================================================================================
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 MARCH 31, 1997
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 April 28, 1997, 61,336,663 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
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Statements of Earnings --
Three Months and Nine Months Ended March 31, 1997 and 1996......... 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 3
Consolidated Balance Sheets --
March 31, 1997 and June 30, 1996................................... 8
Consolidated Statements of Cash Flows --
Nine Months Ended March 31, 1997 and 1996.......................... 9
Notes to Consolidated Financial Statements.............................. 10
PART II. OTHER INFORMATION................................................ 13
1
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET SALES........................................................ $791.4 $763.9 $2,605.7 $2,457.8
Cost of sales.................................................... 167.3 163.4 584.7 567.1
------- ------- --------- --------
GROSS PROFIT..................................................... 624.1 600.5 2,021.0 1,890.7
Selling, general and administrative expenses:
Selling, general and administrative........................... 547.5 535.4 1,700.2 1,602.4
Related party royalties....................................... 7.7 6.8 24.7 28.1
------- ------- ------- --------
555.2 542.2 1,724.9 1,630.5
------- ------- ------- --------
OPERATING INCOME................................................. 68.9 58.3 296.1 260.2
Interest income, net:
Interest income (expense), net................................ 2.3 0.4 1.2 (1.0)
Interest income from stockholders, net........................ - - - 2.7
------ ------ ------ --------
2.3 0.4 1.2 1.7
------- ------- ------- --------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST............... 71.2 58.7 297.3 261.9
Provision for income taxes....................................... 29.9 26.4 124.9 117.8
Minority interest................................................ (3.0) (4.1) (11.5) (11.0)
------- ------- ------- --------
NET EARNINGS..................................................... 38.3 28.2 160.9 133.1
Preferred stock dividends........................................ 5.9 5.9 17.6 51.7
------- ------- ------- --------
NET EARNINGS ATTRIBUTABLE TO COMMON STOCK (Note 1)............... $ 32.4 $ 22.3 $ 143.3 $ 81.4
======= ======= ======= ========
Net earnings per common share (Note 1)........................... $ .27 $ .19 $ 1.20 n/a
Weighted average common shares outstanding....................... 119.4 118.2 119.0 n/a
Cash dividends declared per common share......................... $ .085 $ .085 $ .255 $ .085
</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 nine months ended
March 31, 1997 and 1996 and reflects the basis of presentation described in Note
1 to the consolidated financial statements for all periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
NET SALES
BY REGION:
The Americas:
United States........................................... $439.6 $409.6 $ 1,433.4 $1,340.9
Other Americas.......................................... 25.4 29.4 96.2 88.2
------- ------- --------- -------
Total Americas........................................ 465.0 439.0 1,529.6 1,429.1
Europe, the Middle East & Africa........................... 207.6 204.4 680.3 629.7
Asia/Pacific............................................... 118.8 120.5 395.8 399.0
------- ------- --------- --------
$791.4 $763.9 $2,605.7 $2,457.8
====== ====== ======== ========
BY PRODUCT CATEGORY:
Skin Care.................................................. $328.2 $338.0 $ 978.4 $ 972.5
Makeup..................................................... 324.9 300.3 961.9 863.3
Fragrance.................................................. 138.3 125.6 665.4 622.0
------- ------- --------- --------
$791.4 $763.9 $ 2,605.7 $2,457.8
====== ====== ========= ========
OPERATING INCOME
The Americas:
United States.............................................. $ 24.8 $ 25.5 $ 145.3 $ 137.5
Other Americas............................................. 5.9 6.0 28.4 16.6
------- ------- --------- --------
Total Americas.......................................... 30.7 31.5 173.7 154.1
Europe, the Middle East & Africa.............................. 29.6 20.2 88.9 60.3
Asia/Pacific.................................................. 8.6 6.6 33.5 45.8
------- ------- --------- --------
$ 68.9 $ 58.3 $ 296.1 $ 260.2
======= ======= ========= ========
</TABLE>
The following table sets forth certain consolidated statements of earnings data
as a percentage of net sales for the three and nine months ended March 31, 1997
and 1996, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
---------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................................... 21.1 21.4 22.4 23.1
------ ------- ----- -----
Gross profit..................................................... 78.9 78.6 77.6 76.9
Selling, general and administrative expenses:
Selling, general and administrative........................... 69.2 70.1 65.2 65.2
Related party royalties....................................... 1.0 0.9 1.0 1.1
------ ------ ----- -----
70.2 71.0 66.2 66.3
------ ------ ----- -----
Operating income................................................. 8.7 7.6 11.4 10.6
Interest income, net............................................. 0.3 0.1 - 0.1
------ ------ ---- -----
Earnings before income taxes and minority interest............... 9.0 7.7 11.4 10.7
Provision for income taxes....................................... 3.8 3.5 4.8 4.8
Minority interest................................................ (0.4) (0.5) (0.4) (0.5)
------ ------ ----- -----
Net earnings ................................................... 4.8% 3.7% 6.2% 5.4%
====== ====== ===== =====
</TABLE>
3
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales increased by $27.5 million and $147.9 million, or 4% and 6%, for the
three and nine months ended March 31, 1997, respectively, as compared to the
prior year. The increase in net sales is due to the strength of new makeup and
skin care product launches, the global rollout of recent women's and men's
fragrance introductions, the introduction of Fruition Extra and the continued
solid performance of existing core products. The continuing strength of the U.S.
dollar negatively impacted net sales for the current three and nine month
periods by approximately $24 million and $63 million, respectively. During the
three months ended March 31, 1997, the strengthening of the U.S. dollar against
most European currencies was particularly pronounced. Excluding the impact of
foreign currency translation, net sales would have increased 7% and 9% during
the three and nine months ended March 31, 1997, respectively. This movement of
the U.S. dollar continues to negatively affect the operating results of each of
the Company's regions and product categories, as compared to the prior year. Net
sales for the current year include nine months of sales of Bobbi Brown
essentials, in which a 100% interest was acquired in late October 1995.
Net sales of skin care products decreased by $9.8 million or 3%, and increased
$5.9 million or 1%, for the three and nine months ended March 31, 1997,
respectively, as compared to the prior year. The continuing strength of the U.S.
dollar versus the Japanese yen and the European currencies, affects skin care
sales to a greater extent than makeup or fragrance sales, since skin care sales
in the Japanese and European markets represent a larger portion of total sales
than in the other markets. Excluding the impact of foreign currency translation,
skin care net sales for the three months ended March 31, 1997, would have been
favorable by 1%. The increase in skin care net sales for the nine months ended
March 31, 1997, was due in part to the introduction of Moisture On-Line,
Nutritious Bio-Protein Moisture Complex, All About Lips, LipZone, Fruition Extra
and Advanced Sun Care Products, the continued growth of existing products such
as Dramatically Different Moisturizing Lotion and Daywear Super Anti-Oxidant
Complex and the introduction during the current quarter of Firm Believer. Lower
sales of ThighZone Body Streamlining Complex partially offset the sales
increase. Net sales of makeup products increased by $24.6 million and $98.6
million, or 8% and 11%, for the three and nine months ended March 31, 1997,
respectively, as compared to the prior year. Higher makeup product sales were
due to the launch during the quarter ended March 31, 1997 of Stay The Day
Eyeshadow and DoubleWear Stay-In-Place Makeup and current year launches of City
Base Compact Foundation, Long Last Soft Shine Lipstick, Virtual Skin, Futurist
Age-Resisting Makeup, Ultra Mascara and Indelible Lipstick. The current three
and nine month periods also benefited from increased contributions from existing
M.A.C. and Bobbi Brown products and other products such as True Lipstick and
Enlighten Skin-Enhancing Makeup. Net sales of fragrance products increased by
$12.7 million and $43.4 million, or 10% and 7%, for the three and nine months
ended March 31, 1997, respectively, as compared to the prior year. Higher sales
in fragrance products were primarily due to strong sales results from the
ongoing worldwide success of "tommy," the United States rollout of "tommy girl,"
the international debut of White Linen Breeze and the European introduction of
Kiton. Comparison with the prior-year quarter is difficult given the highly
successful international launch of Estee Lauder pleasures during that period.
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.
Net sales in the Americas increased by $26.0 million and $100.5 million, or 6%
and 7%, for the three and nine months ended March 31, 1997, respectively, as
compared to the prior year. This increase is driven by the sales of new products
across all categories and the sales growth of existing products, particularly
"tommy" and "tommy girl" and solid performances from M.A.C. and Bobbi Brown in
the United States; however, core brand sales were impacted by a generally
lackluster retail environment as well as lower Canadian net sales for the
quarter ended March 31, 1997. In Europe, the Middle East & Africa, net sales
increased by $3.2 million and $50.6 million, or 2% and 8%, for the three and
nine months ended March 31, 1997, as compared to the prior year. Excluding the
impact of foreign currency translation, Europe, the Middle East & Africa net
sales would have increased 9% and 12% for the three and nine month prior-year
periods, respectively. Higher net sales were achieved in the United Kingdom,
South Africa and Italy for the three months ended March 31, 1997 in addition to
impressive sales increases for Benelux, Nordic, the distributor and travel
retail businesses and the inclusion of sales from the Company's fragrance joint
venture in the nine months ended March 31, 1997. Lower sales in Germany and
France resulting from continuing difficult retail environments for the three and
nine months ended March 31, 1997, partially offset these increases. Net sales in
Asia/Pacific decreased by $1.7 million and $3.2 million, or 1% for the three and
nine months ended March 31, 1997, respectively, as compared to the prior year.
Excluding the impact of foreign currency translation, Asia/Pacific sales would
have increased 7% and 6% for the three and nine month prior-year periods,
respectively. All markets except Hong Kong reported sales increases for the
three months ended March 31, 1997, with strong sales growth in Korea, Thailand,
Singapore, Taiwan and Australia. The region's growth was more than offset by the
translation impact of the strength of the U.S. dollar versus the yen on Japanese
sales. For the nine months ended March 31, 1997, modest
4
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increases in Japanese local currency sales, along with double digit sales growth
in most countries were more than offset by the translation impact of the
strength of the U.S. dollar versus the yen. The Company strategically staggers
its new product launches by geographic markets, which may account for
differences in regional sales growth.
Cost of sales were 21.1% and 22.4% of net sales for the three and nine months
ended March 31, 1997, respectively, as compared with 21.4% and 23.1% 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.
Total selling, general and administrative expenses decreased to 70.2% and 66.2%
of net sales for the current three and nine month periods, respectively,
compared with 71.0% and 66.3% of net sales in the prior-year periods. Lower
operating expenses as a percent of net sales for the three months ended March
31, 1997, primarily reflect the timing of the Company's advertising and
promotional spending. For the nine months ended March 31, 1997, operating
expenses as a percent of net sales was comparable with the same prior-year
period.
Operating income increased by $10.6 million and $35.9 million, or 18% and 14%,
for the three and nine months ended March 31, 1997, respectively, as compared
with the prior year. Operating margins were 8.7% and 11.4% in the current
periods as compared to 7.6% and 10.6% in the corresponding prior-year periods.
The increase in operating income and margins was due to higher net sales coupled
with lower cost of sales and operating expenses. Operating income in the
Americas decreased 3% to $30.7 million from $31.5 million for the three months
ended March 31, 1997, compared with the same prior-year period, as higher sales
in the United States were offset by the timing and level of U.S. advertising and
promotional expenditures to support the increased sales levels of "tommy" and
"tommy girl" and to provide funds to stimulate the core brands. For the nine
months ended March 31, 1997, improved operating results in the United States,
Canada and Latin America and the inclusion of a full nine months of operating
results from Bobbi Brown increased the operating income in the Americas by $19.6
million, or 13%. In Europe, the Middle East & Africa, operating income increased
by $9.4 million and $28.6 million, or 47%, for the three and nine months ended
March 31, 1997, respectively, as compared to the prior year. Higher operating
results in Italy, the United Kingdom, France, Eastern Europe and the distributor
and travel retail businesses were primarily responsible for the increase for the
three months ended March 31, 1997. Higher sales in the United Kingdom, Italy,
Benelux, Nordic, Eastern Europe, and the distributor and travel retail
businesses and improved operating efficiencies in Germany and France were
responsible for the operating income increase for the nine months ended March
31, 1997. In Asia/Pacific, operating income increased 30% to $8.6 million for
the three months ended March 31, 1997, compared to the same prior-year period,
on the strength of higher operating results in Korea, Singapore, New Zealand,
Malaysia and Thailand. While Japan's operating income was slightly favorable in
the current quarter due to the timing of advertising and promotional spending,
for the nine months ended March 31, 1997 the continued difficult retail
environment, incremental promotional spending and an unfavorable foreign
exchange impact, more than offset higher operating results primarily in
Singapore, New Zealand, Malaysia, Korea, Thailand and Australia. 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
promotions or introductions.
Net interest income increased $1.9 million to $2.3 million and decreased $0.5
million to $1.2 million for the three and nine months ended March 31, 1997,
respectively, as compared with the prior year. The increase for the current
quarter over the prior year relates to lower borrowing levels and increased
investment income. Lower net interest income year to date as compared to the
prior year is primarily attributable to decreased interest expense associated
with lower borrowing levels which was offset by the inclusion of net interest
income from stockholders in the prior year.
The provision for income taxes represents federal, foreign, state and local
income taxes. The effective rate for income taxes for the three and nine months
ended March 31, 1997 was 42.0% as compared with 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.
5
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 overseas. At March 31, 1997, the Company had cash and cash equivalents of
$265.2 million compared with $254.8 million at June 30, 1996.
Uncommitted lines of credit amounted to $475.1 million at March 31, 1997, of
which $11.6 million were used. Unused committed lines of credit available to the
Company at March 31, 1997 amounted to $408.0 million. Total debt as a percentage
of total capitalization (including short-term debt) was 6% at March 31, 1997 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 nine
months ended March 31, 1997.
Net cash provided by operating activities increased to $199.4 million for the
nine months ended March 31, 1997 from $158.5 million in the prior year
nine-month period. This increase primarily reflects the Company's increased
profitability and lower inventory and promotional merchandise levels during the
current year, which was partially offset by the repayment of a stockholder loan
receivable in the prior year. Net cash used for investing activities of $106.1
million and $59.5 million in the nine months ended March 31, 1997 and 1996,
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, and in 1997, the acquisition of
an additional interest in M.A.C. In addition, investment activities for the nine
months ended March 31, 1996, reflect cash generated from a decrease in
marketable securities and the cash portion of the acquisition for a 100%
interest in Bobbi Brown. Financing activities reflect dividends paid and
repayment of debt and, in 1997 and 1996, cash proceeds received from the
issuance of common stock in the Company's secondary and initial public
offerings, respectively.
The Company holds a majority equity interest in M.A.C and at the end of March
1997, the Company acquired an additional interest in M.A.C. The Company has the
right to acquire the remaining interest in M.A.C. at certain times between 1998
and 1999.
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 has begun
construction and to date has spent approximately $6.0 million. The cost of the
new distribution center is estimated at approximately $19.0 million at current
exchange rates, with completion anticipated in approximately 12 to 18 months.
Dividend payments were $47.5 million for the nine months ended March 31, 1997, a
decrease from $91.5 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 $30.0 million on the Company's Class A and Class B
Common Stock. Dividends declared and paid on the Company's Class A and Class B
Common Stock for the nine months ended March 31, 1996 were approximately $10.0
million.
6
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 1997, the Company had
contracts to exchange foreign currencies in the form of purchased currency
options and forward exchange contracts in the amount of $145.1 million and
$276.2 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.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
statement establishes standards for computing and presenting earnings per share
("EPS"), replacing the presentation of currently required Primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of earnings. Under this new standard, Basic EPS is
computed based on weighted average common shares outstanding and contingently
issuable shares (which satisfy certain conditions) and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock, or from other contracts to issue
common stock, and is similar to the currently required Fully Diluted EPS. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued 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 for the continued use of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," which generally
results in no compensation cost for most fixed stock-option plans, with pro
forma disclosure of net income and earnings per share determined as if the fair
value based method had been applied in measuring compensation cost. The Company
shall continue to apply APB Opinion No. 25 and 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>
MARCH 31 JUNE 30
1997 1996
---- ----
(UNAUDITED)
(IN MILLIONS)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................................... $ 265.2 $ 254.8
Accounts receivable, net................................................................ 571.4 476.2
Inventory and promotional merchandise................................................... 358.4 452.8
Prepaid expenses and other current assets............................................... 161.2 148.8
-------- --------
TOTAL CURRENT ASSETS............................................................... 1,356.2 1,332.6
PROPERTY, PLANT AND EQUIPMENT, NET...................................................... 249.7 229.3
OTHER ASSETS
Investments, at cost or market value.................................................... 23.8 24.7
Deferred taxes.......................................................................... 46.8 43.1
Intangible assets....................................................................... 179.8 146.6
Other assets .......................................................................... 47.6 45.3
-------- --------
298.0 259.7
-------- --------
$1,903.9 $1,821.6
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Notes payable and current maturities of long-term debt.................................. $ 53.8 $ 105.6
Accounts payable........................................................................ 133.5 175.3
Accrued income taxes.................................................................... 86.6 72.9
Other accrued liabilities............................................................... 546.3 511.3
-------- --------
TOTAL CURRENT LIABILITIES.......................................................... 820.2 865.1
NONCURRENT LIABILITIES
Long-term debt.......................................................................... - 21.9
Other noncurrent liabilities............................................................ 192.9 180.4
-------- --------
192.9 202.3
$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 61,336,663 at March 31, 1997 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......................................................................... 160.7 121.6
Retained earnings....................................................................... 378.4 252.2
Unrealized investment gains, net........................................................ 2.0 2.9
Cumulative translation adjustments...................................................... (11.5) 16.3
-------- --------
530.8 394.2
-------- --------
$1,903.9 $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>
NINE MONTHS ENDED
MARCH 31
--------------------------
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................................................................... $ 160.9 $ 133.1
Adjustments to reconcile net earnings to net cash
flows provided by operating activities:
Depreciation and amortization.......................................................... 42.3 35.3
Amortization of purchased royalty rights............................................... 13.3 6.6
Deferred income taxes.................................................................. (14.3) 8.5
Minority interest...................................................................... 11.5 11.0
Employee share grants.................................................................. - 4.3
Changes in operating assets and liabilities:
Increase in accounts receivable, net................................................... (117.4) (102.3)
Decrease (increase) in inventory and promotional merchandise........................... 84.9 (19.8)
Decrease in due from stockholders...................................................... - 103.4
Increase in other assets............................................................... (23.0) (103.6)
Decrease in accounts payable........................................................... (37.2) (13.9)
Increase in accrued income taxes....................................................... 15.1 5.1
Increase in other accrued liabilities.................................................. 46.7 77.9
Increase in other noncurrent liabilities............................................... 16.6 12.9
--------- --------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES...................................... 199.4 158.5
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures....................................................................... (58.8) (51.2)
Decrease in marketable securities.......................................................... - 13.3
Acquisition of businesses (net of acquired cash)........................................... (46.5) (25.6)
Increase in long-term investments.......................................................... (1.0) (1.5)
Decrease in long-term investments.......................................................... 0.2 5.5
--------- --------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES......................................... (106.1) (59.5)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable.................................................................. (50.4) (90.3)
Repayments of long-term debt............................................................... (23.4) (4.7)
Proceeds from issuance of common stock, net of issuance costs.............................. 38.1 60.7
Proceeds from exercise of stock options.................................................... 0.7 -
Dividends paid............................................................................. (47.5) (91.5)
--------- --------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES......................................... (82.5) (125.8)
Effect of Exchange Rate Changes on Cash and Cash Equivalents.................................. (0.4) 2.7
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................................... 10.4 (24.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................................. 254.8 267.9
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $ 265.2 $ 243.8
========= ========
</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 nine-month period ended
March 31, 1996 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 nine
months ended March 31, 1996, are reflected on a pro forma basis only, as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1996
---------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
Net earnings..................................................... $ 133.1
Pro forma preferred stock dividends.............................. 17.6
-------
Pro forma net earnings attributable to common stock.............. $ 115.5
=======
Pro forma net earnings per common share.......................... $ .99
Pro forma weighted average common shares outstanding............. 116.3
</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>
MARCH 31 JUNE 30
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Inventory and promotional merchandise consists of:
Raw materials......................................... $ 91.6 $ 105.6
Work in process....................................... 19.1 30.2
Finished goods........................................ 173.9 203.1
Promotional merchandise............................... 73.8 113.9
-------- -------
$ 358.4 $ 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>
MARCH 31 JUNE 30
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Land.................................................... $ 11.8 $ 11.8
Buildings and improvements.............................. 89.3 82.6
Machinery and equipment................................. 344.5 319.3
Furniture and fixtures.................................. 45.1 42.2
Leasehold improvements.................................. 86.4 73.7
-------- -------
577.1 529.6
Less accumulated depreciation and amortization.......... 327.4 300.3
-------- -------
$ 249.7 $ 229.3
======== =======
</TABLE>
STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Cash paid during the period for:
Interest ............................................. $ 5.8 $ 7.3
Income taxes.......................................... $ 111.3 $ 81.8
</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 reported amounts of assets, liabilities, revenues and expenses in
those financial statements. Actual results could differ from those estimates and
assumptions.
11
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- PUBLIC OFFERINGS
In February 1997, the Company completed a secondary public offering of 8,064,750
shares of Class A Common Stock at an initial offering price of $47.00 per share.
Of the 8,064,750 shares of Class A Common Stock offered, 849,750 shares were
issued and sold by the Company, pursuant to an underwriters over-allotment
provision, and 7,215,000 shares were sold by members of the Lauder family.
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.
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. Prior to the Offering, there was no public market for the
Company's capital stock.
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
secondary public offering and initial public offering, after deducting
applicable underwriting discounts and offering expenses, were $38.1 and $59.3
million, respectively. These net proceeds to the Company were used for general
corporate purposes and to repay short-term debt.
NOTE 3 -- ACQUISITION OF BUSINESSES
The Company holds a majority equity interest in M.A.C. and at the end of March
1997, the Company acquired an additional interest in M.A.C. The acquisition has
been accounted for as a purchase. Had the acquisition been completed as of July
1, 1996 for pro forma financial data, the impact on the Company's reported
results of operations would not have been material. The Company has the right to
acquire the remaining interest in M.A.C. at certain times between 1998 and 1999.
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.
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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits--
10.1 Second Amendment to Registration Rights Agreement.
10.2 Amendment No. 3 to Stockholders' Agreement.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K -- There were no reports on Form 8-K for the three
months ended March 31, 1997.
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: April 29, 1997 By: /s/ Robert J. Bigler
-----------------------
Robert J. Bigler
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Second Amendment to Registration Rights Agreement.
10.2 Amendment No. 3 to Stockholders' Agreement.
27.1 Financial Data Schedule.
14
SECOND AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 2 dated February 7, 1997 to Registration Rights
Agreement dated November 22, 1995, as amended by the First Amendment to
Registration Rights Agreement dated as of May 17, 1996 (the "Registration Rights
Agreement"), by and between The Estee Lauder Companies Inc. (the "Company"),
Leonard A. Lauder ("LAL"), Ronald S. Lauder ("RSL"), William P. Lauder, Gary M.
Lauder, Aerin Lauder, Jane Lauder, LAL Family Partners L.P., Lauder & Sons L.P.,
LAL, RSL and Ira T. Wender, as trustees (the "EL Trustees"), u/a/d as of June 2,
1994, as amended, between Estee Lauder ("EL"), as settlor, and the EL Trustees,
and known as "The Estee Lauder 1994 Trust Agreement", LAL and Joel S.
Ehrenkranz, as trustees (the "LAL Trustees"), u/a/d as of November 16, 1995,
between EL, as settlor, and the LAL Trustees, and known as "The LAL 1995
Preferred Stock Trust", the trustees of the various other trusts set forth on
the signature pages thereof and Morgan Guaranty Trust Company of New York in its
capacity as pledgee of RSL. Capitalized terms used and not otherwise defined
herein have the respective meanings given in the Registration Rights Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, (a) RSL has transferred 4,000,000 shares (the "RSL
Trust Shares") of Class A Common Stock to the RSL 4200 Trust (the "RSL Trust")
created under the Trust Agreement dated January 28, 1997 between RSL, as
settlor, and Louis Begley, as trustee, and (b) LAL has transferred (i) 780,000
shares (the "LAL 4000 Trust Shares") of Class A Common Stock to the LAL 4000
Trust (the "LAL 4000 Trust") created under the Trust Agreement dated January 30,
1997 between LAL, as settlor, and Joel S. Ehrenkranz, as trustee, and (ii)
220,000 shares (the "LAL 4001 Trust Shares") of Class A Common Stock to the LAL
4001 Trust (the "LAL 4001 Trust") created under the Trust Agreement dated
January 30, 1997 between LAL, as settlor, Joel S. Ehrenkranz, as trustee; and
WHEREAS, in connection with such transfers of shares, RSL has
assigned to the RSL Trust and LAL has assigned to each of the LAL 4000 Trust and
the LAL 4001 Trust, the right to request pursuant to Section 3 of the
Registration Rights Agreement one Common Stock Demand Registration for use
exclusively by the RSL Trust to effect a public sale of the RSL Trust Shares and
by the LAL 4000 Trust and the LAL 4001 Trust to effect a public sale of the LAL
4000 Trust Shares and the LAL 4001 Trust Shares, respectively; and
WHEREAS, the parties hereto desire to amend the Registration
Rights Agreement as provided herein.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants herein contained, the parties hereto agree as follows:
1. Amendments.
1.1 Amendment of Section 1. Section 1 is amended by inserting
in their respective alphabetical order the following new definitions:
LAL 4000 Assigned Registration Right: LAL's right to
request one Common Stock Demand Registration pursuant to Section 3(a) hereof
assigned by LAL to the LAL 4000 Trust pursuant to the letter agreement dated
January 30, 1997 between LAL and Joel S. Ehrenkranz, as trustee under the LAL
4000 Trust Agreement.
LAL 4000 Trust: the trust created under the LAL 4000
Trust Agreement and known as the "LAL 4000 Trust".
LAL 4000 Trust Agreement: the Trust Agreement dated
as of January 30, 1997, between LAL, as settlor, and Joel S. Ehrenkranz, as
trustee.
LAL 4000 Trust Shares: the 780,000 shares of Class A
Common Stock transferred by LAL to the LAL 4000 Trust pursuant to the LAL Trust
4000 Agreement.
LAL 4001 Assigned Registration Right: LAL's right to
request one Common Stock Demand Registration pursuant to Section 3(a) hereof
assigned by LAL to the LAL 4001 Trust pursuant to the letter agreement dated
January 30, 1997 between LAL and Joel S. Ehrenkranz, as trustee under the LAL
4001 Trust Agreement.
LAL 4001 Trust: the trust created under the LAL 4001
Trust Agreement and known as the "LAL 4001 Trust".
LAL 4001 Trust Agreement: the Trust Agreement dated
as of January 30, 1997, between LAL, as settlor, and Joel S. Ehrenkranz, as
trustee.
LAL 4001 Trust Shares: the 220,000 shares of Class A
Common Stock transferred by LAL to the LAL 4001 Trust pursuant to the LAL Trust
4001 Agreement.
RSL Assigned Registration Right: RSL's right to
request one Common Stock Demand Registration pursuant to Section 3(a) hereof
assigned by RSL to the RSL Trust pursuant to the letter agreement dated January
28, 1997 between RSL and Louis Begley, as trustee under the RSL Trust Agreement.
<PAGE>
RSL Trust: the trust created under the RSL Trust
Agreement and known as the "RSL 4200 Trust".
RSL Trust Agreement: the Trust Agreement dated as of
January 28, 1997 between RSL, as settlor, and Louis Begley, as trustee.
RSL Trust Shares: the 4,000,000 shares of Class A
Common Stock transferred by RSL to the RSL Trust pursuant to the RSL Trust
Agreement.
1.2 Amendment of Section 3.
(a) Section 3(b) of the Registration Rights Agreement
is amended by inserting after the words "Section 3(d)" in the first line thereof
the words "and Section 3(f)".
(b) Section 3 of the Registration Rights Agreement is
further amended by inserting at the end thereof a new Section 3(f) which reads
in its entirety as follows:
(f) If the LAL 4000 Trust shall sell or otherwise
dispose of all of the LAL 4000 Trust Shares and shall not have exercised the LAL
4000 Assigned Registration Right, then, effective as of the time the LAL 4000
Trust no longer owns any LAL 4000 Trust Shares, LAL shall be entitled to one
additional Common Stock Demand Registration hereunder. If the LAL 4001 Trust
shall sell or otherwise dispose of all of the LAL 4001 Trust Shares and shall
not have exercised the LAL 4001 Assigned Registration Right, then, effective as
of the time the LAL 4001 Trust no longer owns any LAL 4001 Trust Shares, LAL
shall be entitled to one additional Common Stock Demand Registration hereunder.
If the RSL Trust shall sell or otherwise dispose of all of the RSL Trust Shares
and shall not have exercised the RSL Assigned Registration Right, then,
effective as of the time the RSL Trust no longer owns any RSL Trust Shares, RSL
shall be entitled to one additional Common Stock Demand Registration hereunder.
Any grant to LAL or RSL of an entitlement to an additional Common Stock Demand
Registration pursuant to this Section 3(f) is made to replace the LAL 4000
Assigned Registration Right, the LAL 4001 Assigned Registration Right or the
Assigned RSL Registration Right, as the case may be, in the event such right
becomes unexercisable by the LAL 4000 Trust, the LAL 4001 Trust or the RSL Trust
by virtue of the sale or other disposition of all of the LAL 4000 Trust Shares,
the LAL 4001 Trust Shares or the RSL Trust Shares, as the case may be, and each
of LAL and RSL agree that nothing in this Section 3(f) will entitle (i) LAL and
his permitted successors and assigns (other than the LAL 4000 Trust and the LAL
4001 Trust) to more than three Common Stock Demand Registrations in the
aggregate or (ii) RSL and his permitted successors and assigns (other than the
RSL Trust) to more than three Common Stock Demand Registrations in the
aggregate.
<PAGE>
2. Exercise of Piggyback Registration Rights. Each of the parties
hereto hereby waives his, her or its right under Section 4 of the Registration
Rights Agreement to require registration of his, her or its Registrable
Securities in connection with the Registration Statement filed on January 28,
1997.
3. Miscellaneous.
3.1 Confirmation of Other Provisions. All other provisions of the
Registration Rights Agreement are hereby confirmed. From and after the date
hereof, each reference in the Registration Rights Agreement to "this Agreement",
"hereunder", "hereof", "herein", or words of like import, shall mean and be
referenced to the Registration Rights Agreement as amended hereby.
3.2 Binding Effect. This Amendment No. 2 will be binding upon and
inure to the benefit of and be enforceable by, the parties and their permitted
successors (which shall include in the case of an individual, such individual's
estate, guardian, conservator or committee) and assigns.
3.3 Amendments. This Amendment No. 2 may not be changed orally,
but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
3.4 Governing Law. This Amendment No. 2 shall be governed by and
construed in accordance with the internal laws of the State of New York (other
than its rules of conflicts of laws to the extent the application of the laws of
another jurisdiction would be required thereby).
3.5 Counterparts. This Amendment No. 2 may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of which, when taken together, shall constitute one and the same agreement.
3.6 Trustee's Capacity. With respect to obligations of trustees
who are parties hereto in their capacity as trustees of one or more trusts, this
Amendment No. 2 shall be binding upon such trustees only in their capacities as
trustees, not individually and not with respect to any Registrable Securities
other than Registrable Securities held by them in their capacity as trustees of
such trusts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Amendment No. 2 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.,
(e) as Trustee of The 1995 Estee Lauder
LAL Trust (a Class B General Partner of
Lauder & Sons L.P.) and (f) as Trustee
of the LAL Trust
/s/ Ronald S. Lauder
----------------------------------------
Ronald S. Lauder, (a) individually, (b)
as Trustee of The Descendants 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.)
/s/ William P. Lauder
----------------------------------------
William P. Lauder, (a) individually and
(b) as Trustee of The 1992 Leonard A.
Lauder Grantor Retained Annuity Trust
<PAGE>
/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 by Jane Lauder Attorney
in Fact
----------------------------------------
Aerin Lauder
/s/ Jane Lauder
----------------------------------------
Jane Lauder
/s/ Joel S. Ehrenkranz
----------------------------------------
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, (c) as Trustee of The 1995
Estee Lauder LAL Trust (a Class B
General Partner of Lauder & Sons L.P.)
and (d) as Trustee of the LAL Trust
/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.)
Morgan Guaranty Trust Company of New
York, in its capacity as pledgee of
Ronald S. Lauder
By: /s/ Willa B. Baynard
----------------------------------------
Name: Willa B. Baynard
Title: Vice President
AMENDMENT NO. 3 TO STOCKHOLDERS' AGREEMENT
AMENDMENT NO. 3 (this "Amendment"), effective as of February
4, 1997, to that certain STOCKHOLDERS' AGREEMENT (the "Stockholders'
Agreement"), dated November 22, 1995, as amended by that First Amendment,
effective September 11, 1996, and by that Second Amendment, effective as of
December 10, 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 delete certain Stockholders as parties thereto.
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 to delete Jane Lauder and Aerin Lauder as parties thereto.
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.
(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.
<PAGE>
(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 by Jane Lauder
Attorney in Fact
-----------------------------------
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 ESTE
LAUDER COMPANIES INC. FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 265,200,000
<SECURITIES> 0
<RECEIVABLES> 571,400,000
<ALLOWANCES> 0
<INVENTORY> 358,400,000
<CURRENT-ASSETS> 1,356,200,000
<PP&E> 577,100,000
<DEPRECIATION> 327,400,000
<TOTAL-ASSETS> 1,903,900,000
<CURRENT-LIABILITIES> 820,200,000
<BONDS> 0
360,000
0
<COMMON> 1,200,000
<OTHER-SE> 529,600,000
<TOTAL-LIABILITY-AND-EQUITY> 1,903,900,000
<SALES> 2,605,700,000
<TOTAL-REVENUES> 2,605,700,000
<CGS> 584,700,000
<TOTAL-COSTS> 584,700,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200,000
<INCOME-PRETAX> 297,300,000
<INCOME-TAX> 124,900,000
<INCOME-CONTINUING> 160,900,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160,900,000
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 0
</TABLE>
