SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14064
THE ESTEE LAUDER COMPANIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2408943
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
767 FIFTH AVENUE, NEW YORK, NEW YORK 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-572-4200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
At January 27, 1997, 60,486,913 shares of the registrant's Class A Common Stock,
$.01 par value, and 56,839,667 shares of the registrant's Class B Common Stock,
$.01 par value, were outstanding.
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C>
Consolidated Statements of Earnings --
Three Months and Six Months Ended December 31, 1996 and 1995............................. 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................ 3
Consolidated Balance Sheets --
December 31, 1996 and June 30, 1996...................................................... 8
Consolidated Statements of Cash Flows --
Six Months Ended December 31, 1996 and 1995.............................................. 9
Notes to Consolidated Financial Statements.................................................... 10
PART II. OTHER INFORMATION............................................................................. 13
</TABLE>
-1-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET SALES........................................................ $941.5 $860.8 $1,814.3 $1,693.9
Cost of sales.................................................... 217.6 210.4 417.4 403.7
------- ------- --------- --------
GROSS PROFIT..................................................... 723.9 650.4 1,396.9 1,290.2
Selling, general and administrative expenses:
Selling, general and administrative........................... 589.0 530.5 1,152.7 1,067.0
Related party royalties....................................... 9.0 10.9 17.0 21.3
------- ------- ------- --------
598.0 541.4 1,169.7 1,088.3
------- ------- ------- --------
OPERATING INCOME................................................. 125.9 109.0 227.2 201.9
Interest income (expense), net:
Interest income (expense), net................................ 0.1 - (1.1) (1.4)
Interest income from stockholders, net........................ - 1.1 - 2.7
------- ------- ------- --------
0.1 1.1 (1.1) 1.3
------- ------- ------- --------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST............... 126.0 110.1 226.1 203.2
Provision for income taxes....................................... 50.5 47.3 95.0 91.4
Minority interest................................................ (5.6) (4.3) (8.5) (6.9)
------- ------- ------- --------
NET EARNINGS..................................................... 69.9 58.5 122.6 104.9
Preferred stock dividends........................................ 5.8 30.2 11.7 45.8
------- ------- ------- --------
NET EARNINGS ATTRIBUTABLE TO COMMON STOCK (Note 1)............... $ 64.1 $ 28.3 $ 110.9 $ 59.1
======= ======= ======= ========
Net earnings per common share (Note 1)........................... $ .54 - $ .93 -
Weighted average common shares outstanding....................... 118.9 - 118.7 -
Cash dividends declared per common share......................... $ .085 - $ .17 -
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Estee Lauder Companies Inc. and its subsidiaries (collectively, the
"Company") manufacture skin care, makeup and fragrance products which are
distributed in over 100 countries and territories. The following is a
comparative summary of operating results for the three and six months ended
December 31, 1996 and 1995 and reflects the basis of presentation described in
Note 1 to the consolidated financial statements for all periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
---------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
NET SALES
BY REGION:
The Americas:
United States........................................... $486.6 $441.8 $ 993.8 $ 931.3
Other Americas.......................................... 38.8 30.6 70.8 58.8
------ ------ --------- -------
Total Americas........................................ 525.4 472.4 1,064.6 990.1
Europe, the Middle East & Africa........................... 266.7 235.7 472.7 425.3
Asia/Pacific............................................... 149.4 152.7 277.0 278.5
------ ------ --------- --------
$941.5 $860.8 $1,814.3 $1,693.9
====== ====== ======== ========
BY PRODUCT CATEGORY:
Skin Care.................................................. $324.3 $298.8 $ 650.2 $ 634.5
Makeup..................................................... 319.1 273.4 637.0 563.0
Fragrance.................................................. 298.1 288.6 527.1 496.4
------ ------ --------- --------
$941.5 $860.8 $ 1,814.3 $1,693.9
====== ====== ========= ========
OPERATING INCOME
The Americas:
United States.............................................. $ 59.0 $ 54.9 $ 120.5 $ 112.0
Other Americas............................................. 15.5 6.7 22.5 10.6
------ ------ --------- --------
Total Americas.......................................... 74.5 61.6 143.0 122.6
Europe, the Middle East & Africa.............................. 35.4 19.4 59.3 40.1
Asia/Pacific.................................................. 16.0 28.0 24.9 39.2
------ ------ --------- --------
$125.9 $109.0 $ 227.2 $ 201.9
====== ====== ========= ========
</TABLE>
The following table sets forth certain consolidated statement of earnings data
as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
---------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................................... 23.1 24.4 23.0 23.8
------ ---- ----- -----
Gross profit..................................................... 76.9 75.6 77.0 76.2
Selling, general and administrative expenses:
Selling, general and administrative........................... 62.5 61.6 63.5 63.0
Related party royalties....................................... 1.0 1.3 1.0 1.3
------ ------ ----- -----
63.5 62.9 64.5 64.3
------ ------ ----- -----
Operating income................................................. 13.4 12.7 12.5 11.9
Interest income (expense), net................................... - 0.1 - 0.1
------ ------ ----- -----
Earnings before income taxes and minority interest............... 13.4 12.8 12.5 12.0
Provision for income taxes....................................... 5.4 5.5 5.2 5.4
Minority interest................................................ (0.6) (0.5) (0.5) (0.4)
------ ------ ----- -----
Net earnings ................................................... 7.4% 6.8% 6.8% 6.2%
====== ====== ===== =====
</TABLE>
-3-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales increased 9% to $941.5 million from $860.8 million, and 7% to $1,814.3
million from $1,693.9 million for the three and six months ended December 31,
1996, respectively, compared with the same prior-year periods, on the strength
of new product launches, the global rollout of recent fragrance introductions,
the reformulation/relaunch of Fruition Extra and the continued solid performance
of existing key products. The continuing strength of the U.S. dollar negatively
impacted net sales for the current three and six month periods by approximately
$21.0 million and $39.0 million, respectively. This movement of the U.S. dollar
negatively affected the operating results of each of the Company's regions and
product categories. Excluding the impact of foreign currency translation, net
sales would have increased 12% and 9% during the three and six months ended
December 31, 1996, respectively. Net sales for the current year include six
months of sales of Bobbi Brown essentials, in which a 100% interest was acquired
in late October 1995.
Net sales of skin care products increased 9% to $324.3 million from $298.8
million, and 2% to $650.2 million from $634.5 million for the three and six
months ended December 31, 1996, respectively, compared with the corresponding
prior-year periods. These increases were due in part to the worldwide
reformulation/relaunch of Fruition Extra, the introduction of LipZone, Moisture
On-Line and All About Lips, and the continued growth of existing products such
as Moisture On-Call, Dramatically Different Moisturizing Lotion and Day Wear
Super Anti-Oxidant Complex. In addition, the current quarter benefited from the
domestic debut of Nutritious Bio-Moisture Complex. Net sales of makeup products
rose 17% to $319.1 million from $273.4 million, and 13% to $637.0 million from
$563.0 million for the current three and six-month periods, respectively,
compared with the same prior-year periods. Higher makeup product sales were due
to the recent launches of City Base Compact Foundation, Long Last Soft Shine
Lipstick, Virtual Skin, Futurist Age-Resisting Makeup, Lip Shaper and Ultra
Mascara and increased sales of M.A.C. and Bobbi Brown products. The current-year
periods also benefited from the international rollout of True Lipstick and
increased contributions from existing products such as Soft Finish Makeup and
Enlighten Skin-Enhancing Makeup. Net sales of fragrance products increased 3% to
$298.1 million from $288.6 million, and 6% to $527.1 million from $496.4 million
for the three and six months ended December 31, 1996, respectively, compared
with the same prior-year periods. Outstanding sales results from the
introduction of Estee Lauder pleasures in the Asian markets and the initial
holiday sales in Europe, combined with increased worldwide sales of "tommy," the
successful fall 1996 domestic debut of "tommy girl," the launch of Kiton in
selected European markets and the international launch of Havana Pour Elle were
the primary factors contributing to the higher sales in the fragrance product
category. The highly successful domestic launch of Estee Lauder pleasures in the
six months ended December 31, 1995 reduced the period over period favorable
comparisons. The introduction of new products may have some cannibalization
effect on sales of existing products, which is taken into account by the Company
in its business planning. The Company's quarterly net sales are subject to
seasonal fluctuations, particularly in the fragrance category.
Sales in the Americas increased 11% to $525.4 million from $472.4 million, and
8% to $1,064.6 million from $990.1 million for the three and six months ended
December 31, 1996, respectively, compared with the prior-year periods. This
increase is driven by sales of new products across all categories and sales
growth of existing products particularly in the United States coupled with
higher sales from the Company's Canadian operations. In Europe, the Middle East
& Africa, net sales increased 13% to $266.7 million from $235.7 million, and 11%
to $472.7 million from $425.3 million for the current three and six month
periods ended December 31, 1996, respectively, compared with the same prior-year
periods, primarily because of strong sales performances in the United Kingdom,
Italy, France, Benelux, distributor and travel retail businesses and the
inclusion of sales from the Company's recent joint venture, which was formed for
the purpose of developing and distributing fragrances within Europe. Lower sales
in Germany in the six months ended December 31, 1996, resulting from a
continuing difficult retail environment, partially offset these increases. Net
sales in Asia/Pacific decreased 2% to $149.4 million from $152.7 million, and 1%
to $277.0 million from $278.5 million for the three and six months ended
December 31, 1996, respectively, compared with the same prior-year periods. All
markets reported sales increases except Japan, with strong sales growth in
Taiwan, Korea, Australia and Hong Kong being more than offset by lower Japan
sales principally due to the impact of the strength of the U.S. dollar versus
the yen. In Japan, while units sold increased, on a local currency basis, sales
declined slightly due to selective price reductions on certain products,
competitive pricing on new product introductions and difficult market
conditions. Excluding the impact of currency translation, Asia/Pacific sales
would have grown 3% and 6% over the prior-year three and six month periods,
respectively. The Company strategically staggers its new product launches by
geographic markets, which may account for differences in regional sales growth.
-4-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cost of sales for the three and six months ended December 31, 1996 were 23.1%
and 23.0%, respectively, of net sales compared with 24.4% and 23.8% of net sales
in the prior-year periods. The improvements principally reflect the efficiencies
achieved as a result of the Company's continuing efforts to globalize its
sourcing and manufacturing activities, as well as shifts in product mix.
Total selling, general and administrative expenses increased to 63.5% and 64.5%
of net sales in the current three and six month periods, respectively, compared
with 62.9% and 64.3% of net sales in the prior-year periods. Higher operating
expenses primarily reflect increases in, and timing of, the Company's
advertising and promotional spending due to significant fragrance launches and
rollouts and incremental advertising in selective markets. The increase was
partially offset by lower related party royalty expenses resulting from the
purchase in the prior year of a stockholder's rights to receive certain U.S.
royalty payments.
Operating income rose 16% to $125.9 million from $109.0 million, and 13% to
$227.2 million from $201.9 million for the three and six months ended December
31, 1996, respectively, compared with the same prior-year periods. Operating
margins were 13.4% and 12.5% in the current periods as compared to 12.7% and
11.9% in the corresponding prior-year periods. The increase in operating income
and margins was due to higher net sales coupled with cost of sales efficiencies,
partially offset by higher advertising and promotional spending. Operating
income in the Americas increased 21% to $74.5 million from $61.6 million, and
17% to $143.0 million from $122.6 million for the three and six months ended
December 31, 1996, respectively, compared with the same prior-year periods,
primarily due to the net sales increases in the United States, the inclusion of
a full six months of operating results from Bobbi Brown and improved operating
results in Canada and Latin America. In Europe, the Middle East & Africa,
operating income increased 82% to $35.4 million from $19.4 million and 48% to
$59.3 million from $40.1 million for the three and six months ended December 31,
1996, respectively, primarily because of improved operating results in Germany,
the United Kingdom, France, Benelux and distributor and travel retail
businesses. In Asia/Pacific, operating income decreased 43% to $16.0 million
from $28.0 million and 36% to $24.9 million from $39.2 million for the three and
six months ended December 31, 1996, respectively, compared with the same
prior-year periods due to an unfavorable foreign exchange impact, an increase in
promotional support for new product launches and new Origins doors and a
difficult retail environment in Japan, which were minimally offset by improved
operating results in Australia, Malaysia and Thailand. The Company's quarterly
operating results are subject to seasonal net sales fluctuations in addition to
the level, scope and timing of expenditures related to product introductions.
Net interest income was $0.1 million for the three months ended December 31,
1996 and net interest expense was $1.1 million for the current six-month period
compared with net interest income of $1.1 million and $1.3 million in the same
prior-year periods, primarily because the prior-year periods included net
interest income from stockholders.
The provision for income taxes represents federal, foreign, state and local
income taxes. The effective rate for income taxes in the three and six months
ended December 31, 1996 was 40.1% and 42.0%, respectively, compared with 43.0%
and 45.0% in the prior-year periods. The decrease in the effective tax rate is
due to a relative change in the mix of earnings from higher tax countries such
as Japan to lower tax countries and the reduced relative negative impact of a
stockholder's rights to receive certain U.S. royalty payments by reason of the
Company's purchase of the rights in November 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have historically been, and are
expected to continue to be, cash flow from operations and borrowings under
uncommitted and committed credit lines provided by banks in the United States
and abroad. At December 31, 1996, the Company had cash and cash equivalents of
$288.5 million compared with $254.8 million at June 30, 1996.
Uncommitted lines of credit amounted to $312.1 million at December 31, 1996, of
which $12.4 million were used. Unused committed lines of credit available to the
Company at December 31, 1996 amounted to $400 million. Total debt as a
percentage of total capitalization (including short-term debt) was 6% at
December 31, 1996 and 14% at June 30, 1996. This decrease is due to a lower
level of notes payable resulting from reduced seasonal working capital borrowing
requirements, the repayment of long-term debt and the Company's profitability
during the six months ended December 31, 1996.
-5-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided by operating activities decreased to $154.5 million in the six
months ended December 31, 1996 from $171.5 million in the prior year six-month
period. This decrease is due to higher working capital levels during the current
six-month period as compared to the same prior-year period, principally
attributable to a higher level of activity occurring in the latter part of the
current six-month period in certain working capital components, such as accounts
receivable, inventories and promotional merchandise and accounts payable. Net
cash used for investing activities of $30.7 million and $22.4 million in the six
months ended December 31, 1996 and 1995, respectively, principally reflects
capital expenditures, which primarily include the continued upgrade of
manufacturing and computer equipment, dies and molds, store and counter
construction and renovations. In addition, investment activities in the six
months ended December 31, 1995, reflect cash generated from a decrease in
marketable securities. Financing activities reflect dividends paid and repayment
of debt and, in 1995, cash proceeds received from the issuance of common stock
in the Company's initial public offering.
The Company owns a majority equity interest in M.A.C., and through contractual
agreement, the Company has the right to acquire the remaining interest in M.A.C.
at certain times between 1997 and 1999. The Company anticipates that it will
exercise its right to acquire an additional interest in M.A.C. during the second
half of fiscal 1997.
The Company has developed plans to construct a state-of-the-art warehouse and
distribution center in Lachen, Switzerland, which is being designed to
accommodate the Company's projected future growth. The Company plans on
beginning construction in the current fiscal year and anticipates completion in
approximately one to two years. The cost of the new distribution center is
estimated at approximately $22.0 million at current exchange rates.
Dividend payments were $21.7 million in the six months ended December 31, 1996,
a decrease from $75.6 million in the prior-year period. The decrease reflects
the absence of special dividends discussed below, as well as dividends paid on
the Company's Participating Class I Preferred Stock, which stock ceased to be
outstanding after the Company completed a recapitalization in fiscal 1996 as
described in Note 1 to the consolidated financial statements. Immediately prior
to the recapitalization, Estee Lauder AG Lachen, a subsidiary of the Company,
declared a special cash dividend in the aggregate amount of $20.0 million
payable to the then holders of its SFr 1,000 par value shares. The Company also
declared a special dividend, payable to the then holders of its common stock,
consisting of interests in corporations and partnerships holding certain assets
of the Company, which were unrelated to the Company's core business, and $29.6
million in cash. The aggregate fair value of the assets in such corporations and
partnerships was $19.6 million. The current year dividend payments reflect
dividends of approximately $10.0 million on the Company's Class A and Class B
Common Stock, which dividends on such stock in the prior year were not declared
and paid until the prior year fiscal third quarter. In November 1996, the
Company declared a quarterly dividend on its common stock totaling approximately
$10.0 million which was paid in January 1997.
The Company enters into forward foreign exchange contracts and purchases foreign
currency options to hedge foreign currency transactions for periods consistent
with its identified exposures. The purpose of the hedging activities is to
minimize the effect of foreign exchange rate movements on the Company's costs
and on the cash flows which it receives from its foreign subsidiaries. Almost
all foreign currency contracts are denominated in currencies of major industrial
countries and are with large financial institutions rated as strong investment
grade by a major rating agency. The contracts have varying maturities with none
exceeding 24 months. As hedges, gains and losses on forward contracts are
reflected in operating income along with the corresponding underlying
transactions. Premiums on foreign currency options are amortized over the period
being hedged. Costs associated with entering into such contracts have not been
material to the Company's financial results. As a matter of policy, the Company
does not engage in currency speculation. At December 31, 1996, the Company had
contracts to exchange foreign currencies in the form of purchased currency
options and forward exchange contracts in the amount of $61.5 million and $147.0
million, respectively. Foreign currencies exchanged under these contracts are
principally the Belgian franc, U.K. pound, and Swiss franc.
The Company believes that cash on hand, internally generated cash flow and
available credit lines will be adequate to support currently planned business
operations and capital expenditures both on a near-term and long-term basis.
-6-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EFFECTS OF ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The statement encourages, but does not require, companies to
account for stock compensation awards based on their fair value at the date the
awards are granted. The resulting compensation award would be shown as an
expense on the statement of earnings. Alternatively, the statement allows
companies not to apply the new accounting method and continue to apply existing
accounting standards, which generally result in no compensation cost for most
fixed stock-option plans. Companies that do not elect the new method of
accounting under SFAS No. 123 will be required to provide pro forma disclosures
as if the fair value method had been applied. The Company will adopt the
provisions of SFAS No. 123 in the current fiscal year by providing the required
year end pro forma disclosures.
-7-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1996 1996
---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................... $ 288.5 $ 254.8
Accounts receivable, net................................................................ 604.4 476.2
Inventory and promotional merchandise................................................... 391.4 452.8
Prepaid expenses and other current assets............................................... 158.2 148.8
-------- --------
TOTAL CURRENT ASSETS............................................................... 1,442.5 1,332.6
PROPERTY, PLANT AND EQUIPMENT, NET...................................................... 241.7 229.3
OTHER ASSETS
Investments, at cost or market value.................................................... 25.5 24.7
Deferred taxes.......................................................................... 45.6 43.1
Intangible assets....................................................................... 138.3 146.6
Other assets .......................................................................... 45.7 45.3
-------- --------
255.1 259.7
-------- --------
$1,939.3 $1,821.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term debt.................................. $ 56.1 $ 105.6
Accounts payable........................................................................ 148.4 175.3
Accrued income taxes.................................................................... 100.2 72.9
Other accrued liabilities............................................................... 588.7 511.3
-------- --------
TOTAL CURRENT LIABILITIES.......................................................... 893.4 865.1
NONCURRENT LIABILITIES
Long-term debt.......................................................................... - 21.9
Other noncurrent liabilities............................................................ 200.1 180.4
-------- --------
200.1 202.3
$6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE........................ 360.0 360.0
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 300,000,000 shares Class A authorized, shares
outstanding 60,486,913 at December 31, 1996 and 60,458,235 at June 30, 1996;
120,000,000 shares Class B authorized, shares outstanding 56,839,667................. 1.2 1.2
Paid-in capital......................................................................... 122.6 121.6
Retained earnings....................................................................... 343.2 252.2
Unrealized investment gains, net........................................................ 3.5 2.9
Cumulative translation adjustments...................................................... 15.3 16.3
-------- --------
485.8 394.2
-------- --------
$1,939.3 $1,821.6
======== ========
</TABLE>
See notes to consolidated financial statements.
-8-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
1996 1995
---- ----
(IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................................................................... $ 122.6 $ 104.9
Adjustments to reconcile net earnings to net cash
flows provided by operating activities:
Depreciation and amortization.......................................................... 27.5 22.1
Amortization of purchased royalty rights............................................... 8.9 2.2
Deferred income taxes.................................................................. (10.6) 6.5
Minority interest...................................................................... 8.5 6.9
Employee share grants.................................................................. - 4.3
Changes in operating assets and liabilities:
Increase in accounts receivable, net................................................... (133.5) (56.3)
Decrease (increase) in inventory and promotional merchandise........................... 62.3 (25.2)
Decrease in due from stockholders...................................................... - 103.4
Increase in other assets............................................................... (11.3) (111.8)
Decrease in accounts payable........................................................... (27.1) (8.3)
Increase in accrued income taxes....................................................... 27.3 30.5
Increase in other accrued liabilities.................................................. 68.7 74.7
Increase in other noncurrent liabilities............................................... 11.2 17.6
--------- --------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES...................................... 154.5 171.5
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures....................................................................... (30.7) (37.5)
Decrease in marketable securities.......................................................... - 13.3
Increase in long-term investments.......................................................... (0.3) (1.4)
Decrease in long-term investments.......................................................... 0.3 3.2
--------- --------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES......................................... (30.7) (22.4)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable.................................................................. (49.5) (89.4)
Repayments of long-term debt............................................................... (21.9) (3.2)
Proceeds from issuance of common stock, net of issuance costs.............................. - 63.6
Proceeds from exercise of stock options.................................................... 0.7 -
Dividends paid............................................................................. (21.7) (75.6)
--------- --------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES......................................... (92.4) (104.6)
Effect of Exchange Rate Changes on Cash and Cash Equivalents.................................. 2.3 0.3
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................................... 33.7 44.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................................. 254.8 267.9
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $ 288.5 $ 312.7
========= ========
</TABLE>
See notes to consolidated financial statements.
-9-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of The
Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company").
In November 1995, the Company, its stockholders and certain affiliates
consummated a recapitalization (the "Recapitalization"). As a result of the
Recapitalization, the Company has three classes of stock outstanding (i.e.,
Class A Common Stock, Class B Common Stock and $6.50 Cumulative Redeemable
Preferred Stock), and owns a majority equity interest in Make-Up Art Cosmetics
Limited and a related entity (collectively, "M.A.C."), and all the outstanding
shares of Estee Lauder AG Lachen ("Lachen") and Estee Lauder Realty Corp. ("EL
Realty"), which ownership interests were previously held by certain members of
the Lauder family. The Recapitalization included the following transactions: (i)
the conversion of all the outstanding shares of the Company (other than the
$6.50 Cumulative Redeemable Preferred Stock) into shares of newly created Class
A Common Stock and Class B Common Stock, (ii) the exchange of all outstanding
shares of preferred stock of two subsidiaries of the Company that were not then
owned by the Company for shares of Class A Common Stock and Class B Common
Stock, (iii) the acquisition by the Company of all the shares of Lachen not then
owned by the Company and all of the outstanding shares of EL Realty in exchange
for shares of Class A Common Stock and Class B Common Stock and (iv) the
acquisition by the Company of all the outstanding partnership interests of
Lauder Family Partners, L.P. (which initially acquired the interest in M.A.C.)
in exchange for shares of Class A Common Stock and Class B Common Stock.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations of any interim period are not necessarily indicative of
the results of operations to be expected for the fiscal year. For further
information, refer to the consolidated financial statements and accompanying
footnotes included in the Company's annual report on Form 10-K for the year
ended June 30, 1996.
PRO FORMA NET EARNINGS PER SHARE
Pro forma net earnings per share amounts for the prior year periods are based on
the weighted average common and dilutive common equivalent (e.g., stock options)
shares outstanding during the period. As a result of the Recapitalization and
the issuance of common stock in the Company's initial public offering (the
"Offering"), as described in Note 2, the pro forma weighted average number of
outstanding common shares have been computed assuming the Recapitalization
occurred at the beginning of fiscal 1996 and, includes the amount of shares
issued by the Company in the Offering from the date of issuance plus the effect
of common shares contingently issuable, primarily from stock options, from that
same date.
Pro forma net earnings per share are computed by dividing the pro forma weighted
average common shares outstanding into the earnings applicable to such shares.
The net earnings attributable to common stock reflects recurring preferred stock
dividends on the Company's $6.50 Cumulative Redeemable Preferred Stock as well
as nonrecurring preferred stock dividends associated with several classes of
preferred stock converted or exchanged into common shares in the
Recapitalization. For purposes of computing pro forma net earnings per share,
dividends paid or accrued on the classes of preferred stock which were converted
or exchanged in the Recapitalization are assumed not to have occurred and are
excluded from the computation. Accordingly, earnings per share for the three and
six months ended December 31, 1995, are reflected on a pro forma basis only, as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995
-------------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net earnings..................................................... $ 58.5 $ 104.9
Pro forma preferred stock dividends.............................. 5.8 11.7
------- --------
Pro forma net earnings attributable to common stock.............. $ 52.7 $ 93.2
======= ========
Pro forma net earnings per common share.......................... $ .45 $ .81
Pro forma weighted average common shares outstanding............. 116.2 115.4
</TABLE>
-10-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORY AND PROMOTIONAL MERCHANDISE
Inventory and promotional merchandise include only items saleable or usable in
future periods and are stated at the lower of first-in, first-out cost or
market. Promotional merchandise is charged to expense at the time the
merchandise is shipped to the Company's customers.
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1996 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Inventory and promotional merchandise consists of:
Raw materials......................................... $ 110.1 $ 105.6
Work in process....................................... 21.6 30.2
Finished goods........................................ 157.4 203.1
Promotional merchandise............................... 102.3 113.9
-------- -------
$ 391.4 $ 452.8
======== =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. For financial statement
purposes, depreciation is provided principally on the straight-line method over
the estimated useful lives of the assets ranging from 3 to 40 years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lives of the respective leases or the expected useful lives.
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1996 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Land.................................................... $ 12.0 $ 11.8
Buildings and improvements.............................. 87.3 82.6
Machinery and equipment................................. 340.7 319.3
Furniture and fixtures.................................. 43.8 42.2
Leasehold improvements.................................. 81.2 73.7
-------- -------
565.0 529.6
Less accumulated depreciation and amortization.......... 323.3 300.3
-------- -------
$ 241.7 $ 229.3
======== =======
</TABLE>
STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31
1996 1995
---- ----
(IN MILLIONS)
<S> <C> <C>
Cash paid during the period for:
Interest ............................................. $ 4.2 $ 6.7
Income taxes.......................................... $ 69.6 $ 48.2
</TABLE>
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, revenues and expenses reported in
those financial statements. Actual results could differ from those based upon
such estimates and assumptions.
-11-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- INITIAL PUBLIC OFFERING
In November 1995, the Company completed an initial public offering of 17,606,252
shares of Class A Common Stock at an initial offering price of $26.00 per share.
Prior to the Offering, there was no public market for the Company's capital
stock.
Of the 17,606,252 shares of Class A Common Stock offered, 2,731,252 shares were
issued and sold by the Company and 14,875,000 shares were sold by members of the
Lauder family. The Company did not receive any of the proceeds from the sales of
the shares sold by the Lauder family members. The net proceeds to the Company
from the Offering, after deducting applicable underwriting discounts and
offering expenses, were $59.3 million. The net proceeds to the Company were used
to repay short-term debt.
NOTE 3 -- ACQUISITION OF BUSINESS
In October 1995, the Company acquired a 100% interest in Bobbi Brown essentials,
a line of professional color makeup and skin care products. The Company acquired
the interest by issuing short-term notes, which matured in January 1996.
Additional contingent earn-out payments will be made in later periods. The
acquisition has been accounted for as a purchase and the financial statements
include the results of its operations from the date of acquisition.
The Company owns a majority equity interest in M.A.C., and through contractual
agreement, the Company has the right to acquire the remaining interest in M.A.C.
at certain times between 1997 and 1999. The Company anticipates that it will
exercise its right to acquire an additional interest in M.A.C. during the second
half of fiscal 1997.
-12-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in various routine legal proceedings incident to the
ordinary course of its business. The Company believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of the Stockholders of the Company was held on November
6, 1996.
(b) The following directors were elected at the Annual Meeting of Stockholders:
Fred H. Langhammer and Faye Wattleton, as Class I Directors for a term
expiring at the 1997 Annual Meeting; William P. Lauder and P. Roy Vagelos,
M.D., as Class II Directors for a term expiring at the 1998 Annual Meeting;
and Leonard A. Lauder, Ronald S. Lauder and Marshall Rose, as Class III
Directors for a term expiring at the 1999 Annual Meeting.
(c) (i)Each person elected as a director received the number of votes indicated
beside his or her name:
<TABLE>
<CAPTION>
Name (Director Class) Votes For Votes Withheld
--------------------- --------- --------------
<S> <C> <C>
Fred H. Langhammer (I) 625,584,834 96,312
Faye Wattleton (I) 625,581,065 100,081
William P. Lauder (II) 625,586,356 94,790
P. Roy Vagelos, M.D. (II) 625,586,184 94,962
Leonard A. Lauder (III) 625,587,267 93,879
Ronald S. Lauder (III) 625,581,645 99,501
Marshall Rose (III) 625,587,539 93,607
</TABLE>
(ii) 625,652,570 votes were cast for and 12,205 votes were cast against the
ratification of the selection of Arthur Andersen LLP as auditors for
the Company. Abstentions totaled 16,371; there were no broker
nonvotes.
ITEM 5. OTHER EVENTS.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward looking statements
of the Company made by, or on behalf of, the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits--
10.1 Form of Deferred Compensation Agreement with Outside Directors.
10.2 Amendment No. 2 to Stockholders' Agreement.
27.1 Financial Data Schedule.
99.1 Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995.
(b) Reports on Form 8-K -- There were no reports on Form 8-K for the three
months ended December 31, 1996.
-13-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ESTEE LAUDER COMPANIES INC.
Date: January 27, 1997 By:/s/ Robert J. Bigler
-----------------------
Robert J. Bigler
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-14-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 Form of Deferred Compensation Agreement with Outside Directors.
10.2 Amendment No. 2 to Stockholders' Agreement.
27.1 Financial Data Schedule.
99.1 Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995.
-15-
EXHIBIT 10.1
[Form of Deferred Compensation Agreement with Outside Directors]
[Date]
[Name]
[Address]
Dear [Name]:
You have indicated your election to defer receipt of certain amounts which will
otherwise become payable to you by The Estee Lauder Companies Inc. (the
"Company") during calendar [insert year], in connection with your service on the
Board of Directors of the Company and certain Committees of that Board. This
letter sets forth the terms of the deferral facility.
1. This agreement shall cover all amounts otherwise payable to you in cash by
the Company in connection with your service during calendar [year] as a member
of the Board of Directors of the Company, and meeting and chairmanship fees
otherwise payable in connection with your service on certain Committees of that
Board during such year (the "Deferred Payments"). Deferred Payments shall not
include the in-kind grant of share certificates equal in value to $10,000
payable as part of the retainer fee during 1997, nor reimbursement for expenses
incurred in connection with your Company activities.
2. The Company shall establish a Deferred Payment Account in your name, and
shall credit to such Account the amount of $10,000 as of February 15, May 15 and
August 15, 1997. [Additionally, the Company shall credit to the Deferred Payment
Account [the amount of $3,000 as of February 15, [year] representing your annual
fee as Chairman of the [name of] Committee, and] additional amounts of $1,000 as
of the date of each meeting of the [insert name(s) of committees on which the
director serves] during the calendar year].
3 (a). Amounts accrued from time to time in the Deferred Payment Account shall
additionally be credited with interest, compounded annually, as of December 31,
[first year of participation] and each December 31 thereafter until all Deferred
Payments and accrued interest credited to the Deferred Payment Account shall
have been paid in accordance with the terms of this letter agreement.
Appropriate pro-ration shall be made for part year interest credits.
(b). The rate of interest credited from time to time pursuant to this paragraph
3 shall be the Citibank base rate in effect as of the date of such credit.
4. Subject to the terms of paragraph 5, below, the amounts credited to the
Deferred Payment Account shall be paid in a lump sum, as of the earlier to occur
of the first January 1st after the last date of your service as a member of the
Board of Directors of the Company, or January 1, [year].
5. In the event of your death prior to the payment to you of all amounts then
credited to the Deferred Payment Account, amounts then unpaid, including
interest as set out at paragraph 3, above, from the preceding December 31 to the
date of payment, shall be paid to your executor or administrator within ninety
days of the date of your death.
6. Nothing in this letter agreement shall be deemed to create a trust or
segregated asset account of any nature, and no money or other thing of value
shall be separately held by the Company in connection with its obligation to
make Deferred Payments hereunder. The attempt by any person to anticipate,
hypothecate or otherwise receive value in respect of such obligation prior to
the date scheduled for the payment of Deferred Payments under the terms of this
letter agreement shall be null and void and of no force or effect.
<PAGE>
Please indicate your acknowledgment of and agreement to all of the foregoing by
signing the enclosed copy of this letter and returning it to the undersigned
prior to December 31, [insert year prior to year deferrals are to be made].
Very truly yours,
THE ESTEE LAUDER COMPANIES INC.
by:_____________________________
[Name]
[Title]
ACKNOWLEDGED AND AGREED TO:
- -------------------------------
[Name]
date:____________________________
EXHIBIT 10.2
AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT
AMENDMENT NO. 2 (this "Amendment"), effective as of
December 10, 1996, to that certain STOCKHOLDERS' AGREEMENT (the
"Stockholders' Agreement"), dated November 22, 1995, as amended by
that First Amendment, effective September 11, 1996, by and among
Leonard A. Lauder ("LAL"), Ronald S. Lauder ("RSL"), William P. Lauder
("WPL"), Gary M. Lauder ("GML"), Aerin Lauder ("AL"), Jane Lauder
("JL"), LAL Family Partners L.P., Lauder & Sons L.P., a Delaware
limited partnership, and the trustees of the various trusts set forth
on the signature pages hereof (hereinafter referred to, together with
each other Family Member (as defined in the Stockholders' Agreement)
that hereafter acquires Shares (as defined in the Stockholders'
Agreement), as the "Stockholders"), and THE ESTEE LAUDER COMPANIES
INC., a corporation organized under the laws of the State of Delaware
(the "Corporation"). Capitalized terms defined in the Stockholders'
Agreement and not otherwise defined herein being used herein as
therein defined.
W I T N E S S E T H :
--------------------
WHEREAS, the Stockholders and the Corporation desire to
amend the Stockholders' Agreement to provide for certain intra-family
Transfers of shares of the Company's Class A Common Stock, par value
$.01 per share, without regard to the limitations imposed by the
Stockholders' Agreement.
NOW THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the parties hereto agree as
follows:
Article 1. Amendment. The Stockholders' Agreement is
---------
hereby amended by adding the following provision after the period at
the end of Article 2.2:
"Notwithstanding the foregoing, any Stockholder
may Transfer (i) up to 300,000 shares of Class A
Common Stock in any twelve (12) month period to
The Lauder Foundation and (ii) up to 300,000
shares of Class A Common Stock in any twelve (12)
month period to Mrs. Estee Lauder, in either case,
without regard to the limitations set forth in
this Article 2.2."
Article 2. Miscellaneous. (a) Upon the effectiveness of
-------------
this Amendment, each reference in the Stockholders' Agreement to "this
agreement," "hereunder," "hereof," "herein," or words of like import,
shall mean and be a reference to the Stockholders' Agreement as
amended hereby.
<PAGE>
(b) This Amendment will be binding upon and inure to the
benefit of the Corporation, its successors and assigns and to the
Stockholders and their respective heirs, personal representatives,
successors and assigns.
(c) This Amendment may not be changed orally, but only by
an agreement in writing as signed by the party against whom
enforcement of any waiver, change, modification or discharge is
sought.
(d) With respect to obligations of trustees who are parties
hereto in their capacity as trustees of one or more trusts, this
Amendment shall be binding upon such trustees only in their capacities
as trustees, not individually and not with respect to any Shares other
than Shares held by them in their capacity as trustees of such trusts.
(e) This Amendment shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York,
without giving effect to the provisions, policies or principles
thereof respecting conflict or choice of laws.
(f) This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one instrument. Each counterpart
may consist of a number of copies each signed by less than all, but
together signed by all, the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this Amendment as of the date first above written.
THE ESTEE LAUDER COMPANIES INC.
By:/s/ LEONARD A. LAUDER
-------------------------------------------
Name: Leonard A. Lauder
Title: Chairman and Chief Executive
Officer
/s/ LEONARD A. LAUDER
---------------------------------------------
Leonard A. Lauder, (a) individually, (b) as
Managing Partner of LAL Family Partners L.P.,
(c) as Trustee of The Estee Lauder 1994
Trust, (d) as a Class B General Partner of
Lauder & Sons L.P. and (e) as Trustee of The
1995 Estee Lauder LAL Trust (a Class B
General Partner of Lauder & Sons L.P.)
/s/ RONALD S. LAUDER
---------------------------------------------
Ronald S. Lauder, (a) individually, (b) as
Trustee of The Descendents of RSL 1966 Trust,
(c) as Trustee of The Estee Lauder 1994
Trust, (d) as a Class B General Partner of
Lauder & Sons L.P. and (e) as Trustee of The
1995 Estee Lauder RSL Trust (a Class B
General Partner of Lauder & Sons L.P.)
<PAGE>
/s/ WILLIAM P. LAUDER
---------------------------------------------
William P. Lauder, (a) individually and (b)
as Trustee of the 1992 Leonard A. Lauder
Grantor Retained Annuity Trust
/s/ GARY M. LAUDER
---------------------------------------------
Gary M. Lauder, (a) individually and (b) as
Trustee of the 1992 Leonard A. Lauder Grantor
Retained Annuity Trust
/s/ AERIN LAUDER
---------------------------------------------
Aerin Lauder
/s/ JANE LAUDER
---------------------------------------------
Jane Lauder
/s/ JOEL S. EHRENKRANTZ
---------------------------------------------
Joel S. Ehrenkranz, (a) as Trustee of the
1992 Leonard A. Lauder Grantor Retained
Annuity Trust, (b) as Trustee of the Trust
f/b/o Gary M. Lauder and William P. Lauder
u/a/d December 15, 1976, created by Leonard
Lauder, as Grantor and (c) as Trustee of The
1995 Estee Lauder LAL Trust (a Class B
General Partner of Lauder & Sons L.P.)
/s/ CAROL S. BOULANGER
---------------------------------------------
Carol S. Boulanger, as Trustee of the Trust
f/b/o Gary M. Lauder and William P. Lauder
u/a/d December 15, 1976, created by Leonard
Lauder, as Grantor
<PAGE>
/s/ RICHARD D. PARSONS
---------------------------------------------
Richard D. Parsons, (a) as Trustee of the
Trust f/b/o Aerin Lauder and Jane Lauder
u/a/d December 15, 1976, created by Estee
Lauder and Joseph H. Lauder, as Grantors, (b)
as Trustee of the Trust f/b/o Aerin Lauder
and Jane Lauder u/a/d December 15, 1976,
created by Ronald S. Lauder, as Grantor and
(c) as Trustee of The 1995 Estee Lauder RSL
Trust (a Class B General Partner of Lauder &
Sons L.P.)
/s/ IRA T. WENDER
---------------------------------------------
Ira T. Wender, (a) as Trustee of The Estee
Lauder 1994 Trust, (b) as Trustee of The 1995
Estee Lauder LAL Trust (a Class B General
Partner of Lauder & Sons L.P.) and (c) as
Trustee of The 1995 Estee Lauder RSL Trust (a
Class B General Partner of Lauder & Sons
L.P.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ESTEE
LAUDER COMPANIES INC. FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 288,500,000
<SECURITIES> 0
<RECEIVABLES> 604,400,000
<ALLOWANCES> 0
<INVENTORY> 391,400,000
<CURRENT-ASSETS> 1,442,500,000
<PP&E> 565,000,000
<DEPRECIATION> 323,300,000
<TOTAL-ASSETS> 1,939,300,000
<CURRENT-LIABILITIES> 893,400,000
<BONDS> 0
360,000,000
0
<COMMON> 1,200,000
<OTHER-SE> 484,600,000
<TOTAL-LIABILITY-AND-EQUITY> 1,939,300,000
<SALES> 1,814,300,000
<TOTAL-REVENUES> 1,814,300,000
<CGS> 417,400,000
<TOTAL-COSTS> 417,400,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,100,000
<INCOME-PRETAX> 226,100,000<F1>
<INCOME-TAX> 95,000,000
<INCOME-CONTINUING> 122,600,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,600,000
<EPS-PRIMARY> .93
<EPS-DILUTED> 0
<FN>
<F1>
Income before taxes and minority interest of $8,500,000.
</FN>
</TABLE>
EXHIBIT 99.1
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Estee Lauder Companies Inc. (the "Company") is filing this Exhibit to its
Quarterly Report on Form 10-Q in order to take advantage of the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's results and could cause the Company's consolidated financial results
for the fiscal periods ending on or after March 31, 1997 to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company:
COMPETITION
The skin care, makeup and fragrance businesses are characterized by vigorous
competition throughout the world. The Company competes in these businesses
against a number of companies, some of which have substantially greater
resources than the Company and many of which sell their products through broader
distribution channels than the Company.
CHANGES IN THE RETAIL INDUSTRY
The retail industry has periodically experienced consolidation and other
ownership changes. Major retailers in the United States and in foreign markets
may in the future consolidate, undergo restructurings or realign their
affiliations which could decrease the number of stores that sell the Company's
products or increase the ownership concentration within the retail industry.
FOREIGN OPERATIONS
The Company has wholly-owned operations based in approximately 30 foreign
countries and sells its products in over 100 countries and territories. Risks
inherent in foreign operations include changes in social, political and economic
conditions. The Company is also exposed to risks associated with changes in the
laws and policies that govern foreign investment in countries where it has
operations as well as, to a lesser extent, changes in United States laws and
regulations relating to foreign trade and investment.
FOREIGN CURRENCY FLUCTUATIONS
The Company's results of operations and the value of its foreign assets are
affected by fluctuations in foreign currency exchange rates. Changes in currency
exchange rates may affect the relative prices at which the Company and foreign
competitors sell their products in the same market. Similarly, the cost of
certain items required in the Company's operations may be affected by changes in
the value of the relevant currencies.
CONSOLIDATED MANUFACTURING OPERATIONS
The Company manufactures its products at facilities in various locations. To
achieve operational efficiencies, the Company is in the process of converting
selected manufacturing facilities into "focus" plants. Each focus plant will be
responsible for, among other things, the manufacture of nearly all of the
Company's supply of a particular type of product (e.g., powders) for all the
Company's principal brands. In the event of a significant disruption in
production at any such plant, the Company believes that its existing finished
product inventories, together with the shifting of production to its other
manufacturing facilities or third-party manufacturers, would permit it to
maintain nearly the same levels of output. Nevertheless, such disruption and
redirection could result in shipment delays, depletion of inventory and
increased production costs that could have a material effect on the Company's
results of operations and financial condition.
