Stockholders' Equity

12 Months Ended

Jun. 30, 2012

Comprehensive Income and Stockholders' Equity [Abstract]

Stockholders' Equity

8. Stockholders’ Equity

We issue Class A shares of our stock, and each share is entitled to one vote and is freely transferable.

As of June 30, 2012, we have a $175.0 million share repurchase program which was originally authorized by our Board of Directors in May 2007 for $100.0 million and increased to $175.0 million in May 2008. We may repurchase shares from time to time in the open market, privately negotiated or other transactions in accordance with applicable federal securities laws. The timing and the amount of the repurchases will be determined by us based on our evaluation of market conditions, share price and other factors. Under the program we did not repurchase any shares in fiscal years 2012, 2011 or 2010. As of June 30, 2012, we had approximately $57.9 million remaining under this authorization.

We issue restricted stock units as part of our equity incentive plans. Upon vesting, the participant may elect to have shares withheld to pay the minimum statutory tax withholding requirements. Although shares withheld are not issued, they are treated as common stock repurchases in our financial statements, as they reduce the number of shares that would have been issued upon vesting.

Share-Based Payment Plans

On November 4, 2010, our shareholders approved the G&K Services, Inc. Restated Equity Incentive Plan (2010) (“Restated Plan”). This plan restates our 2006 Equity Incentive Plan (“2006 Plan”) approved by shareholders at our November 16, 2006 annual meeting. The total number of authorized shares under the Restated Plan will be 3,000,000 (2,000,000 under the 2006 Plan and an additional 1,000,000 under the Restated Plan). Only 1,000,000 of the awards granted under the Restated Plan can be stock appreciation rights, restricted stock, restricted stock units, deferred stock units or stock. As of June 30, 2012, 1,219,159 equity awards were available for grant.

The Restated Plan allows us to grant share-based awards, including restricted stock and options to purchase our common stock, to our key employees and non-employee directors. Stock options are granted for a fixed number of shares with an exercise price equal to the fair market value of the shares at the date of grant. Exercise periods for the stock options are generally limited to a maximum of 10 years and a minimum of one year and generally vest over three years. Restricted stock grants to employees generally vest over five years. We issue new shares upon the grant of restricted stock or exercise of stock options.

On April 3, 2012, the board of directors declared a $6.00 per share special cash dividend to be paid on April 27, 2012, to shareholders of record at the close of business on April 13, 2012. When public companies pay significant cash dividends, the price of the common stock typically decreases by an amount equal to the special cash dividend on the ex-dividend date. Therefore, on March 30, 2012, in anticipation of the special cash dividend, the Compensation Committee and the Board of Directors approved amendments to our 1998 Stock Option and Compensation Plan and our Restated Equity Incentive Plan (2010) to require an equitable adjustment to all outstanding stock option awards in the case of a special or extraordinary cash dividend. Since the amendments were made in contemplation of the special cash dividend, additional share-based compensation expense was recognized in fiscal 2012 of $2.1 million. In addition, we will recognize an additional $0.7 million over the remaining requisite service period of the unvested stock options. Following the dividend declaration on April 3, to preserve the intrinsic value for option holders, the board also approved, pursuant to the terms of the amended plans, an adjustment to the exercise price (equivalent to the special dividend) for all outstanding non-qualified options. This adjustment did not result in any additional incremental compensation expense as the aggregate fair value, aggregate intrinsic value and the ratio of the exercise price to the market price were approximately equal immediately before and after the adjustment.

Compensation cost for share-based compensation plans is recognized on a straight-line basis over the requisite service period of the award. The share-based compensation reflects estimated forfeitures adjusted for actual forfeiture experience. We review our estimated forfeiture rates on an annual basis. The amount of compensation cost, including the additional amounts related to the amendment of the plans noted above, that has been recognized in the Consolidated Statements of Operations was $6.0 million, $4.2 million, and $4.5 million for fiscal years 2012, 2011 and 2010, respectively. As share-based compensation expense is recognized, a deferred tax asset is recorded that represents an estimate of the future tax deduction from the exercise of stock options or release of restrictions on the restricted stock. At the time share-based awards are exercised, cancelled, expire or restrictions lapse, we recognize adjustments to income tax expense. The total income tax benefit recognized in the Consolidated Statements of Operations for share-based compensation arrangements was $2.1 million, $1.4 million and $1.5 million for fiscal years 2012, 2011 and 2010, respectively. No amount of share-based compensation expense was capitalized during the periods presented.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the following table. Expected volatility is based on the historic volatility of our stock. We use historical data to estimate option exercises and employee terminations within the valuation model. The expected term of the options granted is derived from historical data and represents the period of time that options granted are expected to be outstanding. The risk free interest rate for each option is the interpolated market yield on a U.S. Treasury bill with a term comparable to the expected term of the granted stock option.

	For the Fiscal Years
	2012	2011	2010
Expected share price volatility	27.50% - 29.15%	24.18% - 25.34%	21.34% - 23.12%
Weighted average volatility	28.46%	24.84%	21.67%
Expected annual dividend per share	$0.52	$0.38	$0.30
Expected term (in years)	5-6	5-6	5-6
Risk free rate	0.82% - 1.27%	1.41% - 1.72%	1.95% - 3.01%

A summary of stock option activity under our plans as of June 30, 2012, and changes during the year then ended is presented below:

	Shares			Weighted Average Exercise Prices		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at July 2, 2011		1,617,262		$	32.17
Granted		205,630			26.41
Exercised		(111,357	)		25.29
Forfeited or expired		(117,812	)		31.11
Outstanding at June 30, 2012		1,593,723		$	25.68		5.39	$	10.4
Exercisable at June 30, 2012		1,200,747		$	28.39		4.36	$	5.0

The weighted-average fair value of stock options on the date of grant during fiscal years 2012, 2011 and 2010 was $6.10, $3.81 and $4.82, respectively. The total intrinsic value of stock options exercised was $0.7 million in fiscal year 2012, $0.2 million in fiscal year 2011 and less than $0.1 million for fiscal year 2010.

We received total cash as a result of the exercise of stock options in fiscal years 2012, 2011 and 2010 of $2.8 million, $0.6 million and $0.3 million, respectively.

A summary of the status of our non-vested shares of restricted stock as of June 30, 2012 and changes during the year ended June 30, 2012, is presented below:

	Shares			Weighted-Average Grant-Date Fair Value
Non-vested at July 2, 2011		325,337		$	25.35
Granted		120,561			26.96
Vested		(109,927	)		28.00
Forfeited		(30,108	)		25.22
Non-vested at June 30, 2012		305,863		$	25.41

As of June 30, 2012, there was $7.7 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements. That expense is expected to be recognized over a weighted-average period of 2.7 years. The total fair value of restricted shares vested during the fiscal years ended 2012, 2011 and 2010 was $3.1 million, $2.5 million and $2.5 million, respectively.