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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 0-4063

G&K Services, Inc.

5995 Opus Parkway, Ste. 500

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock (par value $0.50 per share)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(b) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                       

      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

     The aggregate market value of the voting stock of registrant held by non-affiliates of the registrant on September 10, 2003, computed by reference to the closing sale price of such shares on such date, was approximately $706,088,415. The aggregate market value of the voting stock of registrant held by non-affiliates of the registrant on December 27, 2002 (the last business day of the registrant’s most recently completed second fiscal quarter), computed by reference to the closing sale price of such shares on such date, was approximately $733,231,289.

     On September 10, 2003, there were outstanding 19,261,815 and 1,474,996 shares of the registrant’s Class A and Class B Common Stock, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

G&K Services, Inc.

Form 10-K

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PART I

      G&K Services, Inc., founded in 1902 and headquartered in Minnetonka, Minnesota, is a market leader in providing corporate identity apparel and facility services programs to a wide variety of North American industrial, service and high-technology companies. We rent uniforms and other related 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 $6.3 billion, while the direct sales market, targeted by us, is approximately $4.5-$5.0 billion in size.

      Through internal growth and acquisitions, we have steadily expanded our operations into additional geographic markets. We operate out of over 130 North American locations serving customers in 46 states and two Canadian Provinces. By comparison, we operated from 43 locations serving customers in 21 states in 1989.

      We target our marketing efforts on those customers, industries and geographic locations that are expanding and are in need of a quality-oriented corporate identity program that provides high levels of product quality, consistent customer-centric service levels, multi-channel sales, service, reporting and outsourced program management. Our experience with both existing and potential customers, large and small, confirms that a large segment of the market is willing to pay a premium price to a vendor that can consistently supply these features.

Customers, Products and Services

      We serve over 160,000 customers, from Fortune 100 companies to fast-growing small and midsize firms. No one customer represents more than 1.0% of our total revenues. We serve virtually all industries including automotive, warehousing, distribution, transportation, energy, manufacturing, pharmaceutical, semi-conductor, restaurants and hospitality, and many others. Over one million people wear our uniforms every day.

      Our full-service business apparel and facility services programs provide rental-lease or purchase options to meet varied customer needs including heavy-industrial, light-manufacturing, service businesses, corporate casual and executive apparel. In addition, we offer cleanroom garments and process control services to meet the needs of high-technology customers.

      We believe that customers use business apparel programs to meet a variety of critical business needs.

	•	Corporate identity and security — uniforms help identify employees working for a particular company or department. Uniformed employees are perceived as trained, competent and dependable.
	•	Brand awareness — uniforms promote a company’s brand identity and employees serve as “walking billboards”.
	•	Image — uniforms help project a professional image of employees. It frames the perception of credibility, knowledge, trust and a commitment to quality to their customers.
	•	Employee retention — uniforms enhance worker morale and help build a teamwork attitude in addition to being an employee benefit.
	•	Worker protection — uniforms help protect workers from difficult environments such as heavy soils, heat, flame or chemicals.
	•	Product protection — uniforms help protect products against contamination in the food, pharmaceutical, electronics and health care industries.

      We provide our apparel-rental customers with a full range of services. A consultative approach is used to advise and assist our customers in creating a tailored program including determining garment application and choosing the appropriate fabrics, styles and colors to meet the customer’s branding needs. A large

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      We also believe that uniform rental provides customers with significant advantages over ownership. Renting eliminates investment in uniforms; offers flexibility in styles, colors and quantities as customer requirements change; assures consistent professional cleaning, finishing, repair and replacement of items in use; and provides freedom from the expense and management time necessary to administer a uniform program.

      Our facility services programs provide a wide range of dust control and maintenance products and services. They include several floor mat offerings (traction control, logo, message, scraper and anti-fatigue), dust and wet mops, wiping towels, fender covers, selected linen items and several restroom products. These products support customers’ efforts in maintaining a clean, safe and attractive environment within their facilities.

      Direct sale and custom-logo embroidered apparel programs are also offered by us to meet customer corporate identity needs. The direct sale programs can be used for those departments and/or customers that require highly customized and branded apparel or for those workers who don’t start at the same location each day. It can be more economical for high turnover positions and can be used for employee rewards and recognition or customer and vendor appreciation programs.

Acquisitions

      We made several small acquisitions in each of the past three fiscal years. All acquisitions were accounted for using the purchase method. The pro forma effect of these acquisitions, had they been acquired at the beginning of the fiscal year, were not material. The total purchase consideration, including related acquisition costs of these transactions, was $88.7 million, $69.7 million and $20.3 million in fiscal 2003, 2002 and 2001, respectively. The total purchase price exceeded the estimated fair values of assets acquired and liabilities assumed by $63.2 million in fiscal 2003, $52.1 million in fiscal 2002 and $9.0 million in fiscal 2001.

Competition

      We encounter competition from a number of companies in the geographic areas we serve. We rank among the nation’s largest garment rental suppliers. Major competitors include publicly held companies such as ARAMARK (a division of ARAMARK Corporation), Cintas Corporation and Unifirst Corporation. We also compete with a multitude of regional and local competitors that vary by market. We believe that we compete effectively in our line of business because of the quality and breadth of our product line, the comprehensive customer service levels we provide and our proven ability as an outsource partner.

Manufacturing and Suppliers

      We manufactured almost one half of the uniform garments placed into service in fiscal 2003. These garments are manufactured in three Company owned facilities located in the U.S. and Dominican Republic. Various outside vendors are used to supplement our additional rental needs, including garments, floor mats, dust mops, wiping towels, linens and related products. We are not aware of any circumstances that would limit our ability to obtain raw materials to support the manufacturing process or to obtain garments or other rental items to meet our customers needs.

Environmental Matters

      Our operations are subject to various federal, state and/or local laws regulating the discharge of materials into the environment. This includes discharges into wastewater and air, and the generation,

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      We have been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), or similar state laws, at a number of waste disposal sites. Under such laws, PRP’s typically are jointly and severally liable for any investigation and remediation costs incurred with respect to such sites. Therefore, there can be no assurance that we will not have to contribute material amounts for future remediation that could be greater than the share of waste contributed by us would otherwise indicate. Additionally, environmental laws may impose liability for cost of removal or remediation of certain hazardous wastes located on or in or emanating from owned or leased real estate, whether or not we knew of or were responsible for the presence of such wastes. While we take appropriate steps when acquiring or leasing new properties, there can be no assurance that this risk has been eliminated.

      We have been placed on notice by the owners of a Wayzata, Minnesota, shopping center regarding the alleged presence of solvents in the ground water in the vicinity of the shopping center, where certain affiliates of ours formerly operated a dry cleaning establishment in the shopping center. At this time, no demand has been made and no action has been commenced against us. The owners of the shopping center have informed us that they are pursuing cleanup through state funding mechanisms. Since little information is available at this time, we are unable to predict what, if any, liability we may have in this matter.

      Although any ultimate liability arising from environmental related matters described herein could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, could be material to our financial statements, the likelihood of such occurrence is considered remote. Based on information currently available to management and its best assessment of the ultimate amount and timing of environmental-related events, management believes that the cost of these environmental-related matters are not reasonably likely to have a material adverse effect on our consolidated financial statements.

Employees

      Our U.S. operations had a total of 7,336 employees as of June 28, 2003, consisting of 4,212 production employees and 3,124 sales, office, route and management personnel. Unions represent approximately 14.4% of our U.S. employees. Management believes its domestic employee relations are satisfactory.

      Our Canadian operations had a total of 950 employees as of June 28, 2003, consisting of 502 production employees and 448 sales, office, route and management personnel. Unions represent approximately 68.6% of our Canadian employees. Management believes Canadian employee relations are satisfactory.

Foreign and Domestic Operations

      Financial information relating to foreign and domestic operations is set forth in Note 10 of our consolidated financial statements included in Item 8 of this Form 10-K.

Additional Information

      We have trademarks, trade names and licenses that are necessary for the operation of our business as we currently conduct it. Other than the G&K Services, G&K Teamwear and G&K Firststep Facilities Services brands, we do not consider our trademarks, trade names and licenses to be material to the operation of our business. We do not consider our business to be seasonal to any extent or subject to any unusual working capital requirements.

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Available Information

      We make available free of charge our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These reports are available on our website at http://www.gkservices.com. In addition, you may request a copy of these filings, excluding exhibits, by contacting our Investor Relations group at 952.912.5500 or at G&K Services, Inc., 5995 Opus Parkway, Suite 500, Minnetonka, Minnesota 55343. Information included on our website is not deemed to be incorporated into this Annual Report on Form 10-K.

      We occupy 151 facilities located in the United States, Canada and the Dominican Republic. These facilities include our processing, branch, garment manufacturing, distribution and administrative support locations. We own approximately 80.0% of our processing facilities, which average over 43,000 square feet in size. We clean and supply rental items principally from 58 industrial garment, cleanroom garment, dust control and linen supply plants located in 55 cities in the United States and Canada.

      We are involved in a variety of legal actions relating to personal injury, customer contracts, employment, trade practices, environmental and other legal matters that arise in the normal course of business. These legal actions include but are not limited to those items set forth in Item 1. Business — Environmental Matters and lawsuits that challenge the practice of charging for certain environmental services on invoices. While we are unable to predict the ultimate outcome of these legal actions, it is the opinion of management that the disposition of these matters will not have a material adverse effect on our consolidated financial statements taken as a whole.

      There were no matters submitted to a vote of our security holders during the fourth quarter of fiscal 2003.

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PART II

      Our Class A Common Stock is quoted on Nasdaq National Market under the symbol “GKSRA”. Our Class B Common Stock is not registered and no active trading market exists for the Class B Common Stock. The following table sets forth the high and low reported sales prices for the Class A Common Stock as quoted on the Nasdaq National Market for the periods indicated.

      As of September 10, 2003, we had approximately 590 registered holders of record of our common stock.

      We have declared cash dividends of $0.0175 per share in each of the quarters for the fiscal years ended June 28, 2003 and June 29, 2002. Our debt agreements contain various restrictive covenants, which, among other things, limit the payment of cash dividends we declare during any fiscal year.

      The following table sets forth certain information as of June 28, 2003 with respect to equity compensation plans under which securities are authorized for issuance:

(1)	Includes our 1989 Stock Option and Compensation Plan and 1998 Stock Option and Compensation Plan.

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      The following table sets forth certain selected financial data. All amounts are in thousands, except per share data.

      See Note 1 of our consolidated financial statements included in Item 8 of this Form 10-K for an explanation of the method employed to determine the number of shares used to compute per share amounts.

      Beginning in the third quarter of fiscal 2003, we made a change in the classification of billings to customers for lost or abused merchandise to a preferred classification of including such billings in revenue. Accordingly, all prior period billings for lost or abused garments have been reclassified from a reduction of cost of rental operations to rental operations revenue. Billings reclassified totaled $55.6 million, $51.7 million, $52.8 million, $48.5 million and $45.3 million in fiscal 2003, 2002, 2001, 2000 and 1999, respectively. This reclassification did not impact current or historical net income or stockholders’ equity.

      The fiscal 2002 results include the impact of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” under which goodwill and intangible assets with indefinite lives are no longer amortized. See Note 3 of the consolidated financial statements included in Item 8 of this Form 10-K.

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      The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto which are included herein. We utilize a 52-53 week fiscal year ending on the Saturday nearest June 30.

Overview

      G&K Services, Inc., founded in 1902 and headquartered in Minnetonka, Minnesota, is a market leader in providing corporate identity apparel and facility services programs to a wide variety of North American industrial, service and high-technology companies. We rent uniforms and other related 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 $6.3 billion, while the direct sales market, targeted by us, is approximately $4.5-$5.0 billion in size.

      In fiscal 2003, revenue grew by 4.1% over fiscal 2002 while net income declined by 12.0%. Revenue growth has continued to be impacted by weak economic conditions and declining employment levels within our existing customer base. In addition to reduced margins related to lost wearers within our existing customer base, net income was also impacted by higher energy costs, increased employee benefit costs, expenses related to plant closures and employee reductions. During this period of economic weakness, we were able to generate record levels of cash flow through solid earnings, effective working capital management and prudent capital spending.

      We made several small acquisitions in each of the past three fiscal years. All acquisitions were accounted for using the purchase method. The pro forma effect of these acquisitions, had they been acquired at the beginning of the fiscal year, were not material. The total purchase consideration, including related acquisition costs of these transactions, was $88.7 million, $69.7 million and $20.3 million in fiscal 2003, 2002 and 2001, respectively. The total purchase price exceeded the estimated fair values of assets acquired and liabilities assumed by $63.2 million in fiscal 2003, $52.1 million in fiscal 2002 and $9.0 million in fiscal 2001.

      While revenue growth and net income continued to be negatively impacted by the difficult economy, higher energy costs and higher employee benefit costs, we aggressively pursued increased sales productivity, operational initiatives and cost reduction opportunities. These actions have put us in a position of strength for the future while mitigating the impact of the poor economy on our financial results.

Critical Accounting Policies

      The discussion of the financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. 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 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

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      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. 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

      We adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) at the beginning of fiscal 2002 and as a result no longer amortize goodwill. 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 considers changes in the operating environment, competitive information, market trends, operating performance and cash flow modeling. Management completes its annual impairment test in the fourth quarter of each fiscal year and there have been no impairments of goodwill or definite-lived intangible assets in fiscal 2003, 2002 or 2001. 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 generate revenue. Long-lived 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 in fiscal 2003, 2002 or 2001.

     Insurance

      We self-insure for certain obligations related to health and workers’ compensation programs. We purchase stop-loss insurance policies to protect us from catastrophic losses. Estimates are used in

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Results of Operations

      The percentage relationships to revenues of certain income and expense items for the three fiscal years ended June 28, 2003, June 29, 2002 and June 30, 2001, and the percentage changes in these income and expense items between years are presented in the following table:

     Fiscal 2003 Compared to Fiscal 2002

      Revenues. Total revenues in fiscal 2003 rose 4.1% to $705.6 million from $677.6 million in fiscal 2002. Rental revenue rose $25.6 million in fiscal 2003, a 3.9% increase over fiscal 2002. The organic industrial rental growth rate, which is calculated using industrial rental revenue adjusted for foreign currency exchange rate differences and revenue from newly acquired business compared to prior-year results, was approximately negative 2.5%. Rental revenue continues to be negatively impacted by lost uniform wearers due to reduced employment levels within our existing customer base.

      Direct sale revenue was $23.9 million in fiscal 2003, an 11.3% increase over $21.5 million in fiscal 2002. Direct sale revenue increased as a result of initiatives to penetrate direct sale opportunities with existing customers such as our annual winter outerwear promotion.

      Cost of Rental and Direct Sale. Cost of rental operations increased 5.8% to $426.6 million in fiscal 2003 from $403.1 million in fiscal 2002. Gross margin from rental sales decreased to 37.4% in fiscal 2003 from 38.6% in the prior year. Rental gross margin declines were largely the result of increasing energy and

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      Cost of direct sales increased to $17.9 million in fiscal 2003 from $15.7 million in fiscal 2002. Gross margin from direct sales decreased in fiscal 2003 to 24.9% from 27.0% in fiscal 2002. The decrease in gross margin was due primarily to product mix and pricing pressures, partially offset by increased volume in conjunction with the successful winter outerwear promotion in the second quarter of fiscal 2003.

      Selling and Administrative. Selling and administrative expenses increased 5.6% to $154.5 million in fiscal 2003 from $146.3 million in fiscal 2002. As a percentage of total revenues, selling and administrative expenses increased to 21.9% in fiscal 2003 from 21.6% in fiscal 2002. Expenses related to uncollectible accounts receivable, severance costs, sales and marketing expenses and increasing property and casualty insurance costs drove the majority of the increase in selling and administrative expenses as a percent of total revenue.

      Depreciation. Depreciation expense increased 2.7% to $30.4 million in fiscal 2003 from $29.6 million in fiscal 2002. As a percentage of total revenues, depreciation expense decreased to 4.3% in fiscal 2003 compared to 4.4% in fiscal 2002. Capital expenditures for fiscal 2003, excluding acquisition of businesses, was $31.4 million compared to $29.2 million in fiscal 2002.

      Amortization. Amortization expense increased to $7.3 million in fiscal 2003 from $6.1 million in fiscal 2002. As a percent of total revenues, amortization expense increased to 1.0% in fiscal 2003 compared to 0.9% in fiscal 2002.

      Interest Expense. Interest expense was $13.7 million in fiscal 2003 as compared to $13.6 million in fiscal 2002. The increase in interest expense was primarily due to higher debt levels in connection with our acquisition activities throughout fiscal 2003, partially offset by lower effective interest rates.

      Provision for Income Taxes. Our effective tax rate for fiscal 2003 decreased to 39.0% from 39.5% in fiscal 2002 largely due to decreases in Canadian statutory income tax rates.

     Fiscal 2002 Compared to Fiscal 2001

      Revenues. Total revenues in fiscal 2002 rose 3.2% to $677.6 million from $656.4 million in fiscal 2001. Rental revenue rose $20.1 million in fiscal 2002, a 3.2% increase over fiscal 2001. Higher unemployment levels and overall weak economic conditions resulting in continued net reductions of customer employees in uniform negatively impacted revenue growth rates. These conditions were partially offset through the addition of new customers, penetrating existing customers with a broader mix of product and service offerings and acquisitions.

      Direct sale revenue was $21.5 million in fiscal 2002, a 5.3% increase over $20.4 million in fiscal 2001. The increase in revenue was primarily due to several large customer shipments that occurred primarily in the first half of fiscal 2002.

      Cost of Rental and Direct Sale. Cost of rental operations increased 2.6% to $403.1 million in fiscal 2002 from $392.9 million in fiscal 2001. Gross margin from rental sales improved to 38.6% in fiscal 2002 from 38.2% in the prior year. The combinations of improved operational productivity, lower merchandise expense and reduced energy costs contributed to the improved rental gross margin. We continue to be negatively impacted by increased employee benefit costs and the compounding impact of revenue lost within our existing customer base over the past two years.

      Cost of direct sales decreased slightly to $15.7 million in fiscal 2002 from $15.8 million in fiscal 2001. Gross margin from direct sales increased in fiscal 2002 to 27.0% from 22.8% in fiscal 2001. This improvement was largely due to improved merchandise costs and a continued focus on fulfillment operations efficiency.

      Selling and Administrative. Selling and administrative expenses increased 8.1% to $146.3 million in fiscal 2002 from $135.3 million in fiscal 2001. As a percentage of total revenues, selling and administrative

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      Depreciation. Depreciation expense increased 2.8% to $29.6 million in fiscal 2002 from $28.8 million in fiscal 2001. As a percentage of total revenues, depreciation expense remained constant at 4.4% in both fiscal 2002 and 2001. Capital expenditures for fiscal 2002, excluding acquisition of businesses, was $29.2 million compared to $34.1 million in fiscal 2001.

      Amortization. Amortization expense decreased to $6.1 million in fiscal 2002 from $10.1 million in fiscal 2001. As a percent of total revenues, amortization expense decreased to 0.9% in fiscal 2002 compared to 1.5% in fiscal 2001. The reduction was driven by the adoption of SFAS 142, under which goodwill and intangible assets with indefinite lives are no longer amortized. The adoption of SFAS 142 reduced amortization expense by 0.7% of a percent of total revenues in fiscal 2002.

      Interest Expense. Interest expense was $13.6 million in fiscal 2002, down from $17.2 million in fiscal 2001. The decrease in interest expense was due primarily to lower effective interest rates.

      Provision for Income Taxes. Our effective tax rate for fiscal 2002 was 39.5% compared to 40.1% in fiscal 2001. The reduction was due largely to decreases in Canadian statutory income tax rates.

     Liquidity, Capital Resources and Financial Condition

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

      Operating Activities. Net cash provided from operating activities was $96.9 million in fiscal 2003, $79.7 million in fiscal 2002 and $84.9 million in fiscal 2001. Solid earnings along with effective working capital management has been a large reason for the high levels of operating cash flow over each of the past three fiscal years. We have paid particular attention to the timely collection of accounts receivable while exploring options for payments related to trade and accrued payables.

      Working capital at June 28, 2003 was $75.2 million, a $20.6 million decrease from $95.8 million at June 29, 2002. This decrease is largely due to increases in employment-related liabilities including pension and workers’ compensation.

      Investing Activities. Net cash used for investing activities was $121.5 million in fiscal 2003, $100.1 million in fiscal 2002 and $55.5 million in fiscal 2001. In fiscal 2003, 2002 and 2001 cash was largely used for acquisitions and property, plant and equipment additions.

      Financing Activities. Financing activities provided cash of $26.0 million in fiscal 2003, $15.2 million in fiscal 2002 and used cash of $20.5 million in fiscal 2001. Cash provided in both fiscal 2003 and 2002 was from debt proceeds used primarily for acquisitions of businesses. Cash used in fiscal 2001 was primarily related to repayment of long-term debt. We paid dividends of $1.5 million in fiscal 2003 and $1.4 million in each of fiscal 2002 and 2001.

      During the fourth quarter of fiscal 2002, we entered into a $325.0 million term loan and revolving credit facility expiring July 2, 2007 to repay the existing facilities that expired June 30, 2002. The facility provides for a $75.0 million term loan and a $250.0 million revolving credit facility. As of June 28, 2003, borrowings outstanding under the term loan were $67.5 million and under the revolving credit facility were $129.1 million at rates ranging from 2.48% to 4.25%. Borrowings under this facility are unsecured. The unused portion of the revolver may be used for general corporate purposes, acquisitions, working capital needs and to provide up to $25.0 million in letters of credit. As of June 28, 2003, letters of credit outstanding against the revolver were $15.3 million.

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      The credit facilities and the fixed rate notes contain various restrictive covenants that among other matters require us to maintain a minimum fixed charge coverage ratio, minimum stockholders’ equity and a maximum leverage ratio, all as defined. These debt arrangements also provide for certain limits related to additional indebtedness, investments and dividends. At June 28, 2003, we were in compliance with all debt covenants and only a material adverse change in our financial performance and condition could result in a potential event of default. In the unlikely event that an event of default would be imminent, management believes that we would be able to successfully negotiate amended covenants or obtain waivers; however, certain financial concessions might be required. Our results of operations and financial condition could be adversely affected if amended covenants or waivers in acceptable terms could not be successfully negotiated.

      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 June 28, 2003 for the next five fiscal years and thereafter (in thousands):

      Also, at June 28, 2003, we had stand-by letters of credit totaling $15.3 million issued and outstanding, primarily in connection with our property and casualty insurance programs. No amounts have been drawn upon these letters of credit.

      At June 28, 2003, we had available cash on hand of $11.5 million and approximately $105.0 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 2004 and to significantly 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 2004 will be approximately $28.0 million to $32.0 million.

      The amount of cash flow generated from operations is subject to a number of risks and uncertainties. In fiscal 2004, 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 suitable 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 $3.1 million, $2.0 million and $1.5 million in fiscal 2003, 2002 and 2001, respectively. At June 28, 2003, the fair value of our pension plan assets totaled $16.8 million. Lower investment returns, benefit payments and declining discount rates have resulted in additional minimum

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      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 June 28, 2003, we estimate that the pension plan assets will generate a long-term rate of return of 8.0%. This rate is consistent with the assumed rate used at both June 29, 2002 and June 30, 2001 and 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 June 28, 2003 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 2004 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 6.0% at June 28, 2003 and 7.5% at both June 29, 2002 and June 30, 2001. 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 6.0% to 5.5%) would increase our accumulated benefit obligation at June 28, 2003 by approximately $3.4 million and increase the estimated fiscal 2004 pension expense by approximately $1.0 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 impacts 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 between 3-4% of our total revenue.

      We are involved in a variety of legal actions relating to personal injury, customer contracts, employment, trade practices, 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, and being named, along with other defendants, as a potentially responsible party at certain waste disposal sites where ground water contamination has been detected or is suspected. While we are unable to predict the ultimate outcome of these legal actions, it is the opinion of management that the disposition of these matters will not have a material adverse effect on our consolidated financial statements taken as a whole.

      In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”). SFAS 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosures in both annual and interim financial statements about the method used to account for stock-based employee compensation and the effect of the method used on reported results. We will continue to apply Accounting Principles Board Opinion No. 25, “Accounting for Stock

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Cautionary Statement 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 corporate identity apparel and facility services industry; and the availability of capital to finance planned growth.

      We are exposed to market risks. Market risk is the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We do not enter into derivative or other financial instruments for speculative purposes.

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 fiscal 2003 by approximately $1.5 million. This estimated exposure considers the mitigating effects of interest rate swap agreements outstanding at June 28, 2003 on the change in the cost of variable rate debt.

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      The following table provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. The fair values were estimated by discounting the projected cash flows using the current rate applicable to similar transactions. For debt obligations, the following table presents principal cash flow and related weighted average interest rates by expected maturity dates by fiscal year.

      For interest rate swaps, the following table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates by fiscal year. Notional amounts are used to calculate the contractual payments to be exchanged under the contract.

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.

      We may periodically hedge firm commitments with our 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 fiscal 2003. Notional amounts outstanding under foreign currency contracts at June 28, 2003 were $2.7 million, all of which will mature during fiscal 2004. Notional amounts outstanding under foreign currency contracts at June 29, 2002 were $4.8 million, all of which matured during fiscal 2003. No amounts were outstanding under such contracts at June 30, 2001. Foreign currency contracts were recorded at fair value as of June 28, 2003.

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      Reference is hereby made to the Consolidated Financial Statements and Notes thereto beginning on page F-1 hereof.

      Following is a summary of the results of operations for each of the quarters within fiscal years ended June 28, 2003 and June 29, 2002. All amounts are in thousands, except per share data.

QUARTERLY FINANCIAL DATA

      Beginning in the third quarter of fiscal 2003, we made a change in the classification of billings to customers for lost or abused merchandise to a preferred classification of including such billings in revenue. Accordingly, all prior period billings for lost or abused garments have been reclassified from a reduction of cost of rental operations to rental operations revenue. Billings reclassified were as follows:

      This reclassification did not impact current or historical net income or stockholders’ equity.

      On May 23, 2002, the Board of Directors of the Company and its Audit Committee decided to no longer engage Arthur Andersen LLP as the Company’s independent auditors and engaged Ernst & Young LLP to serve as the Company’s independent auditors for the fiscal year ended June 29, 2002.

      Arthur Andersen’s reports on the Company’s consolidated financial statements for the fiscal year ended June 30, 2001 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended July 1,

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      The Company provided Arthur Andersen with a copy of the foregoing disclosures in connection with the 8-K filing, as amended, dated June 11, 2002. A copy of Arthur Andersen’s letter, stating its agreement with such statements, was attached as Exhibit 16.1 to the filing.

      During the fiscal years ended July 1, 2000 and June 30, 2001 and through the date of the Company’s engagement of Ernst & Young, the Company did not consult Ernst & Young with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any other matters or reportable events described under Item 304 (a) (2) (i) and (ii) of Regulation S-K.

      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 fiscal year covered by this Form 10-K. 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 III

      Reference is made to information with respect to the Company’s Proxy Statement for the 2003 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

      Reference is made to information with respect to the Company’s Proxy Statement for the 2003 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

      Reference is made to information with respect to the Company’s Proxy Statement for the 2003 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

      Reference is made to information with respect to the Company’s Proxy Statement for the 2003 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

      Reference is made to information with respect to the Company’s Proxy Statement for the 2003 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

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PART IV, ITEM 15

(a) The following documents are filed as a part of this report:

          (1) Financial Statements

	The following consolidated financial statements of G&K are part of this report and are submitted in a separate section of this report.

          (2) Financial Statement Schedules

	All schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted as not required or not applicable, or the information has been included elsewhere by reference in the financial statements and related notes, except for Schedule II, which is included as Exhibit 99.1 and Exhibit 99.2 to this Form 10-K, as filed with the SEC.

          (3) Exhibits

	The following exhibits, as required by Item 601 of Regulation S-K are filed as a part of this report:
	3(a) Articles of Amendment and Restatement of the Registrant, as filed with the Secretary of State of Minnesota (incorporated herein by reference to Exhibit 3(i) to the Registrant’s Form 10-Q filed November 13, 2001).
	3(b) Amended and Restated Bylaws of the Registrant (incorporated herein by reference to Exhibit 3 (ii) to the Registrant’s Form 10-Q filed November 13, 2001).
	4(a) Rights Agreement, dated as of September 17, 2001, by and between G&K Services, Inc. and Wells Fargo Bank Minnesota, National Association (incorporated by reference to the Registrant’s Form 8-K filing dated September 19, 2001).
	10(a) Stockholder Agreement by and among the Registrant, Richard Fink, William Hope, Stephen LaBelle, Daniel Nielsen, Phillip Oberg and Robert Stotts, dated June 14, 1985 (incorporated herein by reference to the Registrant’s Schedule 13E-4 filing dated May 13, 1985).
	10(b) 1989 Stock Option and Compensation Plan (incorporated herein by reference to the Registrant’s definitive proxy statement for the 1989 Annual Meeting of Shareholders filed August 29, 1989).**
	10(c) 1996 Director Stock Option Plan (incorporated herein by reference to the Registrant’s Form 10-K, for the fiscal year ended June 29, 1996).**
	10(d) Asset Purchase Agreement, dated as of May 30, 1997, by and among National Service Industries, Inc., a Delaware corporation; National Service Industries, Inc., a Georgia corporation; NSI Enterprises, Inc., a California corporation and G&K Services, Inc. (incorporated herein by reference to the Registrant’s Form 8-K filing dated July 14, 1997).

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	10(e) Side Letter dated as of July 14, 1997, by and among National Service Industries, Inc., a Delaware corporation; National Service Industries, Inc., a Georgia corporation; NSI Enterprises, Inc., a California corporation and G&K Services, Inc. (incorporated herein by reference to the Registrant’s Form 8-K filing dated July 14, 1997).
	10(f) Asset Purchase Agreement, dated as of April 25, 1998, by and among G&K Services Linen Co., G&K Services Co., G&K Services, Inc., and TTSI Services Acquisition Sub, Inc. and Tartan Textile Services, Inc. (incorporated herein by reference to the Registrant’s Form 8-K filing dated May 14, 1998).
	10(g) 1998 Stock Option and Compensation Plan (incorporated herein by reference to the Registrant’s definitive proxy statement for the 1998 Annual Meeting of Shareholders filed October 5, 1998).**
	10(h) Form of Change of Control Agreement between Registrant and each of Richard Fink, Thomas Moberly, Robert G. Wood and Jeffrey L. Wright, dated February 24, 1999 (incorporated herein by reference to the Registrant’s Form 10-Q filed May 11, 1999).**
	10(i) Note Purchase Agreement dated July 20, 2000 among G&K Services, Inc. and seven institutional investors (incorporated herein by reference to the Registrant’s Form 10-K filed September 28, 2000).
	10(j) Form of Executive Employment Agreement between Registrant and each of Richard Fink, Thomas Moberly, Robert G. Wood and Jeffrey L. Wright, dated January 1, 2001 (incorporated herein by reference to the Registrant’s Form 10-K filed September 27, 2001).**
	10(k) Amendment to 1996 Director Stock Option Plan (incorporated herein by reference to Exhibit 10(a) to the Registrant’s Form 10-Q filed November 13, 2001).**
	10(l) Credit Agreement, dated June 25, 2002, by and among the Registrant, G&K Services Canada, Inc., Bank One N.A., Wachovia Bank, National Association, Wachovia Securities, Inc (f/k/a First Union Securities, Inc.), Banc One Capital Markets, Inc. and various lenders (incorporated herein by reference to Exhibit 10(m) to the Registrant’s Form 10-K filed September 26, 2002).
	10(m) Executive Employment Agreement between Registrant and Richard L. Marcantonio, dated June 25, 2002 (incorporated herein by reference to Exhibit 10(n) to the Registrant’s Form 10-K filed September 26, 2002).**
	10(n) Promissory Note of Richard L. Marcantonio dated July 26, 2002 and payable to the Registrant (incorporated herein by reference to Registrant’s Form 10-Q filed November 12, 2002).**
	10(o) Stock Pledge Agreement dated as of July 26, 2002, by and between the Registrant and Richard L. Marcantonio (incorporated herein by reference to Registrant’s Form 10-Q filed November 12, 2002).**
	10(p) Change of Control Agreement between Registrant and Richard L. Marcantonio dated November 12, 2002 (incorporated herein by reference to Registrant’s Form 10-Q filed May 13, 2003).**
	21 Subsidiaries of G&K Services, Inc.*
	23 Consent of Independent Auditors*
	24 Power of Attorney dated as of August 26, 2003*
	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.*

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	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.*
	99.1 Report of Ernst & Young LLP, Independent Auditors and Schedule II*
	99.2 Report of Arthur Andersen LLP, Independent Public Accountants and Schedule II*
	Footnotes:
	*     Filed herewith
	** Compensatory plan or arrangement

          (b) Reports filed on Form 8-K

	None

          (c) See exhibits listed under Item 15(a)(3).

          (d) See the financial statement schedules listed under Item 15(a)(2).

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SIGNATURES

      Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	G&K SERVICES, INC.
	(Registrant)

	By:	/s/ THOMAS R. MOBERLY

	Thomas R. Moberly, Chief Executive Officer
	(Principal Executive Officer)

	By:	/s/ JEFFREY L. WRIGHT

	Jeffrey L. Wright, Chief Financial Officer and Secretary
	(Principal Financial Officer)

	By:	/s/ MICHAEL F. WOODARD

	Michael F. Woodard, Controller
	(Principal Accounting Officer)

Date: September 26, 2003

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below on the 26th day of September 2003, by the following persons in the capacity indicated:

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS

G&K Services, Inc. and Subsidiaries

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

F-2

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CONSOLIDATED BALANCE SHEETS

G&K Services, Inc. and Subsidiaries