================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
----------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-14064
The Estee Lauder Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2408943
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
767 Fifth Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-572-4200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
At October 22, 1998, 61,233,521 shares of the registrant's Class A Common
Stock, $.01 par value, and 56,839,667 shares of the registrant's Class B
Common Stock, $.01 par value, were outstanding.
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<PAGE>
THE ESTEE LAUDER COMPANIES INC.
INDEX
<TABLE>
<CAPTION>
Page
Part I. Financial Information
<S> <C>
Consolidated Statements of Earnings --
Three Months Ended September 30, 1998 and 1997........................................... 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................ 3
Consolidated Balance Sheets --
September 30, 1998 and June 30, 1998..................................................... 9
Consolidated Statements of Cash Flows --
Three Months Ended September 30, 1998 and 1997........................................... 10
Notes to Consolidated Financial Statements.................................................... 11
Part II. Other Information............................................................................. 14
</TABLE>
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
---------------------
1998 1997
------- -------
(In millions, except per share data)
<S> <C> <C>
Net Sales.................................................................. $ 997.0 $ 900.6
Cost of sales.............................................................. 229.6 204.4
------- -------
Gross Profit............................................................... 767.4 696.2
------- -------
Selling, general and administrative expenses:
Selling, general and administrative..................................... 638.2 582.2
Related party royalties................................................. 7.6 8.0
------- -------
645.8 590.2
Operating Income........................................................... 121.6 106.0
Interest (expense) income, net............................................. (6.1) 1.0
------- -------
Earnings before Income Taxes and Minority Interest......................... 115.5 107.0
Provision for income taxes................................................. 43.9 42.8
Minority interest.......................................................... - (2.4)
------- -------
Net Earnings............................................................... 71.6 61.8
Preferred stock dividends.................................................. 5.9 5.9
------- -------
Net Earnings Attributable to Common Stock.................................. $ 65.7 $ 55.9
======= =======
Net earnings per common share
Basic.................................................................... $ .55 $ .47
Diluted.................................................................. .55 .47
Weighted average common shares outstanding
Basic.................................................................... 118.5 118.4
Diluted.................................................................. 120.1 119.3
Cash dividends declared per common share................................... $ .085 $ .085
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Estee Lauder Companies Inc. and its subsidiaries (collectively, the
"Company") manufacture skin care, makeup, fragrance and hair care products which
are distributed in over 100 countries and territories. The following is a
comparative summary of operating results for the three months ended September
30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
September 30
-----------------------
1998 1997
-------- --------
(In millions)
<S> <C> <C>
NET SALES
By Region:
The Americas......................................................... $ 656.3 $ 562.4
Europe, the Middle East & Africa..................................... 244.9 223.9
Asia/Pacific......................................................... 95.8 114.3
-------- --------
$ 997.0 $ 900.6
======== ========
By Product Category:
Skin Care............................................................ $ 304.9 $ 299.2
Makeup............................................................... 371.2 327.0
Fragrance............................................................ 295.8 270.7
Hair Care............................................................ 25.1 3.7
-------- --------
$ 997.0 $ 900.6
======== ========
OPERATING INCOME
The Americas............................................................ 92.9 80.6
Europe, the Middle East & Africa........................................ 25.2 22.9
Asia/Pacific............................................................ 3.5 2.5
-------- --------
$ 121.6 $ 106.0
======== ========
</TABLE>
The following table sets forth certain earnings data as a percentage of net
sales:
<TABLE>
<CAPTION>
Three Months Ended
September 30
---------------------
1998 1997
------ ------
<S> <C> <C>
Net sales.................................................................. 100.0% 100.0%
Cost of sales.............................................................. 23.0 22.7
------ ------
Gross profit............................................................... 77.0 77.3
------ ------
Selling, general and administrative expenses:
Selling, general and administrative..................................... 61.0 62.4
Related party royalties................................................. 0.8 0.9
------ ------
61.8 63.3
------ ------
Earnings before interest, taxes, depreciation and
amortization (EBITDA).................................................... 15.2 14.0
Depreciation and amortization.............................................. 3.0 2.2
------ ------
Operating income........................................................... 12.2 11.8
Interest (expense) income, net............................................. (0.6) 0.1
------ ------
Earnings before income taxes and minority interest......................... 11.6 11.9
Provision for income taxes................................................. 4.4 4.8
Minority interest.......................................................... - (0.2)
------ ------
Net earnings............................................................... 7.2% 6.9%
====== ======
</TABLE>
-3-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months Fiscal 1999 compared with 1998
NET SALES
Net sales increased 11% or $96.4 million to $997.0 million for the three months
ended September 30, 1998 as compared with the same prior-year period. The
increase in net sales is primarily due to strong sales of recently introduced
products, both domestically and internationally, as well as the inclusion of
sales from Aveda and Sassaby which were acquired after the first quarter of
fiscal 1998. The strength of the U.S. dollar had an unfavorable impact of
approximately $20 million on net sales for the current three-month period as
compared to $32 million in the same prior-year period. The U.S. dollar
strengthened against most Far East currencies contributing to the unfavorable
impact on net sales, offset in part by a weaker dollar against European
currencies.
Excluding the impact of foreign currency translation, net sales increased 13%.
PRODUCT CATEGORIES
Skin Care
Net sales of skin care products increased 2% or $5.7 million to $304.9 million
for the three months ended September 30, 1998 as compared with the same
prior-year period. The increase in sales primarily related to the success of
recent product launches partially offset by the translation of a stronger U.S.
dollar against the Japanese yen. Sales of skin care products are affected
significantly by changes in Asian currency translation rates due to the high
concentration of products sold in the Far East region. Excluding the impact of
foreign currency translation, skin care sales for the three months ended
September 30, 1998 increased 5% as compared with the same prior-year period. The
comparison of the three months ended September 30, 1998 with the same prior-year
period reflects the inclusion of recently introduced products such as Diminish
and All About Eyes, partially offset by lower sales of Fruition Extra and
Advanced Night Repair.
Makeup
Net sales of makeup products increased 14% or $44.2 million to $371.2 million
for the three months ended September 30, 1998 as compared with the same
prior-year period. Higher makeup product sales were due to the successful first
quarter launch of Quickliner for Eyes and Photochrome partially offset by the
launch of Individualist Mascara in the same prior-year period. Increases also
relate to the recent introduction of Two-In-One Eyeshadow, Smudgesicles, Minute
Makeup and Superlast Cream Lipstick.
Fragrance
Net sales of fragrance products increased 9% or $25.1 million to $295.8 million
for the three months ended September 30, 1998 as compared to the same prior-year
period. The increase is primarily due to the launch of Dazzling Gold and
Dazzling Silver, as well as the European introduction of Kiton Napoli.
Additionally, fragrance product sales reflect the recent introduction of
Hilfiger Athletics and the continued success of "tommy girl" and Clinique Happy.
These increases were partially offset by a slow down in sales of "tommy" as
compared to the same prior-year period.
Hair Care
Net sales of hair care products increased significantly as compared with the
same prior-year period due to the inclusion of the Aveda hair care product lines
beginning in December 1997.
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.
-4-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Geographic
Net sales in the Americas increased 17% or $93.9 million to $656.3 million for
the three months ended September 30, 1998 as compared with the same prior-year
period. Sales increases were achieved from the strength of new products across
all categories, growth from existing products and the inclusion of sales from
Aveda and jane. In Europe, the Middle East & Africa, net sales increased 9% or
$21.0 million to $244.9 million as compared with the same prior-year period. The
increase was primarily the result of higher net sales in the United Kingdom,
Spain, Italy and France partially offset by lower sales in the distributor and
travel retail business. Excluding the impact of foreign currency translation,
net sales increased 8%, reflecting a weaker dollar. Net sales in Asia/Pacific
decreased 16% or $18.5 million to $95.8 million for the three months ended
September 30, 1998, as compared with the same prior-year period due to the
unfavorable foreign currency translation impact of the strong U.S. dollar,
particularly versus the Japanese yen. Excluding the impact of foreign currency
translation, Asia/Pacific net sales increased 1%, as compared to the same
prior-year period. Double digit sales increases in Thailand and Malaysia and
strong sales growth in Japan were partially offset by lower sales in Taiwan and
Hong Kong. Net sales in Asia/Pacific continue to be affected by a difficult
retail environment, which we anticipate will continue for some time. 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 three months ended September 30, 1998 was 23.0% of net
sales compared with 22.7% of net sales in the prior-year period. This increase
principally reflects the continued integration of acquired companies which have
a higher product cost structure, as well as shifts in product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general and administrative expenses as a percent of net sales for
the three months ended September 30, 1998 were 64.8% of net sales compared with
65.5% of net sales in the same prior-year period. The change in selling, general
and administrative expenses as a percent of net sales reflects operating expense
efficiencies achieved, as well as the favorable integration of different cost
structures of acquired companies. The Company's quarterly operating expenses are
subject to the timing of advertising and promotional spending due to product
launches and rollouts, as well as incremental advertising in select markets.
OPERATING INCOME
Operating income increased 15% or $15.6 million to $121.6 million in the three
months ended September 30, 1998, as compared to the same prior-year period,
which resulted in an operating margin of 12.2% in the current period as compared
to 11.8% in the prior-year period. The increase in operating income and margin
was due to higher net sales coupled with operating expense efficiencies achieved
in the selling, general and administrative areas. Operating income in the
Americas increased 15% or $12.3 million to $92.9 million for the three months
ended September 30, 1998 as compared to the same prior-year period, primarily
due to higher net sales and operating expense improvements. In Europe, the
Middle East & Africa, operating income increased 10% or $2.3 million to $25.2
million as compared to the same prior-year period. Improved operating results in
Spain, Italy and the United Kingdom were partially offset by lower results in
the distributor and travel retail business. In Asia/Pacific, operating income
increased 40% or $1.0 million to $3.5 million as compared to the same prior-year
period. Offsetting the impact of lower sales due to a stronger dollar was higher
operating income in Japan reflecting planned efficiencies in operating expenses.
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 and/or introductions.
-5-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is an
additional measure of operating performance used by management. While the
components of EBITDA may vary from company to company, the Company excludes its
minority interest adjustment, all depreciation charges related to property,
plant and equipment and all amortization charges including amortization of
goodwill, purchased royalty rights, leasehold improvements and other intangible
assets. The Company considers this measure useful in analyzing its results;
however, it is not intended to replace, or act as a substitute for, any
presentation included in the consolidated financial statements prepared in
conformity with generally accepted accounting principles.
EBITDA increased 20% to $151.3 million or 15.2% of net sales for the three
months ended September 30, 1998 as compared to $125.8 million or 14.0% of net
sales in the same prior-year period. The improvement in EBITDA is attributable
primarily to sales growth and operating expense efficiencies.
INTEREST (EXPENSE) INCOME, NET
Net interest expense was $6.1 million for the three months ended September 30,
1998, as compared with net interest income of $1.0 million in the prior year,
primarily due to increased borrowings related to recent acquisitions.
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign, state and local
income taxes. The effective rate for income taxes for the three months ended
September 30, 1998 was 38.0% compared with 40.0% for the three months ended
September 30, 1997. These rates reflect the effect of state and local taxes, tax
rates in foreign jurisdictions and certain nondeductible expenses. The decrease
in the effective income tax rate was principally attributable to tax planning
initiatives and a relative change in the mix of earnings from higher tax
countries to lower tax countries.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have historically been cash flow from
operations and borrowings under uncommitted and committed credit lines provided
by banks in the United States and abroad. At September 30, 1998, the Company had
cash and cash equivalents of $204.4 million as compared to $277.5 million at
June 30, 1998.
Uncommitted lines of credit amounted to $297.8 million at September 30, 1998, of
which $23.8 million were used. Unused committed lines of credit available to the
Company at September 30, 1998 amounted to $400.0 million. Total debt as a
percentage of total capitalization (including short-term debt) was 29% at
September 30 and June 30, 1998.
Net cash used for operating activities was $58.9 million in the three months
ended September 30, 1998 as compared to $33.6 million in the same prior-year
period. This increase in net cash used for operating activities primarily
reflects increases in accounts receivable balances as compared to the same
prior-year period partially offset by higher other accrued liabilities. Net cash
used for investing activities of $21.4 million and $20.3 million in the three
months ended September 30, 1998 and 1997, respectively, principally reflect
capital expenditures. Financing activities reflect borrowings, dividend payments
and payments to acquire treasury stock. Dividend payments were $15.9 million for
the three months ended September 30, 1998 and 1997.
On September 18, 1998, the Company's Board of Directors authorized a share
repurchase program. The Company may, over an undefined period of time, purchase
up to four million shares of Class A Common Stock in the open market or in
privately negotiated transactions, depending on market conditions and other
factors.
-6-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company expects to commence payments of a 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 the 1998 and
1997 calendar years.
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 have on the Company's costs and on
the cash flows which it receives from its foreign subsidiaries. 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 uses derivative
financial instruments for the purpose of managing its exposure to adverse
fluctuations in foreign currency exchange rates and interest rates. The Company
does not utilize derivative financial instruments for trading or other
speculative purposes.
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.
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 September 30, 1998, the Company had contracts to
exchange foreign currencies in the form of purchased currency options and
forward exchange contracts in the amount of $69.8 million and $224.8 million,
respectively. Foreign currencies exchanged under these contracts are principally
the Belgian franc, Japanese yen, German mark, Swiss franc, U.K. pound, Spanish
peseta and Italian lira. In addition, the Company had interest rate swap
agreements outstanding with a notional principal amount of $405.0 million. There
have been no significant changes in market risk since June 30, 1998 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, 1998.
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 developed a comprehensive plan to address Year 2000 issues. The
plan addresses three main areas: (a) information systems; (b) embedded chips;
and (c) supply chain readiness. To oversee the process, the Company has
established a Steering Committee comprised of senior executives from its
various business units around the world, which reports regularly to the Board
of Directors and the Audit Committee.
-7-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has identified potential deficiencies related to Year 2000 in its
information systems and is in the process of addressing them through upgrades
and other remediation. Completion of the remediation and testing is expected in
the summer of 1999. Identification of other equipment with date sensitive
operating controls is ongoing and the Company anticipates completion of critical
embedded chip remediation by the summer of 1999. To mitigate the risk of Year
2000 non-compliance by third parties, the Company has identified and contacted
critical inventory suppliers and customers and is in the process of meeting with
these third parties. Further, the Company is also identifying and contacting
other suppliers and customers. These communications include solicitation of
written responses and/or meetings.
Although the Company believes it is difficult to specifically identify the cause
of the most reasonable worst case Year 2000 scenario, it is formulating
contingency plans to limit, to the extent possible, lost revenues arising from
the failure of third parties to be Year 2000 compliant. Such plans would
necessarily be limited to matters over which the Company can reasonably control.
Costs incurred through September 30, 1998 have not been significant and, based
upon the Company's current estimates, incremental out-of-pocket costs of its
Year 2000 program are not expected to be material.
FORWARD-LOOKING INFORMATION
The Company and its representatives from time to time make written or verbal
forward looking statements, including statements contained in this and other
filings with the Securities and Exchange Commission and in the Company's reports
to stockholders. The words and phrases "will likely result," "expects,"
"believes," "will continue," "is anticipated," "estimates," "projects" or
similar expressions are intended to identify "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 operations or 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,
fragrance and hair care businesses, some of which have greater resources 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.
-8-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
1998 1998
-------- --------
(Unaudited)
(In millions)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents............................................................... $ 204.4 $ 277.5
Accounts receivable, net................................................................ 685.7 497.8
Inventory and promotional merchandise, net.............................................. 497.5 513.2
Prepaid expenses and other current assets............................................... 159.5 166.1
-------- --------
Total current assets............................................................... 1,547.1 1,454.6
-------- --------
Property, Plant and Equipment, net...................................................... 341.0 335.8
-------- --------
Other Assets
Investments, at cost or market value.................................................... 24.9 27.7
Deferred taxes.......................................................................... 63.6 59.6
Goodwill, net .......................................................................... 493.0 496.2
Other intangible assets, net............................................................ 62.2 67.1
Other assets, net....................................................................... 72.0 71.8
-------- --------
715.7 722.4
-------- --------
$2,603.8 $2,512.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt......................................................................... $ 29.0 $ 11.5
Accounts payable........................................................................ 165.5 209.1
Accrued income taxes.................................................................... 110.5 79.4
Other accrued liabilities............................................................... 575.8 537.4
-------- --------
Total current liabilities.......................................................... 880.8 837.4
-------- --------
Noncurrent Liabilities
Long-term debt.......................................................................... 425.5 425.0
Other noncurrent liabilities............................................................ 172.3 194.0
-------- --------
597.8 619.0
-------- --------
$6.50 Cumulative Redeemable Preferred Stock, at redemption value........................ 360.0 360.0
-------- --------
Stockholders' Equity
Common stock, $.01 par value; 300,000,000 shares Class A authorized, shares
issued 61,482,568 at September 30, 1998 and 61,467,934 at June 30, 1998;
120,000,000 shares Class B authorized, shares issued 56,839,667...................... 1.2 1.2
Paid-in capital......................................................................... 169.9 169.8
Retained earnings....................................................................... 615.1 559.6
Accumulated other comprehensive income.................................................. (18.4) (34.2)
-------- --------
767.8 696.4
Less: Treasury stock, at cost; 49,791 shares at September 30, 1998 ..................... (2.6) -
-------- --------
765.2 696.4
-------- --------
$2,603.8 $2,512.8
======== ========
</TABLE>
See notes to consolidated financial statements.
-9-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
---------------------
1998 1997
------- -------
(In millions)
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings............................................................................... $ 71.6 $ 61.8
Adjustments to reconcile net earnings to net cash
flows used for operating activities:
Depreciation and amortization.......................................................... 25.3 15.4
Amortization of purchased royalty rights............................................... 4.4 4.4
Deferred income taxes.................................................................. (4.0) (6.1)
Minority interest...................................................................... - 2.4
Changes in operating assets and liabilities:
Increase in accounts receivable, net................................................... (175.9) (105.0)
Decrease in inventory and promotional merchandise...................................... 19.4 6.3
Decrease (increase) in other assets.................................................... 5.6 (12.7)
Decrease in accounts payable........................................................... (45.2) (17.0)
Increase in accrued income taxes....................................................... 29.8 23.6
Increase in other accrued liabilities.................................................. 33.7 0.6
Decrease in other noncurrent liabilities............................................... (23.6) (7.3)
------- -------
Net cash flows used for operating activities......................................... (58.9) (33.6)
------- -------
Cash Flows from Investing Activities
Capital expenditures....................................................................... (19.1) (19.6)
Purchase of long-term investments.......................................................... (2.3) (0.7)
------- -------
Net cash flows used for investing activities......................................... (21.4) (20.3)
------- -------
Cash Flows from Financing Activities
Increase in short-term debt, net........................................................... 17.3 16.1
Repayments and redemptions of long-term debt............................................... - (1.5)
Proceeds from exercise of stock options.................................................... 0.2 -
Payments to acquire treasury stock......................................................... (2.8) -
Dividends paid............................................................................. (15.9) (15.9)
------- -------
Net cash flows used for financing activities......................................... (1.2) (1.3)
------- -------
Effect of Exchange Rate Changes on Cash and Cash Equivalents.................................. 8.4 (2.9)
------- -------
Net Decrease in Cash and Cash Equivalents.................................................. (73.1) (58.1)
Cash and Cash Equivalents at Beginning of Period........................................... 277.5 255.6
------- -------
Cash and Cash Equivalents at End of Period................................................. $ 204.4 $ 197.5
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................................................. $ 7.4 $ 0.7
======= =======
Income taxes........................................................................... $ 12.0 $ 13.1
======= =======
</TABLE>
See notes to consolidated financial statements.
-10-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of The
Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated in
consolidation.
Certain amounts in the consolidated financial statements of the prior period
have been reclassified to conform to the current period presentation for
comparative purposes.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations of any interim period are not necessarily indicative of
the results of operations to be expected for the fiscal year. For further
information, refer to the consolidated financial statements and accompanying
footnotes included in the Company's annual report on Form 10-K for the year
ended June 30, 1998.
Net Earnings Per Common Share
For the period ended September 30, 1998, in accordance with the requirements of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", net earnings per common share amounts ("basic EPS") were computed by
dividing net earnings, after deducting preferred stock dividends on the
Company's $6.50 Cumulative Redeemable Preferred Stock, by the weighted average
number of common shares outstanding and contingently issuable shares (which
satisfy certain conditions) and excluded any potential dilution. Net earnings
per common share amounts assuming dilution ("diluted EPS") were computed by
reflecting potential dilution from the exercise of stock options. SFAS No. 128
requires the presentation of both basic EPS and diluted EPS on the face of the
consolidated statement of earnings. Earnings per share amounts for the same
prior-year period has been restated to conform with the provisions of SFAS No.
128.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net earnings is as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30
-------------------------------
1998 1997
------- -------
(Unaudited)
(In millions, except per share data)
<S> <C> <C>
Net earnings.................................................. $ 71.6 $ 61.8
Preferred stock dividends..................................... (5.9) (5.9)
------- -------
Numerator:
Net earnings attributable to common stock..................... 65.7 55.9
======= =======
Denominator:
Weighted average common shares outstanding - Basic............ 118.5 118.4
Effect of dilutive securities: Stock options.................. 1.6 0.9
------- -------
Weighted average common shares outstanding - Diluted.......... 120.1 119.3
======= =======
Basic EPS..................................................... $ .55 $ .47
======= =======
Diluted EPS................................................... $ .55 $ .47
======= =======
</TABLE>
Options to purchase 1.6 million shares of common stock were not included in the
computation of diluted EPS because the exercise price of those options was
greater than the average market price of the common shares. The options were
still outstanding at the end of the period.
-11-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable
Accounts Receivable is stated net of the allowance for doubtful accounts of
$40.2 million and $43.6 million as of September 30 and June 30, 1998,
respectively.
Inventory and Promotional Merchandise
Inventory and promotional merchandise only include inventory considered saleable
or usable in future periods, and are stated at the lower of cost or market, with
cost being determined on the first-in, first-out method. Promotional merchandise
is charged to expense at the time the merchandise is shipped to the Company's
customers.
<TABLE>
<CAPTION>
September 30 June 30
1998 1998
------- -------
(Unaudited)
(In millions)
<S> <C> <C>
Inventory and promotional merchandise consists of:
Raw materials......................................... $ 128.6 $ 143.6
Work in process....................................... 23.0 26.7
Finished goods........................................ 248.5 227.8
Promotional merchandise............................... 97.4 115.1
------- -------
$ 497.5 $ 513.2
======= =======
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation.
For financial statement purposes, depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets ranging from
3 to 40 years. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lives of the respective leases or the expected useful
lives of the improvements.
<TABLE>
<CAPTION>
September 30 June 30
1998 1998
------- -------
(Unaudited)
(In millions)
<S> <C> <C>
Land.................................................... $ 13.1 $ 13.0
Buildings and improvements.............................. 128.4 124.0
Machinery and equipment................................. 376.8 367.8
Furniture and fixtures.................................. 82.8 78.6
Leasehold improvements.................................. 123.4 117.3
------- -------
724.5 700.7
Less accumulated depreciation and amortization.......... 383.5 364.9
------- -------
$ 341.0 $ 335.8
======= =======
</TABLE>
Share Repurchase Program
On September 18, 1998, the Company's Board of Directors authorized a share
repurchase program. The Company may, over an undefined period of time, purchase
up to four million shares of Class A Common Stock in the open market or in
privately negotiated transactions, depending on market conditions and other
factors.
-12-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses
reported in those financial statements. Actual results could differ from those
estimates and assumptions.
NOTE 2 - COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income" which
establishes guidance for the reporting and display of comprehensive income and
its components. The purpose of reporting comprehensive income is to report a
measure of all changes in equity that resulted from recognized transactions and
other economic events of the period other than transactions with stockholders.
Adoption of SFAS No. 130 had no economic impact on the Company's consolidated
financial position, net earnings, stockholders' equity or cash flows, although
the presentation of certain items has changed.
Comprehensive income and its components, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1998 1997
------ ------
(Unaudited)
(In millions)
<S> <C> <C>
Net earnings.................................................................... $ 71.6 $ 61.8
------ ------
Other comprehensive income:
Net unrealized investment (losses) gains................................... (3.0) 1.4
Translation adjustments.................................................... 18.8 (15.0)
------ ------
Other comprehensive income................................................. 15.8 (13.6)
------ ------
Comprehensive income............................................................ $ 87.4 $ 48.2
====== ======
</TABLE>
The components of accumulated other comprehensive income included in the
accompanying consolidated balance sheets consist of net unrealized investment
gains and cumulative translation adjustments as of the end of the period.
-13-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine legal proceedings incident to the
ordinary course of its business. The Company believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
effect on its business or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits--
10.1 Employment Agreement with Daniel J. Brestle
10.2 Employment Agreement with William P. Lauder
10.3 Agreement with Jeanette S. Wagner
27.1 Financial Data Schedule
(b) Reports on Form 8-K -- There were no reports on Form 8-K for the
three months ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ESTEE LAUDER COMPANIES INC.
Date: October 28, 1998 By:/s/ Robert J. Bigler
-----------------------------------
Robert J. Bigler
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-14-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
EXHIBIT INDEX
Exhibit No. Description
10.1 Employment Agreement with Daniel J. Brestle
10.2 Employment Agreement with William P. Lauder
10.3 Agreement with Jeanette S. Wagner
27.1 Financial Data Schedule
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of July 1, 1998,
between THE ESTEE LAUDER COMPANIES INC., a Delaware corporation (the "Company"),
and DANIEL J. BRESTLE, a resident of [CITY, STATE] (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and its divisions, subsidiaries and
affiliates are principally engaged in the business of manufacturing and
marketing skin care, makeup, fragrance and hair care products (the "Business");
and
WHEREAS, the Company desires to continue to retain the
services of the Executive, and to appoint him to the capacity of President,
Estee Lauder (USA & Canada), a division of the Company, and the Executive
desires to provide services in such capacity to the Company, upon the terms and
subject to the conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company (the "Compensation Committee") has approved the terms of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and obligations hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment Term.
The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to enter into employment, as President, Estee Lauder
(USA & Canada) for the period commencing on July 1, 1998 and ending on June 30,
2001 unless terminated sooner pursuant to Section 5 hereof (the "Term of
Employment"). The twelve-month period commencing on July 1, 1998 shall be the
"First Contract Year" hereunder, and subsequent twelve-month periods shall be
subsequent Contract Years.
2. Duties and Extent of Services.
(a) During the Term of Employment, the Executive shall serve
<PAGE>
as President, Estee Lauder (USA & Canada) and, in such capacity, shall render
such executive, managerial, administrative and other services as customarily are
associated with and incident to such position and as the Company may, from time
to time, reasonably require of him consistent with such position.
(b) The Executive shall also hold such other positions and
executive offices of the Company and/or of any of the Company's divisions,
subsidiaries or affiliates as may from time to time be authorized by the Board
of Directors of the Company, provided that each such position shall be
commensurate with the Executive's standing in the business community as
President, Estee Lauder (USA & Canada). The Executive shall not be entitled to
any compensation other than the compensation provided for herein for serving
during the Term of Employment in any other office or position of the Company or
any of its divisions, subsidiaries or affiliates, unless the Board of Directors
(or the Compensation Committee) of the Company shall have specifically approved
such additional compensation.
(c) The Executive shall be a full time employee of the Company
and shall exclusively devote all his business time and efforts to faithfully,
competently and diligently perform to the best of his ability all of the duties
required of him as President, Estee Lauder (USA & Canada), and in the other
positions or offices of the Company or its divisions, subsidiaries or affiliates
required of him hereunder. Notwithstanding the foregoing provisions of this
Section 2(c), the Executive may serve as a non-management director of such
business corporations (or in a like capacity in other for-profit or
not-for-profit organizations) as the Board of Directors or Chief Executive
Officer of the Company may approve.
3. (a) Base Salary. As compensation for all services to be
rendered pursuant to this Agreement and as payment for the rights and interests
granted by Executive hereunder, the Company shall pay or cause any of its
subsidiaries to pay the Executive a base salary (the "Base Salary") in the gross
amount of one million dollars ($1,000,000) for each Contract Year during the
Term of Employment hereunder. All amounts of Base Salary provided for hereunder
shall be payable in accordance with the regular payroll policies of the Company
in effect from time to time.
(b) Incentive Bonus Compensation. In addition to the Base
Salary set out at Section 3(a) hereof, the Executive shall be eligible to
participate in the Company's Executive Annual Incentive Plan (the "Bonus Plan"),
provided the Bonus Plan shall have received appropriate approval by the
stockholders of the Company. The Compensation Committee has granted aggregate
2
<PAGE>
bonus opportunities for the Executive under the terms of the Bonus Plan as
follows:
For the First Contract Year: $1,000,000
For the Second Contract Year: $1,125,000
For the Third Contract Year: $1,250,000.
The actual bonus payable to Executive in respect of each Contract Year during
the Term of Employment shall be determined by the Compensation Committee, and
shall be calculated with reference to the attainment by the Company and the
Executive of performance goals for such Contract Year established by the
Compensation Committee under the terms of the Bonus Plan.
(c) Deferral. The Executive may elect to defer payment of all
or any part of his bonus incentive compensation payable in accordance with
Section 3(b) hereof in respect of any Contract Year, by giving to the Company
written notice thereof, on or before March 31 of such Contract Year.
Additionally, in the event that in respect of any fiscal year of the Company any
amount of Base Salary, any amount payable under the Bonus Plan or any other
amount payable to the Executive hereunder or otherwise shall, either alone or in
combination with other amounts payable hereunder or otherwise, result in the
payment by the Company of any amount that shall not be currently deductible by
it pursuant to the provisions of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), or like or successor provisions (a
"Non-Deductible Amount"), the Company may elect to defer the payment of the
Non-Deductible Amount. Any amounts, so deferred, either by election of the
Executive or by election of the Company shall be credited to a bookkeeping
account in the name of the Executive as of the date scheduled for payment
hereunder. Such amounts shall be credited with interest as of each June 30
during the term of deferral, compounded annually, at a rate per annum equal to
the annual rate of interest announced by Citibank, N.A. in New York, New York as
its base rate in effect on such June 30, but in no event shall such rate exceed
9%. The entire amount credited to such bookkeeping account shall be paid to the
Executive on a date to be chosen by the Company, but in no event later than 90
days after the termination of the Executive from employment with the Company.
(d) Share Incentive Plan. In July 1998, the Compensation
Committee granted to the Executive options to purchase 50,000 shares of Class A
Common Stock of the Company ("Common Stock") under the terms of the Company's
3
<PAGE>
Fiscal 1996 Share Incentive Plan ("Share Incentive Plan"). Additionally, senior
management shall recommend to the Compensation Committee that the Executive be
granted options to purchase not fewer than 50,000 shares of Common Stock as of
each July 1 during the Term of Employment under the terms of the Share Incentive
Plan or such successor plan of similar import as shall then exist.
4. Benefits and Other Reimbursements.
(a) Benefits. During the Term of Employment, the Executive
shall be entitled to (i) participate in any and all benefit programs and
arrangements now in effect and hereinafter adopted and made generally available
by the Company to its senior officers, including but not limited to the Estee
Lauder Inc. Retirement Growth Account Plan, the related Estee Lauder Inc.
Benefit Restoration Plan, contributory and non-contributory Company welfare and
benefit plans, disability plans, and medical, death benefit and standard and
supplemental life insurance plans for which the Executive shall be eligible, or
may become eligible during the Term of Employment; (ii) participate in the
Company's executive automobile program now in effect and hereinafter adopted and
generally made available by the Company to its senior officers; and (iii) paid
vacations during each year of the Term of Employment in accordance with the
policies and procedures of the Company as in effect from time to time for its
senior officers.
(b) Perquisite Reimbursement . The Company shall reimburse to
the executive the actual expense incurred by him in connection with his
professional standing, in accordance with the guidelines set out in the
Company's executive perquisite program. In no event shall the gross amount of
such reimbursements be greater than $15,000 in respect of any calendar year
during the Term of Employment.
(c). Expenses. The Company agrees to reimburse the Executive
for all reasonable and necessary travel (including first class air fare),
business entertainment and other business out-of-pocket expenses incurred or
expended by him in connection with the performance of his duties hereunder upon
presentation of proper expense statements or vouchers or such other supporting
information as the Company may reasonably require of the Executive.
5. Termination.
(a) Permanent Disability. In the event of the "permanent
disability" (as hereinafter defined) of the Executive during the Term of
Employment, the Company shall have the right, upon written notice to the
4
<PAGE>
Executive, to terminate the Executive's employment hereunder, effective upon the
giving of such notice (or such later date as shall be specified in such notice).
In the event of such termination, the Company shall have no further obligations
hereunder, except that the Executive shall be entitled (i) to receive any
amounts or benefits to which the Executive may otherwise have been entitled
prior to the effective date of termination; (ii) to be paid his Base Salary
under Section 3(a) hereof for a period of one (1) year from the effective date
of termination; provided, however, that the Company shall only be required to
pay that amount of the Executive's Base Salary which shall not be covered by
Company provided long-term disability payments, if any, to the Executive; and
(iii) to receive any unpaid bonus compensation earned under Section 3(b) hereof
that relates to any Contract Year ending prior to the date of permanent
disability. In addition, upon termination for permanent disability, the
Executive shall continue to participate in any and all pension, insurance and
other benefit plans and programs of the Company during the period the Executive
is continuing to receive his Base Salary in accordance with this Section 5(a).
Thereafter, the Executive's rights to participate in such programs and plans, or
to receive similar coverage, if any, shall be as determined under such programs;
provided, however, that, except as otherwise provided in this Section 5(a), the
Company will have no further obligations under Sections 3(b) and (d) hereof. For
purposes of this paragraph, "permanent disability" means any physical or mental
disability or incapacity that renders the Executive incapable of performing the
services required of him in accordance with his obligations under Section 2
hereof for a period of six (6) consecutive months or for shorter periods
aggregating six (6) months during any twelve-month period.
(b) Death. In the event of the death of the Executive during
the Term of Employment, this Agreement shall automatically terminate. In the
event of such termination the Company shall have no further obligations
hereunder, except to pay, the Executive's beneficiary or legal representative
(i) the Executive's Base Salary as established under Section 3(a) hereof as of
the date of his death from such date to the last day of the month in which the
death occurs; (ii) bonus compensation earned under Section 3(b) hereof that
relates to any Contract Year ending prior to the date of his death; and (iii)
any other amounts to which the Executive otherwise would have been entitled to
hereunder prior to the date of his death; provided, however, that, except as
otherwise provided in this Section 5(b), the Company will have no further
obligations under Sections 3(b) and (d) hereof.
(c) Termination Without Cause. The Company shall have the
right, upon sixty (60) days' written notice given to the Executive, to terminate
this Agreement for any reason whatsoever. In the event of such termination, for
5
<PAGE>
a period of one (1) year from the effective date of termination, the Executive
shall be entitled as damages to (i) receive his Base Salary as established under
Section 3(a) hereof as of the effective date of such termination; (ii) receive
bonus compensation equal to fifty percent (50%) of the average of incentive
compensation bonuses previously paid or payable to the Executive under Section
3(b) hereof during the term of employment (or, if no such bonuses have been paid
or are payable as of the date of such termination, fifty percent (50%) of the
target bonus established under Section 3(b) hereof in respect of the Contract
Year in which occurs the date of such termination); and (iii) participate in all
pension, insurance and other benefit plans, programs or arrangements, on terms
identical to those applicable to full term senior officers of the Company;
provided, however, that, except as otherwise provided in this Section 5(c), the
Company will have no further obligations under Sections 3(b) and (d) hereof. In
the event of termination pursuant to this Section 5(c), the Executive shall not
be required to mitigate his damages hereunder.
(d) Cause. The Company shall have the right, upon written
notice to the Executive, to terminate the Executive's employment under this
Agreement for "Cause" (as hereinafter defined), effective upon the giving of
such notice (or such later date as shall be specified in such notice), and the
Company shall have no further obligations hereunder, except to pay the Executive
any amounts otherwise payable pursuant to Section 3(a) hereof and provide the
Executive any benefits to which the Executive may have been otherwise entitled
prorated to the effective date of termination. The Executive's right to
participate in any of the Company's retirement, insurance and other benefit
plans and programs shall be as determined under such plans and programs;
provided, however, that, except as otherwise provided in this Section 5(d), the
Company will have no further obligations under Sections 3(b) and (d) hereof.
For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on
the part of the Executive or material breach by the Executive of his obligations
under Section 6 or 7 hereof;
(ii) conviction of or the entry of a plea of nolo
contendere by the Executive for any felony;
(iii) a material breach of, or the willful failure
or refusal by the Executive to perform and discharge, his duties,
responsibilities or obligations under this Agreement (other than under Sections
6 and 7 hereof, which shall be governed by clause (i) above, and other than by
reason of disability or death) that is not corrected within thirty (30) days
6
<PAGE>
following written notice thereof to the Executive by the Company, such notice to
state with specificity the nature of the breach, failure or refusal; provided
that if such breach, failure or refusal cannot reasonably be corrected within
thirty (30) days of written notice thereof, correction shall be commenced by the
Executive within such period and may be corrected within a reasonable period
thereafter; or
(iv) any act of moral turpitude or willful
misconduct by the Executive which (A) is intended to result in substantial
personal enrichment of the Executive at the expense of the Company or any of its
subsidiaries or affiliates or (B) has a material adverse impact on the business
or reputation of the Company or any of its subsidiaries or affiliates (such
determination to be made by the Company's Board of Directors in its reasonable
judgment).
(e) Termination by Executive. The Executive shall have the
right, exercisable at any time during the Term of Employment, to terminate this
agreement for any reason whatsoever, upon six (6) months written notice to the
Company. In such event, the Company shall have no further obligations hereunder,
except that, for a period of six (6) months after the effective date of such
termination, the Company shall pay to the Executive (i) his Base Salary as
established under Section 3(a) hereof; and (ii) bonus compensation equal to
twenty-five percent (25%) of the Base Salary paid pursuant to clause (i) above,
such bonus compensation to be paid simultaneously with the last Base Salary
payment for the applicable fiscal year; provided, however, that, except as
otherwise provided in this Section 5(e), the Company will have no further
obligations under Sections 3(b) and (d) hereof.
(f) Termination by Executive for Material Breach. The
Executive shall have the right, exercisable by notice to the Company, to
terminate his employment effective thirty (30) days after the giving of such
notice, if, at any time during the Term of Employment, the Company shall be in
material breach of its obligations hereunder; provided, however, that such
notice must be provided to the Company within thirty (30) days of the occurrence
of such material breach; and provided further, that such termination will not
become effective if within such thirty (30) day period the Company shall have
cured all such material breaches of its obligations hereunder. For purposes of
this Section 5(f), a material breach shall include, but not be limited to, a
material reduction in the Executive's authority, functions, duties or
responsibilities provided in Section 2 hereof or the Company's failure to cause
the Executive to serve in the position set forth in Section 1 hereof for any
time period in which he is entitled to so serve. Such termination shall be
deemed to be a termination without cause and shall be controlled by the
provisions of Section 5(c) hereof.
7
<PAGE>
(g) Certain Limitations. Notwithstanding anything to the
contrary contained herein, in the event that any payment received or to be
received by the Executive pursuant to Section 5 hereof or otherwise (a
"Severance Payment") would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Code (in whole or part), the Severance Payment
shall be reduced so that the total of all amounts treated as "parachute
payments" under Section 280G of the Code shall not exceed 2.99 times the
Executive's "base amount" (as defined under Section 280G of the Code).
(h) Effect of Termination. Upon the termination of the
Executive's employment for any reason, the Company shall have no further
obligations hereunder, except as otherwise provided herein. The Executive,
however, shall continue to have the obligations provided for in Sections 6 and 7
hereof. Furthermore, upon such termination, the Executive shall be deemed to
have resigned immediately from all offices and directorships held by him in the
Company or any of its subsidiaries.
6. Confidentiality; Ownership.
(a) The Executive agrees that he shall forever keep secret and
retain in strictest confidence and not divulge, disclose, discuss, copy or
otherwise use or suffer to be used in any manner, except in connection with the
Business of the Company and the businesses of any of its subsidiaries or
affiliates, any "Protected Information" in any "Unauthorized" manner or for any
Unauthorized purpose (as such terms are hereinafter defined).
(i) "Protected Information" means trade secrets,
confidential or proprietary information and all other knowledge, know-how,
information, documents or materials owned, developed or possessed by the Company
or any of its subsidiaries or affiliates, whether in tangible or intangible
form, pertaining to the Business of the Company or the businesses of any of its
subsidiaries or affiliates, including, but not limited to, research and
development operations, systems, data bases, computer programs and software,
designs, models, operating procedures, knowledge of the organization, products
(including prices, costs, sales or content), processes, formulas, techniques,
machinery, contracts, financial information or measures, business methods,
business plans, details of consultant contracts, new personnel acquisition
plans, business acquisition plans, customer lists, business relationships and
other information owned, developed or possessed by the Company or its
subsidiaries or affiliates, except as required in the course of performing
duties hereunder; provided that Protected Information shall not include
information that becomes generally known to the public or the trade without
violation of this Section 6.
8
<PAGE>
(ii) "Unauthorized" means: (A) in contravention of
the policies or procedures of the Company or any of its subsidiaries or
affiliates; (B) otherwise inconsistent with the measures taken by the Company or
any of its subsidiaries or affiliates to protect their interests in any
Protected Information; (C) in contravention of any lawful instruction or
directive, either written or oral, of an employee of the Company or any of its
subsidiaries or affiliates empowered to issue such instruction or directive; or
(D) in contravention of any duty existing under law or contract. Notwithstanding
anything to the contrary contained in this Section 6, the Executive may disclose
any Protected Information to the extent required by court order or decree or by
the rules and regulations of a governmental agency or as otherwise required by
law; provided that the Executive shall provide the Company with prompt notice of
such required disclosure in advance thereof so that the Company may seek an
appropriate protective order in respect of such required disclosure.
(b) The Executive acknowledges that all developments,
including, without limitation, inventions (patentable or otherwise),
discoveries, formulas, improvements, patents, trade secrets, designs, reports,
computer software, flow charts and diagrams, procedures, data, documentation,
ideas and writings and applications thereof relating to the Business or planned
business of the Company or any of its subsidiaries or affiliates that, alone or
jointly with others, the Executive may conceive, create, make, develop, reduce
to practice or acquire during the Term of Employment (collectively, the
"Developments") are works made for hire and shall remain the sole and exclusive
property of the Company and the Executive hereby assigns to the Company, in
consideration of the payments set forth in Section 3(a) hereof, all of his
right, title and interest in and to all such Developments. The Executive shall
promptly and fully disclose all future material Developments to the Board of
Directors of the Company and, at any time upon request and at the expense of the
Company, shall execute, acknowledge and deliver to the Company all instruments
that the Company shall prepare, give evidence and take all other actions that
are necessary or desirable in the reasonable opinion of the Company to enable
the Company to file and prosecute applications for and to acquire, maintain and
enforce all letters, patent and trademark registrations or copyrights covering
the Developments in all countries in which the same are deemed necessary by the
Company. All memoranda, notes, lists, drawings, records, files, computer tapes,
programs, software, source and programming narratives and other documentation
(and all copies thereof) made or compiled by the Executive or made available to
the Executive concerning the Developments or otherwise concerning the Business
or planned business of the Company or any of its subsidiaries or affiliates
9
<PAGE>
shall be the property of the Company or such subsidiaries or affiliates and
shall be delivered to the Company or such subsidiaries or affiliates promptly
upon the expiration or termination of the Term of Employment.
(c) The provisions of this Section 6 shall, without any
limitation as to time, survive the expiration or termination of the Executive's
employment hereunder, irrespective of the reason for any termination.
7. Covenant Not to Compete. Subject to the last sentence of
this Section 7, the Executive agrees that during the Term of Employment and for
a period of one (1) year commencing upon the expiration or termination of the
Executive's employment (the "Non-Compete Period"), the Executive shall not,
directly or indirectly, without the prior written consent of the Company:
(a) solicit, entice, persuade or induce any employee,
consultant, agent or independent contractor of the Company or of any of its
subsidiaries or affiliates to terminate his or her employment with the Company
or such division, subsidiary or affiliate, to become employed by any person,
firm or corporation other than the Company or such subsidiary or affiliate or
approach any such employee, consultant, agent or independent contractor for any
of the foregoing purposes, or authorize or assist in the taking of any such
actions by any third party (for purposes of this Section 7(a), the terms
"employee," "consultant," "agent" and "independent contractor" shall include any
persons with such status at any time during the six (6) months preceding any
solicitation in question); or
(b) directly or indirectly engage, participate, or make any
financial investment in, or become employed by or render consulting, advisory or
other services to or for any person, firm, corporation or other business
enterprise, wherever located, which is engaged, directly or indirectly, in
competition with the Company's Business or the businesses of its subsidiaries or
affiliates as conducted or any business proposed to be conducted at the time of
the expiration or termination of the Executive's employment hereunder; provided,
however, that nothing in this Section 7(b) shall be construed to preclude the
Executive from making any investments in the securities of any business
enterprise whether or not engaged in competition with the Company or any of its
subsidiaries or affiliates, to the extent that such securities are actively
traded on a national securities exchange or in the over-the-counter market in
the United States or on any foreign securities exchange and represent, at the
time of acquisition, not more than 1% of the aggregate voting power of such
business enterprise.
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Notwithstanding the foregoing, the Executive shall not be
subject to the terms and provisions of paragraph (b) of this Section 7 if the
Term of Employment is terminated pursuant to Section 5(c) or 5(f) hereof.
8. Specific Performance. The Executive acknowledges that the
services to be rendered by the Executive are of a special, unique and
extraordinary character and, in connection with such services, the Executive
will have access to confidential information vital to the Company's Business and
the businesses of its subsidiaries and affiliates. By reason of this, the
Executive consents and agrees that if the Executive violates any of the
provisions of Sections 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that monetary damages would not
provide adequate remedy to the Company and that the Company shall be entitled to
have Section 6 or 7 hereof specifically enforced by any court having equity
jurisdiction. Nothing contained herein shall be construed as prohibiting the
Company or any of its subsidiaries or affiliates from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Executive.
9. Deductions and Withholding. The Executive agrees that the
Company or its divisions, subsidiaries or affiliates, as applicable, shall
withhold from any and all compensation paid to and required to be paid to the
Executive pursuant to this Agreement, all Federal, state, local and/or other
taxes which the Company determines are required to be withheld in accordance
with applicable statutes or regulations from time to time in effect and all
amounts required to be deducted in respect of the Executive's coverage under
applicable employee benefit plans. For purposes of this Agreement and
calculations hereunder, all such deductions and withholdings shall be deemed to
have been paid to and received by the Executive.
10. Entire Agreement. This Agreement embodies the entire
agreement of the parties with respect to the Executive's employment,
compensation, perquisites and related items and supersedes any other prior oral
or written agreements, arrangements or understandings between the Executive and
the Company or any of its divisions, subsidiaries or affiliates, and any such
prior agreements, arrangements or understandings are hereby terminated and of no
further effect. This Agreement may not be changed or terminated orally but only
by an agreement in writing signed by the parties hereto.
11. Waiver. The waiver by the Company of a breach of any
provision of this Agreement by the Executive shall not operate or be construed
as a waiver of any subsequent breach by him. The waiver by the Executive of a
breach of any provision of this Agreement by the Company shall not operate or be
construed as a waiver of any subsequent breach by the Company.
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12. Governing Law; Jurisdiction.
(a) This Agreement shall be subject to, and governed by, the
laws of the State of New York applicable to contracts made and to be performed
therein.
(b) Any action to enforce any of the provisions of this
Agreement shall be brought in a court of the State of New York located in the
Borough of Manhattan of the City of New York or in a Federal court located
within the Southern District of New York. The parties consent to the
jurisdiction of such courts and to the service of process in any manner provided
by New York law. Each party irrevocably waives any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in such court and any claim that such suit, action or proceeding brought
in such court has been brought in an inconvenient forum and agrees that service
of process in accordance with the foregoing sentences shall be deemed in every
respect effective and valid personal service of process upon such party.
13. Assignability. The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest herein. Any such attempted delegation or disposition
shall be null and void and without effect. The Company and the Executive agree
that this Agreement and all of the Company's rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and be
binding upon any successor to the Company. The term "successor" means, with
respect to the Company or any of its subsidiaries, any corporation or other
business entity which, by merger, consolidation, purchase of the assets or
otherwise acquires all or a material part of the assets of the Company.
14. Severability. If any provision of this Agreement or any
part thereof, including, without limitation, Sections 6 and 7 hereof, as applied
to either party or to any circumstances shall be adjudged by a court of
competent jurisdiction to be void or unenforceable, the same shall in no way
affect any other provision of this Agreement or remaining part thereof, which
shall be given full effect without regard to the invalid or unenforceable part
thereof, or the validity or enforceability of this Agreement.
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If any court construes any of the provisions of Section 6 or 7
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof, such court may reduce the duration or
restrict or redefine the geographic scope of such provision and enforce such
provision as so reduced, restricted or redefined.
15. Notices. All notices to the Company or the Executive
permitted or required hereunder shall be in writing and shall be delivered
personally, by telecopier or by courier service providing for next-day delivery
or sent by registered or certified mail, return receipt requested, to the
following addresses:
The Company:
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
Attn: Chief Executive Officer
Tel: (212) 572-4200
Fax: (212) 572-6745
The Executive:
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
16. No Conflicts. The Executive hereby represents and warrants
to the Company that his execution, delivery and performance of this Agreement
and any other agreement to be delivered pursuant to this Agreement will not (i)
require the consent, approval or action of any other person or (ii) violate,
conflict with or result in the breach of any of the terms of, or constitute (or
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with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive is bound
or subject. The Executive hereby agrees to indemnify and hold harmless the
Company and its directors, officers, employees, agents, representatives and
affiliates (and such affiliates' directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or claims
(including, interest, penalties and reasonable attorneys' fees, disbursements
and related charges) based upon or arising out of the Executive's breach of any
of the foregoing representations and warranties.
17. Effective Date. This Agreement shall be effective as of
July 1, 1998.
18. Paragraph Headings. The paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
THE ESTEE LAUDER COMPANIES INC.
By:
-------------------------------
Name:
Title:
-------------------------------
Daniel J. Brestle
14
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of July 1, 1998,
between THE ESTEE LAUDER COMPANIES INC., a Delaware corporation (the "Company"),
and WILLIAM P. LAUDER, a resident of [CITY, STATE] (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and its divisions, subsidiaries and
affiliates are principally engaged in the business of manufacturing and
marketing skin care, makeup, fragrance and hair care products (the "Business");
and
WHEREAS, the Company desires to continue to retain the
services of the Executive, and to appoint him to the capacity of President,
Clinique Laboratories, Inc., a subsidiary of the Company, and the Executive
desires to provide services in such capacity to the Company, upon the terms and
subject to the conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company (the "Compensation Committee") has approved the terms of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and obligations hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment Term.
The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to enter into employment, as President, Clinique
Laboratories, Inc. for the period commencing on July 1, 1998 and ending on June
30, 2001 unless terminated sooner pursuant to Section 5 hereof (the "Term of
Employment"). The twelve-month period commencing on July 1, 1998 shall be the
"First Contract Year" hereunder, and subsequent twelve-month periods shall be
subsequent Contract Years.
2. Duties and Extent of Services.
(a) During the Term of Employment, the Executive shall serve
<PAGE>
as President, Clinique Laboratories, Inc. and, in such capacity, shall render
such executive, managerial, administrative and other services as customarily are
associated with and incident to such position and as the Company may, from time
to time, reasonably require of him consistent with such position.
(b) The Executive shall also hold such other positions and
executive offices of the Company and/or of any of the Company's divisions,
subsidiaries or affiliates as may from time to time be authorized by the Board
of Directors of the Company, provided that each such position shall be
commensurate with the Executive's standing in the business community as
President, Clinique Laboratories, Inc. The Executive shall not be entitled to
any compensation other than the compensation provided for herein for serving
during the Term of Employment in any other office or position of the Company or
any of its divisions, subsidiaries or affiliates, unless the Board of Directors
(or the Compensation Committee) of the Company shall have specifically approved
such additional compensation.
(c) The Executive shall be a full time employee of the Company
and shall exclusively devote all his business time and efforts to faithfully,
competently and diligently perform to the best of his ability all of the duties
required of him as President, Clinique Laboratories, Inc., and in the other
positions or offices of the Company or its divisions, subsidiaries or affiliates
required of him hereunder. Notwithstanding the foregoing provisions of this
Section 2(c), the Executive may serve as a non-management director of such
business corporations (or in a like capacity in other for-profit or
not-for-profit organizations) as the Board of Directors or Chief Executive
Officer of the Company may approve.
3. (a) Base Salary. As compensation for all services to be
rendered pursuant to this Agreement and as payment for the rights and interests
granted by Executive hereunder, the Company shall pay or cause any of its
subsidiaries to pay the Executive a base salary (the "Base Salary") in the gross
amount of $750,000 for the First Contract Year, $800,000 for the Second Contract
Year and $850,000 for the Third Contract Year during the Term of Employment
hereunder. All amounts of Base Salary provided for hereunder shall be payable in
accordance with the regular payroll policies of the Company in effect from time
to time.
(b) Incentive Bonus Compensation. In addition to the Base
Salary set out at Section 3(a) hereof, the Executive shall be eligible to
participate in the Company's Executive Annual Incentive Plan (the "Bonus Plan"),
provided the Bonus Plan shall have received appropriate approval by the
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stockholders of the Company. The Compensation Committee has granted aggregate
bonus opportunities for the Executive under the terms of the Bonus Plan as
follows:
For the First Contract Year: $900,000
For the Second Contract Year: $950,000
For the Third Contract Year: $1,000,000.
The actual bonus payable to Executive in respect of each Contract Year during
the Term of Employment shall be determined by the Compensation Committee, and
shall be calculated with reference to the attainment by the Company and the
Executive of performance goals for such Contract Year established by the
Compensation Committee under the terms of the Bonus Plan.
(c) Deferral. The Executive may elect to defer payment of all
or any part of his bonus incentive compensation payable in accordance with
Section 3(b) hereof in respect of any Contract Year, by giving to the Company
written notice thereof, on or before March 31 of such Contract Year.
Additionally, in the event that in respect of any fiscal year of the Company any
amount of Base Salary, any amount payable under the Bonus Plan or any other
amount payable to the Executive hereunder or otherwise shall, either alone or in
combination with other amounts payable hereunder or otherwise, result in the
payment by the Company of any amount that shall not be currently deductible by
it pursuant to the provisions of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), or like or successor provisions (a
"Non-Deductible Amount"), the Company may elect to defer the payment of the
Non-Deductible Amount. Any amounts, so deferred, either by election of the
Executive or by election of the Company shall be credited to a bookkeeping
account in the name of the Executive as of the date scheduled for payment
hereunder. Such amounts shall be credited with interest as of each June 30
during the term of deferral, compounded annually, at a rate per annum equal to
the annual rate of interest announced by Citibank, N.A. in New York, New York as
its base rate in effect on such June 30, but in no event shall such rate exceed
9%. The entire amount credited to such bookkeeping account shall be paid to the
Executive on a date to be chosen by the Company, but in no event later than 90
days after the termination of the Executive from employment with the Company.
(d) Share Incentive Plan. In July 1998, the Compensation
Committee granted to the Executive options to purchase 50,000 shares of Class A
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Common Stock of the Company ("Common Stock") under the terms of the Company's
Fiscal 1996 Share Incentive Plan ("Share Incentive Plan"). Additionally, senior
management shall recommend to the Compensation Committee that the Executive be
granted options to purchase not fewer than 50,000 shares of Common Stock as of
each July 1 during the Term of Employment under the terms of the Share Incentive
Plan or such successor plan of similar import as shall then exist.
4. Benefits and Other Reimbursements.
(a) Benefits. During the Term of Employment, the Executive
shall be entitled to (i) participate in any and all benefit programs and
arrangements now in effect and hereinafter adopted and made generally available
by the Company to its senior officers, including but not limited to the Estee
Lauder Inc. Retirement Growth Account Plan, the related Estee Lauder Inc.
Benefit Restoration Plan, contributory and non-contributory Company welfare and
benefit plans, disability plans, and medical, death benefit and standard and
supplemental life insurance plans for which the Executive shall be eligible, or
may become eligible during the Term of Employment; (ii) participate in the
Company's executive automobile program now in effect and hereinafter adopted and
generally made available by the Company to its senior officers; and (iii) paid
vacations during each year of the Term of Employment in accordance with the
policies and procedures of the Company as in effect from time to time for its
senior officers.
(b) Perquisite Reimbursement. The Company shall reimburse to
the executive the actual expense incurred by him in connection with his
professional standing, in accordance with the guidelines set out in the
Company's executive perquisite program. In no event shall the gross amount of
such reimbursements be greater than $15,000 in respect of any calendar year
during the Term of Employment.
(c) Expenses. The Company agrees to reimburse the Executive
for all reasonable and necessary travel (including first class air fare),
business entertainment and other business out-of-pocket expenses incurred or
expended by him in connection with the performance of his duties hereunder upon
presentation of proper expense statements or vouchers or such other supporting
information as the Company may reasonably require of the Executive.
5. Termination.
(a) Permanent Disability. In the event of the "permanent
disability" (as hereinafter defined) of the Executive during the Term of
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Employment, the Company shall have the right, upon written notice to the
Executive, to terminate the Executive's employment hereunder, effective upon the
giving of such notice (or such later date as shall be specified in such notice).
In the event of such termination, the Company shall have no further obligations
hereunder, except that the Executive shall be entitled (i) to receive any
amounts or benefits to which the Executive may otherwise have been entitled
prior to the effective date of termination; (ii) to be paid his Base Salary
under Section 3(a) hereof for a period of one (1) year from the effective date
of termination; provided, however, that the Company shall only be required to
pay that amount of the Executive's Base Salary which shall not be covered by
Company provided long-term disability payments, if any, to the Executive; and
(iii) to receive any unpaid bonus compensation earned under Section 3(b) hereof
that relates to any Contract Year ending prior to the date of permanent
disability. In addition, upon termination for permanent disability, the
Executive shall continue to participate in any and all pension, insurance and
other benefit plans and programs of the Company during the period the Executive
is continuing to receive his Base Salary in accordance with this Section 5(a).
Thereafter, the Executive's rights to participate in such programs and plans, or
to receive similar coverage, if any, shall be as determined under such programs;
provided, however, that, except as otherwise provided in this Section 5(a), the
Company will have no further obligations under Sections 3(b) and (d) hereof. For
purposes of this paragraph, "permanent disability" means any physical or mental
disability or incapacity that renders the Executive incapable of performing the
services required of him in accordance with his obligations under Section 2
hereof for a period of six (6) consecutive months or for shorter periods
aggregating six (6) months during any twelve-month period.
(b) Death. In the event of the death of the Executive during
the Term of Employment, this Agreement shall automatically terminate. In the
event of such termination the Company shall have no further obligations
hereunder, except to pay, the Executive's beneficiary or legal representative
(i) the Executive's Base Salary as established under Section 3(a) hereof as of
the date of his death from such date to the last day of the month in which the
death occurs; (ii) bonus compensation earned under Section 3(b) hereof that
relates to any Contract Year ending prior to the date of his death; and (iii)
any other amounts to which the Executive otherwise would have been entitled to
hereunder prior to the date of his death; provided, however, that, except as
otherwise provided in this Section 5(b), the Company will have no further
obligations under Sections 3(b) and (d) hereof.
(c) Termination Without Cause. The Company shall have the
right, upon sixty (60) days' written notice given to the Executive, to terminate
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this Agreement for any reason whatsoever. In the event of such termination, for
a period of one (1) year from the effective date of termination, the Executive
shall be entitled as damages to (i) receive his Base Salary as established under
Section 3(a) hereof as of the effective date of such termination; (ii) receive
bonus compensation equal to fifty percent (50%) of the average of incentive
compensation bonuses previously paid or payable to the Executive under Section
3(b) hereof during the term of employment (or, if no such bonuses have been paid
or are payable as of the date of such termination, fifty percent (50%) of the
target bonus established under Section 3(b) hereof in respect of the Contract
Year in which occurs the date of such termination); and (iii) participate in all
pension, insurance and other benefit plans, programs or arrangements, on terms
identical to those applicable to full term senior officers of the Company;
provided, however, that, except as otherwise provided in this Section 5(c), the
Company will have no further obligations under Sections 3(b) and (d) hereof. In
the event of termination pursuant to this Section 5(c), the Executive shall not
be required to mitigate his damages hereunder.
(d) Cause. The Company shall have the right, upon written
notice to the Executive, to terminate the Executive's employment under this
Agreement for "Cause" (as hereinafter defined), effective upon the giving of
such notice (or such later date as shall be specified in such notice), and the
Company shall have no further obligations hereunder, except to pay the Executive
any amounts otherwise payable pursuant to Section 3(a) hereof and provide the
Executive any benefits to which the Executive may have been otherwise entitled
prorated to the effective date of termination. The Executive's right to
participate in any of the Company's retirement, insurance and other benefit
plans and programs shall be as determined under such plans and programs;
provided, however, that, except as otherwise provided in this Section 5(d), the
Company will have no further obligations under Sections 3(b) and (d) hereof.
For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on
the part of the Executive or material breach by the Executive of his obligations
under Section 6 or 7 hereof;
(ii) conviction of or the entry of a plea of nolo
contendere by the Executive for any felony;
(iii) a material breach of, or the willful failure
or refusal by the Executive to perform and discharge, his duties,
responsibilities or obligations under this Agreement (other than under Sections
6 and 7 hereof, which shall be governed by clause (i) above, and other than by
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<PAGE>
reason of disability or death) that is not corrected within thirty (30) days
following written notice thereof to the Executive by the Company, such notice to
state with specificity the nature of the breach, failure or refusal; provided
that if such breach, failure or refusal cannot reasonably be corrected within
thirty (30) days of written notice thereof, correction shall be commenced by the
Executive within such period and may be corrected within a reasonable period
thereafter; or
(iv) any act of moral turpitude or willful
misconduct by the Executive which (A) is intended to result in substantial
personal enrichment of the Executive at the expense of the Company or any of its
subsidiaries or affiliates or (B) has a material adverse impact on the business
or reputation of the Company or any of its subsidiaries or affiliates (such
determination to be made by the Company's Board of Directors in its reasonable
judgment).
(e) Termination by Executive. The Executive shall have the
right, exercisable at any time during the Term of Employment, to terminate this
agreement for any reason whatsoever, upon six (6) months written notice to the
Company. In such event, the Company shall have no further obligations hereunder,
except that, for a period of six (6) months after the effective date of such
termination, the Company shall pay to the Executive (i) his Base Salary as
established under Section 3(a) hereof; and (ii) bonus compensation equal to
twenty-five percent (25%) of the Base Salary paid pursuant to clause (i) above,
such bonus compensation to be paid simultaneously with the last Base Salary
payment for the applicable fiscal year; provided, however, that, except as
otherwise provided in this Section 5(e), the Company will have no further
obligations under Sections 3(b) and (d) hereof.
(f) Termination by Executive for Material Breach. The
Executive shall have the right, exercisable by notice to the Company, to
terminate his employment effective thirty (30) days after the giving of such
notice, if, at any time during the Term of Employment, the Company shall be in
material breach of its obligations hereunder; provided, however, that such
notice must be provided to the Company within thirty (30) days of the occurrence
of such material breach; and provided further, that such termination will not
become effective if within such thirty (30) day period the Company shall have
cured all such material breaches of its obligations hereunder. For purposes of
this Section 5(f), a material breach shall include, but not be limited to, a
material reduction in the Executive's authority, functions, duties or
responsibilities provided in Section 2 hereof or the Company's failure to cause
the Executive to serve in the position set forth in Section 1 hereof for any
time period in which he is entitled to so serve. Such termination shall be
deemed to be a termination without cause and shall be controlled by the
provisions of Section 5(c) hereof.
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(g) Certain Limitations. Notwithstanding anything to the
contrary contained herein, in the event that any payment received or to be
received by the Executive pursuant to Section 5 hereof or otherwise (a
"Severance Payment") would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Code (in whole or part), the Severance Payment
shall be reduced so that the total of all amounts treated as "parachute
payments" under Section 280G of the Code shall not exceed 2.99 times the
Executive's "base amount" (as defined under Section 280G of the Code).
(h) Effect of Termination. Upon the termination of the
Executive's employment for any reason, the Company shall have no further
obligations hereunder, except as otherwise provided herein. The Executive,
however, shall continue to have the obligations provided for in Sections 6 and 7
hereof. Furthermore, upon such termination, the Executive shall be deemed to
have resigned immediately from all offices and directorships held by him in the
Company or any of its subsidiaries.
6. Confidentiality; Ownership.
(a) The Executive agrees that he shall forever keep secret and
retain in strictest confidence and not divulge, disclose, discuss, copy or
otherwise use or suffer to be used in any manner, except in connection with the
Business of the Company and the businesses of any of its subsidiaries or
affiliates, any "Protected Information" in any "Unauthorized" manner or for any
Unauthorized purpose (as such terms are hereinafter defined).
(i) "Protected Information" means trade secrets,
confidential or proprietary information and all other knowledge, know-how,
information, documents or materials owned, developed or possessed by the Company
or any of its subsidiaries or affiliates, whether in tangible or intangible
form, pertaining to the Business of the Company or the businesses of any of its
subsidiaries or affiliates, including, but not limited to, research and
development operations, systems, data bases, computer programs and software,
designs, models, operating procedures, knowledge of the organization, products
(including prices, costs, sales or content), processes, formulas, techniques,
machinery, contracts, financial information or measures, business methods,
business plans, details of consultant contracts, new personnel acquisition
plans, business acquisition plans, customer lists, business relationships and
other information owned, developed or possessed by the Company or its
subsidiaries or affiliates, except as required in the course of performing
duties hereunder; provided that Protected Information shall not include
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information that becomes generally known to the public or the trade without
violation of this Section 6.
(ii) "Unauthorized" means: (A) in contravention of
the policies or procedures of the Company or any of its subsidiaries or
affiliates; (B) otherwise inconsistent with the measures taken by the Company or
any of its subsidiaries or affiliates to protect their interests in any
Protected Information; (C) in contravention of any lawful instruction or
directive, either written or oral, of an employee of the Company or any of its
subsidiaries or affiliates empowered to issue such instruction or directive; or
(D) in contravention of any duty existing under law or contract. Notwithstanding
anything to the contrary contained in this Section 6, the Executive may disclose
any Protected Information to the extent required by court order or decree or by
the rules and regulations of a governmental agency or as otherwise required by
law; provided that the Executive shall provide the Company with prompt notice of
such required disclosure in advance thereof so that the Company may seek an
appropriate protective order in respect of such required disclosure.
(b) The Executive acknowledges that all developments,
including, without limitation, inventions (patentable or otherwise),
discoveries, formulas, improvements, patents, trade secrets, designs, reports,
computer software, flow charts and diagrams, procedures, data, documentation,
ideas and writings and applications thereof relating to the Business or planned
business of the Company or any of its subsidiaries or affiliates that, alone or
jointly with others, the Executive may conceive, create, make, develop, reduce
to practice or acquire during the Term of Employment (collectively, the
"Developments") are works made for hire and shall remain the sole and exclusive
property of the Company and the Executive hereby assigns to the Company, in
consideration of the payments set forth in Section 3(a) hereof, all of his
right, title and interest in and to all such Developments. The Executive shall
promptly and fully disclose all future material Developments to the Board of
Directors of the Company and, at any time upon request and at the expense of the
Company, shall execute, acknowledge and deliver to the Company all instruments
that the Company shall prepare, give evidence and take all other actions that
are necessary or desirable in the reasonable opinion of the Company to enable
the Company to file and prosecute applications for and to acquire, maintain and
enforce all letters, patent and trademark registrations or copyrights covering
the Developments in all countries in which the same are deemed necessary by the
Company. All memoranda, notes, lists, drawings, records, files, computer tapes,
programs, software, source and programming narratives and other documentation
(and all copies thereof) made or compiled by the Executive or made available to
the Executive concerning the Developments or otherwise concerning the Business
9
<PAGE>
or planned business of the Company or any of its subsidiaries or affiliates
shall be the property of the Company or such subsidiaries or affiliates and
shall be delivered to the Company or such subsidiaries or affiliates promptly
upon the expiration or termination of the Term of Employment.
(c) The provisions of this Section 6 shall, without any
limitation as to time, survive the expiration or termination of the Executive's
employment hereunder, irrespective of the reason for any termination.
7. Covenant Not to Compete. Subject to the last sentence of
this Section 7, the Executive agrees that during the Term of Employment and for
a period of one (1) year commencing upon the expiration or termination of the
Executive's employment (the "Non-Compete Period"), the Executive shall not,
directly or indirectly, without the prior written consent of the Company:
(a) solicit, entice, persuade or induce any employee,
consultant, agent or independent contractor of the Company or of any of its
subsidiaries or affiliates to terminate his or her employment with the Company
or such division, subsidiary or affiliate, to become employed by any person,
firm or corporation other than the Company or such subsidiary or affiliate or
approach any such employee, consultant, agent or independent contractor for any
of the foregoing purposes, or authorize or assist in the taking of any such
actions by any third party (for purposes of this Section 7(a), the terms
"employee," "consultant," "agent" and "independent contractor" shall include any
persons with such status at any time during the six (6) months preceding any
solicitation in question); or
(b) directly or indirectly engage, participate, or make any
financial investment in, or become employed by or render consulting, advisory or
other services to or for any person, firm, corporation or other business
enterprise, wherever located, which is engaged, directly or indirectly, in
competition with the Company's Business or the businesses of its subsidiaries or
affiliates as conducted or any business proposed to be conducted at the time of
the expiration or termination of the Executive's employment hereunder; provided,
however, that nothing in this Section 7(b) shall be construed to preclude the
Executive from making any investments in the securities of any business
enterprise whether or not engaged in competition with the Company or any of its
subsidiaries or affiliates, to the extent that such securities are actively
traded on a national securities exchange or in the over-the-counter market in
the United States or on any foreign securities exchange and represent, at the
time of acquisition, not more than 1% of the aggregate voting power of such
business enterprise.
10
<PAGE>
Notwithstanding the foregoing, the Executive shall not be
subject to the terms and provisions of paragraph (b) of this Section 7 if the
Term of Employment is terminated pursuant to Section 5(c) or 5(f) hereof.
8. Specific Performance. The Executive acknowledges that the
services to be rendered by the Executive are of a special, unique and
extraordinary character and, in connection with such services, the Executive
will have access to confidential information vital to the Company's Business and
the businesses of its subsidiaries and affiliates. By reason of this, the
Executive consents and agrees that if the Executive violates any of the
provisions of Sections 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that monetary damages would not
provide adequate remedy to the Company and that the Company shall be entitled to
have Section 6 or 7 hereof specifically enforced by any court having equity
jurisdiction. Nothing contained herein shall be construed as prohibiting the
Company or any of its subsidiaries or affiliates from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Executive.
9. Deductions and Withholding. The Executive agrees that the
Company or its divisions, subsidiaries or affiliates, as applicable, shall
withhold from any and all compensation paid to and required to be paid to the
Executive pursuant to this Agreement, all Federal, state, local and/or other
taxes which the Company determines are required to be withheld in accordance
with applicable statutes or regulations from time to time in effect and all
amounts required to be deducted in respect of the Executive's coverage under
applicable employee benefit plans. For purposes of this Agreement and
calculations hereunder, all such deductions and withholdings shall be deemed to
have been paid to and received by the Executive.
10. Entire Agreement. This Agreement embodies the entire
agreement of the parties with respect to the Executive's employment,
compensation, perquisites and related items and supersedes any other prior oral
or written agreements, arrangements or understandings between the Executive and
the Company or any of its divisions, subsidiaries or affiliates, and any such
prior agreements, arrangements or understandings are hereby terminated and of no
further effect. This Agreement may not be changed or terminated orally but only
by an agreement in writing signed by the parties hereto.
11. Waiver. The waiver by the Company of a breach of any
provision of this Agreement by the Executive shall not operate or be construed
as a waiver of any subsequent breach by him. The waiver by the Executive of a
11
<PAGE>
breach of any provision of this Agreement by the Company shall not operate or be
construed as a waiver of any subsequent breach by the Company.
12. Governing Law; Jurisdiction.
(a) This Agreement shall be subject to, and governed by, the
laws of the State of New York applicable to contracts made and to be performed
therein.
(b) Any action to enforce any of the provisions of this
Agreement shall be brought in a court of the State of New York located in the
Borough of Manhattan of the City of New York or in a Federal court located
within the Southern District of New York. The parties consent to the
jurisdiction of such courts and to the service of process in any manner provided
by New York law. Each party irrevocably waives any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in such court and any claim that such suit, action or proceeding brought
in such court has been brought in an inconvenient forum and agrees that service
of process in accordance with the foregoing sentences shall be deemed in every
respect effective and valid personal service of process upon such party.
13. Assignability. The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest herein. Any such attempted delegation or disposition
shall be null and void and without effect. The Company and the Executive agree
that this Agreement and all of the Company's rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and be
binding upon any successor to the Company. The term "successor" means, with
respect to the Company or any of its subsidiaries, any corporation or other
business entity which, by merger, consolidation, purchase of the assets or
otherwise acquires all or a material part of the assets of the Company.
14. Severability. If any provision of this Agreement or any
part thereof, including, without limitation, Sections 6 and 7 hereof, as applied
to either party or to any circumstances shall be adjudged by a court of
competent jurisdiction to be void or unenforceable, the same shall in no way
affect any other provision of this Agreement or remaining part thereof, which
shall be given full effect without regard to the invalid or unenforceable part
thereof, or the validity or enforceability of this Agreement.
12
<PAGE>
If any court construes any of the provisions of Section 6 or 7
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof, such court may reduce the duration or
restrict or redefine the geographic scope of such provision and enforce such
provision as so reduced, restricted or redefined.
15. Notices. All notices to the Company or the Executive
permitted or required hereunder shall be in writing and shall be delivered
personally, by telecopier or by courier service providing for next-day delivery
or sent by registered or certified mail, return receipt requested, to the
following addresses:
The Company:
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
Attn: Chief Executive Officer
Tel: (212) 572-4200
Fax: (212) 572-6745
The Executive:
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
16. No Conflicts. The Executive hereby represents and warrants
to the Company that his execution, delivery and performance of this Agreement
and any other agreement to be delivered pursuant to this Agreement will not (i)
require the consent, approval or action of any other person or (ii) violate,
13
<PAGE>
conflict with or result in the breach of any of the terms of, or constitute (or
with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive is bound
or subject. The Executive hereby agrees to indemnify and hold harmless the
Company and its directors, officers, employees, agents, representatives and
affiliates (and such affiliates' directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or claims
(including, interest, penalties and reasonable attorneys' fees, disbursements
and related charges) based upon or arising out of the Executive's breach of any
of the foregoing representations and warranties.
17. Effective Date. This Agreement shall be effective as of
July 1, 1998.
18. Paragraph Headings. The paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
THE ESTEE LAUDER COMPANIES INC.
By:
-------------------------------
Name:
Title:
-------------------------------
William P. Lauder
As of July 1, 1998
Mrs. Jeanette S. Wagner
[Address]
Dear Jeanette:
As you know, the Board of Directors of The Estee Lauder Companies Inc. (the
"Company") by its action taken on February 3, 1998 has appointed you Vice
Chairman of the Company, for an initial term of two years commencing with the
date of this letter. In this regard, you shall continue to offer senior
executive services to the Company, initially as part of a continuation of your
employment status and later as a senior consultant on a non-exclusive, part time
basis. This letter will set forth the arrangements concluded between you and the
Company under which these services will be provided.
1. For the two-year period commencing July 1, 1998 and continuing through June
30, 2000 you shall hold yourself available to provide executive consulting
services and strategic management direction to those operations of the Company
which shall be designated by the Company. In this activity you shall coordinate
your activities with Mr. Fred H. Langhammer, President and Chief Operating
Officer of the Company.
2. It is anticipated that your initial assignments under this arrangement shall
be focused on Sassaby, Inc. and Aveda Corporation. Additional or different
assignments may be designated by Mr. Langhammer from time to time.
3a. For the period from July 1, 1998 through December 31, 1998, your employment
status shall continue and you agree to devote substantially all your working
time to the performance of your duties hereunder.
b. For the period from January 1, 1999 and continuing thereafter through the
remaining term of this agreement (i.e., through June 30, 2000), you agree to
devote up to twelve working days per calendar month to the performance of such
duties, at times and locations as shall be determined by you with due regard for
concerns of organizational convenience. You acknowledge that, from and after
January 1, 1999 for all purposes of this agreement you shall have the status of
independent contractor, and shall be solely liable for all income, self
employment, franchise and other similar and dissimilar taxes imposed by any
jurisdiction in connection with this agreement or your provision of services
under it.
<PAGE>
5 a. In consideration of your accepting this agreement, the Compensation
Committee of the Board of Directors of the Company has approved a grant to you,
as of July 1, 1998, of share units in respect of 20,000 shares of the Class A
Common Stock of the Company. The specific provisions of this share unit grant
are set out at Attachment A to this letter.
b. In consideration of the time and services reserved hereunder, the Company
will pay to you a retainer fee in the monthly amounts as follows:
-for the period July, 1998 through December, 1998 -- $83,333
-for the period January, 1999 through June, 2000 -- $41,667
c. Additionally, the Company shall offer to you a performance bonus in respect
of each fiscal year during the term of this agreement. Each bonus award shall be
calculated by reference to the achievement of performance objectives approved by
the Compensation Committee. The Compensation Committee has determined that the
target bonus opportunity in respect of each fiscal year during the term of this
agreement shall be $500,000. The actual amount of each bonus shall approved by
the Compensation Committee.
d. By additional action taken on February 3, 1998, The Compensation Committee
directed that you receive an option to purchase 25,000 shares of the Class A
Common Stock of the Company on each of July 1, 1998 and July 1, 1999, such
options to be controlled by the Committee pursuant to the terms of the Company's
Fiscal 1996 Share Incentive Plan (or successor plans of similar import).
6a. The Company will provide executive office accommodations for your use during
the term of this agreement, as well as appropriate secretarial, telephone and
administrative support.
b. All arrangements for travel undertaken in pursuit of your assignments under
this agreement shall be at the standard presently existing for the senior most
executives of the Company. In addition, the Company shall reimburse you for the
cost of Mr. Wagner's companion travel with you on all such occasions as shall be
determined by you.
c. The Company shall continue to provide to you executive limousine services, at
a level and in the manner as presently existing.
d. The Company shall continue in force, at its expense, the executive split
dollar life insurance coverage currently in force. Additionally, as a senior
advisor to the Company, you shall be covered by the Company's accidental death
and disability policy.
<PAGE>
7. Please note that the undertakings and agreements made by you in connection
with your prior employment agreement regarding confidentiality of Company
information, work product and non-competition survive the expiration of that
agreement, and continue in full force and effect.
Please indicate your acknowledgement and acceptance of all of the foregoing by
signing the enclosed copy of this letter and returning it to the undersigned.
Very truly yours,
--------------------------
Andrew J. Cavanaugh
Senior Vice President
AGREED TO AND ACCEPTED:
- ----------------------------
Jeanette S. Wagner
Date:
----------------------
<PAGE>
ATTACHMENT A
TO THE AGREEMENT BETWEEN
JEANETTE S. WAGNER and THE ESTEE LAUDER COMPANIES INC.
DATED AS OF JULY 1, 1998
The following points set forth the terms of the share unit grant to Jeanette S.
Wagner, Vice Chairman (the "Executive Consultant"), approved by the Compensation
Committee of the Board of Directors on February 3, 1998.
1. As of July 1, 1998, the Company shall establish a Share Unit Account for the
Executive Consultant, and shall credit thereto 20,000 share units.
2. Until full payment of the share units shall be made as set forth at paragraph
4, below, as of each date that the Company shall pay a dividend to holders of
record of the Class A Common Stock of the Company, the Company shall credit to
such Share Unit Account a number of share units equal to (x) the aggregate
dividend payable on a number of shares equal to the number of share units
credited to the Share Unit Account as of the record date for such dividend,
divided by (y) the average closing price of the Class A Common Stock on the New
York Stock Exchange for the twenty (20) trading days next preceding such payment
date, rounded to the next lower whole unit.
3. Share units credited to the Executive Consultant's Share Unit Account
hereunder shall be non-forfeitable so long as the Executive Consultant shall
continue to perform her duties during the entire term of the senior executive
consulting agreement dated as of July 1, 1998 (or any extension thereof). In the
event that the Executive Consultant shall fail or refuse to perform her duties
during the full term of such agreement (other than due to death or disability),
all share units credited to the account shall be forfeited and shall neither be
due nor payable to the Executive Consultant.
4. The Company shall make full payment to the Executive consultant of the Share
Unit Account on a date to be chosen by it, but in no event later than ninety
(90) days after the expiration of the executive consulting agreement dated as of
July 1, 1998 (or any extension thereof). Such payment shall be made by a
transfer to the Executive Consultant of a number of shares of Class A Common
Stock of the Company equal to the number of share units credited to the Share
Unit Account as of the date of such payment.
5. The Share Unit Account shall be a bookkeeping account only, and neither its
establishment nor the crediting of share units to it shall result in the
segregation or transfer of any money or other thing of value until payment is
effected as set out in this Attachment. The attempt by any person to anticipate,
hypothecate or otherwise assign value to the Share Unit Account as of any date
prior to the date of payment shall be null and void and of no force or effect.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
The Estee Lauder Companies Inc.
Financial Data Schedule
For the Three Month Period Ended September 30, 1998
(In millions)
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ESTEE LAUDER COMPANIES INC. FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> 06/30/99
<PERIOD-END> SEPT-30-98
<CASH> 204.4
<SECURITIES> 0
<RECEIVABLES> 725.9
<ALLOWANCES> 40.2
<INVENTORY> 497.5
<CURRENT-ASSETS> 1,547.1
<PP&E> 724.5
<DEPRECIATION> 383.5
<TOTAL-ASSETS> 2,603.8
<CURRENT-LIABILITIES> 880.8
<BONDS> 425.5
360.0
0
<COMMON> 1.2
<OTHER-SE> 764.0
<TOTAL-LIABILITY-AND-EQUITY> 2,603.8
<SALES> 997.0
<TOTAL-REVENUES> 997.0
<CGS> 229.6
<TOTAL-COSTS> 229.6
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 115.5
<INCOME-TAX> 43.9
<INCOME-CONTINUING> 71.6
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71.6
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
