G&K Services, Inc. (NASDAQ: GKSR)
announced today that, in connection with renewing a collective bargaining agreement, the company completed the previously disclosed actions to discontinue its participation in the Central States Pension Plan (the Plan) at two facilities. In addition, consistent with its focus on improving underperforming locations, the company closed two other branch facilities that also participated in the Plan. The company continues to participate in the Plan at three additional locations, although, subject to its good faith bargaining obligations, the company believes it is probable that it will also successfully negotiate withdrawal from the Plan at these locations, thus completely discontinuing its participation in the Plan.
As a result of these combined actions, the company expects that its fiscal year 2012 third quarter results will include pre-tax charges to earnings between $23 million to $25 million ($14 million to $15 million after tax). These charges include the estimated discounted value of the total withdrawal liability, incentives for union participants, strike preparation costs, costs associated with closing the two branch locations and other related costs. G&K estimates that these charges will reduce the company’s diluted earnings per share for the third quarter and full year by $0.75 to $0.81. Excluding the impact of these charges, G&K continues to expect full-year fiscal 2012 earnings per diluted share to be in the previously announced range of $1.85 to $2.05 per share. G&K believes that withdrawal from the Plan will benefit the company because it limits the company’s exposure to increased future liabilities from the Plan, which is significantly underfunded, and ensures a more financially secure retirement plan moving forward for the affected employees.
G&K’s estimated withdrawal liability is based on the most recent information available from the Plan and is subject to change based on many factors, including future market conditions, successfully completing future withdrawal negotiations, employer contributions and benefit levels that will impact the ultimate withdrawal. G&K expects to make payments to the Central States Plan for this withdrawal liability over a period of 20 years.