Estee Lauder 2013 Annual Report Download - page 124

€ Turnaround or Exit Unprofitable Operations— To improve
the profitability in certain of our brands and regions, we
have selectively exited certain channels of distribution,
categories and markets, and have made changes to turn
around others. This included the exit from the global
wholesale distribution of our Prescriptives brand, the
reformulation of Ojon brand products and the exit from
the global distribution of Sean John products. In con-
nection with these activities, we incurred charges for
product returns, inventory write-offs, reduction of work-
force and termination of contracts. As of June 30, 2013,
we identified approximately $21 million of previously-
approved returns and other costs related to these
activities that will not be incurred, primarily as a result
of better-than-expected sales of products prior to the
exit of the operations, as well as lower employee-related
and store closure costs than originally estimated.
€ Outsourcing — In order to balance the growing need for
information technology support with our efforts to pro-
vide the most efficient and cost effective solutions, we
continued the outsourcing of certain information tech-
nology processes. We incurred costs to transition
services to outsource providers and employee-related
termination costs. As of June 30, 2013, we identified
approximately $26 million of previously-approved out-
sourcing initiatives for information technology services
stemming from the decision not to implement certain
aspects of these initiatives, as well as lower costs than
originally anticipated to transition services on initiatives
that were implemented.
122 THE EST{E LAUDER COMPANIES INC.
We estimate that the implementation of this Program,
combined with other on-going cost savings efforts,
resulted in savings of approximately $780 million through
the end of fiscal 2013 which included the reduction of
certain costs relative to an assumed normalized spending
pattern. Any changes from adjustments of estimated
costs, as referenced above, have been included within our
estimated savings. Our long-range forecast for operating
margin reflects these anticipated savings, net of strategic
reinvestments.
The Program focused on a redesign of our organiza-
tional structure in order to integrate the Company 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 since Program
inception included:
€ Resize and Reorganize the Organization—We continued
the realignment and optimization of our organization to
better leverage scale, improve productivity, reduce com-
plexity and achieve cost savings in each region and
across various functions. This included reduction of the
workforce which occurred through the consolidation
of certain functions, which we achieved through a
combination of normal attrition and job eliminations,
and the closure and consolidation of certain distribution
and office facilities. As of June 30, 2013, we identified
approximately $14 million of previously-approved
restructuring costs that will not be incurred related
to these activities, primarily as a result of certain
employees relocating to other available positions within
the Company.
The following is a reconciliation of cumulative approved charges under the Program as compared with the revised
estimated charges related to initiatives under the Program and total cumulative charges incurred through June 30, 2013:
Restructuring Charges
Total
Contract Restructuring
Employee- Terminations Charges and
Related Asset and Other Total Inventory Other Other Costs
(In millions) Costs Write-offs Exit Costs Restructuring Returns Write-offs Charges
to Implement
Approved charges from
inception through
December 31, 2012 $205.5 $23.5 $43.5 $272.5 $43.0 $20.0 $50.0 $385.5
Adjustments of estimated
costs over (under) (35.0) (2.0) (4.0) (41.0) (11.0) 4.0 (13.0) (61.0)
Revised estimated charges
as of June 30, 2013 $170.5 $21.5 $39.5 $231.5 $32.0 $24.0 $37.0 $324.5
Cumulative charges
incurred through
June 30, 2013 $169.6 $21.4 $37.4 $228.4 $32.0 $23.2 $36.8 $320.4