ITEM 1. BUSINESS
G&K Services, Inc. and its wholly owned subsidiaries (the "Company" or "G&K"), leases and maintains uniforms and related textile products. During fiscal 1996, approximately 60% of total revenues were derived from uniform rentals. The balance was principally from rentals of non-uniform items, such as floor mats, dust mops and cloths, wiping towels and selected linen items, and the manufacture and sale of garments. The revenue generated from manufacturing is not a significant part of G&K's revenue.
The Company has been expanding its operations steadily into additional geographic markets. In the United States, G&K currently operates in 33 STATES from 22 PROCESSING PLANTS and 49 SALES AND SERVICE CENTERS. In Canada, the Company serves customers from 16 LOCATIONS, including 7 PROCESSING PLANTS in the provinces of Ontario and Quebec. By comparison, in 1986, G&K operated from 37 locations in 20 states.
The Company targets its marketing efforts first to focus on those customers, industries and geographic locations that are expanding and which need a quality-oriented uniform program; and then to provide high levels of product quality, customer service and communication. The Company's experience with both existing and potential customers confirms that a large segment of the market wants these features built into their uniform programs and are willing to pay a premium price to a vendor that can supply them consistently.
PRODUCTS
UNIFORMS
The Company's full-service leasing program supplies a broad range of work garments, specialized uniforms for corporate identity programs, anti-static garments, ultra-clean particle-free garments, and dress clothing for supervisors, sales personnel and others needing upgraded work apparel.
Its products are used in a diversified spectrum of businesses including: pharmaceutical and electronics manufacturers, transportation and distribution firms, health care and food service operations, auto dealerships and equipment repair companies, and schools and office buildings. The Company's customer base includes divisions of MORE THAN HALF OF THE Fortune 100 companies as well as tens of thousands of smaller businesses. No one customer accounts for over one- quarter of 1% of the Company's total revenues.
The Company believes that Uniform programs may provide customers with a number of benefits:
- Identification - uniforms help identify employees as working for a particular company or department.
- Image - uniforms enhance the public appearance of employees and help create a more professional image for the customer.
- 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.
- Employee morale - uniforms can provide a valued benefit to employees and help improve morale.
The Company provides its uniform leasing customers with a full range of services. Advice and assistance are offered in choosing fabrics, styles and colors appropriate to the customer's specific needs. A large stock of new and used garments is available to provide rapid response as individual customer needs change due to increases, decreases or turnover in their work force. Professional cleaning, finishing, repair and replacement of uniforms in use is a normal part of the rental service. Soiled uniforms are picked up at the customer's location and returned clean on a weekly cycle.
The Company also believes that uniform leasing may provide customers with significant advantages over ownership. Leasing 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.
NON-UNIFORM ITEMS
Most of the Company's customers also lease items other than uniforms, primarily floor mats, dust mops and cloths, wiping towels and linens. These items make up approximately 40% of total rental revenues.
Floor mats are used to protect facilities from dust, grease, moisture and other hazards, and can also enhance decor, provide a corporate identity logo, or improve traffic safety. Dust mops, cloths and wiping towels are chemically treated to attract and hold dirt, and are provided in a range of sizes. The Company's wiping towels are used by its customers for numerous wiping and cleaning tasks in varied settings. Selected linen items, primarily aprons and towels, are used for sanitary, or cleaning jobs.
COMPETITION
The Company's business encounters a high level of competition with a number of companies in the geographic areas it serves. The Company believes that it ranks among the nation's largest garment rental suppliers. Major competitors include AraMark (a division of ARA Services, Inc.), and such publicly held companies as National Service Industries, Inc., Unifirst Corporation, Unitog Company and Cintas Corporation. Many of the Company's competitors have greater financial resources than G&K. The Company believes that it competes effectively in its line of business because of the quality and breadth of its product line, and the comprehensive customer service programs it offers.
ENVIRONMENTAL MATTERS
The Company generates modest amounts of wastes in connection with its operations. The Company believes that all of these wastes have been disposed of properly. Some of these wastes may be classified as hazardous wastes under recently enacted environmental legislation.
The Company has been identified as a potentially responsible party ("PRP") pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 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. The Company's ultimate responsibility, therefore, could be greater than the share of waste contributed by the Company would otherwise indicate.
The Company has entered into administrative agreements at certain of these sites to perform remedial actions. At the landfill in Andover, Minnesota, the cost of remediation is estimated to range from $10 million to $15 million. As one of numerous PRP's, the Company has entered into a Consent Decree and has paid $160,000. The Company believes that it has no further responsibility for site remediation at the Andover Landfill based upon the Consent Decree.
The Company has also entered into a Consent Decree involving the landfill site in East Bethel, Minnesota as one of 56 PRP's. The Company was sued by the landfill operator, Sylvester Bros. Development Company, for contribution to the cost of cleaning up this site pursuant to directives from the Minnesota Pollution Control Agency or the Environmental Protection Agency (EPA). Based upon an estimate that the total cleanup of the site will not exceed $7,095,980, the Company has agreed to pay an initial amount of $190,500. In addition, the Company has agreed to pay its pro rata share of any additional amounts by which the actual clean up costs exceed the initial total cost estimate. Whether this will occur depends upon a number of contingencies, therefore any potential future liability is uncertain.
The Company has been placed on notice by the owners of a St. Paul, Minnesota shopping center that certain solvents have been detected in the soils near the shopping center. The owner of the shopping center has alleged that the source of the solvents is from a coin operated business that was owned for a period of time in the mid-1960's by a corporation, the shares of which were partially owned by the Company. Certain limited discovery has disclosed that at least one other business in the area used the same solvent which is claimed to be present in the soil. No action has yet to be commenced against the Company and the Company has not agreed to participate in any clean-up at the site. Since relatively little information is available at this time, it is impossible to predict what, if any, liability may ultimately be assigned to the Company.
The Company has also received a letter from the Minnesota Pollution Control Agency (the "MPCA") which claims that solvents have been detected in the soils near a facility that was owned by the Company from the late 1940's until the early 1970's. Neither the extent of the solvents in the soils nor the source of the solvents are known to the Company. The Company has agreed to participate in a Voluntary Investigation and Cleanup Program through the MPCA, but is unable to provide any estimate of the remediation costs at this time since the investigation has not been completed. The Company expects to reach an agreement with the MPCA with respect to a remediation plan. Therefore, no litigation is expected to commence against the Company in connection with this matter.
EMPLOYEES
The Company's U.S. operations had a total of 4405 employees as of June 29, 1996, consisting of 161 professional sales personnel, 758 route personnel, 2564 production employees, 450 clerical employees, and 472 management and staff employees. Approximately 17.5% of the Company's employees are represented by unions. Management believes its domestic employee relations are satisfactory.
The Company's Canadian operations had a total of 970 employees as of June 29, 1996 consisting of 30 professional sales personnel, 147 route personnel, 570 production employees, 86 clerical employees, and 137 management and staff employees. Approximately 59% of the Company's Canadian employees are represented by unions. Management believes Canadian employee relations are satisfactory.
FOREIGN AND DOMESTIC OPERATIONS
Financial information relating to foreign and domestic operation is set forth on page 26 of the Company's 1996 Annual Report to Stockholders.
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ITEM 2.

ITEM 2. PROPERTIES
The Company cleans and supplies rental items principally from twenty-two industrial garment, dust control and linen supply plants located in the following cities in the United States:
Building City Square Footage - - -------------------------------------------------------------------------- Albuquerque, New Mexico 38,800
Atlanta, Georgia 40,000
Chicago, Illinois 48,700
Denver, Colorado 56,200
Fort Worth, Texas 38,000
Green Bay, Wisconsin 51,700
Houston, Texas 33,700
Kansas City, Missouri 45,000
Los Angeles, California 48,300
Mesa, Arizona 36,000
Miami, Florida 51,100
Milwaukee, Wisconsin 44,000
Minneapolis, Minnesota (two plants) 70,000 93,000
Mobile, Alabama 47,300
New Orleans, Louisiana 29,000
Pittsburg, California 47,000
Rockford, Illinois 32,000
Salt Lake City, Utah 41,500
San Antonio, Texas 40,700
San Jose, California 58,600
Seattle, Washington 44,000
The Company also operates principally from seven plants located in the following cities in Canada:
Building City SQUARE FOOTAGE ----------------------------------------------------------- Toronto, Ontario (two plants) Metro East 49,000 Linen Division 39,700
Montreal, Quebec 25,500
Cambridge, Ontario 57,600
Ottawa, Ontario 35,000
Windsor, Ontario 42,900
Sault St. Marie, Ontario 23,700
All of these facilities are owned by the Company, except the Ottawa, Ontario and Windsor, Ontario facilities, which are leased.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine litigation incidental to the business of the Company and as set forth in Item 1. Business - Environmental Matters.
EXECUTIVE OFFICERS OF G&K SERVICES, INC. - - ---------------------------------------- Position with Officer Name the Company Age Since - - --------------------------------------------------------------------------------
Richard M. Fink Chairman of the Board 66 1970 and CEO
William M. Hope President 63 1973
Thomas Moberly Vice President 47 1993
Stephen F. LaBelle Secretary and Treasurer 47 1978
The executive officers have, as their principal occupation, been employed by the Company in the capacities set forth above for more than the last five years, except for Mr. Moberly who was promoted in 1993. Each of such executive officers serve in their capacities as officers of the Company at the pleasure of the Board of Directors.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Reference is made to the information with respect to the principal markets on which the Company's Common Stock is being traded and prices for each quarterly period for the last two years set forth on PAGE 28 of the Company's 1996 Annual Report to Stockholders, and by such reference, such information is incorporated herein. The Company's debt agreement contain various restrictive covenants which limit cash dividends, among other things.
The approximate number of stockholders on record of the Company's Common Stock as OF SEPTEMBER 18, 1996 WAS 635.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the financial data with respect to the Company set forth on PAGE 5 of the Company's 1996 Annual Report to Stockholders, and by such reference, such financial data is incorporated herein.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the management's discussion and analysis of financial condition and results of operations presented in the form of the Financial Review set forth on PAGES 14 THROUGH 16 of the Company's 1996 Annual Report to Stockholders, and by such reference, such information is incorporated herein.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements and supplementary data set forth on PAGES 16 THROUGH 27 of the Company's 1996 Annual Report to Stockholders, and by such reference, such information is incorporated herein.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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PART III
Reference is made to the definitive proxy statement filed pursuant to Regulation 14A, which involves the election of directors at the annual meeting of stockholders to be held October 31, 1996 which will be filed with the Commission within 120 days after the close of its fiscal year ended June 29, 1996, and by such reference, said proxy statement is incorporated herein in response to the information called for by Part III (Item 10.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements listed below are filed as part of this Annual Report on Form 10-K:
Data is incorporated by reference from the Annual Report to Stockholders of G&K Services, Inc. for the fiscal year ended June 29, 1996. With the exception of the information specifically incorporated herein by reference, the Annual Report to Stockholders for fiscal 1996 is not to be deemed "filed" as part of the Annual Report on Form 10-K.
Page In Annual Report ------------- Report of independent public accountants 27
Consolidated statements of income for each of the three fiscal years in the period ended June 29, 1996 16
Consolidated balance sheets as of June 29, 1996 and July 1, 1995 17
Consolidated statements of cash flows for each of the three fiscal years in the period ended June 29, 1996 18
Consolidated statements of stockholders' equity for each of the three fiscal years in the period ended June 29, 1996 19
Notes to consolidated financial statements 20-26
Separate financial statements of the subsidiaries of the Registrant have been omitted because the Registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements are wholly owned.
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto.
(b) Reports on Form 8-K
None filed during the fourth quarter of fiscal 1996.
(c) The following exhibits, as required by Item 601 of Regulation S-K are filed as a part of this report:
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EXHIBIT NO.
3(a) Restated Articles of Incorporation, as amended, as filed with the Secretary of State of Minnesota (incorporated herein by reference to the Registrant's Registration Statement on Form S-1 and Amendment No. 1 thereto, Registration No. 33-15456). Certificate of Amendment, as filed with the Secretary of State of Minnesota on November 12, 1987.
3(b) Bylaws, as amended, (incorporated herein by reference to the Registrant's Registration Statement on Form S-1 and Amendment No. 1 thereto, Registration No. 33-15456 and incorporated by reference to exhibit 3ii of the Registrants' 10-Q filed May 17, 1994).
10(a) Employment Agreement between the Registrant and Richard Fink, dated January 6, 1987, (incorporated herein by reference to the Registrant's Registration No. 33-15456).
10(b) Employment Agreement between the Registrant and Stephen LaBelle, dated January 2, 1991. */**
10(c) 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 Registrants Schedule 13E-4 filing dated May 13, 1985).
10(d) 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(e) 1996 Director Stock Option Plan. */**
10(f)(i) Loan Agreement betweeen the Registrant and Metropolitan Life Insurance Company dated as of September 28, 1990 (incorporated herein by reference to the Registrant's Form 8-K dated September 28, 1990, and Amendment No. 1 thereto dated December 13, 1990).
10(f)(ii) Second Amendment to Loan Agreement, dated June 21, 1994, between G&K Services, Inc., and Metropolitan Life Insurance Company (incorporated herein by reference to the Registrant's Form 10-Q for the quarter ended April 1, 1995).
10(f)(iii) Third Amendment to Loan Agreement, dated as of November 23, 1994, between G&K Services, Inc., and Metropolitan Life Insurance Company (incorporated herein by reference to the Registrant's Form 10-Q for the quarter ended April 1, 1995).
10(f)(iv) Fourth Amendment to Loan Agreement, dated as of May 18, 1995, between G&K Services, Inc., and Metropolitan Life Insurance Company. *
10(g)(i) Credit Agreement dated as of June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd., various banks and Norwest Bank, Minnesota, National Association, as Agent (incorporated by reference to the Registrant's Form 10-Q, for the quarter ended April 1, 1995).
10(g)(ii) First Amendment, dated November 28, 1994, to Credit Agreement dated June 21, 1994, G&K Services, Inc., various banks, and Norwest Bank Minnesota, National Association, as Agent (incorporated by reference to the Registrant's form 10-Q for the quarter ended April 1, 1995).
10(g)(iii) Second Amendment, dated May 18, 1995, to Credit Agreement dated June 21, 1994, among G&K Services, Inc., WorkWear Corporation of Canada, Ltd., various banks, and Norwest Bank Minnesota, National Association, as Agent. *
10(g)(iv) Third Amendment, dated January 4, 1996, to Credit Agreement dated June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd., various banks, and Norwest Bank Minnesota, National Association, as Agent. *
10(g)(v) Fourth Amendment, dated August 5, 1996, to Credit Agreement dated June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd., various banks, and Norwest Bank Minnesota, National Association, as Agent. *
10(h) Loan Agreement, dated November 23, 1994, between G&K Services, Inc., and Metropolitan Life Insurance Company. *
10(i) Employment Agreement between Registrant and Thomas Moberly, dated February 20, 1990 (incorporated herein by reference to the Registrant's form 10-K filed September 30, 1993).*
FOOTNOTE:
* Filed herewith ** Compensatory plan or arrangement
13 Portions of 1996 Annual Report to Stockholders.
22 Subsidiaries of G&K Services, Inc.
23 Consent of Independent Public Accountants
24 Power of Attorney dated as of AUGUST 29, 1996.
27 Financial Data Schedule (FOR SEC USE ONLY)
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.
Date: September 26, 1996
G&K SERVICES, INC. (Registrant)
By: /s/ Richard Fink ---------------------------------- Richard Fink Chairman of the Board and Chief Executive Officer
By: /s/ Stephen F. LaBelle ---------------------------------- Stephen F. LaBelle Treasurer and Secretary, and Principal Accounting and Financial Officer
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 1996, by the following persons in the capacity indicated:
G&K SERVICES, INC.
/s/ Richard Fink ---------------------------------- By: Richard Fink Chairman of the Board and Chief Executive Officer
/s/ Richard Fink - - ---------------------- Chairman of the Board, Chief Executive Officer Richard Fink and Director
* President and Director - - ---------------------- William Hope
* Vice President - - ---------------------- Thomas Moberly
/s/ Stephen F. LaBelle - - ---------------------- Secretary and Treasurer (Principal Stephen F. LaBelle Financial and Accounting Officer)
* Director - - ---------------------- Bruce Allbright
* Director - - ---------------------- Donald Goldfus
* Director - - ---------------------- Bernard Sweet
* Director - - ---------------------- Wayne Fortun
* Director - - ---------------------- Paul Baszucki
* By ------------------ Richard Fink Attorney-in-fact