehensive income
Foreign currency translation adjustments, net of tax		(298	)		5,480		6,736		10,438
Net unrealized holding gain on derivative financial instruments, net of tax		(154	)		227		518		229
Comprehensive income	$	9,782		$	15,435	$	27,859	$	29,462

3.	Goodwill and Intangible Assets
	The changes in the carrying amount of goodwill for the six months ended December 31, 2005, by operating segment, are as follows:

	United States		Canada		Total
Balance as of July 2, 2005	$	286,313	$	52,388	$	338,701
Goodwill acquired during the period		1,143		3,659		4,802
Other, primarily foreign currency translation		—		2,743		2,743
Balance as of December 31, 2005	$	287,456	$	58,790	$	346,246

Information regarding the Company’s other intangible assets, which are included in other assets on the consolidated condensed balance sheet, are as follows:

	As of December 31, 2005
	Carrying		Accumulated
	Amount		Amortization		Net
Customer contracts	$	104,343	$	52,897	$	51,446
Non-competition agreements		10,880		7,863		3,017
Total	$	115,223	$	60,760	$	54,463

	As of July 2, 2005
	Carrying		Accumulated
	Amount		Amortization		Net
Customer contracts	$	102,021	$	47,821	$	54,200
Non-competition agreements		10,829		7,239		3,590
Total	$	112,850	$	55,060	$	57,790

8

The customer contracts include the combined value of the written service agreements and the related customer relationship. It has been determined that there is no significant separate value in any customer relationships.

Amortization expense was $5,311 and $4,306 for the six months ended December 31, 2005 and January 1, 2005, respectively. Estimated amortization expense for each of the five succeeding fiscal years based on the intangible assets as of December 31, 2005 is as follows:

2006 remaining	$	5,640
2007		10,821
2008		10,242
2009		6,534
2010		6,283
2011		5,562

4.	Long-Term Debt
	On 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 Compensation
	The 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

9

grants of employee stock options, be recognized in the income statement. Under the modified retrospective transition method, all prior period financial statements were restated to recognize compensation cost in the amounts previously reported in the Notes to Consolidated Financial Statements.

As a result of adopting SFAS 123(r) on July 3, 2005, income before income taxes and net income have been restated by $754 and $469 for the three month period, and $1,449 and $902 for the six month period ended January 1, 2005, respectively. Basic and diluted earnings per share have been restated by $0.03 and $0.03 per share for the three month period, and $0.04 and $0.05 per share for the six month period ended January 1, 2005, respectively. The beginning balances of deferred taxes, paid in capital and retained earnings have been restated by $6,013, $18,496 and $12,483, respectively, to recognize compensation cost for fiscal years 1996 through 2005 in the amounts previously reported in the Notes to Consolidated Financial Statements under provisions of SFAS No.123, “Accounting for Stock-Based Compensation.”

The following schedule summarizes activity in the plans for the three and six month periods ended December 31, 2005:

	Stock Options
									Weighted
	Employee			Directors'					Average
	Plans			Plan			Grant Price		Exercise Price
Three months:
Outstanding at October 1, 2005		1,361,599			58,000		$	25.00 -- 53.34	$	35.64
Granted		30,502			10,500			38.33 -- 49.43		38.50
Exercised		(12,559	)		(8,000	)		25.00 -- 36.41		28.84
Canceled		(20,798	)		—			27.95 -- 46.00		38.70
Outstanding at December 31, 2005		1,358,744			60,500		$	25.00 -- 53.34	$	35.81
Six months:
Outstanding at July 2, 2005		1,161,547			55,000		$	25.00 -- 53.34	$	34.21
Granted		257,665			13,500			38.25 -- 49.43		42.13
Exercised		(33,677	)		(8,000	)		25.00 -- 41.56		31.25
Canceled		(26,791	)		—			27.95 -- 46.00		38.05
Outstanding at December 31, 2005		1,358,744			60,500		$	25.00 -- 53.34	$	35.81
Exercisable at December 31, 2005		851,560			42,000		$	25.00 -- 53.34	$	34.00

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The following schedule summarizes the information related to stock options outstanding at December 31, 2005:

	Options Outstanding						Options Exercisable
			Average
			Remaining		Weighted				Weighted
Range of Exercise	Number		Option Life		Average		Number		Average
Price	Outstanding		(Years)		Exercise Price		Exercisable		Exercise Price
$16.50 — 25.00		42,300		4.4	$	25.00		42,300	$	25.00
25.01 — 37.00		892,550		7.3		32.56		650,904		31.62
37.01 — 53.34		484,394		6.2		42.74		200,356		43.61
		1,419,244		6.8	$	35.81		893,560	$	34.00

The weighted average fair value of options granted was $11.45 and $12.57 for the three month periods, and $10.89 and $10.69 for the six month periods ended December 31, 2005 and January 1, 2005, respectively. The weighted average exercise price was $28.84 and $28.79 for the three month periods, and $31.25 and $29.08 for the six month periods ended December 31, 2005 and January 1, 2005, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used: risk-free interest rates of 4.35% and 3.56% for the three month periods, and 3.90% and 3.34% for the six month periods ended December 31, 2005 and January 1, 2005, respectively; expected annual dividends of $0.07 per share; expected lives of 4 years and 5 years for the three and six months ended December 31, 2005 and January 1, 2005, respectively; and expected volatility of 24.57% and 26.04% for the three month periods, and 24.46% and 26.47% for the six month periods ended December 31, 2005 and January 1, 2005, respectively.

Compensation cost for stock options is recognized on a straight-line basis over the requisite service period of the award (or to an employee’s eligible retirement date, if earlier). Total compensation expense related to stock options was $823 and $754 for the three month periods, and $1,605 and $1,449 for the six month periods ended December 31, 2005 and January 1, 2005, respectively.

Under the Employee Plans, the Company grants restricted stock to key employees for nominal consideration. The restrictions lapse over periods up to seven years. The Company granted 6,840 shares of restricted stock in the three month period ended December 31, 2005 and 79,735 and 12,250 shares of restricted stock in the six month periods ended December 31, 2005 and January 1, 2005, respectively. The weighted average grant date fair value per share of restricted stock granted during the three month period ended December 31, 2005 was $38.48, and for the six month periods ended December 31, 2005 and January 2, 2005 was $42.58 and $36.41, respectively. Compensation expense is recognized as the restrictions are removed from the stock for the difference between the par value and fair market value as of the grant date. Total compensation expense related to restricted stock was $288 and $246 for the three month periods, and $513 and $523 for the six month periods ended December 31, 2005 and January 1, 2005, respectively.

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6. Employee Benefit Plans

The components of net periodic pension cost are as follows for the three months ended December 31, 2005 and January 1, 2005:

							Supplemental Executive
	Pension Plan						Retirement Plan
	Three Months Ended						Three Months Ended
	December 31,			January 1,			December 31,		January 1,
	2005			2005			2005		2005
Service cost	$	1,191		$	741		$	234	$	164
Interest cost		809			532			189		142
Expected return on assets		(617	)		(426	)		—		—
Prior service cost		13			11			10		9
Loss		340			101			76		38
Net periodic pension cost	$	1,736		$	959		$	509	$	353

The components of net periodic pension cost are as follows for the six months ended December 31, 2005 and January 1, 2005:

							Supplemental Executive
	Pension Plan						Retirement Plan
	Six Months Ended						Six Months Ended
	December 31,			January 1,			December 31,		January 1,
	2005			2005			2005		2005
Service cost	$	2,381		$	1,895		$	468	$	390
Interest cost		1,618			1,361			377		338
Expected return on assets		(1,233	)		(1,089	)		—		—
Prior service cost		26			28			21		21
Loss		680			258			152		104
Net periodic pension cost	$	3,472		$	2,453		$	1,018	$	853

7. Segment Information

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. 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 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 and six month periods ended December 31, 2005 and January 1, 2005 is as follows:

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	United
For the Three Months Ended	States		Canada		Total
Second Quarter Fiscal Year 2006:
Revenues	$	181,298	$	38,050	$	219,348
Income from operations		12,342		6,680		19,022
Property, plant and equipment additions, net		7,426		550		7,976
Depreciation and amortization expense		9,156		1,488		10,644
Second Quarter Fiscal Year 2005:
Revenues	$	163,175	$	31,960	$	195,135
Income from operations		11,594		6,544		18,138
Property, plant and equipment additions, net		3,355		1,326		4,681
Depreciation and amortization expense		8,806		1,355		10,161

	United
For the Six Months Ended	States		Canada		Total
Fiscal Year 2006:
Revenues	$	354,494	$	72,802	$	427,296
Income from operations		25,165		12,754		37,919
Property, plant and equipment additions, net		15,176		1,306		16,482
Depreciation and amortization expense		18,264		2,979		21,243
Fiscal Year 2005:
Revenues	$	319,044	$	58,523	$	377,567
Income from operations		23,752		11,441		35,193
Property, plant and equipment additions, net		2,235		1,860		4,095
Depreciation 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
(Unaudited)

Overview

G&K Services, Inc., founded in 1902 and headquartered in Minnetonka, Minnesota, 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 industrial, service and high-technology companies 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 sell uniforms and other apparel items to customers in our direct sale programs. The North American rental market is approximately $6.5-$7.0 billion, while the portion of the direct sale market targeted by us is approximately $4.5-$5.0 billion in size.

Our industry is consolidating from many family owned and small local providers to several large providers. We are participating in this industry consolidation. Our goal is to build a national footprint and, accordingly, place strategic value on acquisitions which expand our geographic presence.

We made two small acquisitions during the first six months of fiscal 2006. In October, 2005, we acquired certain assets from Glis Laundries, a uniform and textile service company serving customers in Sarnia, Ontario, Detroit, Michigan and St. Louis, Missouri. This purchase expands and enhances our uniform and textile rental business in North America. Also in October, 2005, we acquired certain customer contracts from Ameripride Services, Inc., serving customers in Mobile, Alabama. This purchase enhances our geographic coverage in North America.

The pro forma effect of these acquisitions, had they been acquired at the beginning of each fiscal year, were not material, either individually or in aggregate. The total purchase price consideration, including related acquisition costs of the transaction was $11.8 million. The total purchase price exceeded the estimated fair values of assets acquired and liabilities assumed by $4.8 million.

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 United States generally accepted accounting principles. 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 could 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

Our 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 abused merchandise. Direct sale revenue is recognized in the period in which the product is shipped. Estimates are used in determining the collectibility 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. While we have been consistent in applying our judgments and in making our estimates over the past two

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fiscal years, 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, which results in a matching of the cost of the merchandise with the weekly rental revenue generated by 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. 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

As required under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill is separately disclosed from other intangible assets on the balance sheet and no longer amortized. 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. Our evaluation follows the two step impairment test prescribed by SFAS 142. First we assess whether the fair value of the reporting units exceeds the carrying amount of the unit including goodwill. Our evaluation considers changes in the operating environment, competitive position, market trends, operating performance, quoted market prices for our equity securities and fair value models and research prepared by independent analysts. If the carrying amount of a reporting unit exceeded its fair value, we would perform a second test to measure the amount of impairment loss, if any. Management completes its annual impairment tests in the fourth quarter of each fiscal year. There have been no impairments of goodwill or definite-lived intangible assets in fiscal 2005 and there have been no events or circumstances through the first six months of fiscal 2006 that would indicate that there may have been any impairment of goodwill or definite-lived assets. 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 add value. Long-lived assets and definite-lived intangible 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 or definite-lived intangible assets in fiscal 2005 or through the first six months of fiscal 2006.

Insurance

We self-insure for certain obligations related to health, workers’ compensation and auto and general liability programs. We purchase stop-loss insurance policies to protect us from catastrophic losses. Estimates are used in determining the potential liability 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 an actuarial analysis provided by a third party. Changes in the cost of medical care, our ability to settle claims and the estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

Income Taxes

In the normal course of business, we are subject to audits from federal, state, Canadian provincial and other tax authorities regarding various tax liabilities. These audits may alter the timing or amount of taxable income or

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deductions, or the allocation of income among tax jurisdictions. The amount ultimately paid upon resolution of issues raised may differ from the amount accrued. We believe that taxes accrued on our consolidated balance sheets fairly represent the amount of future tax liability due.

We utilize income tax planning to reduce our overall cost of income taxes. Upon audit, it is possible that certain strategies might be disallowed resulting in an increased liability for income taxes. We believe that the provision for liabilities resulting from the implementation of income tax planning is appropriate. To date, we have not experienced an examination by governmental revenue authorities that would lead management to believe that our past provisions for exposures related to income tax planning are not appropriate.

Deferred income taxes are determined in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. We record valuation allowances to reduce deferred tax assets when it is more likely than not that some portion of the asset may not be realized. We evaluate our deferred tax assets and liabilities on a periodic basis. We believe that we have adequately provided for our future tax consequences based upon current facts and circumstances.

Results of Operations

The percentage relationships to net sales of certain income and expense items for the three and six month periods ended December 31, 2005 and January 1, 2005, and the percentage changes in these income and expense items between periods are presented in the following table:

	Three Months						Six Months						Percentage
	Ended						Ended						Change
													Three Months			Six Months
	December 31,			January 1,			December 31,			January 1,			FY 2006			FY 2006
	2005			2005			2005			2005			vs. FY 2005			vs. FY 2005
Revenues:
Rental		90.9	%		93.8	%		92.1	%		95.2	%		8.9	%		9.5	%
Direct		9.1			6.2			7.9			4.8			66.3			86.5
Total revenues		100.0			100.0			100.0			100.0			12.4			13.2
Expenses:
Cost of rental sales		64.0			63.6			64.1			63.3			9.7			10.9
Cost of direct sales		70.8			70.2			71.9			73.4			67.7			82.6
Total cost of sales		64.7			64.0			64.7			63.8			13.6			14.9
Selling and administrative		21.8			21.5			21.4			21.5			14.0			12.7
Depreciation and amortization		4.8			5.2			5.0			5.4			4.8			4.5
Income from operations		8.7			9.3			8.9			9.3			4.9			7.7
Interest expense		1.5			1.4			1.5			1.4			25.0			21.7
Income before income taxes		7.2			7.9			7.4			7.9			1.4			5.3
Provision 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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Three months ended December 31, 2005 compared to three months ended January 1, 2005

Revenues. Total revenues in the second quarter of fiscal 2006 increased 12.4% to $219.3 million from $195.1 million in the second quarter of fiscal 2005. Rental revenue increased $16.2 million in the second quarter, or 8.9%. The organic industrial rental growth rate was approximately 3.5%, an improvement from negative 1.0% in the same period of fiscal 2005. Organic industrial rental revenue has improved due to growth initiatives and in particular, accelerated new account growth and improvements in customer retention rates. These improvements were slightly offset by lost revenues related to hurricanes.

Direct sale revenue increased 66.3% to $20.0 million in the second quarter of fiscal 2006 compared to $12.0 million in the same period of fiscal 2005. The organic direct sale growth rate was approximately 6.5%. The increase in organic direct sale revenue was due primarily to sales related to our annual outerwear promotion.

Organic growth rates are calculated using industrial rental and direct sale revenue, respectively, adjusted for foreign currency exchange rate differences and revenue from newly acquired business compared to prior-period results. We believe that the organic growth rates better reflect the growth of our existing industrial rental and direct sale business and are therefore useful in analyzing our financial condition and results of operations.

Cost of Rental and Direct Sale. Cost of rental operations increased 9.7% to $127.7 million in the second quarter of fiscal 2006 from $116.4 million in the same period of fiscal 2005. Gross margin from rental sales decreased to 36.0% in the second quarter of fiscal 2006 from 36.4% in the same period of fiscal 2005. Rental gross margins declined due to higher energy costs, costs associated with new customer growth, the impact of hurricanes and costs related to recent acquisitions, primarily in Canada. These costs were partially offset by operational initiatives focused on lower merchandise and production costs as well as the impact of higher pricing.

Cost of direct sales increased 67.7% to $14.2 million in the second quarter of fiscal 2006 from $8.4 million in the same period of fiscal 2005. Gross margin from direct sales decreased to 29.2% in the second quarter of fiscal 2006 from 29.8% in the second quarter of fiscal 2005. The decrease in gross margin was primarily due to changes in product mix.

Selling and Administrative. Selling and administrative expenses increased to $47.9 million in the second quarter of fiscal 2006 from $42.0 million in the same period of fiscal 2005. As a percentage of total revenues, selling and administrative expenses increased to 21.8% in the second quarter of fiscal 2006 from 21.5% in the second quarter of fiscal 2005. Total selling and administrative expenses increased with continued investment in growth oriented initiatives, additional spending related to acquired businesses and increased staffing to support long-term growth and strategic initiatives.

Depreciation and Amortization. Depreciation and amortization expense increased 4.8% to $10.6 million in the second quarter of fiscal 2006 from $10.2 million in the same period of fiscal 2005. As a percentage of total revenues, depreciation and amortization expense decreased to 4.8% in the second quarter of fiscal 2006 from 5.2% in the second quarter of fiscal 2005. Capital expenditures, excluding acquisition of businesses, were $8.0 million in the second quarter of fiscal 2006 compared to $4.7 million in the prior year’s quarter.

Interest Expense. Interest expense was $3.3 million in the second quarter of fiscal 2006, up from $2.6 million in the same period of fiscal 2005. The increase was due to increased debt levels in conjunction with the acquisition of business assets in the previous twelve months and an increase in interest rates.

Provision for Income Taxes. Our effective tax rate decreased to 34.9% in the second quarter of fiscal 2006 from 37.2% in the same period of fiscal 2005 due to reductions of taxes previously provided for the impact of state tax credits received during the quarter and a favorable mix of income earned in various taxing jurisdictions, including foreign operations, with different tax rates.

Six months ended December 31, 2005 compared to six months ended January 1, 2005

Revenues. Total revenues for the first six months of fiscal 2006 increased 13.2% to $427.3 million from $377.6 million for the same period of fiscal 2005. Rental revenue increased $34.0 million in the first six months, or 9.5%. The organic industrial rental growth rate was approximately 3.5%. Organic industrial rental revenue has improved

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due to growth initiatives, improved customer retention and improving economic conditions, slightly offset by the impact of hurricanes.

Direct sale revenue increased 86.5% to $33.9 million in the first six months of fiscal 2006 compared to $18.2 million in the same period of fiscal 2005. The organic direct sale growth rate was approximately 8.0%. The increase in organic direct sale revenue is largely due to garment sales through our rental operations including our annual outerwear promotion and growth in our Lion direct sales unit that was acquired in the second quarter of last year.

Organic growth rates are calculated using industrial rental and direct sale revenue, respectively, adjusted for foreign currency exchange rate differences and revenue from newly acquired business compared to prior-period results. We believe that the organic growth rates better reflect the growth of our existing industrial rental and direct sale business and are therefore useful in analyzing our financial condition and results of operations.

Cost of Rental and Direct Sale. Cost of rental operations increased 10.9% to $252.2 million in the first six months of fiscal 2006 from $227.4 million in the same period of fiscal 2005. Gross margin from rental sales decreased to 35.9% in the first six months of fiscal 2006 from 36.7% in the same period of fiscal 2005. Higher energy costs, costs associated with new customer growth, the impact of hurricanes on the operations and costs related to recent acquisitions, primarily in Canada were partially offset by numerous operational initiatives as well as the impact of higher pricing.

Cost of direct sales increased 82.6% to $24.4 million in the first six months of fiscal 2006 from $13.3 million in the same period of fiscal 2005. Gross margin from direct sales increased to 28.1% in the first six months of fiscal 2006 from 26.6% in the same period of fiscal 2005. The increase in margins was primarily due to improved cost leverage resulting from greater sales volume.

Selling and Administrative. Selling and administrative expenses increased 12.7% to $91.6 million in the first six months of fiscal 2006 from $81.3 million in the same period of fiscal 2005. As a percentage of total revenues, selling and administrative expenses decreased to 21.4% in the first six months of fiscal 2006 from 21.5% in the same period of fiscal 2005. The improvement as a percent of revenue was largely due to additional leverage on incremental revenue growth, partially offset by continued investment in growth initiatives and increased staffing to support long-term growth and strategic initiatives.

Depreciation and Amortization. Depreciation and amortization expense increased 4.5% to $21.2 million in the first six months of fiscal 2006 from $20.3 million in the same period of fiscal 2005. As a percentage of total revenues, depreciation and amortization expense decreased to 5.0% in the first six months of fiscal 2006 from 5.4% in the same period of fiscal 2005. Capital expenditures, excluding acquisition of businesses, were $16.5 million in the first six months of fiscal 2006 compared to $4.1 million in the same period of fiscal 2005. The decreased level of spending in the prior year was driven by $5.6 million in proceeds from the sale of selected plant assets.

Income from Operations. Hurricanes in the first six months of fiscal 2006 had a negative impact on net operating margins of approximately 0.4%.

Interest Expense. Interest expense was $6.3 million in the first six months of fiscal 2006, up from $5.2 million in the same period of fiscal 2005. The increase was due to increased debt levels in conjunction with the acquisition of business assets in the previous twelve months and an increase in interest rates.

Provision for Income Taxes. Our effective tax rate decreased to 34.8% in the first six months of fiscal 2006 from 37.4% in the same period of fiscal 2005 due to reductions of taxes previously provided for and a favorable mix of income earned in various taxing jurisdictions, including foreign operations, with different tax rates.

Liquidity, Capital Resources and Financial Condition

Our primary sources of cash are net cash flows from operations and borrowings under our debt arrangements. Primary uses of cash are interest payments on indebtedness, capital expenditures, acquisitions and general corporate purposes.

Operating Activities. Net cash provided by operating activities was $24.1 million in the first six months of fiscal 2006 and $29.7 million in the same period of fiscal 2005. In fiscal 2006, cash provided by operations was negatively

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impacted due to working capital needed to support organic growth and incentive compensation payments in connection with fiscal 2005 performance. In fiscal 2005, cash provided by operations was positively impacted by one-time improvements related to a focus on timely collection of accounts receivable.

Working capital at December 31, 2005 was $137.0 million, up 46.1% from $93.8 million at July 2, 2005. The increase in working capital is largely due to the reduction of current portions of long term debt as a result of our renewed credit facility.

Investing Activities. Net cash used in investing activities was $29.2 million in the first six months of fiscal 2006 and $40.1 million in the same period of fiscal 2005. In fiscal 2006, cash was primarily used for acquisition of business assets and property plant and equipment additions. In fiscal 2005, cash was largely used for acquisition of business assets and property plant and equipment additions, partially offset by proceeds from the sale of selected plant assets. The sale of these assets is the result of our continued focus on improving asset utilization. Proceeds on these sales totaled $5.6 million.

Financing Activities. Cash provided by financing activities was $3.6 million in the first six months of fiscal 2006 and cash used for financing activities was $7.2 million in the same period of fiscal 2005. Cash provided in fiscal 2006 was from debt proceeds used primarily for the acquisition of business assets and property plant and equipment additions. Cash used in fiscal 2005 was primarily related to the repayment of long-term debt. The Company paid dividends of $0.7 million during the first six months of fiscal 2006.

As of December 31, 2005, borrowings outstanding under the revolving credit facility were $66.8 million. The unused portion of the revolver may be used for general corporate purposes, acquisitions, working capital needs and to provide up to $50 million in letters of credit. As of December 31, 2005, letters of credit outstanding against the revolver were $31.8 million.

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%. We also pay a fee on the unused daily balance of the revolver based on a leverage ratio calculated each 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 December 31, 2005 for the fiscal years ending June (in thousands):

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

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Also, at December 31, 2005, we had stand-by letters of credit totaling $31.8 million issued and outstanding, primarily in connection with our property and casualty insurance programs and to provide security in connection with a promissory note. No amounts have been drawn upon these letters of credit.

At December 31, 2005, we had available cash on hand of $14.1 million and approximately $226 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 2006 and to reduce the amounts outstanding under the revolving credit facility; 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 2006 will be approximately $25 million to $30 million.

The amount of cash flow generated from operations is subject to a number of risks and uncertainties. In fiscal 2006, 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 our earnings and cash flow from operations, existing credit facilities and our ability to obtain additional debt or equity capital, if necessary, will be adequate to finance acquisition opportunities.

Pension Obligations

We account for our defined benefit pension plan using Statement of Financial Accounting Standards No. 87 “Employer’s Accounting for Pensions” (“SFAS 87”). Under SFAS 87, pension expense is recognized on an accrual basis over employees’ approximate service periods. Pension expense calculated under SFAS 87 is generally independent of funding decisions or requirements. We recognized expense for our defined benefit pension plan of $1.7 million in the second quarter of fiscal 2006 and $1.0 million in the same period of fiscal 2005. At July 2, 2005, the fair value of our pension plan assets totaled $29.1 million.

The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. Pension expense increases as the expected rate of return on pension plan assets decreases. At July 2, 2005, we estimated that the pension plan assets will generate a long-term rate of return of 8.0%. This rate was developed by evaluating input from our actuary as well as long-term inflation assumptions. The expected long-term rate of return on plan assets at July 2, 2005 is based on an allocation of U.S. equities and U.S. fixed income securities. Decreasing the expected long-term rate of return by 0.5% (from 8.0% to 7.5%) would increase our estimated fiscal 2006 pension expense by approximately $0.1 million. Pension liability and future pension expense increase as the discount rate is reduced. We discounted future pension obligations using a rate of 5.50% at July 2, 2005. The discount rate is determined based on the current rates earned on high quality long-term bonds. Decreasing the discount rate by 0.5% (from 5.50% to 5.00%) would have increased our accumulated benefit obligation at July 2, 2005 by approximately $4.1 million and increased the estimated fiscal 2006 pension expense by approximately $1.1 million.

Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in our pension plan will impact our future pension expense and liabilities. We cannot predict with certainty what these factors will be in the future.

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 impact of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases consistent with the rate of inflation or 5.0%, whichever is greater, and continued focus on improvements of operational productivity.

Significant increases in energy costs, specifically natural gas and gasoline, can materially affect our results of operations and financial condition. Currently, energy costs represent approximately 5% of our total revenue.

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Litigation

We are involved in a variety of legal actions relating to personal injury, employment, 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. None of these legal actions are expected to have a material adverse effect on our results of operations or financial position.

Stock-Based Compensation

We have 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 grants of employee stock options, be recognized in the income statement. Under the modified retrospective transition method, all prior period financial statements were restated to recognize compensation cost in the amounts previously reported in the Notes to Consolidated Financial Statements.

Income before income taxes and net income for the quarter ended January 1, 2005 have been restated by $0.8 million and $0.5 million, respectively. Basic and diluted earnings per share have each been restated by $0.03 per share. The beginning balances of deferred taxes, paid in capital and retained earnings have been restated by $6.0 million, $18.5 million and $12.5 million, respectively, to recognize compensation cost for fiscal years 1996 through 2005 in the amounts previously reported in the Notes to Consolidated Financial Statements under provisions of SFAS No. 123.

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 and employment levels; 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 branded identity apparel and facility services industry; unplanned litigation or regulatory proceedings; 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 July 2, 2005.

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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 one percentage point increase in interest rates under these borrowings would have increased our interest expense for the second quarter of fiscal 2006 by approximately $0.3 million. This estimated exposure considers the mitigating effects of interest rate swap agreements outstanding at December 31, 2005 on the change in the cost of variable rate debt.

Energy Cost Risk

We use derivative financial instruments to manage the risk that changes in gasoline cost will affect the future financial results of the Company. We purchase gasoline futures contracts to effectively hedge a portion of anticipated actual gasoline purchases. The gasoline futures contracts are reflected at fair value in the consolidated condensed balance sheet and the related gains or losses on these contracts are deferred in stockholders’ equity (as a component of other comprehensive income) or in the statements of operations depending on the effectiveness of the hedge. Upon settlement of each contract, the actual gain or loss is reflected in gasoline expense. The current fair market value of all outstanding contracts at December 31, 2005 is $0.1 million.

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.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Form 10-Q. Based on their evaluation, our chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective.

There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced above.

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PART II

OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     c. The following table includes information about our share repurchases for the quarter ended December 31, 2005.

							Maximum Number
							(or Approximate
					Total Number of		Dollar Value) of
					Shares (or Units)		Shares (or Units)
	Total Number of		Average Price		Purchased as Part of		that May Yet be
	Shares (or Units)		Paid per Share		Publicly Announced		Purchased Under the
Period	Purchased		(or Unit)		Plans or Programs		Plans or Programs
Month #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		—		—

All repurchased shares were initially issued under the Employee Plans as restricted stock grants subject to forfeiture upon termination of employment. All repurchases were made upon forfeiture of shares by the recipient of such restricted stock grants. Pursuant to the Restricted Stock Agreements governing such grants, the repurchase price for all shares was $0.00 or $0.50, which represents the per share amount paid by the restricted stock grant recipient on the date of grant.

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:

	Shares
	In Favor		Withhold Authority
Mr. Allen		29,461,026		735,766
Mr. Doyle		28,726,543		1,470,249
Mr. Pippin		28,703,507		1,493,285

23

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

     a. Exhibits

10.1 Employment Agreement, dated December 19, 2005, between G&K Services, Inc. and David M. Miller.

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

24

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.

	G&K SERVICES, INC. (Registrant)
Date: February 3, 2006	By:	/s/ Jeffrey L. Wright
		Jeffrey L. Wright
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

By:	/s/ Michael F. Woodard
	Michael F. Woodard
	Vice President and Controller (Principal Accounting Officer)

25

EX-10.1

EXHIBIT 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made and entered into effective as of the 19^th day of December, 2005, (the “Effective Date”) by and between G&K SERVICES, INC., a Minnesota corporation with its principal business office in the State of Minnesota (“Employer”, as further defined in Section 1.10 below); and David Miller a resident of the State of Minnesota (“Executive”).

INTRODUCTION

A.

Employment. Executive is employed by Employer under this Agreement the terms and conditions of this Agreement. As such, Executive is subject to the same polices, terms and conditions as those described in the Employer’s employee handbook, its Code of Ethics, policies, and employee benefit plans (as modified from time to time by Employer), except as otherwise specifically provided in this Agreement.

B.

Protection of Employer. In performing Executive’s job-related duties and responsibilities for Employer, Executive will have extensive access to Employer’s confidential design, manufacturing, distribution, marketing and sales information which Employer has developed at great expense, time and effort, as well as opportunities to cultivate valuable business relationships with employees, customers and vendors of Employer. This information is Confidential Information, as defined in Section 8 of this Agreement, and its disclosure to a competitor would cause irreparable harm to Employer. Therefore, Employer is not willing to offer Executive employment and the additional benefits contained in this Agreement unless Executive signs this Agreement, providing Employer with reasonable protection for its Confidential Information as well as other the protections set forth below.

AGREEMENT

     In consideration of the facts recited above, which are a part of this Agreement, and the parties’ mutual undertakings in this Agreement, Employer and Executive agree as follows:

ARTICLE 1
DEFINITIONS

     Capitalized terms used generally in this Agreement will have their defined meaning throughout the Agreement. The following terms will have the meanings set forth below; unless the context clearly requires otherwise.

     1.1 “Agreement” means this Agreement, as it may be amended from time to time.

     1.2 “Base Salary” means the total annual cash compensation payable to Executive on a regular periodic basis under this Agreement Section 3.1, without regard to any voluntary salary deferrals or reductions to fund employee benefits.

     1.3 “Board” means the Board of Directors of Employer.

     1.4 “Cause” has the meaning set forth in Section 4.2.

     1.5 “Change in Control” has the meaning set forth in Article 7.

     1.6 “Confidential Information” has the meaning set forth in Section 8.1.

     1.7 “Date of Termination” has the meaning set forth in Section 4.6.

     1.8 “Disability” means the unwillingness or inability of Executive to perform the essential functions of Executive’s position (with or without reasonable accommodation) under this Agreement for a period of ninety (90) days (consecutive or otherwise) within any period of six (6) consecutive months because of Executive’s incapacity due to physical or mental illness, bodily injury or disease, if Executive has not returned to the full-time performance of the Executive’s duties within ten (10) days after a Notice of Termination is issued by Employer; provided, however, that if Executive (or Executive’s legal representative) does not agree with a determination of the existence of a Disability (or the existence of a physical or mental illness or bodily injury or disease), this determination will be subject to the certification of a qualified medical doctor mutually agreed to by Employer and Executive. In the absence of agreement, each party will nominate a qualified medical doctor and the two doctors will select a third doctor, who will make the determination as to Disability. The decision of the designated physician will be binding upon the parties.

     1.9 “Effective Date” has the meaning referred to in the first paragraph of this Agreement.

     1.10 “Employer” means all of the following, jointly and severally: (a) G&K Services, Inc., (b) any Subsidiary of G&K Services, Inc. and (c) any Successor of G&K Services, Inc.

     1.11 “Executive” means the individual named in the first paragraph of this Agreement.

     1.12 “Notice of Termination” has the meaning set forth in Section 4.6(a).

     1.13 “Plan” means any bonus or incentive compensation agreement, plan, program, policy or arrangement sponsored, maintained or contributed to by Employer, to which Employer is a party or under this Agreement which employees of Employer are covered, including, without limitation, (a) any stock option or any other equity-based compensation plan; (b) any annual or long-term incentive (bonus) plan; (c) any employee benefit plan, such as a thrift, profit sharing, deferred compensation, medical, dental, disability income, accident, life insurance, automobile allowance, perquisite, fringe benefit, vacation, sick or parental leave, separation or relocation plan or policy and (d) any other agreement, plan, program, policy or arrangement intended to benefit employees or executive officers of Employer.

     1.14 “Subsidiary” means any corporation or other business entity controlled by Employer.

     1.15 “Successor” means any corporation, individual, group, association, partnership, limited liability company, firm, venture or other entity or person that, subsequent to the Effective Date, succeeds to the actual or practical ability to control (either immediately or with the passage of time) substantially all of Employer and/or Employer’s business and/or assets, directly or indirectly, by merger, consolidation,

Executive Employment Agreement 2005

recapitalization, purchase, liquidation, redemption, assignment, similar corporate transaction, operation of law or otherwise.

ARTICLE 2
EMPLOYMENT AND DUTIES

     2.1 Employment. Under this Agreement the terms and conditions of this Agreement, Employer offers and Executive accepts employment for an indefinite term. Executive will serve in the capacity of President, US Rental Operations, reporting to Employer’s Chief Executive Officer or, subject to Executive’s rights under this Agreement, such other title and position as the Chief Executive Officer will determine. This Agreement and Executive’s employment may be terminated by Employer at any time and for any reason, with or without cause.

     2.2 Duties. While Executive is employed under this Agreement, and excluding any periods of vacation, sick, disability or other leave to which Executive is entitled, Executive agrees to devote substantially all of Executive’s attention and time during normal business hours to the business and affairs of Employer and to use Executive’s best efforts to perform faithfully and efficiently such responsibilities assigned to Executive from time to time.

     Executive will comply with Employer’s policies and procedures including those described in the Company’s employee handbook, Code of Ethics, policies, and employee benefit plans of Employer, as modified from time to time by Employer; provided, however, that to the extent these policies and procedures are inconsistent with this Agreement, the provisions of this Agreement will control.

     2.3 Relationship of Parties. The relationship between Employer and Executive will be that of employer and employee. Except as otherwise specifically provided in Article 4, nothing in this Agreement will be construed to give Executive any interest in the assets of Employer. All of the records and files pertaining to Employer’s suppliers, licensors, licensees and customers are specifically acknowledged to be the property of Employer and not that of Executive.

ARTICLE 3
COMPENSATION AND BENEFITS

     3.1 Base Salary. Commencing as of the Effective Date, Employer will pay Executive a Base Salary at an annual rate of Two Hundred Ninety Thousand Dollars ($290,000.00), or such other annual rate as may from time to time be approved by the Board. The Base Salary is to be paid in substantially equal regular periodic payments in accordance with Employer’s regular payroll practices. If Executive’s Base Salary is changed at any time during Executive’s employment by Employer, the changed amount will become the Base Salary under this Agreement, subject to any subsequent changes.

     3.2 Other Compensation and Benefits. While Executive is employed by Employer under this Agreement:

     (a) Executive will have an annual incentive opportunity equal to fifty percent (50%) at target (100% achievement of objectives) under Employer’s management incentive plan in effect for its 2006 fiscal year, and incentives determined under Employer’s management incentive plans for future fiscal years. For fiscal year 2006 there is no cap on the maximum payout on the

Executive Employment Agreement 2005

management incentive plan for members of Employer’s Executive Team. Executive is a member of Employer’s Executive Team. For fiscal year 2006 only, Employer guarantees a minimum payout of fifty percent (50%) of Executive’s target incentive opportunity, prorated based upon the Effective Date.

     (b) For fiscal year 2006 only, and as a bonus for signing and implementing this Agreement, Employer will pay to Executive the sum of Twenty-Five Thousand Dollars ($25,000.00) payable with Executive’s first paycheck as an employee.

     (c) As determined by the Board, Exertive may receive an initial grant of stock option shares as approved by the Board, with three (3) year graded vesting, and a grant of restricted stock shares with five (5) year graded vesting. Executive will be eligible for an annual equity grant of stock, starting as of the beginning of fiscal year 2007, as determined by the Board for performance at target with potential upside for superior performance against objectives.

     (d) Executive will be permitted to participate in all Plans for which Executive is or becomes eligible as provided by the respective Plan terms. Employer may, in its sole discretion, amend or terminate any Plan that provides benefits generally to its employees or its executive officers.

     (e) As a member of Employer’s Executive Team, Executive will receive a leased vehicle of Executive’s choice with a value of up to Fifty-Five Thousand Dollars ($55,000.00), and will be eligible for a financial planning benefit of up to Two Thousand Five Hundred ($2,500.00) annually, and an annual executive physical paid for by Employer.

     (f) Executive is eligible for up to four (4) weeks paid vacation annually.

     (g) Executive will also be entitled to participate in or receive benefits under any Plan made available by Employer in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of the Plans and the preceding provisions of this Section 3.2.

     3.3 Limitation on Right to Deferred Compensation. The rights of Executive, or Executive’s beneficiaries or estate, to any deferred compensation under this Agreement will be solely those of an unsecured creditor of Employer. Neither Executive nor any of Executive’s beneficiaries or estate will be entitled to assign or transfer (except to Employer) any right to receive any part of any deferred compensation amounts under this Agreement and, in the event of any attempt to assign or transfer any of these amounts, Employer will have no further liability under this Agreement for these amounts.

ARTICLE 4
TERMINATION

     Executive’s employment with the Employer may be terminated at any time as follows:

     4.1 Death or Disability This Agreement and Executive’s employment under this Agreement will, upon Executive’s death or Disability, terminate as of the applicable Date of Termination.

Executive Employment Agreement 2005

     4.2 Termination by Employer for Cause. Employer may terminate Executive’s at will employment at any time for Cause, with or without advance notice (except as otherwise provided in this Section 4.2). For purposes of this Agreement, “Cause” means any of the following, with respect to Executive’s position of employment with Employer:

     (a) Executive’s failure or refusal to perform the duties and responsibilities set forth under this Agreement if the failure or refusal is not due to Disability or a physical or mental illness or bodily injury or disease;

     (b) use of alcohol or drugs that interferes with the performance of Executive’s obligations under this Agreement or Executive’s duties, responsibilities and obligation as an employee of Employer;

     (c) Executive’s indictment for or conviction of (including entering a guilty plea or plea of no contest to) a felony or of any crime involving moral turpitude, fraud, dishonesty or theft;

     (d) any material dishonesty of Executive involving or affecting Employer;

     (e) any gross negligence or other willful or intentional act or omission of Executive having the effect or reasonably likely to have the effect of injuring the reputation, business or business relationships of Employer or Executive in a material way;

     (f) any willful or intentional breach by Executive of a fiduciary duty to Employer;

     (g) any court order or settlement agreement prohibits Executive’s continued employment with Employer;

     (h) any willful or intentional breach by Executive of a written or oral non-competition agreement, confidentiality agreement, proprietary information agreement, trade secret agreement or any other agreement which would prevent Executive from working for Employer and/or performing Executive’s duties at Employer;

     (i) any willful or intentional breach by Executive of Employer’s standard business practices and policies, including, without limitation, policies against racial or sexual discrimination or harassment; and

     (j) any material breach by Executive (not covered by any of the above clauses (a) through (i)) of any material term, provision or condition of this Agreement, if the breach is not cured (to the extent curable) within five (5) days after written notice of the breach is issued to Executive from Employer.

     For purposes of this Section 4.2, no act, or failure to act, on Executive’s part will be considered “dishonest,” “willful” or “intentional” unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive’s action or omission was in or not opposed to, the best interest of Employer. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for Employer will be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of Employer. Furthermore, the term

Executive Employment Agreement 2005

“Cause” will not include ordinary negligence or failure to act, whether due to an error in judgment or otherwise, if Executive has exercised substantial efforts in good faith to perform the duties reasonably assigned or appropriate to the position.

     4.3 Termination by Executive for Good Reason. After a Change in Control (as defined in Article 7), Executive may voluntarily resign from employment under this Agreement with or without Good Reason (as this term is defined in Section 7.1(f)).

     4.4 Voluntary Termination by Executive. Executive may, upon thirty (30) days notice to Employer, terminate Executive’s at will employment at any time for any reason. During the thirty (30) day period after notice is given Executive agrees that, at Employer’s request and sole discretion, Executive will continue to render Executive’s normal service to Employer to the best of Executive’s ability, and Employer will continue to pay Executive the Base Salary.

     4.5 Termination by Employer without Cause. Employer may, upon written notice, terminate Executive’s at will employment without cause, at any time and for any reason or no reason.

     4.6 Notice of Termination and Date of Termination.

     (a) For purposes of this Agreement, a “Notice of Termination” will mean a notice that indicates the date on which termination of Executive’s employment is effective. Any termination by Employer or by Executive under to this Agreement (other than Executive’s death or a termination by mutual agreement) will be communicated to the other party by submission of a written Notice of Termination. If termination is by Employer For Cause or by Executive for Good Reason, the Notice of Termination will set forth in reasonable detail the facts and circumstances claimed to provide the basis for the termination, consistent with the terms of this Agreement.

     (b) For purposes of this Agreement, “Date of Termination” will mean: (i) if Executive’s employment is terminated due to death, the date of Executive’s death; (ii) if Executive’s employment is terminated for Disability, thirty (30) calendar days after the Notice of Termination is given; (iii) if Executive’s employment is terminated by Employer for Cause or by Executive for Good Reason, the date stated in the Notice of Termination; (iv) if Executive’s employment is terminated by mutual agreement of the parties, the termination date provided for in the agreement; or (v) if Executive’s employment is terminated for any other reason, the date stated in the Notice of Termination provided the date is no earlier than thirty (30) calendar days after the date on which the Notice of Termination is submitted to the intended recipient, unless an earlier date has been expressly agreed to by Executive in writing either before or after receiving the Notice of Termination.

ARTICLE 5
PAYMENTS UPON TERMINATION

     5.1 Compensation during Disability. During any period in which Executive fails to perform Executive’s duties under this Agreement as a result of Executive’s incapacity due to physical or mental illness or bodily injury or disease, Executive will continue to receive all Base Salary and other compensation and benefits to which Executive is otherwise entitled under this Agreement and any Plan, through Executive’s Date of Termination.

Executive Employment Agreement 2005

     5.2 Compensation upon Termination by Reason of Death, Voluntary Termination by Executive, For Cause by Employer or by Mutual Agreement. Except as provided in Article 7, if Executive’s employment under this Agreement is terminated (i) by Executive’s death, (ii) voluntarily by Executive, (iii) by Employer for Cause, or (iv) by mutual agreement of the parties, then Employer will pay Executive the Base Salary through the Date of Termination, plus any amounts to which the Executive is entitled under this Agreement, and under any Plan as provided by the Plan. Employer will also pay any retirement benefits to which Executive is or becomes entitled under this Agreement or under any Plan, except to the extent any benefits are forfeited under the terms of the Plan.

     5.3 Compensation Upon Termination by Employer Without Cause or Executive for Good Reason. In the event either (i) Employer terminates Executive’s employment under this Agreement without Cause; or (ii) Executive voluntarily terminates employment under this Agreement for Good Reason [as this term is defined in Section 7.1 (f)]; and, if Executive executes a written release substantially in the form attached to this Agreement as Exhibit A and consistent with this Section 6.3 (a “Release Agreement”), then

     (i) Employer will pay to Executive, as separation pay which Executive has not earned and to which he is not otherwise entitled, an amount equal to eleven (11) months of Executive’s monthly Base Salary in effect as of the Date of Termination [in addition to a thirty day notice of termination set forth in Section 4.6(b)]. Separation payment will be made to the Executive in weekly payments beginning at least sixteen (16) days after Executive’s execution of the Release Agreement, provided the Executive has not exercised rights to revoke or rescind the release of claims as provided in the Release Agreement

     (ii) If Executive (or any individual eligible for group health Plan benefits through Executive) is eligible under this Agreement, the Plan or applicable law to continue participation in Employer’s group health Plan during the separation pay period and does elect to continue these benefits, Employer will, for that period during which Executive is entitled to receive separation pay under Section 5.3(i), continue to pay Employer’s share of the cost of these benefits as if Executive remained continuously employed with Employer throughout the separation pay period but only while Executive or such other individual continues to pay the balance of such cost. In the alternative, and under these circumstances, Employer may elect, in its discretion, to pay to Executive on or about the Date of Termination a lump sum calculated to represent Employer’s share of the cost of these benefits.

5.4	Outplacement. Employer will, for a period of up to eleven (11) months following Executive’s Date of Termination, reimburse Executive for all reasonable expenses of a reputable outplacement organization selected by Executive, but not to exceed $12,000.00 in the aggregate.
5.5	No Additional Pay/Benefits. Except as specifically set forth above, no post-termination payments or benefits will be provided to Executive following the Date of Termination of Executive’s employment. No 401(k) contributions will be paid by Employer based on post-termination separation pay. Further, Executive will not be entitled to an incentive award

Executive Employment Agreement 2005

under the Employer’s incentive Plans or any other bonus for any fiscal year, or part thereof, during which post-termination separation pay is paid.

     Executive will not be required to mitigate Employer’s payment obligations under this Article 5 by making any efforts to secure other employment, and Executive’s commencement of employment with another employer will not reduce the obligations of Employer under this Article 5.

ARTICLE 6

CHANGE IN CONTROL

     6.1 Definitions Relating to a Change in Control. The following terms will have the meanings set forth below; unless the context clearly requires otherwise:

     (a) “1934 Act” will mean the Securities Exchange Act of 1934, as amended (or any successor provision), and applicable regulations.

     (b) “Beneficial Ownership” by a person or group of persons will be determined in accordance with Regulation 13D (or any similar successor regulation) promulgated by the Securities and Exchange Commission pursuant to the 1934 Act. Beneficial Ownership of an equity security may be established by any reasonable method, but will be presumed conclusively as to any person who files a Schedule 13D report with the Securities and Exchange Commission reporting the ownership.

     (c) “Change of Control” means the occurrence of any of the following events:

     (i) any person or group of persons attains Beneficial Ownership of thirty per cent (30%) or more of any equity security of Employer entitled to vote for the election of directors;

     (ii) a majority of the members of the Board is replaced within a period of less than two (2) years by directors not nominated and approved by the Board; or

     (iii) the stockholders of Employer approve an agreement to merge or consolidate with or into another corporation or entity unrelated to Employer, or an agreement to sell or otherwise dispose of all or substantially all of Employer’s assets (including a plan of liquidation).

     (d) “Continuing Directors” are (i) directors who were in office prior to the time any events described in paragraphs (c)(i), (c)(ii) or (c)(iii) of this Section 6.1 have occurred, or any person that has publicly announced an intention to acquire twenty per cent (20%) or more of any equity security of Employer; (ii) directors in office for a period of more than two (2) years; and (iii) directors nominated and approved by the Continuing Directors.

     (e) “Change in Control Termination” will mean that a Change in Control of Employer has occurred, and either of the following events has also occurred within one (1) year after the Change in Control: (i) Employer terminates the Executive’s employment or this Agreement for any

Executive Employment Agreement 2005

reason other than for Cause, Executive’s death or Executive’s Disability; or (ii) Executive terminates Executive’s employment for Good Reason.

     (f) “Good Reason” will mean, with respect to a voluntary termination of employment by Executive after a Change in Control, any of the following:

     (i) an adverse involuntary change in Executive’s status or position as an executive officer of Employer, including, without limitation, (A) any adverse change in Executive’s status or position as a result of a material diminution in Executive’s duties, responsibilities or authority as of the day before the Change in Control; (B) the assignment to Executive of any duties or responsibilities that, in Executive’s reasonable judgment, are significantly inconsistent with Executive’s duties, responsibilities or authority as of the day before the Change in Control; or (C) any removal of Executive from, or any failure to reappoint or reelect Executive to, a position with the same duties, responsibilities or authority Executive had as of the day before the Change in Control (except in connection with a termination of Executive’s employment for Cause in accordance with Article 4, or as a result of Executive’s Disability or death);

     (ii) a reduction by Employer in Executive’s Base Salary as in effect on the day before the Change in Control;

     (iii) the taking of any action by Employer that would materially and adversely affect the physical conditions existing, as of the day before the Change in Control, under which Executive performs employment duties for Employer;

     (iv) Employer’s requiring Executive to be based anywhere other than where Executive’s office is located as of the day before the Change in Control, except for required travel on Employer’s business to an extent substantially consistent with business travel obligations that Executive had undertaken on behalf of Employer as prior to the Change in Control;

     (v) any failure by Employer to obtain from any Successor an assumption of this Agreement as contemplated by Section 6.1; or

     (vi) any purported termination by Employer of this Agreement or the employment of the Executive at any time after a Change in Control that is not expressly authorized by this Agreement; or any breach of this Agreement by Employer at any time after a Change in Control, other than an isolated, insubstantial and inadvertent failure that does not occur in bad faith and is remedied by Employer within a reasonable period after Employer’s receipt of notice of the failure from Executive.

     6.2 Benefits Upon a Change in Control Termination. If a Change in Control Termination occurs with respect to Executive, Executive will be entitled to the following benefits; provided, however, that to the extent Executive has already received the same type of benefits under this Article 6 as a result of Executive’s Change in Control Termination, Executive’s benefits under this Section 6.2 will be offset by these other benefits to the extent necessary to prevent duplication of benefits under this Agreement:

Executive Employment Agreement 2005

          (a) all of the payments and benefits that Executive would have been entitled to receive if the Change in Control Termination were described in Section 5.3, and payment will be made in a lump sum on or before the tenth (10^th) calendar day following the Date of Termination; and

          (b) for a period of up to six (6) months following Executive’s Date of Termination, Employer will reimburse Executive for all reasonable expenses incurred by Executive [excluding any arrangement by which Executive prepays expenses for a period of greater than thirty (30) days] in seeking employment with another employer, including the fees of a reputable outplacement organization selected by Employer, but not to exceed $12,000.00 in the aggregate;

     Executive will not be required to mitigate Employer’s payment obligations under this Agreement this Article 6 by making any efforts to secure other employment; and Executive’s commencement of employment with another employer will not reduce the obligations of Employer pursuant to this Article 6.

     6.3 Acceleration of Incentives. If upon the occurrence of a Change of Control, the Board and a majority of the Continuing Directors [as this term is defined in the G&K Services, Inc. 1998 Stock Option and Compensation Plan (the “1998 Plan”)] determine that the economic incentives (including without limitation stock options and awards of restricted stock) (the “Incentives”) granted under this Agreement the 1998 Plan shall not accelerate immediately in accordance with Section 11.12 of the 1998 Plan (or any successor provision), then the following will nonetheless occur with respect to any and all Incentives that are owned by Executive at the time of the Change of Control:

     (a) the restrictions set forth in the 1998 Plan on all shares of restricted stock awards will lapse immediately;

     (b) all outstanding options and stock appreciation rights will become exercisable immediately; and

     (c) All performance shares will be deemed to be met and payment made immediately.

     6.4 Limitation on Severance Payment. Notwithstanding any provision contained in this Agreement to the contrary, if any amount or benefit to be paid or provided under this Article 6, or any other plan or agreement between Executive and Employer would be an “Excess Parachute Payment,” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Agreement this Article 6 will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction will be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes). If requested by Executive or Employer, the determination of whether any reduction in such payments or benefits to be provided under this Article 6 or otherwise is required pursuant to the preceding sentence will be made by an independent accounting firm that is a “Big-4 Accounting Firm” (or other accounting firm mutually acceptable to Executive and Employer) not then-engaged as Employer’s independent public auditor, at the expense of Employer, and the determination such independent accounting firm will be final and binding on

Executive Employment Agreement 2005

all parties. In making its determination, the independent accountant will allocate a reasonable portion of the separation payment to the value of any personal services rendered following the Change in Control and the value of any non-competition agreement or similar agreements to the extent that such items reduce the amount of the parachute payment. In the event that any payment or benefit intended to be provided under this Article 6 or otherwise is required to be reduced pursuant to this Section 6.4, Executive (in Executive’s sole discretion) will be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section. Employer will provide Executive with all information reasonably requested by Executive to permit Executive to make such designation. In the event that Executive fails to make such designation within ten (10) business days of receiving such information, Employer may effect such reduction in any manner it deems appropriate.

ARTICLE 7
PROTECTION OF EMPLOYER

     7.1 Confidential Information. For purposes of this Article 7, “Confidential Information” means information that is proprietary to Employer or proprietary to others and entrusted to Employer; whether or not such information includes trade secrets. Confidential Information includes, but is not limited to, information relating to Employer’s business plans and to its business as conducted or anticipated to be conducted, and to its past or current or anticipated products and services. Confidential Information also includes, without limitation, information concerning Employer’s customer lists or routes, pricing, purchasing, inventory, business methods, training manuals or other materials developed for Employer’s employee training, employee compensation, research, development, accounting, marketing and selling. All information that Employer has a reasonable basis to consider as confidential will be Confidential Information, whether or not originated by Executive and without regard to the manner in which Executive obtains access to this and any other proprietary information of Employer.

Executive will not, during or after the termination of Executive’s employment under this Agreement, (a) directly or indirectly use Confidential Information for Executive’s own benefit; or (b) disclose any Confidential Information to, or otherwise permit access to Confidential Information by, any person or entity not employed by Employer or not authorized by Employer to receive such Confidential Information, without the prior written consent of Employer. Executive will use reasonable and prudent care to safeguard and protect and prevent the unauthorized use and disclosure of Confidential Information. Furthermore, except in the usual course of Executive’s duties for Employer, Executive will not at any time remove any Confidential Information from the offices of Employer, record or copy any Confidential Information or use for Executive’s own benefit or disclose to any person or entity directly or indirectly competing with Employer any information, data or materials obtained from the files or customers of Employer, whether or not such information, data or materials are Confidential Information.

     Upon any termination of Executive’s employment, Executive will collect and return to Employer (or its authorized representative) all original copies and all other copies of any Confidential Information acquired by Executive while employed by Employer.

     The obligations contained in this Section 8.1 will survive for as long as Employer in its sole judgment considers the information to be Confidential Information. The obligations under this Agreement this Section 8.1 will not apply to any Confidential Information that is now or becomes generally available

Executive Employment Agreement 2005

to the public through no fault of Executive or to Executive’s disclosure of any Confidential Information required by law or judicial or administrative process.

     7.2 Non-Competition. While employed by Employer and for a period of eighteen (18) months following the date of Executive’s termination of employment for any reason, Executive will not, directly or indirectly, alone or as an officer, director, shareholder, partner, member, employee or consultant of any other corporation or any partnership, limited liability company, firm or other business entity:

     (a) engage in, have any ownership interest in, financial participation in, or become employed by, any business or commercial activity in competition (i) with any part of Employer’s business, as conducted anywhere within the geographic area in which Employer has conducted its business within the three (3) years before such date, or (ii) with any part of Employer’s contemplated business with respect to which Executive has Confidential Information governed by Section 7.1. For purposes of this paragraph, “ownership interest” will not include beneficial ownership of less than one percent (1%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange or quoted on NASDAQ;

     (b) call upon, solicit or attempt to take away any customers, accounts or prospective customers of Employer;

     (c) solicit, induce or encourage any supplier of goods or services to Employer to cease its business relationship with Employer, or violate any term of any contract with Employer; or

     (d) solicit, induce or encourage any other employee of Employer to cease employment with Employer, or otherwise violate any term of such employee’s contract of employment with Employer.

     The restrictions set forth in this Section 7.2 will survive any termination of this Agreement or other termination of Executive’s employment with Employer, for whatever reason, and will remain effective and enforceable for the full 18-month period; provided, however, that such period will be automatically extended and will remain in full force for an additional period equal to any period in which Executive is proven to have violated any such restriction.

     7.3 Stipulated Reasonableness. Executive acknowledges that the nature of Executive’s position, the period of time necessary to fill Executive’s position in the event Executive’s employment is terminated, the period of time necessary to allow customers of Employer’s business to become familiar with Executive’s replacement, and the period of time necessary to cause an end to the identification between Executive and Employer in the minds of Employers customers and vendors, commands that the eighteen month (18) month noncompetition period be imposed for the protection of Employer’s investment in its business.

     7.4 Protection of Reputation. Executive will, both during and after the termination of Executive’s employment under this Agreement, refrain from communicating to any person, including without limitation any employee of Employer, any statements or opinions that are negative in any way about Employer or any of its past, present or future officials. In return, whenever Employer sends or receives any Notice of Termination of Executive’s employment under this Agreement, Employer will advise the members of its

Executive Employment Agreement 2005

operating committee and executive committee (or any successors to such committees), to refrain from negative communications about Executive to third parties.

     7.5 Remedies. The parties declare and agree that it is impossible to accurately measure in money the damages that will accrue to Employer by reason of Executive’s failure to perform any of Executive’s obligations under this Agreement this Article 7; and that any such breach will result in irreparable harm to Employer, for which any remedy at law would be inadequate. Therefore, if Employer institutes any action or proceeding to enforce the provisions of this Article 7, Executive waives the claim or defense that such party has an adequate remedy at law, Executive will not assert in any such action or proceeding the claim or defense that such party has an adequate remedy at law, and Employer will be entitled, in addition to all other remedies or damages at law or in equity, to temporary and permanent injunctions and orders to restrain any violations of this Article 7 by Executive and all persons or entities acting for or with Executive.

     7.6 Survival. The provisions of Article 7 of this Agreement will survive the termination of this Agreement or the termination of Executive’s employment with Employer, and will remain in full force and affect following termination.

ARTICLE 8
GENERAL PROVISIONS

     8.1 Successors and Assigns; Beneficiary.

     (a) This Agreement will be binding upon and inure to the benefit of any Successor of Employer, and any Successor will absolutely and unconditionally assume all of Employer’s obligations under this Agreement. Upon Executive’s written request, Employer will seek to have any Successor, by agreement in form and substance satisfactory to Executive, assent to the fulfillment by Employer of their obligations under this Agreement. Failure to obtain such assent prior to the time a person or entity becomes a Successor (or where Employer does not have advance notice that a person or, entity may become a Successor, within one (1) business day after having notice that such person or entity may become or has become a Successor) will constitute Good Reason for termination of employment by Executive pursuant to Article 4.

     (c) This Agreement and all rights of Executive under this Agreement will inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees and any assignees permitted under this Agreement. If Executive dies while any amounts would still be payable to Executive under this Agreement if Executive had continued to live, all such amounts, unless otherwise provided herein, will be paid in accordance with the terms of this Agreement to Executive’s Beneficiary. Executive may not assign this Agreement, in whole or in any part, without the prior written consent of Employer.

     (d) For purposes of this Section 8.1, “Beneficiary” means the person or persons designated by Executive (in writing to Employer) to receive benefits payable after Executive’s death pursuant to Section 8.1(c). In the absence of any such designation or in the event that all of the persons so designated predecease Executive, Beneficiary means the executor, administrator or personal representative of Executive’s estate.

Executive Employment Agreement 2005

     8.2 Litigation Expense. If any party is made or will become a party to any litigation (including arbitration) commenced by or against the other party involving the enforcement of any of the rights or remedies of such party, or arising on account of a default of the other party in its performance of any of the other party’s obligations under this Agreement, then the prevailing party in such litigation will receive from the other party all costs incurred by the prevailing party in such litigation, plus reasonable attorneys’ fees to be fixed by the court or arbitrator (as applicable), with interest thereon from the date of judgment or arbitrator’s decision at the rate of eight percent (8%) or, if less, the maximum rate permitted by law.

     8.3 No Offsets. In no event will any amount payable to Executive pursuant to this Agreement be reduced for purposes of offsetting, either directly or indirectly, any indebtedness or liability of Executive to Employer.

     8.4 Notices. All notices, requests and demands given to or made pursuant hereto will, except as otherwise specified herein, be in writing and be personally delivered or mailed postage prepaid, registered or certified U. S. mail, to any party as its address set forth on the last page of this Agreement. Either party may, by notice under this Agreement, designate a changed address. Any notice under this Agreement will be deemed effectively given and received: (a) if personally delivered, upon delivery; or (b) if mailed, on the registered date or the date stamped on the certified mail receipt.

     8.5 Captions. The various headings or captions in this Agreement are for convenience only and will not affect the meaning or interpretation of this Agreement. When used herein, the terms “Article” and “Section” mean an Article or Section of this Agreement, except as otherwise stated.

     8.6 Governing Law. The validity, interpretation, construction, performance, enforcement and remedies of or relating to this Agreement, and the rights and obligations of the parties under this Agreement, will be governed by the substantive laws of the State of Minnesota (without regard to the conflict of laws rules or statutes of any jurisdiction), and any and every legal proceeding arising out of or in connection with this Agreement will be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose.

     8.7 Construction. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under this Agreement applicable law, but if any provision of this Agreement will be prohibited by or invalid under this Agreement applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     8.8 Waiver. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy under this Agreement will operate as a waiver thereof; nor will any single or partial exercise of any right or remedy under this Agreement preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law

     8.9 Modification. This Agreement may not be modified or amended except by written instrument signed by the parties hereto.

     8.10 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties to this Agreement in reference to all the matters agreed upon. This Agreement replaces

Executive Employment Agreement 2005

in full all prior employment agreements or understandings of the parties to this Agreement, and any and all such prior agreements or understandings are rescinded by mutual agreement.

     8.11 Survival. The provisions of this Agreement which by their express or implied terms extend (a) beyond the termination of Executive’s employment under this Agreement (including, without limitation, the provisions relating to separation compensation and effects of a Change in Control); or (b) beyond the termination of this Agreement (including, without limitation the provisions in Article 8 relating to confidential information, non-competition and non-solicitation), will continue in full force and effect notwithstanding Executive’s termination of employment under this Agreement or the termination of this Agreement, respectively.

     8.12 Voluntary Agreement. Executive has entered into this Agreement voluntarily, after having the opportunity to consult with an advisor chosen freely by Executive.

     8.13 Remedies. No civil action may be commenced for any claim or dispute relating to this Agreement or arising out of Executive’s employment with Employer unless the parties, within thirty (30) days after the date of either party’s written request, attempt in good faith to promptly resolve the claim or dispute by negotiation at agreed time(s) and location(s). All negotiations are confidential and will be treated as settlement negotiations. Notwithstanding the foregoing, either party may seek equitable relief prior to such good faith efforts to preserve the status quo pending the completion of such efforts.

     IN WITNESS WHEREOF, the parties have caused this Executive Employment Agreement to be executed and delivered as of the Effective Date.

EMPLOYER:	G&K SERVICES, INC.:
	By:	/s/ Richard L. Marcantonio Chairman of the Board and
		Chief Executive Officer
EXECUTIVE:		/s/ David M. Miller

Executive Employment Agreement 2005

EXHIBIT A

SEVERANCE AGREEMENT AND GENERAL RELEASE

Definitions. All the words used in this Severance Agreement and General Release (this “Agreement”) have their plain meaning in ordinary English. Specific terms used in this Agreement have the following meanings:

1.	Words such as I and me include both me and anyone who has or obtains any legal rights or claims through me. My name is _______________.
2.	“G&K” means G&K Services, Inc., and its affiliated entities, and each of them, and past or present officials, managers, agents, officers, directors, employees, committees, insurers, indemnitors, successors or assigns of any of the foregoing entities.

G&K’s Promises. In exchange for My Promises, G&K has promised to extend to me the consideration set forth on a separate Severance Benefits Letter dated the same date as this Agreement (the “Severance Benefits Letter”), but only if I have not exercised my rights to revoke or rescind certain of my waivers as provided in this Agreement.

My Claims. The claims I am releasing include all of my rights to any relief of any kind from G&K including but not limited to:

1.	All claims I have now, whether or not I now know about the claims;
2.	All claims for attorney’s fees;
3.	All claims, through the date this document is executed, for alleged discrimination against me and any other rights and claims under the federal Age Discrimination in Employment Act (“ADEA”), the Minnesota Human Rights Act (“MHRA”), the Minneapolis Civil Rights Act, and all claims of any nature under any federal, state or local statute, ordinance or other law;
4.	All claims arising out of my employment or my separation from employment with G&K including, but not limited to, any alleged breach of contract, wrongful termination, defamation, invasion of privacy or infliction of emotional distress;
5.	All claims for any other alleged unlawful employment practices arising out of or relating to my employment or my separation from employment; and
6.	All claims for any other form of pay, for example holiday pay, vacation pay and sick pay.
7.	All claims I have under that certain Executive Employment Agreement dated _______________ (the “Executive Employment Agreement”).

My Promises. In exchange for receiving the payments and other consideration set forth in the Severance Benefits Letter, I hereby give up all my claims against G&K. I fully and finally release, give up, and otherwise relinquish all of my rights and claims against G&K, including for example rights and claims of discrimination under the ADEA, MHRA, and Minneapolis Civil Rights Act and all claims of any nature under any federal, state or local statute, ordinance or other law. I will not bring any lawsuits or make any other demands against G&K, except if necessary to enforce the provisions of the Severance Benefits Letter or to determine if this Agreement is valid under the ADEA. The money and benefits I will receive as set forth in the

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Severance Benefits Letter is full and fair payment for the release of all my rights and claims and is in full satisfaction of G&K’s obligations under my Executive Employment Agreement. G&K does not owe me anything in addition to what I will receive under the Severance Benefits Letter.

Additional Agreements and Understandings.

1.	My last day of employment is _______________, ______.
2.	My obligations with respect to Protection of Employer all as more thoroughly set forth in the Executive Employment Agreement shall survive my termination. This Agreement replaces, supersedes, and nullifies any other prior oral or written agreements between G&K and me as to any matter herein.
3.	I will keep the terms of the Agreement and the Severance Benefits Letter confidential and make no disclosures to anybody, except that I may make such disclosures to my immediate family, legal and tax advisors. In return, G&K has agreed that the terms of the Agreement will be disclosed internally only on a need to know basis.
4.	I will refrain from communicating with any person, including without limitation, any G&K employee, any statements or opinions that are negative in any manner about the company and/or its officials.
5.	This Agreement does not affect my participation or rights in any G&K fringe benefit plan in which I participate. The Summary Plan Description of those benefits remains in effect on such benefits.
6.	I am not waiving any rights or claims under the ADEA that may arise after this date this Agreement is executed by me.

Rights to Consider, Revoke and Rescind.

1.	I understand that I am advised by G&K to consult an attorney prior to signing this Severance Agreement and General Release.
2.	I further understand that I have forty-five (45) days to consider my waiver of rights and claims of age discrimination under the ADEA, beginning ____________, the date on which I received this Agreement. If I sign this Agreement, I understand that I will then be entitled to revoke my release of any rights and claims of age discrimination under the ADEA within seven (7) days of executing it, and the release of my ADEA rights and claims shall not become effective or enforceable until the seven-day period has expired.
3.	I further understand that I have the right to rescind my release of discrimination rights and claims under the MHRA within fifteen (15) calendar days of the date upon which I sign this Agreement. I understand that, if I desire to rescind my release of discrimination rights and claims under the MHRA, I must put my rescission request in writing and deliver it to G&K by hand or by mail within 15 calendar days of the date of execution of this Agreement by me. If I deliver my rescission request by mail, it must be:

a.	postmarked within 15 calendar days of the day on which I sign this Agreement;
b.	addressed to General Counsel, Legal Department, G&K Services, Inc. 5995 Opus Parkway, Minnetonka, MN 55343; and,
c.	sent by certified mail, return receipt requested.

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     I understand that if I revoke or rescind my waivers as provided above, all of G&K’s obligations under the Severance Benefits Letter will immediately cease, and G&K will not pay me any of the money or benefits in the Severance Benefits Letter, other than those amounts listed in such Severance Benefits Letter, if any, which specifically provide that I will be paid even if I revoke or rescind the waivers.

     I have read this Agreement carefully and understand all of its terms. I have had the opportunity to discuss this Agreement with my own attorney prior to signing it. In agreeing to sign this Agreement, I have not relied on any statements or explanations made by G&K, its agents or its attorneys, except those contained in this Agreement and in the Severance Benefits Letter.

EXECUTIVE	G&K SERVICES, INC.
____________________________________	By ____________________________________
____________________________________ (Date)	Its ____________________________________
	Date __________________________________

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EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard L. Marcantonio, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of G&K Services, Inc.;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	G&K Services, Inc.’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for G&K Services, Inc., and have:

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to G&K Services, Inc., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) evaluated the effectiveness of G&K Services, Inc.’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (c) disclosed in this report any change in G&K Services, Inc.’s internal control over financial reporting that occurred during G&K Services, Inc.’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, G&K Services, Inc.’s internal control over financial reporting;

5. G&K Services, Inc.’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to G&K Services, Inc.’s auditors and the audit committee of G&K Services, Inc.’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect G&K Services, Inc.’s ability to record, process, summarize and report financial information; and

     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in G&K Services, Inc.’s internal control over financial reporting.

Date: February 3, 2006
	By:	/s/ Richard L. Marcantonio
		Richard L. Marcantonio
		Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted 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 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. G&K Services, Inc.’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for G&K Services, Inc., and have:

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to G&K Services, Inc., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) evaluated the effectiveness of G&K Services, Inc.’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (c) disclosed in this report any change in G&K Services, Inc.’s internal control over financial reporting that occurred during G&K Services, Inc.’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, G&K Services, Inc.’s internal control over financial reporting;

5. G&K Services, Inc.’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to G&K Services, Inc.’s auditors and the audit committee of G&K Services, Inc.’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect G&K Services, Inc.’s ability to record, process, summarize and report financial information; and

     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in G&K Services, Inc.’s internal control over financial reporting.

Date: February 3, 2006
	By:	/s/ Jeffrey L. Wright
		Jeffrey L. Wright
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Richard L. Marcantonio, 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 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.

Date: February 3, 2006
	By:	/s/ Richard L. Marcantonio
		Richard L. Marcantonio
		Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)

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EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 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.

Date: February 3, 2006
	By:	/s/ Jeffrey L. Wright
		Jeffrey L. Wright
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

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