Estee Lauder 2011 Annual Report Download - page 132

130 THE EST{E LAUDER COMPANIES INC.
approaches, utilizing estimated cash flows and a terminal
value, discounted at a rate of return that reflects the
relative risk of the cash flows, as well as valuation multi-
ples derived from comparable publicly traded companies
that are applied to operating performance of the report-
ing unit. These impairment charges were reflected in
the hair care and skin care product categories and in the
Americas region.
NOTE 6 — ACQUISITION OF BUSINESS
On July 1, 2010, the Company acquired Smashbox. The
purchase price was funded by cash provided by opera-
tions. The results of operations are included in the accom-
panying consolidated financial statements commencing
with the date it was acquired. Pro forma results of opera-
tions of the prior year have not been presented, as the
impact on the Company’s consolidated financial results
would not have been material. The aggregate cost of this
transaction, net of cash acquired, and continuing earn-out
obligations incurred during fiscal 2011 related to the
acquisition of the Bobbi Brown brand was $257.6 million.
NOTE 7 — RETURNS AND CHARGES ASSOCIATED
WITH RESTRUCTURING ACTIVITIES
In an effort to drive down costs and achieve synergies
within the organization, in February 2009, the Company
announced the implementation of a multi-faceted cost
savings program (the “Program”) to position itself to
achieve long-term profitable growth. The Company antici-
pates the Program will result in related restructuring and
other special charges, inclusive of cumulative charges
recorded to date and through the remainder of the
Program, totaling between $350 million and $450 million
before taxes. While the Company will continue to seek
cost savings opportunities, the Company’s current plans
are to identify and approve specific initiatives under
the Program through fiscal 2012 and execute those
initiatives through fiscal 2013. The total amount of
charges (pre-tax) associated with the Program, recorded,
plus other initiatives approved through June 30, 2011,
is approximately $303 million to $308 million, of which
approximately $198.5 million to $200 million relates to
restructuring charges, approximately $50 million of other
costs to implement the initiatives, approximately $38.5
million to $42 million in sales returns and approximately
$16 million in inventory write-offs. The restructuring
charges are comprised of approximately $151.5 million to
$153 million of employee-related costs, approximately
$27 million of other exit costs and contract terminations
(substantially all of which have resulted in or will result
in cash expenditures), and approximately $20 million in
non-cash asset write-offs. The total amount of cumulative
charges (pre-tax) associated with the Program recorded
from inception through June 30, 2011 was $239.4 million.
The Program focuses on a redesign of the Company’s
organizational structure in order to integrate it in a more
cohesive way and operate more globally across brands
and functions. The principal aspect of the Program was
the reduction of the workforce by approximately 2,000
employees. Specific actions taken during fiscal 2011 and
2010 included:
•฀ ฀Resize and Reorganize the Organization— The
Company continued the realignment and optimization
of its organization to better leverage scale, improve
productivity, reduce complexity and achieve cost sav-
ings in each region and across various functions. This
included reduction of the workforce which occurred
through the consolidation of certain functions, which
the Company achieved through a combination of nor-
mal attrition and job eliminations, and the closure and
consolidation of certain distribution and office facilities.
•฀ Turnaround or Exit Unprofitable Operations— To improve
the profitability in certain of the Company’s brands and
regions, the Company has selectively exited certain
channels of distribution, categories and markets, and
has made changes to turnaround others. This included
the exit from the global wholesale distribution of the
Company’s Prescriptives brand and the reformulation of
Ojon brand products. In connection with these activi-
ties, the Company incurred charges related to product
returns, inventory write-offs, reduction of workforce and
termination of contracts.
•฀ ฀฀Outsourcing — In order to balance the growing need for
information technology support with the Company’s
efforts to provide the most efficient and cost effective
solutions, the Company continued the outsourcing
of certain information technology processes. The
Company incurred costs to transition services to out-
source providers and employee-related costs.