Estee Lauder 2002 Annual Report Download - page 48

THEEST{E LAUDER COMPANIES INC.
distribution channels. Additionally, depreciation and amor-
tization charges increased compared with the prior year,
reflecting increased goodwill amortization from acquisi-
tions and depreciation related to capital investments,
partiallyoffset by the November 2000 expiration of amor-
tization related to purchased royalty rights. Changes in
advertising and promotional spending result from the
type, timing and level of advertising and promotional
activities related to product launches and rollouts, as well
as from the markets being emphasized.
Restructuring and Other Non-Recurring Expenses
During the fourth quarter of fiscal 2001, we recorded
one-time charges for restructuring and other non-
recurring expenses related to repositioning certain busi-
nesses as part of our ongoing efforts to drive long-term
growth and increase profitability. The restructuring and
other non-recurring expenses focused on four areas:
product fixtures for the jane brand; in-store “ tommy’s
shops”; information systems and other assets; and global
brand reorganization. We committed to a defined plan of
action, which resulted in an aggregate pre-tax charge of
$63.0 million, of which $35.9 million is cash related. On
an after-tax basis, the aggregate charge was $40.3 million,
equal to $.17 per diluted share.
Specifically, the charge included the following:
•jane. To bring product innovation rapidly to the market
and drive growth, jane switched from its traditional
wall displays to a carded program. We believed this
change would lead to increased sales and improvements
in profitability. The positive effects on sales and
improved profitability of this initiative were offset by
the reduction in the number of points of sale during
fiscal 2002. The charge included a $16.1 million write-
down of existing jane product fixtures and the return
of uncarded product from virtually all of the 13,000
distribution outlets in the United States.
• “tommy’s shops.” We also restructured the in-store
“ tommy’s shops” to focus on our most productive loca-
tions and decided to close certain shops that underper-
formed relative to expectations. As a result, we recorded
a $6.3 million provision for the closing of 86 under-
performing in-store “tommy’s shops,” located in the
United States, and for related product returns.
• Information systems and other assets. In response
to changing technology and our new strategic direction,
the charge included a $16.2 million provision for costs
associated with the reevaluation of supply chain systems
that we will no longer utilize and with the elimination of
unproductive assets related to the change to standard
financial systems.
• Global brand reorganization. We recorded $20.8
million related to benefits and severance packages for
75 management employees who were affected by the
reconfiguration to a global brand structure and another
$3.6 million related to infrastructure costs. As of June 30,
2002, none of the 75 management employees identi-
fied in the reorganization was still an employee. We
believe that the global brand structure is improving
decision-making processes, thereby increasing innova-
tion and speed to market.
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Following is a summary of the charges as recorded in the consolidated statement of earnings for fiscal 2001:
Other Non-Recurring
Net Sales Cost of Sales Operating Expenses Expenses Total
(In millions)
jane $ 5.7 $ 1.5 $ 4.8 $ 4.1 $ 16.1
“tommy’s shops” 2.3 (0.4) 4.4 — 6.3
Information systems and
other assets — — 4.6 11.6 16.2
Global brand reorganization —— 23.8 0.6 24.4
Total charge $ 8.0 $ 1.1 $37.6 $16.3 63.0
Tax effect (22.7)
Net charge $ 40.3
Restructuring