ESTEE LAUDER COMPANIES INC, 424B4, 1997-02-11

ESTEE LAUDER COMPANIES INC
424B4, 1997-02-11
PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS

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<PAGE>

Filed pursuant to Rule 424(B)(4)
File No. 333-20521

[LOGO] 7,215,000 Shares
THE ESTEE LAUDER COMPANIES INC.

Class A Common Stock
(par value $.01 per share)

----------------------

Of the 7,215,000 shares of Class A Common Stock offered, 5,772,000 shares
are being offered hereby in the United States and 1,443,000 shares are being
offered in a concurrent international offering outside the United States (the
'Offerings'). The initial public offering price and the aggregate underwriting
discount per share will be identical for both Offerings. See 'Underwriting'.

All the shares of Class A Common Stock offered are being sold by the
Selling Stockholders named herein. See 'Selling Stockholders'. The Company will
not receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders. After consummation of the Offerings, members of the Lauder
family will own shares of Class A Common Stock and Class B Common Stock having
95.9% of the outstanding voting power of the Company's Common Stock.

The last reported sale price of the Class A Common Stock, which is listed
under the symbol 'EL', on the New York Stock Exchange on February 10, 1997 was
$47 3/8 per share. See 'Price Range of Common Stock and Dividends'.
----------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

----------------------

<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to Selling
Offering Price Discount (1) Stockholders (2)
-------------- ------------ -------------------
<S> <C> <C> <C>
Per Share............................... $47.00 $1.88 $45.12
Total (3)............................... $339,105,000 $13,564,200 $325,540,800
</TABLE>

- ------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

(2) Before deducting estimated expenses of $552,100 payable by the Selling
Stockholders and the Company.

(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 849,750 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $379,043,250,
$15,161,730 and $38,340,720, respectively. See 'Underwriting'.

----------------------

The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
certificates for the shares will be ready for delivery in New York, New York, on
or about February 14, 1997, against payment therefor in immediately available
funds.

Goldman, Sachs & Co.
Dillon, Read & Co. Inc.
Merrill Lynch & Co.
J.P. Morgan & Co.

----------------------

The date of this Prospectus is February 10, 1997.

<PAGE>

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

------------------------------

Some of the information presented in or in connection with or incorporated
by reference in the Prospectus constitutes 'forward-looking statements' within
the meaning of the Private Securities Litigation Reform Act of 1995. Although
the Company believes that its expectations are based on reasonable assumptions
within the bounds of its knowledge of its business and operations, there can be
no assurance that actual results will not differ materially from its
expectations. Factors that could cause actual results to differ from
expectations include: (i) increased competitive activity from companies in the
skin care, makeup and fragrance businesses, some of which have greater resources
and broader distribution channels than the Company; (ii) consolidations and
restructurings in the retail industry causing a decrease in the number of stores
that sell the Company's products or an increase in the ownership concentration
within the retail industry; (iii) social, political and economic risks to the
Company's foreign manufacturing and retail operations, including changes in
foreign investment and trade policies and regulations of the host countries and
of the United States; (iv) foreign currency fluctuations affecting the Company's
results of operations and value of its foreign assets, the relative prices at
which the Company and foreign competitors sell their products in the same market
and the Company's operating and manufacturing costs outside of the United
States; and (v) shipment delays, depletion of inventory and increased production
costs resulting from disruptions of operations at any of the facilities which,
due to recent consolidations in the Company's manufacturing operations, now
manufacture nearly all of the Company's supply of a particular type of product.

<PAGE>
PROSPECTUS SUMMARY

The following information is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus or incorporated by reference
herein. Unless otherwise indicated, (i) all information in this Prospectus
assumes that the over-allotment option granted to the Underwriters is not
exercised, (ii) references to the 'Company' refer to The Estee Lauder Companies
Inc., a Delaware corporation, and its subsidiaries and (iii) references to a
fiscal year refer to the fiscal year of the Company which ends on June 30 of
each year. The Company's Class A Common Stock, par value $.01 per share (the
'Class A Common Stock'), and Class B Common Stock, par value $.01 per share (the
'Class B Common Stock'), are sometimes collectively referred to in this
Prospectus as the 'Common Stock'.

The Company

The Estee Lauder Companies Inc., founded in 1946 by Estee and Joseph
Lauder, is one of the world's leading manufacturers and marketers of prestige
skin care, makeup and fragrance products. The Company's products are sold in
over 100 countries and territories under the following well-recognized brand
names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C. and Bobbi
Brown essentials. The Company is also the global licensee for fragrances and
cosmetics for the Tommy Hilfiger brand. The Company's net sales and net earnings
in fiscal 1996 were $3,194.5 million and $160.4 million, respectively, and its
net sales have grown at a compound annual rate of 9.1% from fiscal 1992 to
fiscal 1996. The Company's net sales are geographically diversified with
approximately 56% of the Company's fiscal 1996 net sales in the Americas, 27% in
Europe, the Middle East & Africa and 17% in Asia/Pacific.

The Company has been a pioneer in the cosmetics industry and believes it is
a leader in the industry due to the global recognition of its brand names, its
leadership in product innovation, its strong market position in key geographic
markets and the consistently high quality of its products. The Company's Estee
Lauder and Clinique brands ranked first and second, respectively, in annual
sales from 1986 through 1995 among the cosmetics brands sold at 2,800 department
stores and specialty stores in the United States, as reported by Mottus &
Associates. In 1995, the Company's brands together had a 41.7% market share of
women's cosmetics sold at these stores. In Western Europe, the Estee Lauder
brand ranked first among 30 cosmetic brands in sales per point of sale from 1989
through 1995 and the Clinique brand ranked second in 1993, 1994 and 1995. In
Japan, the Clinique and the Estee Lauder brands ranked first and third,
respectively, in market share in 1993, 1994 and 1995 at the 179 department
stores where the Company's products are sold, and, in 1995, the Company's brands
together represented 33% of the cosmetics sold at these stores.

The Company sells its products principally through limited distribution
channels to complement the images associated with its brands. These channels,
encompassing over 8,000 points of sale, consist primarily of upscale department
stores, specialty retailers, upscale perfumeries and pharmacies and, to a lesser
extent, free-standing company stores, stores on cruise ships, in-flight and duty
free shops in airports and cities. The Company believes that its strategy of
pursuing limited distribution strengthens its relationships with retailers,
enables its brands to be among the best selling product lines at the stores and

heightens the aspirational quality of the Company's brands.

The Estee Lauder Companies Inc. has experienced more than 40 consecutive
years of sales growth. The Company's strategy is to maintain its leadership
position and growth by (i) promoting consistent global brand images, (ii)
developing new innovative products, (iii) expanding its international presence,
(iv) increasing consumer penetration, (v) improving operational efficiencies and
(vi) introducing brands.

The Company has been controlled by the Lauder family since its founding. As
of December 31, 1996, members of the Lauder family, some of whom are directors,
executive officers, and/or employees, beneficially owned, directly or
indirectly, shares of Class A Common Stock and Class B Common Stock representing
84.1% of the outstanding shares of Common Stock and 97.0% of the combined voting
power of such stock. Upon consummation of the Offerings, members of the Lauder
family will, in the aggregate, beneficially own 78.0% of the outstanding shares
of Common Stock and 95.9% of the combined voting

3
<PAGE>
power of such stock (77.1% and 95.8%, respectively, if the Underwriters'
over-allotment option is exercised in full).

The principal executive offices of the Company are located at 767 Fifth
Avenue, New York, New York 10153. The telephone number at that location is (212)
572-4200.

The Offerings

<TABLE>
<S> <C>
Class A Common Stock offered hereby................ 7,215,000 shares (1)
Common Stock outstanding after the
Offerings:
Class A Common Stock.......................... 60,486,913 shares (2)(3)
Class B Common Stock.......................... 56,839,667 shares (3)
Total....................................... 117,326,580 shares
Voting rights...................................... The Class A Common Stock and Class B Common Stock vote as
single class on all matters, except as otherwise required by
law, with each share of Class A Common Stock entitling its
holder to one vote and each share of Class B Common Stock
entitling its holder to ten votes.
NYSE symbol........................................ EL
</TABLE>

- ------------------
(1) Includes 5,772,000 shares of Class A Common Stock initially being offered in
the United States and 1,443,000 shares of Class A Common Stock initially
being offered outside of the United States. Excludes 849,750 shares of Class
A Common Stock which will be issued by the Company upon exercise of the
Underwriters' over-allotment option.

(2) Does not include approximately 5.0 million shares of Class A Common Stock
subject to outstanding stock options and stock units granted to employees

under the Company's share incentive plan and certain employment agreements.

(3) Shares of Class B Common Stock are convertible at any time into Class A
Common Stock on a one-for-one basis and convert automatically into Class A
Common Stock upon a transfer to anyone other than members of the Lauder
family. The Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights, conversion rights and transfer
restrictions. See 'Description of Capital Stock'.

<PAGE>
Summary Financial Data

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
----------------------------------- ----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---------------- ---------------- -------- -------- -------- -------- --------
(unaudited) (in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales...................... $1,814.3 $ 1,693.9 $3,194.5 $2,899.1 $2,576.4 $2,447.7 $2,251.9
Gross profit................... 1,396.9 1,290.2 2,463.5 2,224.3 1,956.1 1,855.2 1,682.9
Operating income............... 227.2 201.9 310.3 230.9 175.8 149.9 133.6
Earnings before accounting
changes..................... 122.6 104.9 160.4 121.2 93.0 76.4 71.9
Net earnings................... 122.6 104.9 160.4 121.2 93.0 62.9(1) 71.9
Net earnings attributable to
common stock................ 110.9 59.1 102.9 95.9 70.0 44.6 51.4
Net earnings per common share
(2)......................... .93
Weighted average common shares
outstanding (2)............. 118.7
Pro forma net earnings per
common share (2)............ .81 1.17
Pro forma weighted
average common shares
outstanding (2) ............ 115.4 116.8
</TABLE>

<TABLE>
<CAPTION>
December 31, 1996
-----------------
(unaudited)
(in millions)
<S> <C>
Balance Sheet Data:
Working capital...................... $ 549.1
Total assets......................... 1,939.3
Total debt........................... 56.1
Redeemable preferred stock........... 360.0
Stockholders' equity................. 485.8
</TABLE>

- ------------------
(1) Includes a one-time charge of $13.5 million attributable to the cumulative
effect of accounting changes. See 'Selected Consolidated Financial
Information'.

(2) Due to the change in the capital structure effected by the Company's
recapitalization in connection with the Company's initial public offering in

fiscal 1996, historical share and per share data for periods prior to the
six months ended December 31, 1996 are not presented. Net earnings per
common share and weighted average shares outstanding for the six months
ended December 31, 1995 and the year ended June 30, 1996 are reflected on a
pro forma basis as if the recapitalization was effected at the beginning of
fiscal 1996.

<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Class A Common Stock is traded on the New York Stock Exchange ('NYSE')
under the symbol 'EL'. The following table sets forth for the calendar quarters
indicated the high and low sales prices for the Class A Common Stock, as
reported on the NYSE Composite Tape, and the dividends per share declared or
paid in respect of such quarters. The last reported sale price of the Class A
Common Stock on February 10, 1997 was $47 3/8 per share. Prior to November 16,
1995, the Class A Common Stock was not publicly traded.
<TABLE>
<CAPTION>
Market Price of
Class A Common Stock
-------------------------------------------- Cash
High Low Dividends
-------------------- -------------------- ---------
<S> <C> <C> <C>
1995
November 16--December 31...................... $ 36 3/4 $ 26(1) --

1996
First Quarter................................. 39 3/8 32 1/8 $.085
Second Quarter................................ 44 32 .085
Third Quarter................................. 47 1/2 34 3/4 .085
Fourth Quarter................................ 53 1/2 42 3/8 .085

1997
First Quarter (through February 10, 1997)..... 52 1/4 46 3/4 .085(2)
</TABLE>
- ------------------
(1) Denotes price per share in the initial public offering. The lowest sales
price as reported on the NYSE Composite Tape was $31 3/4.
(2) The dividend with respect to the Common Stock is payable March 28, 1997 to
holders of record on March 14, 1997.

The Company expects to continue the payment of cash dividends in the
future, but there can be no assurance that such payment of cash dividends will
continue.

As of December 16, 1996, there were 2,269 record holders of Class A Common
Stock and 12 record holders of Class B Common Stock.

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of shares of
the Class A Common Stock by the Selling Stockholders. See 'Selling
Stockholders'.

If the Company's over-allotment option granted to the Underwriters is
exercised, the Company will use the net proceeds from the sale of shares of
Class A Common Stock issued upon such exercise for general corporate purposes.

<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following income statement and balance sheet information has been
derived from the consolidated financial statements of the Company as of and for
each of the years in the five-year period ended June 30, 1996 and as of and for
the six-month periods ended December 31, 1996 and 1995. This information should
be read in conjunction with the consolidated financial statements of the Company
and the related notes thereto incorporated herein by reference and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'. See
'Incorporation of Certain Documents by Reference'. The results for interim
periods are not necessarily indicative of results that may be expected for the
full year.

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
-------------------- --------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(unaudited) (in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales.............................. $1,814.3 $1,693.9 $3,194.5 $2,899.1 $2,576.4 $2,447.7 $2,251.9
Gross profit........................... 1,396.9 1,290.2 2,463.5 2,224.3 1,956.1 1,855.2 1,682.9
Operating income....................... 227.2 201.9 310.3 230.9 175.8 149.9 133.6
Earnings before income taxes, minority
interest and accounting changes...... 226.1 203.2 313.0 233.0 173.2 145.1 137.1
Earnings before accounting changes..... 122.6 104.9 160.4 121.2 93.0 76.4 71.9
Net earnings........................... 122.6 104.9 160.4 121.2 93.0 62.9(1) 71.9
Preferred stock dividends.............. 11.7 45.8 57.5 25.3 23.0 18.3 20.5
Net earnings attributable to common
stock................................ 110.9 59.1 102.9 95.9 70.0 44.6 51.4
Net earnings per common share (2)...... .93
Weighted average common shares
outstanding (2)...................... 118.7
Pro forma net earnings per
common share (2):
Net earnings......................... $ 104.9 $ 160.4
Pro forma preferred stock
dividends.......................... 11.7 23.4
Pro forma net earnings attributable
to common stock.................... 93.2 137.0
Pro forma net earnings per common
share.............................. .81 1.17
Pro forma weighted average common
shares outstanding................. 115.4 116.8
Cash dividends declared per common
share................................ $ .17 $ .17
</TABLE>

June 30,
December 31, --------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------ -------- -------- -------- -------- --------
(unaudited) (in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.............................. $ 549.1 $ 467.5 $ 469.6 $ 422.7 $ 368.7 $ 321.4
Total assets................................. 1,939.3 1,821.6 1,721.7 1,453.2 1,304.3 1,220.1
Total debt................................... 56.1 127.5 194.0 170.4 167.2 139.3
Redeemable preferred stock................... 360.0 360.0 360.0
Stockholders' equity......................... 485.8 394.2 335.1 577.7 508.0 502.0
</TABLE>

- ------------------
(1) Net earnings for fiscal 1993 include a one-time charge of $13.5 million
attributable to the cumulative effect of adopting Statement of Financial
Accounting Standards No. 106, 'Employers' Accounting for Postretirement
Benefits Other Than Pensions', and Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes'.

(2) Due to the change in the capital structure effected by the Company's
recapitalization in connection with the Company's initial public offering in
fiscal 1996, historical share and per share data for periods prior to the
six months ended December 31, 1996 are not presented. Net earnings per
common share and weighted average shares outstanding for the six months
ended December 31, 1995 and the year ended June 30, 1996 are reflected on a
pro forma basis as if the recapitalization was effected at the beginning of
fiscal 1996.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

The Company manufactures skin care, makeup and fragrance products which are
distributed in over 100 countries and territories. The Company's net sales and
net earnings in fiscal 1996 were $3,194.5 million and $160.4 million,
respectively, and its net sales have grown at a compound annual rate of 9.1%
from fiscal 1992 through fiscal 1996. The Company's net sales are geographically
diversified with approximately 56% of the Company's fiscal 1996 net sales in the
Americas, 27% in Europe, the Middle East & Africa and 17% in Asia/Pacific.

The Company has experienced more than 40 consecutive years of sales growth.
The Company's strategy is to maintain its leadership position and growth by (i)
promoting consistent global brand images, (ii) developing new innovative
products, (iii) expanding its international presence, (iv) increasing consumer
penetration, (v) improving operational efficiencies and (vi) introducing brands.

Results of Operations

The following tables set forth net sales by region and product category and
operating income by region for the six-month periods ended December 31, 1996 and
1995 and the fiscal years ended June 30, 1996, 1995 and 1994.

<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended June 30,
-------------------- --------------------------------
1996 1995 1996 1995 1994
-------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
NET SALES
By Region:
The Americas:
United States........................... $ 993.8 $ 931.3 $1,683.0 $1,492.4 $1,377.6
Other Americas.......................... 70.8 58.8 116.4 87.3 81.7
-------- -------- -------- -------- --------
Total Americas....................... 1,064.6 990.1 1,799.4 1,579.7 1,459.3
Europe, the Middle East & Africa.......... 472.7 425.3 855.9 786.0 673.7
Asia/Pacific.............................. 277.0 278.5 539.2 533.4 443.4
-------- -------- -------- -------- --------
$1,814.3 $1,693.9 $3,194.5 $2,899.1 $2,576.4
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
By Product Category:
Skin Care................................. $ 650.2 $ 634.5 $1,287.3 $1,215.9 $1,091.6
Makeup.................................... 637.0 563.0 1,131.6 1,003.3 866.6
Fragrance................................. 527.1 496.4 775.6 679.9 618.2
-------- -------- -------- -------- --------

$1,814.3 $1,693.9 $3,194.5 $2,899.1 $2,576.4
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
OPERATING INCOME
The Americas:
United States............................. $ 120.5 $ 112.0 $ 114.4 $ 93.8 $ 58.1
Other Americas............................ 22.5 10.6 18.6 1.5 6.1
-------- -------- -------- -------- --------
Total Americas.......................... 143.0 122.6 133.0 95.3 64.2
Europe, the Middle East & Africa............. 59.3 40.1 115.5 72.2 63.2
Asia/Pacific................................. 24.9 39.2 61.8 63.4 48.4
-------- -------- -------- -------- --------
$ 227.2 $ 201.9 $ 310.3 $ 230.9 $ 175.8
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>

8
<PAGE>
The following table sets forth certain consolidated statement of earnings
data as a percentage of net sales:

<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended June 30,
--------------- -------------------------
1996 1995 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................ 23.0 23.8 22.9 23.3 24.1
----- ----- ----- ----- -----
Gross profit................................................. 77.0 76.2 77.1 76.7 75.9
Selling, general and administrative expenses:
Selling, general and administrative........................ 63.5 63.0 66.2 67.5 67.8
Related party royalties.................................... 1.0 1.3 1.2 1.3 1.3
----- ----- ----- ----- -----
64.5 64.3 67.4 68.8 69.1
----- ----- ----- ----- -----
Operating income............................................. 12.5 11.9 9.7 7.9 6.8
Interest income (expense), net............................... -- 0.1 0.1 0.1 (0.1)
----- ----- ----- ----- -----
Earnings before income taxes and minority interest........... 12.5 12.0 9.8 8.0 6.7
Provision for income taxes................................... 5.2 5.4 4.3 3.7 3.1
Minority interest............................................ (0.5) (0.4) (0.5) (0.1) --
----- ----- ----- ----- -----
Net earnings................................................. 6.8% 6.2% 5.0% 4.2% 3.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

Six Months Ended December 31, 1996 Compared with

Six Months Ended December 31, 1995

Net sales increased 7% to $1,814.3 million for the six-month period ended
December 31, 1996 from $1,693.9 million in the same prior-year period, on the
strength of new product launches, the global rollout of recent fragrance
introductions, the reformulation and 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 six-month period ended
December 31, 1996 by approximately $39.0 million. 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 9% during the six months ended
December 31, 1996. Net sales for such period included 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 2% to $650.2 million for the six
months ended December 31, 1996 from $634.5 million in the corresponding
prior-year period. This increase was due in part to the worldwide reformulation
and 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 six-month period ended December 31, 1996
benefited from the domestic debut of Nutritious Bio-Moisture Complex. Net sales
of makeup products increased 13% to $637.0 million for the six months ended
December 31, 1996 from $563.0 million in the same prior-year period. 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 period 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 for the six months ended December 31, 1996 rose 6% to $527.1
million from $496.4 million in the comparable prior-year period. 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

9
<PAGE>
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 periodic net sales are subject to seasonal fluctuations, particularly
in the fragrance category.

Sales in the Americas increased 8% to $1,064.6 million for the six months
ended December 31, 1996 from $990.1 million in the corresponding prior-year
period. 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 11% to $472.7 million for the six-month
period ended December 31, 1996 from $425.3 million in the same prior-year
period, 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 for the six months ended December 31, 1996 were $277.0 million, a
1% decrease from $278.5 million in the prior-year period. 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, sales on a local currency basis 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 6% over the
prior-year six-month period. The Company strategically staggers its new product
launches by geographic markets, which may account for differences in regional
sales growth.

Cost of sales for the six months ended December 31, 1996 was 23.0% of net
sales compared with 23.8% of net sales in the prior-year period. The improvement
principally reflects 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 64.5% of
net sales in the six months ended December 31, 1996, compared with 64.3% of net
sales in the same prior-year period. 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 13% to $227.2 million in the six months ended
December 31, 1996 from $201.9 million in the same prior-year period, which
resulted in an operating margin of 12.5% in the six-month period ended December
31, 1996 as compared to 11.9% in the six-month period ended December 31, 1995.
The increase in operating income and margin 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 17% to $143.0
million for the six months ended December 31, 1996 from $122.6 million in the
same prior-year period, primarily due to the net sales increase 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 48% to $59.3 million for the
six months ended December 31, 1996 from $40.1 million in the corresponding
prior-year period, primarily because of improved operating results in Germany,
the United Kingdom, France, Benelux and the distributor and travel retail
businesses. In Asia/Pacific, operating income decreased 36% to $24.9 million for
the six months ended December 31, 1996 from $39.2 million in the same prior-year

period 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.

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Net interest expense was $1.1 million in the six-month period ended
December 31, 1996 compared with net interest income of $1.3 million in the
corresponding prior-year period, primarily because the six-month period ended
December 31, 1995 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 six months ended
December 31, 1996 was 42.0% compared with 45.0% for the six months ended
December 31, 1995. 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.

Fiscal 1996 Compared with Fiscal 1995

Net sales in fiscal 1996 increased 10% to $3,194.5 million from $2,899.1
million for fiscal 1995, reflecting the strength of sales of new products in all
product categories and continued strong growth in sales of existing products at
existing points of sale. The strength of the U.S. dollar negatively impacted
fiscal 1996 net sales by approximately $35.0 million. Net sales for the fiscal
1996 included twelve months of sales of M.A.C., in which a majority equity
interest was acquired in December 1994, compared with six months of sales in
fiscal 1995. Additionally, net sales for fiscal 1996 included eight months of
sales of Bobbi Brown, which was acquired in late October 1995.

Net sales of skin care products increased 6% in fiscal 1996 to $1,287.3
million from $1,215.9 million in fiscal 1995. This increase was due in part to
the launch in fiscal 1996 of Moisture On-Call and DayWear Super Anti-Oxidant
Complex and the continued success of existing products such as Daily Eye Saver,
ThighZone Body Streamlining Complex, Advanced Night Repair Protective Recovery
Complex and Dramatically Different Moisturizing Lotion, which were partially
offset by lower sales of Turnaround Cream. Net sales of makeup products rose 13%
to $1,131.6 million in fiscal 1996 compared with $1,003.3 million in fiscal
1995. This increase primarily reflects the inclusion of the M.A.C. and Bobbi
Brown product lines, which are predominantly makeup products, the launch of True
Lipstick, and higher sales of existing products such as Enlighten Skin-Enhancing
Makeup and Soft Finish Makeup. Net sales of fragrance products were up 14% to
$775.6 million in fiscal 1996 from $679.9 million in fiscal 1995, driven by the
outstanding debut in fiscal 1996 of Estee Lauder pleasures along with the
continued success of 'tommy'. In addition, the Company's classic fragrances,
such as Beautiful and White Linen, continued to generate impressive sales in
this category. 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.

Sales in all geographic regions increased in fiscal 1996, with strong
increases in the Americas and Europe, the Middle East & Africa. Net sales in the
Americas rose 14% to $1,799.4 million in fiscal 1996 from $1,579.7 million in
fiscal 1995. This increase reflects sales of new products in all categories
(including those from M.A.C. and Bobbi Brown) and strong sales growth of
existing products at existing points of sale in the United States. In Europe,
the Middle East & Africa, fiscal 1996 net sales increased 9% to $855.9 million
compared with $786.0 million in the prior fiscal year, primarily because of
strong sales performances in South Africa, Spain, Italy, and the travel retail
business, partially offset by lower net sales in Germany. Net sales in
Asia/Pacific increased 1% to $539.2 million from $533.4 million for fiscal 1996,
compared with the prior fiscal year; all markets reported sales increases except
Japan, with strong sales growth in Taiwan, Korea and Hong Kong. Japan's sales
were impacted by the strength of the U.S. dollar versus the yen, however, Japan
recorded increased sales in fiscal 1996 on a local currency basis. Excluding the
impact of translation, Asia/Pacific sales in fiscal 1996 would have grown 7%
over the prior fiscal year. The Company strategically staggers its new product
launches by geographic markets, which may account for differences in regional
sales growth.

Cost of sales in fiscal 1996 was 22.9% of net sales compared with 23.3% of
net sales in fiscal 1995. The improvement principally reflects the continued
efficiencies resulting from the Company's efforts to globalize its sourcing and
manufacturing activities, as well as shifts in product mix.

Selling, general and administrative expenses decreased to 67.4% of net
sales in fiscal 1996 compared with 68.8% of net sales in fiscal 1995. This
decrease reflects expenses (including selling, shipping and

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<PAGE>
advertising/promotions) growing at a slower rate than net sales, achieved by the
Company's continued success in creating efficiencies in its selling and
marketing functions.

Operating income rose 34% to $310.3 million in fiscal 1996 from $230.9
million in the prior fiscal year, which resulted in an operating margin of 9.7%
as compared to 7.9% in fiscal 1995. The increase in operating income and margin
was due to higher net sales coupled with cost of sales efficiencies and
successful efforts to keep selling, general and administrative expenses at a
slower growth rate than net sales. Operating income in the Americas increased by
40% to $133.0 million in fiscal 1996 from $95.3 million in fiscal 1995 due
primarily to the net sales increase in the United States, the inclusion of
twelve months of operating results from M.A.C. in fiscal 1996 compared with six
months in the prior fiscal year and the inclusion of operating results from
Bobbi Brown since it was acquired in October 1995. In Europe, the Middle East &
Africa, operating income increased by 60% to $115.5 million in fiscal 1996
compared with $72.2 millon in fiscal 1995, primarily because of improved
operating results in Italy, the Nordic region, Austria and the travel retail
business. However, operating results in France decreased in fiscal 1996
resulting from general strikes and an unsettled business environment and in
Germany due to a sluggish economic environment. In Asia/Pacific, operating
income decreased 3% to $61.8 million from $63.4 million for fiscal 1996 compared

with fiscal 1995 due to unfavorable foreign currency translation and
expenditures associated with the launch of Origins in Japan, partially offset by
strong results in Taiwan, Korea and Hong Kong. In local currency, operating
income in Asia/Pacific increased 4%.

Interest income, net was $2.7 million in fiscal 1996 compared with $2.1
million in fiscal 1995. Increased interest income resulting principally from
higher average domestic and overseas net cash positions was partially offset by
lower 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 fiscal 1996 was 44.2%
compared with 46.4% in fiscal 1995. These rates reflect the effect of state and
local taxes, higher tax rates in certain foreign jurisdictions and certain
nondeductible expenses. The decrease in the effective income tax rate was
principally attributable to an increase in profits in lower taxed countries, the
lessened impact of a relatively higher Japanese rate 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.

Fiscal 1995 Compared with Fiscal 1994

Net sales in fiscal 1995 increased by $322.7 million, or 13%, to $2,899.1
million over fiscal 1994, reflecting the strength of sales of new products in
all product categories, introduction of additional brands at points of sale in
existing markets, expansion into new international markets and continued strong
growth in sales of existing products at existing points of sale. Fiscal 1995 net
sales were positively impacted by the weakening of the U.S. dollar, which
contributed approximately 30% of the net sales increase. In addition, fiscal
1995 net sales reflect six months of contributions, totaling $32.0 million, from
M.A.C., in which the Company acquired a majority equity interest in December
1994.

Net sales of skin care products in fiscal 1995 increased 11% to $1,215.9
million due in part to the launch of ThighZone Body Streamlining Complex and
Turnaround Cream for Dry Skin and increased marketing support of existing
products such as Fruition Triple Reactivating Complex and Advanced Night Repair
Protective Recovery Complex. Net sales of makeup products increased 16% to
$1,003.3 million primarily because of the launch of several new makeup products
including Double Color Everlasting Lipstick, Double Matte Moisturizing Lipcolor,
Enlighten Skin-Enhancing Makeup, Soft-Pressed Powder Blusher and the inclusion
of the M.A.C. product line. Net sales of fragrance products increased 10% to
$679.9 million primarily attributable to the launch of 'tommy', Havana,
Chemistry and Spring Fever and the repositioning of Tuscany per Donna. 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.

All geographic regions posted strong sales increases, with net sales in the
Americas increasing 8% to $1,579.7 million due to new products launched in all
categories and strong sales growth of existing products at existing points of
sale in the United States. Net sales in the Americas were slightly offset by the
currency devaluations in Mexico and Venezuela. In Europe, the Middle East &
Africa, net sales increased

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<PAGE>
17% to $786.0 million; net sales in each market in the region increased with
particularly strong performances in France, Italy, Spain and the United Kingdom
and the travel retail business. Net sales in Asia/Pacific increased by 20% to
$533.4 million; net sales increased in each market in the region, except
Singapore, with particularly strong growth in Japan, Taiwan, Korea and Thailand.
In Europe, the Middle East & Africa and Asia/Pacific, approximately one half of
the net sales increase was attributable to the weakening of the U.S. dollar. The
Company strategically staggers its new product launches by geographic markets,
which may account for differences in regional sales growth.

Cost of sales in fiscal 1995 decreased to 23.3% of net sales compared with
24.1% of net sales in fiscal 1994. The improvement reflects continued
efficiencies resulting from the Company's efforts to globalize its sourcing and
manufacturing activities, reduced packaging costs, introduction of new products
with more favorable manufacturing cost and the increased use of sell-through
data, which allows the Company to increase manufacturing productivity. Cost of
sales was unfavorably impacted by the weakening of the U.S. dollar.

Selling, general and administrative expenses decreased to 68.8% of net
sales in fiscal 1995 compared with 69.1% of net sales in fiscal 1994. This
decrease is primarily due to increased efficiencies in the Company's sales and
administrative operations, offset by increased advertising and promotional
spending and the weakening of the U.S. dollar. The efficiencies were achieved
through the introduction of programs for sales and administrative staff which
increased productivity, and through increased utilization of technology to
reduce administrative overhead.

Operating income rose 31% in fiscal 1995 to $230.9 million, which resulted
in an operating margin of 7.9% as compared to 6.8% in fiscal 1994. The increase
in operating income and margin was due to higher net sales coupled with cost of
sales efficiencies and successful efforts to keep expense growth at a slower
rate than net sales. Operating income increased in each of the three principal
regions. Operating income in the Americas increased by 48% to $95.3 million due
primarily to the net sales increase in the United States and the inclusion of
six months operating results from M.A.C., partially offset by the impact of the
currency devaluations in Mexico and Venezuela and lower results in Canada. In
Europe, the Middle East & Africa, operating income increased by 14% to $72.2
million resulting from increased net sales in France, Spain, the United Kingdom
and the travel retail business, which was partially offset by development
expenses in the Czech Republic. In Asia/Pacific, operating income increased by
31% to $63.4 million based in part on the strong net sales performance in Japan,
Taiwan, Korea and Thailand, partially offset by lower results in Singapore and
Australia.

Interest income, net was $2.1 million in fiscal 1995 compared with interest
expense, net of $2.6 million in fiscal 1994, as a result of increased net
interest income due from stockholders and increased interest income earned on
higher overseas cash balances which were partially offset by increased interest
expense on higher domestic borrowings.

The provision for income taxes in fiscal 1995 and 1994 represented federal,

foreign, state and local income taxes. The effective rate for income taxes in
fiscal 1995 was 46.4% compared with 46.3% in fiscal 1994. These rates partially
reflect higher tax rates in certain foreign jurisdictions and certain
nondeductible expenses.

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

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<PAGE>
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.

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 corresponding
prior-year period. This decrease is due to higher working capital levels during
the six-month period ended December 31, 1996 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 fiscal 1997 and anticipates completion in
approximately one to two years. The cost of the new facility 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 same prior-year period. The decrease
reflects the absence of dividends paid on the Company's Participating Class I
Preferred Stock and the special dividends discussed below. The Participating
Class I Preferred Stock ceased to be outstanding after the Company completed a
recapitalization in connection with its initial public offering in November
1995. 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 dividend
payments for the six months ended December 31, 1996 reflect dividends of
approximately $10.0 million on the Company's 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

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<PAGE>
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.

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.

<PAGE>
BUSINESS

The Company has been a pioneer in the cosmetics industry and believes it is
a leader in the industry due to the global recognition of its brand names, its
leadership in product innovation, its strong market position in key geographic
markets and the consistently high quality of its products. The Company's Estee
Lauder and Clinique brands ranked first and second, respectively, in annual
sales from 1986 through 1995 among the cosmetics brands sold at 2,800 department
stores and specialty stores in the United States, as reported by Mottus &
Associates. In 1995, the Company's brands together had a 41.7% market share of
women's cosmetics sold at these stores. In Western Europe, the Estee Lauder
brand ranked first among 30 cosmetic brands in sales per point of sale from 1989
through 1995 and the Clinique brand ranked second in 1993, 1994 and 1995. In
Japan, the Clinique and Estee Lauder brands ranked first and third,
respectively, in market share in 1993, 1994 and 1995 at the 179 department
stores where the Company's products are sold, and, in 1995, the Company's brands
together represented 33% of the cosmetics sold at these stores.

Products

Estee Lauder, Clinique, Aramis, Prescriptives, Origins, Tommy Hilfiger,
M.A.C. and Bobbi Brown essentials are premier brand names that are widely
recognized by retailers and consumers.

Estee Lauder -- Estee Lauder brand products, which have been sold since
1946, are positioned as luxurious, classic and aspirational. The Company
believes that Estee Lauder brand products are technologically advanced and
innovative and have a worldwide reputation for excellence. The broad product
line principally consists of skin care, makeup and fragrance products which are
presented in high quality packaging.

Clinique -- First introduced by the Company in 1968, Clinique's skin care
and makeup products are all allergy tested and 100% fragrance free and have been
designed to address individual skin types and needs. The products are based on
the research and related expertise of leading dermatologists. Clinique's skin
care products are marketed as part of the Three-Step System: Cleanse, Exfoliate,
Moisturize.

Aramis -- The Company pioneered the marketing of prestige men's grooming
and skin care products and fragrances with the introduction of Aramis products
in 1964. Aramis continues to offer one of the

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broadest lines of prestige men's products and has extended the line to include
fragrances for women, such as Tuscany per Donna and Havana Pour Elle.

Prescriptives -- The Company developed and introduced Prescriptives in
1979. Prescriptives is positioned as a color authority with an advanced
collection of highly individualized products primarily addressing the makeup and
skin care needs of contemporary women with active lifestyles. The products are
characterized by simple concepts, minimalist design and an innovative image, and
through a system of color application and extensive range of makeup shades,
accommodate a diverse group of consumers.

Origins -- Origins, the Company's most recent internally-developed brand,
was introduced in 1990. It is positioned as a natural cosmetics line of skin
care, makeup and sensory therapy products that combines time-tested botanical
ingredients with modern science to promote total well-being. In addition to
traditional retail counters, Origins sells its products in 22 Origins stores and
has opened 104 stores-within-stores, which are designed to replicate the Origins
store environment within a department store.

Tommy Hilfiger -- The Company has an exclusive global license arrangement
to develop and market a line of men's and women's fragrances and cosmetics under
the Tommy Hilfiger brand. In 1995, the Company launched a men's fragrance
'tommy', with cologne and aftershave products, and launched a women's fragrance,
'tommy girl', in the fall of 1996.

M.A.C. -- The Company acquired a majority equity interest in M.A.C. and was
appointed the exclusive distributor of M.A.C. products outside the United States
and Canada in December 1994. M.A.C. products comprise a broad line of
color-oriented, professional cosmetics and professional makeup tools targeting
make-up artists and fashion-conscious consumers. The products are sold through a
limited number of department and specialty retail stores and through 26
free-standing M.A.C. stores. The Company began to sell M.A.C. products in Hong
Kong in fiscal 1996 and in France in fiscal 1997 and is planning to expand

distribution to other countries, including Germany, Italy and Singapore. The
surviving founders of M.A.C. continue to manage the marketing, product
development, manufacturing and U.S. and Canadian distribution of M.A.C. products
and they also continue to control the interests in M.A.C. not owned by the
Company.

Bobbi Brown essentials -- In October 1995, the Company acquired the Bobbi
Brown essentials line of color cosmetics, professional makeup brushes and skin
care products. Bobbi Brown products are sold through a limited number of
department and specialty stores. The founders of Bobbi Brown essentials continue
to manage Bobbi Brown's domestic business.

In addition to the foregoing brands, the Company also manufactures and
sells Creme de la Mer, a skin care product acquired by the Company and marketed
separately from its other brands, and through a joint venture formed for the
purpose of developing and distributing fragrances, the Company launched in
September 1996 a men's fragrance, Kiton, in selected European markets.

Distribution

The Company's products are sold at more than 8,000 points of sale in over
100 countries and territories. In each geographic market, the products are sold
through limited distribution channels that complement the quality image of the
Company's products. These channels consist primarily of upscale department
stores, specialty retailers, upscale perfumeries and pharmacies and, to a lesser
extent, free-standing company stores, stores on cruise ships, in-flight and
duty-free shops in airports and cities.

The Company maintains a dedicated sales force (consisting of approximately
4,000 employees as of June 30, 1996) who sell to the Company's retail accounts
in North America and in the Company's major overseas markets, such as Western
Europe and Japan. The Company has wholly-owned operations in over 30 countries
and territories through which it markets, sells and distributes its products
throughout the world. In certain markets, the Company sells its products through
selected local distributors under contractual arrangements designed to protect
the image and position of the Company's brands. In addition, the Company sells
certain products in selected domestic and international military locations.

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<PAGE>
Customers

The Company's strategy has been to build strong strategic relationships
with selected retailers globally. The Company's senior management works with
executives of its major retail accounts on a regular basis, and the Company
believes it is viewed as an important supplier to these customers.

No customer or group of affiliated customers accounted for more than 10% of
the Company's net sales in fiscal 1994. In fiscal 1995 and 1996, customers
affiliated with Federated Department Stores Inc. (e.g., Bloomingdale's,
Burdines, Macy's and Rich's/Lazarus) accounted for 11% and 13% of the Company's
net sales, respectively. In addition, in fiscal 1996, customers affiliated with
The May Department Stores Company (e.g., Foley's, Lord & Taylor and
Robinsons-May) accounted for 10% of the Company's net sales.

Marketing

The Company's marketing strategy is built around its 'vision' statement:
'Bringing the Best to Everyone We Touch'. Estee Lauder formulated this marketing
philosophy to provide high quality service and products as the foundation for a
solid and loyal consumer base.

The Company focuses its marketing efforts on promoting the quality and
benefits of its products. Each of the Company's brands is distinctively
positioned, has a single global image, and is promoted with consistent logos,
packaging and advertising designed to enhance its image and differentiate it
from other brands. In recent years, the Company has increased its emphasis on
media advertising while decreasing the level of promotional spending as a
percentage of sales. The Company regularly advertises its products on television
and radio, in upscale magazines and prestigious newspapers and through direct
mail and photo displays at international airports. Promotional activities and
in-store displays are designed to introduce existing consumers to different
products in the line and to attract new consumers. The Company's marketing
efforts also benefit from cooperative advertising programs with retailers, some
of which are supported by coordinated promotions, such as 'Gift with Purchase'
and 'Purchase with Purchase'. At in-store counters, the Company offers personal
demonstrations to market individual products as well as to provide education on
basic skin care and makeup application. The Company conducts extensive sampling
programs. The Company pioneered 'Gift with Purchase' as a sampling program and
believes that the quality and perceived benefits of sample products have been
effective inducements in selling products to existing and new consumers.

Nearly all of the creative work for Estee Lauder, Clinique, Aramis,
Prescriptives, Origins, M.A.C. and Bobbi Brown essentials is done by brand
specific in-house creative teams. The creative staff designs and produces the
sales materials, advertisements and packaging for all products in the brand. The
Company's total advertising and promotional expenditures in fiscal 1996 were
$921.2 million, or 28.8% of net sales. In addition, the Company's products
receive extensive editorial coverage in prestige publications and other media
worldwide.

The marketing and sales executives of the Company spend considerable time
in the field meeting with consumers, checking activities of competitors and
consulting with the approximately 25,000 sales representatives at the points of
sale. These include Estee Lauder Beauty Advisors, Clinique Consultants, Aramis
Selling Specialists, Prescriptives Analysts and Origins Guides. The costs
associated with these sales representatives, who typically are employees of the
department stores, generally are shared by the retailer and the Company and, to
a lesser extent, borne solely by the retailer. The marketing and sales
executives also frequently visit worldwide points of sale and jointly develop
with key retailers specific marketing strategies for increasing growth and
profitability.

As is customary in the cosmetics industry, the Company's practice is to
accept returns of its products from retailers. In accepting returns, the Company
typically provides a credit to the retailer with respect to accounts receivable
from that retailer on a dollar-for-dollar basis. In recognition of this
practice, and in accordance with generally accepted accounting principles, the

Company reports its sales levels on a net sales basis, which is computed by
deducting from gross sales the amount of actual returns and the

18
<PAGE>
amount of reserve established for anticipated returns. As a percentage of gross
sales, returns were approximately 4.9%, 4.3% and 4.8% in fiscal 1996, 1995 and
1994, respectively.

Management Information Systems

The Company's management information systems provide order processing,
production and accounting support for the Company's business. The Company is
implementing a sales analysis system to track weekly sales by stock keeping unit
(i.e., sell-through data). The system is currently tracking sales at
approximately 95% of the Company's points of sale in the United States and
Canada. The increased understanding of consumer preferences gained from
sell-through data enables the Company to coordinate more effectively its product
development, manufacturing and marketing strategies. The Company also is
implementing similar systems in certain international markets.

In addition, the Company has entered into automated replenishment
arrangements with a number of its key customers in the United States and Canada.
These arrangements enable the Company to replenish inventories for individual
points of sale automatically, with minimal paperwork. Approximately 70% of the
Company's orders in the United States are placed through automated replenishment
systems.

The use of sell-through data combined with the implementation of automated
replenishment systems has resulted in increased sales, fewer 'out-of-stocks' and
reduced retail inventories. The Company's management expects that these systems
will continue to provide inventory and sales efficiencies during the next
several years as their implementation is completed.

Research and Development

The Company believes that it is an industry leader in the development of
new products. The Company's marketing, product development and packaging groups
work with its research and development group to identify shifts in consumer
preferences, develop new products and redesign or reformulate existing products.
In addition, research and development personnel work closely with quality
assurance and manufacturing personnel on a worldwide basis to ensure a
consistent global standard for products and to deliver products with attributes
that fulfill consumer expectations. The Company maintains ongoing research and
development programs at its facilities in Melville, New York, Oevel, Belgium and
Tokyo, Japan.

Manufacturing and Raw Materials

The Company manufactures skin care, makeup and fragrance products in the
United States, Belgium, Switzerland, the United Kingdom and Canada and, to a
lesser extent, in Australia, Venezuela and South Africa. In 1993, the Company
began a program to streamline its manufacturing and sourcing to increase
efficiencies and reduce costs. As part of this program, the Company is

converting a portion of its manufacturing facilities at selected sites into
'focus' plants that will manufacture one type of product (e.g., powders) for all
the Company's principal brands. Management believes that the Company's
manufacturing facilities are sufficient to meet its current and reasonably
anticipated manufacturing and related requirements. The Company's plants are
modern and its manufacturing processes are substantially automated. A limited
number of finished products are manufactured to the Company's specifications by
third parties.

The principal raw materials used by the Company in the manufacture of its
products are essential oils, alcohol and specialty chemicals. The Company also
purchases packaging components, which are manufactured to its design
specifications. Procurement of materials for all manufacturing facilities is
made on a global basis through the Company's centralized supplier relations
department, and it is expected that the use of 'focus' plants will also
contribute to greater efficiencies in sourcing. The Company typically enters
into arrangements with suppliers for periods of one to four years to obtain cost
advantages and ensure quality. The Company is not dependent upon a single
supplier (or a single facility of any supplier) for materials that are either
essential to its business or not otherwise commercially available to the
Company. The Company has been able to obtain an adequate supply of raw materials
and believes it has adequate alternate sources of supply for all principal
components of its products. The Company does not believe that

19
<PAGE>
the loss of any one supplier would have a material adverse effect on its results
of operations or financial condition.

Competition

The skin care, makeup and fragrance businesses are characterized by
vigorous competition throughout the world. Product recognition, quality,
performance and price have a significant influence on consumers' choices among
competing products and brands. Advertising, promotion, merchandising, the pace
and timing of new product introductions and line extensions and the quality of
in-store sales staff also have a significant impact on consumer buying
decisions. The Company competes against a number of manufacturers and marketers
of skin care, makeup and fragrance products, some of which have substantially
greater resources than the Company and many of which sell their products through
broader distribution channels than the Company.

The Company's principal competitors among manufacturers and marketers of
prestige skin care, makeup and fragrance products brands include L'Oreal S.A.
(which markets Lancome, Ralph Lauren and other products), Unilever N.V. (which
markets Calvin Klein, Elizabeth Arden and other products), The Procter & Gamble
Company (which markets Giorgio fragrances, Max Factor and other products), LVMH
Moet Hennessy Louis Vuitton (which markets Christian Dior, Givenchy and Guerlain
products), Shiseido Company, Ltd. (which markets Shiseido products), Elf Sanofi
S.A. (which markets Nina Ricci, Yves Rocher and Yves St. Laurent products), Joh.
A. Benckiser GmbH (which markets Lancaster, Davidoff, Joop and Jil Sander
products), Chanel, Inc. (which markets Chanel and Bourjois products) and Clarins
(which markets Clarins products). Some of these competitors, as well as other
manufacturers and marketers, market and sell branded products through broader

distribution channels. These include Avon Products, Inc., Joh. A. Benckiser GmbH
(which markets Coty products), L'Oreal (which markets L'Oreal, Maybelline and
Plenitude Products), The Procter & Gamble Company (which markets Cover Girl
products) and Revlon, Inc. (which markets Revlon, Almay and Moon Drops
products).

Trademarks and Patents

The Company owns all of the material trademark rights used in connection
with the production, marketing and distribution of its major products both in
the United States and in the other countries in which its products are
principally sold, except the trademark rights relating to Tommy Hilfiger which
are licensed. The Company acquired the Estee Lauder trademark from Mrs. Estee
Lauder in 1969 in exchange for an agreement to pay her for the remainder of her
life royalties based on the domestic and international sales of Estee Lauder
brand products. The royalty payments also relate to sales of Prescriptives
products, which were initially sold under the Estee Lauder brand. In June 1994,
Mrs. Lauder transferred her rights to payments in respect of domestic sales to
The Estee Lauder 1994 Trust. In November 1995, the Company purchased those
rights from the trust. The Company will continue to pay the royalty based on
international sales until Mrs. Lauder's death. The Company has an exclusive
license to use the Tommy Hilfiger trademark (and related marks) worldwide in
connection with the production, marketing and distribution of the Tommy Hilfiger
line of fragrances and cosmetics.

The Company's major trademarks are registered in the United States and in
each of the countries in which the Company's products are sold. The Company's
major trademarks include the brand names Estee Lauder, Clinique, Aramis,
Prescriptives, Origins, M.A.C. and Bobbi Brown essentials and the names of most
of the products sold under each of these brands. The Company considers the
protection of its trademarks to be important to its business.

A number of the Company's products incorporate patented or patent-pending
formulations. In addition, several of the Company's products are covered by
design patents or patent applications. While management considers these patents
and the protection thereof to be important, no single patent is considered
material to the conduct of the Company's business.

20
<PAGE>
Employees

As of June 30, 1996, the Company had approximately 13,500 full-time
employees worldwide (inclusive of sales representatives at points of sale who
are employed by the Company), of whom approximately 5,000 were employed in the
United States and 8,500 abroad. None of the Company's U.S. employees is covered
by a collective bargaining agreement. Approximately 550 employees in Europe are
covered by Work Council agreements. Management believes that the Company's
relations with its employees are good. The Company has never encountered a
strike or material work stoppage in the United States or in any other country in
which it has a significant number of employees.

Government Regulation

The Company and its products are subject to regulation by the Food and Drug
Administration and the Federal Trade Commission in the United States, as well as
various other federal, state and local and foreign regulatory authorities. Such
regulations relate principally to the ingredients, labeling, packaging and
marketing of the Company's products. The Company believes that it is in
substantial compliance with such regulations, as well as applicable federal,
state, local and foreign rules and regulations governing the discharge of
materials hazardous to the environment. There are no significant capital
expenditures for environmental control matters either estimated in the current
year or expected in the near future.

Seasonality

The Company's results of operations are subject to seasonal fluctuations,
with net sales in the first and second fiscal quarters typically being slightly
higher than in the third and fourth fiscal quarters. The higher net sales in the
first two fiscal quarters are attributable to the increased levels of purchasing
by retailers for the Christmas selling period and for fall fashion makeup
introductions. Greater variation exists in quarterly operating income and
margin, which typically are lower in the second half of the fiscal year than in
the first half. In addition to the effect of lower net sales on operating income
in the third and fourth fiscal quarters as compared to the first and second
fiscal quarters, operating income and operating margin in the third and fourth
fiscal quarters are negatively affected by the relatively consistent dollar
amount of advertising and promotional spending by the Company in each fiscal
quarter. In addition, fluctuations in net sales and operating income in any
fiscal quarter may be attributable to the level and scope of new product
introductions.

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.

<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and executive officers of the Company.

<TABLE>
<CAPTION>
Name Age Position(s) Held
- ------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Leonard A. Lauder 63 Chairman of the Board of Directors and Chief Executive Officer
Ronald S. Lauder 52 Chairman of Clinique Laboratories, Inc. and Estee Lauder
International, Inc. and a Director
Fred H. Langhammer 53 President and Chief Operating Officer and a Director
William P. Lauder 36 President of Origins Natural Resources, Inc. and a Director
Marshall Rose 60 Director
P. Roy Vagelos, M.D. 67 Director
Faye Wattleton 53 Director
Robert J. Bigler 48 Senior Vice President and Chief Financial Officer
Daniel J. Brestle 51 President of Clinique Laboratories, Inc.
Robin R. Burns 44 President of Estee Lauder (U.S.A. and Canada)
Andrew J. Cavanaugh 50 Senior Vice President -- Corporate Human Resources
John B. Chilton 65 Senior Vice President -- Global Operations
Joseph Gubernick 62 Senior Vice President -- Research and Development
Evelyn H. Lauder 60 Senior Corporate Vice President
Mary Carroll Linder 49 Senior Vice President -- Global Communications
Saul H. Magram 65 Senior Vice President, General Counsel and Secretary
Robert A. Nielsen 66 President of Aramis Inc. and Prescriptives Inc.
Jeanette S. Wagner 67 President of Estee Lauder International, Inc.
</TABLE>

Leonard A. Lauder has served as Chief Executive Officer of the Company
since 1982 and as President from 1972 until 1995. He became Chairman of the
Board of Directors of the Company in 1995. He has been a director since 1958.
Mr. Lauder formally joined the Company in 1958 after serving as an officer in
the United States Navy. Since joining the Company, he has served in various
positions, including executive officer positions other than those described
above. He is Chairman of the Board of Trustees of the Whitney Museum of American
Art, a Charter Trustee of the University of Pennsylvania and a Trustee of The
Aspen Institute. He also served as a member of the White House Advisory
Committee on Trade Policy and Negotiations under President Reagan.

Ronald S. Lauder is a member of the Board of Directors. He has served as a
director of the Company from 1968 to 1986 and since 1988. He has served as
Chairman of Clinique Laboratories, Inc. and Chairman of Estee Lauder
International, Inc. since returning from government service in 1987. Mr. Lauder
joined the Company in 1964 and has served in various capacities, including those
described above, since then. From 1983 to 1986, Mr. Lauder served as Deputy
Assistant Secretary of Defense for European and NATO Affairs. From 1986 to 1987,
he served as U.S. Ambassador to Austria. Since 1990, he has been Chairman of the
Central European Development Corporation, an investment company. He serves as
Chairman of the Board of Directors of Central European Media Enterprises Ltd.,
an owner and operator of commercial television stations in Central and Eastern

Europe and Germany, and as Chairman of the Board of Trustees of the Museum of
Modern Art and is Chairman of the New York State Research Council on
Privatization.

Fred H. Langhammer has been President of the Company since 1995 and Chief
Operating Officer of the Company since 1985. He has been a Director of the
Company since 1996. He was Executive Vice President from 1985 until 1995. Mr.
Langhammer joined the Company in 1975 as President of its operations in Japan.
In 1982, he was appointed Managing Director of the Company's operations in

22
<PAGE>
Germany. Prior to joining the Company, Mr. Langhammer was General Manager of
Dodwell (Japan), a global trading company. He is a member of the Board of
Directors of the Cosmetics, Toiletries and Fragrance Association, an industry
group, and serves on the Board of the American Institute for Contemporary German
Studies at Johns Hopkins University.

William P. Lauder is President of Origins Natural Resources, Inc., and has
been the senior officer of such division since its inception in 1990. He joined
the Company in 1986 and has been a director since 1996. From 1983 until he
joined the Company, Mr. Lauder was associated with Macy's, a department store
chain. He is a member of the Board of Trustees of The Trinity School in New York
City and the Board of Directors of the Educational Foundation of Fashion
Industries.

Marshall Rose is managing partner of The Georgetown Group, a privately held
real estate development and financial service group. He has been a Director of
the Company since 1996. He is a Trustee of BRT Realty Trust and a Director of
Golden Books Family Entertainment Company Inc. and One Liberty Properties. Among
his numerous civic activities, he is Chairman of the Executive Committee and
Chairman Emeritus of The New York Public Library and a member of the Executive
Committee of the Board of Advisors of The Graduate School and University Center
of the City University of New York. Mr. Rose is a member of the Audit Committee
and the Compensation Committee.

P. Roy Vagelos, M.D. is Chairman of the Board of Regeneron Pharmaceuticals.
He was the Chairman and Chief Executive Officer of Merck & Co., Inc. from 1985
to 1994. He has been a director of the Company since 1996. Dr. Vagelos is also a
director of PepsiCo, Prudential Insurance Co. of America and McDonnell Douglas
Corporation. He is also Chairman of the Board of Trustees of The University of
Pennsylvania. Dr. Vagelos is Chairman of the Compensation Committee and a member
of the Audit Committee.

Faye Wattleton is an author, lecturer and consultant to businesses, health
organizations and nonprofit entities. She has been a Director of the Company
since 1996. She was the President of Planned Parenthood Federation of America,
Inc. from 1979 to 1992. She is a Director of Empire Blue Cross & Blue Shield,
the Henry J. Kaiser Foundation, Leslie Fay, Inc., Quidel Corporation and
Thirteen/WNET. She is also a Director of the Institute for International
Education and a member of the Advisory Council of Columbia University School of
Public Health. Ms. Wattleton is Chairman of the Audit Committee.

Robert J. Bigler is Senior Vice President and Chief Financial Officer of

the Company, a position he assumed in 1992. Before that, he had served as Senior
Vice President -- Controller of Estee Lauder International, Inc. from 1986. He
is a certified public accountant, and was associated with Peat, Marwick and
Mitchell, an accounting firm, from 1969 until he joined the Company in 1975.

Daniel J. Brestle is President of Clinique Laboratories, Inc. and has been
the senior officer of that division since 1992. Prior thereto, he was President
of Prescriptives U.S.A. since 1988. Mr. Brestle joined the Company in 1978. From
1973 to 1978, he was associated with Johnson & Johnson, a consumer products
company.

Robin R. Burns has served as President of Estee Lauder (U.S.A.) since 1990.
Her duties were expanded in 1995 to include Canada. From 1983 to 1990, Ms. Burns
was President of Calvin Klein Cosmetics. From 1974 to 1983, she was associated
with Bloomingdale's, a department store chain, where she attained the position
of Cosmetics Divisional Merchandising Manager for all stores. She is a member of
the Board of Directors of the Cosmetics, Toiletries and Fragrance Association, a
member of the Board of Trustees of Fashion Institute of Technology and a member
of the Advisory Board of The Breast Cancer Research Foundation.

Andrew J. Cavanaugh has been Senior Vice President -- Corporate Human
Resources since 1994. Mr. Cavanaugh joined the Company in 1988 as Executive
Director -- Human Resources. From 1986 to 1988, he was Senior Consultant with
Coopers & Lybrand L.L.P., an accounting and consulting firm, and from 1983 to
1986, he was Senior Vice President -- Administration of Paramount Pictures
Corporation. Since 1993, he has been a member of the Board of Directors of Lewis
Galoob Toys, Inc.

23
<PAGE>
John B. Chilton is Senior Vice President -- Global Operations and has been
in charge of the Company's global manufacturing operations since 1993. Before
that, Mr. Chilton managed the Company's United States manufacturing operations
since 1978. He joined the Company in 1973 as Managing Director of the Company's
manufacturing unit in the United Kingdom, and managed international operations
from 1974 to 1978. Mr. Chilton previously held senior manufacturing positions
with Cadbury Schweppes, a food products company, and Cheesebrough Pond's, a
consumer products company, in the United Kingdom.

Joseph Gubernick is Senior Vice President -- Research and Development of
the Company. Mr. Gubernick joined the Company in 1972 as Vice President --
Research and Development. Prior thereto, Mr. Gubernick was Director of Research
for Revlon, Inc., a cosmetics manufacturer.

Evelyn H. Lauder has been Senior Corporate Vice President of the Company
since 1989, and previously served as Vice President and in other executive
capacities since first joining the Company in 1959 as Education Director. She is
a member of the Board of Overseers, Memorial Sloan-Kettering Cancer Center, a
member of the Board of Trustees of Central Park Conservancy, Inc. and The
Trinity School in New York City, a member of the Board of Directors of The Parks
Council and the Founder and President of The Breast Cancer Research Foundation.

Mary Carroll Linder has been Senior Vice President -- Global Communications
since 1996. Ms. Linder previously headed the public relations area of Grand

Metropolitan, PLC, a broadly based consumer products company, as Group Corporate
Communications Director and, prior thereto, represented prestige properties
under the InterContinental and Hilton International names.

Saul H. Magram is Senior Vice President, General Counsel and Secretary of
the Company. Mr. Magram has been the senior legal officer of the Company since
he joined in 1968. Prior to that, Mr. Magram held the position of Associate
Counsel with Revlon, Inc. from 1960.

Robert A. Nielsen is President of Aramis Inc. and President of
Prescriptives Inc. and has been senior officer of those divisions since 1992 and
1995, respectively. Mr. Nielsen first joined the Company in 1960 and has been
associated with it on three occasions since that date. From 1987 to 1990, Mr.
Nielsen was a senior executive officer of Revlon, Inc. with responsibility for
its prestige cosmetics businesses. From 1990 to 1992, Mr. Nielsen was a
management development consultant in the fashion industry.

Jeanette S. Wagner is President of Estee Lauder International, Inc., a
position she has held since 1985. Mrs. Wagner joined the Company in 1975 to head
the activity of the Estee Lauder brand in international markets. Prior to
assuming her current responsibilities, Mrs. Wagner served as Senior Vice
President -- Corporate Development from 1982 to 1985. Mrs. Wagner has been a
member of the Board of Directors of the American Greetings Corporation since
1990 and The Stride Rite Corporation since 1994. In 1994, Mrs. Wagner was
appointed by President Clinton to serve on the White House Advisory Committee on
Trade Policy and Negotiations, and she currently serves as the Chairman of the
Fragrance Foundation, an industry group.

<PAGE>
SELLING STOCKHOLDERS

The following table sets forth certain information for each Selling
Stockholder identified below with respect to (i) such Selling Stockholder's
beneficial ownership of Class A Common Stock and Class B Common Stock prior to
the Offerings and the percentage of total voting power represented thereby and
(ii) the number of shares of Class A Common Stock and Class B Common Stock to be
beneficially owned by such Selling Stockholder after the Offerings and the
percentage of total voting power represented thereby.

<TABLE>
<CAPTION>
Before the Offerings Shares of After the Offerings
-------------------------------------- Class A --------------------------------------
Common Stock Common Stock
Common Stock Percentage to be Sold to be Percentage
Beneficially of Total in the Beneficially of Total
Owned Voting Power Offerings Owned Voting Power
----------------------- ------------ ------------ ----------------------- ------------
Name of Selling Stockholder Class A Class B Class A Class A Class B
- ----------------------------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard A. Lauder(1)......... 26,804,247 29,370,773 51.0% 1,000,000 25,804,247 29,370,773 50.8%
The LAL 4000 Trust(2)........ 780,000 0 0.1 780,000 0 0 0
The LAL 4001 Trust(2)........ 220,000 0 * 220,000 0 0 0
The RSL 4200 Trust(3)........ 4,000,000 0 0.6 4,000,000 0 0 0
The Ronald S. Lauder
Foundation(4).............. 315,700 0 0.1 65,000 250,700 0 *
The WPL 3800 Trust(5)........ 200,000 0 * 200,000 0 0 0
The L and G Trust(5)......... 100,000 0 * 100,000 0 0 0
Gary M. Lauder(6)............ 3,163,216 1,914,608 3.6 250,000 2,913,216 1,914,608 3.5
Aerin Lauder Zinterhofer..... 300,000 0 * 300,000 0 0 0
Jane Lauder.................. 300,000 0 * 300,000 0 0 0
</TABLE>

- ------------------

* Less than 0.1%.

(1) Includes shares beneficially owned or deemed to be owned beneficially,
directly and indirectly, by Leonard A. Lauder, of which he disclaims
beneficial ownership with respect to 160,000 shares of Class A Common Stock
owned by Evelyn H. Lauder and 261,131 shares of Class A Common Stock owned
by The Lauder Foundation. Excludes shares of Class A Common Stock underlying
stock options granted to Mr. Lauder pursuant to his employment agreement.

(2) The LAL 4000 Trust and the LAL 4001 Trust are trusts established by Leonard
A. Lauder. Joel S. Ehrenkranz, as the trustee of the LAL 4000 Trust and the
LAL 4001 Trust, has sole investment and voting power over the shares owned
by the two trusts and is deemed to beneficially own all such shares.
Including the shares owned by the LAL 4000 Trust and the LAL 4001 Trust, Mr.
Ehrenkranz beneficially owns (or is deemed to beneficially own), directly
and indirectly, 3,860,647 shares of Class A Common Stock and 4,981,139

shares of Class B Common Stock before the Offerings, which together
represent 8.5% of the outstanding voting power of the Common Stock before
the Offerings, and will beneficially own (or will be deemed to beneficially
own), directly and indirectly, 2,860,647 shares of Class A Common Stock and
4,981,139 shares of Class B Common Stock after the Offerings, which together
will represent 8.4% of the outstanding voting power of the Common Stock
after the Offerings. Except for the 10,000 shares of Class A Common Stock he
owns directly, Mr. Ehrenkranz has voting and investment power with respect
to all such other shares of Common Stock as trustee of various trusts
established for the benefit of certain members of the Lauder family and as
to which he disclaims beneficial ownership.

(3) The RSL 4200 Trust is a trust established by Ronald S. Lauder. Louis Begley,
as the trustee of the RSL 4200 Trust, has sole investment and voting power
over the shares owned by such trust and is deemed to beneficially own all
such shares. Mr. Begley disclaims beneficial ownership of all such shares
owned by the RSL 4200 Trust.

(Footnotes continued on next page)

25
<PAGE>
(Footnotes continued from previous page)

(4) Ronald S. Lauder is a director of The Ronald S. Lauder Foundation and shares
investment and voting power as to the shares owned by The Ronald S. Lauder
Foundation. Mr. Lauder disclaims beneficial ownership of all such shares
owned by The Ronald S. Lauder Foundation.

(5) The WPL 3800 Trust is a trust established by William P. Lauder and the L and
G Trust is a trust established by Gary M. Lauder. Carol Boulanger, as the
trustee of the WPL 3800 Trust and the L and G Trust, has sole investment and
voting power over the shares owned by the two trusts and is deemed to
beneficially own all such shares. Including the shares owned by the WPL 3800
Trust and the L and G Trust, Ms. Boulanger beneficially owns (or is deemed
to beneficially own), directly and indirectly, 1,459,704 shares of Class A
Common Stock and 1,143,454 shares of Class B Common Stock before the
Offerings, which together represent 2.1% of the outstanding voting power of
the Common Stock before the Offerings, and will beneficially own (or will be
deemed to beneficially own), directly and indirectly, 1,159,704 shares of
Class A Common Stock and 1,143,454 shares of Class B Common Stock after the
Offerings, which together will represent 2.0% of the total voting power of
the Common Stock after the Offerings. Except for the 2,000 shares of Class A
Common Stock she owns directly, Ms. Boulanger has voting and investment
power with respect to all such other shares of Common Stock as trustee of
various trusts established for the benefit of the certain members of the
Lauder family and as to which she disclaims beneficial ownership.

(6) Includes shares beneficially owned or deemed beneficially owned, directly
and indirectly, by Gary M. Lauder.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 300,000,000 shares

of Class A Common Stock, 120,000,000 shares of Class B Common Stock, and
23,600,000 shares of Preferred Stock, par value $.01 per share, including
3,600,000 shares of $6.50 Cumulative Redeemable Preferred Stock. As of January
27, 1997, there were 60,486,913 shares of Class A Common Stock and 56,839,667
shares of Class B Common Stock outstanding. All of the shares of Class B Common
Stock are beneficially owned by members of the Lauder family. Of the authorized
shares of Preferred Stock, 3,600,000 shares of $6.50 Cumulative Redeemable
Preferred Stock are outstanding and, as of the date of this Prospectus, are
beneficially owned by members of the Lauder family. The following description is
a summary and is subject to and qualified in its entirety by reference to the
provisions of the Restated Certificate of Incorporation filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.

Common Stock

The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for voting rights, certain conversion rights and
transfer restrictions in respect of the shares of the Class B Common Stock, as
described below.

Voting Rights. Each share of Class A Common Stock entitles the holder to
one vote on each matter submitted to a vote of the Company's stockholders and
each share of Class B Common Stock entitles the holder to ten votes on each such
matter, including the election of directors. There is no cumulative voting.
Except as required by applicable law, holders of the Class A Common Stock and
Class B Common Stock will vote together on all matters submitted to a vote of
the stockholders. With respect to certain corporate changes, such as
liquidations, reorganizations, recapitalizations, mergers, consolidations and
sales of all or substantially all of the Company's assets, holders of the Class
A Common Stock and Class B Common Stock will vote together as a single class and
the approval of 75% of the outstanding voting power is required to authorize or
approve such transactions.

Any action that can be taken at a meeting of the stockholders may be taken
by written consent in lieu of the meeting if the Company receives consents
signed by stockholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the

26
<PAGE>
matter were present. This could permit the holders of Class B Common Stock to
take all actions required to be taken by the stockholders without providing the
other stockholders the opportunity to make nominations or raise other matters at
a meeting. The right to take action by less than unanimous written consent
expires at such time as there are no shares of Class B Common Stock outstanding.

Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate if, as and when such dividends
are declared by the Board of Directors of the Company out of assets legally
available therefor after payment of dividends required to be paid on shares of
preferred stock, if any.

If a dividend or distribution payable in shares of Class A Common Stock is

made on the Class A Common Stock, the Company must also make a pro rata and
simultaneous dividend or distribution on the Class B Common Stock payable in
shares of Class B Common Stock. Conversely, if a dividend or distribution
payable in shares of Class B Common Stock is made on the Class B Common Stock,
the Company must also make a pro rata and simultaneous dividend or distribution
on the Class A Common Stock payable in shares of Class A Common Stock.

Restrictions on Transfer. If a holder of Class B Common Stock transfers
such shares, whether by sale, assignment, gift, bequest, appointment or
otherwise, to a person other than a Lauder Family Member (as defined below),
such shares will be converted automatically into shares of Class A Common Stock.
In the case of a pledge of shares of Class B Common Stock to a financial
institution, such shares will not be deemed to be transferred unless and until a
foreclosure occurs.

As used in this Prospectus, the term 'Lauder Family Members' includes only
the following persons: (i) Mrs. Estee Lauder and her estate, guardian,
conservator or committee; (ii) each descendant of Mrs. Lauder (a 'Lauder
Descendant') and their respective estates, guardians, conservators or
committees; (iii) each 'Family Controlled Entity' (as defined below); and (iv)
the trustees, in their respective capacities as such, of each 'Family Controlled
Trust' (as defined below). The term 'Family Controlled Entity' means (i) any
not-for-profit corporation if at least 80% of its board of directors is composed
of Mrs. Lauder and/or Lauder Descendants; (ii) any other corporation if at least
80% of the value of its outstanding equity is owned by Lauder Family Members;
(iii) any partnership if at least 80% of the value of its partnership interests
are owned by Lauder Family Members; and (iv) any limited liability or similar
company if at least 80% of the value of the company is owned by Lauder Family
Members. The term 'Family Controlled Trust' includes certain trusts existing on
November 16, 1995 and trusts the primary beneficiaries of which are Mrs. Lauder,
Lauder Descendants, spouses of Lauder Descendants and/or charitable
organizations provided that if the trust is a wholly charitable trust, at least
80% of the trustees of such trust consist of Mrs. Lauder and/or Lauder
Descendants.

Conversion. Class A Common Stock has no conversion rights. Class B Common
Stock is convertible into Class A Common Stock, in whole or in part, at any time
and from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. In the
event of a transfer of shares of Class B Common stock to any person other than a
Lauder Family Member, each share of Class B Common Stock so transferred
automatically will be converted into one share of Class A Common Stock. Each
share of Class B Common Stock will also automatically convert into one share of
Class A Common Stock if, on the record date for any meeting of the stockholders,
the number of shares of Class B Common Stock then outstanding is less than 10%
of the aggregate number of shares of Class A Common Stock and Class B Common
Stock then outstanding.

Liquidation. In the event of liquidation, after payment of the debts and
other liabilities of the Company and after making provision for the holders of
Preferred Stock, if any, the remaining assets of the Company will be
distributable ratably among the holders of the Class A Common Stock and Class B
Common Stock treated as a single class.

Mergers and Other Business Combinations. Upon the merger or consolidation
of the Company, holders of each class of Common Stock are entitled to receive
equal per share payments or distributions, except that in any transaction in
which shares of capital stock are distributed, such shares may differ as to
voting rights to the extent and only to the extent that the voting rights of the
Class A Common Stock and

27
<PAGE>
Class B Common Stock differ at that time. The Company may not dispose of all or
any substantial part of the assets of the Company to, or merge or consolidate
with, any person, entity or 'group' (as defined in Rule 13d-5 of the Exchange
Act), which beneficially owns in the aggregate ten percent or more of the
outstanding Common Stock of the Company (a 'Related Person') without the
affirmative vote of the holders, other than such Related Person, of not less
than 75% of the voting power of outstanding Class A Common Stock and Class B
Common Stock voting as a single class. For the sole purpose of determining the
75% vote, a Related Person will also include the seller or sellers from whom the
Related Person acquired, during the preceding six months, at least five percent
of the outstanding shares of Class A Common Stock in a single transaction or
series of related transactions pursuant to one or more agreements or other
arrangements (and not through a brokers' transaction) but only if such seller or
sellers have beneficial ownership of shares of Common Stock having a fair market
value in excess of $10 million in the aggregate following such disposition to
such Related Person. This 75% voting requirement is not applicable, however, if
(i) the proposed transaction is approved by a vote of not less than a majority
of the Board of Directors of the Company who are neither affiliated nor
associated with the Related Person (or the seller of shares to the Related
Person as described above) or (ii) in the case of a transaction pursuant to
which the holders of Common Stock are entitled to receive cash, property,
securities or other consideration, the cash or fair market value of the
property, securities or other consideration to be received per share in such
transaction is not less than the higher of (A) the highest price per share paid
by the Related Person for any of its holders of Common Stock within the two-year
period immediately prior to the announcement of the proposed transaction or (B)
the highest closing sale price during the 30-day period immediately preceding
such date or during the 30-day period immediately preceding the date on which
the Related Person became a Related Person, whichever is higher.

Other Provisions. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. Neither the Class A Common
Stock nor the Class B Common Stock may be subdivided or combined in any manner
unless the other class is subdivided or combined in the same proportion.

Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Class A Common Stock is ChaseMellon Shareholder Services.

Preferred Stock

$6.50 Cumulative Redeemable Preferred Stock. Holders of the $6.50
Cumulative Redeemable Preferred Stock are entitled to receive cumulative cash
dividends at a rate of $6.50 per annum per share payable in quarterly
installments. If such dividends are not paid in full, or declared in full and
sums set apart for full payment thereof, then no dividends may be paid or

declared upon the Common Stock or any other capital stock ranking junior to or
on parity with such $6.50 Cumulative Redeemable Preferred Stock. If, at the time
of an annual meeting of stockholders, the equivalent of six quarterly dividends
are in arrears, then the number of directors of the Company will be increased by
two and the holders of the outstanding $6.50 Cumulative Redeemable Preferred
Stock voting separately as a class will be entitled at the meeting to vote for
the election of two directors. The right to elect two directors and such
directors' terms on the board of directors will continue until such arrearage in
the payment of dividends ceases to exist. Shares of $6.50 Cumulative Redeemable
Preferred Stock are subject to mandatory redemption on June 30, 2005 at a
redemption price of $100 per share. Following such date and so long as such
mandatory redemption obligations have not been discharged in full, no dividends
may be paid or declared upon the Common Stock, or on any other capital stock
ranking junior to or on a parity with such $6.50 Cumulative Redeemable Preferred
Stock and no shares of Common Stock or such junior or parity stock may be
redeemed or acquired for any consideration by the Company. The Company may
redeem the $6.50 Cumulative Redeemable Preferred Stock owned by The Estee Lauder
1994 Trust ('EL 1994 Trust') and a trust for the primary benefit of Leonard A.
Lauder ('LAL 1995 Trust'), in whole or in part, after the death of Mrs. Lauder
or, if owned by persons other than the EL 1994 Trust or the LAL 1995 Trust,
after five years following the disposition of such shares by the EL 1994 Trust
or the LAL 1995 Trust, as the case may be. After the later of June 30, 2000 and
Mrs. Lauder's death, holders of the $6.50 Cumulative Redeemable

28
<PAGE>
Preferred Stock may put such shares to the Company at a price of $100 per share
(which amount represents the liquidation preference per share).

Other Preferred Stock. The Board of Directors is authorized, subject to
any limitations prescribed by Delaware law or the rules of the NYSE or other
organizations on whose systems stock of the Company may be quoted or listed, to
provide for the issuance of additional shares of Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the rights, powers, preferences and privileges of the
shares of each wholly unissued series and any qualifications, limitations or
restrictions thereon, and to increase or decrease the number of shares of such
series, without any further vote or action by the stockholders. The approval of
the holders of at least 75% of the outstanding shares of Class B Common Stock,
however, is required for the issuance of shares of Preferred Stock that have the
right to vote for the election of directors under ordinary circumstances or to
elect 50% or more of the directors under any circumstances. Depending upon the
terms of the Preferred Stock established by the Board of Directors, any or all
series of Preferred Stock could have preference over the Common Stock with
respect to dividends and other distributions and upon liquidation of the Company
or could have voting or conversion rights that could adversely affect the
holders of the outstanding Common Stock. In addition, the Preferred Stock could
delay, defer or prevent a change of control of the Company. The Company has no
present plans to issue any additional shares of Preferred Stock.

Stockholders' Agreement

All Lauder Family Members (other than The Lauder Foundation, a tax exempt,
private foundation, Aerin Lauder Zinterhofer, Jane Lauder and the Selling

Stockholders which are trusts) who beneficially own shares of Common Stock have
agreed pursuant to a stockholders' agreement with the Company to vote all shares
beneficially owned by them for Leonard A. Lauder, Ronald S. Lauder and one
person (if any) designated by each as directors of the Company. As of December
31, 1996, such stockholders beneficially owned, in the aggregate, shares of
Common Stock having 97.0% of the voting power of the Company.

Registration Rights Agreement

Certain members of the Lauder family, certain trusts and other entities
controlled by members of the Lauder family, Morgan Guaranty Trust Company of New
York ('Morgan Guaranty') and the Company are parties to a Registration Rights
Agreement (the 'Master Registration Rights Agreement'), pursuant to which each
of Leonard A. Lauder, Ronald S. Lauder and Morgan Guaranty have three demand
registration rights and the EL 1994 Trust has six demand registration rights in
respect of shares of Class A Common Stock (including Class A Common Stock issued
upon conversion of Class B Common Stock) held by them. All the parties to the
Master Registration Rights Agreement (other than the Company) also have an
unlimited number of piggyback registration rights in respect of their shares.
The rights of Morgan Guaranty and any pledgee of the EL 1994 Trust under the
Master Registration Rights Agreement will be exercisable only in the event of a
default under certain loan arrangements.

29
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the U.S. Underwriters named
below, and each of such U.S. Underwriters has severally agreed to purchase from
the Selling Stockholders, the respective number of shares of Class A Common
Stock set forth opposite its name below:

<TABLE>
<CAPTION>
Number of
Shares of
Class A
U.S. Underwriters Common Stock
- -------------------------------------------------------------------------- --------------------
<S> <C>
Goldman, Sachs & Co....................................................... 1,443,000
Dillon, Read & Co. Inc.................................................... 1,443,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................. 1,443,000
J.P. Morgan Securities Inc................................................ 1,443,000
--------------------
Total................................................................ 5,772,000
--------------------
--------------------
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,

if any are taken.

The U.S. Underwriters propose to offer the shares of Class A Common Stock
in part directly to the public and at the initial public offering price set
forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of $1.10 per share. The U.S.
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per share to certain brokers and dealers. After the shares of Class A
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives of the U.S.
Underwriters and the International Underwriters.

The Company and the Selling Stockholders have entered into an underwriting
agreement (the 'International Underwriting Agreement') with the underwriters
(the 'International Underwriters') for the Offering outside of the United States
(the 'International Offering'), providing for the concurrent offer and sale of
1,443,000 shares of Class A Common Stock in the International Offering. The
initial public offering price and aggregate underwriting discounts and
commissions per share for the Offerings are identical. The closing of the
offering made hereby is a condition to the closing of the International
Offering, and vice versa.

Pursuant to the agreement between the U.S. and International Underwriting
Syndicates (the 'Agreement Between') relating to the Offerings, each of the U.S.
Underwriters named herein has agreed that, as a part of the distribution of the
shares offered as a part of the U.S. Offering and subject to certain exceptions,
it will offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction (the 'United States') and to U.S. persons which term shall mean,
for purposes of this paragraph: (a) any individual who is a resident of the
United States or (b) any corporation, partnership or other entity organized in
or under the laws of the United States or any political subdivision thereof and
whose office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed or will agree pursuant
to the Agreement Between that, as a part of the distribution of the shares
offered as a part of the International Offering, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Class A Common Stock (a) in the United States or to any U.S. person or
(b) to any person who it believes intends to reoffer, resell or deliver the
shares in the United States or to any U.S. person, and (ii) cause any dealer to
whom it may sell such shares at any concession to agree to observe a similar
restriction.

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and International Underwriters of such number of shares of Class A
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.

30
<PAGE>
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 679,800

additional shares of Class A Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
5,772,000 shares of Class A Common Stock offered hereby. The Company has granted
the International Underwriters a similar option exercisable for up to an
aggregate of 169,950 additional shares of Class A Common Stock.

The Company, the Selling Stockholders, the other Lauder Family Members who
are stockholders of the Company (other than The Lauder Foundation) and Morgan
Guaranty have agreed that, during the period beginning from the date of this
Prospectus and continuing and including the date 90 days after the date of the
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Class A Common Stock or any security convertible into or
exchangeable for shares of Class A Common Stock without the prior written
consent of Goldman, Sachs & Co., except as otherwise provided in the
Underwriting Agreement and the International Underwriting Agreement and except
for transfers among Lauder Family Members.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.

Certain of the Underwriters and their affiliates have provided, are
currently providing, and expect to provide in the future, commercial and
investment banking services to the Company and its subsidiaries and certain
Lauder Family Members for which such Underwriters or their affiliates have
received and will receive fees and commissions. Morgan Guaranty, an affiliate of
J.P. Morgan Securities Inc. and J.P. Morgan Securities Ltd., is a lender to the
Company and certain Lauder Family Members.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 or at its regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the Company.
The Class A Common Stock is listed on the NYSE, and reports, proxy statements
and other information concerning the Company can be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.

This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as

amended (the 'Securities Act'). This Prospectus omits certain information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the securities offered hereby. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.

31
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company under the Exchange
Act with the Commission are incorporated herein by reference:

(i) the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996;

(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended September 30, 1996 and December 31, 1996; and

(iii) the description of the Class A Common Stock contained in the
Company's registration statement, dated November 8, 1995, on Form
8-A.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus but prior to the
termination of the Offerings, shall be deemed to be incorporated in this
Prospectus by reference and to be a part hereof from the date of filing such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request to such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference into the document that this
Prospectus incorporates by reference). Requests should be directed to Investor
Relations Department, The Estee Lauder Companies Inc., 767 Fifth Avenue, New
York, NY 10153, telephone number (212) 572-4184.

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Weil, Gotshal & Manges LLP, New York, New York
(members of which own approximately 38,000 shares of Class A Common Stock) and
certain legal matters will be passed upon for the Underwriters by Fried, Frank,

Harris, Shriver & Jacobson (a partnership including professional corporations).

EXPERTS

The financial statements and schedule incorporated by reference in this
Prospectus that are contained in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.

<PAGE>
[This page intentionally left blank]

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

No person has been authorized to give any information or make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy securities other than the securities to which it
relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein or therein is correct as of any time subsequent to its date.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................. 3
Price Range of Common Stock
and Dividends..................................... 6
Use of Proceeds..................................... 6
Selected Consolidated Financial Information......... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 8
Business............................................ 16
Directors and Executive Officers.................... 22
Selling Stockholders................................ 25
Description of Capital Stock........................ 26
Underwriting........................................ 30
Available Information............................... 31
Incorporation of Certain Documents by Reference..... 32
Legal Matters....................................... 32
Experts............................................. 32
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

7,215,000 Shares

THE ESTEE LAUDER
COMPANIES INC.

Class A Common Stock
(par value $.01 per share)

----------------------

[LOGO]

----------------------

Goldman, Sachs & Co.

Dillon, Read & Co. Inc.

Merrill Lynch & Co.

J.P. Morgan & Co.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>
[LOGO] 7,215,000 Shares
THE ESTEE LAUDER COMPANIES INC.

Class A Common Stock
(par value $.01 per share)

----------------------

Of the 7,215,000 shares of Class A Common Stock offered, 1,443,000 shares
are being offered hereby in an international offering outside the United States
and 5,772,000 shares are being offered in a concurrent offering in the United
States (the 'Offerings'). The initial public offering price and the aggregate
underwriting discount per share will be identical for both Offerings. See
'Underwriting'.

----------------------

- ------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

(2) Before deducting estimated expenses of $552,100 payable by the Selling
Stockholders and the Company.

----------------------

The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that the certificates for the shares will be ready for delivery in New York, New
York, on or about February 14, 1997, against payment therefor in immediately
available funds.

Goldman Sachs International
Dillon, Read & Co. Inc.
Merrill Lynch International
J.P. Morgan Securities Ltd.

----------------------

The date of this Prospectus is February 10, 1997.

<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

------------------------------

<PAGE>

CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Class A Common Stock
applicable to Non-U.S. Holders of such Class A Common Stock. A 'Non-U.S. Holder'
is a person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state, or (iii) an estate or trust whose
income is includable in gross income for United States federal income tax
purposes regardless of source. For purposes of the withholding tax on dividends
discussed below, a non-resident fiduciary of an estate or trust will be
considered a Non-U.S. Holder.

An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to tax as if they were U.S. citizens.

This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position (including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of Class A Common Stock may be
affected by certain determinations made at the partner level) and does not
consider U.S. state and local or non-U.S. tax consequences. This discussion also
does not consider the tax consequences for any person who is a shareholder,
partner or beneficiary of a holder of the Class A Common Stock. Further, it does
not consider Non-U.S. Holders subject to special tax treatment under the federal
tax laws (including banks and insurance companies, dealers in securities, and
holders of securities held as part of a 'straddle', 'hedge', or 'conversion
transaction'). The following discussion is based on provisions of the U.S.
Internal Revenue Code of 1986, as amended (the 'Code'), the applicable Treasury
regulations promulgated and proposed thereunder, and administrative and judicial
interpretations as of the date hereof, all of which are subject to change either
retroactively or prospectively. The following summary is included herein for
general information. Accordingly, each prospective Non-U.S. Holder is urged to
consult a tax advisor with respect to the U.S. federal tax consequences of
holding and disposing of Class A Common Stock, as well as any tax consequences
that may arise under the laws of any U.S. state, local, or other U.S. or
non-U.S. taxing jurisdiction.

Dividends

In general, dividends paid to a Non-U.S. Holder of Class A Common Stock
will be subject to withholding of U.S. federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Dividends
that are effectively connected with such holder's conduct of a trade or business
in the United States or, if an income tax treaty applies, attributable to a

permanent establishment, or, in the case of an individual, a 'fixed base', in
the United States ('U.S. trade or business income') are generally subject to
U.S. federal income tax on a net income basis at regular graduated rates, but
are not generally subject to the 30% withholding tax if the Non-U.S. Holder
files the appropriate U.S. Internal Revenue Service ('IRS') form with the payor.
Any U.S. trade or business income received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
'branch profits tax' at a 30% rate or such lower rate as may be applicable under
an income tax treaty.

Under current U.S. Treasury regulations, dividends paid to an address in a
foreign country are presumed (absent actual knowledge to the contrary) to be
paid to a resident of such country for purposes of the withholding discussed
above and for purposes of determining the applicability of a tax treaty rate.
Under proposed U.S. Treasury regulations not currently in effect but proposed to
be effective with respect to payments made after December 31, 1997, however, a
Non-U.S. Holder of Class A Common Stock who

30
<PAGE>

wishes to claim the benefit of an applicable treaty rate generally would be
required to satisfy applicable certification and other requirements.

A Non-U.S. Holder of Class A Common Stock that is eligible for a reduced
rate of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for a refund with the IRS.

Disposition of Class A Common Stock

Under current U.S. law, a Non-U.S. holder generally will not be subject to
U.S. federal income tax in respect of gain recognized on a disposition of Class
A Common Stock unless: (i) the gain is U.S. trade or business income (in which
case, the branch profits tax described above may also apply to a corporate
Non-U.S. Holder), (ii) the Non-U.S. Holder is an individual who holds the Class
A Common Stock as a capital asset within the meaning of Section 1221 of the
Code, is present in the United States for 183 or more days in the taxable year
of the disposition and meets certain other requirements, (iii) the Non-U.S.
Holder is subject to tax pursuant to the provision of the U.S. tax law
applicable to certain United States expatriates, or (iv) the Company is or has
been a 'U.S. real property holding corporation' for federal income tax purposes
at any time during the five-year period ending on the date of disposition or
such shorter period that the Class A Common Stock was held (unless the Non-U.S.
Holder did not hold, directly or indirectly, at any time during this period,
more than 5% of the Class A Common Stock and such stock is regularly traded on
an established securities market). The Company believes that it is not now and
has not been within the past five years, and anticipates that it will not
become, a 'U.S. real property holding corporation' for U.S. federal income tax
purposes.

Federal Estate Taxes

Class A Common Stock owned or treated as owned by an individual who is a

Non-U.S. Holder at the time of death will be included in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual's estate may be subject to U.S.
federal estate tax on the property includable in the gross estate for U.S.
federal estate tax purposes.

U.S. Information Reporting Requirements and Backup Withholding Tax

The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply whether or not withholding was
reduced or eliminated by an applicable income tax treaty. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides. The U.S. backup withholding tax (which generally is
a withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the U.S. information reporting
requirements) generally will not apply to dividends paid on Class A Common Stock
to a Non-U.S. Holder at an address outside the United States. However, backup
withholding and information reporting generally will apply to dividends paid on
Class A Common Stock to beneficial owners with addresses in the United States
that are not 'exempt recipients' and that fail to provide in the manner required
certain identifying information.

The payment of the proceeds from the disposition of Class A Common Stock to
or through the U.S. office of a broker is subject to information reporting and
backup withholding at a rate of 31% unless the owner certifies its non-U.S.
status under penalty of perjury or otherwise establishes an exemption. The
payment of the proceeds from the disposition of Class A Common Stock to or
through the foreign office of a foreign broker generally will not be subject to
backup withholding and information reporting. In the case of the payment of
proceeds from the disposition of Class A Common Stock effected by a foreign
office of a broker that is a U.S. person or a 'U.S. related person', existing
regulations require information reporting on the payment unless the broker
receives a statement from the owner, signed under penalty of perjury, certifying
its non-U.S. status or the broker has documentary evidence in its files as to
the Non-U.S.

31
<PAGE>

Holder's foreign status and the broker has no actual knowledge to the contrary.
For this purpose, a 'U.S. related person' is (i) a 'controlled foreign
corporation' for U.S. federal income tax purposes or (ii) a foreign person 50%
or more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment (or for such part of
the period that the broker has been in existence) is derived from activities
that are effectively connected with the conduct of a U.S. trade or business.

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the International
Underwriters named below, and each of such International Underwriters has
severally agreed to purchase from the Selling Stockholders, the respective
number of shares of Class A Common Stock set forth opposite its name below:

<TABLE>
<CAPTION>
Number of
Shares of
Class A
International Underwriters Common Stock
- -------------------------------------------------------------------------- --------------------
<S> <C>
Goldman Sachs International............................................... 360,750
Dillon, Read & Co. Inc.................................................... 360,750
Merrill Lynch International............................................... 360,750
J.P. Morgan Securities Ltd................................................ 360,750
--------------------
Total................................................................ 1,443,000
--------------------
--------------------
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
International Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.

The International Underwriters propose to offer the shares of Class A
Common Stock in part directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of $1.10 per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per share to certain brokers and dealers. After the shares of Class A
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives of the U.S.
Underwriters and the International Underwriters.

The Company and the Selling Stockholders have entered into an underwriting
agreement (the 'U.S. Underwriting Agreement') with the underwriters (the 'U.S.
Underwriters') for the Offering in the United States (the 'U.S. Offering'),
providing for the concurrent offer and sale of 5,772,000 shares of Class A
Common Stock in the U.S. Offering. The initial public offering price and
aggregate underwriting discounts and commissions per share for the Offerings are
identical. The closing of the offering made hereby is a condition to the closing
of the U.S. Offering, and vice versa.

Pursuant to the agreement between the U.S. and International Underwriting
Syndicates (the 'Agreement Between') relating to the Offerings, each of the
International Underwriters has agreed or will agree pursuant to the Agreement
Between that, as a part of the distribution of the shares offered as a part of
the International Offering, and subject to certain exceptions, it will (i) not,

directly or indirectly, offer, sell or deliver shares of Class A Common Stock
(a) in the United States (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the 'United States') or to any U.S. persons, which term shall mean, for
purposes of this paragraph: (x) any individual who is a resident of the United
States or (y) any corporation, partnership or other entity organized in or under
the

32
<PAGE>

laws of the United States or any political subdivision thereof and whose office
most directly involved with the purchase is located in the United States , or
(b) to any person who it believes intends to reoffer, resell or deliver the
shares in the United States or to any U.S. person, and (ii) cause any dealer to
whom it may sell such shares at any concession to agree to observe a similar
restriction. Each of the U.S. Underwriters named herein has agreed or will agree
pursuant to the Agreement Between that, as a part of the distribution of the
shares offered as a part of the U.S. Offering, and subject to certain
exceptions, it will offer, sell or deliver the shares of Class A Common Stock,
directly or indirectly, only in the United States and to U.S. persons.

The Company has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 169,950 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the International Underwriters exercise their
over-allotment option, the International Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 1,443,000 shares of Class A Common Stock
offered hereby. The Company has granted the U.S. Underwriters a similar option
exercisable for up to an aggregate of 679,800 additional shares of Class A
Common Stock.

The Company, the Selling Stockholders, the other Lauder Family Members who
are stockholders of the Company (other than The Lauder Foundation) and Morgan
Guaranty have agreed that, during the period beginning from the date of this
Prospectus and continuing and including the date 90 days after the date of the
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Class A Common Stock or any security convertible into or
exchangeable for shares of Class A Common Stock without the prior written
consent of Goldman, Sachs & Co., except as otherwise provided in the
Underwriting Agreement and the U.S. Underwriting Agreement and except for
transfers among Lauder Family Members.

Each International Underwriter has also agreed that (a) it has not offered
or sold and prior to the date six months after the date of issue of the shares
of Class A Common Stock will not offer or sell any shares of Class A Common

Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations of 1995, (b) it has complied, and will comply,
with all applicable provisions of the Financial Services Act of 1986 of Great
Britain with respect to anything done by it in relation to the shares of Class A
Common Stock in, from or otherwise involving the United Kingdom, and (c) it has
only issued or passed on, and will only issue or pass on, in the United Kingdom
any document received by it in connection with the issuance of the shares of
Class A Common Stock to a person who is of a kind described in Article 11(3) of
the Financial Services Act of 1986 (Investment Advertisements) (Exemptions)
Order 1996 of Great Britain or is a person to whom the document may otherwise
lawfully be issued or passed on.

Buyers of shares of Class A Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practice of
the country of purchase in addition to the initial public offering price set
forth on the cover page hereof.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.

33
<PAGE>

certain Lauder Family Members for which such Underwriters or their affiliates
have received and will receive fees and commissions. Morgan Guaranty, an
affiliate of J.P. Morgan Securities Inc. and J.P. Morgan Securities Ltd., is a
lender to the Company and certain Lauder Family Members.

AVAILABLE INFORMATION

and other information concerning the Company can be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.

This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the 'Securities Act'). This Prospectus omits certain information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the securities offered hereby. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company under the Exchange
Act with the Commission are incorporated herein by reference:

(i) the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996;

(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended September 30, 1996 and December 31, 1996; and

(iii) the description of the Class A Common Stock contained in the
Company's registration statement, dated November 8, 1995, on Form
8-A.

34
<PAGE>

specifically incorporated by reference into the document that this Prospectus
incorporates by reference). Requests should be directed to Investor Relations
Department, The Estee Lauder Companies Inc., 767 Fifth Avenue, New York, NY

10153, telephone number (212) 572-4184.

LEGAL MATTERS

EXPERTS

<PAGE>
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<PAGE>
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------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................. 3
Price Range of Common Stock
and Dividends..................................... 6
Use of Proceeds..................................... 6
Selected Consolidated Financial Information......... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 8
Business............................................ 16
Directors and Executive Officers.................... 22
Selling Stockholders................................ 25
Description of Capital Stock........................ 26
Certain United States Tax Consequences to Non-United
States Holders.................................... 30
Underwriting........................................ 32
Available Information............................... 34
Incorporation of Certain Documents by Reference..... 34
Legal Matters....................................... 35
Experts............................................. 35
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

7,215,000 Shares

THE ESTEE LAUDER
COMPANIES INC.

Class A Common Stock
(par value $.01 per share)

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[LOGO]

----------------------

Goldman Sachs International

Dillon, Read & Co. Inc.

Merrill Lynch International

J.P. Morgan Securities Ltd.

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