<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1998
REGISTRATION NO. 333-52609
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE ESTEE LAUDER COMPANIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2844 11-2408943
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(212) 572-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SAUL H. MAGRAM, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
THE ESTEE LAUDER COMPANIES INC.
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Please send copies of communications to:
<TABLE>
<S> <C>
JEFFREY J. WEINBERG, ESQ. JEAN E. HANSON, ESQ.
AKIKO MIKUMO, ESQ. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
WEIL, GOTSHAL & MANGES LLP ONE NEW YORK PLAZA
767 FIFTH AVENUE NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10153 (212) 859-8000
(212) 310-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ('Securities Act'), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
ADDITIONAL PROPOSED ADDITIONAL PROPOSED AMOUNT
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE OF ADDITIONAL
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(1)(2)
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01
per share(3)........................ 247,165 $63.00 $15,571,395 $4,594
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
upon the average of the high and low prices of shares as reported on the
NYSE on May 15, 1998.
(2) On May 14, 1998, a registration fee of $184,897 was paid with respect to
9,651,515 shares of the Class A Common Stock.
(3) In addition to the 9,651,515 shares previously registered. The shares of
Class A Common Stock being registered pursuant to this Registration
Statement include up to 5,263,030 shares that may be delivered upon the
exchange of the Estee Lauder Automatic Common Exchange Securities registered
on a separate registration statement on Form N-2 (Registration Nos.
333-50597 and 811-08761). The number of shares of Class A Common Stock that
may be delivered pursuant to the terms of the Estee Lauder Automatic Common
Exchange Securities is subject to adjustment in accordance with Rule 416.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement relates to up to 4,031,000 shares (or 4,635,650
shares if the Underwriters' over-allotment option is exercised in full) of Class
A Common Stock, par value $.01 per share, of The Estee Lauder Companies Inc.
(the 'Class A Common Stock') that will be offered for sale directly to the
public (the 'Class A Common Stock Offering'), and up to 4,576,548 shares (or
5,263,030 shares if the Underwriters' over-allotment option is exercised in
full) of Class A Common Stock that may be delivered by the Estee Lauder
Automatic Common Exchange Security Trust (the 'TRACES Trust'), a non-diversified
closed-end management investment company, to holders of Automatic Common
Exchange Securities of the TRACES Trust (the 'Automatic Common Exchange
Securities') upon exchange of the Automatic Common Exchange Securities. The
Automatic Common Exchange Securities are being offered pursuant to a separate
prospectus of the TRACES Trust (the 'Trust Prospectus') included in a
registration statement on Form N-2 (Registration Nos. 333-50597 and 811-08761).
This Registration Statement contains three forms of prospectus: one to be
used in connection with a United States Class A Common Stock Offering, one to be
used in a concurrent international Class A Common Stock Offering, and one to be
attached to the Trust Prospectus. The prospectuses for the United States and
international Class A Common Stock Offerings will be identical in all respects
except the front and back cover pages and the section entitled 'Underwriting'
and except that the international prospectus contains an additional section
entitled 'Certain United States Tax Consequences to Non-United States Holders'.
Pages to be included in the international prospectus and not the U.S. prospectus
are marked 'Alternate Pages for International Prospectus'. The prospectus to be
attached to the Trust Prospectus will be identical to the one used for the
United States Class A Common Stock Offering except for the front and back cover
pages and except that the Trust Prospectus contains additional sections entitled
'Plan of Distribution' and 'Trust Prospectus' and does not contain a section
entitled 'Underwriting'.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 20, 1998
4,031,000 Shares
[LOGO]
The Estee Lauder Companies Inc.
Class A Common Stock
(par value $.01 per share)
----------------------
Of the 4,031,000 shares of Class A Common Stock being offered, 3,224,800
shares are being offered hereby in the United States and 806,200 shares are
being offered in a concurrent international offering outside the United States
(the 'Offerings'). The public offering price and the aggregate underwriting
discount per share will be identical for both Offerings. See 'Underwriting'. All
of the shares of Class A Common Stock offered in the Offerings 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. The Company's Class A Common Stock and Class B Common
Stock vote as a 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. See
'Description of Capital Stock'. After consummation of the Offerings, members of
the Lauder family will own shares of Class A Common Stock and Class B Common
Stock having 94.6% of the outstanding voting power of the Company's Common
Stock.
In addition to the Offerings, the TRACES Stockholders named herein are
offering up to 4,576,548 shares (or up to 5,263,030 shares if the underwriters'
over-allotment option is exercised in full) of Class A Common Stock that may be
delivered by the Estee Lauder Automatic Common Exchange Security Trust (the
'TRACES Trust') to holders of Automatic Common Exchange Securities of the TRACES
Trust (the 'Automatic Common Exchange Securities') upon exchange of such
securities on the Exchange Date as defined in the prospectus of the TRACES Trust
(the 'Trust Prospectus'). See 'TRACES Stockholders'. The respective closings of
the offerings of the Class A Common Stock and the Automatic Common Exchange
Securities are not dependent on one another. See 'Underwriting'. The Company
will not receive any proceeds from the sales of the Automatic Common Exchange
Securities or shares of the Class A 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 May 19, 1998, was
$63 1/4 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............................... $ $ $
Total(3)................................ $ $ $
</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 $ payable by the Selling
Stockholders.
(3) The Selling Stockholders have granted the Underwriters an option for 30 days
to purchase up to an additional 604,650 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 Selling
Stockholders will be $ , $ and $ , respectively. See
'Underwriting'.
----------------------
The shares offered hereby are offered severally by the 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 shares
will be ready for delivery through the facilities of The Depository Trust
Company in New York, New York, on or about June , 1998, against payment
therefor in immediately available funds.
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
SBC Warburg Dillon Read Inc.
----------------------
<PAGE>
The date of this Prospectus is June , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OFFERED
HEREBY INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING'.
------------------------
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. Such
statements include, without limitation, the Company's expectations regarding
sales, earnings or other future financial performance and liquidity, product
introductions, entry into new geographic regions and general optimism about
future operating results. 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, without limitation: (i) increased
competitive activity from companies in the skin care, makeup, hair care 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, an increase in the ownership concentration within the retail
industry or ownership of retailers by the Company's competitors; (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) changes in the
laws, regulations and policies, including changes in accounting standards, that
affect, or will affect, the Company in the United States and abroad; (v) 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; (vi) shipment delays,
depletion of inventory and increased production costs resulting from disruptions
of operations at any of the facilities which, due to consolidations in the
Company's manufacturing operations, now manufacture nearly all of the Company's
supply of a particular type of product (i.e., focus factories); (vii) changes in
product mix to ones which are less profitable; and (viii) the ability of the
Company and third parties, including customers or suppliers, to adequately
address Year 2000 issues. The Company assumes no responsibility to update
forward looking statements made herein or otherwise.
------------------------
Unless otherwise indicated, (i) references to the 'Company' refer to The
Estee Lauder Companies Inc., a Delaware corporation, and its subsidiaries and
(ii) 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'.
2
<PAGE>
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 New York Stock Exchange ('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.
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, 1997;
(ii) the Company's Unaudited Quarterly Reports on Form 1O-Q for the
fiscal quarters ended September 30, 1997, December 31, 1997 and March 31,
1998;
(iii) the Company's Current Report on Form 8-K dated November 18,
1997;
(iv) the Company's Current Report on Form 8-K dated December 1, 1997;
and
(v) 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 Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus but prior to the
termination of this offering 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 by 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.
3
<PAGE>
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 quality
skin care, makeup, fragrance and hair care 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,
Bobbi Brown essentials, jane and Aveda. The Company is also the global licensee
for fragrances and cosmetics for the Tommy Hilfiger, Donna Karan New York and
DKNY brands. Each brand is distinctly positioned within the cosmetics market.
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 sells its
products principally through limited distribution channels to complement the
images associated with its brands. These channels, encompassing over 8,500
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. With the acquisitions of jane
and Aveda in fiscal 1998, the Company has broadened its distribution to include
new channels, namely self-select outlets and salons.
The Company manufactures and sells a wide variety of skin care, makeup,
fragrance and hair care products. Given the generally personal nature of the
Company's products and the wide array of consumer preferences and tastes, as
well as the competition for the attention of the end consumer, the Company's
strategy has been to market and promote its products through distinctive brands
seeking to address broad preferences and tastes. Each brand has a single global
image that is promoted with consistent logos, packaging and advertising designed
to enhance its image and differentiate it from other brands.
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 broadest lines of prestige men's
products and has extended the line to include fragrances for women.
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 plant-based cosmetics line of skin
care, makeup and sensory therapy products that combine time-tested botanical
ingredients with modern science to promote total well-being. In addition
4
<PAGE>
to traditional retail counters, Origins sells its products in 26 Origins stores
and an Origins Spa and has opened over 200 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 in the fall of 1996, launched
a women's fragrance, 'tommy girl.' In March 1998, the Company introduced the
Hilfiger Athletics men's fragrance.
M.A.C--The Company acquired a majority equity interest in Make-Up Art
Cosmetics Limited ('M.A.C') and was appointed the exclusive distributor of M.A.C
products outside the United States and Canada in December 1994. The Company
completed its acquisition of the remaining interests it did not own in March
1997 and February 1998. 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 stores and stand-alone M.A.C stores.
BOBBI BROWN ESSENTIALS--In October 1995, the Company acquired the Bobbi
Brown essentials ('Bobbi Brown') line of color cosmetics, professional makeup
brushes and skin care products. Bobbi Brown products are manufactured to the
Company's specifications by third parties and sold through a limited number of
department and specialty stores. In March 1998, the brand introduced its first
fragrance, 'bobbi.'
JANE--In October 1997, the Company acquired Sassaby, Inc., the owner of the
jane brand of color cosmetics targeted to the young consumer market. jane
products are currently distributed only in the United States through the
self-select distribution channel.
DONNA KARAN COSMETICS--In November 1997, the Company obtained the exclusive
global license to develop and market a line of fragrances and other cosmetics
under the Donna Karan New York and DKNY trademarks. The Company is continuing to
market and sell certain products that were originally sold by The Donna Karan
Company and has started to develop concepts for future introductions.
AVEDA--The Company acquired the Aveda business in December 1997. Aveda, a
prestige hair care leader, is a manufacturer and marketer of plant-based hair,
skin, makeup and body care products that use the science of flower and plant
aromatherapy. The products are principally sold by the Company through
third-party distributors and are available in salons and stand-alone Aveda
Lifestyle stores.
In addition to the foregoing brands, the Company also manufactures and
sells Creme de la Mer, a skin care product, and two fragrances under the Kiton
name. These products are marketed separately from the Company's other brands.
The Company has been controlled by the Lauder family since its founding.
Members of the Lauder family, some of whom are directors, executive officers
and/or employees of the Company, beneficially own, directly or indirectly, as of
May 18, 1998, shares of Class A Common Stock and Class B Comon Stock having
approximately 95.3% of the outstanding voting power of the Company's Common
Stock.
The Company's principal executive offices are located at 767 Fifth Avenue,
New York, New York 10153. The telephone number at that location is (212)
572-4200.
USE OF PROCEEDS
The Company will not receive any proceeds from the sales of the shares of
Class A Common Stock or the Automatic Common Exchange Securities. All of the
shares of Class A Common Stock being offered are beneficially owned by the
Selling Stockholders and all of the shares deliverable upon exchange of the
Automatic Common Exchange Securities are beneficially owned by the TRACES
Stockholders.
5
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Class A Common Stock is traded on the NYSE under the symbol 'EL'. The
following table sets forth for the fiscal 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 in respect of such quarters. The last
reported sale price of the Class A Common Stock on May 19, 1998 was $63 1/4 per
share.
<TABLE>
<CAPTION>
MARKET PRICE
OF
CLASS A
COMMON STOCK
-------------- CASH
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
FISCAL 1997
First Quarter................................................................. $47 1/2 $34 3/4 $.085
Second Quarter................................................................ 53 1/2 42 3/8 .085
Third Quarter................................................................. 52 1/4 44 7/8 .085
Fourth Quarter................................................................ 52 1/2 39 3/8 .085
FISCAL 1998
First Quarter................................................................. $50 15/16 $44 3/4 $.085
Second Quarter................................................................ 56 3/8 39 .085
Third Quarter................................................................. 69 48 1/2 .085
Fourth Quarter (through May 19, 1998)......................................... 73 15/16 62 1/8 .085(1)
</TABLE>
- ------------------
(1) The dividend with respect to the Common Stock is payable July 2, 1998 to
holders of record on June 15, 1998.
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 May 15, 1998, there were approximately 2,500 record holders of Class
A Common Stock and 12 record holders of Class B Common Stock.
6
<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, 1997 and as of and for
the nine-month periods ended March 31, 1998 and March 31, 1997. 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
of interim periods are not necessarily indicative of results that may be
expected for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales...................... $2,773.0 $2,605.7 $3,381.6 $3,194.5 $2,899.1 $2,576.4 $2,447.7
Gross profit................... 2,144.2 2,021.0 2,616.5 2,463.5 2,224.3 1,956.1 1,855.2
Operating income............... 331.7 296.1 359.1 310.3 230.9 175.8 149.9
Earnings before income taxes,
minority interest and
accounting changes........... 329.5 297.3 362.9 313.0 233.0 173.2 145.1
Earnings before accounting
changes...................... 192.8 160.9 197.6 160.4 121.2 93.0 76.4
Net earnings(a)................ 192.8 160.9 197.6 160.4 121.2 93.0 62.9
Preferred stock dividends...... 17.6 17.6 23.4 57.5 25.3 23.0 18.3
Net earnings attributable to
common stock................. 175.2 143.3 174.2 102.9 95.9 70.0 44.6
Net earnings per common
share(b):
Basic........................ 1.48 1.22 1.48 1.18(c) -- -- --
Diluted...................... 1.46 1.21 1.47 1.17(c) -- -- --
Weighted average common shares
outstanding(b):
Basic........................ 118.4 117.5 117.7 116.3(c) -- -- --
Diluted...................... 119.6 118.4 118.6 116.7(c) -- -- --
Cash dividends declared per
common share................. $ .255 $ .255 $ .34 $ .17 -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
AT
MARCH 31,
1998
-----------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 577.9 $ 551.6 $ 467.5 $ 469.6 $ 422.7 $ 368.7
Total assets......................... 2,483.9 1,873.1 1,779.4 1,701.4 1,453.2 1,304.3
Total debt........................... 412.3 31.1 127.5 194.0 170.4 167.2
Redeemable preferred stock........... 360.0 360.0 360.0 360.0 -- --
Stockholders' equity................. 673.8 547.7 394.2 335.1 577.7 508.0
</TABLE>
- ------------------
(a) Net earnings for 1993 include a one-time charge of $13.5 million
attributable to the cumulative effect of adopting Statement of Financial
Accounting Standards ('SFAS') No. 106, 'Employers' Accounting for
Postretirement Benefits Other Than Pensions,' and Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes.'
(b) In December 1997, the Company adopted the provisions of SFAS No. 128,
'Earnings Per Share,' which requires the presentation of both Basic and
Diluted earnings per common share. Consistent with the requirements of SFAS
No. 128, net earnings per common share and weighted average common shares
outstanding have been restated to conform with the provisions of SFAS No.
128 for all periods that such data is presented. See note (c) below.
(c) 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
fiscal year ended June 30, 1996 are not presented. Net earnings per common
share and weighted average common shares outstanding for 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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company manufactures skin care, makeup, fragrance and hair care
products which are distributed in over 100 countries and territories. The
following tables set forth net sales by region and product category and
operating income by region for the nine-month periods ended March 31, 1998 and
1997 and the fiscal years ended June 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------- --------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES
BY REGION:
The Americas:
United States.......................... $1,614.0 $1,433.4 $1,814.7 $1,683.0 $1,492.4
Other Americas......................... 101.2 96.2 124.7 116.4 87.3
-------- -------- -------- -------- --------
Total Americas...................... 1,715.2 1,529.6 1,939.4 1,799.4 1,579.7
Europe, the Middle East & Africa......... 716.8 680.3 909.3 855.9 786.0
Asia/Pacific............................. 341.0 395.8 532.9 539.2 533.4
-------- -------- -------- -------- --------
$2,773.0 $2,605.7 $3,381.6 $3,194.5 $2,899.1
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BY PRODUCT CATEGORY:
Skin Care................................ $ 931.9 $ 969.8 $1,305.5 $1,287.3 $1,215.9
Makeup................................... 1,009.8 961.9 1,253.4 1,131.6 1,003.3
Fragrance................................ 796.4 661.7 822.7 775.6 679.9
Hair Care................................ 34.9 12.3 --* --* --*
-------- -------- -------- -------- --------
$2,773.0 $2,605.7 $3,381.6 $3,194.5 $2,899.1
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
OPERATING INCOME
The Americas:
United States............................ $ 188.3 $ 145.3 $ 159.1 $ 114.4 $ 93.8
Other Americas........................... 28.4 28.4 30.8 18.6 1.5
-------- -------- -------- -------- --------
Total Americas......................... 216.7 173.7 189.9 133.0 95.3
Europe, the Middle East & Africa............ 98.7 88.9 122.7 115.5 72.2
Asia/Pacific................................ 16.3 33.5 46.5 61.8 63.4
-------- -------- -------- -------- --------
$ 331.7 $ 296.1 $ 359.1 $ 310.3 $ 230.9
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------------
* The Company began reporting hair care products as a separate category for the
quarter ended December 31, 1997 following its acquisition of Aveda. For the
fiscal years ended June 30, 1997, 1996 and 1995, hair care products were
included in the skin care and fragrance product categories.
8
<PAGE>
The following table sets forth certain consolidated statement of earnings
data as a percentage of net sales:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------- -----------------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................... 22.7 22.4 22.6 22.9 23.3
----- ----- ----- ----- -----
Gross profit............................................ 77.3 77.6 77.4 77.1 76.7
----- ----- ----- ----- -----
Selling, general and administrative expenses:
Selling, general and administrative................... 64.5 65.2 65.8 66.2 67.5
Related party royalties............................... 0.9 1.0 1.0 1.2 1.3
----- ----- ----- ----- -----
65.4 66.2 66.8 67.4 68.8
----- ----- ----- ----- -----
Operating income........................................ 11.9 11.4 10.6 9.7 7.9
Interest income (expense), net.......................... -- -- 0.1 0.1 0.1
----- ----- ----- ----- -----
Earnings before income taxes and minority
interest.............................................. 11.9 11.4 10.7 9.8 8.0
Provision for income taxes.............................. 4.8 4.8 4.5 4.3 3.7
Minority interest....................................... (0.1) (0.4) (0.4) (0.5) (0.1)
----- ----- ----- ----- -----
Net earnings............................................ 7.0% 6.2% 5.8% 5.0% 4.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH
NINE MONTHS ENDED MARCH 31, 1997
NET SALES. Net sales increased 6% or $167.3 million to $2,773.0 million
for the nine months ended March 31, 1998 as compared with the same prior-year
period, on the strength of new product launches, the global rollout of recent
fragrance introductions and the continued solid performance of existing key
products. The continuing strength of the U.S. dollar negatively impacted net
sales for the current nine month period by approximately $102.4 million.
Excluding the impact of foreign currency translation, net sales increased 10%
for the nine months ended March 31, 1998. Net sales for the nine months ended
March 31, 1998 include the sales of Sassaby and Aveda from the dates of their
acquisitions, which were October 1997 and December 1997, respectively. The
introduction of new products may have some cannibalization effect on sales of
existing products, which is taken into account by the Company in its business
planning. The Company's quarterly net sales are subject to seasonal
fluctuations, particularly in the fragrance category.
Net sales of skin care products decreased 4% or $37.9 million to $931.9
million, for the nine months ended March 31, 1998 as compared with the prior
year. The continued strengthening of the U.S. dollar versus the Asian and
European currencies affects skin care sales to a greater extent than makeup or
fragrance sales since skin care sales in the Asian and European markets
represent a larger portion of total sales than in the other markets. Excluding
the impact of foreign currency translation, skin care sales for the nine months
ended March 31, 1998 increased 1% as compared to the same prior-year period.
Skin care sales were positively impacted by the recent launch of Diminish,
Uncircle, Weather Everything, All About Eyes and Moisture In-Control, as well as
the continued growth of existing products such as Salt Rub, Moisture On-Line and
Verite. The comparison of the current year with the same prior-year period was
impacted by the successful introductions of Fruition Extra and Lip Zone in the
prior year and lower sales of Advanced Night Repair Recovery.
Net sales of makeup products rose 5% or $47.9 million to $1,009.8 million
for the current nine month period compared with the same prior-year period.
Higher makeup product sales were due to the successful introduction of
Two-In-One Eyeshadow, Superlast Cream Lipstick and Minute Makeup, as well as
from recent launches of Blush All Day, Superbalanced Makeup, Quickliner For Lips
and Double Wear Foundation. This increase was partially offset by lower sales of
Long Last Lipstick and Lip Shaper. In addition, the current period comparisons
were impacted by the launches of City Base Compact Foundation, Long Last Soft
Shine Lipstick and Natural Finish Powder Makeup in the same prior-year
9
<PAGE>
period. Excluding the impact of foreign currency translation, makeup sales for
the nine months ended March 31, 1998 increased 8% as compared with the same
prior-year period.
Net sales of fragrance products increased 20% or $134.7 million to $796.4
million for the nine months ended March 31, 1998 as compared with the same
prior-year period. The increase is primarily attributable to the continued
success of Lauder Pleasures For Men in the Americas, the domestic success and
international launch of Clinique Happy, the introduction of Hilfiger Athletics
and the ongoing worldwide success of 'tommy' and 'tommy girl'. This increase was
partially offset by the impact of the successful European launch of Kiton in the
same prior-year period, along with lower sales of White Linen Breeze, Havana
Pour Elle and Knowing. Excluding the impact of foreign currency translation,
fragrance sales for the nine months ended March 31, 1998 increased 25% as
compared with the same prior-year period.
Net sales of hair care products increased significantly as compared with
the same prior-year period due to the inclusion of Aveda hair care product lines
beginning December 1997.
Sales in the Americas increased 12% or $185.6 million to $1,715.2 million
for the nine months ended March 31, 1998 as compared with the same prior-year
period. This increase is driven by sales of new products across all categories,
sales related to new acquisitions and sales growth of existing fragrance and
makeup products particularly in the United States. In Europe, the Middle East &
Africa, net sales increased 5% or $36.5 million to $716.8 million for the
current nine month period ended March 31, 1998 compared with the same prior-year
period. For the nine months ended March 31, 1998, the increase was primarily the
result of higher net sales in the United Kingdom, the distributor and travel
retail businesses, South Africa, Belgium, and the inclusion of sales from the
Company's European fragrance venture. These increases were partially offset by
lower sales in Germany and France for the nine months ended March 31, 1998, as a
result of the continued unfavorable impact of foreign currency translation.
Excluding the impact of foreign currency translation, Europe, the Middle East
and Africa sales would have increased 13% over the prior nine month period. Net
sales in Asia/Pacific decreased 14% or $54.8 million to $341.0 million for the
nine months ended March 31, 1998 compared with the same prior-year period. Lower
sales in the region due to difficult retail environments combined with the
continued decline in the Asian currencies against the U.S. dollar, particularly
the Japanese yen, Thailand baht and Korean won resulted in the unfavorable
comparisons with the prior-year periods. The Company anticipates that
Asia/Pacific will continue to be a difficult market for the foreseeable future.
The Company is confronting this challenge by aggressively introducing new skin
care products as well as by launching its newer brands, MoAoC and Bobbi Brown,
and by expanding Origins. Excluding the impact of foreign currency translation,
Asia/Pacific sales would have decreased 3% for the nine months ended March 31,
1998 as compared with the same prior-year period. The Company strategically
staggers its new product launches by geographic markets, which may account for
differences in regional sales growth.
COST OF SALES. Cost of sales for the nine months ended March 31, 1998 was
22.7% of net sales as compared with 22.4% of net sales in the prior-year period.
The increase reflects the Company's recent acquisitions of Sassaby and Aveda,
both of which have product cost structures higher than the Company's existing
brands, as well as shifts in product mix. On an ongoing basis, as the Company
fully integrates these recent acquisitions, cost of sales as a percent of net
sales may differ from historical results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general and
administrative expenses decreased to 65.4% of net sales for the nine months
ended March 31, 1998 as compared with 66.2% of net sales in the same prior-year
period. The Company's quarterly operating expenses are subject to the timing of
advertising and promotional spending due to product launches, rollouts and
incremental advertising in selective markets. In addition, the Company's recent
acquisitions' operating expenses as a percent of net sales are lower as compared
to the Company's corporate average.
OPERATING INCOME. Operating income increased 12% or $35.6 million to
$331.7 million for the nine months ended March 31, 1998 as compared with the
same prior-year period. Operating margins were 11.9% in the current period as
compared to 11.4% in the corresponding prior-year period.
10
<PAGE>
The increase in operating income and margins was due to higher net sales
coupled with operational efficiencies and the timing of advertising and
promotional spending. Operating income in the Americas increased 25% or $43.0
million to $216.7 million for the nine months ended March 31, 1998 compared with
the same prior-year period, primarily due to the net sales increases in the
United States and the inclusion of operating results from recent acquisitions.
In Europe, the Middle East & Africa, operating income increased 11% or $9.8
million to $98.7 million for the nine months ended March 31, 1998. This increase
was primarily due to improved operating results in the United Kingdom, France,
Italy, South Africa and Belgium. Operating income in Asia/Pacific decreased 51%
or $17.2 million to $16.3 million for the nine months ended March 31, 1998,
compared with the same prior-year period. This was due to lower sales in Japan,
Hong Kong and Taiwan, increased spending associated with the launches of Bobbi
Brown essentials and M.A.C in Japan, and the continued expansion of Origins.
These results were partially offset by higher operating income in Korea. The
Company's quarterly operating results are subject to seasonal net sales
fluctuations in addition to the level, scope and timing of expenditures related
to product promotions or introductions.
INTEREST (EXPENSE) INCOME, NET. Net interest expense was $2.2 million for
the nine months ended March 31, 1998, as compared with net interest income of
$1.2 million for the same prior-year period. The increase in net interest
expense for the nine months ended March 31, 1998 is primarily due to higher
borrowings associated with the Company's recent acquisitions.
PROVISION FOR INCOME TAXES. The provision for income taxes represents
federal, foreign, state and local income taxes. The effective income tax rate
for the nine months ended March 31, 1998 was 40.0% compared with 42.0% for the
nine months ended March 31, 1997. 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 a relative change in the mix of earnings from higher
tax countries such as Japan to lower tax countries, the effect of a lower
statutory tax rate in the United Kingdom and the effect of recent United States
federal tax regulations.
FISCAL 1997 COMPARED WITH FISCAL 1996 AND
FISCAL 1996 COMPARED WITH 1995
NET SALES. Net sales in fiscal 1997 increased 6% to $3,381.6 million as
compared to fiscal 1996 and 10% to $3,194.5 million for fiscal 1996 as compared
to fiscal 1995. In fiscal 1997, net sales increased as a result of new product
introductions across all categories, the global rollout of recent women's and
men's fragrance introductions, and the continued solid performance of existing
products. Fiscal 1997 includes a full year of sales of Bobbi Brown as compared
to eight months of sales in fiscal 1996, in which a 100% interest was acquired
in late October 1995. In fiscal 1996, increases reflected the strength of new
products in all product categories and continued strong growth in sales of
existing products at existing points of sale. Additionally, fiscal 1996 as
compared to fiscal 1995 included twelve months of sales versus six months of
sales of M.A.C, in which a majority equity interest was acquired in December
1994, and eight months of sales of Bobbi Brown. The strengthening of the U.S.
dollar which began in fiscal 1996 negatively impacted net sales by approximately
$87.0 million and $35.0 million for fiscal 1997 and fiscal 1996, respectively.
Fiscal 1995 net sales were favorably impacted by approximately $100.0 million
due to foreign currency translation. Excluding the impact of foreign currency
translation, net sales would have increased 9% and 11% for fiscal 1997 and
fiscal 1996, respectively.
Net sales of skin care products in fiscal 1997 increased 1% to $1,305.5
million as compared to fiscal 1996 and, in fiscal 1996, increased 6% to $1,287.3
million as compared to fiscal 1995. In fiscal 1997, the increase was
attributable to the introduction of Fruition Extra, Advanced Sun Care Products,
Moisture On-Line, and Nutritious Bio-Protein Moisture Complex, along with the
continued growth of existing products such as LipZone, All About Lips and
Dramatically Different Moisturizing Lotion. These increases were partially
offset by lower sales of Turnaround Cream and ThighZone Body Streamlining
Complex. In fiscal 1996, the increase was due in part to the launch of Moisture
On-Call and DayWear Super Anti-Oxidant Complex and the continued success of
existing products such as Daily Eye Saver,
11
<PAGE>
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
increased 11% to $1,253.4 million in fiscal 1997 and 13% to $1,131.6 million in
fiscal 1996. In fiscal 1997, the sales growth was primarily due to the
introduction of City Base Compact Foundation, Long Last Soft Shine Lipstick,
Virtual Skin, Futurist Age-Resisting Makeup, and Indelible Lipstick, and
increased sales from existing M.A.C and Bobbi Brown products. These increases
were partially offset by lower sales of Long Last Lipstick and More than
Mascara. In fiscal 1996, the net sales increase reflects the inclusion of 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
increased 6% to $822.7 million in fiscal 1997 and 14% to $775.6 million in
fiscal 1996. In fiscal 1997, the sales growth was led by the successful United
States introduction of 'tommy girl,' the European/Asian launch of 'tommy,' along
with the European introduction of Kiton. The continuing domestic success of
'tommy' and Estee Lauder pleasures also contributed to the increased net sales.
New fragrance introductions cannibalized some existing fragrance sales,
primarily, Knowing and Beautiful, although these products continue to record
impressive sales results. The increase in net sales in fiscal 1996 was driven by
the outstanding debut of Estee Lauder pleasures along with the success of
'tommy,' as well as the Company's classic fragrances, such as Beautiful and
White Linen, which continued to generate impressive sales. The introduction of
new products may have some cannibalization effect on existing products, which is
taken into account by the Company in its business planning.
In fiscal 1997, net sales increased in the Americas and Europe, the Middle
East & Africa. Net sales in the Americas rose 8% to $1,939.4 million in fiscal
1997, as compared to a 14% increase to $1,799.4 million in fiscal 1996. In
fiscal 1997, the increase is attributable to the sales of new products across
all categories, particularly those in the fragrance category. Solid double digit
increases were achieved in M.A.C and Bobbi Brown. A generally lackluster retail
environment for most of the year impacted core brand sales. The increase in
fiscal 1996 reflected the sales of new products across 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, net sales increased 6% to $909.3 million in fiscal 1997, as compared to
a 9% increase to $855.9 million in fiscal 1996. Excluding the impact of foreign
currency translation, net sales would have increased 11% and 8%, for fiscal 1997
and fiscal 1996, respectively. In fiscal 1997, higher net sales were achieved in
the United Kingdom, the distributor and travel retail businesses, Italy, and
from the inclusion of sales from the Company's fragrance joint venture. These
increases were partially offset by lower sales in Germany and France resulting
from the impact of foreign currency translation and the continuing difficult
retail environments. The increase in fiscal 1996 reflected strong net sales
performances in South Africa, Spain, Italy, and the travel retail businesses,
partially offset by lower net sales in Germany. In Asia/Pacific net sales
decreased 1% to $532.9 million in fiscal 1997, as compared to a 1% increase to
$539.2 million in fiscal 1996. On a local currency basis, Asia/Pacific sales
increased 6% and 7% for fiscal 1997 and fiscal 1996, respectively. In fiscal
1997, all markets reported local currency sales increases with strong
performances in Thailand, Korea, Taiwan, Singapore, New Zealand, and Malaysia.
All markets in fiscal 1996 reported sales increases with strong sales growth in
Taiwan, Korea, and Hong Kong. Despite increased sales on a local currency basis,
Japan's sales in fiscal 1997 and fiscal 1996, were unfavorably impacted by the
strength of the U.S. dollar versus the yen. The Company strategically staggers
its new product launches by geographic markets, which may account for
differences in regional sales growth.
COST OF SALES. Cost of sales in fiscal 1997 was 22.6% of net sales
compared with 22.9% of net sales in fiscal 1996 and 23.3% of net sales in fiscal
1995. These decreases primarily reflect the efficiencies achieved as a result of
the Company's continuing efforts to globalize its sourcing and manufacturing
activities, as well as shifts in product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to 66.8% of net sales in fiscal 1997, compared
with 67.4% and 68.8% of net sales in fiscal 1996 and fiscal 1995, respectively.
This decrease reflects operating expenses growing at a slower rate
12
<PAGE>
than net sales primarily due to efficiencies achieved in the selling and general
and administrative areas in fiscal 1997 and in the selling and marketing
functions in fiscal 1996.
OPERATING INCOME. Operating income rose 16% to $359.1 million in fiscal
1997 and 34% to $310.3 million in fiscal 1996. Operating margins were 10.6% in
1997, compared with 9.7% and 7.9% in fiscal 1996 and fiscal 1995, respectively.
The increases in fiscal 1997 and fiscal 1996 were due to higher net sales, cost
of sales efficiencies and total operating expenses growing at a slower rate than
net sales.
Operating income in the Americas increased by 43% to $189.9 million in
fiscal 1997, as compared to a 40% increase to $133.0 million in fiscal 1996. In
fiscal 1997, the increase was primarily due to net sales increases in the United
States, Canada, and the inclusion of twelve months of operating results for
Bobbi Brown, as compared to eight months in fiscal 1996. In fiscal 1996, the
increase was due to higher net sales in the United States, the inclusion of
twelve months of operating results from M.A.C as compared with six months in
fiscal 1995 and the inclusion of operating results from Bobbi Brown since its
acquisition in October 1995. In Europe, the Middle East & Africa, operating
income increased 6% to $122.7 million in fiscal 1997, as compared to a 60%
increase to $115.5 million in fiscal 1996. In fiscal 1997, the increase was
primarily due to increased operating income in the United Kingdom, Italy, South
Africa, Eastern Europe, the distributor and travel retail businesses, and the
inclusion of twelve months of operating results from Bobbi Brown as compared to
eight months in fiscal 1996, offset by lower results in Belgium, Austria,
Germany and France. In fiscal 1996, the increase related to improved operating
results in Italy, the Nordic region, Austria and the travel retail business,
partially offset by lower operating results in France resulting from general
strikes and an unsettled business environment and in Germany due to a sluggish
economic environment. In Asia/Pacific, operating income decreased 25% to $46.5
million in fiscal 1997, as compared to a decrease of 3% to $61.8 million in
fiscal 1996. In fiscal 1997, the decrease was due to the continuing unfavorable
translation impact of the strength of the U.S. dollar versus the yen, lower
operating income in Japan reflecting the difficult retail environment, and
incremental promotional spending partially offset by strong results in
Australia, Thailand, Korea, Singapore, and Malaysia. In fiscal 1996, the
decrease was due to the impact of 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.
INTEREST INCOME (EXPENSE), NET. Interest income, net was $3.8 million in
fiscal 1997 as compared to $2.7 million in fiscal 1996 and $2.1 million in
fiscal 1995. The increase in fiscal 1997 and fiscal 1996 was due to increased
interest income resulting principally from higher average domestic and overseas
net cash positions which were partially offset by the elimination of interest
income from stockholders, combined with lower interest expense as a result of
lower debt levels.
PROVISION FOR INCOME TAXES. The provision for income taxes represents
federal, foreign, state and local income taxes. The effective rate for income
taxes in fiscal 1997 was 42.0% as compared to 44.2% in fiscal 1996 and 46.4% in
fiscal 1995. These rates principally 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 in fiscal
1997 and fiscal 1996 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 those
rights in November 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have historically been, and are
expected to continue to be, cash flow from operations and borrowings under
uncommitted and committed credit lines provided by banks in the United States
and abroad. At March 31, 1998, the Company had cash and cash equivalents of
$283.4 million compared with $255.6 million at June 30, 1997.
Uncommitted lines of credit amounted to $293.3 million at March 31, 1998,
of which $7.2 million was used. Unused committed lines of credit available to
the Company at March 31, 1998 amounted to $401.2 million. Total debt as a
percentage of total capitalization (including short-term debt) was 29% at
13
<PAGE>
March 31, 1998 and 3% at June 30, 1997. This increase is due to an increased
level of borrowings as a result of the Company's recent acquisitions. In
February 1998, the Company refinanced $300.0 million outstanding under its
revolving credit facility with a $405.0 million long-term note.
Net cash provided by operating activities increased to $239.8 million in
the nine months ended March 31, 1998 from $199.4 million in the prior year
nine-month period. This increase primarily reflects the Company's increased
profitability, lesser increases in accounts receivable and increases in accrued
liabilities, partially offset by an increase in other assets. Net cash used for
investing activities increased to $546.8 million in the nine months ended March
31, 1998 from $106.1 million in the prior year nine-month period due to the
Company's recent acquisitions and higher capital expenditures. Financing
activities reflect dividends paid, long-term borrowings and repayment of
long-term debt. Net cash provided by financing activities increased for the nine
months ended March 31, 1998, as compared to the same prior-year period,
primarily due to an increase in long-term debt as a result of the Company's
recent acquisitions.
In February 1998, the Company acquired the remaining interest in M.A.C for
cash. The Company expects to commence payments of the contingent earn-out
relating to the acquisition of Bobbi Brown in March 1999, the amount of which
will be dependent upon certain results of operations of Bobbi Brown during
calendar years ended 1997 and 1998.
The Company has constructed a state-of-the-art warehouse and distribution
center in Lachen, Switzerland, which has been designed to accommodate the
Company's projected future growth. The Company to date has spent approximately
$16.9 million at current exchange rates. The total cost of the new distribution
center is estimated to be approximately $17.6 million at current exchange rates,
and the Company anticipates that this facility will be fully operational by the
end of fiscal 1998.
Dividend payments were $37.7 million and $47.5 million for the nine months
ended March 31, 1998 and 1997, respectively.
The Company uses derivative financial instruments for the purpose of
managing its exposure to adverse fluctuations in foreign currency exchange rates
and interest rates. The Company addresses its risks through a controlled program
of risk management, the principal objective of which is to minimize the risks
and/or costs associated with financial and global operating activities. The
Company does not utilize derivative financial instruments for trading or other
speculative purposes. The Company conducts business in many foreign currencies.
As a result, it is subject to foreign currency exchange rate risk due to the
effects that foreign exchange rate movements of these currencies, principally
against the Belgian franc, U.K. pound, and Swiss franc, have on the Company's
costs and on the cash flows which it receives from its foreign subsidiaries.
The Company enters into forward exchange contracts to hedge purchases,
receivables and payables denominated in foreign currencies for periods
consistent with its identified exposures. Gains and losses related to qualifying
hedges of these exposures are deferred and recognized in operating income when
the underlying hedged transaction occurs. The Company also enters into purchased
foreign currency options to hedge anticipated transactions where there is a high
probability that anticipated exposures will materialize. Any gains realized on
such options that qualify as hedges are deferred and recognized in operating
income when the underlying hedged transaction occurs. Premiums on foreign
currency options are amortized over the period being hedged. Foreign currency
transactions which do not qualify as hedges are marked-to-market on a current
basis with gains and losses recognized through income and reflected in operating
expenses. In addition, any previously deferred gains and losses on hedges which
are terminated prior to the transaction date are recognized in current income
when the hedge is terminated. The contracts have varying maturities with none
exceeding 24 months.
The Company enters into interest rate swaps to convert floating interest
rate debt to fixed rate debt. These swap agreements are contracts to exchange
floating rate for fixed rate interest payments periodically over the life of the
agreements. Amounts currently due to or from interest rate swap counterparties
are recorded in interest expense in the period in which they accrue.
14
<PAGE>
As a matter of policy, the Company only enters into contracts with parties
that have at least an 'A' (or equivalent) credit rating. The counterparties to
these contracts are major financial institutions and the Company does not have
significant exposure to any one counterparty. The Company's exposure to credit
loss in the event of nonperformance by any of the counterparties is limited to
only the recognized, but not realized, gains attributable to the contracts.
Management believes risk of loss is remote and in any event would be immaterial.
Costs associated with entering into such contracts have not been material to the
Company's financial results. At March 31, 1998, the Company had contracts to
exchange foreign currencies in the form of purchased currency options and
forward exchange contracts in the amount of $93.1 million and $307.5 million,
respectively. Foreign currencies exchanged under these contracts are principally
the Belgian franc, U.K. pound, and Swiss franc. In addition, the Company had
interest rate swap agreements outstanding in the amount of $405.0 million. There
have been no significant changes in market risk since June 30, 1997 that would
have a material effect on the Company's calculated value-at-risk exposure, as
disclosed in its annual report on Form 10-K for the year ended June 30, 1997.
See 'Incorporation of Certain Documents By Reference.'
The Company believes that cash on hand, internally generated cash flow,
available credit lines and access to capital markets will be adequate to support
currently planned business operations, acquisitions and capital expenditures
both on a near-term and long-term basis.
YEAR 2000
The Company has been assessing the impact of the Year 2000 issue on its
information systems for the past few years. In connection with these
assessments, which are ongoing, the Company has identified potential
deficiencies and is addressing them through upgrades and other remediation. In
accordance with accounting rules, costs associated with modifying existing
computer software for Year 2000 will be expensed as incurred. The Company also
has established a corporate-wide steering committee to address the potential
impact on the material aspects of the Company's business and to develop a Year
2000 strategy to manage the risk and prepare contingency plans that may be
needed. In addition, the Company is in the process of evaluating the measures
being undertaken by its critical customers and suppliers to address the Year
2000 issues. Based on the work to date and assuming the Company's plans, which
continue to evolve, are implemented, the Company expects that the costs
associated with its Year 2000 project should not have a material adverse effect
on the Company's consolidated results of operations or financial position.
EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board ('FASB') issued
SFAS No. 128, 'Earnings Per Share.' This statement establishes standards for
computing and presenting earnings per share ('EPS'), replacing the presentation
of currently required Primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of earnings. Under
this new standard, Basic EPS is computed based on weighted average common shares
outstanding and contingently issuable shares (which satisfy certain conditions)
and excludes any potential dilution; Diluted EPS reflects potential dilution
from the exercise or conversion of securities into common stock, or from other
contracts to issue common stock, and is similar to the currently required Fully
Diluted EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. The Company adopted the provisions of this
statement in the fiscal quarter ended December 31, 1997. The impact of the
adoption of this statement was not material to previously reported EPS data.
15
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information for each Selling
Stockholder identified below (collectively the 'Selling Stockholders') 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 (without taking into account the Underwriters'
over-allotment option). As described in the notes to the table, voting and/or
investment power with respect to certain shares of Common Stock is shared by the
named individuals. Consequently, such shares are shown as beneficially owned by
more than one person.
<TABLE>
<CAPTION>
BEFORE THE OFFERINGS AFTER THE OFFERINGS
-------------------------------------- --------------------------------------
SHARES OF
COMMON STOCK CLASS A COMMON STOCK
BENEFICIALLY COMMON STOCK TO BE BENEFICIALLY
OWNED PERCENTAGE TO BE SOLD OWNED PERCENTAGE
NAME OF SELLING ----------------------- OF TOTAL IN THE ----------------------- OF TOTAL
STOCKHOLDER(1) CLASS A CLASS B VOTING POWER OFFERINGS CLASS A CLASS B VOTING POWER
- ------------------------ ---------- ---------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard A.
Lauder(2)(5).......... 19,433,809 29,370,773 49.7% 757,970 18,675,839 29,370,773 49.6%
William P. Lauder(3).... 3,341,174 1,914,608 3.6 470,000 2,871,174 1,914,608 3.5
Gary M. Lauder(4)....... 2,488,105 1,914,608 3.4 454,545 2,033,560 1,914,608 3.4
LAL Family Partners
L.P.(5)............... 6,419,027 21,352,770 34.9 833,333 5,585,694 21,352,770 34.8
Trusts f/b/o Aerin
Lauder and Jane
Lauder(6)............. 2,315,406 2,286,906 4.0 1,515,152 800,254 2,286,906 3.8
</TABLE>
- ------------------
(1) Shares owned by the Selling Stockholders do not include shares that may be
attributed to them by reason of the Stockholders Agreement. See 'Description
of Capital Stock--Stockholders' Agreement'.
(2) Includes shares beneficially owned or deemed to be beneficially owned,
directly and indirectly, by Leonard A. Lauder, including shares beneficially
owned by LAL Family Partners L.P. ('LAL Family Partners') and The Estee
Lauder 1994 Trust (the 'EL 1994 Trust'). Mr. Lauder disclaims beneficial
ownership with respect to 260,000 shares of Class A Common Stock owned by
Evelyn H. Lauder and 303,231 shares of Class A Common Stock owned by The
Lauder Foundation. Excludes shares of Class A Common Stock underlying stock
options granted by the Company to Mr. Lauder pursuant to his employment
agreement. Mr. Lauder is a co-trustee with Ronald S. Lauder and Ira T.
Wender of the EL 1994 Trust. As co-trustees, Leonard A. Lauder and Ronald S.
Lauder share voting power and, with Mr. Wender, they share investment power
with respect to 5,405,548 shares of Class A Common Stock and 6,094,926
shares of Class B Common Stock owned by the EL 1994 Trust and are deemed to
beneficially own all such shares. In the event the EL 1994 Trust delivers
shares of Class A Common Stock to the TRACES Trust pursuant to its Purchase
Contract (see 'TRACES Stockholders' below), the EL 1994 Trust's beneficial
ownership interest of Class A Common Stock (as well as that of the trustees)
would be decreased by 1,893,939 shares (assuming delivery of the maximum
number of shares that may be delivered pursuant to such Purchase Contract
without taking into account the underwriters' over-allotment option in
respect of the Automatic Common Exchange Securities). Mr. Lauder also shares
voting and dispositive power with Ronald S. Lauder, and dispositive power
with Mr. Wender, Joel S. Ehrenkranz and Richard D. Parsons, as trustees of
certain trusts, with respect to 7,692 shares of Class A Common Stock and
1,923,077 shares of Class B Common Stock beneficially owned by a
partnership, in which such trusts are partners.
(3) Includes shares beneficially owned or deemed to be beneficially owned,
directly or indirectly, by William P. Lauder, of which he disclaims
beneficial ownership with respect to 303,231 shares of Class A Common Stock
owned by The Lauder Foundation. Mr. Lauder shares voting and dispositive
power with Gary M. Lauder, and dispositive power with Joel S. Ehrenkranz, in
each case as co-trustees of a trust that owns 1,464,158 shares of Class A
Common Stock and 1,914,608 shares of Class B Common Stock. Excludes shares
of Class A Common Stock underlying stock options granted to Mr. Lauder
pursuant to the Company's Share Incentive Plan.
(4) Includes shares beneficially owned or deemed to be beneficially owned,
directly or indirectly, by Gary M. Lauder. Includes shares of Common Stock
with respect to which beneficial ownership is shared with William P. Lauder
and Joel S. Ehrenkranz, as co-trustees of a trust. See note (3) above.
(5) Leonard A. Lauder, as the sole individual general partner of LAL Family
Partners and as the majority stockholder of LAL Family Corporation, which is
the sole corporate general partner of LAL Family Partners, has sole voting
and investment power over the shares owned by LAL Family Partners and is
deemed to beneficially own all such shares.
(6) 757,576 shares of Class A Common Stock are being sold in the Offerings by
each of the following trusts: Trust f/b/o Aerin Lauder u/a/d December 15,
1976 created by Ronald S. Lauder, as grantor; and Trust f/b/o Jane Lauder
u/a/d December 15, 1976 created by Ronald S. Lauder, as grantor. Richard D.
Parsons, as the trustee of the foregoing Trusts and the Trusts f/b/o Aerin
Lauder and Jane Lauder u/a/d December 15, 1976 created by Estee Lauder and
Joseph H. Lauder, as grantors (collectively, the 'Aerin and Jane Lauder
Trusts'), has sole investment and voting power with respect to the shares
owned by such trusts and is deemed to beneficially own all such shares.
Including the shares owned by the Aerin and Jane Lauder Trusts and those
owned by the partnership referred to in note (2) above, with respect to
which he shares dispositive power, Mr. Parsons beneficially owns (or is
(Footnotes continued on next page)
16
<PAGE>
(Footnotes continued from previous page)
deemed to beneficially own), directly or indirectly, 6,643,532 shares of
Class A Common Stock and 7,562,903 shares of Class B Common Stock before the
Offerings, which together represent 13.1% of the outstanding voting power of
the Common Stock (or 10.0%, excluding the shares with respect to which Mr.
Parsons does not have voting power) before the Offerings, and will
beneficially own (or will be deemed to beneficially own), directly or
indirectly, 5,128,380 shares of Class A Common Stock and 7,562,903 shares of
Class B Common Stock after the Offerings, which together will represent
12.8% of the total voting power of the Common Stock (or 9.8%, excluding the
shares with respect to which Mr. Parsons does not have voting power) after
the Offerings. Mr. Parsons disclaims beneficial ownership of all such
shares. Amounts beneficially owned by the Aerin and Jane Lauder Trusts, and
therefore deemed to be beneficially owned by Mr. Parsons, exclude an
aggregate of 937,554 shares of Class B Common Stock underlying options
granted to two of the Aerin and Jane Lauder Trusts by Ronald S. Lauder.
TRACES STOCKHOLDERS
Pursuant to forward purchase contracts (each a 'Purchase Contract') between
the TRACES Trust and the stockholders of the Company listed below (collectively,
the 'TRACES Stockholders'), a specified number of shares of Class A Common Stock
will or may be required to be delivered to the TRACES Trust by the TRACES
Stockholders upon the exchange of Automatic Common Exchange Securities. The
following table sets forth certain information for each TRACES Stockholder with
respect to (i) such TRACES Stockholder's beneficial ownership of Class A Common
Stock and Class B Common Stock as of the date of this Prospectus and the
percentage of total voting power represented thereby and (ii) the maximum number
of shares of Class A Common Stock of such TRACES Stockholder that may be
delivered to the TRACES Trust pursuant to its Purchase Contract (without taking
into account the underwriters' over-allotment option in respect of the Automatic
Common Exchange Securities). The TRACES Stockholders' beneficial ownership of
Class A Common Stock will not change as a result of the offering of the
Automatic Common Exchange Securities unless, until and to the extent that the
TRACES Stockholders deliver shares of Class A Common Stock to the TRACES Trust
pursuant to the Purchase Contracts. As described in the notes to the table,
voting and/or investment power with respect to certain shares of Common Stock is
shared by the named individuals. Consequently, such shares are shown as
beneficially owned by more than one person.
<TABLE>
<CAPTION>
AS OF MAY 20, 1998
---------------------------------------- MAXIMUM NUMBER OF
SHARES OF CLASS A
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED PERCENTAGE DELIVERABLE TO TRACES
------------------------ OF TOTAL TRUST PURSUANT TO
DELIVERING STOCKHOLDER CLASS A CLASS B VOTING POWER CONTRACT(1)
- --------------------------------------------- ---------- ---------- ------------ -----------------------
<S> <C> <C> <C> <C>
The LAL 4002 Trust(2)........................ 385,000 0 * 334,783
The RSL 4201 Trust(3)........................ 2,700,000 0 0.4% 2,347,826
The Estee Lauder 1994 Trust(4)............... 5,405,548 6,094,926 10.5% 1,893,939
</TABLE>
- ------------------
* Less than 0.1%
(1) The LAL 4002 Trust, the RSL 4201 Trust and the EL 1994 Trust may be required
to deliver 385,000 shares, 2,700,000 shares and 2,178,030 shares,
respectively, of Class A Common Stock if the underwriters' over-allotment
option is exercised in respect of the Automatic Common Exchange Securities.
Pursuant to the Purchase Contracts of each of the LAL 4002 Trust and the RSL
4201 Trust, the shares of Class A Common Stock deliverable under such
Purchase Contracts will be delivered to the TRACES Trust on June , 2001,
the Exchange Date under each such Purchase Contract. Pursuant to the
Purchase Contract of the EL 1994 Trust, the shares of Class A Common Stock
of the EL 1994 Trust are not mandatorily deliverable to the TRACES Trust.
(2) The LAL 4002 Trust is a trust established by Leonard A. Lauder. Joel S.
Ehrenkranz, as the trustee of the LAL 4002 Trust, has sole investment and
voting power with respect to the shares owned by the trust and is deemed to
beneficially own all such shares. Including the shares owned by the LAL 4002
Trust, the partnership referred to in note (2) under 'Selling Stockholders',
the trust referred to in note (3) under 'Selling Stockholders' and a third
trust described below, Mr. Ehrenkranz beneficially owns (or is deemed to
beneficially own), directly and indirectly, 3,024,554 shares of Class A
Common Stock and 4,981,139 shares of Class B Common Stock before the
delivery of Class A Common Stock to the TRACES Trust, which together
represent 8.4% of the outstanding voting power of the Common Stock (or 2.1%,
excluding those shares with respect to which Mr. Ehrenkranz does not have
voting power) before such delivery, and will beneficially own (or will be
deemed to beneficially own), directly and indirectly, 2,689,771 shares of
Class A Common Stock and 4,981,139 shares of Class B Common Stock after the
delivery of Class A Common Stock to the TRACES Trust (assuming delivery of
the maximum number of shares that may be delivered pursuant to the LAL 4002
Trust's Purchase Contract without taking into account the underwriters'
over-allotment option in respect of the Automatic Common Exchange
Securities), which together will represent 8.3% of the outstanding voting
power of the Common Stock (or
(Footnotes continued on next page)
17
<PAGE>
(Footnotes continued from previous page)
2.0%, excluding the shares with respect to which Mr. Ehrenkranz does not
have voting power) after such delivery (assuming no changes in the
outstanding Common Stock and his other direct or indirect holdings). As to
the third trust, Mr. Ehrenkranz shares beneficial ownership of 1,157,704
shares of Class A Common Stock and 1,143,454 shares of Class B Common Stock
with Carol S. Boulanger, as co-trustees. Except for the 10,000 shares of
Class A Common Stock he owns directly, Mr. Ehrenkranz disclaims beneficial
ownership of all shares referred to in this note.
(3) The RSL 4201 Trust is a trust established by Ronald S. Lauder. Ira T.
Wender, as the trustee of the RSL 4201 Trust, has sole investment and voting
power with respect to the shares owned by the trust and is deemed to
beneficially own all such shares. Including the shares owned by the RSL 4201
Trust, the EL 1994 Trust (see note (4) below) and the partnership referred
to in note (2) under 'Selling Stockholders', and 2,000 shares of Class A
Common Stock owned by his wife, Mr. Wender beneficially owns (or is deemed
to beneficially own), directly and indirectly, 8,115,240 shares of Class A
Common Stock and 8,018,003 shares of Class B Common Stock before the
delivery of Class A Common Stock to the TRACES Trust, which together
represent 14.0% of the outstanding voting power of the Common Stock (or
0.4%, excluding those shares with respect to which Mr. Wender does not have
voting power) before such delivery, and will beneficially own (or will be
deemed to beneficially own), directly and indirectly, 3,873,475 shares of
Class A Common Stock and 8,081,003 shares of Class B Common Stock after the
delivery of Class A Common Stock to the TRACES Trust (assuming delivery of
the maximum number of shares that may be delivered pursuant to the RSL 4201
Trust's Purchase Contract and the EL 1994 Trust's Purchase Contract without
taking into account the underwriters' over-allotment option in respect of
the Automatic Common Exchange Securities), which together will represent
13.3% of the outstanding voting power of the Common Stock (or 0.1%,
excluding those shares with respect to which Mr. Wender does not have voting
power) after such delivery (assuming no changes in the outstanding Common
Stock and his other direct or indirect holdings). Mr. Wender disclaims
beneficial ownership of all shares referred to in this note.
(4) Leonard A. Lauder, Ronald S. Lauder and Ira T. Wender are co-trustees of the
EL 1994 Trust. Leonard A. Lauder and Ronald S. Lauder share voting power
and, with Mr. Wender, share investment power with respect to the shares of
Common Stock owned by the EL 1994 Trust and they are each deemed to
beneficially own all such shares. See note (2) under 'Selling Stockholders'
and the last sentence of this note for shares of Common Stock beneficially
owned by Leonard A. Lauder. See note (3) above and the last sentence of this
note for shares of Common Stock beneficially owned by Mr. Wender. Including
the shares owned by the EL 1994 Trust, the partnership referred to in note
(2) under 'Selling Stockholders', the entities referred to below in this
note, and by him directly, Ronald S. Lauder beneficially owns (or is deemed
to beneficially own), directly and indirectly, 14,502,364 shares of Class A
Common Stock and 26,789,009 shares of Class B Common Stock before delivery
of Class A Common Stock by the EL 1994 Trust to the Trust. With respect to
the shares owned by Ronald S. Lauder, he disclaims beneficial ownership with
respect to 303,231 shares of Class A Common Stock owned by The Lauder
Foundation, 180,700 shares of Class A Common Stock owned by The Ronald S.
Lauder Foundation, 134,100 shares of Class A Common Stock owned by The
Jewish Renaissance Foundation and 1,591 shares of Class A Common Stock and
1,591 shares of Class B Common Stock owned by a trust for the benefit of his
children. The amounts beneficially owned by Mr. Lauder include an aggregate
of 8,333,333 shares of Class A Common Stock pledged to Leonard A. Lauder and
to the Aerin and Jane Lauder Trusts and exclude shares of Class A Common
Stock underlying stock options granted to him pursuant to his employment
agreement and an aggregate of 937,554 shares of Class A Common Stock
underlying options granted to him by two of the Aerin and Jane Lauder
Trusts. Assuming delivery of the maximum number of shares that may be
delivered pursuant to the EL 1994 Trust's Purchase Contract (without taking
into account the underwriters' over-allotment option in respect of the
Automatic Common Exchange Securities), the EL 1994 Trust, Leonard A. Lauder
and Ronald S. Lauder will beneficially own (or will be deemed to
beneficially own), directly and indirectly, 3,511,609, 17,539,870 and
12,608,425 shares of Class A Common Stock, respectively, and 6,094,926,
29,370,773 and 26,789,009 shares of Class B Common Stock, respectively,
which together will represent 10.2%, 49.4% and 44.5%, respectively, of the
outstanding voting power of the Common Stock after such delivery (assuming
no changes in the outstanding Common Stock and their other respective direct
or indirect holdings).
18
<PAGE>
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 May 18,
1998, there were 61,467,190 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 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 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 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.
19
<PAGE>
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
is 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 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 holdings of Common
Stock within the two-year period immediately prior to the announcement of the
proposed transaction or (B) the highest
20
<PAGE>
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 (the '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
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.
21
<PAGE>
STOCKHOLDERS' AGREEMENT
All Lauder Family Members (other than The Lauder Foundation, a tax exempt,
private foundation, Aerin Lauder Zinterhofer, Jane Lauder, the LAL 4002 Trust
and the RSL 4201 Trust) 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 May 18,
1998, such stockholders beneficially owned, in the aggregate, shares of Common
Stock having approximately 95.2% 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.
22
<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
COMMON
U.S. UNDERWRITER STOCK
- ------------------------------------------------------------------------------------------ ---------
<S> <C>
Goldman, Sachs & Co.......................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................................
J.P. Morgan Securities Inc................................................................
SBC Warburg Dillon Read Inc...............................................................
---------
Total................................................................................ 3,224,800
---------
---------
</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 $ per share. The U.S. Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ 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 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
806,200 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.
23
<PAGE>
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.
The Selling Stockholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 483,720 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 3,224,800 shares of Class A Common Stock offered hereby. The
Selling Stockholders have granted the International Underwriters a similar
option exercisable for up to an aggregate of 120,930 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.
In connection with the Offerings, the Underwriters may purchase and sell
the Class A Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the Offerings.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Class A Common
Stock; and short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of Class A Common Stock than they are required
to purchase from the Selling Stockholders in the Offerings. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to
broker-dealers in respect of the securities sold in the Offerings may be
reclaimed by the Underwriters if such Class A Common Stock is repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class A Common
Stock, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the NYSE in the over-the-counter
market or otherwise.
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. More than ten percent of the net
proceeds of the offering of the Automatic Common Exchange Securities pursuant to
the Trust Prospectus may be used to repay borrowings to Morgan Guaranty.
Accordingly, that offering will be conducted in accordance with NASD Conduct
Rule 2710(c)(8).
Up to 4,576,548 additional shares of Class A Common Stock (or up to
5,263,030 shares if the applicable over-allotment option is exercised in full)
may be delivered by the TRACES Trust to holders of the Automatic Common Exchange
Securities upon exchange of the Automatic Common Exchange Securities on the
Exchange Date (as defined in the Trust Prospectus). In lieu of delivery of such
shares, one of the TRACES Stockholders may elect to pay cash or deliver other
securities on the Exchange Date for each share then deliverable in the amounts
and under the procedures described in the Trust Prospectus. The Automatic Common
Exchange Securities are being offered through an underwriter or
24
<PAGE>
underwriters in the manner described in the Trust Prospectus. The respective
closings of the offerings of the Class A Common Stock and the Automatic Common
Exchange Securities are not dependent upon one another.
LEGAL MATTERS
The validity of the shares of Class A 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 30,000 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), New York, New York.
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, 1997 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.
25
<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 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>
Available Information............................... 3
Incorporation of Certain Documents by Reference..... 3
The Company......................................... 4
Use of Proceeds..................................... 5
Price Range of Common Stock and
Dividends......................................... 6
Selected Consolidated Financial Information......... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 8
Selling Stockholders................................ 16
TRACES Stockholders................................. 17
Description of Capital Stock........................ 19
Underwriting........................................ 23
Legal Matters....................................... 25
Experts............................................. 25
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,031,000 Shares
The Estee Lauder
Companies Inc.
Class A Common Stock
(par value $.01 per share)
----------------------
[LOGO]
----------------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
SBC Warburg Dillon Read Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED MAY 20, 1998.
4,031,000 Shares
The Estee Lauder Companies Inc.
Class A Common Stock
(par value $.01 per share)
----------------------
Of the 4,031,000 shares of Class A Common Stock being offered, 806,200
shares are being offered hereby in an international offering outside the United
States and 3,224,800 shares are being offered in a concurrent offering in the
United States (the 'Offerings'). The public offering price and the aggregate
underwriting discount per share will be identical for both Offerings. See
'Underwriting'. All of the shares of Class A Common Stock offered in the
Offerings 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. The Company's Class A Common
Stock and Class B Common Stock vote as a 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. See 'Description of Capital Stock'. After consummation of the
Offerings, members of the Lauder family will own shares of Class A Common Stock
and Class B Common Stock having 94.6% of the outstanding voting power of the
Company's Common Stock.
In addition to the Offerings, the TRACES Stockholders named herein are
offering up to 4,576,548 shares (or up to 5,263,030 shares if the underwriters'
over-allotment option is exercised in full) of Class A Common Stock that may be
delivered by the Estee Lauder Automatic Common Exchange Security Trust (the
'TRACES Trust') to holders of Automatic Common Exchange Securities of the TRACES
Trust (the 'Automatic Common Exchange Securities') upon exchange of such
securities on the Exchange Date as defined in the prospectus of the TRACES Trust
(the 'Trust Prospectus'). The Automatic Common Exchange Securites are being sold
by the TRACES Trust in an offering described in the attached Trust Prospectus.
See 'Trust Prospectus'. See 'TRACES Stockholders'. The respective closings of
the offerings of the Class A Common Stock and the Automatic Common Exchange
Securities are not dependent on one another. See 'Underwriting'. The Company
will not receive any proceeds from the sales of the Automatic Common Exchange
Securities or shares of the Class A 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 May 19, 1998, was
$63 1/4 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............................... $ $ $
Total (3)............................... $ $ $
</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 $ payable by the Selling
Stockholders.
(3) The Selling Stockholders have granted the Underwriters an option for 30 days
to purchase up to an additional 604,650 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 Selling
Stockholders will be $ , $ and $ , respectively. See
'Underwriting'.
----------------------
The shares offered hereby are offered severally by the 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 shares
will be ready for delivery through the facilities of The Depository Trust
Company in New York, New York, on or about June , 1998, against payment
therefor in immediately available funds.
----------------------
Goldman Sachs International
Merrill Lynch International
J.P. Morgan Securities Ltd.
SBC Warburg Dillon Read
----------------------
The date of this Prospectus is June , 1998.
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
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) an individual who is 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, (iii) an
estate or trust whose income is includable in gross income for United States
federal income tax purposes regardless of source or (iv) a trust subject to the
primary supervision of a court within the United States and the control of one
or more U.S. persons. 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
income 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 United
States 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 United States 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 a 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 IRS form with the payor (which form, under U.S. Treasury regulations
generally effective for payments made after December 31, 1999 (the 'Final
Regulations'), in certain circumstances may require the Non-U.S. Holder to
provide a U.S. taxpayer identification number). 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.
Alt-23
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
Under currently applicable 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 the Final Regulations, however, a Non-U.S. Holder of
Class A Common Stock who 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 of eliminated by an applicable 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. Under currently applicable law, the United States 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
United States 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.
Under the Final Regulations, a Non-U.S. Holder of Class A Common Stock that
fails to certify its Non-U.S. Holder status in accordance with the requirements
of the Final Regulations may be subject to such U.S. backup withholding tax on
payments of dividends.
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
Alt-24
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
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. 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, (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 or (iii) certain other foreign persons with
certain enumerated relationships with the United States.
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 UNDERWRITER COMMON STOCK
- ----------------------------------------------------------------------- --------------------
<S> <C>
Goldman Sachs International............................................
Merrill Lynch International............................................
J.P. Morgan Securities Ltd.............................................
Swiss Bank Corporation, acting through its division SBC Warburg Dillon
Read.................................................................
-----------
Total............................................................. 806,200
-----------
-----------
</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 $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ 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 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 3,224,800 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
Alt-25
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
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 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.
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.
The Selling Stockholders have granted the International Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase up
to an aggregate of 120,930 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 806,200 shares of Class A Common Stock offered
hereby. The Selling Stockholders have granted the U.S. Underwriters a similar
option exercisable for up to an aggregate of 483,720 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.
Alt-26
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
In connection with the Offerings, the Underwriters may purchase and sell
the Class A Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the Offerings.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Class A Common
Stock; and short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of Class A Common Stock than they are required
to purchase from the Selling Stockholders in the Offerings. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to
broker-dealers in respect of the securities sold in the Offerings may be
reclaimed by the Underwriters if such Class A Common Stock is repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class A Common
Stock, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the NYSE in the over-the-counter
market or otherwise.
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 Ltd. and J.P. Morgan Securities Inc., is a lender to the
Company and certain Lauder Family Members. More than ten percent of the net
proceeds of the offering of the Automatic Common Exchange Securities pursuant to
the Trust Prospectus may be used to repay borrowings to Morgan Guaranty.
Accordingly, that offering will be conducted in accordance with NASD Conduct
Rule 2710(c)(8).
Up to 4,576,548 additional shares of Class A Common Stock (or up to
5,263,030 shares if the applicable over-allotment option is exercised in full)
may be delivered by the TRACES Trust to holders of the Automatic Common Exchange
Securities upon exchange of the Automatic Common Exchange Securities on the
Exchange Date (as defined in the Trust Prospectus). In lieu of delivery of such
shares, one of the TRACES Stockholders may elect to pay cash or deliver other
securities on the Exchange Date for each share then deliverable in the amounts
and under the procedures described in the Trust Prospectus. The Automatic Common
Exchange Securities are being offered through an underwriter or underwriters in
the manner described in the Trust Prospectus. The respective closings of the
offerings of the Class A Common Stock and the Automatic Common Exchange
Securities are not dependent upon one another.
LEGAL MATTERS
The validity of the shares of Class A 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 30,000 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), New York, New York.
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, 1997 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.
Alt-27
<PAGE>
[ALTERNATE COVER FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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>
Available Information................................ 3
Incorporation of Certain Documents by Reference...... 3
The Company.......................................... 4
Use of Proceeds...................................... 5
Price Range of Common Stock and
Dividends.......................................... 6
Selected Consolidated Financial Information.......... 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................... 8
Selling Stockholders................................. 16
TRACES Stockholders.................................. 17
Description of Capital Stock......................... 19
Certain United States Tax Consequences to Non-United
States Holders..................................... Alt-23
Underwriting......................................... Alt-25
Legal Matters........................................ Alt-27
Experts.............................................. Alt-27
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ALTERNATE PAGES FOR TRUST PROSPECTUS]
SUBJECT TO COMPLETION, DATED MAY 20, 1998
4,031,000 Shares
The Estee Lauder
Companies Inc.
Class A Common Stock
(par value $.01 per share)
----------------------
[ LOGO ]
----------------------
Goldman Sachs International
Merrill Lynch International
J.P. Morgan Securities Ltd.
SBC Warburg Dillon Read
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
[ALTERNATE PAGES FOR TRUST PROSPECTUS]
SUBJECT TO COMPLETION, DATED MAY 20, 1998
4,576,548 Shares
The Estee Lauder Companies Inc.
[LOGO]
Class A Common Stock
(par value $.01 per share)
----------------------
This Prospectus relates to up to 4,576,548 shares (or up to 5,263,030
shares if the Underwriters' over-allotment option is exercised in full) of Class
A Common Stock beneficially owned by the TRACES Stockholders named herein that
may be delivered by the Estee Lauder Automatic Common Exchange Security Trust
(the 'TRACES Trust') to holders of Automatic Common Exchange Securities of the
TRACES Trust (the 'Automatic Common Exchange Securities') upon exchange of such
securities on the Exchange Date as defined in the attached prospectus of the
TRACES Trust (the 'Trust Prospectus'). See 'TRACES Stockholders'. The Automatic
Common Exchange Securities are being sold by the TRACES Trust in an offering
described in the attached Trust Prospectus. See 'Trust Prospectus'.
In addition, certain stockholders of the Company are offering for sale up
to 4,031,000 shares (or up to 4,635,650 shares if the underwriters'
over-allotment option is exercised in full) of Class A Common Stock directly to
the public in concurrent United States and international offerings pursuant to
separate prospectuses of the Company (the 'Offerings'). The respective closings
of the offerings of the Automatic Common Exchange Securities and the Class A
Common Stock are not dependent upon one another. The Company will not receive
any proceeds from the sales of the Automatic Common Exchange Securities or
shares of the Class A Common Stock. The Company's Class A Common Stock and Class
B Common Stock vote as a 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. See 'Description of Capital Stock'. After consummation of the Offerings,
members of the Lauder family will own shares of Class A Common Stock and Class B
Common Stock having 94.6% 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 May 19, 1998, was
$63 1/4 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.
----------------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
----------------------
The date of this Prospectus is June , 1998.
<PAGE>
[ALTERNATE PAGES FOR TRUST PROSPECTUS]
PLAN OF DISTRIBUTION
The Automatic Common Exchange Securities will be distributed as described
in the Trust Prospectus under the caption 'Underwriting.' 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. More than ten percent of the net proceeds of the offering of the
Automatic Common Exchange Securities pursuant to the Trust Prospectus may be
used to repay borrowings to Morgan Guaranty. Accordingly, that offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).
TRUST PROSPECTUS
The Automatic Common Exchange Securities are being offered pursuant to the
Trust Prospectus. This Prospectus relates only to the Class A Common Stock that
may be delivered upon exchange of the Automatic Common Exchange Securities. The
Company takes no responsibility for any information included in or omitted from
the Trust Prospectus. The Trust Prospectus does not constitute a part of this
Prospectus nor is it incorporated by reference herein.
LEGAL MATTERS
The validity of the shares of Class A 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 30,000 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), New York, New York.
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, 1997 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.
Alt-23
<PAGE>
[ALTERNATE COVER FOR TRUST PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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>
Available Information................................ 3
Incorporation of Certain Documents by Reference...... 3
The Company.......................................... 4
Use of Proceeds...................................... 5
Price Range of Common Stock and
Dividends.......................................... 6
Selected Consolidated Financial Information.......... 7
Management's Discussion and Analysis of Financial
Condition and Results of
Operations......................................... 8
Selling Stockholders................................. 16
TRACES Stockholders.................................. 17
Description of Capital Stock......................... 19
Plan of Distribution................................. Alt-23
Trust Prospectus..................................... Alt-23
Legal Matters........................................ Alt-23
Experts.............................................. Alt-23
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,576,548 Shares
The Estee Lauder
Companies Inc.
Class A Common Stock
(par value $.01 per share)
----------------------
[ LOGO ]
----------------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the Description securities
described in this Registration Statement, other than the underwriting discount
and additional expenses expected to be incurred by the Estee Lauder Automatic
Common Exchange Security Trust as reported in Item 26 of the Trust's
registration statement on Form N-2 (Registration Nos. 333-50597 and 811-08761).
All amounts, except the SEC registration fees and the National Association of
Securities Dealers, Inc. ('NASD') filing fee, are estimated.
<TABLE>
<S> <C>
SEC registration fee........................................................... $ 189,491
NASD filing fee................................................................ 30,500
Printing, engraving and postage fees........................................... 225,000
Legal fees and expenses........................................................ 515,000
Accounting fees and expenses................................................... 50,000
Miscellaneous.................................................................. 19,009
----------
Total..................................................................... $1,029,000
----------
----------
</TABLE>
The Selling Stockholders have agreed to bear all of the expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Generally, Section 145 of the General Corporation Law of the State of
Delaware (the 'GCL') permits a corporation to indemnify certain persons made a
party to an action, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise. To the extent that person has been successful in any
such matter, that person shall be indemnified against expenses actually and
reasonably incurred by him. In the case of an action by or in the right of the
corporation, no indemnification may be made in respect of any matter as to which
that person was adjudged liable unless and only to the extent that the Delaware
Court of Chancery or the court in which the action was brought determines that
despite the adjudication of liability that person is fairly and reasonably
entitled to indemnity for proper expenses.
The Company's By-laws provide for indemnification of its directors and
officers to the fullest extent permitted by law.
Section 102(b)(7) of the GCL enables a Delaware corporation to include a
provision in its certificate of incorporation limiting a director's liability to
the corporation or its stockholders for monetary damages for breaches of
fiduciary duty as a director. The Company has adopted a provision in its
Certificate of Incorporation that provides for such limitation to the full
extent permitted under Delaware law.
The directors and officers of the Company are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act which might be incurred by them in such capacities and
against which they may not be indemnified by the Company.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits:
Exhibits identified in parentheses below are on file with the SEC and are
incorporated herein by reference to such previous filings. All other exhibits
are provided as part of this electronic transmission.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (No. 33-97180) on November 13, 1995 (the 'S-1')).
3.2 Form of Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1).
5.1 Opinion of Weil, Gotshal & Manges LLP with respect to the legality of the Class A Common Stock.**
23.1 Consent of Arthur Andersen LLP.**
23.2 Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5.1).**
24.1 Power of Attorney.***
</TABLE>
- ------------------
* To be filed by amendment
** Filed with this amendment
*** Previously filed
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's Annual
Report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the 'Exchange Act') (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
II-2
<PAGE>
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN NEW YORK, NEW YORK, ON THIS 20TH DAY OF MAY, 1998.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ ROBERT J. BIGLER
----------------------------
Name: Robert J. Bigler
Title: Senior Vice President
and Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------
<C> <S> <C>
* Chief Executive Officer and Director May 20, 1998
- ------------------------------------------ (principal executive officer)
Leonard A. Lauder
* Director May 20, 1998
- ------------------------------------------
Ronald S. Lauder
* Director May 20, 1998
- ------------------------------------------
William P. Lauder
* Director May 20, 1998
- ------------------------------------------
Fred H. Langhammer
* Director May 20, 1998
- ------------------------------------------
Marshall Rose
* Director May 20, 1998
- ------------------------------------------
P. Roy Vagelos
* Director May 20, 1998
- ------------------------------------------
Faye Wattleton
/s/ ROBERT J. BIGLER Senior Vice President and Chief May 20, 1998
- ------------------------------------------ Financial Officer (principal financial
Robert J. Bigler and accounting officer)
*By: /s/ ROBERT J. BIGLER
- ------------------------------------------
Robert J. Bigler
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBITS
The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Restated Certificate of Incorporation (filed as Exhibit 3.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (No. 33-97180) on November 13, 1995 (the 'S-1')).
3.2 -- Form of Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1).
5.1 -- Opinion of Weil, Gotshal & Manges LLP with respect to the legality of the Class A Common Stock.**
23.1 -- Consent of Arthur Andersen LLP.**
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5.1).**
24.1 -- Power of Attorney.***
</TABLE>
- ------------------
* To be filed by amendment
** Filed with this amendment
*** Previously filed
<PAGE>
Exhibit 5.1
[Letterhead of Weil, Gotshal & Manges LLP]
May 20, 1998
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, NY 10153
Ladies and Gentlemen:
We have acted as counsel to The Estee Lauder Companies Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing of the Registration Statement (File No. 333-52609) of the Company on Form
S-3 (as amended, the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), relating to (i) the public offering (the
"Offering") by the Selling Stockholders identified as such in the Registration
Statement of an aggregate of 4,031,000 shares (or 4,635,650 shares if the
underwriters' over-allotment option is exercised in full) of Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), of the Company and
(ii) up to an aggregate of 4,576,548 shares (or 5,263,030 shares if the
underwriters' over-allotment option in respect of the Automatic Common Exchange
Securities is exercised in full) of Class A Common Stock beneficially owned by
the TRACES Stockholders identified as such in the Registration Statement that
may be delivered to the Estee Lauder Automatic Common Exchange Security Trust
(the "Trust") upon exchange of Automatic Common Exchange Securities of the Trust
(together with any shares of Class A Common Stock which may be registered in
any related registration statement pursuant to Section 462(b) of the Securities
Act, the "Shares").
In so acting, we have reviewed the Registration Statement,
including the Prospectus contained therein (the "Prospectus"), the Amended and
Restated Certificate of Incorporation of the Company and the Bylaws of the
Company. In addition, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
<PAGE>
The Estee Lauder Companies Inc.
May 20, 1998
Page 2
of public officials and of officers and representatives of the Company, and have
made such inquiries of such officers and representatives, as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. As to all questions
of fact material to this opinion that have not been independently established,
we have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications
stated herein, we are of the opinion that the Shares registered for sale by the
Selling Stockholders and the Shares registered for delivery by the TRACES
Stockholders, in each case under the Registration Statement and any related
registration statement filed pursuant to Rule 462(b) of the Securities Act,
have been duly authorized, and are validly issued, fully paid and nonassessable.
The opinions expressed herein are limited to the corporate
laws of the State of Delaware, and we express no opinion as to the effect on the
matters covered by this letter of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to this firm under the
heading "Legal Matters" in the Prospectus, without admitting that we are
"experts" under the Securities Act or the rules and regulations promulgated
thereunder with respect to any part of the Registration Statement.
We also consent to the incorporation by reference of this
opinion in any related registration statement filed by the Company pursuant to
Rule 462(b) of the Securities Act.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated August 12, 1997
included in the Form 10-K of The Estee Lauder Companies Inc. for the year ended
June 30, 1997 and to all references to our Firm included in this Registration
Statement.
/S/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
New York, N.Y.
May 20, 1998
