Estee Lauder 2009 Annual Report Download - page 133

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132 THE EST{E LAUDER COMPANIES INC.
• Exit Unprofi table Operations — To improve the profi t-
ability in certain of the Company’s brands and regions,
the Company has selectively exited certain channels of
distribution, categories and markets. In doing so, the
Company incurred costs to reduce workforce, terminate
contracts, write off fi xed assets and discontinue certain
product lines and stock-keeping units.
• Outsourcing — In order to balance the growing need for
information technology support with the Company’s
efforts to provide the most effi cient and cost effective
solutions, the Company initiated the outsourcing of cer-
tain information technology processes. The Company
incurred costs to eliminate certain related headcount and
to transition services to an outsource provider.
For the year ended June 30, 2009, aggregate restructur-
ing charges of $70.3 million were recorded in the accom-
panying consolidated statements of earnings related to
the Program. These charges primarily refl ected employee-
related costs, asset write-offs, contract terminations and
other exit costs.
other special charges in fi scal 2009 and over the next few
fi scal years totaling between $350 million and $450 mil-
lion before taxes.
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 is the reduction of the workforce by approxi-
mately 2,000 employees. Specifi c actions taken during
fi scal 2009 included:
• Resize and Reorganize the Organization—The Company
began the realignment and optimization of its organiza-
tion to better leverage scale, improve productivity and
reduce complexity in each region and across various
functions. This included reduction of the workforce,
which occurred through the consolidation of certain
functions through a combination of normal attrition and
job eliminations, and a rationalization of manufacturing
capacity via the scheduled closure of one of the
Company’s manufacturing and assembly plants.
The following table presents the restructuring activity as of and for the year ended June 30, 2009 under the Program:
Employee-Related Asset Contract
Costs Write-offs Terminations Other Exit Costs Total
(In millions)
Charges $60.9 $ 4.2 $ 3.4 $ 1.8 $70.3
Cash payments (7.5) — (0.5) (1.6) (9.6)
Non-cash write-offs — (4.2) — — (4.2)
Translation adjustments 0.6 — — — 0.6
Other adjustments (2.4) — — — (2.4)
Balance at June 30, 2009 $51.6 $ — $ 2.9 $ 0.2 $54.7
Accrued restructuring charges at June 30, 2009 are
expected to result in cash expenditures funded from cash
provided by operations of approximately $48 million, $6
million and $1 million in fi scal 2010, 2011 and 2012,
respectively.
The total amount of restructuring charges incurred plus
other initiatives approved through June 30, 2009, include
approximately $75 million for employee-related costs,
approximately $6 million in asset write-offs and approxi-
mately $8 million of contract terminations and other
exit costs.
The Company incurred other special charges in
connection with the implementation of the Program for
the year ended June 30, 2009 of $10.1 million related to
consulting, other professional services, and accelerated
depreciation. The total amount of other special charges
expected to be incurred to implement these initiatives,
including those incurred through June 30, 2009, is
approximately $36 million. In addition to the other special
charges, the Company recorded $8.1 million refl ecting
sales returns (less a related cost of sales of $1.2 million)
and a write-off of inventory associated with exiting unprof-
itable operations of $8.0 million.
During the year ended June 30, 2009, the Company
recorded a gain of $3.6 million related to excess accruals
that were recorded as other special charges in prior years.
Total charges associated with restructuring activities
included in operating income for the year ended June 30,
2009 were $91.7 million.