Estee Lauder 2003 Annual Report Download - page 67

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THEEST{E LAUDER COMPANIES INC. 66
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
NOTE 5 – RESTRUCTURING AND SPECIAL CHARGES
During the fourth quarter of fiscal 2003, the Company
recorded a special pre-tax charge of $22.0 million, or
$13.5 million after-tax, equal to $.06 per diluted common
share, in connection with the proposed settlement of a
legal proceeding brought against a number of defendants
including the Company (see Note 15). The amount of the
charge in this case is significantly larger than similar
charges the Company has incurred individually or in the
aggregate for legal proceedings in any prior year.
During the fourth quarter of fiscal 2002, the Company
recorded a restructuring charge related to repositioning
certain businesses as part of its ongoing efforts to drive
long-term growth and increase profitability. The restruc-
turing focused on cost reduction opportunities related to
the Internet, supply chain, globalization of the organiza-
tion 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
$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 includes the following:
• Internet. In an effort to achieve strategic objectives,
reduce costs and improve profitability, the Company
outsourced Gloss.com platform development and main-
tenance 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 sup-
plychain 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.
Acharge of $23.7 million was recorded related to
this effort.
• Globalization of Organization. The Company con-
tinued to implement its transition, announced in fiscal
2001, to a global brand structure designed to stream-
line the decision making process and increase inno-
vation 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
markets. As a result, the Company closed its operations
in Argentina and the remaining customers are being
serviced by the Company’s Chilean affiliate. The Com-
pany 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.