Estee Lauder 2003 Annual Report Download - page 49

THEEST{E LAUDER COMPANIES INC.
Restructuring and Special Charges
During the fourth quarter of fiscal 2002, we recorded
charges for a restructuring related to repositioning cer-
tain businesses as part of our ongoing efforts to drive
long-term growth and increase profitability. The restruc-
turing focused on cost reduction opportunities related to
the Internet, our supply chain, globalization of the organ-
ization and distribution channel refinements. We commit-
ted to a defined plan of action, which resulted in an
aggregate pre-tax charge of $117.4 million, of which
$59.4 million is cash related. On an after-tax basis, the
aggregate charge was $76.9 million, equal to $.32 per
diluted share.
Specifically, the charge included the following:
• Internet. In an effort to achieve strategic objectives,
reduce costs and improve profitability, we outsourced
Gloss.com platform development and maintenance
efforts to a third-party provider. Additionally,Gloss.com
closed its San Francisco facility and consolidated its
operations in New York. As a result, included in the
charge was 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. We 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, we restructured certain manufacturing,
distribution, research and development, information sys-
tems and quality assurance operations in the United
States, Canada and Europe, which included benefits and
severance for 110 employees. A charge of $23.7 million
was recorded related to this effort.
• Globalization of Organization. We continued to imple-
ment our 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 responsi-
bilities, which resulted in charges for benefits and sever-
ance for 122 employees. We recorded a charge of
$27.1 million associated with these efforts.
• Distribution. We evaluated areas of distribution relative to
our financial targets and decided to focus our resources
on the most productive sales channels and markets. As a
result, we closed our operations in Argentina and the
remaining customers are being serviced by our Chilean
affiliate. We began to close all remaining in-store
“tommy’s shops” and we identified for closing other
select points of distribution. We recorded a $22.6 mil-
lion 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 restructuring charge was recorded in other accrued
liabilities or, where applicable, as a reduction of the
related asset. During fiscal 2002, $9.3 million related to
this restructuring was paid. We expected to, and did, settle
a majority of the remaining obligations by the end of fiscal
2003 with certain additional payments to be made ratably
through fiscal 2006.
During the fourth quarter of fiscal 2001, we recorded
charges for restructuring and special charges related to
repositioning certain businesses as part of our ongoing
efforts to drive long-term growth and increase profit-
ability. The restructuring and special charges 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. As of
June 30, 2003, the remaining obligation was $2.6 million
with payments expected to be made ratably through
fiscal 2004.