Estee Lauder 2004 Annual Report Download - page 68

THE EST{E LAUDER COMPANIES INC.
organization and distribution channel refinements. The
Company committed to a defined plan of action, which
resulted in an aggregate pre-tax charge of $117.4 million,
of which $0.8 million was included in discontinued
operations, and $59.4 million was cash related. On an
after-tax basis, the aggregate charge was $76.9 million, of
which $0.5 million was included in discontinued opera-
tions, equal to $.32 per diluted share.
Specifically, the charge includes the following:
• Internet. In an effort to achieve strategic objectives,
reduce costs and improve profitability, the Company out-
sourced Gloss.com platform development and mainte-
nance efforts to a third-party provider. Additionally,
Gloss.com closed its San Francisco facility and consoli-
dated its operations in New York. As a result, included in
the charge is a $23.9 million provision for restructuring
the Gloss.com operations, including benefits and sever-
ance packages for 36 employees as well as asset write-
offs. The Company also took a $20.1 million charge to
write off the related Gloss.com acquisition goodwill.
• Supply Chain. Building on previously announced supply
chain initiatives, the Company restructured certain
manufacturing, distribution, research and development,
information systems and quality assurance operations in
the United States, Canada and Europe, which included
benefits and severance packages for 110 employees.
A charge of $23.7 million was recorded related to this effort.
• Globalization of Organization. The Company contin-
ued to implement its transition, announced in fiscal 2001,
to a global brand structure designed to streamline the
decision making process and increase innovation and
speed-to-market. The next phase of this transition entailed
eliminating duplicate functions and responsibilities, which
resulted in charges for benefits and severance for 122
employees. The Company recorded a charge of $27.1
million associated with these efforts.
• Distribution. The Company evaluated areas of distribu-
tion relative to its financial targets and decided to focus its
resources on the most productive sales channels and mar-
kets. As a result, the Company closed its operations in
Argentina and the remaining customers are being serv-
iced by the Company’s Chilean affiliate. The Company
began closing all remaining in-store “tommy’s shops” and
other select points of distribution. The Company recorded
a $22.6 million provision related to these actions, which
included benefits and severance for 85 employees.
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Following is a summary of the charges as recorded in the consolidated statement of earnings for fiscal 2002:
Net Sales Cost of Sales Operating Expenses Total
(In millions)
Internet $ — $ — $ 44.0 $ 44.0
Supply chain — — 23.7 23.7
Globalization of organization — — 27.1 27.1
Distribution 6.2 0.8 15.6 22.6
Total charge $6.2 $0.8 $110.4 117.4
Tax effect (40.5)
Net charge $ 76.9
Restructuring
The fiscal 2002 restructuring charge was recorded in
other accrued liabilities or, where applicable, as a reduc-
tion of the related asset. During fiscal 2004, 2003 and
2002, $12.3 million, $32.2 million and $9.3 million,
respectively, related to this restructuring was paid. As of
June 30, 2004 and 2003, the restructuring accrual
balance was $9.4 million and $21.9 million, respectively,
and the Company expects to settle a majority of the
remaining obligations by the end of fiscal 2005 with
certain additional payments made in fiscal 2006.
During the fourth quarter of fiscal 2001, the Company
recorded one-time charges for restructuring and special
charges. As of June 30, 2004 and 2003, the remaining
obligation was $1.3 million and $2.6 million, respectively,
with remaining payments to be made ratably through
fiscal 2007.