<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1999 Commission file number 1-14064
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Class A Common Stock, $.01 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the registrant's voting common equity held by
nonaffiliates of the registrant was approximately $3.95 billion at September 8,
1999. *
At September 8, 1999, 123,504,898 shares of the registrant's Class A Common
Stock, $.01 par value, and 113,679,334 shares of the registrant's Class B Common
Stock, $.01 par value, were outstanding.
Documents Incorporated by Reference
Document Where Incorporated
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Proxy Statement for Annual Meeting of Part III
Stockholders to be held November 10, 1999
* Calculated by excluding all shares held by executive officers and directors of
registrant and certain trusts without conceding that all such persons are
"affiliates" of registrant for purposes of the Federal securities laws.
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Forward-Looking Statements
This Annual Report on Form 10-K includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
include, without limitation, our expectations regarding sales, earnings or other
future financial performance and liquidity, product introductions, entry into
new geographic regions and future operations or operating results. Certain
factors that could cause actual results to differ from expectations are
described herein, in particular, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Forward-Looking Information."
PART I
Item 1. Business.
The Estee Lauder Companies Inc., founded in 1946 by Estee and Joseph Lauder, is
one of the world's leading manufacturers and marketers of quality skin care,
makeup, fragrance and hair care products. Our products are sold in over 100
countries and territories under the following well-recognized brand names: Estee
Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown essentials,
jane, Aveda and Stila. We are also the global licensee for fragrances and
cosmetics sold under the Tommy Hilfiger and Donna Karan brands. Each brand is
distinctly positioned within the cosmetics market.
We are a pioneer in the cosmetics industry and believe we are a leader in the
industry due to the global recognition of our brand names, our leadership in
product innovation, our strong market position in key geographic markets and the
consistently high quality of our products. We sell our products principally
through limited distribution channels to complement the images associated with
our brands. These channels, encompassing over 9,000 points of sale, consist
primarily of upscale department stores, specialty retailers, upscale perfumeries
and pharmacies and, to a lesser extent, free-standing company stores, stores on
cruise ships, in-flight and duty free shops in airports and cities. We believe
that our strategy of pursuing limited distribution strengthens our relationships
with retailers, enables our brands to be among the best selling product lines at
the stores and heightens the aspirational quality of our brands. With the
acquisitions of jane and Aveda in fiscal 1998, we broadened our distribution to
include new channels, namely self-select outlets and salons. We also began
selling Clinique products (November 1998) and Origins products (July 1999)
directly to consumers over the Internet.
We have been controlled by the Lauder family since the founding of our company.
Members of the Lauder family, some of whom are directors, executive officers,
and/or employees, beneficially own, directly or indirectly, as of September 8,
1999, shares of Class A Common Stock and Class B Common Stock having
approximately 93.3% of the outstanding voting power of the Common Stock.
Unless the context requires otherwise, references to "we", "us", "our" and the
"Company" refer to The Estee Lauder Companies Inc. and its subsidiaries.
Products
Skin Care - Our broad range of skin care products addresses various
skin care needs for women and men. These products include moisturizers, creams,
lotions, cleansers, sun screens and self tanning products, a number of which are
developed for use on particular areas of the body, such as the face, the hands
or the eye area. Skin care products accounted for approximately 35% of our net
sales in fiscal 1999.
Makeup - We manufacture, market and sell a full array of makeup
products including lipsticks, mascaras, foundations, eyeshadows, nail polishes
and powders. Many of the products are offered in an extensive array of shades
and colors. We also sell related items such as compacts, brushes and other
makeup tools. Makeup products accounted for approximately 36% of our net sales
in fiscal 1999.
Fragrance - We offer a variety of fragrance products for women and men.
The fragrances are sold in various forms, including eau de parfum sprays and
colognes, as well as lotions, powders, creams and soaps that are based on a
particular fragrance. They also include bath and aromatherapy products.
Fragrance products accounted for approximately 26% of our net sales in fiscal
1999.
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Hair Care - We increased the range and depth of our hair care product
offerings with the acquisition of the Aveda business in December 1997. Hair care
products include shampoo, conditioner, styling gel and hairspray. In fiscal
1999, hair care products accounted for approximately 2% of net sales.
Given the generally personal nature of our products and the wide array of
consumer preferences and tastes, as well as competition for the attention of
consumers, our strategy has been to market and promote our products through
distinctive brands seeking to address broad preferences and tastes. Each brand
has a single global image that is promoted with consistent logos, packaging and
advertising designed to enhance its image and differentiate it from other
brands.
Estee Lauder - Estee Lauder brand products, which have been sold since
1946, are positioned as luxurious, classic and aspirational. We believe that
Estee Lauder brand products are technologically advanced and innovative and have
a worldwide reputation for excellence. The broad product line principally
consists of skin care, makeup and fragrance products that are presented in high
quality packaging.
Clinique - First introduced in 1968, Clinique skin care and makeup products
are all allergy tested and 100% fragrance free and have been designed to address
individual skin types and needs. The products are based on the research and
related expertise of leading dermatologists. Clinique skin care products are
generally marketed as part of the Three-Step System: Cleanse, Exfoliate,
Moisturize. In the fall of 1997, we launched Clinique Happy, a fragrance, and,
in September 1999, we are launching Clinique Happy for Men. Since November 1998
we have been selling Clinique products directly to consumers over the Internet.
Aramis - We pioneered the marketing of prestige men's grooming and skin
care products and fragrances with the introduction of Aramis products in 1964.
Aramis continues to offer one of the broadest lines of prestige men's products
and has extended the line to include fragrances for women.
Prescriptives - We developed and introduced Prescriptives in 1979.
Prescriptives is positioned as a color authority with an advanced collection of
highly individualized products primarily addressing the makeup and skin care
needs of contemporary women with active lifestyles. The products are
characterized by simple concepts, minimalist design and an innovative image and,
through a system of color application and extensive range of makeup shades,
accommodate a diverse group of consumers.
Origins - Origins, our most recent internally-developed brand, was
introduced in 1990. It is positioned as a plant-based cosmetics line of skin
care, makeup and aromatherapy products that combine time-tested botanical
ingredients with modern science to promote total well-being. Origins sells its
products through stand-alone Origins stores, stores-within-stores (which are
designed to replicate the Origins store environment within a department store),
at traditional retail counters and, since July 1999, directly to consumers over
the Internet.
Tommy Hilfiger - We have an exclusive global license arrangement to develop
and market a line of men's and women's fragrances and cosmetics under the Tommy
Hilfiger brand. In 1995, we launched a men's fragrance, tommy, with cologne and
aftershave products, and in the fall of 1996 we launched a women's fragrance,
tommy girl. In the summer of 1999, we launched Tommy Hilfiger Freedom, which
consists of separate fragrances for men and women. These fragrances, together
with our complementary line of face, body and hair products, are available at
"tommy's shops", a separate area within department stores dedicated to promoting
all of our Tommy Hilfiger licensed products.
M.A.C - M.A.C products comprise a broad line of color-oriented,
professional cosmetics and professional makeup tools targeting make-up artists
and fashion-conscious consumers. The products are sold through a limited number
of department and specialty stores and stand-alone M.A.C stores. We acquired
Make-Up Art Cosmetics Limited, the manufacturer of M.A.C products, in three
stages; in December 1994, March 1997 and February 1998.
Bobbi Brown essentials - In October 1995, we acquired the Bobbi Brown
essentials line of color cosmetics, professional makeup brushes and skin care
products. Bobbi Brown products are manufactured to our specifications, primarily
by third parties, and sold through a limited number of department and specialty
stores. In March 1998, we introduced the brand's first fragrance, bobbi.
jane - In October 1997, we acquired Sassaby, Inc., the owner of the jane
brand of color cosmetics targeted to the young consumer market. jane products
are currently distributed only in the United States through the self-select
distribution channel.
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Donna Karan Cosmetics - In November 1997, we obtained the exclusive global
license to develop and market a line of fragrances and other cosmetics under the
Donna Karan New York and DKNY trademarks. We are continuing to market and sell
certain products that were originally sold by The Donna Karan Company and are
planning to launch the first DKNY fragrances under the license in fiscal 2000.
Aveda - We acquired the Aveda business in December 1997. Aveda, a prestige
hair care leader, is a manufacturer and marketer of plant-based hair, skin,
makeup and body care products. The products are principally sold by us through
third-party distributors and are available in salons and stand-alone Aveda
Environmental Lifestyle stores.
Stila - In August 1999, we acquired the business of Los-Angeles-based Stila
Cosmetics, Inc. Stila is known for its stylish, wearable makeup products and
eco-friendly packaging and has developed a following among young,
fashion-forward consumers. These products are currently available in limited
distribution in the United States and certain foreign countries.
In addition to the foregoing brands, we manufacture and sell La Mer skin care
products, including Creme De La Mer, and fragrances under the Kiton name (for
which we are a licensee). These products are marketed separately from our other
brands.
Distribution
We sell our products principally through limited distribution channels to
complement the images associated with our core brands. These channels include
more than 9,000 points of sale in over 100 countries and territories and consist
primarily of upscale department stores, specialty retailers, upscale perfumeries
and pharmacies and, to a lesser extent, free-standing company stores and spas,
stores on cruise ships, in-flight and duty-free shops in airports and cities.
We maintain a dedicated sales force who sell to our retail accounts in North
America and in the major overseas markets, such as Western Europe and Japan. We
have wholly-owned operations in over 30 countries through which we market, sell
and distribute our products. In certain markets, we sell our products through
selected local distributors under contractual arrangements designed to protect
the image and position of the brands. In addition, we sell certain products in
selected domestic and international military locations.
There are risks inherent in foreign operations, including changes in social,
political and economic conditions. We are also exposed to risks associated with
changes in the laws and policies that govern foreign investment in countries
where we have operations as well as, to a lesser extent, changes in United
States laws and regulations relating to foreign trade and investment. In
addition, our results of operations and the value of our foreign assets are
affected by fluctuations in foreign currency exchange rates. Changes in such
rates also may affect the relative prices at which we and foreign competitors
sell products in the same market. Similarly, the cost of certain items required
in our operations may be affected by changes in the value of the relevant
currencies.
With the acquisitions of jane and Aveda in fiscal 1998, we broadened our
distribution to include new channels, namely self-select outlets and salons.
jane products are currently sold only in the United States in approximately
16,000 points of sale, including mass merchandise stores, drug stores and
specialty stores. Aveda principally sells its products to third-party
distributors, which resell such products to independent salons, and to Aveda
Environmental Lifestyle stores for sale to consumers. There are currently about
14,000 salons, primarily in the United States, that sell Aveda products.
Customers
Our strategy has been to build strong strategic relationships with selected
retailers globally. Senior management works with executives of its major retail
accounts on a regular basis, and we believe we are viewed as an important
supplier to these customers.
Customers affiliated with Federated Department Stores, Inc. (e.g.,
Bloomingdale's, Burdines, Macy's and Rich's/Lazarus) accounted for 11%, 12% and
12% of net sales in each of the fiscal years ended June 30, 1999, 1998 and 1997,
respectively. For the same years then ended The May Department Stores Company
(e.g., Foley's, Lord & Taylor and Robinsons-May) accounted for 11%, 10% and 10%
of our net sales.
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Marketing
Our marketing strategy is built around our "vision" statement: "Bringing the
Best to Everyone We Touch." Estee Lauder formulated this marketing philosophy to
provide high quality service and products as the foundation for a solid and
loyal consumer base.
We principally focus our marketing efforts on promoting the quality and benefits
of our products. Each of our brands is distinctively positioned, has a single
global image, and is promoted with consistent logos, packaging and advertising
designed to enhance its image and differentiate it from other brands. In recent
years, we have increased our emphasis on media advertising while decreasing the
level of promotional spending as a percentage of sales. We regularly advertise
our products on television and radio, in upscale magazines and prestigious
newspapers and through direct mail and photo displays at international airports.
Promotional activities and in-store displays are designed to introduce existing
consumers to different products in the line and to attract new consumers. Our
marketing efforts also benefit from cooperative advertising programs with
retailers, some of which are supported by coordinated promotions, such as "gift
with purchase" and "purchase with purchase." At in-store counters, sales
representatives offer personal demonstrations to market individual products as
well as to provide education on basic skin care and makeup application. We
conduct extensive sampling programs, and we pioneered "gift with purchase" as a
sampling program. We believe that the quality and perceived benefits of sample
products have been effective inducements in selling products to new and existing
consumers.
Nearly all of our creative marketing work is done by in-house creative teams.
The creative staff designs and produces the sales materials, advertisements and
packaging for all products in the brand. Total advertising and promotional
expenditures were $1,100.8 million, $1,027.8 million and $976.2 million for
fiscal 1999, 1998 and 1997, respectively. In addition, our products receive
extensive editorial coverage in prestige publications and other media worldwide.
Our marketing and sales executives spend considerable time in the field meeting
with consumers and key retailers, checking activities of competitors and
consulting with sales representatives at the points of sale. These include Estee
Lauder Beauty Advisors, Clinique Consultants, Aramis Selling Specialists,
Prescriptives Analysts and Origins Guides.
As is customary in the cosmetics industry, our practice is to accept returns of
our products from retailers. In accepting returns, we typically provide a credit
to the retailer with respect to accounts receivable from that retailer on a
dollar-for-dollar basis. In recognition of this practice, and in accordance with
generally accepted accounting principles, we report sales levels on a net basis,
which is computed by deducting the amount of actual returns received and an
amount established for anticipated returns from gross sales. As a percent of
gross sales, returns were 5.0% in fiscal 1999, 4.4% in fiscal 1998 and 4.9% in
fiscal 1997.
Management Information Systems
Management information systems provide order processing, production and
financial support for our business. We have a sales analysis system to track
weekly sales by stock keeping unit at retail sales locations (i.e., sell-through
data). The system is currently tracking sell-through data for almost all units
of Estee Lauder, Clinique, Aramis, Prescriptives and Origins products shipped to
customers in the United States and Canada. The increased understanding of
consumer preferences gained from sell-through data enables us to coordinate more
effectively our product development, manufacturing and marketing strategies. We
are also implementing similar systems in certain international markets.
In addition, we entered into automated replenishment arrangements with a number
of our key customers in the United States and Canada. These arrangements enable
us to replenish inventories for individual points of sale automatically, with
minimal paperwork. Customer orders for a substantial majority of sales of Estee
Lauder, Clinique, Aramis, Prescriptives and Origins products in the United
States are placed through automated replenishment systems.
We have implemented a proprietary inventory management system which tracks
inventory at the stock keeping unit level in all of our locations. This system
results in improved inventory control and disposition for both existing products
and new product launches. We have also designed and implemented a data warehouse
for our domestic business that captures essentially all shipping, sell-through
and inventory data. This system has resulted in streamlined and standardized
reporting as well as timely and accurate retail sales and marketing information.
The use of sell-through data combined with the implementation of automated
replenishment systems, inventory management systems and data warehousing has
resulted in increased sales, fewer "out-of-stocks" and reduced retail
inventories. We expect that these systems will continue to provide inventory and
sales efficiencies.
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We have developed a system to manage the overall promotional business and its
processes on both an individual brand and corporate basis. The system is
currently utilized by several brands and is being rolled out domestically on a
company-wide basis. The system is the model for an International Promotional
System currently in development and planned for rollout in the Year 2000. The
system was designed to provide tools to plan, monitor, and analyze our
promotional business. In so doing we expect to reduce costs, improve return on
investment, and maximize retail results.
We have placed extensive focus on the Year 2000 issue including the review of,
and where necessary the modification of, affected information systems. For a
complete summary of our review and remediation efforts see the related
discussion in "Year 2000" within "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Research and Development
We believe that we are an industry leader in the development of new products.
Marketing, product development and packaging groups work with our research and
development group to identify shifts in consumer preferences, develop new
products and redesign or reformulate existing products. In addition, research
and development personnel work closely with quality assurance and manufacturing
personnel on a worldwide basis to ensure a consistent global standard for our
products and to deliver such products with attributes that fulfill consumer
expectations.
We maintain ongoing research and development programs at our facilities in
Melville, New York; Oevel, Belgium; Tokyo, Japan; Markham, Ontario; and Blaine,
Minnesota. As of June 30, 1999, we had approximately 390 employees engaged in
research and development. Research and development expenditures totaled $48.0
million, $43.5 million and $37.7 million for fiscal 1999, 1998 and 1997,
respectively. Our research and development group makes significant contributions
toward improving existing products and developing new products and provides
ongoing technical assistance and know-how to our manufacturing activities. The
research and development group has had long-standing working relationships with
several U.S. and international medical and educational facilities which
supplement internal capabilities. We do not conduct animal-testing of our
products.
Manufacturing and Raw Materials
We manufacture skin care, makeup, fragrance and hair care products in the United
States, Belgium, Switzerland, the United Kingdom and Canada and, to a lesser
extent, in Australia and South Africa. We continue to streamline our
manufacturing processes and identify sourcing opportunities to increase
efficiencies and reduce costs. We have converted our major manufacturing
facilities into "focus" plants that primarily manufacture one type of product
(e.g., powders) for all of the principal brands. Our plants are modern and the
manufacturing processes are substantially automated. While we believe that our
manufacturing facilities are sufficient to meet current and reasonably
anticipated manufacturing and related requirements, there are ongoing
improvement programs in manufacturing and distribution facilities in both North
America and Europe. A limited number of finished products are manufactured to
our specifications by third parties.
The principal raw materials used in the manufacture of our products are
essential oils, alcohol and specialty chemicals. We also purchase packaging
components, which are manufactured to design specifications. Procurement of
materials for all manufacturing facilities is generally made on a global basis
through our centralized supplier relations department. The use of "focus" plants
has contributed to greater efficiencies in sourcing and manufacturing. As a
result of sourcing initiatives, there is increased dependency on certain
suppliers, but we believe that these suppliers have adequate resources and
multiple facilities to overcome any unforeseen interruption of supply from any
single facility. We have, in the past, been able to obtain an adequate supply of
essential raw materials and currently believe we have adequate sources of supply
for virtually all components of our products.
Competition
The skin care, makeup, fragrance and hair care businesses are characterized by
vigorous competition throughout the world. Product recognition, quality,
performance and price have a significant influence on consumers' choices among
competing products and brands. Advertising, promotion, merchandising, the pace
and timing of new product introductions, line extensions and the quality of
in-store sales staff also have a significant impact on consumer buying
decisions. We compete against a number of manufacturers and marketers of skin
care, makeup, fragrance and hair care products, some of which have substantially
greater resources than we do.
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Our principal competitors among manufacturers and marketers of skin care,
makeup, fragrance and hair care products include L'Oreal S.A. (which markets
Lancome, Ralph Lauren, L'Oreal, Maybelline, Plenitude and other products),
Unilever N.V. (which markets Calvin Klein, Elizabeth Arden and other products),
The Procter & Gamble Company (which markets Cover Girl, Giorgio fragrances, Max
Factor, Vidal Sassoon and other products), LVMH Moet Hennessy Louis Vuitton
("LVMH") (which markets Christian Dior, Givenchy, Guerlain and other products),
Shiseido Company, Ltd. (which markets Shiseido and other products), Avon
Products, Inc., Wella Group (which markets Wella, Gucci, Sebastian and other
products), Artemis (which markets Yves St. Laurent and other products), Revlon,
Inc. (which markets Revlon, Almay and Ultima products), Joh. A. Benckiser GmbH
(which markets Coty, Lancaster, Davidoff, Joop!, Jil Sander and other products),
Bristol-Myers Squibb Co. (which markets Clairol and Matrix Essentials products),
Chanel, Inc. (which markets Chanel and Bourjois products) and Clarins. We also
face competition from retailers that have developed their own brands, such as
Gap Inc. (for Gap and Banana Republic) and Sephora, or have acquired brands,
such as the Neiman Marcus Group (which acquired Laura Mercier). Some of our
competitors also have interests in retailers that are customers of ours. For
example, LVMH has interests in Duty Free Shoppers, Sephora and Parfumeries
Douglas.
Trademarks, Patents and Copyrights
We own all of the material trademark rights used in connection with the
manufacturing, marketing and distribution of our major products both in the
United States and in the other countries where such products are principally
sold, except for the trademark rights relating to Tommy Hilfiger (including
tommy and tommy girl) and Donna Karan New York and DKNY, as to which we are the
exclusive worldwide licensee for fragrances, cosmetics and related products.
Trademarks for our principal products are registered in the United States and in
each of the countries in which such products are sold. The major trademarks used
in our business include the brand names Estee Lauder, Clinique, Aramis,
Prescriptives, Origins, Tommy Hilfiger, Donna Karan New York, M.A.C, Bobbi Brown
essentials, jane, Aveda, Stila and the names of many of the products sold under
each of these brands. We consider the protection of our trademarks to be
important to our business.
A number of our products incorporate patented or patent-pending formulations. In
addition, several products are covered by design patents, patent applications or
copyrights. While we consider these patents and copyrights, and the protection
thereof, to be important, no single patent or copyright is considered material
to the conduct of our business.
Employees
At June 30, 1999, we had approximately 17,700 full-time employees worldwide
(inclusive of sales representatives at points of sale who are employed by the
Company), of whom approximately 8,200 are employed in the United States and
Canada. None of our U.S. employees is covered by a collective bargaining
agreement. In Belgium, some employees are covered by a Works Council agreement
and in South Africa some employees are covered by a collective bargining
agreement. We believe that relations with our employees are good. We have never
encountered a material strike or work stoppage in the United States or in any
other country where we have a significant number of employees.
Government Regulation
We and our products are subject to regulation by the Food and Drug
Administration and the Federal Trade Commission in the United States, as well as
various other federal, state and local and foreign regulatory authorities. Such
regulations relate principally to the ingredients, labeling, packaging and
marketing of our products. We believe that we are in substantial compliance with
such regulations, as well as applicable federal, state, local and foreign rules
and regulations governing the discharge of materials hazardous to the
environment. There are no significant capital expenditures for environmental
control matters either planned in the current year or expected in the near
future.
Seasonality
Our results of operations in total, by region, and by product category are
subject to seasonal fluctuations, with net sales in the first and second fiscal
quarters typically being slightly higher than in the third and fourth fiscal
quarters. The higher net sales in the first two fiscal quarters are attributable
to the increased levels of purchasing by retailers for the Christmas selling
season and for fall fashion makeup introductions. Greater variation exists in
quarterly operating income and margin, which typically are lower in the second
half of the fiscal year than in the first half. In addition to the effect of
lower net sales on operating income in the third and fourth fiscal quarters as
compared to the first and second fiscal quarters, operating income and operating
margin in the third and fourth fiscal quarters are negatively affected by our
relatively consistent dollar amount of advertising and promotional spending in
each fiscal quarter. In addition, fluctuations in net sales, operating income
and product category results in any fiscal quarter may be attributable to the
level and scope of new product introductions.
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Item 2. Properties.
The following table sets forth the principal owned and leased manufacturing and
research and development facilities as of September 13, 1999. The leases expire
at various times through 2011, subject to certain renewal options.
<TABLE>
<CAPTION>
Approximate
Location Use Square Footage
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<S> <C> <C>
The Americas
Melville, New York (owned) Manufacturing 300,000
Melville, New York (owned) R&D 78,000
Blaine, Minnesota (owned) Manufacturing and R&D 275,000
Oakland, New Jersey (leased) Manufacturing 148,000
Bristol, Pennsylvania (leased) Manufacturing 67,000
Agincourt, Ontario, Canada (owned) Manufacturing 96,000
Markham, Ontario, Canada (leased) Manufacturing 58,000
Markham, Ontario, Canada (leased) R&D 26,000
Europe, the Middle East & Africa
Oevel, Belgium (owned) Manufacturing 113,000
Oevel, Belgium (owned) R&D 2,000
Petersfield, England (owned) Manufacturing 225,000
Lachen, Switzerland (owned) Manufacturing 53,000
Sandton, Transvaal, South Africa (leased) Manufacturing 72,000
Asia/Pacific
Rosebery, NSW, Australia (leased) Manufacturing 71,000
Tokyo, Japan (leased) R&D 4,000
</TABLE>
We occupy numerous offices, assembly and distribution facilities and warehouses
in the United States and abroad. We consider our properties to be generally in
good condition and believe that our facilities are adequate for our operations
and provide sufficient capacity to meet anticipated requirements. We lease
approximately 250,000 square feet of space for our principal offices in New
York, New York and own an office building of approximately 57,000 square feet in
Melville, New York. We operate free-standing retail stores, including 2 for the
Estee Lauder brand, 1 for Clinique, 56 for Origins, 38 for M.A.C and 10 for
Aveda.
Item 3. Legal Proceedings.
We are involved in various routine legal proceedings incident to the ordinary
course of business. In management's opinion, the outcome of pending legal
proceedings, separately or in the aggregate, will not have a material adverse
effect on our business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter ended
June 30, 1999.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Our Class A Common Stock is publicly traded on the New York Stock Exchange under
the symbol "EL". The following table sets forth the high and low sales prices as
reported on the New York Stock Exchange Composite Tape and the cash dividends
per share declared in fiscal 1999 and fiscal 1998.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
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Cash Cash
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $35 1/8 $24 3/4 $.0425 $25 15/32 $22 3/8 $.0425
Second Quarter 43 1/4 23 11/32 .0425 28 3/16 19 1/2 .0425
Third Quarter 47 3/4 38 3/8 .0425 34 1/2 24 1/4 .0425
Fourth Quarter 51 1/2 41 7/8 .0500 36 31/32 30 7/16 .0425
------ ------
Year 51 1/2 23 11/32 $.1775 36 31/32 19 1/2 $.1700
====== ======
</TABLE>
On April 26, 1999, the Board of Directors approved a two-for-one stock split in
the form of a 100% stock dividend on all of our outstanding Common Stock. The
stock dividend was paid on June 2, 1999 to all holders of record of shares of
our Common Stock at the close of business on May 10, 1999. All share and
per-share data in this report and the consolidated financial statements have
been restated to reflect the effect of the two-for-one stock split.
We expect to continue the payment of cash dividends in the future, but there can
be no assurance that such payment will continue.
As of September 8, 1999, there were approximately 3,150 record holders of Class
A Common Stock and 13 record holders of Class B Common Stock.
-8-
<PAGE>
Item 6. Selected Financial Data.
The table below summarizes selected financial information. For further
information, refer to the audited consolidated financial statements and the
notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
Year Ended or at June 30
----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales.......................................... $3,961.5 $3,618.0 $3,381.6 $3,194.5 $2,899.1
Gross profit....................................... 3,061.6 2,798.5 2,616.5 2,463.5 2,224.3
Operating income................................... 456.9 409.1 359.1 310.3 230.9
Earnings before income taxes and minority interest. 440.2 402.8 362.9 313.0 233.0
Net earnings....................................... 272.9 236.8 197.6 160.4 121.2
Preferred stock dividends.......................... 23.4 23.4 23.4 57.5 25.3
Net earnings attributable to common stock.......... 249.5 213.4 174.2 102.9 95.9
Other Data:
Earnings before interest, taxes, depreciation
and amortization (EBITDA) (a)................... $ 574.2 $ 506.6 $ 435.1 $ 369.1 $272.9
Per Share Data:
Net earnings per common share (b) (d):
Basic.......................................... $ 1.05 $ .90 $ .74 $ .59(c) -
Diluted........................................ $ 1.03 $ .89 $ .73 $ .59(c) -
Weighted average common shares outstanding (b) (d):
Basic.......................................... 237.0 236.8 235.4 232.6(c) -
Diluted........................................ 241.2 239.5 237.1 233.2(c) -
Cash dividends declared per common share (d)....... $.1775 $ .17 $ .17 $ .085 -
Balance Sheet Data:
Working capital.................................... $ 708.0 $ 617.2 $ 551.6 $ 467.5 $ 469.6
Total assets....................................... 2,746.7 2,512.8 1,873.1 1,779.4 1,701.4
Total debt......................................... 429.1 436.5 31.1 127.5 194.0
Redeemable preferred stock......................... 360.0 360.0 360.0 360.0 360.0
Stockholders' equity............................... 924.5 696.4 547.7 394.2 335.1
</TABLE>
- ----------
(a) EBITDA is an additional measure of operating performance used by management.
EBITDA, like operating income, does not include the effects of interest and
taxes and additionally excludes the "non-cash" effects of depreciation and
amortization on current earnings. While the components of EBITDA may vary from
company to company, we exclude our 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. We consider this
measure useful in analyzing our 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.
(b) In December 1997, we adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Consistent with the requirements of SFAS
No. 128, net earnings per common share and weighted average common shares
outstanding for all prior years presented have been restated for purposes of
comparability.
(c) Due to the change in the capital structure effected by our recapitalization
in connection with our initial public offering in fiscal 1996, historical share
and per share data for the fiscal year ended June 30, 1995 is not presented. Net
earnings per common share and weighted average common shares outstanding for the
year ended June 30, 1996 are reflected on a pro forma basis as if the
recapitalization was effected at the beginning of fiscal 1996.
(d) On April 26, 1999, the Board of Directors approved a two-for-one stock split
in the form of a 100% stock dividend on all of our outstanding Common Stock. The
stock dividend was paid on June 2, 1999 to all holders of record of shares of
our Common Stock at the close of business on May 10, 1999. All share and per
share data has been restated to reflect the effect of the two-for-one stock
split.
-9-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
We 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 fiscal 1999, 1998 and 1997 and
reflects the basis of presentation described in Note 2 to the consolidated
financial statements for all periods presented. Sales of products and services
that do not meet our definition of skin care, makeup, fragrance and hair care
have been included in the "other" category. Prior-year information has been
restated to include the results of operations related to those products and
services.
<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------------------
1999 1998 1997
-------- -------- --------
(In millions)
<S> <C> <C> <C>
NET SALES
By Region:
The Americas................................................ $2,397.9 $2,204.7 $1,939.4
Europe, the Middle East & Africa............................ 1,082.4 960.8 909.3
Asia/Pacific................................................ 481.2 452.5 532.9
-------- -------- --------
$3,961.5 $3,618.0 $3,381.6
======== ======== ========
By Product Category:
Skin Care................................................... $1,398.8 $1,248.3 $1,291.0
Makeup...................................................... 1,412.8 1,317.7 1,251.7
Fragrance................................................... 1,048.6 987.6 817.7
Hair Care................................................... 82.4 52.4 16.5
Other 18.9 12.0 4.7
-------- -------- --------
$3,961.5 $3,618.0 $3,381.6
======== ======== ========
OPERATING INCOME
By Region:
The Americas................................................ $ 265.0 $ 248.0 $ 189.9
Europe, the Middle East & Africa............................ 145.5 131.3 122.7
Asia/Pacific................................................ 46.4 29.8 46.5
-------- -------- --------
$ 456.9 $ 409.1 $ 359.1
======== ======== ========
By Product Category:
Skin Care................................................... $ 205.9 $ 174.3 $ 175.9
Makeup...................................................... 158.2 151.8 143.8
Fragrance................................................... 79.7 75.5 37.8
Hair Care................................................... 11.4 8.0 1.6
Other 1.7 (0.5) -
-------- -------- --------
$ 456.9 $ 409.1 $ 359.1
======== ======== ========
</TABLE>
-10-
<PAGE>
The following table sets forth certain consolidated earnings data as a percent
of net sales:
<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales...................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................. 22.7 22.7 22.6
------ ----- -----
Gross profit................................................... 77.3 77.3 77.4
------ ----- -----
Operating expenses before depreciation and amortization:
Selling, general and administrative........................ 62.0 62.4 63.5
Related party royalties.................................... 0.8 0.9 1.0
------ ----- -----
62.8 63.3 64.5
------ ----- -----
Earnings before interest, taxes, depreciation
and amortization ("EBITDA")................................. 14.5 14.0 12.9
Depreciation and amortization.................................. 3.0 2.7 2.3
------ ----- -----
Operating income............................................... 11.5 11.3 10.6
Interest income (expense), net................................. (0.4) (0.2) 0.1
------ ----- -----
Earnings before income taxes and minority interest............. 11.1 11.1 10.7
Provision for income taxes..................................... 4.2 4.5 4.5
Minority interest.............................................. - (0.1) (0.4)
------ ----- -----
Net earnings................................................... 6.9% 6.5% 5.8%
====== ===== =====
</TABLE>
Fiscal 1999 as compared with Fiscal 1998
NET SALES
Net sales increased in all product categories and all geographic segments
resulting in an increase in fiscal 1999 net sales of 9% to $3,961.5 million.
Hair care and makeup benefited from a full year of sales of Aveda and jane
products. New skin care products were well received driving growth in that
category. Internationally, the Europe, Middle East & Africa region contributed a
13% increase in net sales over the prior year. Foreign currency translation did
not significantly impact net sales.
Product Categories
Skin Care
Skin care sales increased 12% to $1,398.8 million, reflecting the launch of Stop
Signs and Resilience Lift and a full year of sales of Diminish internationally.
In addition to these increases, Clinique All About Eyes contributed to the
category's year over year improvement. The overall increase was partially offset
by lower net sales of Fruition Extra.
Makeup
Net sales of makeup products increased 7% to $1,412.8 million due in part to the
inclusion of a full year of sales of Aveda and jane products. The current year
launch of Quickliner for Eyes, Superfit Makeup and Sheer Powder Blusher
increased sales, and Two-In-One Eyeshadow, DoubleWear and Photochrome
experienced continued success. These increases were partially offset by the
anniversary of the fiscal 1998 launch of Superlast Cream Lipstick.
Fragrance
Fragrance sales increased 6% to $1,048.6 million. The increase is primarily
attributable to the worldwide success of Clinique Happy and the current year
introduction of Dazzling Gold and Dazzling Silver. The rollout of Hilfiger
Athletics and tommy girl into remaining international markets contributed to
higher fragrance sales, offset in part by lower sales of tommy.
Hair Care
Net sales of hair care products increased $30.0 million or 57% to $82.4 million.
This increase primarily reflects the inclusion of Aveda products for a full
year.
The introduction of new products may have some cannibalization effect on sales
of existing products, which we take into account in our business planning.
-11-
<PAGE>
Geographic
Sales in the Americas were $2,397.9 million representing a 9% increase. The
region benefited from the inclusion of a full year of sales of Aveda and jane
products as well as strong sales from new skin care products. Net sales in
Europe, the Middle East & Africa increased 13% to $1,082.4 million with
double-digit sales increases in the skin care and fragrance categories. Net
sales in Spain, the United Kingdom, Italy, Germany, France, Belgium and the
distributor and travel retail businesses all increased as we introduced new
products and rolled out products that were previously not available in the
region. In Asia\Pacific, net sales increased 6% to $481.2 million, primarily due
to higher net sales in Japan, Korea and Thailand, offset by slightly lower sales
in Australia and Hong Kong. Currency translation did not have a material impact
on any of these geographic segments.
We strategically stagger our new product launches by geographic markets, which
may account for differences in regional sales growth.
COST OF SALES
Cost of sales as a percent of net sales was 22.7% in each of the last two years,
reflecting the integration of Aveda and jane products, which have higher product
cost structures than our other brands, offset by continued cost reduction
efforts and a shift in product mix for our core brands.
OPERATING EXPENSES
Operating expenses as a percent of net sales decreased to 65.8% in fiscal 1999
from 66.0% in fiscal 1998. The decrease is the result of productivity gains in
advertising and promotional spending and other cost controls, partially offset
by a full year of goodwill amortization and incremental spending related to our
Year 2000 remediation program. Shifts in product mix and the timing and type of
new product introductions affect our level of selling, advertising and
promotional spending. In addition to these market influences, our ratio of
operating expenses to net sales benefited from the integration of favorable
operating cost structures of acquired companies.
OPERATING INCOME
Operating income increased 12% to $456.9 million and operating margins increased
to 11.5% in fiscal 1999 from 11.3% in fiscal 1998. These increases were achieved
by maintaining our gross profit margins and controlling certain operating
expenses so they increased at a lower rate than net sales.
Product Categories
Operating income in the skin care category increased 18% to $205.9 million due
primarily to the launches of Stop Signs and Resilience Lift. Skin care products,
which are primarily marketed under our core brand names, typically have lower
cost of goods than our other products. Operating income for makeup increased 4%
to $158.2 million as a result of higher sales from new product introductions
including Quickliner for Eyes, Superfit Makeup and Sheer Powder Blusher.
Operating income for fragrance products was $79.7 million, an increase of $4.2
million or 6%. This increase is primarily attributable to increased sales from
the introduction of Dazzling Gold and Dazzling Silver and the continued success
of Clinique Happy. Operating income from fragrances as a percent of net sales is
typically lower than other product segments as fragrance products generally have
a higher cost of goods and are often supported by higher advertising and
promotional spending. The higher advertising and promotion for fragrance
indirectly supports other categories by generating increased traffic at points
of sale. Operating income from the hair care category increased 43% to $11.4
million primarily due to the inclusion of Aveda products for a full year.
Geographic
Operating income in the Americas increased 7% to $265.0 million primarily due to
increased sales in the skin care and makeup segments, as well as a full year of
operating profits from Aveda. In Europe, the Middle East & Africa, operating
income increased 11% to $145.5 million as a result of a strong travel retail
business and better operating results in Spain, Germany, Italy and Belgium,
partially offset by lower results in the United Kingdom. In Asia/Pacific,
operating income increased $16.6 million or 56% to $46.4 million due to
increased sales and the implementation of planned operating expense efficiencies
in Japan, Australia, Taiwan and Thailand.
-12-
<PAGE>
EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is an
additional measure of operating performance used by management. EBITDA, like
operating income, does not include the effects of interest and taxes and
additionally excludes the "non-cash" effects of depreciation and amortization on
current earnings. While the components of EBITDA may vary from company to
company, we exclude minority interest adjustments, 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. These components of operating income do not necessarily
result in a capital requirement in the current period, and, in the opinion of
management, many of the underlying assets, both tangible and intangible, create
value by supporting the global recognition of brand names and product innovation
and by consistently producing quality products for our customers and consumers.
While we consider EBITDA useful in analyzing our results, 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 by $67.6 million to $574.2 million or 14.5% of net sales as
compared to $506.6 million or 14.0% of net sales in fiscal 1998. Such
improvement is primarily attributable to higher net sales and operating expense
efficiencies achieved.
INTEREST EXPENSE, NET
Net interest expense increased $10.4 million to $16.7 million as borrowings
related to fiscal 1998 business acquisitions were outstanding for the full year.
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign, state and local
income taxes. The effective rate for income taxes for fiscal 1999 was 38%
compared to 40% in the prior-year period. These rates are higher than the
statutory federal tax rate due to the effect of state and local taxes, higher
tax rates in certain foreign jurisdictions and certain nondeductible expenses.
The decrease in the effective income tax rate was principally attributable to
tax planning initiatives and the tax effect of foreign operations.
Fiscal 1998 as compared with Fiscal 1997
NET SALES
Net sales in fiscal 1998 increased 7% to $3,618.0 million as compared to fiscal
1997. Fiscal 1998 net sales increased as a result of new product introductions,
the continued success of our core products, and the international rollout of
existing products. Additionally, net sales in fiscal 1998 benefited from the
inclusion of Aveda and jane from the date of acquisition in December and October
1997, respectively, through the fiscal year end. The strength of the U.S. dollar
negatively impacted net sales by approximately $135 million and $87 million for
fiscal 1998 and fiscal 1997, respectively. Excluding the impact of foreign
currency translation, net sales increased 11%.
-13-
<PAGE>
Product Categories
Skin Care
Net sales of skin care products in fiscal 1998 decreased 3% to $1,248.3 million
as compared to fiscal 1997. The decrease was primarily due to lower sales in the
Asia/Pacific region and the strengthening of the U.S. dollar against foreign
currencies. Accordingly, net sales of skin care products increased 2% on a
constant exchange rate basis. Additionally, fiscal 1998 decreases were due in
part to the successful fiscal 1997 launch of Fruition Extra and lower
year-to-year sales of Advanced Night Repair. Partially offsetting these
decreases were sales related to the introduction of Diminish, Uncircle and
Clinique All About Eyes, the international introduction of Nutritious and the
continued success of DayWear.
Makeup
Net sales of makeup products increased 5% to $1,317.7 million in fiscal 1998.
The increase was attributable to the introduction of new products such as
Superbalanced Makeup, Superlast Cream Lipstick, Two-In-One Eyeshadow and Blush
All Day. In addition to new product introductions, existing products such as
DoubleWear and Futurist recorded a full year's sales and were introduced
internationally, while sales of True Lipstick improved for the third straight
year. Net sales of makeup also reflect sales of jane and Aveda after they were
acquired and the continued success of Bobbi Brown essentials. The foregoing
increases were partially offset by the successful fiscal 1997 introduction and
full year's sales of City Base, and the decline in net sales of Long Last
Lipstick.
Fragrance
Net sales of fragrance products increased 21% to $987.6 million in fiscal 1998.
The increase was primarily attributable to the introduction of Clinique Happy
and Lauder Pleasures for Men, the domestic introduction of Hilfiger Athletics,
and the on-going success of tommy and tommy girl. Sales of Estee Lauder
pleasures and Beautiful were relatively consistent with prior years, although
they continued to generate significant sales. Offsetting these improvements were
declines in existing products such as White Linen Breeze, Aramis Classic, and
Havana Pour Elle.
Hair Care
Net sales of hair care products increased significantly in fiscal 1998 as
compared with the prior year due to the inclusion of sales from the Aveda hair
care product lines beginning in December 1997.
Geographic
Net sales in the Americas rose 14% to $2,204.7 million in fiscal 1998. Increases
in fiscal 1998 were recognized across all product categories in the region, with
the most significant increases being attributable to fragrances and hair care as
a result of new product introductions and the integration of Aveda,
respectively. Growth in all product categories was supported by the continued
success of existing products. In Europe, the Middle East & Africa, net sales
increased 6% to $960.8 million in fiscal 1998. Net sales increased 13% for
fiscal 1998 excluding the impact of foreign currency translation. Higher net
sales were recorded in the United Kingdom and Spain. Significant sales
improvements in the United Kingdom were favorably impacted as the dollar
weakened against the British pound. Excluding the effect of a stronger U.S.
dollar against local currencies, double digit increases were achieved in Spain,
Italy and Germany. In Asia/Pacific, net sales decreased 15% to $452.5 million,
and, on a local currency basis, decreased 3%. The volatile economic climate in
Japan and the surrounding Asian marketplace had contributed to a difficult
retail environment. Sales in Japan, Hong Kong and Taiwan decreased on both a
local currency and a translated basis. Partially offsetting these decreases, net
sales increased in all other Asia/Pacific markets on a local currency basis,
particularly in Thailand and Malaysia.
COST OF SALES
Cost of sales in fiscal 1998 was 22.7% of net sales compared with 22.6% of net
sales in fiscal 1997. Increased cost of sales in fiscal 1998 related to the
inclusion of Aveda and jane, both of which have product cost structures higher
than our other brands, as well as a shift in product mix. This increase was
partially offset by continued improvements in operating efficiency.
OPERATING EXPENSES
Selling, general and administrative expenses decreased to 66.0% of net sales in
fiscal 1998, compared with 66.8% of net sales in fiscal 1997. Fiscal 1998
decreases reflect operating expenses growing at a slower rate than net sales
primarily due to spending efficiencies achieved in the selling, advertising and
promotional expense areas and the favorable effect of integrating the Aveda and
jane operating cost structures.
-14-
<PAGE>
OPERATING INCOME
Operating income rose 14% to $409.1 million in fiscal 1998. Operating margins
were 11.3% in 1998, compared with 10.6% in fiscal 1997. These increases were due
to higher net sales and total operating expenses growing at a slower rate than
net sales.
Product Categories
Operating income in the skin care segment decreased 1% to $174.3 milion as a
result of lower sales in this category, particularly in the Asia/Pacific region.
The makeup segment's operating income increased 6% to $151.8 million as a result
of higher sales from new and existing products, as well as contributions from
Aveda and jane. Operating income for fragrance products increased $37.7 million
to $75.5 million, primarily as the result of contributions from new products in
addition to improved margins on existing products. The increase in operating
income in the hair care segment of $6.4 million to $8.0 million was primarily
due to the inclusion of Aveda hair care products.
Geographic
Operating income in the Americas increased by 31% to $248.0 million. In fiscal
1998, the increase related to continued net sales improvements in the United
States due to strong performances from core products and the inclusion of Aveda
and jane. In Europe, the Middle East & Africa, operating income increased 7% to
$131.3 million in fiscal 1998. Increased net sales in the United Kingdom
resulted in the most significant improvement in operating income for the region.
On a constant exchange rate basis, Spain, France and Italy would have made
greater operating income contributions. These increases were partially offset by
lower operating income in the travel retail business. In Asia/Pacific, operating
income decreased 36% to $29.8 million in fiscal 1998. This decrease is
principally due to operating income declines in Japan due to lower net sales,
compounded by a stronger U.S. dollar against the yen. A difficult retail market
adversely affected Japan and the surrounding areas. As a result, operating
expenses grew at a faster rate than net sales for most of the Asian markets,
partially offset by strong results in Korea.
EBITDA
EBITDA increased to 14.0% of net sales in fiscal 1998 as compared to 12.9% in
fiscal 1997. The improvement in EBITDA in fiscal 1998 was primarily attributable
to increased sales and operating expense efficiencies.
INTEREST INCOME (EXPENSE), NET
Net interest expense was $6.3 million for fiscal 1998 as compared to net
interest income of $3.8 million in fiscal 1997. Net interest expense in fiscal
1998 is primarily due to higher borrowings associated with the Company's
acquisitions.
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign, state and local
taxes. The effective rate for income taxes in fiscal 1998 was 40% as compared to
42% in fiscal 1997. These rates principally reflect the effect of state and
local taxes, tax rates in foreign jurisdictions and certain nondeductible
expenses. The decrease in the effective tax rate for fiscal 1998 was
attributable to tax planning initiatives, a relative change in the mix of
earnings from higher tax countries such as Japan to lower tax countries, the
effect of a reduction in the statutory rate in the United Kingdom and the effect
of U.S. federal tax regulations.
-15-
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash flows from operations
and borrowings under uncommitted and committed credit lines provided by banks in
the United States and abroad. At June 30, 1999, we had cash and cash equivalents
of $347.5 million compared with $277.5 million at June 30, 1998.
In order to more efficiently manage our debt position and interest rate risk,
the Board of Directors authorized a $750.0 million commercial paper program. We
have issued, and intend to issue, our commercial paper in the United States. Our
commercial paper is currently rated A1 by Standard & Poor's and P1 by Moody's .
In May 1999, we issued $205.2 million of commercial paper and used the proceeds
to prepay a like amount of our $405.0 million term loan, due February 2005.
There remains $200.0 million of the original term loan outstanding with a fixed
rate of interest of 6.69%. Commercial paper is classified as long-term debt in
our balance sheet based upon our intent and ability to refinance maturing
commercial paper on a long-term basis. On August 26, 1999, we filed a "shelf"
registration statement with the SEC covering the potential issuance of up to
$400.0 million in debt securities.
Total committed credit facilities are $750.0 million all of which are unused.
These committed credit facilities consist of (i) our existing $400.0 million
five-year revolving credit facility; and, (ii) a 364-day, $350.0 million Senior
Unsecured Revolving Credit Facility, entered into in July 1999. We also have
uncommitted facilities, which amounted to $219.1 million, of which $0.8 million
was used.
Total debt as a percent of total capitalization was 25% at June 30, 1999 as
compared to 29% at June 30, 1998, primarily as a result of higher total capital.
Net cash provided by operating activities was $352.3 million in fiscal 1999 as
compared to $258.2 million in fiscal 1998 and $253.1 million in fiscal 1997.
These increases primarily relate to increased earnings, particularly before
depreciation and amortization. Greater changes in operating assets and
liabilities in fiscal 1998 were partially due to the acquisitions of Aveda and
jane.
Net cash used for investing activities in fiscal 1999 was $200.3 million,
compared with $577.2 million in fiscal 1998 and $130.7 million in fiscal 1997.
The fiscal 1999 decrease in cash used for investing activities relates primarily
to lower spending on acquisitions as compared to fiscal 1998, when we acquired
Aveda, jane and the remaining interest in M.A.C. In March 1999, we made a
payment to satisfy the earn-out of the Bobbi Brown acquisition. Additionally, in
August 1999, we acquired the business of Los Angeles-based Stila Cosmetics, Inc.
Cash used for financing activities in fiscal 1999 was $73.2 million as compared
to $345.2 million provided in fiscal 1998 and $116.8 million used in fiscal
1997. These changes are primarily attributable to the fiscal 1998 issuance of
debt related to business acquisitions. Fiscal 1999 financing activities reflect
the shift in debt from our term loan to commercial paper, payments to acquire
treasury stock, and an increase in dividends paid, due mostly to the timing of
dividend distributions, partially offset by proceeds received upon the exercise
of stock options.
On September 18, 1998, our Board of Directors authorized a share repurchase
program. We have purchased, and may continue to purchase, over an unspecified
period of time, a total of up to eight million shares of Class A Common Stock in
the open market or in privately negotiated transactions, depending on market
conditions and other factors.
Capital expenditures amounted to $117.9 million, $120.6 million and $82.9
million in fiscal 1999, 1998 and 1997, respectively. Spending in all three years
primarily reflects the continued upgrade of manufacturing equipment, dies and
molds, new store openings, store improvements, counter construction and
information technology advancements, as well as incremental capital spending by
acquired companies. Fiscal 1998 spending included costs related to the
construction of the Lachen distribution center and the purchase of a facility in
Blaine, Minnesota.
Dividends declared were $65.4 million, $63.6 million and $63.4 million in fiscal
1999, 1998 and 1997, respectively. From the third quarter of fiscal 1996 through
the third quarter of fiscal 1999 the Board of Directors declared, and we paid,
quarterly dividends at the rate of $.0425 per share on our Class A and Class B
Common Stock. On April 26, 1999, the Board of Directors approved an increase of
17.6% in the next quarterly Class A and Class B Common Stock dividend to $.05
per share. In fiscal 1999, 1998 and 1997, dividends declared on such common
stock totaled $42.0 million, $40.2 million and $40.0 million, respectively.
-16-
<PAGE>
We enter into forward exchange contracts to hedge purchases, receivables and
payables denominated in foreign currencies for periods consistent with our
identified exposures. The purpose of the hedging activities is to minimize the
effect of foreign exchange rate movements on our costs and on the cash flows
which we receive from foreign subsidiaries. Almost all foreign currency
contracts are denominated in currencies of major industrial countries and are
with large financial institutions rated as strong investment grade by a major
rating agency. Gains and losses related to qualifying hedges of these exposures
are deferred and recognized in operating income when the underlying hedged
transaction occurs. We also enter 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.
As a matter of policy, we only enter into contracts with counterparties that
have at least an "A" (or equivalent) credit rating. The counterparties to these
contracts are major financial institutions. We do not have significant exposure
to any one counterparty. Our 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 not be material. The contracts have
varying maturities with none exceeding 24 months. Costs associated with entering
into such contracts have not been material to our financial results. We do not
utilize derivative financial instruments for trading or speculative purposes. At
June 30, 1999, we had foreign currency contracts in the form of purchased
currency options and forward exchange contracts in the amount of $57.2 million
and $191.5 million, respectively. The foreign currencies included in these
contracts are principally the Euro, Japanese yen, Swiss franc and U.K. pound.
We have entered 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 swap counterparties are
recorded in interest expense in the period in which they accrue. The related
amounts payable to, or receivable from, the counterparties are included in other
accrued liabilities. At June 30, 1999 we had interest rate swap agreements
outstanding with a notional principal amount of $200.0 million.
The effects of inflation have not been significant to our overall operating
results in recent years. Generally, we have been able to increase selling prices
sufficiently to offset cost increases, which have been moderate.
We believe that cash on hand, cash generated from operations, available credit
lines and access to credit markets will be adequate to support currently planned
business operations and capital expenditures on both a near-term and long-term
basis.
DERIVATIVE FINANCIAL INSTRUMENTS
We conduct business in many foreign currencies. As a result, we are subject to
foreign currency exchange rate risk due to the effects that foreign exchange
rate movements of these currencies have on our costs and cash flows which we
receive from our foreign subsidiaries. We believe that currently there is no
other material market risk exposure. We address our risks through a controlled
program of risk management that includes the use of derivative financial
instruments. We primarily enter into foreign currency forward exchange contracts
and purchase foreign currency options to reduce the effects of fluctuating
foreign currency exchange rates, and, accordingly, categorize these instruments
as entered into for purposes other than trading.
We use a value-at-risk model to assess the market risk of our derivative
financial instruments. Value-at-risk represents the potential losses for an
instrument or portfolio from adverse changes in market factors, for a specified
time period and confidence level. We estimate value-at-risk across all of our
derivative financial instruments using a model with historical volatilities and
correlations calculated over the past 250 day period. The measured value-at-risk
from holding such derivative instruments, using a variance/co-variance model
with a 95 percent confidence level, assuming normal market conditions at June
30, 1999 was not material.
-17-
<PAGE>
Our calculated value-at-risk exposure represents an estimate of reasonably
possible net losses that would be recognized on our portfolio of derivative
financial instruments assuming hypothetical movements in future market rates and
is not necessarily indicative of actual results which may or may not occur. It
does not represent the maximum possible loss nor any expected loss that may
occur, since actual future gains and losses will differ from those estimated,
based upon actual fluctuations in market rates, operating exposures, and the
timing thereof, and changes in the portfolio of derivative financial instruments
during the year.
We believe, however, that any loss incurred would be offset by the effects of
currency movements on the respective underlying transactions for which the hedge
is intended. In addition, the maximum exposure associated with the purchase of
options is limited to the premiums paid, which are recognized against income
over the period being hedged.
YEAR 2000
We have a comprehensive program to address Year 2000 issues and are in the final
stages of implementing all aspects. The program addresses three main areas: (a)
information systems; (b) embedded chips; and (c) supply chain readiness, as well
as contingency planning related thereto. A Steering Committee, comprised of
senior executives representing our various business units around the world,
meets periodically to oversee the program, and its representatives report
regularly to the Audit Committee of the Board of Directors.
We identified potential deficiencies related to Year 2000 in our information
systems and are finalizing our upgrades and other remediations. Testing is
essentially completed. We are in the process of having an independent third
party validate our information systems remediation processes, the completion of
which is expected in October 1999. We identified other equipment with date
sensitive operating controls and have completed the assessment, remediation and
testing of critical embedded chips. We had another independent third party
validate our embedded chip procedures and the validation has been completed. To
mitigate the risk of Year 2000 non-compliance by third parties, we have
identified, contacted and met with critical inventory suppliers, our larger
customers, and critical non-inventory suppliers and have finalized the
assessment of their Year 2000 readiness and have developed our contingency plans
accordingly.
We believe it is difficult to specifically identify the cause of the most
reasonable worst case Year 2000 scenario. As with all manufacturers and
distributors of products such as ours and based upon our work to date, a
reasonable worst case scenario would be the result of the failure of third
parties to be Year 2000 compliant. Such failures may include, without
limitation, failures by governmental entities and entities with which we have no
direct involvement that continue for more than several days in various
geographic areas where our products are sold at retail, or areas from which our
raw materials are sourced. Accordingly, we have finalized contingency plans to
limit, to the extent reasonably possible, lost revenues and other adverse
effects arising from third party failures. These plans are necessarily limited
to matters which we can reasonably control and include the acceleration of
certain shipments which necessitated adjustments to our production and
procurement schedules. In order to support ongoing global operations on or about
January 1, 2000, we will be establishing, prior to that date, a Y2K
Communications Center which will expedite the implementation of certain
contingency plans, if necessary. We are implementing our overall contingency
plans and estimate an immaterial shift of net sales and related expenses from
the third fiscal quarter to the second fiscal quarter.
Notwithstanding the impact on any given quarter, incremental out-of-pocket costs
incurred through June 30, 1999 have not been significant and, based upon current
estimates, the costs of our Year 2000 program are not expected to be material.
Such costs do not include internal employee costs and costs related to the
deferral of other information technology projects. While we do not have a system
to track internal employee costs specifically related to the Year 2000, those
costs are not expected to be material to our consolidated results of operations
or financial condition.
Our Year 2000 efforts are ongoing and our overall plan, as well as the
implementation of contingency plans, will continue to evolve as new information
becomes available. While we anticipate continuity of our business activities,
that continuity will be dependent upon our ability, and the ability of third
parties on whom we rely directly or indirectly to be Year 2000 compliant.
-18-
<PAGE>
EURO CONVERSION
As part of the European Economic and Monetary Union (EMU), a single currency
(the "Euro") will replace the national currencies of most of the European
countries in which we conduct business. The conversion rates between the Euro
and the participating nations' currencies were fixed irrevocably as of January
1, 1999, with the participating national currencies to be removed from
circulation between January 1, and June 30, 2002 and replaced by Euro notes and
coinage. During the "transition period" from January 1, 1999 through December
31, 2001, public and private entities, as well as individuals, may pay for goods
and services using either checks, drafts, or wire transfers denominated in Euros
or the participating country's national currency.
Under the regulations governing the transition to a single currency, there is a
"no compulsion, no prohibition" rule which states that no one is obliged to use
the Euro until the notes and coinage have been introduced on January 1, 2002. In
keeping with this rule, we were Euro "compliant" (able to receive Euro
denominated payments and able to invoice in Euros as requested) as of January 1,
1999 in the affected countries. Full conversion of all affected country
operations to the Euro is expected to be completed by the time national
currencies are removed from circulation. Phased conversion to the Euro is
currently underway and the effects on revenues, costs and various business
strategies continue to be assessed. The cost of software and business process
conversion is not expected to be material.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Pursuant to SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000 and will not require retroactive restatement of prior period financial
statements. This statement requires the recognition of all derivative
instruments as either assets or liabilities in the statement of financial
position measured at fair value. Generally, increases or decreases in the fair
value of derivative instruments will be recognized as gains or losses in
earnings in the period of change. If certain conditions are met, where the
derivative instrument has been designated as a fair value hedge, the hedged item
may also be marked to market through earnings thus creating an offset. If the
derivative is designated and qualifies as a cash flow hedge, the changes in fair
value of the derivative instrument may be recorded in comprehensive income.
Based on current analysis, we believe that conversion to SFAS No. 133 will not
have a material impact on our financial position or results of operations.
However, the statement will likely result in a change in reported assets and
liabilities and may affect comprehensive income.
FORWARD-LOOKING INFORMATION
We and our representatives from time to time make written or oral forward
looking statements, including statements contained in this and other filings
with the Securities and Exchange Commission and in our 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, our expectations regarding sales, earnings or other future
financial performance and liquidity, product introductions, entry into new
geographic regions and future operations or operating results. Although we
believe that our expectations are based on reasonable assumptions within the
bounds of our knowledge of our business and operations, we cannot assure that
actual results will not differ materially from our 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 we do;
(ii) our ability to develop, produce and market new products on which
future operating results may depend;
(iii) consolidations and restructurings in the retail industry
causing a decrease in the number of stores that sell our products, an
increase in the ownership concentration within the retail industry or
ownership of retailers by our competitors or ownership of competitors
by our customers that are retailers;
(iv) shifts in the preferences of consumers as to where and how they
shop for beauty and related products;
-19-
<PAGE>
(v) social, political and economic risks to our foreign
manufacturing, distribution and retail operations, including changes
in foreign investment and trade policies and regulations of the host
countries and of the United States;
(vi) changes in the laws, regulations and policies, including changes
in accounting standards, that affect, or will affect, us in the
United States and abroad;
(vii) foreign currency fluctuations affecting our results of
operations and the value of our foreign assets, the relative prices
at which we and our foreign competitors sell our products in the same
market and our operating and manufacturing costs outside of the
United States;
(viii) changes in global economic conditions that could affect the
cost and availability of capital to the Company, which may be needed
for new equipment, facilities or acquisitions;
(ix) shipment delays, depletion of inventory and increased production
costs resulting from disruptions of operations at any of the
facilities which, due to consolidations in our manufacturing
operations, now manufacture nearly all of our supply of a particular
type of product (i.e., focus factories);
(x) real estate rates and availability, which may affect our ability
to increase the number of retail locations at which we sell our
products;
(xi) changes in product mix to products which are less profitable;
(xii) our ability and the ability of third parties, including
customers, suppliers and governmental entities to adequately address
Year 2000 issues; and
(xiii) our ability to integrate acquired businesses and realize value
therefrom.
We assume no responsibility to update forward-looking statements made herein or
otherwise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is set forth in Item 7 of this Annual
Report on Form 10-K under the captions "Liquidity and Capital Resources" and
"Derivative Financial Instruments" and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The information required by this item appears beginning on page F-1 of this
Annual Report on Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
-20-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The other information required by Item 10 will be included in our Proxy
Statement for the 1999 Annual Meeting of Stockholders, which will be filed
within 120 days after the close of the fiscal year ended June 30, 1999, and such
information is incorporated herein by reference to such Proxy Statement.
The following table sets forth certain information with respect to our executive
officers.
<TABLE>
<CAPTION>
Name Age Position(s) Held
- ---- --- ----------------
<S> <C> <C>
Leonard A. Lauder 66 Chairman of the Board of Directors and Chief Executive Officer
Ronald S. Lauder 55 Chairman of Clinique Laboratories, Inc. and Estee
Lauder International, Inc. and a Director
Fred H. Langhammer 55 President and Chief Operating Officer and a Director
Robert J. Bigler 51 Senior Vice President and Chief Financial Officer
Patrick Bousquet-Chavanne 41 President of Estee Lauder International, Inc.
Daniel J. Brestle 54 President of Estee Lauder (U.S.A. & Canada)
Andrew J. Cavanaugh 52 Senior Vice President - Corporate Human Resources
John B. Chilton 67 Senior Vice President - Global Operations
John M. Corrigan 57 Senior Vice President - Global Information Services
Joseph Gubernick 65 Senior Vice President - Research and Development
Paul E. Konney 55 Senior Vice President, General Counsel and Secretary
Evelyn H. Lauder 63 Senior Corporate Vice President
William P. Lauder 39 President of Clinique Laboratories, Inc.
Mary Carroll Linder 52 Senior Vice President - Global Communications
Robert A. Nielsen 69 Group President
Jeanette S. Wagner 70 Vice Chairman
</TABLE>
Leonard A. Lauder has served as Chief Executive Officer of the Company
since 1982 and as President from 1972 until 1995. He has been a director of the
Company since 1958. He became Chairman of the Board of Directors of the Company
in 1995. Mr. Lauder formally joined the Company in 1958 after serving as an
officer in the U.S. Navy. Since joining the Company, he has served in various
positions, including executive officer positions other than those described
above. He is Chairman of the Board of Trustees of the Whitney Museum of American
Art, a Charter Trustee of the University of Pennsylvania, a Trustee of The Aspen
Institute and a Director of RSL Communications, Ltd. He also served as a member
of the White House Advisory Committee on Trade Policy and Negotiations under
President Reagan.
Ronald S. Lauder has served as Chairman of Clinique Laboratories, Inc.,
Chairman of Estee Lauder International, Inc. and as a director of the Company
since returning from government service in 1987. Mr. Lauder joined the Company
in 1964 and has served in various capacities, including those described above,
since then. From 1983 to 1986, Mr. Lauder was Deputy Assistant Secretary of
Defense for European and NATO Affairs. From 1986 to 1987, he was U.S. Ambassador
to Austria. He is non-executive Chairman of the Board of Directors of Central
European Media Enterprises Ltd. and is the co-founder, controlling investor and
Chairman of the Board of Directors of RSL Communications, Ltd. He is Chairman of
the Board of Trustees of the Museum of Modern Art.
Fred H. Langhammer has been President of the Company since 1995 and Chief
Operating Officer of the Company since 1985. He was elected to the Board of
Directors in January 1996. He was Executive Vice President from 1985 until 1995.
Mr. Langhammer joined the Company in 1975 as President of its operations in
Japan and, in 1982, he was appointed Managing Director of the Company's
operations in Germany. He is a member of the Board of Directors of RJR Nabisco
Holdings Corp.; RSL Communications, Ltd.; the Cosmetics, Toiletries and
Fragrance Association; the German American Chamber of Commerce, Inc.; and the
American Institute for Contemporary German Studies at Johns Hopkins University.
He is also a Senior Fellow of the Foreign Policy Association.
-21-
<PAGE>
Robert J. Bigler is Senior Vice President and Chief Financial Officer of
the Company, a position he assumed in 1992. Before that, he had served as Senior
Vice President - Controller of Estee Lauder International, Inc. from 1986. He is
a certified public accountant.
Patrick Bousquet-Chavanne rejoined the Company in September 1998 as
President of Estee Lauder International, Inc. ("ELII"). From June 1992 through
December 1996, Mr. Bousquet-Chavanne was Senior Vice President - General
Manager/Travel Retailing of ELII. From September 1989 through June 1992, he was
Vice President and General Manager of Aramis International, a division of ELII.
From December 1996 through March 1998, he was Executive Vice President/General
Manager International Operations of Parfums Christian Dior S.A., based in Paris.
Daniel J. Brestle is President of Estee Lauder (U.S.A. & Canada). Prior to
July 1998, he was President of Clinique Laboratories, Inc. and the senior
officer of that division since 1992. Prior thereto, he was President of
Prescriptives U.S.A. since 1988. Mr. Brestle joined the Company in 1978.
Andrew J. Cavanaugh has been Senior Vice President - Corporate Human
Resources since 1994. Mr. Cavanaugh joined the Company in 1988 as Executive
Director - Human Resources.
John B. Chilton is Senior Vice President - Global Operations and has been in
charge of the Company's global manufacturing operations since 1993. Before that,
Mr. Chilton managed the Company's United States manufacturing operations since
1978. He joined the Company in 1973 as Managing Director of the Company's
manufacturing unit in the United Kingdom, and managed international operations
from 1974 to 1978.
John M. Corrigan is Senior Vice President - Global Information Systems and
has been the senior officer in charge of information systems and technology
since joining the Company in 1990.
Joseph Gubernick is Senior Vice President - Research and Development of the
Company. Mr. Gubernick joined the Company in 1972 as Vice President - Research
and Development.
Paul E. Konney is Senior Vice President, General Counsel and Secretary.
Prior to joining the Company in August 1999, Mr. Konney was Senior Vice
President, General Counsel and Secretary of Quaker State Corporation from 1994.
Prior to that, he was Senior Vice President - General Counsel and Secretary of
Tambrands Inc.
Evelyn H. Lauder has been Senior Corporate Vice President of the Company
since 1989, and previously served as Vice President and in other executive
capacities since first joining the Company in 1959 as Education Director. She is
a member of the Board of Overseers, Memorial Sloan-Kettering Cancer Center, a
member of the Board of Trustees of Central Park Conservancy, Inc. and The
Trinity School in New York City, a member of the Board of Directors of The Parks
Council and the Founder and President of The Breast Cancer Research Foundation.
William P. Lauder is President of Clinique Laboratories, Inc. He has been a
director of the Company since January 1996. Prior to July 1998, he was President
of Origins Natural Resources Inc., and the senior officer of that division since
its inception in 1990. Previously, he served in various positions since joining
the Company in 1986. He is a member of the Board of Trustees of The Trinity
School in New York City and the Board of Directors of the Educational Foundation
for the Fashion Industries.
Mary Carroll Linder has been Senior Vice President - Global Communications
since 1996. From 1992 until she joined the Company, Ms. Linder headed the public
relations area of Grand Metropolitan, PLC, a broadly based consumer products
company, as Group Corporate Communications Director.
Robert A. Nielsen serves as Group President. He is President of Aramis Inc.
(including Tommy Hilfiger toiletries) and President of Prescriptives Inc. and
has been the senior executive of those divisions since 1992 and 1995,
respectively. In July 1998, he was appointed President of the Donna Karan
Cosmetics Company. He is also President of Max Huber Research Labs, Inc. which
markets La Mer products. Mr. Nielsen first joined the Company in 1960 and has
been associated with it for three periods since that date.
-22-
<PAGE>
Jeanette S. Wagner is Vice Chairman of the Company. Prior to July 1998, she
was President of Estee Lauder International, Inc., a position she held since
1985. Mrs. Wagner joined the Company in 1975 to head the activity of the Estee
Lauder brand in international markets. Mrs. Wagner is a Director of Tricon
Global Restaurants, Inc. and a member of the Nominating Committee of the New
York Stock Exchange. In 1994, Mrs. Wagner was appointed by President Clinton to
serve on the White House Advisory Committee on Trade Policy and Negotiations,
and she is Chairman Emeritus and a director of the Fragrance Foundation, an
industry group.
Each executive officer serves for a one-year term ending at the next annual
meeting of the Company's Board of Directors, subject to his or her applicable
employment agreement and his or her earlier death, resignation or removal.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
The information required to be included by Items 11 through 13 of Form 10-K will
be included in our Proxy Statement for the 1999 Annual Meeting of Stockholders,
which will be filed within 120 days after the close of our fiscal year ended
June 30, 1999. Such information is incorporated herein by reference to such
Proxy Statement.
-23-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K.
(a) 1, 2. Financial Statements and Schedules - See index on Page F-1.
3. Exhibits -
Exhibit Description
Number
3.1 Form of Restated Certificate of Incorporation (filed as
Exhibit 3.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (No. 33-97180) on
November 13, 1995 (the "S-1")).*
3.2 Form of Amended and Restated By-laws.
10.1 Form of Stockholders' Agreement (filed as Exhibit 10.1 to
the S-1).*
10.1a Amendment No. 1 to Stockholders' Agreement (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996).*
10.1b Amendment No. 2 to Stockholders' Agreement (filed as
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996 (the "FY
1997 Q2 10-Q")).*
10.1c Amendment No. 3 to Stockholder's Agreement (filed as
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (the "FY 1997
Q3 10-Q")).*
10.2 Form of Registration Rights Agreement (filed as Exhibit
10.2 to the S-1).*
10.2a First Amendment to Registration Rights Agreement (filed
as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996).*
10.2b Second Amendment to Registration Rights Agreement (filed
as Exhibit 10.1 to the FY 1997 Q3 10-Q).*
10.3 Fiscal 1996 Share Incentive Plan (filed as Exhibit 10.3
to the S-1).* +
10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c)
to the Company's Registration Statement on Form S-8 (No.
333-66851) on November 5, 1998). * +
10.5 The Estee Lauder Inc. Retirement Growth Account Plan. +
10.6 The Estee Lauder Inc. Retirement Benefits Restoration
Plan. +
10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998).* +
10.8 Employment Agreement with Leonard A. Lauder (filed as
Exhibit 10.7 to the S-1).* +
10.9 Employment Agreement with Ronald S. Lauder (filed as
Exhibit 10.8 to the S-1).* +
10.10 Employment Agreement with Fred H. Langhammer (filed as
Exhibit 10.9 to the S-1).* +
10.11 Employment Agreement with Daniel J. Brestle (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).* +
10.12 Employment Agreement with William P. Lauder (filed as
Exhibit 10.1 to Amendment No. 2 to the Company's
Registration Statement on Form S-3 (No. 333-77977) on May
19, 1999).* +
10.13 Employment Agreement with Patrick Bousquet-Chavanne. +
10.14 Form of Deferred Compensation Agreement with Outside
Directors (filed as Exhibit 10.1 to the FY 1997 Q2
10-Q).*+
21.1 List of significant subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
(b) Registrant filed no reports on Form 8-K during the last quarter of the
period covered by this report.
- ----------
* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or arrangement.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ ROBERT J. BIGLER
---------------------------------
Robert J. Bigler
Senior Vice President
and Chief Financial Officer
Date: September 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title (s) Date
--------- --------- ----
<S> <C> <C>
LEONARD A. LAUDER* Chairman of the Board of September 13, 1999
- ------------------------------------ Directors and Chief
Leonard A. Lauder Executive Officer
(Principal Executive Officer)
RONALD S. LAUDER* Director September 13, 1999
- ------------------------------------
Ronald S. Lauder
WILLIAM P. LAUDER* Director September 13, 1999
- ------------------------------------
William P. Lauder
FRED H. LANGHAMMER* Director September 13, 1999
- ------------------------------------
Fred H. Langhammer
RICHARD D. PARSONS* Director September 13, 1999
- ------------------------------------
Richard D. Parsons
MARSHALL ROSE* Director September 13, 1999
- ------------------------------------
Marshall Rose
P. ROY VAGELOS* Director September 13, 1999
- ------------------------------------
P. Roy Vagelos
FAYE WATTLETON* Director September 13, 1999
- ------------------------------------
Faye Wattleton
/s/ ROBERT J. BIGLER Senior Vice President and September 13, 1999
- ------------------------------------ Chief Financial Officer
Robert J. Bigler (Principal Financial and
Accounting Officer)
</TABLE>
- ----------
* By signing his name hereto, Robert J. Bigler signs this document in the
capacities indicated above and on behalf of the persons indicated above pursuant
to powers of attorney duly executed by such persons and filed herewith.
By /s/ ROBERT J. BIGLER
--------------------------------
Robert J. Bigler
(Attorney-in-Fact)
-25-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Financial Statements:
Report of Independent Public Accountants................................ F-2
Consolidated Statements of Earnings..................................... F-3
Consolidated Balance Sheets............................................. F-4
Consolidated Statements of Stockholders' Equity
and Comprehensive Income.............................................. F-5
Consolidated Statements of Cash Flows................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Financial Statement Schedule:
Report of Independent Public Accountants on Schedule.................... S-1
Schedule II - Valuation and Qualifying Accounts......................... S-2
All other schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes
thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Estee Lauder Companies Inc.:
We have audited the accompanying consolidated balance sheets of The Estee Lauder
Companies Inc. (a Delaware corporation) and subsidiaries as of June 30, 1999 and
1998, and the related consolidated statements of earnings, stockholders' equity
and comprehensive income and cash flows for each of the three years in the
period ended June 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Estee Lauder Companies Inc.
and subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
August 10, 1999
F-2
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------------
1999 1998 1997
---------- --------- ---------
(In millions, except per share data)
<S> <C> <C> <C>
Net Sales..................................................... $3,961.5 $3,618.0 $3,381.6
Cost of sales................................................. 899.9 819.5 765.1
-------- -------- --------
Gross Profit.................................................. 3,061.6 2,798.5 2,616.5
-------- -------- --------
Operating expenses:
Selling, general and administrative....................... 2,572.1 2,357.6 2,224.6
Related party royalties................................... 32.6 31.8 32.8
-------- -------- --------
2,604.7 2,389.4 2,257.4
-------- -------- --------
Operating Income.............................................. 456.9 409.1 359.1
Interest income (expense), net................................ (16.7) (6.3) 3.8
-------- -------- --------
Earnings before Income Taxes and Minority Interest............ 440.2 402.8 362.9
Provision for income taxes ................................... 167.3 161.1 152.4
Minority interest ............................................ - (4.9) (12.9)
-------- -------- --------
Net Earnings.................................................. 272.9 236.8 197.6
Preferred stock dividends..................................... 23.4 23.4 23.4
-------- -------- --------
Net Earnings Attributable to Common Stock .................... $ 249.5 $ 213.4 $ 174.2
======== ======== ========
Net earnings per common share:
Basic..................................................... $ 1.05 $ .90 $ .74
Diluted................................................... $ 1.03 $ .89 $ .73
Weighted average common shares outstanding:
Basic..................................................... 237.0 236.8 235.4
Diluted................................................... 241.2 239.5 237.1
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
-----------------------------
1999 1998
-------- --------
(In millions)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents............................................................ $ 347.5 $ 277.5
Accounts receivable, net............................................................. 533.7 497.8
Inventory and promotional merchandise, net........................................... 513.0 513.2
Prepaid expenses and other current assets............................................ 176.0 166.1
-------- --------
Total current assets............................................................. 1,570.2 1,454.6
-------- --------
Property, Plant and Equipment, net................................................... 383.6 335.8
-------- --------
Other Assets
Investments, at cost or market value................................................. 35.5 27.7
Deferred taxes....................................................................... 63.6 59.6
Goodwill, net........................................................................ 557.9 496.2
Other intangible assets, net......................................................... 50.6 67.1
Other assets, net.................................................................... 85.3 71.8
-------- --------
792.9 722.4
-------- --------
$2,746.7 $2,512.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt...................................................................... $ 6.6 $ 11.5
Accounts payable..................................................................... 223.1 209.1
Accrued income taxes................................................................. 87.6 79.4
Other accrued liabilities............................................................ 544.9 537.4
-------- --------
Total current liabilities........................................................ 862.2 837.4
-------- --------
Noncurrent Liabilities
Long-term debt....................................................................... 422.5 425.0
Other noncurrent liabilities......................................................... 177.5 194.0
-------- --------
600.0 619.0
-------- --------
Commitments and contingencies (Note 15)
$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: 123,936,464 in 1999 and 122,935,868 in 1998: 120,000,000 shares
Class B authorized, shares issued and outstanding: 113,679,334 in 1999 and 1998.. 2.4 2.4
Paid-in capital...................................................................... 211.6 168.6
Retained earnings.................................................................... 766.2 559.6
Accumulated other comprehensive income............................................... (44.3) (34.2)
-------- --------
935.9 696.4
Less: Treasury stock, at cost; 455,306 Class A shares at June 30, 1999............... (11.4) -
-------- --------
924.5 696.4
-------- --------
$2,746.7 $2,512.8
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------------
1999 1998 1997
------ ------ ------
(In millions)
STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Common stock, beginning of year........................................... $ 2.4 $ 2.4 $ 2.4
------ ------ ------
Common stock, end of year................................................. 2.4 2.4 2.4
------ ------ ------
Paid-in capital, beginning of year........................................ 168.6 164.1 120.4
Common stock issued, net of issuance costs................................ - - 38.1
Stock compensation programs............................................... 43.0 4.5 5.6
------ ------ ------
Paid-in capital, end of year.............................................. 211.6 168.6 164.1
------ ------ ------
Retained earnings, beginning of year...................................... 559.6 386.4 252.2
Preferred stock dividends................................................. (23.4) (23.4) (23.4)
Common stock dividends.................................................... (42.0) (40.2) (40.0)
Issuance of treasury stock................................................ (0.9) - -
Net earnings for the year................................................. 272.9 236.8 197.6
------ ------ ------
Retained earnings, end of year............................................ 766.2 559.6 386.4
------ ------ ------
Accumulated other comprehensive income, beginning of year................. (34.2) (5.2) 19.2
Other comprehensive income................................................ (10.1) (29.0) (24.4)
------ ------ ------
Accumulated other comprehensive income, end of year....................... (44.3) (34.2) (5.2)
------ ------ ------
Treasury stock, beginning of year......................................... - - -
Acquisition of treasury stock............................................. (12.7) - -
Issuance of treasury stock................................................ 1.3 - -
------ ------ ------
Treasury stock, end of year............................................... (11.4) - -
------ ------ ------
Total stockholders' equity............................................ $924.5 $696.4 $547.7
====== ====== ======
COMPREHENSIVE INCOME
Net earnings.............................................................. $272.9 $236.8 $197.6
------ ------ ------
Other comprehensive income:
Net unrealized investment gains....................................... 0.3 2.9 -
Translation adjustments............................................... (10.4) (31.9) (24.4)
------ ------ ------
Other comprehensive income............................................ (10.1) (29.0) (24.4)
------ ------ ------
Total comprehensive income............................................ $262.8 $207.8 $173.2
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------
1999 1998 1997
------- ------ -------
(In millions)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings.......................................................... $ 272.9 $ 236.8 $ 197.6
Adjustments to reconcile net earnings to net cash flows provided by
operating activities:
Depreciation and amortization..................................... 99.6 79.8 58.3
Amortization of purchased royalty rights.......................... 17.7 17.7 17.7
Deferred income taxes............................................. (4.2) (12.2) (12.6)
Minority interest................................................. - 4.9 12.9
Non-cash stock compensation....................................... 8.3 - -
Changes in operating assets and liabilities:
Increase in accounts receivable, net.............................. (38.0) (31.9) (56.3)
(Increase) decrease in inventory and promotional merchandise...... - (71.8) 4.4
Increase in other assets.......................................... (39.9) (72.4) (25.5)
Increase (decrease) in accounts payable........................... 14.0 40.7 (5.5)
Increase (decrease) in accrued income taxes....................... 21.2 25.0 (13.9)
Increase in other accrued liabilities............................. 7.8 17.6 47.5
(Decrease) increase in other noncurrent liabilities............... (7.1) 24.0 28.5
------- ------- -------
Net cash flows provided by operating activities................. 352.3 258.2 253.1
------- ------- -------
Cash Flows from Investing Activities
Capital expenditures.................................................. (117.9) (120.6) (82.9)
Acquisition of businesses, net of acquired cash....................... (75.0) (459.9) (46.5)
Purchases of long-term investments.................................... (8.4) (1.8) (1.5)
Proceeds from disposition of long-term investments.................... 1.0 5.1 0.2
------- ------- -------
Net cash flows used for investing activities.................... (200.3) (577.2) (130.7)
------- ------- -------
Cash Flows from Financing Activities
Decrease in short-term debt, net...................................... (5.8) (10.7) (52.7)
Proceeds from long-term debt.......................................... 205.2 431.2 -
Repayments of long-term debt.......................................... (210.9) (21.9) (43.7)
Proceeds from issuance of common stock, net of issuance costs......... - - 38.1
Proceeds from exercise of stock options............................... 14.6 0.2 4.9
Payments to acquire treasury stock.................................... (12.7) - -
Dividends paid........................................................ (63.6) (53.6) (63.4)
------- ------- -------
Net cash flows (used for) provided by financing activities...... (73.2) 345.2 (116.8)
------- ------- -------
Effect of Exchange Rate Changes on Cash and Cash Equivalents.............. (8.8) (4.3) (4.8)
------- ------- -------
Net Increase in Cash and Cash Equivalents................................. 70.0 21.9 0.8
Cash and Cash Equivalents at Beginning of Year............................ 277.5 255.6 254.8
------- ------- -------
Cash and Cash Equivalents at End of Year.................................. $ 347.5 $ 277.5 $ 255.6
======= ======= =======
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest.......................................................... $ 31.2 $ 13.0 $ 7.4
======= ======= =======
Income Taxes...................................................... $ 157.3 $ 145.5 $ 167.9
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
The Estee Lauder Companies Inc. manufactures, markets and sells skin care,
makeup, fragrance and hair care products around the world. Products are marketed
under the following brand names: Estee Lauder, Clinique, Aramis, Prescriptives,
Origins, M.A.C, Bobbi Brown essentials, jane and Aveda. The Estee Lauder
Companies Inc. is also the global licensee of the Tommy Hilfiger and Donna Karan
brands for fragrances and cosmetics.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
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.
Certain amounts in the consolidated financial statements of prior years have
been reclassified to conform to current year presentation for comparative
purposes.
Net Earnings Per Common Share
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") are 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 exclude any
potential dilution. Net earnings per common share amounts assuming dilution
("diluted EPS") are computed by reflecting potential dilution from the exercise
of stock options. Earnings per share amounts for prior-year periods have 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 is as follows:
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------
1999 1998 1997
------ ------ ------
(In millions, except per share data)
<S> <C> <C> <C>
Numerator:
Net earnings........................................................... $272.9 $236.8 $197.6
Preferred stock dividends.............................................. (23.4) (23.4) (23.4)
------ ------ ------
Net earnings attributable to common stock.............................. $249.5 $213.4 $174.2
====== ====== ======
Denominator:
Weighted average common shares outstanding - Basic..................... 237.0 236.8 235.4
Effect of dilutive securities: Stock options........................... 4.2 2.7 1.7
------ ------ ------
Weighted average common shares outstanding - Diluted................... 241.2 239.5 237.1
====== ====== ======
Net earnings per common share:
Basic.................................................................. $ 1.05 $ .90 $ .74
====== ====== ======
Diluted ............................................................... $ 1.03 $ .89 $ .73
====== ====== ======
</TABLE>
F-7
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Split
These consolidated financial statements have been restated to reflect the
effects of a two-for-one common stock split declared April 26, 1999 and
distributed on June 2, 1999 to stockholders of record on May 10, 1999.
Cash and Cash Equivalents
Cash and cash equivalents include $208.5 million and $174.6 million of
short-term time deposits at June 30, 1999 and 1998, respectively. The Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Accounts Receivable
Accounts Receivable is stated net of the allowance for doubtful accounts of
$36.0 million and $43.6 million as of June 30, 1999 and 1998, respectively.
Currency Translation and Transactions
All assets and liabilities of foreign subsidiaries and affiliates are translated
at year-end rates of exchange, while revenue and expenses are translated at
weighted average rates of exchange for the year. Unrealized translation gains or
losses are reported as cumulative translation adjustments through other
comprehensive income. Such adjustments amounted to $10.4 million and $31.9
million of unrealized translation losses in fiscal 1999 and 1998, respectively.
The Company enters into forward foreign exchange contracts and purchases foreign
currency options to hedge foreign currency transactions for periods consistent
with its identified exposures. Accordingly, the Company categorizes these
instruments as entered into for purposes other than trading. Premiums on foreign
currency options are amortized over the option period being hedged.
The accompanying consolidated statements of earnings include net exchange losses
of $1.8 million in fiscal 1999 and gains of $9.1 million and $8.8 million in
fiscal 1998 and 1997, respectively, see Note 9.
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>
June 30
-----------------------------
1999 1998
------- ------
(In millions)
<S> <C> <C>
Inventory and promotional merchandise consists of:
Raw materials....................................... $128.3 $143.6
Work in process..................................... 22.6 26.7
Finished goods...................................... 238.7 227.8
Promotional merchandise............................. 123.4 115.1
------ ------
$513.0 $513.2
====== ======
</TABLE>
F-8
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 those improvements.
<TABLE>
<CAPTION>
June 30
-----------------------------
1999 1998
------- ------
(In millions)
<S> <C> <C>
Land.................................................... $ 13.0 $ 13.0
Buildings and improvements.............................. 129.9 124.0
Machinery and equipment................................. 432.0 385.2
Furniture and fixtures.................................. 71.7 61.2
Leasehold improvements.................................. 153.2 117.3
------ ------
799.8 700.7
Less accumulated depreciation and amortization.......... 416.2 364.9
------ ------
$383.6 $335.8
====== ======
</TABLE>
Goodwill
Goodwill is calculated as the excess of the cost of purchased businesses over
the value of their underlying net assets and is amortized on a straight-line
basis over forty years. Goodwill is net of accumulated amortization of $25.2
million and $11.9 million at June 30, 1999 and 1998, respectively.
Other Intangible Assets
Other intangible assets principally consist of purchased royalty rights and
trademarks. The cost of other intangible assets is amortized on a straight-line
basis over their estimated useful lives. Other intangible assets are reported
net of accumulated amortization of $70.1 million and $50.0 million at June 30,
1999 and 1998, respectively.
Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets in question may not be recoverable. The
adoption of SFAS No. 121 in fiscal 1997 did not have a material effect on the
Company's results of operations, cash flows or financial position.
F-9
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated Other 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. The components of accumulated
other comprehensive income included in the accompanying consolidated balance
sheets consist of the following:
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------
1999 1998 1997
------ ------ ------
(In millions)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of year..................... $ 5.8 $ 2.9 $ 2.9
Increase in unrealized investment gains................................ 0.5 4.8 -
Deferred tax expense................................................... (0.2) (1.9) -
------ ------ ------
Net unrealized investment gains, end of year........................... 6.1 5.8 2.9
------ ------ ------
Cumulative translation adjustments, beginning of year.................. (40.0) (8.1) 16.3
Translation adjustments................................................ (10.4) (31.9) (24.4)
------ ------ ------
Cumulative translation adjustments, end of year........................ (50.4) (40.0) (8.1)
------ ------ ------
Accumulated other comprehensive income................................. ($44.3) ($34.2) ($ 5.2)
====== ====== ======
</TABLE>
Revenue Recognition
Revenues from merchandise sales are recorded at the time the product is shipped
to the customer. The Company reports its sales levels on a net sales basis,
which is computed by deducting from gross sales the amount of actual returns
received and an amount established for anticipated returns.
Advertising and Promotion
Costs associated with advertising are expensed during the year as incurred.
Global advertising and promotional expenses which primarily include television,
radio and print media were $1,100.8 million, $1,027.8 million and $976.2 million
in fiscal 1999, 1998 and 1997, respectively.
Research and Development
Research and development costs, which amounted to $48.0 million, $43.5 million
and $37.7 million in fiscal 1999, 1998 and 1997, respectively, are expensed as
incurred.
F-10
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Related Party Royalties and Trademarks
Under agreements covering the purchase by the Company of trademarks for a
percentage of related sales, royalty payments totaling $14.9 million, $14.1
million and $15.1 million in fiscal 1999, 1998 and 1997, respectively, have been
charged to income. Such payments are made to stockholders of the Company. During
fiscal 1996, the Company purchased a stockholder's rights to receive certain
U.S. royalty payments for $88.5 million, which amount is being amortized over a
five-year period. In fiscal 1999, 1998 and 1997, $17.7 million was amortized as
a charge against income.
Stock Compensation
In fiscal 1997, the Company adopted the provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation", by continuing to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," while providing the required pro forma disclosures as if the fair
value method had been applied, see Note 14.
Concentration of Credit Risk
The Company is a worldwide manufacturer and marketer of skin care, makeup,
fragrance and hair care products. Domestic and international sales are made
primarily to department stores, specialty retailers, perfumeries and pharmacies.
The Company grants credit to all qualified customers, and does not believe it is
exposed significantly to any undue concentration of credit risk.
In fiscal 1999, two department store groups each accounted for 11% of the
Company's net sales. In both fiscal 1998 and 1997, one accounted for 12% and the
other for 10% of the Company's net sales.
Segment Data
In June 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the reporting of operating segments in interim
and annual financial statements, as well as requiring related disclosures about
products and services, geographic areas and major customers. The Company has
adopted SFAS No. 131 for the year ended June 30, 1999 and, as required, has
restated prior years' segment information for comparability, see Note 18.
Adoption of SFAS No. 131 did not affect the Company's consolidated financial
position, net earnings, stockholders' equity or cash flows.
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.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Pursuant to
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133 - an
Amendment of FASB Statement No. 133", SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000 and will not require
retroactive restatement of prior period financial statements. This statement
requires the recognition of all derivative
F-11
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
instruments as either assets or liabilities in the statement of financial
position measured at fair value. Generally, increases or decreases in the fair
value of derivative instruments will be recognized as gains or losses in
earnings in the period of change. If certain conditions are met, where the
derivative instrument has been designated as a fair value hedge, the hedged item
may also be marked to market through earnings thus creating an offset. If the
derivative is designated and qualifies as a cash flow hedge, the changes in fair
value of the derivative instrument may be recorded in comprehensive income.
Based on current analysis, the Company does not expect conversion to SFAS No.
133 to have a material impact on its financial position or results of
operations. However, the statement will likely result in a change in reported
assets and liabilities and may affect comprehensive income.
NOTE 3 -- PUBLIC OFFERINGS
During May and June 1999, members of the Lauder family sold 7,386,000 shares of
Class A Common Stock. The Company did not receive any proceeds from the sale of
these shares.
During June 1998, members of the Lauder family sold 9,271,300 shares of Class A
Common Stock. The Company did not receive any proceeds from the sale of these
shares.
In February 1997, the Company completed a secondary public offering of
16,129,500 shares of Class A Common Stock at an initial offering price of $23.50
per share. Of the 16,129,500 shares of Class A Common Stock offered, 1,699,500
shares were issued and sold by the Company, pursuant to an underwriters'
over-allotment provision, and 14,430,000 shares were sold by members of the
Lauder family.
NOTE 4 -- ACQUISITION OF BUSINESSES
In February 1998, the Company exercised its right to acquire the remaining
equity interest in M.A.C for cash.
In December 1997, the Company acquired for cash the business of Aveda and
certain of its affiliates ("Aveda"), a manufacturer and marketer of plant-based
hair, skin, makeup and body care products. The purchase of Aveda was financed
with proceeds received from borrowings.
In October 1997, the Company acquired Sassaby, Inc. ("Sassaby"), the marketer
and distributor of jane cosmetics for young consumers, for cash and the
assumption of employee stock options. The stock options were valued as of the
date of acquisition and accounted for as part of the consideration given.
The aggregate purchase price for these transactions, which includes acquisition
costs, was approximately $464.4 million and each transaction was accounted for
using the purchase method of accounting. Accordingly, the results of operations
are included in the accompanying consolidated financial statements since the
dates of original acquisition. Pro forma results of operations as if the
Sassaby, Aveda and M.A.C acquisitions had been completed as of July 1, 1996
have not been presented, as the impact on the Company's results of operations
would not have been material.
In October 1995, the Company acquired Bobbi Brown essentials, a line of
professional color makeup and skin care products. The Company financed the
acquisition by issuing short-term notes, which matured in January 1996, and
accounted for the transaction as a purchase. In March 1999, the Company made a
payment to satisfy the earn-out portion of the acquisition.
F-12
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
June 30
---------------------------
1999 1998
------ -----
(In millions)
<S> <C> <C>
Current portion of long-term debt............. $ 5.8 $ 5.0
Other notes payable........................... 0.8 6.5
------ -----
$ 6.6 $11.5
====== =====
</TABLE>
As of June 30, 1999 and 1998, the Company had uncommitted lines of credit in the
amount of $219.1 million and $293.4 million, respectively, of which $218.3
million and $287.0 million was available. Borrowings under these lines during
fiscal 1999 and 1998 carried an average interest rate of 8.3% and 9.2%,
respectively. The monthly average amount outstanding was approximately $12.4
million and $72.1 million and the annualized monthly weighted average interest
rate was approximately 7.5% and 6.8%, during fiscal 1999 and 1998, respectively.
In July 1996, the Company entered into a five-year $400.0 million committed
revolving credit facility, which includes a fee on the total commitment
thereunder payable at an annual rate of .06%. At June 30, 1999 and 1998, the
Company was in compliance with all related financial and other restrictive
covenants, including limitations on indebtedness and liens.
NOTE 6 -- INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------
1999 1998 1997
------- ------- -------
(In millions)
<S> <C> <C> <C>
Current:
Federal................................... $ 88.6 $ 97.7 $ 83.7
Foreign................................... 68.8 60.3 69.5
State and local........................... 14.1 15.3 11.8
------ ------ ------
171.5 173.3 165.0
------ ------ ------
Deferred:
Federal................................... (4.3) (12.9) (10.6)
Foreign................................... 0.9 1.8 0.8
State and local........................... (0.8) (1.1) (2.8)
------ ------ ------
(4.2) (12.2) (12.6)
------ ------ ------
$167.3 $161.1 $152.4
====== ====== ======
</TABLE>
F-13
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the provision for income taxes computed by applying the
statutory federal income tax rate to earnings before income taxes and minority
interest and the actual provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------------------
1999 1998 1997
-------- -------- -------
(In millions)
<S> <C> <C> <C>
Provision for income taxes at statutory rate... $154.1 $141.0 $127.0
Increase (decrease) due to:
State and local income taxes, net of
federal tax benefit..................... 8.6 9.2 5.9
Effect of foreign operations.............. (4.1) (2.7) 7.1
Domestic royalty expense not
deductible for U.S. tax purposes........ 4.0 4.0 4.1
Other nondeductible expenses.............. 2.0 5.9 3.1
Other, net................................ 2.7 3.7 5.2
------ ------ ------
Provision for income taxes..................... $167.3 $161.1 $152.4
====== ====== ======
Effective tax rate............................. 38.0% 40.0% 42.0%
==== ==== ====
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities as of June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- -------
(In millions)
<S> <C> <C>
Deferred tax assets:
Deferred compensation and other payroll related expenses................... $ 45.0 $ 38.2
Inventory obsolescence and other inventory related reserves................ 46.5 43.9
Pension plan reserves...................................................... 20.5 18.3
Postretirement benefit obligations......................................... 17.9 16.3
Various accruals not currently deductible.................................. 40.3 37.7
Net operating loss carryforwards........................................... 6.9 8.6
Other differences between tax and financial statement values............... 7.4 6.3
------ ------
184.5 169.3
Valuation allowance for deferred tax assets................................ (6.9) (8.6)
------ ------
Total deferred tax assets................................................ 177.6 160.7
------ ------
Deferred tax liabilities:
Depreciation............................................................... (27.2) (8.3)
Domestic royalty expense................................................... (4.3) (7.4)
Other differences between tax and financial statement values............... (4.0) (6.9)
------ ------
Total deferred tax liabilities........................................... (35.5) (22.6)
------ ------
Net deferred tax assets................................................ $142.1 $138.1
====== ======
</TABLE>
F-14
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1999 and 1998, the Company had current net deferred tax assets of
$78.5 million which are included in prepaid expenses and other current assets in
the accompanying consolidated balance sheets, and noncurrent net deferred tax
assets of $63.6 million and $59.6 million, respectively.
Federal income and foreign withholding taxes have not been provided on $412.0
million, $398.0 million and $332.0 million of undistributed earnings of
international subsidiaries at June 30, 1999, 1998 and 1997, respectively. The
Company intends to permanently reinvest these earnings in its foreign
operations, except where it is able to repatriate these earnings to the U.S.
without any material incremental tax provision.
As of June 30, 1999 and 1998, certain international subsidiaries had tax loss
carryforwards for local tax purposes of approximately $24.3 million and $28.7
million, respectively. With the exception of $16.0 million of losses with an
indefinite carryforward period as of June 30, 1999, these losses expire at
various dates through fiscal 2010. The gross deferred tax assets recognized in
connection with these tax loss carryforwards have been reduced to the extent to
which benefit has been taken. A full valuation allowance has been provided
against the remaining deferred tax assets relating to tax loss carryforwards.
Earnings before income taxes and minority interest include amounts contributed
by the Company's international operations of $277.2 million, $250.8 million and
$263.5 million for fiscal 1999, 1998 and 1997, respectively.
NOTE 7 -- OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
June 30
---------------------
1999 1998
------ ------
(In millions)
<S> <C> <C>
Advertising and promotional accruals........................ $186.9 $167.0
Employee compensation....................................... 175.9 169.8
Other....................................................... 182.1 200.6
------ ------
$544.9 $537.4
====== ======
</TABLE>
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30
---------------------
1999 1998
------ ------
(In millions)
<S> <C> <C>
Commercial paper with an average interest rate of 5.17%..... $205.2
Unsecured notes payable, due February 1, 2005,
swapped to an effective interest rate of 6.69%............ 200.0 $405.0
2% loan payable, due in installments through 2003........... 23.1 25.0
------ ------
428.3 430.0
Less current maturities..................................... 5.8 5.0
------ ------
$422.5 $425.0
====== ======
</TABLE>
Commercial paper is classified as long-term debt based upon the Company's
positive intent and ability to refinance on a long-term basis.
During fiscal 1998, the Company entered into a 2% loan payable in Japan.
Principal repayments of 350 million yen, approximately $2.9 million at current
rates, will be made semi-annually through 2003.
F-15
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- FINANCIAL INSTRUMENTS
Derivative Financial Instrument Risk
The Company selectively uses a combination of derivative financial instruments
to maintain the value-at-risk inherent in its foreign currency exposures within
acceptable parameters, as determined by senior management. The purpose of this
approach is to reduce the Company's exposure to market risk resulting from
fluctuations in foreign exchange rates. Derivative financial instruments
currently utilized by the Company principally include forward exchange contracts
and purchased foreign currency options. Hedges are executed centrally to
facilitate the netting of offsetting currency exposures, to improve control over
the use of derivative financial instruments and to minimize transaction costs.
The Company does not hold or enter into financial instruments for trading or
speculative purposes.
The Company has a policy of only entering into contracts with counterparties
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. Management believes that risk of
loss is remote and in any event would be immaterial.
Foreign Exchange Risk Management
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. Foreign currency
transactions which do not qualify as hedges are marked to market on a current
basis with associated gains and losses reflected in operating income. 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. Foreign currencies exchanged under these contracts are
principally the Euro, Japanese yen, Swiss franc and U.K. pound.
Deferred unrealized gains and losses from derivative financial instruments are
presented in the following table:
<TABLE>
<CAPTION>
June 30
----------------------------------------------------------------------------------
1999 1998
--------------------------------------- --------------------------------------
Notional Notional
(In millions) Amounts Gains Losses Amounts Gains Losses
----------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Forward exchange contracts $ 191.5 $ 4.4 $ 2.3 $ 237.1 $ 6.0 $ 0.7
Foreign currency options 57.2 0.1 - 77.1 3.0 -
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest Rate Risk Management
The Company has entered 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 swap counterparties are
recorded in interest expense in the period in which they accrue. The related
amounts payable to, or receivable from, the counterparties are included in other
accrued liabilities. At June 30, 1999, the Company had interest rate swap
agreements outstanding with a notional principal amount of $200.0 million.
F-16
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents:
The carrying amount approximates fair value, primarily because of
the short maturity of cash equivalent instruments.
Long-term debt:
The fair value of the Company's long-term debt was estimated based on
the current rates offered to the Company for debt with the same
remaining maturities. Included in such amount is the fair value of the
Company's interest rate swap agreements. Such fair value has been
determined based upon estimated termination costs.
Cumulative redeemable preferred stock: The fair value of the cumulative
redeemable preferred stock is estimated utilizing a cash flow analysis
at a discount rate equal to rates available for debt with terms similar
to the preferred stock.
Foreign currency options and forward exchange contracts: The fair value
of foreign currency options and forward exchange contracts is the
estimated amount the Company would receive or pay to terminate the
agreements.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
June 30
----------------------------------------------------------
1999 1998
-------------------------- ----------------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Nonderivatives
Cash and cash equivalents................................... $347.5 $347.5 $277.5 $277.5
Long-term debt, including current portion................... 428.3 427.3 430.0 437.5
Cumulative redeemable preferred stock....................... 360.0 353.0 360.0 366.0
Derivatives
Foreign currency options.................................... 1.5 1.6 1.5 3.0
Forward exchange contracts.................................. - 2.1 - 5.3
</TABLE>
F-17
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- PENSION, DEFERRED COMPENSATION AND POSTRETIREMENT BENEFIT PLANS
The Company maintains pension plans covering substantially all of its full-time
employees for its U.S. operations and a majority of its international
operations. Most plans provide pension benefits based primarily on years of
service and employees' earnings.
Retirement Growth Account Plan (U.S.)
The Retirement Growth Account Plan is a trust-based, noncontributory defined
benefit pension plan. The Company's funding policy consists of an annual
contribution at a rate that matches pension costs accrued, if any, but is not
less than the ERISA minimum, and is not more than the maximum amount deductible
for income tax purposes.
Restoration Plan (U.S.)
The Company also has an unfunded, nonqualified domestic benefit Restoration Plan
to provide benefits in excess of Internal Revenue Code limitations.
International Pension Plans
The Company maintains International Pension Plans, the most significant of which
are defined benefit pension plans. The Company's funding policies for these
plans are determined by local tax laws and regulations.
Postretirement Benefits
The Company maintains a contributory postretirement benefit plan, which provides
certain medical and dental benefits to eligible employees. Retired employees who
are receiving monthly pension benefits are eligible for participation in the
plan. Contributions required and benefits received by retirees and eligible
family members are dependent on the age of the retiree. It is the Company's
practice to fund these benefits as incurred. Certain of the Company's
international subsidiaries and affiliates have postretirement plans, although
most participants are covered by government-sponsored or administered programs.
The cost of the Company-sponsored programs is not significant.
F-18
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant components of the above mentioned plans as of and for the year
ended June 30 are summarized as follows:
<TABLE>
<CAPTION>
Other than
Pension Plans Pension Plans
---------------------------------------------- -----------------
U.S. International Postretirement
--------------------- -------------------- -----------------
(In millions) 1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.......... $212.6 $177.0 $ 97.3 $87.2 $ 39.0 $ 37.1
Service cost.................................. 9.4 8.6 7.0 5.6 1.8 1.8
Interest cost................................. 14.6 13.6 5.5 5.2 2.3 2.7
Plan participants' contributions.............. - - 2.2 1.1 0.2 0.2
Actuarial loss/(gain)......................... 9.2 28.6 19.3 9.7 (5.2) (1.6)
Foreign currency exchange rate impact......... - - - (7.1) - -
Benefits paid................................. (17.0) (15.2) (7.7) (4.0) (1.2) (1.2)
Plan amendments............................... 0.8 - 2.3 - - -
Other......................................... - - (0.6) (0.4) - -
------ ------ ------ ----- ------ ------
Benefit obligation at end of year................ 229.6 212.6 125.3 97.3 36.9 39.0
------ ------ ------ ----- ------ ------
Change in plan assets:
Fair value of plan assets at beginning of year... 128.2 119.2 98.9 90.0 - -
Actual return on plan assets.................. 10.8 13.8 1.9 12.1 - -
Foreign currency exchange rate impact......... - - 0.1 (7.1) - -
Employer contributions........................ 31.7 10.4 6.9 7.0 1.0 1.0
Plan participants' contributions.............. - - 2.2 1.1 0.2 0.2
Benefits paid from plan assets................ (17.0) (15.2) (7.7) (3.8) (1.2) (1.2)
Other......................................... - - (0.3) (0.4) - -
------ ------ ------ ----- ------ ------
Fair value of plan assets at end of year......... 153.7 128.2 102.0 98.9 - -
------ ------ ------ ----- ------ ------
Funded status.................................... (75.9) (84.4) (23.3) 1.6 (36.9) (39.0)
Unrecognized net actuarial loss/(gain)........... 44.7 35.8 16.8 (8.2) (5.9) (0.7)
Unrecognized prior service cost.................. 4.9 4.4 3.4 1.9 (0.2) (0.3)
Unrecognized net transition (asset)/obligation... (5.8) (7.3) 1.3 1.6 - -
------ ------ ------ ----- ------ ------
Accrued benefit cost............................. ($32.1) ($51.5) ($ 1.8) ($3.1) ($43.0) ($40.0)
====== ====== ====== ===== ====== ======
Amounts recognized in the Balance
Sheets consist of:
Prepaid benefit cost.......................... $ 19.8 $18.1
Accrued benefit liability..................... ($39.1) ($54.9) (22.3) (21.3) ($43.0) ($40.0)
Intangible asset.............................. 5.1 3.4 0.7 0.1 - -
Other......................................... 1.9 - - - - -
------ ------ ------ ----- ------ ------
Net amount recognized......................... ($32.1) ($51.5) ($ 1.8) ($3.1) ($43.0) ($40.0)
====== ====== ====== ===== ====== ======
</TABLE>
F-19
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Other than
Pension Plans Pension Plans
-------------------------------------------------------------- ---------------------------
U.S. International Postretirement
----------------------------- ----------------------------- ---------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions
Pre-retirement discount rate.... 7.50% 6.75% 7.75% 3.0- 3.0- 3.5- 7.50% 6.75% 7.75%
7.50% 12.0% 12.0%
Post-retirement discount rate... 6.50% 6.75% 7.75% - - - - - -
Expected return on assets....... 9.00% 9.00% 9.00% 3.75- 3.75- 3.5- N/A N/A N/A
8.25% 12.0% 12.0%
Rate of compensation increase... 5.50- 4.75- 6.0- 2.0- 2.0- 2.5- N/A N/A N/A
11.50% 10.75% 12.0% 6.5% 9.5% 9.5%
Components of net periodic
benefit cost (In millions)
Service cost, net............... $9.4 $8.6 $7.5 $7.0 $5.6 $7.0 $1.8 $1.8 $1.7
Interest cost................... 14.6 13.6 11.9 5.5 5.2 4.8 2.3 2.7 2.6
Expected return on assets....... (11.6) (9.8) (9.5) (6.1) (5.3) (5.3) - - -
Amortization of:
Transition (asset)/obligation.. (1.4) (1.4) (1.4) 0.3 0.2 0.3 - - -
Prior service cost............. 0.3 0.3 0.3 0.1 0.1 0.1 - - -
Actuarial loss................. 1.0 0.1 - 0.5 - - - - -
----- ----- ---- ---- ---- ---- ---- ---- ----
Net periodic benefit cost....... $12.3 $11.4 $8.8 $7.3 $5.8 $6.9 $4.1 $4.5 $4.3
===== ===== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates for fiscal 1999 would have the following effects:
<TABLE>
<CAPTION>
One-Percentage-Point One-Percentage-Point
(In millions) Increase Decrease
-------------------------- --------------------------
<S> <C> <C>
Effect on total service and interest cost comparison ...... $0.5 ($0.5)
---- ------
Effect on postretirement benefit obligation ............... $3.8 ($3.8)
---- ------
</TABLE>
F-20
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for certain U.S. and international pension plans with accumulated
benefit obligations in excess of the plans' assets at June 30 are as follows:
<TABLE>
<CAPTION>
Other than
Pension Plans Pension Plans
---------------------------------------------------- -------------------------
U.S. International Postretirement
------------------------- ----------------------- ------------------------
(In millions) 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligation............ $46.2 $212.6 $23.8 $18.3 - -
Accumulated benefit obligation.......... 33.6 162.4 19.4 14.8 - -
Fair value of plan assets............... - 128.2 - - - -
</TABLE>
The Retirement Growth Account Plan's fair value of plan assets exceeds the
accumulated benefit obligation as of June 30, 1999. The unfunded Restoration
Plan's accumulated benefit obligation was $33.6 million and $26.9 million as of
June 30, 1999 and 1998, respectively.
Incentive Thrift Plan (U.S.)
The Company's Incentive Thrift Plan ("Thrift Plan") is a contributory defined
contribution plan covering substantially all regular full-time U.S. employees
who have completed one year of service, as defined by the plan document. The
Thrift Plan is subject to the applicable provisions of the Employee Retirement
Income Security Act of 1974 as amended and subsequent pension legislation. The
Company matches a portion of the participant's contributions under a
predetermined formula based on the participant's contribution level and years of
service. The Company's contributions were approximately $4.8 million for the
fiscal year ended June 30, 1999 and $4.6 million and $4.5 million in fiscal 1998
and 1997, respectively.
Deferred Compensation
The Company accrues for deferred compensation and interest thereon and for the
increase in the value of share units pursuant to agreements with certain key
executives. The amounts accrued under these plans were $77.0 million and $61.9
million as of June 30, 1999 and 1998, respectively. The expense for fiscal 1999,
1998 and 1997 was $15.3 million, $11.6 million and $7.8 million, respectively.
NOTE 11 -- POSTEMPLOYMENT BENEFITS OTHER THAN TO RETIREES
The Company provides certain postemployment benefits to eligible former or
inactive employees and their dependents during the period subsequent to
employment but prior to retirement. These benefits include certain disability
and health care coverage and severance benefits. The cost of providing these
benefits was not material to the Company's consolidated financial position or
results of operations.
NOTE 12 -- $6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE
As of June 30, 1999, the Company's authorized capital stock included 23.6
million shares of preferred stock, par value $.01 per share, of which 3.6
million shares are designated as $6.50 Cumulative Redeemable Preferred Stock,
all of which are issued and outstanding. The preferred stock was issued in June
1995 in exchange for nonvoting common stock of the Company owned by The Estee
Lauder 1994 Trust.
Holders of the $6.50 Cumulative Redeemable Preferred Stock are entitled to
receive cumulative cash dividends at a rate of $6.50 per annum per share payable
in quarterly installments. Such dividends have preference over all other
dividends of stock issued by the Company. Shares are subject to mandatory
redemption on June 30, 2005 at a redemption price of $100 per share. Following
such date and so long as such mandatory redemption obligations have not been
discharged in full, no dividends may be paid or declared upon the Class A or
Class B Common Stock, or on any other capital stock ranking junior to or in
parity with
F-21
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such $6.50 Cumulative Redeemable Preferred Stock and no shares of Class A or
Class B Common Stock or such junior or parity stock may be redeemed or acquired
for any consideration by the Company. Under certain circumstances, the Company
may redeem the stock, in whole or in part, prior to the mandatory redemption
date. Holders of such stock may put such shares to the Company at a price of
$100 per share after June 30, 2000 and upon the occurrence of certain
circumstances.
The Company recorded the $6.50 Cumulative Redeemable Preferred Stock at its
redemption value of $360.0 million and charged this amount, net of the par value
of the prior Class B nonvoting Common Stock exchanged, to stockholders' equity
in fiscal 1995.
NOTE 13 -- COMMON STOCK
As of June 30, 1999, the Company's authorized common stock consists of 300
million shares of Class A Common Stock, par value $.01 per share, and 120
million shares of Class B Common Stock, par value $.01 per share. Class B Common
Stock is convertible into Class A Common Stock, in whole or in part, at any time
and from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. Holders
of the Company's Class A Common Stock are entitled to one vote per share and
holders of the Company's Class B Common Stock are entitled to ten votes per
share.
Information about the Company's common stock outstanding is as follows:
Class A Class B
--------- ----------
(Shares in thousands)
Balance at June 30, 1996................ 120,916.4 113,679.3
Common stock issued..................... 1,699.6 -
Share grants............................ 7.4 -
Stock option programs................... 250.0 -
--------- ---------
Balance at June 30, 1997................ 122,873.4 113,679.3
Share grants............................ 1.3 -
Stock option programs................... 61.2 -
---------- ---------
Balance at June 30, 1998................ 122,935.9 113,679.3
Acquisition of treasury stock........... (504.8) -
Share grants............................ 1.0 -
Stock option programs................... 1,049.1 -
--------- ---------
Balance at June 30, 1999................ 123,481.2 113,679.3
========= =========
On September 18, 1998, the Company's Board of Directors authorized a share
repurchase program. The Company has purchased, and may continue to purchase,
over an unspecified period of time, a total of up to eight million shares of
Class A Common Stock in the open market or in privately negotiated transactions,
depending on market conditions and other factors.
NOTE 14 -- STOCK PROGRAMS
The Company has established the Fiscal 1999 Share Incentive Plan and the Fiscal
1996 Share Incentive Plan (collectively, the "Plans") and, additionally, has
made available stock options and share units that were, or will be, granted
pursuant to certain employment agreements. These stock-based compensation
programs are described below.
Total compensation expense attributable to the granting of share units and the
increase in value of existing share units was $8.9 million, $5.5 million and
$3.0 million in fiscal 1999, 1998 and 1997, respectively.
F-22
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share Incentive Plans
The Plans provide for the issuance of 18,450,000 shares to be awarded in the
form of stock options, stock appreciation rights and other stock awards to key
employees and non-employee directors of the Company. As of June 30, 1999,
10,057,000 shares of Class A Common Stock were reserved and are available to be
granted pursuant to the Plans. The exercise period for all stock options
generally may not exceed ten years from the date of grant. Pursuant to the
Plans, stock option awards in respect of 2,303,000 and 1,375,000 shares were
granted in fiscal 1999 and 1998, respectively, and share units in respect of
40,000 shares were granted in fiscal 1999. Generally, these awards become
exercisable at various times through January 2003.
In addition to awards made by the Company, certain outstanding stock options
were assumed as part of the October 1997 acquisition of Sassaby, as discussed in
Note 4. These options were converted into options to acquire an aggregate of
approximately 221,200 shares of the Company's Class A Common Stock carrying an
exercise price corresponding to the value that existed in the Sassaby options.
Approximately 126,600 shares of common stock have been issued upon exercise of
these options, an additional 23,700 were exercisable as of June 30, 1999, and
the remainder become exercisable periodically through June 2001 and will expire
through May 2007.
Executive Employment Agreements
The Executive Employment Agreements provide for the issuance of 11,400,000
shares to be awarded in the form of stock options and other stock awards to
certain key executives. The Company has reserved 2,308,000 shares of its Class A
Common Stock pursuant to such agreements as of June 30, 1999. In accordance with
such employment agreements, stock option awards in respect of 1,650,000,
1,975,000 and 1,975,000 shares were granted in fiscal 1999, 1998 and 1997, and
approximately 48,000, 61,000 and 77,000 share units were granted in fiscal 1999,
1998 and 1997, respectively. The stock options may be exercised in installments
at various times through July 2008, while the share units will be paid out in
shares of Class A Common Stock at a time to be determined by the Company, but no
later than 90 days subsequent to the termination of employment of the executive.
A summary of the Company's stock option programs as of June 30, 1999, 1998 and
1997 and changes during the years then ended, is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
- --------------------------------------------------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....... 12,977.0 $18.20 9,467.0 $15.99 6,263.0 $13.00
Granted at fair value............... 3,953.0 35.34 3,350.0 25.17 3,529.0 21.49
Assumed ............................ - - 221.2 2.91 - -
Exercised........................... (1,049.1) 13.94 (61.2) 3.51 (250.0) 19.65
Cancelled or Expired................ (441.8) 20.83 - - (75.0) 13.00
-------- -------- -------
Outstanding at end of year............. 15,439.1 22.80 12,977.0 18.20 9,467.0 15.99
======== ======== =======
Options exercisable at year-end........ 1,191.8 13.24 61.8 3.84 - -
======== ======== =======
Weighted-average fair value of
options granted during the year..... $ 12.21 $ 8.81 $ 7.31
======== ======== =======
Weighted-average fair value of
options assumed during the year..... $ - $ 18.94 $ -
======== ======== =======
</TABLE>
F-23
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for stock options and
share units granted under these programs. Under APB Opinion No. 25, no
compensation cost is recognized if the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of the
grant. Accordingly, no compensation cost has been recognized. SFAS No. 123,
"Accounting for Stock-Based Compensation," requires the Company to provide pro
forma information regarding net earnings and net earnings per common share as if
compensation cost for the Company's stock option programs had been determined in
accordance with the fair value method prescribed therein.
Had compensation cost for these programs been determined based upon the fair
value at the grant dates consistent with SFAS No. 123, the Company's pro forma
net earnings and net earnings per common share would have been as follows:
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------
1999 1998 1997
-------- ------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net earnings..................................... As reported $272.9 $236.8 $197.6
Pro forma 246.2 219.1 182.3
Net earnings per common share - Basic............ As reported $ 1.05 $ .90 $ .74
Pro forma .94 .83 .68
Net earnings per common share - Diluted.......... As reported $ 1.03 $ .89 $ .73
Pro forma .92 .81 .67
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Expected volatility....................... 27% 26% 23%
Average expected option life.............. 7 years 7 years 7 years
Average risk-free interest rate........... 5.3% 6.3% 6.6%
Dividend yield............................ .75% 1.0% 1.0%
</TABLE>
Summarized information about the Company's stock options outstanding and
exercisable at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------------- -------------------------------
Exercise Average Average Average
Price Range Options (a) Life (b) Price (c) Options (a) Price (c)
- -------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
$2.065 to $3.10.................. 94.6 7.9 $ 2.99 23.7 $ 2.98
$13.00 to $20.813................ 5,116.5 6.4 13.05 1,110.5 13.00
$21.313 to $29.813................ 6,499.0 7.5 23.38 57.6 22.09
$31.875 to $47.625................ 3,729.0 9.2 35.66 - -
-------- -------
$2.065 to $47.625................ 15,439.1 $22.80 1,191.8 $13.24
======== =======
</TABLE>
- ----------------
(a) Shares in thousands.
(b) Weighted average contractual life remaining in years.
(c) Weighted average exercise price.
F-24
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to June 30, 1999, the Company granted options under the terms of the
Plans and executive employment agreements described above to purchase an
additional 4,045,000 shares and 1,650,000 shares, respectively, of the Company's
Class A Common Stock with an exercise price equal to fair market value on the
date of grant. In addition, the Company granted approximately 33,000 share units
to a key executive pursuant to an executive employment agreement.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
Total rental expense included in the accompanying consolidated statements of
earnings was $86.4 million in fiscal 1999, $79.6 million in fiscal 1998 and
$77.3 million in fiscal 1997. At June 30, 1999, the future minimum rental
commitments under long-term operating leases are as follows:
Year Ending June 30 (In millions)
-------------------
2000........................................ $59.5
2001........................................ 50.3
2002........................................ 43.9
2003........................................ 37.7
2004........................................ 34.3
Thereafter.................................. 99.4
------
$325.1
======
The Company is involved in various routine legal proceedings incident to the
ordinary course of its business. In management's opinion the outcome of pending
legal proceedings, separately or in the aggregate, will not have a material
adverse effect on the Company's results of operations or financial condition.
NOTE 16 -- NET UNREALIZED INVESTMENT GAINS
Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," available-for-sale securities are recorded at market value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
component of stockholders' equity until realized. The Company's noncurrent
investments subject to the provisions of SFAS No. 115 are treated as
available-for-sale and, accordingly, the applicable investments have been
adjusted to market value with a corresponding adjustment to net unrealized
investment gains in accumulated other comprehensive income. Unrealized
investment gains (net of deferred taxes) included in other comprehensive income
amounted to $6.1 million and $5.8 million at June 30, 1999 and 1998,
respectively.
NOTE 17 -- STATEMENT OF CASH FLOWS
Supplemental disclosure of significant non-cash transactions
As discussed in Notes 4 and 14, consideration for the October 1997 acquisition
of Sassaby included $4.3 million representing the value of stock options
assumed. Such amount was calculated as the aggregate difference between the
exercise prices of the options and the fair market value of the Sassaby stock on
the date of acquisition.
As a result of stock option exercises, the Company recorded a tax benefit of
$11.8 million for the year ended June 30, 1999.
F-25
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SEGMENT DATA AND RELATED INFORMATION
Reportable operating segments, as defined by SFAS No. 131, include components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker (the "Chief
Executive") in deciding how to allocate resources and in assessing performance.
As a result of the similarities in the manufacturing, marketing and distribution
processes for all of the Company's products, much of the information provided in
the consolidated financial statements is similar to, or the same as, that
reviewed on a regular basis by the Chief Executive.
While the Company's results of operations are also reviewed on a consolidated
basis, the Chief Executive reviews data segmented on a basis that facilitates
comparison to industry statistics. Accordingly, net sales, depreciation and
amortization, and operating income are available with respect to the manufacture
and distribution of skin care, makeup, fragrance, hair care and other products.
These product categories meet the FASB's definition of operating segments and
therefore, additional financial data are provided below. The "Other" segment
includes the sales and related results of ancillary products and services that
do not fit the definition of skin care, makeup, fragrance and hair care.
The Company evaluates segment performance based upon operating income, which
represents earnings before income taxes, minority interest and net interest
income or expense. The accounting policies for each of the reportable segments
are the same as those described in the summary of significant accounting
policies, except for depreciation and amortization charges, which are allocated
primarily, based upon net sales. The assets and liabilities of the Company are
managed centrally and are reported internally in the same manner as the
consolidated financial statements, thus no additional information is produced
for the Chief Executive or included herein.
F-26
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------
1999 1998 1997
-------- --------- --------
(In millions)
<S> <C> <C> <C>
SEGMENT DATA
Net Sales:
Skin Care ................................................ $1,398.8 $1,248.3 $1,291.0
Makeup ................................................... 1,412.8 1,317.7 1,251.7
Fragrance ................................................ 1,048.6 987.6 817.7
Hair Care ................................................ 82.4 52.4 16.5
Other .................................................... 18.9 12.0 4.7
-------- -------- --------
$3,961.5 $3,618.0 $3,381.6
======== ======== ========
Depreciation and amortization:
Skin Care ................................................ $ 29.9 $ 23.7 $ 21.9
Makeup ................................................... 39.2 32.4 22.1
Fragrance ................................................ 23.9 19.6 14.1
Hair Care ................................................ 5.6 3.4 0.2
Other .................................................... 1.0 0.7 -
-------- -------- --------
$ 99.6 $ 79.8 $ 58.3
======== ======== ========
Operating Income:
Skin Care ................................................ $ 205.9 $ 174.3 $ 175.9
Makeup ................................................... 158.2 151.8 143.8
Fragrance ................................................ 79.7 75.5 37.8
Hair Care ................................................ 11.4 8.0 1.6
Other .................................................... 1.7 (0.5) -
-------- -------- --------
456.9 409.1 359.1
Reconciliation:
Interest (expense) income, net ........................ (16.7) (6.3) 3.8
-------- -------- --------
Earnings before Income Taxes and Minority Interest ....... $ 440.2 $ 402.8 $ 362.9
======== ======== ========
GEOGRAPHIC DATA
Net Sales:
The Americas ............................................. $2,397.9 $2,204.7 $1,939.4
Europe, the Middle East & Africa ......................... 1,082.4 960.8 909.3
Asia/Pacific ............................................. 481.2 452.5 532.9
-------- -------- --------
$3,961.5 $3,618.0 $3,381.6
======== ======== ========
Operating Income:
The Americas ............................................. $ 265.0 $ 248.0 $ 189.9
Europe, the Middle East & Africa ......................... 145.5 131.3 122.7
Asia/Pacific ............................................. 46.4 29.8 46.5
-------- -------- --------
$ 456.9 $ 409.1 $ 359.1
======== ======== ========
Total Assets:
The Americas ............................................. $1,954.1 $1,803.9 $1,170.3
Europe, the Middle East & Africa ......................... 587.9 541.2 493.7
Asia/Pacific ............................................. 204.7 167.7 209.1
-------- -------- --------
$2,746.7 $2,512.8 $1,873.1
======== ======== ========
Long-Lived Assets:
The Americas ............................................. $ 304.4 $ 256.2 $ 191.2
Europe, the Middle East & Africa ......................... 69.5 71.0 64.4
Asia/Pacific ............................................. 9.7 8.6 9.4
-------- -------- --------
$ 383.6 $ 335.8 $ 265.0
======== ======== ========
</TABLE>
F-27
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following summarizes the unaudited quarterly operating results of the
Company for the years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
September 30 December 31 March 31 June 30 Total Year
------------ ----------- -------- ------- ----------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Fiscal 1999
Net sales...................... $997.0 $1,091.0 $964.8 $908.7 $3,961.5
Gross profit................... 767.4 841.2 748.7 704.3 3,061.6
Operating income............... 121.6 161.8 90.3 83.2 456.9
Net earnings................... 71.6 97.3 53.6 50.4 272.9
Basic EPS...................... .28 .39 .20 .19 1.05
Diluted EPS.................... .27 .38 .20 .18 1.03
Fiscal 1998
Net sales...................... $900.6 $1,000.9 $871.5 $845.0 $3,618.0
Gross profit................... 696.2 771.6 676.4 654.3 2,798.5
Operating income............... 106.0 144.9 80.8 77.4 409.1
Net earnings................... 61.8 85.3 45.7 44.0 236.8
Basic EPS...................... .24 .34 .17 .16 .90
Diluted EPS.................... .23 .33 .17 .16 .89
</TABLE>
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To The Estee Lauder Companies Inc.:
We have audited, in accordance with generally accepted auditing standards, the
financial statements of The Estee Lauder Companies Inc. and subsidiaries
included in this Annual Report on Form 10-K and have issued our report thereon
dated August 10, 1999. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. This schedule
(Schedule II - Valuation and Qualifying Accounts) is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
New York, New York Arthur Andersen LLP
August 10, 1999
S-1
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended June 30, 1999
(In millions)
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------
(2)
(1) Charged to
Balance Charged to Other Balance
at Beginning Costs and Accounts - Deductions -- at End of
Description of Period Expenses Describe Describe Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves deducted in the balance sheet
from the assets to which they apply:
Allowance for doubtful accounts:
Year ended June 30, 1999.......... $ 43.6 $ 27.8 --- $ 35.4 (a) $ 36.0
====== ====== ====== ======
Year ended June 30, 1998.......... $ 36.4 $ 25.4 --- $ 18.2 (a) $ 43.6
====== ====== ====== ======
Year ended June 30, 1997.......... $ 32.8 $ 23.6 --- $ 20.0 (a) $ 36.4
====== ====== ====== ======
</TABLE>
- ----------
(a) Includes amounts written-off, net of recoveries.
S-2
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Form of Restated Certificate of Incorporation (filed as Exhibit 3.1
to Amendment No. 3 to the Company's Registration Statement on Form
S-1 (No. 33-97180) on November 13, 1995 (the "S-1")).*
3.2 Form of Amended and Restated By-laws.
10.1 Form of Stockholders' Agreement (filed as Exhibit 10.1 to the
S-1).*
10.1a Amendment No. 1 to Stockholders' Agreement (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).*
10.1b Amendment No. 2 to Stockholders' Agreement (filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996 (the "FY 1997 Q2 10-Q")).*
10.1c Amendment No. 3 to Stockholder's Agreement (filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (the "FY 1997 Q3 10-Q")).*
10.2 Form of Registration Rights Agreement (filed as Exhibit 10.2 to the
S-1).*
10.2a First Amendment to Registration Rights Agreement (filed as Exhibit
10.3 to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996).*
10.2b Second Amendment to Registration Rights Agreement (filed as Exhibit
10.1 to the FY 1997 Q3 10-Q).*
10.3 Fiscal 1996 Share Incentive Plan (filed as Exhibit 10.3 to the
S-1).* +
10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c) to the
Company's Registration Statement on Form S-8 (No. 333-66851) on
November 5, 1998). * +
10.5 The Estee Lauder Inc. Retirement Growth Account Plan. +
10.6 The Estee Lauder Inc. Retirement Benefits Restoration Plan. +
10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998).* +
10.8 Employment Agreement with Leonard A. Lauder (filed as Exhibit 10.7
to the S-1).* +
10.9 Employment Agreement with Ronald S. Lauder (filed as Exhibit 10.8
to the S-1).* +
10.10 Employment Agreement with Fred H. Langhammer (filed as Exhibit 10.9
to the S-1).* +
10.11 Employment Agreement with Daniel J. Brestle (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).* +
10.12 Employment Agreement with William P. Lauder (filed as Exhibit 10.1
to Amendment No. 2 to the Company's Registration Statement on Form
S-3 (No. 333-77977) on May 19, 1999).* +
10.13 Employment Agreement with Patrick Bousquet-Chavanne. +
10.14 Form of Deferred Compensation Agreement with Outside Directors
(filed as Exhibit 10.1 to the FY 1997 Q2 10-Q).* +
21.1 List of significant subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
- ----------
* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or arrangement.
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
THE ESTEE LAUDER COMPANIES INC.
(a Delaware corporation)
(As adopted by the Board of Directors
of the Corporation, and effective on September 6, 1999)
ARTICLE I.
OFFICES
SECTION 1. Registered Office. The registered office of The Estee Lauder
Companies Inc. (the "Corporation") in the State of Delaware shall be at 1013
Centre Road, in the City of Wilmington, County of New Castle and its registered
agent at such address shall be Corporation Services Company or such other office
or agent as the Board of Directors of the Corporation (the "Board") shall from
time to time select.
SECTION 2. Other Offices. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meeting. All meetings of the stockholders of the
Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board.
SECTION 2. Annual Meetings. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time,
within or without the State of Delaware, as the Board shall determine.
SECTION 3. Special Meetings. Except as otherwise required by law or the
Restated Certificate of Incorporation of the Corporation (the "Certificate"),
special meetings of the stockholders for any purpose or purposes may be called
by the Chairman of the Board or a majority of the entire Board. Only such
business as is specified in the notice of any special meeting of the
stockholders shall come before such meeting.
1
<PAGE>
SECTION 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy without protesting, prior to
or at the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall sign a written waiver of notice thereof, whether
before or after such meeting. Notice of adjournment of a meeting of stockholders
need not be given if the time and place to which it is adjourned are announced
at such meeting, unless the adjournment is for more than 30 days or, after
adjournment, a new record date is fixed for the adjourned meeting.
SECTION 5. Quorum. Except as otherwise provided by law or by the
Certificate, the holders of a majority of the votes entitled to be cast by the
stockholders entitled to vote generally, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders; provided, however, that in the case of any vote to be taken by
classes, the holders of a majority of the votes entitled to be cast by the
stockholders of a particular class shall constitute a quorum for the transaction
of business by such class. When a quorum is once present it is not broken by the
subsequent withdrawal of any stockholder.
SECTION 6. Adjournments. The chairman of the meeting or the holders of
a majority of the votes entitled to be cast by the stockholders who are present
in person or by proxy may adjourn the meeting from time to time whether or not a
quorum is present. In the event that a quorum does not exist with respect to any
vote to be taken by a particular class, the chairman of the meeting or the
holders of a majority of the votes entitled to be cast by the stockholders of
such class who are present in person or by proxy may adjourn the meeting with
respect to the vote(s) to be taken by such class. At such adjourned meeting at
which a quorum may be present, any business may be transacted which might have
been transacted at the meeting as originally called.
SECTION 7. Order of Business. (a) At each meeting of the stockholders,
the Chairman of the Board or, in the absence of the Chairman of the Board, such
person as shall be selected by the Board shall act as chairman of the meeting.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the Corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof, and the opening
and closing of the voting polls.
(b) At any annual meeting of stockholders, only such business shall be
conducted as shall have been brought before the annual meeting (i) by or at the
direction of the chairman of the meeting, (ii) pursuant to the notice provided
for in Section 4 of this Article II or
2
<PAGE>
(iii) by any stockholder who is a holder of record at the time of the giving of
such notice provided for in this Section 7, who is entitled to vote at the
meeting and who complies with the procedures set forth in this Section 7.
(c) For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation (the "Secretary") and such
business must be a proper matter for stockholder action under the Delaware
General Corporation Law ("DGCL"). To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the date on which the Corporation first mailed its proxy
materials for the preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 60 days after the first anniversary of the
preceding year's annual meeting of stockholders, notice by the stockholder to be
timely must be so delivered not earlier than the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. To be in proper written
form, a stockholder's notice to the Secretary shall set forth in writing as to
each matter the stockholder proposes to bring before the annual meeting: (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address of the stockholder proposing such business and all persons
or entities acting in concert with the stockholder; (iii) the class and number
of shares of the Corporation which are beneficially owned by the stockholder and
all persons or entities acting in concert with such stockholder; and (iv) any
material interest of the stockholder in such business. The foregoing notice
requirements shall be deemed satisfied by a stockholder if the stockholder has
notified the Corporation of his or her intention to present a proposal at an
annual meeting and such stockholder's proposal has been included in a proxy
statement that has been prepared by management of the Corporation to solicit
proxies for such annual meeting; provided, however, that if such stockholder
does not appear or send a qualified representative to present such proposal at
such annual meeting, the Corporation need not present such proposal for a vote
at such meeting, notwithstanding that proxies in respect of such vote may have
been received by the Corporation. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 7. The chairman of an
annual meeting shall, if the facts warrant, determine that business was not
properly brought before the annual meeting in accordance with the provisions of
this Section 7 and, if the chairman should so determine, the chairman shall so
declare to the annual meeting and any such business not properly brought before
the annual meeting shall not be transacted.
SECTION 8. List of Stockholders. It shall be the duty of the Secretary
or other officer who has charge of the stock ledger to prepare and make, at
least 10 days before each meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
such stockholder's name. Such list shall be produced and kept available at the
times and places required by law.
3
<PAGE>
SECTION 9. Voting. (a) Except as otherwise provided by law or by the
Certificate, each stockholder of record of any class or series of capital stock
of the Corporation shall be entitled at each meeting of stockholders to such
number of votes for each share of such stock as may be fixed in the Certificate
or in the resolution or resolutions adopted by the Board providing for the
issuance of such stock, registered in such stockholder's name on the books of
the Corporation:
(i) on the date fixed pursuant to Section 6 of Article VII of
these Bylaws as the record date for the determination of stockholders entitled
to notice of and to vote at such meeting; or
(ii) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which notice of such
meeting is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
(b) Each stockholder entitled to vote at any meeting of stockholders
may authorize not in excess of three persons to act for such stockholder by
proxy. Any such proxy shall be delivered to the secretary of such meeting at or
prior to the time designated for holding such meeting. No such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period.
(c) At each meeting of the stockholders, all corporate actions to be
taken by vote of the stockholders (except as otherwise required by law and
except as otherwise provided in the Certificate or these Bylaws) shall be
authorized by a majority of the votes cast affirmatively or negatively by the
stockholders, and where a separate vote by class is required, a majority of the
votes cast affirmatively or negatively by the stockholders of such class shall
be the act of such class.
(d) Unless required by law or determined by the chairman of the meeting
to be advisable, the vote on any matter, including the election of directors,
need not be by written ballot. In the case of a vote by written ballot, each
ballot shall be signed by the stockholder voting, or by such stockholder's
proxy.
(e) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Certificate, be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
record of the issued and outstanding capital stock of the Corporation having a
majority of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted, and
the writing or writings are filed with the permanent records of the Corporation.
Prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 10. Inspectors. The chairman of the meeting may appoint one or
more inspectors to act at any meeting of stockholders. If appointed, such
inspectors shall perform such duties as shall be required by law and as shall be
specified by the chairman of the meeting. Inspectors need not be stockholders.
No director or nominee for the office of director shall be appointed such
inspector.
4
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by law or by the Certificate directed or required to be exercised or done by the
stockholders.
SECTION 2. Number, Qualification and Election. (a) Except as otherwise
fixed by or pursuant to the provisions of Article IV of the Certificate relating
to the rights of the holders of any class or series of stock having preference
over the common stock of the Corporation as to dividends or upon liquidation,
the number of directors of the Corporation shall be determined from time to time
by the Board by the affirmative vote of directors constituting at least a
majority of the entire Board. The use of the phrase "entire board" herein refers
to the total number of directors which the Corporation would have if there were
no vacancies.
(b) At the first annual meeting of stockholders of the Corporation held
after the consummation of the initial offering and sale by the Corporation of
shares of common stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, the directors, other than those who may be
elected by the holders of shares of any class or series of stock having a
preference over the common stock of the Corporation as to dividends or upon
liquidation pursuant to the terms of Article IV of the Certificate or any
resolution or resolutions providing for the issuance of such stock adopted by
the Board, shall be divided into three classes, designated Class I, Class II and
Class III. Initially, Class I directors shall be elected for a one-year term,
Class II directors for a two-year term, and Class III directors for a three-year
term. At each succeeding annual meeting of the stockholders beginning at the
annual meeting after such first meeting, successors to the class of directors
whose term expires at that meeting shall be elected for a three-year term. Any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected, subject, however, to his or her
prior death, resignation, retirement or removal from office.
(c) Each director shall be at least 18 years of age. Directors need not
be stockholders of the Corporation.
(d) In any election of directors held at a meeting of stockholders, the
persons receiving a plurality of the votes cast by the stockholders entitled to
vote thereon at such meeting who are present or represented by proxy, up to the
number of directors to be elected in such election, shall be deemed elected.
5
<PAGE>
SECTION 3. Notification of Nomination. Subject to the rights of the
holders of any class or series of stock having a preference over the common
stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board or by any stockholder who is a stockholder of
record at the time of giving of the notice of nomination provided for in this
Section 3 of this Article III and who is entitled to vote for the election of
directors. Any stockholder of record entitled to vote for the election of
directors at a meeting may nominate persons for election as directors only if
timely written notice of such stockholder's intent to make such nomination is
given, either by personal delivery or by United States mail, postage prepaid, to
the Secretary. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation (i)
with respect to an election to be held at an annual meeting of stockholders, not
less than 60 days nor more than 90 days prior to the first anniversary of the
date on which the Corporation first mailed its proxy materials for the preceding
year's annual meeting of stockholders; provided, however, that if the date of
the annual meeting is advanced more than 30 days prior to or delayed by more
than 60 days after the first anniversary of the preceding year's annual meeting
of stockholders, notice by the stockholder to be timely must be so delivered not
earlier than the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of directors, not earlier than
the 120th day prior to such special meeting and not later than the close of
business on the later of the 90th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board to be selected at
such meeting. Each such notice shall set forth: (i) the name and address of the
stockholder who intends to make the nomination, of all persons or entities
acting in concert with the stockholder, and of the person or persons to be
nominated; (ii) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (iii)a description of all arrangements or understandings between
the stockholder and each nominee and any other person or entities acting in
concert with the stockholder (naming such person or entities) pursuant to which
the nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each nominee proposed by the stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board; (v) the class and number of shares of
the Corporation that are beneficially owned by the stockholder and all persons
or entities acting in concert with the stockholder; and (vi) the consent of each
nominee to being named in a proxy statement as nominee and to serve as a
director of the Corporation if so elected. Only persons nominated in accordance
with this Section shall be qualified to serve as directors. The chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure. Only such persons who are nominated in
accordance with the procedures set forth in this Section 3 of this Article III
shall be eligible to serve as directors of the Corporation.
Notwithstanding anything in the third sentence of this Section 3 of
Article III to the contrary, in the event that the number of directors to be
elected to the Board is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased Board made
by the Corporation at least 70 days prior to the first anniversary of date on
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which the Corporation first mailed its proxy materials for the preceding year's
annual meeting of stockholders, a stockholder's notice required by these Bylaws
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
For purposes of the Bylaws, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the company
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Securities Exchange Act of 1934, as amended.
SECTION 4. Quorum and Manner of Acting. Except as otherwise provided by
law, the Certificate or these Bylaws, a majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting of the Board,
and, except as so provided, the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. The
chairman of the meeting or a majority of the directors present may adjourn the
meeting to another time and place whether or not a quorum is present. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
SECTION 5. Place of Meeting. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board may from
time to time determine or as shall be specified or fixed in the respective
notice or waivers of notice thereof.
SECTION 6. Regular Meetings. Regular meetings of the Board shall be
held at such times and places as the Chairman of the Board or the Board shall
from time to time by resolution determine. If any day fixed for a regular
meeting shall be a legal holiday under the laws of the place where the meeting
is to be held, the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day.
SECTION 7. Special Meetings. Special meetings of the Board shall be
held whenever called by the Chairman of the Board or by a majority of the
directors then in office.
SECTION 8. Notice of Meetings. Notice of regular meetings of the Board
or of any adjourned meeting thereof need not be given. Notice of each special
meeting of the Board shall be given by overnight delivery service or mailed to
each director, in either case addressed to such director at such director's
residence or usual place of business, at least two days before the day on which
the meeting is to be held or shall be sent to such director at such place by
telegraph or telecopy or be given personally or by telephone, not later than the
day before the meeting is to be held, but notice need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of such notice or who shall attend such meeting other than for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting was not lawfully called or convened. Every such
notice shall state the time and place but need not state the purpose of the
meeting.
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SECTION 9. Organization. At all meetings of the Board, the Chairman, if
any, or if none or in the Chairman's absence or inability to act the President,
or in the President's absence or inability to act any Vice-President who is a
member of the Board of Directors, or in such Vice-President's absence or
inability to act a chairman chosen by the directors, shall preside. The
Secretary of the Corporation shall act as secretary at all meetings of the Board
when present, and, in the Secretary's absence, the presiding officer may appoint
any person to act as secretary.
SECTION 10. Rules and Regulations. The Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate or
these Bylaws for the conduct of its meetings and management of the affairs of
the Corporation as the Board may deem proper.
SECTION 11. Participation in Meeting by Means of Communication
Equipment. Any one or more members of the Board or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
SECTION 12. Action without Meeting. Any action required or permitted to
be taken at any meeting of the Board or any committee thereof may be taken
without a meeting if all of the members of the Board or of any such committee
consent thereto in writing and the writing or writings are filed with the
minutes or proceedings of the Board or of such committee.
SECTION 13. Resignations. Any director of the Corporation may at any
time resign by giving written notice to the Board, the Chairman of the Board,
the President or the Secretary. Such resignation shall take effect at the time
specified therein or, if the time be not specified therein, upon receipt
thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 14. Removal of Directors. Any director (including all members
of the Board) may be removed from office at any time, but only by the
affirmative vote of the holders of at least 75% of the voting power of all of
the shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class; provided,
however, that after the election of directors in accordance with the provisions
of Section 2(b) of this Article III, such removal shall be only for cause. For
the purposes of this Section 14, "cause" shall mean the wilful failure of a
director to substantially perform such director's duties to the Corporation
(other than any such failure resulting from incapacity due to physical or mental
illness) or the wilful engaging by a director in gross misconduct injurious to
the Corporation.
SECTION 15. Vacancies. Except as otherwise required by law and subject
to the rights of the holders of any class or series of stock having a preference
over the common stock of the Corporation as to dividends or upon liquidation,
any vacancy in the Board for any reason and any newly created directorship
resulting by reason of any increase in the number of directors may be filled
only by the Board (and not by the stockholders), by resolution adopted by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a
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quorum (or by a sole remaining director); provided, however, that if not so
filled, any such vacancy shall be filled by the stockholders at the next annual
meeting or at a special meeting called for that purpose. Any director so
appointed shall hold office until the next meeting of stockholders at which
directors of the class for which such director has been chosen are to be elected
and until his or her successor is elected and qualified.
SECTION 16. Compensation. Each director, in consideration of such
person serving as a director, shall be entitled to receive from the Corporation
such amount per annum and such fees for attendance at meetings of the Board or
of committees of the Board, or both, as the Board shall from time to time
determine. In addition, each director shall be entitled to receive from the
Corporation reimbursement for the reasonable expenses incurred by such person in
connection with the performance of such person's duties as a director. Nothing
contained in this Section 16 of this Article III shall preclude any director
from serving the Corporation or any of its subsidiaries in any other capacity
and receiving proper compensation therefor.
SECTION 17. Director Emeritus. The Board may at any meeting duly
convened elect as Director Emeritus any person who has, in the opinion of the
Board, given long and meritorious service as a member of the Board. A Director
Emeritus shall be entitled to attend and participate in any meeting of the
Board; provided, however, that a Director Emeritus shall not be entitled to vote
at any such meeting and shall not be included in the calculation of a quorum at
any such meeting; and provided, further, that notice of any meeting of the Board
shall not be required be given to a Director Emeritus.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Establishment of Committees of the Board of Directors;
Election of Members of Committees of the Board of Directors; Functions of
Committees of the Board of Directors. The Board may, in accordance with and
subject to the DGCL, from time to time establish committees of the Board to
exercise such powers and authorities of the Board, and to perform such other
functions, as the Board may from time to time determine.
SECTION 2. Procedure; Meetings; Quorum. Regular meetings of committees
of the Board, of which no notice shall be necessary, may be held at such times
and places as shall be fixed by resolution adopted by a majority of the members
thereof. Special meetings of any committee of the Board shall be called at the
request of a majority of the members thereof. Notice of each special meeting of
any committee of the Board shall be given by overnight delivery service or
mailed to each member, in either case addressed to such member at such member's
residence or normal place of business, at least two days before the day on which
the meeting is to be held or shall be sent to such members at such place by
telegraph or telecopy or be given personally or by telephone, not later than the
day before the meeting is to be held, but notice need not be given to any member
who shall, either before or after the meeting, submit a signed waiver of such
notice or who shall attend such meeting other than for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting
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was not lawfully called or convened. Any special meeting of any committee of the
Board shall be a legal meeting without any notice thereof having been given, if
all the members thereof shall be present thereat. Notice of any adjourned
meeting of any committee of the Board need not be given. Any committee of the
Board may adopt such rules and regulations not inconsistent with the provisions
of law, the Certificate or these Bylaws for the conduct of its meetings as such
committee of the Board may deem proper. A majority of the members of any
committee of the Board shall constitute a quorum for the transaction of business
at any meeting, and the vote of a majority of the members thereof present at any
meeting at which a quorum is present shall be the act of such committee. Each
committee of the Board shall keep written minutes of its proceedings and shall
report on such proceedings to the Board.
SECTION 3. Action by Written Consent. Any action required or permitted
to be taken at any meeting of any committee of the Board may be taken without a
meeting if all the members of the committee consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the committee.
SECTION 4. Term; Termination. In the event any person shall cease to be
a director of the Corporation, such person shall simultaneously therewith cease
to be a member of any committee appointed by the Board.
ARTICLE V
OFFICERS
SECTION 1. Number; Term of Office. The Board shall elect the officers
of the Corporation, which shall include a President and a Secretary, and may
include, by election or appointment, one of more Vice-Presidents (any one or
more of whom may be given an additional designation of rank, such as "Executive
Vice-President" or "Senior Vice-President," or function), a Treasurer and such
Assistant Secretaries, such Assistant Treasurers and such other officers as the
Board may from time to time deem proper. Each officer shall have such powers and
duties as may be prescribed by these Bylaws and as may be assigned by the Board
or the President. Any two or more offices may be held by the same person except
the offices of President and Secretary; provided, however, that no officer shall
execute, acknowledge or verify any instrument in more than one capacity if such
instrument is required by law, the Certificate or these Bylaws to be executed,
acknowledged or verified by two or more officers. The Board may from time to
time authorize any officer to appoint and remove any such other officers and
agents and to prescribe their powers and duties. The Board may require any
officer or agent to give security for the faithful performance of such person's
duties.
SECTION 2. Term of Office; Removal; Remuneration. Each officer shall
hold office for such term as may be prescribed by the Board and until such
person's successor shall have been chosen and shall qualify, or until such
person's death or resignation, or until such person's removal in the manner
hereinafter provided. Any officer may be removed, either with or without cause,
by the Board.
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SECTION 3. Resignation. Any officer may resign at any time by giving
notice to the Board, the President or the Secretary. Any such resignation shall
take effect at the date of receipt of such notice or at any later date specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term by the Board.
SECTION 5. Chairman of the Board; Powers and Duties. The Chairman of
the Board shall be the Chief Executive Officer of the Corporation. Subject to
the control of the Board, the Chairman of the Board shall supervise and direct
generally all the business and affairs of the Corporation. The Chairman of the
Board shall preside at all meetings of the stockholders and the Board. Any
document may be signed by the Chairman of the Board or any other person who may
be thereunto authorized by the Board or the Chairman of the Board. The Chairman
of the Board may appoint such assistant officers as are deemed necessary.
SECTION 6. President; Chief Executive Officer; Executive Vice
Presidents, Senior Vice Presidents and Vice Presidents; Powers and Duties. The
President shall be the chief operating officer of the Corporation. The Chief
Executive Officer, the President and each Executive Vice President, each Senior
Vice President, and each Vice President shall have such powers and perform such
duties as may be assigned by the Board or the Chairman of the Board. In case of
the absence or disability of the Chairman of the Board or a vacancy in the
office, the President, an Executive Vice President, a Senior Vice President, or
a Vice President designated by the Chairman of the Board or the Board shall
exercise all the powers and perform all the duties of the Chairman of the Board.
The Board may elect one or more persons to be the President and/or Chief
Executive Officer of a division or business unit of the Corporation.
SECTION 7. Secretary and Assistant Secretary; Powers and Duties. The
Secretary shall attend all meetings of the stockholders and the Board and shall
keep the minutes for such meetings in one or more books provided for that
purpose. The Secretary shall be custodian of the corporate records, except those
required to be in the custody of the Treasurer or the Controller, shall keep the
seal of the Corporation, and shall execute and affix the seal of the Corporation
to all documents duly authorized for execution under seal on behalf of the
Corporation, and shall perform all of the duties incident to the office of
Secretary, as well as such other duties as may be assigned by the Chairman of
the Board or the Board.
The Assistant Secretaries shall perform such of the Secretary's duties
as the Secretary shall from time to time direct. In case of the absence or
disability of the Secretary or a vacancy in the office, an Assistant Secretary
designated by the Chairman of the Board or by the Secretary, if the office is
not vacant, shall perform the duties of the Secretary.
SECTION 8. Chief Financial Officer; Powers and Duties. The Chief
Financial Officer shall be responsible for maintaining the financial integrity
of the Corporation, shall prepare the financial plans for the Corporation, and
shall monitor the financial performance of
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the Corporation and its subsidiaries, as well as performing such other duties as
may be assigned by the Chairman of the Board or the Board.
SECTION 9. Treasurer and Assistant Treasurers; Powers and Duties. The
Treasurer shall have care and custody of the funds and securities of the
Corporation, shall deposit such funds in the name and to the credit of the
Corporation with such depositories as the Treasurer shall approve, shall
disburse the funds of the Corporation for proper expenses and dividends, and as
may be ordered by the Board, taking proper vouchers for such disbursements. The
Treasurer shall perform all of the duties incident to the office of Treasurer,
as well as such other duties as may be assigned by the Chairman of the Board or
the Board.
The Assistant Treasurers shall perform such of the Treasurer's duties
as the Treasurer shall from time to time direct. In case of the absence or
disability of the Treasurer or a vacancy in the office, an Assistant Treasurer
designated by the Chairman of the Board or by the Treasurer, if the office is
not vacant, shall perform the duties of the Treasurer.
SECTION 10. General Counsel; Powers and Duties. The General Counsel
shall be a licensed attorney at law and shall be the chief legal officer of the
Corporation. The General Counsel shall have such power and exercise such
authority and provide such counsel to the Corporation as deemed necessary or
desirable to enforce the rights and protect the property and integrity of the
Corporation, shall also have the power, authority, and responsibility for
securing for the Corporation all legal advice, service, and counselling, and
shall perform all of the duties incident to the office of General Counsel, as
well as such other duties as may be assigned by the Chairman of the Board or the
Board.
SECTION 11. Controller and Assistant Controllers; Powers and Duties.
The Controller shall be the chief accounting officer of the Corporation and
shall keep and maintain in good and lawful order all accounts required by law
and shall have sole control over, and ultimate responsibility for, the accounts
and accounting methods of the Corporation and the compliance of the Corporation
with all systems of accounts and accounting regulations prescribed by law. The
Controller shall audit, to such extent and at such times as may be required by
law or as the Controller may think necessary, all accounts and records of
corporate funds or property, by whomsoever kept, and for such purposes shall
have access to all such accounts and records. The Controller shall make and sign
all necessary and proper accounting statements and financial reports of the
Corporation, and shall perform all of the duties incident to the office of
Controller, as well as such other duties as may be assigned by the Chairman of
the Board or the Board.
The Assistant Controllers shall perform such of the Controller's duties
as the Controller shall from time to time direct. In case of the absence or
disability of the Controller or a vacancy in the office, an Assistant Controller
designated by the Chairman of the Board or the Controller, if the office is not
vacant, shall perform the duties of the Controller.
SECTION 12. Salaries. The salaries of all officers of the Corporation
shall be fixed by the Board, or an authorized committee thereof, or in such
manner as the Board, or any authorized committee thereof, shall provide. No
officer shall be disqualified from receiving a salary by reason of also being a
director of the Corporation.
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ARTICLE VI
INDEMNIFICATION
SECTION 1. Scope of Indemnification. (a) Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 3 of this Article VI with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board.
(b) If an indemnitee is not entitled to indemnification with respect to
a portion of any liabilities to which such person may be subject, the
Corporation shall nonetheless indemnify such indemnitee to the maximum extent
for the remaining portion of the liabilities.
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the indemnitee is not entitled to
indemnification.
(d) To the extent permitted by law, the payment of indemnification
provided for by this Article, including the advancement of expenses pursuant to
Section 2 of this Article VI, with respect to proceedings other than those
brought by or in the right of the Corporation, shall be subject to the
conditions that the indemnitee shall give the Corporation prompt notice of any
proceeding, that the Corporation shall have complete charge of the defense of
such proceeding and the right to select counsel for the indemnitee, and that the
indemnitee shall assist and cooperate fully in all matters respecting the
proceeding and its defense or settlement. The Corporation may waive any or all
of the conditions set forth in the preceding sentence. Any such waiver shall be
applicable only to the specific payment for which the waiver is made and shall
not in any way obligate the Corporation to grant such waiver at any future time.
In the event of a conflict of interest between the indemnitee a the indemnitee
under the rules of professional conduct applicable to attorneys, it
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shall be the policy of the Corporation to waive any or all of the foregoing
conditions subject to such limitations or conditions as the Corporation shall
deem to be reasonable in the circumstances.
SECTION 2. Advancing Expenses. The right to indemnification conferred
in Section 1 of this Article VI shall include the right to be paid by the
Corporation the expenses incurred in defending any proceeding for which such
right to indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, an
advancement of expenses incurred by an indemnitee shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. No advance shall be made by the Corporation if a
determination is reasonably and promptly made by a majority vote of
disinterested directors, even if the disinterested directors constitute less
than a quorum, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel in a
written opinion, that, based upon the facts known to the Board or counsel at the
time such determination is made, the indemnitee has acted in such a manner as to
permit or require the denial of indemnification pursuant to the provisions of
Section 1 of this Article VI.
SECTION 3. Right of Indemnitee to Bring Suit. The rights to
indemnification and to the advancement of expenses conferred in Sections 1 and 2
of this Article VI shall be contract rights. If a claim under Sections 1 and 2
of this Article VI is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In any suit brought by (a) the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that the
indemnitee has not met the applicable standard of conduct and (b) the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that the indemnitee has not met any applicable standard for
indemnification set forth in the DGCL. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the DGCL, nor an actual determination by the Corporation (including its board of
directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to
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be indemnified, or to such advancement of expenses, under this Section or
otherwise shall be on the Corporation.
SECTION 4. Non-Exclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Certificate, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 5. Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any indemnitee against any
expenses, judgments, fines and amounts payable as specified in this Article VI,
to the fullest extent permitted by applicable law as then in effect. The
Corporation may enter into contracts with any indemnitee in furtherance of the
provisions of this Article VI and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article VI.
SECTION 6. Effects of Amendments. Neither the amendment or repeal of,
nor the adoption of a provision inconsistent with, any provision of this Article
VI (including, without limitation, this Section 6) shall adversely affect the
rights of any indemnitee under this Article VI with respect to any proceeding
commenced or threatened prior to such amendment, repeal or adoption of an
inconsistent provision.
SECTION 7. Severability. If any provision or provisions of this Article
VI shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article VI (including, without limitation, all portions of
any paragraph of this Article VI containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article VI (including,
without limitation, all portions of any paragraph of this Article VI containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Share Ownership. (a) Holders of shares of stock of each
class of the Corporation shall be recorded on the books of the Corporation and
ownership of such stock shall be evidenced by a certificate or other form as
shall be approved by the Board. Certificates representing shares of stock of
each class shall be signed by, or in the name of, the Corporation by the
Chairman or Vice-Chairman of the Board, or the President or any Vice President
and by the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Corporation, and sealed with the seal of the
Corporation, which may be a facsimile thereof. Any or all such signatures and
the signatures of any transfer agent or registrar may be facsimiles. Although
any
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officer, transfer agent or registrar whose manual or facsimile signature is
affix ed to such a certificate ceases to be such officer, transfer agent or
registrar before such certificate has been issued, the certificate may
nevertheless be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still such at the date of its issue.
(b) The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any officer or agent
designated by the Board.
SECTION 2. Transfer of Shares. Transfers of shares of stock of each
class of the Corporation shall be made only on the books of the Corporation by
the holder thereof, or by such holder's attorney thereunto authorized by a power
of attorney duly executed and filed with the Secretary or a transfer agent for
such stock, if any, and on surrender of the certificate or certificates, if any,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power (or by proper evidence of succession, assignment or authority to
transfer) and the payment of any taxes thereon; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful restriction on
transfer. The person in whose name shares are registered on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation; provided, however, that whenever any transfer of shares shall be
made for collateral security and not absolutely, and written notice thereof
shall be given to the Secretary or to such transfer agent, such fact shall be
stated in the entry of the transfer. No transfer of shares shall be valid as
against the Corporation, its stockholders and creditors for any purpose, until
it shall have been entered in the stock records of the Corporation by an entry
showing from and to whom transferred.
SECTION 3. Registered Stockholders and Addresses of Stockholders. (a)
The Corporation shall be entitled to recognize the exclusive right of a person
registered on its records as the owner of shares of stock to receive dividends
and to vote as such owner, and shall not be bound to recognize any equitable or
other claim to, or interest in, such share or shares of stock on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by applicable law.
(b) Each stockholder shall designate to the Secretary or transfer agent
of the Corporation an address at which notices of meetings and all other
corporate notices may be delivered or mailed to such person, and, if any
stockholder shall fail to designate such address, corporate notices may be
delivered to such person by mail directed to such person at such person's post
office address, if any, as the same appears on the stock record books of the
Corporation or at such person's last known post office address.
SECTION 4. Lost, Stolen, Destroyed and Mutilated Certificates. The
Corporation may issue to any holder of shares of stock the certificate for which
has been lost, stolen, destroyed or mutilated a new certificate or certificates
for shares, upon the surrender of the mutilated certificate or, in the case of
loss, theft or destruction of the certificate, upon satisfactory proof of such
loss, theft or destruction. The Board, or a committee designated thereby, or the
transfer agents and registrars for the stock, may, in their discretion, require
the owner of the lost, stolen or destroyed certificate, or such person's legal
representative, to give the Corporation a bond in such sum and with such surety
or sureties as they may direct to indemnify the Corporation and
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said transfer agents and registrars against any claim that may be made on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 5. Regulations. The Board may make such additional rules and
regulations as it may deem expedient concerning the issue and transfer of
certificates representing shares of stock of each class of the Corporation and
may make such rules and take such action as it may deem expedient concerning the
issue of certificates in lieu of certificates claimed to have been lost,
destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of Stockholders of Record. (a)
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
or any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action. A determination of stockholders entitled to notice of
or to vote at a meeting of the stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board to fix a record
date. The Board shall promptly, but in all events within 10 days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board within 10 days of the date on
which such a request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or any officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board and prior action by the
Board is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the board adopts
the resolution taking such prior action.
SECTION 7. Transfer Agents and Registrars. The Board may appoint, or
authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
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ARTICLE VIII
DIVIDENDS
Subject always to the provisions of law and the Certificate, the Board
shall have full power to determine whether any, and, if any, what part of any,
funds legally available for the payment of dividends shall be declared as
dividends and paid to stockholders; the division of the whole or any part of
such funds of the Corporation shall rest wholly within the lawful discretion of
the Board, and it shall not be required at any time, against such discretion, to
divide or pay any part of such funds among or to the stockholders as dividends
or otherwise; and before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board from time to time, in its absolute discretion, thinks proper as a reserve
or reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for such other purpose as the
Board shall think conducive to the interest of the Corporation, and the Board
may modify or abolish any such reserve in the manner in which it was created.
ARTICLE IX
CORPORATE SEAL
The Board shall provide a corporate seal which shall have inscribed
thereon the name of the Corporation and the year of its incorporation, and shall
be in such form and contain such other words and/or figures as the Board shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing, or causing to be printed,
engraved, lithographed, stamped or otherwise made, placed or affixed, upon any
paper or document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject
to change, by the Board. Unless otherwise fixed by the Board, the fiscal year of
the Corporation shall be the twelve-month period beginning July 1 and ending
June 30.
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ARTICLE XI
WAIVER OF NOTICE
Whenever notice is required to be given by these Bylaws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC.
SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts
as may be authorized by the Board, the primary financial officer or any person
designated by said primary financial officer, whether or not an employee of the
Corporation, may authorize such bank accounts to be opened or maintained in the
name and on behalf of the Corporation as he may deem necessary or appropriate,
payments from such bank accounts to be made upon and according to the check of
the Corporation in accordance with the written instructions of said primary
financial officer, or other person so designated by the Treasurer.
SECTION 2. Contracts. The Board may authorize any person or persons, in
the name and on behalf of the Corporation, to enter into or execute and deliver
any and all deeds, bonds, mortgages, contracts and other obligations or
instruments, and such authority may be general or confined to specific
instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the rights
and powers incident to the ownership of stock by the Corporation. The Chairman,
the President or any other person authorized by proxy or power of attorney
executed and delivered by either of them on behalf of the Corporation may attend
and vote at any meeting of stockholders of any company in which the Corporation
may hold stock, and may exercise on behalf of the Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
or otherwise as specified in the proxy or power of attorney so authorizing any
such person. The Board, from time to time, may confer like powers upon any other
person.
SECTION 4. Financial Reports. The Board may appoint the primary
financial officer or other fiscal officer and/or the Secretary or any other
officer to cause to be prepared and furnished to stockholders entitled thereto
any special financial notice and/or financial statement, as the case may be,
which may be required by any provision of law.
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ARTICLE XIII
AMENDMENTS
The Board shall have the power to adopt, amend or repeal these Bylaws
by the affirmative vote of at least a majority of the members then in office.
The affirmative vote of the holders of not less than seventy-five (75%) of the
voting power of all shares of capital stock of the Corporation then entitled to
vote generally in the election of directors, voting as a single class shall be
required to adopt, amend or repeal these Bylaws (notwithstanding the fact that
approval by a lesser percentage may be permitted by the DGCL).
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THE ESTEE LAUDER INC. RETIREMENT GROWTH ACCOUNT PLAN
TABLE OF CONTENTS
SECTION 1 NAME AND CONSTRUCTION................................................2
SECTION 2 DEFINITIONS..........................................................4
SECTION 3 PARTICIPATION.......................................................12
SECTION 4 RETIREMENT DATES....................................................14
SECTION 5 PARTICIPANTS' RETIREMENT ACCOUNTS...................................15
SECTION 6 CONTRIBUTIONS.......................................................22
SECTION 7 DEATH BENEFIT.......................................................23
SECTION 8 TERMINATION OF EMPLOYMENT...........................................25
SECTION 9 OPTIONAL FORMS OF BENEFIT...........................................27
SECTION 10 PAYMENT OF RETIREMENT INCOME.......................................31
SECTION 11 ADMINISTRATION OF THE PLAN.........................................33
SECTION 12 INVESTMENT OF PLAN ASSETS; DUTIES OF FUDICIARY COMMITTEE...........36
SECTION 13 OBLIGATIONS OF THE EMPLOYER........................................38
SECTION 14 MISCELLANEOUS PROVISIONS...........................................39
SECTION 15 ADOPTION OF PLAN BY MEMBERS OF THE GROUP...........................41
SECTION 16 AMENDMENT AND TERMINATION..........................................43
SECTION 17 LIMITATION ACCORDING TO TREASURY DEPARTMENT REQUIREMENTS...........45
SECTION 18 TOP-HEAVY PLAN PROVISIONS..........................................46
<PAGE>
Exhibit 10.5
AMENDMENT AND RESTATEMENT
OF THE
ESTEE LAUDER INC.
RETIREMENT GROWTH ACCOUNT PLAN
SECTION 1
NAME AND CONSTRUCTION
1.1 Name of Plan. This Plan shall be known as the "Estee
Lauder Inc. Retirement Growth Account Plan."
1.2 Construction. It is the intention of Estee Lauder that the
amended and restated Plan, and its attendant trust fund, will continue to meet
the requirements of ERISA and be qualified and exempt from taxes under Sections
401 and 501 of the Code. Effective January 1, 1996, the Plan also is intended to
be a "multiple employer plan" within the meaning of Section 413(c) of the Code.
The Plan is intended to be a defined benefit plan for purposes of ERISA and the
Code.
1.3 Effective Date.
(a) This Amendment and Restatement of the Plan shall
generally be effective as of January 1, 1999; provided, however, that:
(i) The provisions of Sections 2.12, 2.16,
5.2, 7.1(a), 7.3, 8.4(b), 8.4(c) and 15 (other than Section 15.5) shall
be effective January 1, 1991.
(ii) The provisions of Section 14.10 shall
be effective December 12, 1994.
(iii) The provisions of Sections 2.6, 2.10,
2.15, 2.19, 2.21, 15.5 and 16, and Appendix K, shall be effective
January 1, 1996.
(iv) The provisions of Section 7.1(b) shall
be effective October 1, 1996, and prior to such date the terms and
conditions of such Section are governed by Section 6.1(b) of the Plan
in effect on January 1, 1993.
(v) The provisions of Sections 2.11 and 5.4
shall be effective January 1, 1997.
(vi) The provisions of Appendix L shall be
effective November 10, 1997.
<PAGE>
(vii) The provisions of the last paragraph
of Section 5.5 and Section 8.4(a) shall be effective January 1, 1998.
(viii) The provisions of Appendix A shall be
effective January 1, 1999 (except that those provisions thereof which,
by their terms, are not limited to periods on and after that date,
shall be effective January 1, 1991).
(ix) The changes to such other provisions of
the Plan shall be effective as of such dates as are set forth in such
provisions.
(x) Other provisions of the Plan shall be
effective as of such other earlier or later dates as shall be necessary
to comply with those changes in applicable law which were effective
prior to January 1, 1999.
(b) The rights of any person who terminated
employment or retired on or before the effective date of any of the relevant
provisions of this amendment and restatement of the Plan, including his or her
eligibility for benefits, shall be determined solely under the terms of the Plan
as in effect on the date of his termination or retirement, unless such person is
thereafter reemployed (and, to the extent relevant, again becomes an Active
Participant) on or after the effective date of any such provision of amendment
and restatement, in which case such provision shall apply to such person.
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SECTION 2
DEFINITIONS
"Accrued Benefit" means a monthly amount of retirement income
determined for a Participant as of a specified date, commencing on a
Participant's Normal Retirement Date, and payable as a single life annuity. The
Accrued Benefit as of a specified date equals the Participant's Retirement
Account divided by the applicable factor from Appendix A. For those who were
participants in the Prior Plans as of December 31, 1990 and satisfy the
applicable requirements set forth in Appendix B, the Accrued Benefit is the
greater of the accrued benefit described above or the accrued benefit determined
under the Prior Plans, as described in Section 5.5 hereof.
2.1 "Actuarial Equivalent" means, with respect to a
Participant's Accrued Benefit, another annuity or benefit that commences at a
different date and/or is payable in a different form than the Accrued Benefit,
but which has the same present value as the Accrued Benefit, when measured on
the basis of the applicable interest rate, mortality table and other factors
specified in Appendix A as of the date of commencement of payment of such
annuity or benefit, as calculated by or under the supervision of an actuary
appointed by Estee Lauder or the Fiduciary Committee, which actuary has been
enrolled under Subtitle C of Title III of ERISA.
2.2 "Approved Absence" means (a) any period of absence from
work (other than any such absence on account of a period of Disability), with
the approval or direction of the Employer, for up to 12 months and, provided
said Employee returns to work for the Employer at such time as the Employer may
reasonably require, the Approved Absence may exceed such 12-month period but
will not be in excess of 24 months, (b) any period of absence during which the
Employee was in military service with the armed forces (including Coast Guard
and Merchant Marine Service) if the Employee has reemployment rights under
applicable laws and complies with the requirements of the law as to reemployment
and is reemployed, and (c) any period of Disability, but (except as provided in
the last paragraph of Section 5.5) not to exceed twelve months. An Approved
Absence will be disregarded for the purpose of the Plan, and the Employee will
be regarded as in the service of the Employer during any period of an Approved
Absence.
The Hours of Service credited during an Approved Absence shall
be those which would normally have been credited but for such absence, or in any
case in which the Employer is unable to determine such hours normally credited,
eight (8) Hours of Service per day.
2.3 "Average Final Compensation" means the highest average
annual "compensation" which is produced by averaging an Employee's compensation
for any Five (5) consecutive calendar years within the Employee's Years of
Credited Service. For purposes of this Section only, "compensation" means the
straight time basic salary or wages paid to an Employee by the Employer for his
services during each calendar year, inclusive of salary
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reduction contributions made by an Employer on behalf of the Employee under a
"cash or deferred arrangement" described in Section 401(k) of the Code and
pre-tax contributions made by the Employee under a "cafeteria plan" described in
Section 125 of the Code and maintained by an Employer, but excluding bonuses,
payments for overtime, other Employer contributions for pension, insurance or
other welfare benefits, or any other special payments. Notwithstanding the
foregoing provisions of this Section 2.4, except to the extent otherwise
provided in Section 5.5, "compensation" for each calendar year shall not exceed
$150,000, subject to any adjustment, for Plan Years beginning on or after
January 1, 1994, to reflect increases in the cost of living determined by the
Secretary of the Treasury pursuant to Section 401(a)(17) of the Code.
2.4 "Beneficiary" means any person entitled pursuant to
Section 7.3 of this Plan to receive benefits because of the death of a
Participant.
2.5 "Board of Directors" or "Board" means the Board of
Directors of Estee Lauder.
2.6 "Break in Service" means, with respect to any person, a
Plan Year during which such person does not perform more than 500 Hours of
Service; provided, however, that for purposes of Years of Eligibility Service,
such term shall mean the 12-month period commencing on a person's Employment
Commencement Date or a Plan Year, as the case may be (a "computation period"),
during which such person does not perform more than 500 Hours of Service. A
person who is absent from work for maternity or paternity reasons shall be
credited with the lesser of the number of Hours of Service necessary to prevent
a Break in Service or the number of hours which otherwise would normally have
been credited to such person but for such absence (i) in the computation period
in which the absence begins, if necessary to prevent a Break in Service, and
(ii) in all other cases, in the following computation period. For purposes of
this Section, an absence from work for maternity or paternity reasons means an
absence (i) by reason of the pregnancy of the person, (ii) by reason of the
birth of a child of the person, (iii) by reason of the placement of a child with
the person in connection with the adoption of such child by such person or (iv)
for purposes of caring for such child for a period beginning immediately
following such birth or placement. No person shall incur a Break in Service
solely on account of an absence which qualifies under the Family Medical Leave
Act of 1993, to the extent required under the provisions of such Act.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended.
2.8 "Committee" means The Estee Lauder Inc. Employee Benefits
Committee appointed pursuant to Section 11 hereof.
2.9 "Compensation" means, for a particular Plan Year, the
straight time basic salary or wages paid to an Employee by the Employer for his
services during such Plan Year, inclusive of salary reduction contributions made
by an Employer on behalf of the Employee under a "cash or deferred arrangement"
described in Section 401(k) of the Code, and pre-tax contributions made by the
Employee under a "cafeteria plan" described in Section 125 of the Code and
maintained by the Employer, and including bonuses, payments for overtime and
shift differential, but excluding commissions, other Employer contributions for
pension, insurance or
5
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other welfare benefits, or any other special payments and excluding amounts paid
under Estee Lauder's Short-Term Disability Plan or Long-Term Disability Plan. In
addition to other applicable limitations that may be set forth in the Plan and
notwithstanding any other contrary provision of the Plan, Compensation taken
into account under the Plan for the purpose of calculating a Plan Participant's
Accrued Benefit shall not exceed $200,000 ($150,000 for Plan Years beginning on
or after January 1, 1994), subject to any adjustment to reflect increases in the
cost of living determined by the Secretary or the Treasury pursuant to Section
401(a)(17) of the Code.
2.10 "Disability" means, with respect to any Employee, a
condition which constitutes a disability under the terms of the Employer's
Long-Term Disability Plan and under Title II of the Federal Social Security Act,
regardless of whether such Employee is otherwise in fact entitled to receive
benefits under the Employer's Long-Term Disability Plan and/or Title II of the
Federal Social Security Act.
2.11 "Early Retirement Date" means the first day of the month
which next follows a Participant's termination of employment on or after
attainment of at least age 55 and completion of at least ten (10) Years of
Service, but prior to the Participant's Normal Retirement Date.
2.12 "Effective Date," with respect to the Plan as amended and
restated and set forth herein, means January 1, 1999; provided, however, that
certain provisions of the Plan shall be effective as of the dates set forth in
Section 1.3.
2.13 "Employee" means any person who is classified as a common
law employee of an Employer, in accordance with the Employer's standard
personnel practices; provided, however, that such term shall not include:
(a) a person who is represented by or included in a
collective bargaining unit recognized by the Employer unless the Employer and
the collective bargaining agent have agreed that the Plan shall apply to such
unit;
(b) with respect to periods prior to July 1, 1998, a
In-Store Employee;
(c) a person who would be an In-Store Employee, but
for the fact that such person is classified as an international military sales
person;
(d) a person who is a nonresident alien who receives
no compensation from an Employer which constitutes income from sources within
the United States;
(e) a "leased employee," within the meaning of
Section 414(n) of the Code;
(f) a person who is classified as an "on-call
employee" in accordance with the Employer's standard personnel practices;
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(g) with respect to periods on and after December 1,
1997, a person who is employed by the Aveda Division of Aramis Inc.; or
(h) a person who is otherwise classified by the
Employer as an independent contractor, in accordance with the Employer's
standard personnel practices, regardless of whether such person may thereafter
be held to be a common law employee of an Employer by a court, the Internal
Revenue Service or any other relevant federal, state or local governmental
authority or agency.
2.14 "Employer" means Estee Lauder, and any other company
included within the Group that includes Estee Lauder (or any other corporation
or unincorporated trade or business not included within the Group that includes
Estee Lauder) that adopts the Plan with the approval of Estee Lauder, as
provided in Section 15 hereof, and any successor to any such other company. With
respect to each Employee, "Employer" shall mean his principal employer.
2.15 "Employment Commencement Date" means, with respect to any
person, the date coincident with or next following the date on which such person
first performs an Hour of Service; provided, however, that with respect to a
person who incurs a Break in Service and is thereafter reemployed, such term
shall mean the date subsequent to such Break in Service on which he first
performs an Hour of Service.
2.16 "Entry Date" means each January 1 and July 1; provided,
however, that prior to January 1, 1993, with respect to any person who was a
regular and non-contingent Employee of the Employer, "Entry Date" means the
first date coincident with or next following such person's Employment
Commencement Date.
2.17 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
2.18 "Estee Lauder" means Estee Lauder Inc., a corporation
duly organized under the laws of the State of Delaware, and any successor
thereto.
2.19 "Fiduciary Committee" means the Estee Lauder Inc.
Fiduciary Investment Committee, the members of which shall be appointed by the
Board.
2.20 "Group" means Estee Lauder and any other unit or
organization that is related to Estee Lauder as a member of a "controlled group
of corporations," a group under "common control" or an "affiliated service
group," all as determined pursuant to Sections 414(b), (c), and (m) of the Code.
With respect to a participating Employer which is not in the same Group as Estee
Lauder, "Group" means such Employer and any other unit or organization that is
related to such employer as a member of a "controlled group of corporations," a
group under "common control" or an "affiliated service group," all as determined
pursuant to Sections 414(b), (c) and (m) of the Code. For purposes of
determining whether or not a person is an Employee and the period of employment
of such person, each such unit or organization shall be included in the Group
only for such period or periods during which it is a "member" of the Group.
2.21 "Hour of Service" means:
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(a) Each hour for which an Employee is directly or
indirectly compensated, or entitled to be compensated, by the Employer for the
performance of duties.
(b) Each hour for which an Employee is credited by
the Employer during an Approved Absence.
(c) Each hour, to a maximum of 501 hours for any
single continuous period, for which an Employee is directly or indirectly
compensated, or entitled to be compensated, by the Employer for reasons other
than the performance of duties (irrespective of whether the employment
relationship has terminated) due to vacation, holidays, incapacity, layoff, jury
duty or military duty. Hours shall not be credited for payment to an Employee
from a plan required by workers' compensation, unemployment compensation or
disability insurance laws, nor shall hours be credited for reimbursement of such
an Employee for his medical or medically-related expenses.
(d) Each hour for which back pay, irrespective of
mitigation of damages, has been awarded or agreed to by the Employer provided
that if such award or agreement of back pay is for reasons other than the
performance of duties, such hours shall be subject to the restrictions of
paragraph (c).
The same Hours of Service shall not be credited under more
than one of the paragraphs above. All Hours of Service shall be computed and
credited to computation periods in accordance with Sections 2530.200b-2(b) and
(c) of the Department of Labor regulations; provided, however, that Hours of
Service under paragraph (a) above, with respect to any payroll period, shall be
credited for the Plan Year in which such payroll period ends. In determining an
Employee's Hours of Service, he shall receive credit for all Hours of Service
performed for any corporation or other entity which is a member of the Group;
provided that (a) he shall not be credited with any Hours of Service performed
for any such corporation or other entity prior to the time that such entity
becomes a member of the Group and (b) the number of Hours of Service so credited
with respect to his employment with such entity shall cease at the time such
entity is no longer a member of the Group.
Notwithstanding any of the foregoing requirements of this
definition, an individual employed by the Employer (or by any other member of
the Group which includes the Employer) as a common law employee, but who is not
then classified as an Employee (including, but not limited to, an individual who
was an Employee and thereafter becomes an Inactive Participant on account of a
transfer of employment to a non-Employer member of the Group) shall, except for
purposes of determining Years of Credited Service, nevertheless be credited with
Hours of Service for all periods with respect to which such person is in fact so
employed as a common law employee, to the same extent as if he had been an
Employee.
2.22 "In-Store Employee" means any person who:
(a) is classified by Estee Lauder, or by any other
member of the Group of which Estee Lauder is a part, as a common law employee of
such Employer, under such Employer's standard personnel practices; and
8
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(b) is paid a commission or whose principal function
is making sales directly to the public, other than any such person who is
classified by such Employer, under its standard personnel practices, as an
international military sales person.
2.23 "Initial Effective Date" means January 1, 1991.
2.24 "Normal Retirement Date" means the first day of the month
which next follows a Participant's attainment of at least age 65 and completion
of at least Five (5) Years of Service.
2.25 "Normal Retirement Income" means a Participant's Accrued
Benefit payable hereunder at his Normal Retirement Date in the form provided in
Section 9.1 hereof.
2.26 "Participant" means any person who has become eligible to
participate in the Plan in accordance with Section 3, and who has neither been
paid in full any benefit to which he may be entitled under the Plan nor
completely forfeited such benefit. An "Active Participant" means a Participant
who is an Employee. An "Inactive Participant" means a Participant who is not an
Active Participant.
2.27 "Periodic Adjustment Percentage" means the greater of (i)
the arithmetic daily average of one-year Treasury Constant Maturities for each
calendar year immediately preceding the applicable Plan Year for which it is
applied, as published in the Federal Reserve Statistical Release H.15 (519) of
the Board of Governors of the Federal Reserve System, or (ii) 4%.
2.28 "Plan" means The Estee Lauder Inc. Retirement Growth
Account Plan as effective January 1, 1991, and as it hereafter may be further
amended from time to time.
2.29 "Plan Year" means the calendar year.
2.30 "Prior Plan" means the Estee Lauder Inc. Employee
Retirement Plan, As Amended Effective July 1, 1975 (incorporating all amendments
adopted through December 31, 1990), or the Estee Lauder Hemisphere Corporation
Pension Plan, As Amended and Restated Effective January 1, 1986 (incorporating
all amendments adopted through December 31, 1990), as such plans were in effect
immediately prior to January 1, 1991, whichever plan (if any) is applicable to a
Participant. The terms and provisions of the applicable Prior Plan fix and
determine the rights and obligations under the Plan with respect to any Employee
whose employment terminated prior to January 1, 1991.
2.31 "Retirement Account" means the bookkeeping account
maintained with respect to a Participant as described in Section 5.1 hereof.
2.32 "Retirement Income Commencement Date" means the first day
of the first period for which a benefit under the Plan is paid as an annuity or
any other form.
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2.33 "Social Security Earnings Limit" means the thirty-five
year average of the maximum annual wages covered by the Federal Social Security
Act as in effect, ending in the year Social Security retirement age (as defined
in Section 415(b)(8) of the Code) is attained.
2.34 "Surviving Spouse" means a wife or husband of a
Participant who has been married to such Participant by legal contract
throughout the one-year period ending on the earlier of the death of the
Participant or the Participant's Retirement Income Commencement Date; provided,
however, that such term shall also include a wife or husband who married the
Participant during the one-year period prior to such date and, at the date of
the Participant's death, has been married to the Participant for at least one
(1) year.
2.35 "Trustee" means the trustee or trustees which may at any
time be acting as trustee of the Trust Fund, as provided in Section 12 hereof.
2.36 "Trust Fund" or "Fund" means all funds at any time held
by the Trustee and/or insurance company for the purposes of the Plan, as
provided in Section 12 hereof.
2.37 "Year of Credited Service" means, with respect to any
Participant, a Plan Year during which the Participant completes at least 1,000
Hours of Service as an Employee, commencing on such Participant's Entry Date,
or, if later, January 1, 1993. In the case of a Participant who participated in
the Plan prior to January 1, 1993, Years of Credited Service shall also include
all Years of Credited Service accrued under the Plan as of December 31, 1992;
fractional Years of Credited Service accrued under the Plan as of December 31,
1992 shall be converted to Hours of Service by crediting such Participant, for
the Plan Year commencing on January 1, 1993, with 190 Hours of Service for each
calendar month during which the Participant performed an Hour of Service. In the
case of a Participant who was a participant in a Prior Plan, Years of Credited
Service shall, in addition, include all Credited Service (as defined in the
Prior Plan) recognized under such Prior Plan for benefit accrual purposes as of
December 31, 1990.
2.38 "Year of Eligibility Service" means, with respect to any
person, a consecutive 12-month period beginning on such person's Employment
Commencement Date during which he completes at least 1,000 Hours of Service. If
such person fails to complete at least 1,000 Hours of Service during such
12-month period, then a "Year of Eligibility Service" shall be determined based
on the completion of at least 1,000 Hours of Service in the Plan Year beginning
with or within the 12-month period beginning on such person's Employment
Commencement Date, and then each Plan Year thereafter.
In the case of a Participant who terminates employment and
does not have any nonforfeitable right to his Accrued Benefit, Years of
Eligibility Service before a period of consecutive one-year Breaks in Service
shall not be taken into account if the number of consecutive one-year Breaks in
Service in such period equals or exceeds Five (5). A Participant whose Years of
Eligibility Service are disregarded pursuant to the preceding sentence shall,
upon his reemployment, be treated as newly employed for eligibility purposes. If
a Participant's Years of Service may not thus be disregarded, such Participant
shall again become an Active Participant immediately upon the date he first
performs an Hour of Service as an Employee.
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2.39 "Year of Service" means, with respect to any person, a
Plan Year during which the person completes at least 1,000 Hours of Service
(except as set forth in Section 8.4 hereof (relating to the "rule of parity"))
commencing on the later of January 1, 1993, or
(i) for purposes of Section 5.2 hereof, in
the case of any In-Store Employee who becomes a Participant on July 1,
1998 or in the case of employment by a non-Employer member of the
Group, the Employment Commencement Date,
(ii) for purposes of Section 5.2, in the
case of any Participant not described in the foregoing clause (ii),
such person's Entry Date, and
(iii) for purposes of Section 8 hereof, the
Employment Commencement Date.
In the case of a person who was in the employ of an Employer or other member of
the Group prior to January 1, 1993, Years of Service shall also include all
Years of Service accrued under the Plan as of December 31, 1992; fractional
Years of Service accrued under the Plan as of December 31, 1992 shall be
converted to Hours of Service by crediting such person, for the Plan Year
commencing on January 1, 1993, with 95 Hours of Service for each semi-monthly
period during which the person performed an Hour of Service.
In the case of a person who was a participant in a Prior Plan,
Years of Service shall, in addition, include (i) for purposes of Section 8
hereof, all Service (as defined in the Prior Plan) recognized for purposes of
vesting under such Prior Plan as of December 31, 1990 and (ii) for purposes of
Section 5.2, all Credited Service (as defined in the Prior Plan) recognized
under such Prior Plan for benefit accrual purposes as of December 31, 1990.
The masculine pronoun wherever used herein shall include the
feminine pronoun, and the singular shall include the plural.
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SECTION 3
PARTICIPATION
3.1 Each Employee who was a participant in a Prior Plan
immediately prior to the Initial Effective Date shall become a Participant
herein as of the Initial Effective Date.
3.2 Each person who becomes an Employee on or after the
Initial Effective Date, or who became an Employee prior to that date but was not
a participant in a Prior Plan immediately prior to the Initial Effective Date,
shall become a Participant on the first Entry Date on which such person is an
Employee coincident with or next following his completion of a Year of
Eligibility Service; provided, however, that any person who was an In-Store
Employee on June 30, 1998 and completed at least a Year of Eligibility Service
at any time on or prior to such date shall become a Participant on July 1, 1998
if such person remains an Employee on such date; and further, provided, that, in
the case of any Employee whose Entry Date, determined without regard to any Year
of Eligibility Service requirement, would otherwise have occurred prior to
January 1, 1993, such Employee shall become a Participant as of such Entry Date,
without the need to also complete a Year of Eligibility Service.
3.3 If a person who has been in the employ of an Employer or
another member of the Group as a non-Employee subsequently becomes an Employee,
such Employee shall become a Participant in accordance with Section 3.2 hereof.
3.4 A Participant who has become an Inactive Participant on
account of his ceasing to be an Employee, while remaining employed by a member
of the Group, shall once again become an Active Participant upon the date on
which he first performs an Hour of Service as an Employee following the date he
becomes an Inactive Participant.
3.5 Except as otherwise provided in this Section, benefits
commencing after Normal Retirement Age shall not be less than the Actuarial
Equivalent of the benefits to which the Participant would have been entitled if
such benefits had commenced at Normal Retirement Age. Upon written notification
to a Participant who elects to remain in service pursuant to Section 4.3 hereof,
or to a former retired Participant who returns to the service of an Employer as
a Participant herein, the retirement income payments to which the Participant is
entitled on and after Normal Retirement Age but before he retires (or, in the
case of a former retired Participant, again retires) shall be permanently
forfeited so long as such Participant remains in "section 203(a)(3)(B) service,"
as described in Department of Labor Regulation Section 2530.203-3(c). For this
purpose, a Participant's service shall be deemed "section 203(a)(3)(B) service"
for any month in which he is credited with at least 40 Hours of Service or such
other standard as may be applicable under Section 203(a)(3)(B) of ERISA. In the
case of a Participant whose retirement income commenced to be paid before his
Normal Retirement Date, upon his subsequent retirement, his retirement income
shall be recomputed, based on the amount credited to his
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Retirement Account pursuant to Section 5 hereof and reduced on an actuarial
basis to take account of retirement income payments previously received by him.
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SECTION 4
RETIREMENT DATES
4.1 Except as otherwise provided in this Section 4, each
Participant may retire on his Normal Retirement Date and shall receive the
Normal Retirement Income.
4.2 A Participant may retire on or after his Early Retirement
Date and shall be entitled to receive his Accrued Benefit on or after his
termination of employment in accordance with the provisions of Sections 9 and 10
hereof.
4.3 Any Participant whose employment is continued by the
Employer after the Participant has reached his Normal Retirement Date shall
receive retirement income payments commencing on the first day of the month
following the date of his actual retirement, based on the amount credited to his
Retirement Account at such date.
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SECTION 5
PARTICIPANTS' RETIREMENT ACCOUNTS
5.1 A Retirement Account shall be established and maintained
for each Participant pursuant to this Section 5 (and for certain individuals who
were participants in a Prior Plan) to which credits shall be made in accordance
with the provisions of this Section 5. Except as otherwise provided in Section 5
hereof, an Inactive Participant who was a participant in a Prior Plan before
January 1, 1991 but is not an Active Participant at any time on or after January
1, 1991 shall be credited with an amount equal to his "Accrued Benefit under the
Prior Plan," determined in accordance with Appendix A, but a Retirement Account
shall not be established for such Inactive Participant. Except as otherwise
provided in Section 5.5 and 5.6 hereof, a Participant's Accrued Benefit under
this Plan shall be based on the amount credited to his Retirement Account. The
Retirement Account established and maintained pursuant to this Section 5 is
intended to be a bookkeeping account. Neither the establishment of such
Retirement Account nor the making of credits to such Retirement Account shall be
construed as an allocation of assets of the Plan to, or a segregation of such
assets in, such account, or otherwise as creating a right of the Participant to
receive specific assets of the Plan. Benefits provided under the Plan shall be
paid from the general assets of the Plan in the amounts, in the forms and at the
times provided in Sections 4, 8, 9 and 10 hereof.
5.2 The annual amount credited to a Participant's Retirement
Account pursuant to this Section shall be based upon the Participant's Years of
Service and the Participant's Compensation for the applicable Plan Year or
portion thereof. Credits pursuant to this Section shall be made to a
Participant's Retirement Account as of the last day of each Plan Year beginning
with 1991 and ending with the last day of the month in which occurs the
Participant's termination of employment.
(a) For each Participant who has fewer than Five (5)
Years of Service as of the last day of the Plan Year, credits shall be made to
the Participant's Retirement Account in an amount equal to three percent (3%) of
the Participant's Compensation earned while an Active Participant for such Plan
Year.
(b) For each Participant who has Five (5) Years of
Service as of the last day of the Plan Year, credits shall be made to the
Participant's Retirement Account in an amount equal to the sum of (i) three
percent (3%) of the Participant's Compensation earned while an Active
Participant for such Plan Year multiplied by a fraction, the numerator of which
is the number of whole calendar months in such Plan Year while an Active
Participant preceding the anniversary of his Entry Date ("Anniversary Date") and
the denominator of which is the number of whole months in such Plan Year while
an Active Participant, and (ii) four percent (4%) of the Participant's
Compensation earned while an Active Participant for such Plan Year multiplied by
a fraction, the numerator of which is the number of whole calendar months in
such Plan Year while an Active Participant following the Anniversary Date
(including the calendar month in
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which the Anniversary Date occurs) and the denominator of which is the number of
whole months in such Plan Year while an Active Participant.
(c) For each Participant who has more than Five (5)
but fewer than ten (10) Years of Service as of the last day of the Plan Year,
credits shall be made to the Participant's Retirement Account in an amount equal
to four percent (4%) of the Participant's Compensation earned while an Active
Participant for such Plan Year.
(d) For each Participant who has ten (10) Years of
Service as of the last day of the Plan Year, credits shall be made to the
Participant's Retirement Account in an amount equal to the sum of (i) four
percent (4%) of the Participant's Compensation earned while an Active
Participant for such Plan Year multiplied by a fraction, the numerator of which
is the number of whole calendar months in such Plan Year while an Active
Participant preceding the Anniversary Date and the denominator of which is the
number of whole months in such Plan Year while an Active Participant, and (ii)
five percent (5%) of the Participant's Compensation earned while an Active
Participant for such Plan Year multiplied by a fraction, the numerator of which
is the number of whole calendar months in such Plan Year while an Active
Participant following the Anniversary Date (including the calendar month in
which the Anniversary Date occurs) and the denominator of which is the number of
whole months in such Plan Year while an Active Participant.
(e) For each Participant who has more than ten (10)
Years of Service as of the last day of the Plan Year, credits shall be made to
the Participant's Retirement Account in an amount equal to five percent (5%) of
the Participant's Compensation earned while an Active Participant for such Plan
Year.
No credits shall be made pursuant to this Section with respect
to any period during which a Participant is an Inactive Participant. In the
event that a Participant becomes an Inactive Participant by reason of his
transfer of employment to a non-Employer member of the Group, no credits shall
be made to his Retirement Account pursuant to this Section after the end of the
month in which the transfer occurs, and for purposes of this Section his
Compensation shall be considered to be $0 after the end of the Plan Year in
which the transfer occurs until such time that he again performs an Hour of
Service as an Employee (i.e., again becomes an Active Participant); provided,
however, that such Participant's Retirement Account balance shall continue to be
increased in accordance with Section 5.4 hereof following such transfer.
5.3 In the case of an Active Participant in the Plan who as of
the Initial Effective Date had an accrued benefit under a Prior Plan as of
December 31, 1990, there shall be credited to the Retirement Account of such
Participant as of January 1, 1991, an amount that is the single sum value of his
"Accrued Benefit under the Prior Plan," determined in accordance with Appendix
A.
5.4 For Plan Years beginning on or after the Initial Effective
Date, each Participant's Retirement Account balance on the first day of the Plan
Year shall be automatically increased as of the last day of the Plan Year by an
amount equal to the Retirement Account balance on the first day of the Plan Year
multiplied by the Periodic Adjustment Percentage;
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provided, however, in the case of a Participant who terminates employment, for
any reason, such increase shall continue to be made until the last date as of
which a Retirement Account balance is maintained for such Participant; further
provided, however, if such increase is for less than a full Plan Year, the
Periodic Adjustment Percentage shall be proportionately reduced.
5.5 In the case of any Participant on or after the Initial
Effective Date who was a Participant under a Prior Plan on December 31, 1990 and
satisfies the applicable requirements set forth in Appendix B, such
Participant's Accrued Benefit shall be the greater of (ii) the amount credited
to his Retirement Account or (ii) the accrued benefit which would have been
determined for him under the terms and provisions of the Prior Plan as in effect
immediately prior to the Initial Effective Date, had such Prior Plan continued
in effect until the date of his termination of employment. For this purpose, in
the case of the Prior Plan which is the Estee Lauder Inc. Employee Retirement
Plan, the annual amount of the Participant's Normal Retirement Income is equal
to the greater of (a), (b), (c) or (d) below:
(a) One percent (1%) of that portion of his Average
Final Compensation which is not in excess of his Social Security Earnings Limit
plus one and one-half percent (1-1/2%) of that portion of such Average Final
Compensation which is in excess of such Social Security Earnings Limit,
multiplied by the number of his Years of Credited Service.
(b) $2,500 with 25 or more Years of Credited Service
and reduced proportionately for Years of Credited Service less than 25.
(c) The amount which would otherwise have been
determined under (a) above had such Participant terminated employment on
December 31, 1988, calculated without regard to any dollar limitations on the
amount of "Average Final Compensation" otherwise taken into account under the
Estee Lauder Inc. Employee Retirement Plan as then in effect.
(d) The amount which would otherwise have been
determined under (a) above had such Participant terminated employment on
December 31, 1993 (or, if earlier, his actual date of termination of employment)
and had such Participant's "compensation" (as used in Section 1.4) for each Plan
Year during the period ending on such applicable date been limited to $200,000
(or such greater amount as may have been permitted after taking into account
increases for cost of living for such Plan Year, as determined by the Secretary
of the Treasury) and with such dollar limit further applied by taking into
account the family aggregation rules of Section 414(q)(6) of the Code pursuant
to Section 401(a)(17) of the Code (as in effect on such applicable date).
In the case of the Estee Lauder Hemisphere Corporation Pension
Plan, the annual amount of the Participant's Normal Retirement Income would be
equal to the greater of (a), (b), (c) or (d) below:
(a) One percent (1%) of that portion of his Average
Final Compensation which is not in excess of his Social Security Earnings Limit
plus one and one-half percent (1-1/2%) of that portion of such Average Final
Compensation which is in excess of such Social Security Earnings Limited,
multiplied by the number of his Years of Credited Service.
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(b) $1,620 with 25 or more Years of Credited Service
and reduced proportionately for Years of Credited Service less than 25.
(c) The amount which would otherwise have been
determined under (a) above had such Participant terminated employment on
December 31, 1988 and calculated without regard to any dollar limitations on the
amount of "Average Final Compensation" otherwise taken into account under the
Estee Lauder Hemisphere Corporation Pension Plan as then in effect.
(d) The amount which would otherwise have been
determined under (a) above had such Participant terminated employment on
December 31, 1993 (or, if earlier, his actual date of termination of employment)
and had such Participant's "compensation" (as used in Section 1.4) for each Plan
Year during the period ending on such applicable date been limited to $200,000
(or such greater amount as may have been permitted after taking into account
increases for cost of living for such Plan Year, as determined by the Secretary
of the Treasury) and with such dollar limit further applied by taking into
account the family aggregation rules of Section 14(q)(6) of the Code pursuant to
Section 401(a)(17) of the Code (as in effect on such applicable date).
In the case of a Participant whose Accrued Benefit is
determined under the terms of a Prior Plan under this Section, a Participant
may, subject to consent as provided in Sections 9.4 and 9.5 hereof, elect a
reduced retirement income to commence on the first day of any month which is
between the date of his Early Retirement Date and his Normal Retirement Date.
In the case of the Estee Lauder Inc. Employee Retirement Plan,
the amount of the percentage of such reduction shall be equal to the sum of (a)
the product derived by multiplying 7/12ths of one percent (1%) times the number
of whole calendar months by which the pension commencement date precedes the
Participant's attainment of age 57 and (b) the product derived by multiplying
5/12ths of one percent (1%) by the excess of (i) the number of whole calendar
months by which the pension commencement date precedes the Participant's
attainment of age 62 over (ii) the number of whole calendar months specified in
(a). No reduction shall be applied to such early retirement income amount if the
pension commencement date occurs on or after the Participant's attainment of age
62.
In the case of the Estee Lauder Inc. Hemisphere Corporation
Pension Plan, the amount of the percentage of such reduction shall be equal to
the sum of (a) the product derived by multiplying 1/4 of one percent (1%) times
the number of whole calendar months (up to and including the first 60 thereof)
by which the pension commencement date precedes the Normal Retirement Date and
(b) the product derived by multiplying 1/2 of one percent (1%) by the number of
calendar months, if any, by which the pension commencement date precedes by more
than 60 calendar months the Normal Retirement Date.
Notwithstanding any other provision of the Plan to the
contrary:
(a) in the case of any Participant who is eligible
for a benefit set forth in this Section 5.5 and incurs a Disability prior to
January 1, 1998, such Participant (i) shall continue to be credited with Hours
of Service during the period of such Disability, to the same extent as if such
person
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had not become so disabled, for purposes of determining such person's Years of
Credited Service used in calculating such person's benefit pursuant to this
Section 5.5, and (ii) shall, during the portion of such Participant's period of
such Disability beginning on January 1st of the year following the year in which
such period of Disability first commenced, be considered to continue to receive
"compensation" for purposes of determining such person's Average Final
Compensation, based upon such person's level of "base pay" as in effect
immediately prior to the incurring of such Disability, and
(b) in the case of any Participant who is eligible
for a benefit set forth in this Section 5.5 and incurs a Disability on or after
January 1, 1998, such Participant (i) shall continue to be credited with Hours
of Service during a period not exceeding the first twelve months of such
Disability, to the same extent as if such person had not become so disabled, for
purposes of determining such person's Years of Credited Service used in
calculating such person's benefit pursuant to this Section 5.5, and (ii) shall,
during that portion (if any) of such Participant's period of such Disability
beginning on January 1st of the year following the year in which such period of
Disability first commenced during which such Participant continues to be so
credited with Hours of Service pursuant to the immediately preceding clause (i),
be considered to continue to receive "compensation" for purposes of determining
such person's Average Final Compensation, based upon such person's level of
"base pay" as in effect immediately prior to the incurring of such Disability;
provided, however, that in no event shall such person continue to be so credited
with Hours of Service or be imputed with "compensation" for periods after such
person's Normal Retirement Date.
5.6 Notwithstanding anything to the contrary provided herein
or elsewhere in the Plan, any Participant who retires on or after his Normal
Retirement Date with at least Five (5) Years of Credited Service but less than
ten (10) Years of Credited Service shall be entitled to a Normal Retirement
Income of not less than $100 per month for life, and any Participant who retires
on or after his Normal Retirement Date with at least ten (10) Years of Credited
Service shall be entitled to a Normal Retirement Income of not less than $200
per month for life.
5.7 The benefits otherwise payable to a Participant or a
Beneficiary under this Plan and, where relevant, the Accrued Benefit of a
Participant, shall be limited to the extent required, and only to the extent
required, by the provisions of Section 415 of the Code and rulings, notices and
regulations issued thereunder. To the extent applicable, Section 415 of the Code
and rulings, notices and regulations issued thereunder are hereby incorporated
by reference into this Plan. In calculating these limits, the following rules
shall apply:
(a) Except where otherwise specifically set forth in
rulings, notices and regulations incorporated into this Plan by reference, the
limitations applicable to alternative forms of benefits (other than a "qualified
joint and survivor annuity," as defined in Section 417(b) of the Code) shall be
determined using the factors set forth in Appendix A.
(b) If the applicable limits of Section 415 of the
Code are increased after a benefit is in pay status by virtue of an adjustment
to those limits reflecting a change in the cost of
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living index, benefit payments to a Participant or his Beneficiary shall be
increased automatically to the maximum extent permitted under the revised
limits. This increase shall occur only to the extent it would not cause the
benefit to exceed the benefit to which the Participant or Beneficiary would have
been entitled in the absence of the limits under Section 415 of the Code.
(c) If, upon the death of a Participant whose
benefits were limited under this Section, the Surviving Spouse shall be entitled
to a benefit payment smaller than that which was payable while the Participant
was alive, the benefit payments to the Surviving Spouse shall equal the lesser
of:
(i) the benefit payment which would be
payable to the Surviving Spouse if benefits under this Plan had not
been limited by this Section, and
(ii) the benefit payment which would be
payable to the Surviving Spouse if the benefit provided under this Plan
had been a "qualified joint and survivor annuity," as defined in
Section 417(b) of the Code, with survivor benefits equal to 100% of the
amount payable while the Participant was alive, in an amount equal to
the maximum limitations provided under this Section.
(d) If the Participant is, or ever has been, covered
under one or more qualified defined contribution plans maintained by the
Employer or another member of the Group, the combined plan limits of Section
415(e) of the Code shall be calculated by reducing the limits applicable to this
Plan first, prior to restricting annual additions to any such defined
contribution plan; provided, however, that this paragraph (d) shall apply only
with respect to Plan Years commencing prior to January 1, 2000. Notwithstanding
the foregoing, or any other provision of this Plan to the contrary, the benefits
otherwise payable to (or on account of) any Participant on or after January 1,
2,000 (including any Participant who is already receiving an annuity under the
Plan prior to that date) shall, to the maximum extent permitted by the Code, be
determined by disregarding any limit which may have been previously imposed on
such person's benefits under this Plan pursuant to the provisions of the
preceding sentence; provided, however, that there shall be no adjustment in the
benefits otherwise paid to such person with respect to periods prior to January
1, 2,000; and, further provided, that this sentence shall not apply with respect
to any person who has, prior to January 1, 2000, received a lump sum
distribution under the Plan.
(e) If the Participant is entitled to a benefit under
any defined benefit plan which is, or ever has been, maintained by the Employer
or another member of the Group, the limits under this Section shall be applied
to the combined benefits payable and the benefit payable hereunder shall be
reduced to the extent necessary to make the combined benefits meet the limits
under this Section.
(f) To calculate average compensation for a
Participant's high-three years of service, compensation shall be the Employee's
Compensation, and the three-year average shall be calculated using consecutive
limitation years. A limitation year shall be a Plan Year for purposes of this
Section.
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(g) The amendments to Section 415(b) of the Code made
by Public Law 103-465 (as modified by Public Law 104-188) shall first be
effective January 1, 1999.
5.8 Notwithstanding any other provision of the Plan to the
contrary, the Accrued Benefit of an Inactive Participant who (i) was a
participant in a Prior Plan and (ii) had a condition of Disability as of
December 30, 1990, shall continue to be determined under the benefit formula of
such Prior Plan, unless such Inactive Participant is eligible for the benefit
set forth in Section 5.5 hereof. A Participant who first has a condition of
Disability on or after January 1, 1991 shall be covered under the benefit
formula of this Plan as of the Initial Effective Date unless such Participant is
eligible for the benefit set forth in Section 5.5 hereof. For purposes of
determining the opening Retirement Account balance under this Plan, Average
Final Compensation shall be used, except that with respect to any year in which
there were no earnings or earnings were reduced because of Disability, such
Participant's last year of actual base pay shall be used on an annualized basis.
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SECTION 6
CONTRIBUTIONS
6.1 No contributions are to be made by Participants under this
Plan.
6.2 Subject to the provisions of Section 13 hereof, the
Employer intends to contribute over a period of time such amounts as may be
determined by actuarial calculations to be required of the Employer to provide
benefits in accordance with the Plan. Any forfeitures arising under the Plan
shall not be applied to increase the benefits any Participant would otherwise
receive under the Plan but shall be applied to reduce the Employer contributions
under the Plan.
6.3 Subject to the provisions of Section 13 hereof, the
administrative expenses of the Plan, except to the extent paid by the Employer,
shall be paid out of the funds of the Plan.
6.4 Except as provided in paragraphs (a) and (b) below, and
except as provided in Section 16 hereof, Employer contributions made under the
Plan will be held for the exclusive benefit of Participants, and their joint
annuitants or Beneficiaries and may not revert to the Employer.
(a) A contribution made by the Employer under a
mistake of fact may be returned to the Employer within one (1) year after it is
contributed to the Plan.
(b) A contribution conditioned upon its deductibility
under Section 404 of the Code may be returned, to the extent the deduction is
disallowed, to the Employer within one (1) year after the disallowance.
The maximum contribution that may be returned to the Employer will not exceed
the amount actually contributed to the Plan, or the value of such contribution
on the date it is returned to the Employer, if less.
6.5 In recognition of the fact that the Plan is, effective
January 1, 1996, subject to the requirements of Section 413(c) of the Code, the
provisions of Section 413(c)(4) of the Code shall, with respect to periods on
and after that date, be applied consistent with such rules and procedures as
shall be adopted by the actuary appointed under the Plan.
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SECTION 7
DEATH BENEFIT
7.1 Death Before Retirement Date.
(a) If a Participant with a nonforfeitable right to
the amount credited to his Retirement Account pursuant to Section 8 hereof dies
prior to commencement of benefits, then his Surviving Spouse, or if (i) the
Participant elects a Beneficiary other than his Surviving Spouse and such
Surviving Spouse consents to such designation pursuant to Section 7.3 of the
Plan or (ii) the Participant is unmarried, the Participant's designated
Beneficiary, shall receive the amount credited to the Retirement Account,
payable in a single life annuity. The Surviving Spouse (or designated
Beneficiary, if applicable) may elect to receive such benefit in a cash lump sum
payment; provided, however, that if the Actuarial Equivalent value of such
amount does not exceed $3,500 (with respect to Plan Years beginning prior to
January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after
January 1, 1998), such value shall automatically be paid in a cash lump sum in
accordance with the last sentence of Section 10.1 hereof.
(b) Notwithstanding the foregoing subsection (a), if
(i) a Participant described in such subsection (a) was subject to the provisions
of Section 5.5 and (ii) at the time of his death there is a Surviving Spouse and
the Participant has not designated a Beneficiary other than his Surviving Spouse
with such Surviving Spouse's consent pursuant to Section 7.3, the single life
annuity otherwise payable to such Surviving Spouse pursuant to this Section 7.1
shall not be less than the single life annuity otherwise payable to such person
determined in accordance with the provisions of Section 6.1 or 6.2, as the case
may be, of the appropriate Prior Plan and based solely on such Participant's
Normal Retirement Income determined in accordance with Section 5.5; provided,
however, that if the Actuarial Equivalent value of the single life annuity
otherwise so determined pursuant to this subsection (b) does not exceed $3,500
(with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with
respect to Plan Years beginning on or after January 1, 1998), such value shall
automatically be paid in a cash lump sum in accordance with the last sentence of
Section 10.1 hereof.
7.2 Death After Date of Commencement of Benefits. In the event
of a Participant's death after commencement of benefits, and if an optional form
of benefit under Section 9.3 hereof is applicable, then the death benefit
payable hereunder, if any, shall be determined in accordance with such optional
election. Otherwise, no death benefit shall be payable.
7.3 Beneficiary Designation. If a Participant has a Surviving
Spouse, his Surviving Spouse shall be his Beneficiary, unless the Participant
designates someone other than his Surviving Spouse as his Beneficiary (other
than as a contingent Beneficiary) and the Surviving Spouse consents to such
designation. If the Participant does not have a Surviving Spouse or if his
Surviving Spouse consents, the Participant shall have the right to designate any
23
<PAGE>
person as a Beneficiary, to receive the amount, if any, payable pursuant to this
Plan upon his death and may from time to time change any such designation in
accordance with procedures established by the Committee. Each such designation
shall be in a written instrument filed with the Committee or its designee, and
shall be in such form as may be required by the Committee or its designee. In
the event that a Participant designates someone other than his Surviving Spouse
as his Beneficiary (other than as a contingent Beneficiary), such Beneficiary
designation shall not be effective unless (i) the Surviving Spouse consents to
such Beneficiary designation in writing, in a form acceptable to the Committee
or its designee, and such consent is witnessed by a Plan representative or a
notary public or (ii) the Participant provides the Committee or its designee
with sufficient evidence to show that the Participant does not have a Surviving
Spouse or that his Surviving Spouse cannot be located. The Committee shall
decide which Beneficiary, if any, shall have been validly designated. If a
Participant does not have a Surviving Spouse and no Beneficiary has been
designated, or if a Participant does not have a Surviving Spouse and the
Committee determines that a designation made by the Participant is not effective
for any reason, the Committee shall designate as Beneficiary the estate of the
deceased Participant.
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<PAGE>
SECTION 8
TERMINATION OF EMPLOYMENT
8.1 A Participant shall be 100% vested in the amount credited
to his Retirement Account after having completed at least Five (5) Years of
Service. If a Participant terminates employment other than by early or normal
retirement or death after having completed at least Five (5) Years of Service,
he shall be entitled to elect payment of the amount credited to his Retirement
Account as of such date of termination in a cash lump sum or, (i) if the
Participant has a Surviving Spouse at the time of such termination of
employment, as an annuity of the form described in Section 9.2 hereof or (ii) if
the Participant has no Surviving Spouse at the time of such termination of
employment, as an annuity of the form of benefit described in Section 9.1
hereof. Such payment shall be made (or in the case of an annuity, shall
commence) in accordance with the last sentence of Section 10.1 hereof, and such
election to be subject to consent as provided in Sections 9.4 and 9.5 hereof;
provided, however, that if the Actuarial Equivalent value of such amount does
not exceed $3,500 (with respect to Plan Years beginning prior to January 1,
1998) or $5,000 (with respect to Plan Years beginning on or after January 1,
1998), such value shall automatically be paid in a cash lump sum in accordance
with the last sentence of Section 10.1 hereof. If such Participant does not
elect such lump sum or annuity, he shall be entitled to receive a Normal
Retirement Income commencing on his Normal Retirement Date, payable in a lump
sum or as an annuity, in accordance with Sections 9.1 or 9.2 hereof, to the
extent applicable. For purposes of this Section 8, a Participant who is
terminated for Disability after a one-year absence because of Disability shall
be deemed to have completed at least Five (5) Years of Service.
8.2 In no event shall the retirement income of a terminated
Employee who was a participant under a Prior Plan immediately prior to the
Initial Effective Date be less than the Actuarial Equivalent of the benefit that
would have been payable under the Prior Plan had the Participant's employment
terminated immediately prior to the Initial Effective Date.
8.3 Notwithstanding any other provision of this Plan, each
Participant shall be 100% vested in his Retirement Account on his Normal
Retirement Date.
8.4 (a) If a Participant's service terminates prior to having
completed Five (5) Years of Service, and at a time when he is 0% vested in the
amount credited to his Retirement Account, he shall, notwithstanding any other
provision of the Plan to the contrary, be deemed to automatically receive, as of
such person's date of termination of employment, a single lump sum distribution
which is the Actuarial Equivalent of his entire vested Accrued Benefit under the
Plan, and he shall thereupon forfeit his Retirement Account as of such same
date. Any forfeiture resulting from the operation of this Section, or any other
provisions of the Plan, shall be used to reduce future Employer contributions.
(b) If a Participant's Retirement Account is
forfeited pursuant to the preceding paragraph (a) above and such Participant is
subsequently reemployed as an Employee of an Employer (i) after the number of
consecutive one-year Breaks in Service equals or exceeds Five (5), the Years of
Service completed prior to the Breaks in Service shall not be aggregated
25
<PAGE>
with Years of Service completed after the reemployment date, or (ii) prior to
incurring Five (5) or more consecutive one-year Breaks in Service, the amounts
previously credited to his Retirement Account will be restored, the Years of
Service completed prior to the Breaks in Service will be aggregated with the
Years of Service after his reemployment date and the Participant shall become a
Participant of the Plan upon his reemployment.
(c) If a Participant's vested percentage is 100% at
the time of his termination of employment, and such Participant is subsequently
reemployed as an Employee of an Employer, Years of Service completed prior to
any number of one-year Breaks in Service shall be aggregated with Years of
Service after the reemployment. If such Participant received a complete
distribution of his benefits under the Plan prior to his reemployment, then the
amounts credited to his Retirement Account as of his date of termination shall
be restored on his reemployment date, but any subsequent distribution paid to
the Participant after his reemployment shall be offset by the present value of
any distributions previously paid to him at any time in accordance with the
requirements of Section 411(a)(7) of the Code and the regulations promulgated
thereunder.
8.5 Notwithstanding the foregoing provisions of this Section 8
and solely in the case of a Participant subject to the provisions of Section
5.5:
(a) if such Participant's Accrued Benefit is in fact
determined pursuant to Section 5.5, rather than with reference to the amount
credited to his Retirement Account, then the provisions of Section 8.1 shall
instead be applied with reference to such Accrued Benefit so determined pursuant
to Section 5.5, and in connection therewith, the amount of any cash lump sum
shall be the Actuarial Equivalent of such Accrued Benefit; and
(b) regardless of whether such Participant's Accrued
Benefit is in fact so determined pursuant to Section 5.5, the provisions of
Section 8.4 shall be applied with reference to both such person's Retirement
Account and the amount otherwise calculated pursuant to Section 5.5.
26
<PAGE>
SECTION 9
OPTIONAL FORMS OF BENEFIT
9.1 Normal Form of Benefit.
(a) The normal form of benefit shall be an income
payable monthly for life, commencing on the Normal Retirement Date and
terminating with the payment preceding death; provided, however, that a
Participant may, with spousal consent under the terms of Section 9.4 hereof, if
applicable, elect to receive the amount credited to his Retirement Account in a
single cash lump sum; further provided, however, that if the Actuarial
Equivalent value of such amount does not exceed $3,500 (with respect to Plan
Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years
beginning on or after January 1, 1998), such value shall automatically be paid
to the Participant in a cash lump sum in accordance with the last sentence of
Section 10.1 hereof.
(b) Notwithstanding the foregoing subsection (a) and
solely in the case of a Participant subject to the provisions of Section 5.5, if
such Participant's Accrued Benefit is in fact determined pursuant to Section
5.5, rather than with reference to the amount credited to his Retirement
Account, then the provisions of the foregoing subsection (a) shall instead be
applied with reference to such Accrued Benefit so determined pursuant to Section
5.5, and in connection therewith, the amount of any cash lump sum shall be the
Actuarial Equivalent of such Accrued Benefit.
9.2 Automatic Post-Retirement Surviving Spouse Option. Subject
to the conditions hereinafter set forth in this Section, if a Participant has a
Surviving Spouse at his Retirement Income Commencement Date, the amount of
retirement income payment to which he would otherwise be entitled under the
normal form of benefit described in Section 9.1 shall be reduced on an Actuarial
Equivalent basis to reflect the fact that, if such spouse shall survive him, a
retirement income shall be payable under the Plan to his Surviving Spouse during
such spouse's remaining lifetime after his death in an amount equal to 50% of
the reduced amount of retirement income payments. A married Participant may
elect (and may revoke such election and thereafter reelect) that his retirement
income not be paid in the 50% joint and survivor form described in the preceding
sentence, subject to the provisions of Section 9.4 hereof.
9.3 Notwithstanding the foregoing provisions of this Section
9, a Participant who retires on or after his Early Retirement Date may, subject
to consent as provided in Sections 9.4 and 9.5 hereof, elect to receive the
value of (i) his entire Accrued Benefit in accordance with one of the following
optional forms, except that Option 1 or 2 may not be elected with respect to an
Accrued Benefit accrued prior to January 1, 1991; (ii) his Accrued Benefit as of
his Retirement Income Commencement Date less the value of his Accrued Benefit as
of December 31, 1990 separately in accordance with Option 1 or 2; and (iii) his
Accrued Benefit as of December 31, 1990, under a Prior Plan separately in
accordance with Option 3, 4 or 5; provided, however, that
27
<PAGE>
the Prior Plan benefit may be received separately only if a Participant elects
Option 1 or 2 under clause (ii) hereof.
Option 1. An Actuarial Equivalent retirement income to be paid
to the retired Participant for the rest of his life, and after his death either
50% or 100% (in accordance with his election) of such Actuarial Equivalent
retirement income to be paid to his contingent annuitant for the rest of the
contingent annuitant's life.
Option 2. An Actuarial Equivalent retirement income to be paid
to the retired Participant payable for the greater of his lifetime or a period
of ten (10) years. If the retired Participant dies before the expiration of ten
(10) years, the remaining installments of his Actuarial Equivalent retirement
income shall be paid to his Beneficiary.
Option 3. An Actuarial Equivalent retirement income to be paid
to the retired Participant for the rest of his life, and after his death either
25%, 66.67%, 75% or 100% (in accordance with his election) of such Actuarial
Equivalent retirement income to be paid to his contingent annuitant for the rest
of the contingent annuitant's life.
Option 4. An Actuarial Equivalent retirement income to be paid
to the retired Participant for the rest of his life, and if he dies before
receiving 120 monthly payments, such Actuarial Equivalent retirement income to
be paid to his Beneficiary for the remainder of the 120 months.
Option 5. A Participant who retires early in accordance with
Section 4.2 hereof may elect to receive an Actuarial Equivalent retirement
income providing larger monthly payments, in lieu of the retirement income
otherwise payable upon early retirement, until the earliest date on which his
Social Security benefit could commence; thereafter his monthly retirement income
payments shall be reduced by the estimated monthly amount of his Social Security
benefit computed to commence on such date. This optional form provides, insofar
as practical, a level total retirement income (from this Plan and Social
Security) for the Participant. In the event of the election of this Social
Security adjustment option, the monthly payment of the adjusted retirement
income shall commence at the date of retirement and shall cease with the earlier
of the last payment prior to the death of the Participant or the last payment
payable as calculated under this option.
9.4 The following rules and requirements must be met in order
for any optional form of retirement income to be applicable.
(a) The election must be made pursuant to a qualified
election (as described in paragraphs (b) and (g) of this Section) and filed with
the Committee or its designee within the 90-day period ending on the Retirement
Income Commencement Date.
(b) The consent of a contingent annuitant or
Beneficiary shall not be required for a qualified election of an option; except
that, if a married Participant elects to receive a form of benefit other than
the Automatic Post-Retirement Survivor Spouse Option described in Section 9.2
hereof, a qualified election requires that the Surviving Spouse waive such
spouse's
28
<PAGE>
right to the Automatic Post-Retirement Surviving Spouse Option. Such waiver
shall not be effective unless (i) the consent is in writing; (ii) the election
designates a specific alternate Beneficiary, including any class of
Beneficiaries or any contingent Beneficiaries, which may not be changed without
spousal consent (or the Surviving Spouse expressly permits designations by the
Participant without any further spousal consent); (ii) the Surviving Spouse's
consent acknowledges the effect of the election; (iv) the Surviving Spouse's
consent is witnessed by a Plan representative or notary public; and (v) the
election designates a form of benefit payment that may not be changed without
spousal consent (or the Surviving Spouse expressly permits designations by the
Participant without any further spousal consent). In the absence of a waiver by
such spouse, other than for the reason that such spouse cannot be located, the
election of a form of payment other than as provided in Section 9.2 hereof shall
be null and void. Any consent by a Surviving Spouse obtained under this
provision (or establishment that the consent of a Surviving Spouse may not be
obtained) shall be effective only with respect to such Surviving Spouse. A
consent that permits designations by the Participant without any requirement of
further consent by the Surviving Spouse must acknowledge that such spouse has
the right to limit consent to a specific Beneficiary, and a specific form of
benefit where applicable, and that such spouse voluntarily elects to relinquish
either or both of such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the Surviving Spouse at any time prior to the
commencement of benefits. The number of revocations shall not be limited. No
consent obtained under this provision shall be valid unless the Participant has
received notice as provided in paragraph (g) of this Section.
(c) An election may not be made nor will it be
accepted by the Committee or its designee, or if accepted it shall become null
and void, if the Actuarial Equivalent value of the Participant's entire Accrued
Benefit as of his Retirement Income Commencement Date would be $3,500 or less
(with respect to Plan Years beginning prior to January 1, 1998) or $5,000 or
less (with respect to Plan Years beginning on or after January 1, 1998), and
such value shall automatically be paid to the Participant in a cash lump sum.
(d) If the stated effective date of the option is
prior to the Participant's Normal Retirement Date and the Participant continues
in service after such stated effective date, the election shall become null and
void but, subject to the rules and requirements contained in this Section, the
Participant may thereafter make another election. If the stated effective date
is the Participant's Normal Retirement Date or any later date and he continues
in service after such stated effective date, the option shall take effect upon
his subsequent death or retirement.
(e) If a Participant who has elected Option 4 under
Section 9.3 hereof dies while the option is in effect, and his Beneficiary is a
natural person who survives the Participant but dies before the 120 monthly
payments have been paid to the Participant and the Beneficiary, the lump sum
discounted value of the unpaid balance of such 120 monthly payments shall be
paid to the Beneficiary's estate.
(f) If the contingent annuitant is other than the
Surviving Spouse, and if the actuarial present value of the payments to be made
to the Participant under an option will be less than 51% of the Actuarial
Equivalent value of the normal form of retirement benefit provided in Section
9.1 hereof, the optional benefit shall be adjusted so that the value of the
29
<PAGE>
Participant's benefit will be equal to 51% of the Actuarial Equivalent value of
the Participant's normal form of retirement benefit.
(g) No election shall be a qualified election unless,
at least 30 days (or such a shorter period permitted by the Code and the
regulations promulgated thereunder) and no more than 90 days prior to the
Participant's Retirement Income Commencement Date, the Committee shall furnish
him (by mail or personal delivery) a statement generally describing the 50%
joint and survivor form and explaining the relative financial effects of making
an election under Section 9.2 hereof, or an election of an optional form of
payment under Section 9.3 hereof. The statement shall also describe the right of
the Participant and his Surviving Spouse to waive the 50% joint and survivor
form, the effect of such a waiver, and the right to revoke such waiver.
9.5 If the Actuarial Equivalent value of a Participant's
vested Accrued Benefit exceeds (or at the time of any prior distribution
exceeded) $3,500 (with respect to Plan Years beginning prior to January 1, 1998)
or $5,000 (with respect to Plan Years beginning on or after January 1, 1998),
and the Accrued Benefit is "immediately distributable" (as defined below), the
Participant and any Surviving Spouse (or where either the Participant or the
spouse has died, the survivor) must consent to any distribution of such Accrued
Benefit. An Accrued Benefit is "immediately distributable" if any part of the
Accrued Benefit could be distributed to the Participant (or Surviving Spouse)
before the Participant attains (or would have attained if not deceased) Normal
Retirement Age. The consent of the Participant and any Surviving Spouse shall be
obtained in writing within the 90-day period ending on the Retirement Income
Commencement Date. The Participant and any Surviving Spouse shall be notified of
the right to defer any distribution until the Participant's Accrued Benefit is
no longer immediately distributable. Such notification shall include a general
description of the material features, and an explanation of the relative values
of, the optional forms of benefit available under the Plan in a manner that
would satisfy the notice requirements of Section 417(a)(3) of the Code, and
shall be provided no less than 30 days (or such shorter period permitted by the
Code and the regulations promulgated thereunder) and no more than 90 days prior
to the Retirement Income Commencement Date. Notwithstanding the foregoing, only
the Participant need consent to the commencement of a distribution in the 50% or
100% joint and survivor form while the Accrued Benefit is immediately
distributable. Neither the consent of the Participant nor the Surviving Spouse
shall be required to the extent that a distribution is required to satisfy
Section 401(a)(9) or 415 of the Code.
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<PAGE>
SECTION 10
PAYMENT OF RETIREMENT INCOME
10.1 Subject to the provisions of Sections 9 and 11 hereof,
retirement income payable in other than a lump sum shall be payable in monthly
installments, as of the first day of each month with the first payment to be
made as of the appropriate retirement date or earlier date of termination of
employment, but in no event later than the 60th day after the later of the close
of the Plan Year in which the Participant attains age 65 or terminates
employment or in which occurs his tenth (10th) Year of Credited Service, and
with final payment to be made as of the first day of the month in which death
occurs, or, if earlier, the first day of the month payments cease under the
option elected. Subject to the foregoing sentence, retirement income payable in
a single cash lump sum shall be paid on or as soon as administratively possible
following the date he becomes entitled thereto.
10.2 Anything elsewhere in the Plan to the contrary
notwithstanding, the entire nonforfeitable interest of each Participant shall be
either:
(a) distributed to the Participant not later than the
Participant's "Required Beginning Date" (as defined in Section 10.2(b)), or
(b) distributed to, or for the benefit of, the
Participant and the Participant's contingent annuitant in installments beginning
not later than the Participant's Required Beginning Date and continuing, in
accordance with such regulations as the Secretary of the Treasury may prescribe,
(i) over the life of the Participant or over the lives of the Participant and
the Participant's contingent annuitant or (ii) over a period certain not
extending beyond the life expectancy of the Participant and the Participant's
Beneficiary. For purposes of this Section, the "Required Beginning Date" shall
mean the later of April 1 of the calendar year which follows the calendar year
in which the Participant attains age 70 1/2, or the calendar year in which the
Participant retires; provided, however, that a distribution to a Participant who
is a five percent owner (as defined in Section 416 of the Code) shall begin no
later than April 1 of the calendar year which follows the calendar year in which
such Participant attains age 70-1/2. Notwithstanding the foregoing, any
Participant who attains age 70-1/2 after December 31, 1995 but on or before
December 31, 1997 may elect to nevertheless commence his distribution on April 1
of the calendar year following the calendar year in which the Participant
attains age 70-1/2 even if the Participant is still employed by the Employer. In
addition to the foregoing, in applying the rules of this Section 10.2, the
regulations promulgated under Section 401(a)(9) of the Code are incorporated
herein by reference, as are the rules promulgated by the Department of the
Treasury and the Internal Revenue Service with respect to compliance with
Section 401(a)(9) of the Code without violating Section 411(d)(6) of the Code.
If distribution of a Participant's nonforfeitable interest has
begun in accordance with Section 10.2(b) hereof and the Participant dies before
his entire nonforfeitable interest has
31
<PAGE>
been distributed to him, the remaining portion of such interest shall be
distributed at least as rapidly as under the method of distribution being used
under Section 10.2(b) hereof as of the date of the Participant's death.
If a Participant dies before distribution of the Participant's
nonforfeitable interest has begun in accordance with Section 10.2(b) hereof, the
entire nonforfeitable interest shall be distributed within five years after the
death of the Participant, except such portion thereof as shall be payable in
installments to, or for the benefit of, the Participant's contingent annuitant,
beginning not later than one (1) year after the date of the Participant's death
and continuing, in accordance with such regulations as the Secretary of the
Treasury may prescribe, over the life of the contingent annuitant (or over a
period certain not extending beyond the life expectancy of the contingent
annuitant); provided, however, that if the Surviving Spouse is the Participant's
contingent annuitant, the date on which the distributions are required to begin
shall not be later than the Participant's Required Beginning Date and, if the
Surviving Spouse dies before the distributions to the Surviving Spouse begin,
this paragraph shall be applied as if the Surviving Spouse was the Participant.
32
<PAGE>
SECTION 11
ADMINISTRATION OF THE PLAN
11.1 Except with respect to those responsibilities delegated
to the Fiduciary Committee hereunder, the Plan shall be administered by the
Committee, which shall be responsible for carrying out the provisions of the
Plan. The Committee shall be a "named fiduciary" under Section 402(a)(2) of
ERISA. The Committee shall consist of at least three (3) members who shall be
appointed in the manner authorized by the Board. Vacancies therein shall be
filled in the same manner as appointments. Any member of the Committee may be
removed by action of the Board or may resign of his own accord by delivering his
written resignation to the Board and to the secretary of the Committee.
11.2 The members of the Committee shall elect from their
number a chairman and shall appoint a secretary, who need not be a member of the
Committee. They may appoint from their number subcommittees with such powers as
they shall determine, may authorize one or more of their number or any agent to
execute or deliver any instrument or make any payment in their behalf, and may
employ clerks and may employ such counsel, accountants, and actuaries as may be
required in carrying out the provisions of the Plan.
11.3 The Committee shall hold meetings upon such notice, at
such time, and at such place as they may determine.
11.4 A majority of the members of the Committee at the time in
office shall constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Committee shall be by vote of a
majority of those present at the meeting, but not less than two (2), or in
writing by a majority of members at the time in office, if they act without a
meeting.
11.5 No member of the Committee who is also an Employee shall
receive any compensation for his services as such, but the Employer may
reimburse any member for any necessary expenses incurred.
11.6 The Committee shall from time to time establish rules for
the administration of the Plan and the transaction of its business. Except as
herein otherwise expressly provided, the Committee shall have the exclusive
right to interpret the Plan and to decide any matters arising thereunder in
connection with the administration of the Plan, the eligibility of any person to
benefits thereunder and the amounts of such benefits. It shall endeavor to act
by general rules so as not to discriminate in favor of any person. Its decisions
and the records of the Committee shall be conclusive and binding upon the
Employer, the Participants, and all other persons having any interest under the
Plan.
The Committee shall have the power to amend the Plan in order
to comply with applicable law and to ensure effective operation of the Plan for
the benefit of Participants, provided that such amendment does not increase the
total cost of providing benefits under the
33
<PAGE>
Plan by an amount in excess of $200,000 in any Plan Year computed in accordance
with generally accepted accounting or actuarial principles; and provided,
further, that such amendment does not affect the duties delegated hereunder to
the Fiduciary Committee.
The Committee may appoint a Plan administrator for the Plan and shall delegate
to the Plan administrator the duty to maintain all records and accounts
necessary for the effective administration of the Plan, and to take any actions
necessary to comply with the reporting and disclosure requirements imposed by
the Code, ERISA and any other applicable federal or state statute or regulation,
including any law or regulation promulgated by any foreign governing body which
applies to the Plan. The Committee may delegate to any Plan administrator such
other duties as it may deem necessary and appropriate. The Committee shall
receive reports from each such Plan administrator as the Committee may request.
11.7 The Committee shall cause to be maintained accounts
showing the fiscal transactions of the Plan, and in connection therewith shall
require the Trustee to submit any necessary reports, and shall keep in
convenient form such data as may be necessary for actuarial valuations of the
assets and liabilities of the Plan.
11.8 The members of the Committee, the Fiduciary Committee,
the Board, and the officers and directors of the Employer shall be entitled to
rely upon all tables, valuations, certificates, and reports furnished by any
duly appointed actuary, upon all certificates and reports made by any duly
appointed accountant, and upon all opinions given by any duly appointed legal
counsel. The members of the Committee, the Fiduciary Committee, the Board, and
the officers and directors of the Employer shall not be held liable for any
action taken in good faith in reliance upon any such tables, valuations,
certificates, reports, or opinions. All actions so taken shall be conclusive
upon each of them and upon all persons having any interest under the Plan. No
member of the Committee shall be personally liable by virtue of any instrument
executed by him or on his behalf as a member of the Committee, or for any
mistake of judgment made by himself or any other member or by anyone employed by
the Employer, or for any loss unless resulting from his own actions, including
gross negligence or willful misconduct. Each member of the Committee shall be
indemnified by the Employer against losses reasonably incurred by him in
connection with any claim, proceeding or action to which he may be a party by
reason of his membership in the Committee (including amounts paid in a
settlement approved by the Employer and reasonable attorney's fees and expenses
incurred in connection with such claim, proceeding or action); provided,
however, that such indemnification shall not apply to matters as to which he
shall be finally adjudged, by a court of competent jurisdiction in a decision
from which no appeal may be taken or with respect to which the time to appeal
has expired without an appeal having been made, to have engaged in gross
negligence or willful misconduct. The foregoing right of indemnification shall
be in addition to any other rights to which any such member may be entitled as a
matter of law or pursuant to the bylaws of Estee Lauder or any other Employer.
11.9 In the event that any Participant, contingent annuitant
or Beneficiary claims to be entitled to a benefit under the Plan, and the
Committee determines that such claim
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should be denied in whole or in part, the Committee shall, in writing, notify
such claimant within 90 days of receipt of such claim that his claim has been
denied, setting forth the specific reasons for such denial. Such notification
shall be written in a manner reasonably expected to be understood by such
Participant or other payee and shall set forth the pertinent sections of the
Plan relied on and, where appropriate, an explanation of how the claimant can
obtain review of such denial. Within 60 days after the mailing or delivery by
the Committee of such notice, such claimant may request, by mailing or delivery
of written notice to the Committee, a review by the Committee of the decision
denying the claim. If the claimant fails to request such a hearing within such
60-day period, it shall be conclusively determined for all purposes of this Plan
that the denial of such claim by the Committee is correct. If such claimant
requests a review within such 60-day period, he shall have the opportunity to
review pertinent documents and to submit a written statement to the Committee.
After such review, the Committee shall determine whether such denial of the
claim was correct and shall notify such claimant in writing of its determination
within 60 days from receipt of his request and no further review shall
thereafter be required by the Committee.
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<PAGE>
SECTION 12
INVESTMENT OF PLAN ASSETS;
DUTIES OF FUDICIARY COMMITTEE
12.1 All assets for providing the benefits of the Plan shall
be held in trust for the exclusive benefit of Participants, contingent
annuitants and Beneficiaries under the Plan, and no part of the corpus or income
shall be used for, or diverted to, purposes other than for the exclusive benefit
of Participants, contingent annuitants, and Beneficiaries under the Plan except
as provided in Sections 6.3 and 16.4 hereof. No Participant, contingent
annuitant, or Beneficiary under the Plan, nor any other person, shall have any
interest in or right to any part of the earnings of the Trust Fund, or any
rights in, to, or under the Trust Fund or any part of its assets, except to the
extent expressly provided in the Plan.
12.2 All contributions to the Plan by the Employer shall be
committed in trust to the Trustee and/or to an insurance company as provided for
in Section 404 of ERISA. The Trustee shall be appointed from time to time by the
Fiduciary Committee by the appropriate instrument, with such powers in the
Trustee as to investment, reinvestment, control, and disbursement of the funds
as the Fiduciary Committee shall approve and as shall be in accordance with the
Plan. The Fiduciary Committee may remove, replace, or add a Trustee at any time.
Upon the removal, replacement, or resignation of any Trustee, the Fiduciary
Committee may designate a successor Trustee.
12.3 In the discretion of the Fiduciary Committee all
contributions to the Plan by the Employer committed to the Trustee and/or
insurance company may be commingled from time to time in whole or in part with
any other fund or funds held by the Trustee and/or insurance company for use in
connection with the payment of pensions of any Employee of the Employer or with
any other fund or funds held by the Trustee and/or insurance company pursuant to
any other retirement plan which is a qualified pension plan under Section 401(a)
of the Code. For purposes of this Plan, the word "fund" or "funds" as used in
this Section 12 and hereafter in this Plan shall mean the allocable portion of
the fund or funds held by the Trustee and/or insurance company in respect of the
contributions made pursuant to this Plan.
12.4 The Fiduciary Committee shall determine the manner in
which the funds of the Plan shall be disbursed in accordance with the Plan and
the provisions of the trust instrument, including the form of voucher or warrant
to be used in making disbursements and the qualifications of persons authorized
to approve and sign the same and any other matters incident to the disbursement
of such funds.
12.5 The Fiduciary Committee shall adopt from time to time
actuarial tables to be used as the basis for all actuarial calculations and
shall recommend the rates of contribution payable by the Employer to the Plan as
provided in Section 6 hereof. The Fiduciary Committee shall determine from time
to time the per centum rate of interest to be used as the basis for all
36
<PAGE>
calculations. As an aid to the Fiduciary Committee in adopting tables and in
recommending the rates of contribution payable by the Employer to the Plan, the
actuary appointed by the Fiduciary Committee shall make annual actuarial
valuations of the assets and liabilities of the Plan and shall certify to the
Fiduciary Committee the tables and rates of contribution which he would
recommend for use by the Fiduciary Committee.
37
<PAGE>
SECTION 13
OBLIGATIONS OF THE EMPLOYER
13.1 All contributions by the Employer for benefits under the
Plan shall be voluntary, and the Employer shall be under no legal obligation to
make and/or continue to make them. The Employer shall have no liability in
respect to payments or benefits or otherwise under the Plan, and the Employer
shall have no liability in respect to the administration of the Trust Fund or of
the funds, securities, or other assets paid over to the Trustee, and each
Participant, each contingent annuitant, and each Beneficiary shall look solely
to such Trust Fund for any payments or benefits under the Plan.
38
<PAGE>
SECTION 14
MISCELLANEOUS PROVISIONS
14.1 Except as otherwise provided by law (which shall include
a "qualified domestic relations order" pursuant to Section 414(p) of the Code
and any other circumstance described in Section 401(a)(13) of the Code and the
Treasury regulations promulgated thereunder), no benefit payable under the Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge; nor shall any such benefit be in any
manner liable for or subject to the debts, contracts, liabilities, engagements,
or torts of the person entitled to such benefit.
14.2 If any Participant, contingent annuitant, or Beneficiary
under the Plan shall become bankrupt or attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any benefit in a manner not allowed
pursuant to Section 14.1, then such benefit shall, in the discretion of the
Committee, cease and terminate. In that event the Committee shall hold or apply
the benefit or any part thereof to or for such Participant, contingent annuitant
or Beneficiary, his spouse, children, or other dependents, or any of them, in
such manner and in such proportions as the Committee shall in its sole
discretion determine.
14.3 The establishment and/or maintenance of the Plan shall
not be construed as conferring any rights upon any Employee or any person for a
continuation of employment, and shall not be construed as limiting in any way
the right of the Employer to discharge any Employee or to treat him without
regard to the effect which such treatment might have upon him as a Participant
of the Plan.
14.4 If any person entitled to receive any benefits from the
Trust Fund is a minor or, in the judgment of the Committee, legally, physically
or mentally incapable of personally receiving any distributions, the Committee
may instruct the Trustee to make distribution to such other person, persons, or
institutions that, in the judgment of the Committee, are then maintaining or
have custody of such distributee.
14.5 The determination of the Committee as to the identity of
the proper payee of any benefit under the Plan and the amount of such benefit
properly payable shall be conclusive, and payment in accordance with such
determination shall constitute a complete discharge of all obligations on
account of such benefit.
14.6 In the event any amount shall become payable from the
Trust Fund to a Beneficiary or the estate of any deceased person and if, after
written notice from the Trustee mailed to the last known address of such
Beneficiary, or of the executor or administrator of such estate (as certified to
the Trustee by the Committee), such person or such executor or administrator
shall not have presented himself to the Trustee within two years after the
mailing of such notice, the Trustee shall notify the Committee, and the
Committee shall instruct the Trustee
39
<PAGE>
to distribute such amount due to such Beneficiary or such estate among one or
more of the spouse and blood relatives of such deceased person, as designated by
the Committee.
14.7 This Plan may be adopted, by action of the Board of
Directors, with respect to Employees who are United States citizens employed by
a foreign subsidiary (as defined in Section 3121(1)(8) of the Code) of the
Employer, with such Employees being treated as Employees of an Employer for the
purpose described in Section 406 of the Code if the following conditions are
met:
(a) the Employer has entered into an agreement under
Section 3121(1) of the Code which applies to the foreign subsidiary by which
such Employees are employed; and
(b) no contributions under another funded plan of
deferred compensation (whether or not a plan described in Section 401(a),
403(a), or 405(a) of the Code) are provided by any other Employer with respect
to the remuneration paid to such Employees by such subsidiary.
14.8 In the case of any merger or consolidation with, or
transfer of assets or liabilities to, any other plan each Participant in the
Plan will (if the Plan then terminated) receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater than the benefit
he would have been entitled to receive immediately before the merger,
consolidation or transfer (if the Plan had then terminated). Such merger,
consolidation or transfer shall comply with Section 414(l) of the Code and the
regulations promulgated thereunder.
14.9 The rights of any person who terminated employment or
retired on or before the effective date of any of the relevant provisions of
this restatement, including his eligibility for benefits, shall be determined
solely under the terms of the Plan as in effect on the date of his termination
of employment or retirement, unless such person is thereafter reemployed and
again becomes a Participant.
14.10 Notwithstanding any provision of the Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Section 414(u) of the Code.
40
<PAGE>
SECTION 15
ADOPTION OF PLAN BY MEMBERS OF THE GROUP
15.1 Any member of the Group, other than Estee Lauder, or any
other corporation or unincorporated trade or business which is not a member of
the Group may, with the consent of the Board of Directors, adopt this Plan,
thereby bringing such Group member or other corporation or unincorporated trade
or business within the definition of Employer. With respect to such member of
the Group or other corporation or unincorporated trade or business, the term
"Original Effective Date" of the Plan shall refer to the date as to which such
member adopts the Plan or the date as of which the Plan is extended to such
member as the case may be.
15.2 The Board of Directors shall, subject to the requirements
of ERISA and the Code, determine the extent to which, if at all, the period of
employment prior to the extension of the Plan to a member of the Group or other
corporation or unincorporated trade or business shall be recognized for purposes
of the Plan.
15.3 In the event that a retirement plan or pension plan
maintained by a member of the Group, or other corporation or unincorporated
trade or business, for any other division, plant, or location is added to this
Plan, the rights and benefits of Employees who were covered under such other
plan shall, from and after the Original Effective Date of the Plan with respect
to said Employer, be determined under such terms and conditions with respect to
such Employees as shall be specified by the Board of Directors in the resolution
approving the adoption or extension of the Plan as to the said Employees.
The assets under such other plans maintained by a member of
the group applicable to Employees to be covered by this Plan shall, to the
extent practicable and subject to the provisions of Section 14.8 hereof, be
transferred to the Fund under this Plan, and such transferred assets shall be
merged with the Fund held under this Plan.
15.4 If any Employer which has come within the definition of
Employer pursuant to this Section 15 subsequently withdraws or is withdrawn from
the Plan, or discontinues the Plan with respect to all or part of its Employees,
the Committee shall determine the share of the Fund which shall be allocated to
the Employees of such Employer who are thereby affected. If a separate defined
benefit pension plan is being continued for such Employees, such Employer shall,
subject to the provisions of Section 14.8 hereof, designate a successor Trustee
under a separate instrument to whom such allocable funds shall be transferred
with respect to all or the specified classifications of its Employees, as the
case may be, unless the Board of Directors shall determine that such Employer
and its affected Employees may upon proper action of such Employer continue to
participate in the Trust Fund maintained in connection with this Plan. If the
Plan is discontinued with respect to all or part of such Employer's Employees,
such allocable funds shall be allocated with respect to each Employee affected,
and shall be applied pursuant to Section 16.4 hereof.
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15.5 If any Employer which is not a member of the Group which
includes Estee Lauder adopts the Plan in accordance with Section 15.1, the Plan
shall be treated as a "multiple employer plan" within the meaning of Section
413(c) of the Code, and it shall comply with all the requirements of the Code
and ERISA applicable to such plans.
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SECTION 16
AMENDMENT AND TERMINATION
16.1 Estee Lauder reserves the right at any time, and from
time to time, by action of the Committee to amend, in whole or in part,
retroactively or prospectively or both, any or all of the provisions of the
Plan; provided, however, that no part of the assets of the Plan shall, by reason
of any amendment, be used for or diverted to purposes other than for the
exclusive benefit of Participants, contingent annuitants, and Beneficiaries; and
further provided that any amendment adopted by the Committee which would cause
the Plan and the trust established under the Plan to cease to meet the
requirements of Section 401(a) or 501(a) of the Code respectively, shall be null
and void; and any actions taken under the Plan pursuant to such amendment, any
benefit increases (or decreases) accruing under the Plan as a result of such
amendment, and any increases (or decreases) in benefit payments under the Plan
made as a result of such amendment, during the period from the date of adoption
of such amendment to the date it is determined that such amendment should so
cause the Plan and the trust under the Plan to cease to meet such requirements,
shall be, respectively, rectified, nullified, and restored as soon as possible
to the extent necessary to permit the Plan and the trust under the Plan to
continue to meet the requirements of Section 401(a) and 501(a) of the Code,
respectively.
Notwithstanding the previous paragraph herein, no amendment to the Plan shall:
(a) reduce the Participant's accrued normal
retirement income as of the date on which the amendment is adopted,
(b) eliminate or reduce any early retirement benefit
or retirement-type subsidy to be determined by regulation), or an optional form
of retirement income under the Plan, with respect to the accrued normal
retirement income, or
(c) reduce a retired Participant's retirement income
as of the beginning of the Plan Year in which the amendment is effective.
The Board of Directors' approval shall be required for any
amendment to the Plan which is anticipated by the Committee to increase the cost
to Estee Lauder of maintaining the Plan by $200,000 or more in any year,
computed in accordance with generally accepted accounting or actuarial
principles.
16.2 The Board of Directors may terminate the Plan at any time
as to all or any particular group or groups of Participants and such other
persons, if any, who have or may become entitled to benefits under the Plan on
account of such Participants as to whom the Plan shall have been terminated,
which Participants and other persons shall be referred to collectively as the
terminated group in this Section 16. After the Plan termination date which is
applicable to the terminated group, benefits shall be provided to the terminated
group in accordance with Section 16.4 hereof. In the event of such termination,
each member of the terminated group will be fully (100%) vested in his accrued
benefit.
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16.3 The terminated group's portion of the Fund shall equal
the sum of that part of the fair market value on the Plan termination date of
the entire Fund that would have been allocated to each person in the terminated
group in accordance with Section 16.4 hereof if the Plan had been terminated on
such date as to all Participants in the Plan and no expenses were incurred in
connection with such termination of the Plan.
16.4 A terminated group's share of the Fund shall be allocated
as follows:
(a) first, to provide benefits to each person in the
terminated group in accordance with Section 4044(a) of ERISA, and the
regulations issued pursuant thereto;
(b) then, to the extent that after the making of the
allocation described in (a) above, there remain in the Fund any assets which are
applicable to the terminated group, the said assets shall be applied to pay for
any unpaid administrative expenses for the administration of the Plan as to the
terminated group; and
(c) lastly, to the extent that after making the
allocations described in (a) and (b) above, there remain in the Fund any assets
which are applicable to the terminated group, then such remaining assets shall
be paid to the Employer for its own use and benefit provided that such payment
to the Employer does not contravene any provision of law.
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SECTION 17
LIMITATION ACCORDING TO
TREASURY DEPARTMENT REQUIREMENTS
The purpose of this Section is to conform the Plan to the
requirements of Section 1.401(a)(4)-5(b) of the Income Tax Regulations.
17.1 If a benefit becomes or is payable for a Plan Year to a
Participant who is among the 25 highest paid "highly compensated employees" or
"highly compensated former employees" (each as defined in Section 414(q) of the
Code and regulations and rulings issued thereunder) for a Plan Year, such
benefit cannot exceed an amount equal to the payments that would be made during
the Plan Year on behalf of the Participant under a single life annuity that is
the Actuarial Equivalent of the sum of the Participant's Accrued Benefit and any
other benefits under the Plan; provided, however, that this Section shall not
apply if (i) benefits that would be payable to such a Participant are less than
one percent (1%) of the total value of current liabilities under the Plan, or
(ii) the assets of the Trust Fund exceed, immediately after payment of a benefit
to such a Participant, 110% of the value of current liabilities under the Plan.
(For purposes of this Section, the value of current liabilities shall be as
defined in Section 412(l)(7) of the Code.)
17.2 In the event of a termination of the Plan, the benefit of
any highly compensated employee or highly compensated former employee shall be
limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the
Code.
17.3 In the event Congress should provide by statute, or the
Internal Revenue Service or Department of the Treasury should provide by
regulation or ruling, that such limitations are no longer necessary for the Plan
to meet the requirements of Section 401(a) or other applicable provisions of the
Code then in effect, such limitations shall become void and shall no longer
apply, without the necessity of further amendment to the Plan.
45
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SECTION 18
TOP-HEAVY PLAN PROVISIONS
18.1 Anything elsewhere in this Plan to the contrary
notwithstanding, the provisions of this Section 18 shall apply to the Plan for
any Plan Year if, on the last day of the preceding Plan Year, either (i) the
present equivalent actuarial value of the cumulative accrued normal retirement
income of Key Employees exceeds 60% of the present equivalent actuarial value of
the cumulative accrued normal retirement income of all Participants, or (ii) the
sum of (A) the present equivalent actuarial value of the cumulative accrued
normal retirement income of Key Employees under the Plan, (B) the present
equivalent actuarial value of the accumulated accrued benefits of Key Employees
under all other qualified defined benefit plans included in the Aggregation
Group, and (C) the cumulative accrued benefits of Key Employees under all
qualified defined contribution plans included in the Aggregation Group exceeds
60% of the sum of (D) the present equivalent actuarial value of the cumulative
accrued normal retirement income of all Participants under the Plan, (E) the
present equivalent actuarial value of the accumulated accrued benefits of all
Participants under all other qualified defined benefit plans included in the
Aggregation Group, and (F) the cumulative accrued benefits of all Participants
under all qualified defined contribution plans included in the Aggregation
Group. For the purpose of the foregoing sentence, the "equivalent actuarial
value" of the cumulative accrued normal retirement income of each Participant
under the Plan shall be calculated utilizing a five percent (5%) interest rate
assumption and is increased by the amount of the aggregate distributions, if
any, made with respect to the Participant under the Plan during the five-year
period ending on the last day of the preceding Plan Year; and the present
equivalent actuarial value of the accumulated accrued benefit of each
Participant under all other qualified defined benefit plans and the cumulative
accrued benefit of each Participant under any qualified defined contribution
plan shall be increased by the amount of the aggregate distributions, if any,
made with respect to the Participant under such other plan during that five-year
period. The term "Aggregation Group" shall mean all plans to which the Employer
contributes in which a Key Employee is a Participant and all other plans to
which the Employer contributes that enable any such plan to meet the
requirements of Section 401(a)(4) or Section 410 of the Code. If a Participant
is not a Key Employee for any Plan Year, but was a Key Employee in a prior Plan
Year, the accrued normal retirement income for such Participant shall not be
taken into account. The accrued normal retirement income of any Participant or
former Participant who has not during the five-year period ending on the last
day of the preceding Plan Year received from the Employer any compensation
(other than benefits under the Plan) shall not be taken into account. In any
Plan Year for which the provisions of this Section 18 apply and thereafter, each
Employee who is a Participant during that Plan Year and has completed at least
three (3) Years of Service shall have a nonforfeitable right, in the event he
ceases to be an Employee prior to his Normal Retirement Date, otherwise than by
death or early retirement, to receive for the remainder of his life (beginning
at his Normal Retirement Date if he is still living) a deferred vested
retirement income in an amount per month equal to his accrued normal retirement
income computed as of
46
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the date he ceases to be an Employee (including benefits accrued before the
provisions of this Section 18 apply).
Notwithstanding the foregoing, each such Employee who has
completed not less than three (3) Years of Service shall be permitted to elect,
within 90 days after the first day of the Plan Year for which the provisions of
this Section 18 apply, to have his nonforfeitable percentage computed in
accordance with the provisions of Section 8 hereof without regard to this
paragraph.
18.2 In any Plan Year for which the provisions of this Section
18 apply, if the accrued normal retirement income of any Participant who is not
a Key Employee, when expressed as an equivalent actuarial value of a benefit
payable annually in the form of a single life annuity (with no ancillary
benefits) beginning when the Participant attains age 65 (without taking into
account contributions or benefits under Chapter 2 of Chapter 21 of Title II of
the Social Security Act, or any other Federal or State law), is less than the
Compensation from Estee Lauder not in excess of $150,000, for years in the
Participant's Testing Period, then the accrued normal retirement income of that
Participant shall be increased to an amount equal at the last day of that Plan
Year to such Applicable Percentage of the Participant's average Compensation
from the Employer for years in the Participant's Testing Period.
18.3 In any Plan Year for which the provisions of this Section
18 apply, the Compensation from the Employer of each Participant taken into
account under the Plan shall not exceed the first $150,000 (or such other figure
as shall result from such annual cost-of-living adjustments as the Secretary of
the Treasury or his delegate shall make pursuant to Section 401(a)(17)(B) of the
Code).
18.4 In any Plan Year commencing prior to January 1, 2000 for
which the provisions of this Section 18 apply, the figure "1.0" shall be
substituted for the figure "1.25" as required by Section 416 of the Code for the
purpose of determining an Employee's "defined contribution plan fraction" and
"defined benefit plan fraction" under Section 415(e) of the Code.
18.5 For purposes of this Section, the following definitions
shall apply:
(a) "Applicable Percentage" means, in respect of any
Participant, the lesser of (i) 2 percent multiplied by the number of the
Participant's Years of Service (disregarding any Year of Service in which ended
a Plan Year for which the provisions of this Section 18 were not applicable and
any Year of Service completed in a Plan Year beginning before January 1, 1984)
or (ii) 20 percent.
(b) "Compensation" means, for purposes of this
Section only, Compensation as defined in Section 2.10 hereof but including any
special pay or remuneration reportable to the Internal Revenue Service on Form
W-2 for Federal income tax purposes, but with respect to Plan Years commencing
prior to January 1, 1998, "Compensation" excludes contributions made by an
Employer on behalf of an Employee under a "cash or deferred arrangement"
described in Section 401(k) of the Code.
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(c) "Key Employee" means a Participant, former
Participant or the contingent annuitant of any Participant who, at any time
during the Plan Year or any of the four preceding Plan Years, is or was (i) an
officer of an Employer whose compensation from the Employer for the Plan Year
exceeds $45,000 (or such other figure as shall result from such annual
cost-of-living adjustments as the Secretary of the Treasury or his delegate
shall make pursuant to Section 415(d) of the Code), or (ii) one (1) of the ten
(10) employees of the Employer whose Compensation for the Plan Year exceeds
$30,000 (or such other figure as shall result from such annual cost-of-living
adjustments as the Secretary of the Treasury or his delegate shall make pursuant
to Section 415(d) of the Code) and who owns the largest interests in the
Employer, or (iii) the owner of five percent (5%) or more of the outstanding
stock of the Employer (or stock possessing more than five percent (5%) of the
total combined voting power of all stock of the Employer), or (iv) an owner of
one percent (1%) or more of the outstanding stock of the Employer (or stock
possessing more than one percent (1%) of the total combined voting power of all
stock of the Employer) whose Compensation from the Employer for the Plan Year is
more than $150,000. Any Employee who is not a Key Employee shall be deemed a
Non-Key Employee.
(d) "Testing Period" means, in respect of any
Participant, the period of consecutive years (not exceeding Five (5)), and
disregarding any Year of Service in which ended a Plan Year for which the
provisions of this Section 18 were not applicable, any Year of Service completed
in a Plan Year beginning before January 1, 1984, and any year that begins after
the close of the last Plan Year for which the provisions of this Section 18 were
applicable) during which the Participant had the greatest aggregate Compensation
from the Employer.
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THE ESTEE LAUDER INC.
RETIREMENT GROWTH ACCOUNT PLAN
As Amended and Restated
Generally Effective January 1, 1999
<PAGE>
TABLE OF CONTENTS
APPENDIX A A-1
APPENDIX B B-1
APPENDIX C C-1
APPENDIX D D-1
APPENDIX E E-1
APPENDIX F F-1
APPENDIX G G-1
APPENDIX H H-1
APPENDIX I I-1
APPENDIX J J-1
APPENDIX K K-1
APPENDIX L L-1
APPENDIX M M-1
<PAGE>
APPENDIX A
1. Except as otherwise noted below, the assumptions to be used to
convert a single life annuity into any other form of benefit, other than a lump
sum distribution, are as follows:
Interest Rate: 6%
Mortality Table: 1971 TPF&C Mortality Table for
male lives, set back four years
2. To the extent that (A) any Participant's Retirement Account is to be
converted into an equivalent, immediately payable, annual amount of single life
annuity and (B) the distribution of such single life annuity is to begin as of
date prior to January 1, 1999, such conversion shall be done by applying an
immediate conversion factor to such Participant's Retirement Account, with such
factor based upon the above specified mortality table and the Pension Benefit
Guaranty Corporation ("PBGC") immediate interest rate applicable to the month as
of which the distribution of the single life annuity is otherwise to begin.
To the extent that (A) any Participant's Retirement Account is to be
converted into an equivalent, immediately payable, annual amount of single life
annuity and (B) the distribution of such single life annuity is to begin as of
date during calendar year 1999, such conversion shall be done by applying an
immediate conversion factor to such Participant's Retirement Account, with such
factor based upon the "applicable mortality table" (as defined under Section
417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the
following two interest rates results in the larger single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of
the Code, as amended by Public Law 103-465) as in effect for the second
calendar month immediately prior to the first day of the calendar
quarter in which falls the date as of which the distribution of the
single life annuity is otherwise to begin, and
(ii) such same "applicable interest rate" as in effect for the second
calendar month immediately prior to the month in which falls the date as
of which such distribution of the single life annuity is otherwise to
begin.
To the extent that (A) any Participant's Retirement Account is to be
converted into an equivalent, immediately payable, annual amount of single life
annuity and (B) the distribution of such single life annuity is to begin as of
date on or after January 1, 2000, such conversion shall be done by applying an
immediate conversion factor to such Participant's Retirement Account, with such
factor based upon the "applicable mortality table" (as defined under Section
417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the "applicable
interest rate" (as defined under Section 417(e)(3)(A) of the Code, as similarly
so amended) as in effect for the second calendar month immediately prior to the
first day of the calendar quarter in which falls the date as of which the
distribution of the single life annuity is otherwise to begin.
A-1
<PAGE>
3. To the extent that (A) any immediately payable, lump sum
distribution under the Plan is the equivalent of a single life annuity otherwise
deferred to a Participant's Normal Retirement Date and (B) such distribution is
to occur as of a date prior to January 1, 1999, such Participant's Retirement
Account is converted into an annual amount of such a deferred single life
annuity using a deferred conversion factor, with such factor based upon the
above specified mortality table and the PBGC immediate/deferred blended interest
rate (under Section 417(e)(3) of the Code, as in effect immediately prior to the
enactment of Public Law 103-465) applicable to the month as of which the
distribution of such lump sum benefit is otherwise to occur.
To the extent that (A) any immediately payable, lump sum distribution
under the Plan is the equivalent of a single life annuity otherwise deferred to
a Participant's Normal Retirement Date and (B) such distribution is to occur as
of a date during calendar year 1999, such Participant's Retirement Account is
converted into an annual amount of such a deferred single life annuity using a
deferred conversion factor, with such factor based upon the "applicable
mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended
by Public Law 103-465) and whichever of the following two interest rates results
in the larger single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of
the Code, as amended by Public Law 103-465) as in effect for the second
calendar month immediately prior to the first day of the calendar
quarter in which falls the date as of which such distribution is
otherwise to occur, and
(ii) such same "applicable interest rate" as in effect for the second
calendar month immediately prior to the month in which falls the date as
of which such distribution is otherwise to occur.
To the extent that (A) any immediately payable, lump sum distribution
under the Plan is the equivalent of a single life annuity otherwise deferred to
a Participant's Normal Retirement Date and (B) such distribution is to occur as
of a date on or after January 1, 2000, such Participant's Retirement Account is
converted into an annual amount of such a deferred single life annuity using a
deferred conversion factor, with such factor based upon the "applicable
mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended
by Public Law 103-465) and the applicable interest rate" (as defined under
Section 417(e)(3)(A) of the Code, as similarly so amended) as in effect for the
second calendar month immediately prior to the first day of the calendar quarter
in which falls the date as of which such distribution is otherwise to occur.
4. To the extent that (A) any Participant's single life annuity
otherwise payable immediately is converted into an equivalent, immediately
payable lump sum distribution and (B) the distribution of such lump sum benefit
is to occur as of a date prior to January 1, 1999, such conversion shall be done
by applying an immediate conversion factor to the annual
A-2
<PAGE>
amount of such single life annuity, with such factor based upon the above
specified mortality table and the PBGC immediate interest rate applicable to the
month as of which the distribution of such lump sum benefit is otherwise to
occur.
To the extent that (A) any Participant's single life annuity otherwise
payable immediately is converted into an equivalent, immediately payable lump
sum distribution and (B) the distribution of such lump sum benefit is to occur
as of a date during calendar year 1999, such conversion shall be done by
applying an immediate conversion factor to the annual amount of such single life
annuity, with such factor based upon the "applicable mortality table" (as
defined under Section 417(e)(3)(A) of the Code, as amended by Public Law
103-465) and whichever of the following two interest rates results in the larger
single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of
the Code, as amended by Public Law 103-465) as in effect for the second
calendar month immediately prior to the first day of the calendar
quarter in which falls the date as of which such distribution is
otherwise to occur, and
(ii) such same "applicable interest rate" as in effect for the second
calendar month immediately prior to the month in which falls the date as
of which such distribution is otherwise to occur.
To the extent that (A) any Participant's single life annuity otherwise
payable immediately is converted into an equivalent, immediately payable lump
sum distribution and (B) the distribution of such lump sum benefit is to occur
as of a date on or after January 1, 2000, such conversion shall be done by
applying an immediate conversion factor to the annual amount of such single life
annuity, with such factor based upon the "applicable mortality table" (as
defined under Section 417(e)(3)(A) of the Code, as amended by Public Law
103-465) and the "applicable interest rate" (as defined under Section
417(e)(3)(A) of the Code, as also so amended) as in effect for the second
calendar month immediately prior to the first day of the calendar quarter in
which falls the date as of which such distribution is otherwise to occur.
5. Each Participant's single life annuity otherwise deferred to such
Participant's Normal Retirement Date is, if the distribution of a lump sum
benefit is otherwise to occur as of a date prior to January 1, 1999, converted
into an equivalent, immediately payable lump sum distribution by using a
deferred conversion factor, with such factor based upon the above specified
mortality table and the PBGC immediate/deferred blended interest rate (under
Section 417(e)(3) of the Code, as in effect immediately prior to the enactment
of Public Law 103-465) applicable to the month as of which the distribution of
such lump sum benefit is otherwise to occur.
Each Participant's single life annuity otherwise deferred to such
Participant's Normal Retirement Date is, if the distribution of a lump sum
benefit is otherwise to occur as of a date during calendar year 1999, converted
into an equivalent, immediately payable lump sum distribution by using a
deferred conversion factor, with such factor based upon the "applicable
mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended
by Public Law
A-3
<PAGE>
103-465) and whichever of the following two interest rates results in the larger
single life annuity:
(i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of
the Code, as amended by Public Law 103-465) as in effect for the second
calendar month immediately prior to the first day of the calendar
quarter in which falls the date as of which such distribution is
otherwise to occur, and
(ii) such same "applicable interest rate" as in effect for the second
calendar month immediately prior to the month in which falls the date as
of which such distribution is otherwise to occur.
Each Participant's single life annuity otherwise deferred to such
Participant's Normal Retirement Date is, if the distribution of a lump sum
benefit is otherwise to occur as of a date on or after January 1, 2000,
converted into an equivalent, immediately payable lump sum distribution by using
a deferred conversion factor, with such factor based upon the "applicable
mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended
by Public Law 103-465) and the "applicable interest rate" (as defined under
Section 417(e)(3)(A) of the Code, as similarly so amended) as in effect for the
second calendar month immediately prior to the first day of the calendar quarter
in which falls the date as of which such distribution is otherwise to occur.
A-4
<PAGE>
APPENDIX B
In order to receive the benefits described in Section 5.5 of the Plan,
a Participant must have been a participant under a Prior Plan on December 31,
1990 and must satisfy the requirements set forth below that correspond to his
termination of employment date.
<TABLE>
<CAPTION>
Termination of Employment Date Requirements
------------------------------ ------------
<S> <C>
1. After December 31, 1990 and prior to 1. Age 50 with 10 Years of Service on
July 1, 1991 December 31, 1990; age 55 with 10
Years of Service on his termination
of employment date
2. After June 30, 1991 and prior to 2. Age 55 with 10 Years of Service
on January 1, 1993 his termination of employment date
3. After December 31, 1992 3. Age 50 with 5 Years of Service, or
any age and 10 Years of Service, as
of January 1, 1993
</TABLE>
B-1
<PAGE>
APPENDIX C
ADDITIONAL EARLY RETIREMENT BENEFITS
------------------------------------
1.1 Eligibility for Additional Benefits
A. Any Participant employed in the United States by an Employer,
or on sick leave or long-term disability under the Employer's Long-Term
Disability Plan, may elect to retire on August 1, 1991 (such designated date of
retirement hereinafter referred to in this Appendix C as the "Retirement Day")
and be eligible to receive the additional benefits ("Additional Benefits") set
forth under this Appendix C, provided that () on or before July 31, 1991 such
Participant shall have attained at least age 55 and completed at least ten Years
of Service under the Plan (including periods of disability in which no Years of
Service were credited), () the document entitled "Special Retirement Option
Agreement," which includes a General Release in favor of the Employer, is
signed, witnessed and dated no earlier than July 8, 1991 but no later than July
18, 1991 in strict accordance with the instructions contained therein, and ()
such Participant shall have made an election to retire on such other forms as
the Employer may require during the period commencing forty-five days after such
Participant receives the "Special Retirement Option Agreement" from the Employer
but ending no later than July 31, 1991. Participants who previously retired on
or after January 1, 1991 and before August 1, 1991 and who were employed in the
United States by the Employer shall also be eligible for the Additional Benefits
under this Appendix C, provided the preceding requirements in clauses (i)-(iii)
hereof are satisfied.
B. Notwithstanding the provisions of paragraph A hereof, any
individual whose active employment with an Employer ceased by mutual agreement
on or before May 17, 1991 shall not be eligible for any benefits under this
Appendix C.
C. Notwithstanding the provisions of paragraph A above, any
individual who is classified by an Employer as a Corporate Department Head or
President of a division shall not be eligible for the Additional Benefits under
this Appendix C.
1.2 Additional Benefits
Each Participant eligible for Additional Benefits under this Appendix C
to the Plan who elects to retire on the Retirement Day shall be entitled to the
following:
A. The Additional Benefits shall be equal to the benefit
determined, under Section 5.5 of the Plan, by increasing the Participant's age
as of August 1, 1991, by Five (5) years and Years of Service as of August 1,
1991, by Five (5) years. The Additional Benefits shall be added to the regular
pension benefit determined under Section 5.5 of the Plan.
B. The reduction contained in Section 5.5 of the Plan, which
applies to the early commencement of a Participant's benefits prior to age 62,
shall be applied after increasing the Participant's age by Five (5) years as
provided under paragraph A above.
C-1
<PAGE>
C. The Additional Benefits provided under this Appendix C to the
Plan shall be payable in the form applicable to the Participant in accordance
with the provisions of Section 9 of the Plan.
D. Participants who (i) retired on or after January 1, 1991 and
prior to August 1, 1991, (ii) are receiving retirement benefits under the Plan
prior to August 1, 1991, and (iii) are eligible under Section 1.01 A hereof,
shall have the amount of their retirement benefits recomputed under this
Appendix C from the date of their previous retirement and paid in accordance
with the form of benefit previously elected under Section 9 of the Plan. No
changes to the form of benefit previously elected shall be permitted; however,
the Additional Benefits payable for the period of time from the date of the
previous retirement to July 31, 1991 shall be paid in the form of a lump sum
distribution at the time prescribed under paragraph E hereof. In no event shall
Additional Benefits be paid to Participants who retired before January 1, 1991.
E. If a Participant elects the Additional Benefits provided under
this Appendix C to the Plan, such Participant's retirement benefits shall be
payable commencing in the first month following the month in which the
Retirement Day occurs.
C-2
<PAGE>
APPENDIX D
ADDITIONAL EARLY RETIREMENT BENEFITS
------------------------------------
1.1 Eligibility for Additional Benefits
A. Any Participant employed in the Commonwealth of Puerto Rico by
the Estee Lauder Hemisphere Division of Clinique (the "Employer"), or on sick
leave or long-term disability under the Employer's Long-Term Disability Plan,
may elect to retire on December 1, 1991 (such designated date of retirement
hereinafter referred to in this Appendix D as the "Retirement Day") and be
eligible to receive the additional benefits ("Additional Benefits") set forth
under this Appendix D, provided that (i) on or before November 30, 1991 such
Participant shall have attained at least age 55 and completed at least ten Years
of Service under the Plan (including periods of disability in which no Years of
Service were credited), (ii) the document entitled "Special Retirement Option
Agreement and General Release," which includes a General Release in favor of the
Employer, is signed, witnessed and dated no earlier than November 4, 1991 but no
later than November 14, 1991 in strict accordance with the instructions
contained therein, and (iii) such Participant shall have made an election to
retire on such other forms as the Employer may require during the period
commencing forty-five days after such Participant receives the "Special
Retirement Option Agreement" from the Employer but ending no later than November
30, 1991. Participants who previously retired on or after January 1, 1991 and
before December 1, 1991 and who were employed in the Commonwealth of Puerto Rico
by the Employer shall also be eligible for the Additional Benefits under this
Appendix D, provided the preceding requirements in clauses (i)-(iii) hereof are
satisfied.
B. Notwithstanding the provisions of paragraph A hereof, any
individual whose active employment with the Employer ceased by mutual agreement
on or before September 19, 1991 shall not be eligible for any benefits under
this Appendix D.
C. Notwithstanding the provisions of paragraph A above, any
individual who is classified by the Employer as a Corporate Department Head or
President of a division shall not be eligible for the Additional Benefits under
this Appendix D.
1.2 Additional Benefits
Each Participant eligible for Additional Benefits under this Appendix D
to the Plan who elects to retire on the Retirement Day shall be entitled to the
following:
A. The Additional Benefits shall be equal to the benefit
determined, under Section 5.5 of the Plan, by increasing the Participant's age
as of December 1, 1991, by Five (5) years and Years of Service as of December 1,
1991, by Five (5) years. The Additional Benefits shall be added to the regular
pension benefit determined under Section 5.5 of the Plan.
B. The reduction contained in Section 5.5 of the Plan, which
applies to the early commencement of a Participant's benefits, shall be applied
after increasing the Participant's age by Five (5) years as provided under
paragraph A above.
D-1
<PAGE>
C. The Additional Benefits provided under this Appendix D to the
Plan shall be payable in the form applicable to the Participant in accordance
with the provisions of Section 9 of the Plan.
D. Participants who (i) retired on or after January 1, 1991 and
prior to December 1, 1991, (ii) are receiving retirement benefits under the Plan
prior to December 1, 1991, and (iii) are eligible under Section 1.01 A hereof,
shall have the amount of their retirement benefits recomputed under this
Appendix D from the date of their previous retirement and paid in accordance
with the form of benefit previously elected under Section 8 of the Plan. No
changes to the form of benefit previously elected shall be permitted; however,
the Additional Benefits payable for the period of time from the date of the
previous retirement to November 30, 1991 shall be paid in the form of a lump sum
distribution at the time prescribed under paragraph E hereof. In no event shall
Additional Benefits be paid to Participants who retired before January 1, 1991.
E. If a Participant elects the Additional Benefits provided under
this Appendix D to the Plan, such Participant's retirement benefits shall be
payable commencing in the first month following the month in which the
Retirement Day occurs.
D-2
<PAGE>
APPENDIX E
SPECIAL PROVISIONS GOVERNING EMPLOYEES OF WHITMAN
PACKAGING CORPORATION WHO DID NOT OTHERWISE
BECOME ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992
A. SCOPE.
(i) The provisions of this Appendix E shall apply with respect
to each person who first became an employee of Whitman Packaging
Corporation prior to January 1, 1992; other than any such person who,
prior to that date, terminated such employment and immediately
thereupon transferred to, and became an employee of, an entity which
was then an Employer under the Plan as then in effect (a "Whitman
Employee"). The provisions of this Appendix E shall apply
notwithstanding any contrary provisions of the Plan, of which this
Appendix is a part.
(ii) Except to the extent expressly provided to the contrary
herein, all defined terms shall have the same meanings as provided
under the Plan. Each reference to the Plan shall (except with reference
to the first sentence of the preceding paragraph) be to either the Plan
as in effect on January 1, 1991 or the Plan as amended and restated
generally effective as of January 1, 1993 or January 1, 1997, as the
context shall require.
(iii) The provisions of this Appendix E shall not apply with
respect to (a) any person described in Appendix F or (b) any person who
first becomes an employee of Whitman Packaging Corporation ("Whitman")
on or after January 1, 1992.
B. COMMENCEMENT OF STATUS AS A PARTICIPATING EMPLOYER
C. Whitman shall become an Employer under the Plan on January 1,
1992.
(i) COMMENCEMENT OF PLAN PARTICIPATION A.1.C.i.A.1.1 BY
WHITMAN EMPLOYEES
D. No Whitman Employee shall be permitted to become a Participant
prior to January 1, 1992. The first date on or after January 1, 1992 on which
any such person
E-1
<PAGE>
may become a Participant shall be governed by the otherwise applicable
provisions of Section 3 of the Plan. In applying the terms of such participation
eligibility provision, there shall be taken into account all of such Whitman
Employee's period of employment with Whitman on or after January 1, 1984, but
only to the extent that any such period of employment would have been taken into
account had Whitman otherwise been an Employer throughout such person's entire
such period of employment.
E-2
<PAGE>
E. CREDITS TO RETIREMENT ACCOUNTS
(i) In determining the amount to be credited to the Retirement
Account of a Whitman Employee who becomes a Participant pursuant to the
provisions of Section 5 of the Plan, there shall be taken into account
all periods of such person's employment with Whitman on or after
January 1, 1984 which would otherwise have been taken into account for
such purpose had Whitman otherwise been an Employer throughout such
person's entire such period of employment; provided, however, that
there shall be taken into account for this purpose with respect to any
Whitman Employee who becomes a Participant (i) who transferred from a
non-exempt position to an exempt position prior to January 1, 1992, all
periods of employment beginning with the date on which such Whitman
Employee first became a regular, full-time employee of Whitman; (ii)
who is in a non-exempt position, all periods of employment beginning on
the later of (A) January 1, 1984, or (B) such Whitman Employee's Plan
Entry Date for purposes of the Whitman Packaging Corporation Money
Purchase Plan.
F. VESTING
(i) In determining the extent to which any Whitman Employee is
vested in his Retirement Account pursuant to the provisions of Section
8 of the Plan, there shall be taken into account all periods of such
person's employment with Whitman which are otherwise taken into account
with respect to such employee pursuant to the provisions of Section 1.4
of this Appendix E.
E-3
<PAGE>
APPENDIX F
SPECIAL PROVISIONS GOVERNING
EMPLOYEES OF WHITMAN PACKAGING CORPORATION
WHO OTHERWISE BECOME ELIGIBLE EMPLOYEES
PRIOR TO JANUARY 1, 1992
SECTION 1.1 SCOPE
The provisions of this Appendix F shall apply with respect to each
person who, prior to January 1, 1992, (a) became an employee of Whitman
Packaging Corporation and (b) thereafter terminated such employment and
immediately thereupon transferred to, and became an employee of an entity which
was then an Employer under the Plan as then in effect (a "Transferred Whitman
Employee"). The provisions of this Appendix F shall apply notwithstanding any
contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all
defined terms shall have the same meanings as provided under the Plan. Each
reference to the Plan shall (except with reference to the first sentence of the
preceding paragraph) be to either the Plan as in effect on January 1, 1991 or
the Plan as amended and restated generally effective as of January 1, 1993 or
January 1, 1997, as the context shall require.
The provisions of this Appendix F shall not apply with respect to (a)
any person subject to the provisions of Appendix E or (b) any person who first
becomes an employee of Whitman Packaging Corporation ("Whitman") on or after
January 1, 1992.
SECTION 1.2 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a
Transferred Whitman Employee for the Plan Year commencing January 1, 1992 and
for each subsequent Plan Year (but not for any prior Plan Year) pursuant to the
provisions of Section 5 of the Plan, but only in the case of such a person who
is otherwise entitled to have an amount so credited for such Plan Year, there
shall be taken into account all periods of such person's employment with Whitman
on or after January 1, 1984 which would otherwise have been taken into account
for such purpose had Whitman otherwise been an Employer throughout such person's
entire such period of employment; provided, however, that there shall be taken
into account for this purpose with respect to any Transferred Whitman Employee
(i) who transferred from a non-exempt position to an exempt position with
Whitman prior to becoming a Transferred Whitman Employee, all periods of
employment beginning with the date on which such Transferred Whitman Employee
first became a regular, full-time employee of Whitman; (ii) who was in a
non-exempt position with Whitman prior to becoming a Transferred Whitman
Employee, all periods of employment beginning on the later of (iii) January 1,
1984, or (iv) such Transferred Whitman Employee's Plan Entry Date for purposes
of the Whitman Packaging Corporation Money Purchase Plan.
F-1
<PAGE>
SECTION 1.3 VESTING
In determining the extent to which any Transferred Whitman Employee is,
for the Plan Year commencing January 1, 1992 and each subsequent Plan Year,
vested in his Retirement Account pursuant to the provisions of Section 8 of the
Plan, there shall be taken into account all periods of such person's employment
with Whitman which are otherwise taken into account with respect to such
employee pursuant to the provisions of Section 1.2 of this Appendix F.
In determining the extent to which any Transferred Whitman Employee is,
for any Plan Year beginning prior to January 1, 1992, vested in such
aforementioned Account, such person's prior employment with Whitman shall be
taken into account only to the extent required under the provisions of Section
411 of the Code.
F-2
<PAGE>
APPENDIX G
SPECIAL PROVISIONS GOVERNING
EMPLOYEES OF NORTHTEC INC. WHO DID NOT OTHERWISE
BECOME ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992
SECTION 1.1 SCOPE
The provisions of this Appendix G shall apply with respect to each
person who first became an employee of Northtec Inc. prior to January 1, 1992 at
either its Trevose, Pa. or Bristol, Pa. locations; other than any such person
who, prior to that date, terminated such employment and immediately thereupon
transferred to, and became an employee of, an entity which was then an Employer
under the Plan as then in effect (a "Northtec Employee"). The provisions of this
Appendix G shall apply notwithstanding any contrary provisions of the Plan, of
which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all
defined terms shall have the same meanings as provided under the Plan. Each
reference to the Plan shall (except with reference to the first sentence of the
preceding paragraph) be to either the Plan as in effect on January 1, 1991 or
the Plan as amended and restated generally effective as of January 1, 1993 or
January 1, 1997, as the context shall require.
The provisions of this Appendix G shall not apply with respect to (a)
any person described in Appendix H or (b) any person who first becomes an
employee of Northtec Inc. ("Northtec") on or after January 1, 1992.
SECTION 1.2 COMMENCEMENT OF STATUS AS A
PARTICIPATING EMPLOYER
Northtec shall become an Employer under the Plan on January 1, 1992.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION
BY NORTHTEC EMPLOYEES
A. No Northtec Employee shall be permitted to become a
Participant prior to January 1, 1992. The first date on or after January 1, 1992
on which any such person may become a Participant shall be governed by the
otherwise applicable provisions of Section 2 of the 1992 Plan.
B. In applying the terms of the participation eligibility
provision referred to in subsection (a) of this Section 1.3 in the case of any
Northtec Employee employed at the Trevose, Pa. location prior to January 1,
1992, there shall be taken into account all of such employee's period of
employment with Northtec on or after July 17, 1989, but only to the extent that
any such period of employment would have been taken into account had Northtec
otherwise been an Employer throughout such person's entire such period of
employment.
G-1
<PAGE>
C. In applying the terms of the participation eligibility
provision referred to in Section 1.3 in the case of any Northtec Employee
employed at the Bristol, Pa. location prior to January 1, 1992, there shall be
taken into account all of such employee's period of employment with Northtec
(including, for such purpose, all periods of employment on and after November 1,
1987, with Powder Masters, which formerly operated such location), but only to
the extent that any such period of employment would have been taken into account
had Northtec (or Powder Masters, as the case may be) otherwise been an Employer
throughout such person's entire such period of employment.
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
B. In determining the amount to be credited to the Retirement
Account of a Northtec Employee who becomes a Participant pursuant to the
provisions of Section 5 of the Plan, on behalf of any Northtec Employee employed
at the Trevose, Pa. location prior to January 1, 1992, who otherwise becomes a
Participant, there shall be taken into account all periods of such person's
employment with Northtec on or after July 17, 1989 which would otherwise have
been taken into account for such purpose had Northtec otherwise been an Employer
throughout such person's entire such period of employment.
C. In determining the amount to be credited to the Retirement
Account of a Northtec Employee who becomes a Participant pursuant to the
provisions of Section 5 of the Plan, on behalf of any Northtec Employee employed
at the Bristol, Pa. location prior to January 1, 1992, who otherwise becomes a
Participant, there shall be taken into account all periods of such person's
employment with Northtec (including, for such purpose, all periods of employment
on and after November 1, 1987, with Powder Masters) which would otherwise have
been taken into account for such purpose had Northtec (or Powder Masters, as the
case may be) otherwise been an Employer throughout such person's entire such
period of employment.
D. In addition to the credits referred to in subsections (b)
and (c) of this Section 1.4, each Northtec Employee who becomes a Participant on
January 1, 1992 shall, as of such date, be credited with $400 for each full
calendar year of employment prior to January 1, 1992, but with such calendar
years being limited to the period otherwise taken into account under the
foregoing provisions of this Section 1.4.
SECTION 1.1 VESTING
In determining the extent to which any Northtec Employee is vested in
his Account pursuant to the provisions of Section 8 of the Plan, there shall be
taken into account all periods of such person's employment with Northtec which
are otherwise taken into account with respect to such employee pursuant to the
provisions of Section 1.4 of this Appendix G.
G-2
<PAGE>
SECTION 1.2 TRANSFER BETWEEN LOCATIONS
In the case of any Northtec Employee who, prior to January 1, 1992 had been
employed at both the Trevose, Pa. location and the Bristol, Pa. location, the
provisions of this Appendix G shall, notwithstanding any other provision of this
Appendix G to the contrary, be applied as if such person had, throughout the
entire period prior to January 1, 1992, remained employed at whichever of such
two locations such Northtec Employee was first employed.
G-3
<PAGE>
APPENDIX H
SPECIAL PROVISIONS GOVERNING
EMPLOYEES OF NORTHTEC INC. WHO OTHERWISE BECOME
ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992
SECTION 1.1 SCOPE
The provisions of this Appendix H shall apply with respect to each
person who, prior to January 1, 1992, (a) became an employee of Northtec Inc. at
either its Trevose, Pa. or Bristol, Pa. locations and (b) thereafter terminated
such employment and immediately thereupon transferred to, and became an employee
of an entity which was then an Employer under the Plan as then in effect (a
"Transferred Northtec Employee"). The provisions of this Appendix H shall apply
notwithstanding any contrary provisions of the Plan, of which this Appendix is a
part.
Except to the extent expressly provided to the contrary herein, all
defined terms shall have the same meanings as provided under the Plan. Each
reference to the Plan shall (except with reference to the first sentence of the
preceding paragraph) be to either the Plan as in effect on January 1, 1991 or
the Plan as amended and restated generally effective as of January 1, 1993 or
January 1, 1997, as the context shall require.
The provisions of this Appendix H shall not apply with respect to (a)
any person subject to the provisions of Appendix G or (b) any person who first
becomes an employee of Northtec Inc. ("Northtec") on or after January 1, 1992.
SECTION 1.2 CREDITS TO RETIREMENT ACCOUNTS
B. In determining the amount to be credited to the Retirement
Account of a Transferred Northtec Employee, who was employed at the Trevose, Pa.
location prior to becoming a Transferred Northtec Employee, for the Plan Year
commencing January 1, 1992 and for each subsequent Plan Year (but not for any
prior Plan Year) pursuant to the provisions of Section 5 of the Plan, but only
in the case of such a person who is otherwise entitled to have an amount so
credited for such Plan Year, there shall be taken into account all periods of
such person's employment with Northtec on or after July 17, 1989 which would
otherwise have been taken into account for such purpose had Northtec otherwise
been an Employer throughout such person's entire such period of employment.
C. In determining the amount to be credited to the Retirement
Account of a Transferred Northtec Employee, who was employed at the Bristol, Pa.
location prior to becoming a Transferred Northtec Employee, for the Plan Year
commencing January 1, 1992 and for each subsequent Plan Year (but not for any
prior Plan Year) pursuant to the provisions of Section 5 of the Plan, but only
in the case of such a person who is otherwise entitled to have an amount so
credited for such Plan Year, there shall be taken into account all periods of
such person's employment with Northtec (including, for such purpose, all periods
of
H-1
<PAGE>
employment on and after November 1, 1987, with Powder Masters) which would
otherwise have been taken into account for such purpose had Northtec (or Powder
Masters, as the case may be) otherwise been an Employer throughout such person's
entire such period of employment.
D. In addition to the credits referred to in subsections (b)
and (c) of this Section 1.2, each Transferred Northtec Employee who was
otherwise a Participant in the Plan on January 1, 1992, shall, as of such date,
be credited with the greater of (a) the balance otherwise determined under the
Plan as of that date, without regard to this Appendix H or (b) an amount equal
to the sum of $400 multiplied by the number of such person's full calendar years
of employment prior to January 1, 1992. For this purpose, such calendar years of
employment for any Transferred Northtec Employee shall be determined by taking
into account all periods of employment otherwise taken into account with respect
to such person under the foregoing provisions of this Section 1.2 as well as all
periods otherwise recognized under the Plan without regard to this Appendix H.
SECTION 1.1 VESTING
In determining the extent to which any Transferred Northtec Employee is,
for the Plan Year commencing January 1, 1992 and each subsequent Plan Year,
vested in his Retirement Account pursuant to the provisions of Section 8 of the
Plan, there shall be taken into account all periods of such person's employment
with Northtec which are otherwise taken into account with respect to such
employee pursuant to the provisions of Section 1.2 of this Appendix H.
In determining the extent to which any Transferred Northtec Employee is,
for any Plan Year beginning prior to January 1, 1992, vested in such
aforementioned Account, such person's prior employment with Northtec shall be
taken into account only to the extent required under the provisions of Section
411 of the Code.
SECTION 1.2 TRANSFER BETWEEN LOCATIONS
In the case of any Transferred Northtec Employee who, prior to so
becoming a Transferred Northtec Employee, had been employed at both the Trevose,
Pa. location and the Bristol, Pa. location, the provisions of this Appendix H
shall, notwithstanding any other provisions of this Appendix H to the contrary,
be applied as if such person had, throughout the entire period prior to becoming
a Transferred Northtec Employee, remained employed at whichever of such two
locations such person was first employed.
H-2
<PAGE>
APPENDIX I
ADDITIONAL RETIREMENT BENEFITS
------------------------------
SECTION 1.1 Eligibility for Additional Benefits
The following Participants shall receive the additional benefits
provided pursuant to this Appendix I:
NAME SOCIAL SECURITY NO.
---- -------------------
Acevedo, Muthmet Juarbe ###-##-####
Agosto Pagan, Francisco ###-##-####
DeJesus Moreira, Lydia ###-##-####
Del Valle, Maria T. ###-##-####
Iglesia Anglero, Josephina ###-##-####
Morales Borrero, Alicia ###-##-####
Suris Mallo, Julieta ###-##-####
SECTION 1.2 Additional Benefits
Each Participant described in the foregoing Section 1.1 of this Appendix
I shall be entitled to the following:
B. The Additional Benefits shall be equal to the benefit
determined, under Section 5.5 of the Plan, by increasing the Participant's age
by Five (5) years and Years of Credited Service by Five (5) years. The
Additional Benefits shall be added to the regular pension benefit determined
under Section 5.5 of the Plan.
C. The reduction contained in Section 5.5 of the Plan, which
applies to the early commencement of a Participant's benefits, shall be applied
after increasing the Participant's age by Five (5) years as provided under
paragraph A above.
D. The Additional Benefits provided under this Appendix I
shall be payable in the form otherwise applicable to the Participant in
accordance with the generally applicable provisions of the Plan.
I-1
<PAGE>
APPENDIX J
ADDITIONAL EARLY RETIREMENT BENEFITS - II
-----------------------------------------
1.1 Eligibility for Additional Benefits.
(1) Any Participant who is (i) employed by the Employer, (ii) on
an Approved Absence (paid or unpaid) from the Employer, (iii) on sick leave or
long-term disability under the Employer's Long-Term Disability Plan with
disability payments continuing on and after January 1, 1997 or (iv) receiving
severance payments from the Employer that are being paid on or after January 1,
1997 (such persons being hereinafter referred to as a "Covered Employee"), may
elect to retire on the first day of any month commencing on January 1, 1997 and
ending on July 1, 1998 as designated by the Employer and Covered Employee in the
"General Release" (such designated date of retirement hereinafter referred to in
this Appendix J as the "Retirement Date").
Such Covered Employee shall be eligible to receive the benefit
described in Paragraph 1.2 of this Appendix J, provided that (i) on or before
December 31, 1996, such Covered Employee shall have attained at least age 50 and
completed at least ten Years of Service or Years of Credited Service under the
Plan, (ii) on or before December 31, 1996, any such Covered Employee who was
employed by Whitman Packaging Corporation has completed at least four Years of
Eligibility Service under the Plan, (iii) the document entitled "Special
Retirement Opportunity" is signed, witnessed and dated no earlier than November
8, 1996 in strict accordance with the instructions contained therein, and (iv)
such Covered Employee shall have made an election to retire on such other forms
as the Employer may require during the period commencing at least forty-five
days after such Covered Employee receives the "General Release" from the
Employer but ending no later than June 4, 1998. Participants who previously
retired on or after January 1, 1996 and before January 1, 1997 and who were
employed in the United States by the Employer shall also be eligible for the
benefits described in Paragraph 1.2 of this Appendix J, provided the preceding
requirements in clauses (i)-(iv) hereof are satisfied (such persons are
hereinafter referred to as "Retired Covered Employees").
(2) Notwithstanding the provisions of paragraph 1 above, any
individual who is classified by an Employer as a Corporate Department Head or
President of a division shall not be eligible for the benefit described in
Paragraph 1.2 of this Appendix J.
1.2 Additional Benefits.
(1) Each Covered Employee who elects to retire on the Retirement
Date shall be entitled to his Accrued Benefit which will be calculated as if
such Covered Employee was five years older than his actual age as of December
31, 1996, and by increasing his Years of Service and Years of Credited Service
as of December 31, 1996 (the difference between the Covered Employee's benefit
determined under this Appendix J and his benefit determined without regard to
the enhancement provided under this Appendix J shall hereinafter be referred to
as the "Additional Benefit").
(2) The reduction contained in Section 5.5 of the Plan, which
applies to the early commencement of a Covered Employee's Accrued Benefit
determined under the terms of
J-1
<PAGE>
the Prior Plan, shall be applied after increasing the Covered Employee's age by
Five (5) years as provided under Paragraph 1.2(1) above.
(3) If the Covered Employee elects to retire pursuant to the
provisions of this Appendix J, such Covered Employee may elect at any time prior
to the date of commencement of his benefit to receive his benefit, calculated in
accordance with the provisions of the Plan and this Appendix J, in the forms of
payment applicable to the Covered Employee in accordance with the provisions of
Section 9 of the Plan.
(4) All Retired Covered Employees who (i) retired on or after
January 1, 1996 and prior to January 1, 1997 and (ii) are receiving retirement
benefits under the Plan prior to January 1, 1997 shall have the amount of their
retirement benefits recomputed under this Appendix J (taking into the account
the provisions of paragraphs (1) and (2) hereof) from the date of their previous
retirement and paid in accordance with the form of benefit previously elected
under Section 9 of the Plan. No changes to the form of benefit previously
elected shall be permitted. In no event shall Additional Benefits be paid to
Participants who retired before January 1, 1996.
(5) If a Covered Employee or Retired Covered Employee elects to
receive the Additional Benefits provided under this Appendix J to the Plan, such
Covered Employee's or Retired Covered Employee's retirement benefits shall be
payable with respect to or commencing on the first month following the month in
which the Retirement Date occurs.
1.3 Defined Terms.
Except to the extent set forth above, the provisions of this Appendix J
are subject to the terms and conditions of the Plan and defined terms used in
this Appendix J shall have the same meaning as used in the Plan.
J-2
<PAGE>
APPENDIX K
SPECIAL PROVISIONS GOVERNING
EMPLOYEES OF BOBBI BROWN PROFESSIONAL
COSMETICS, INC. WHO DID NOT OTHERWISE
BECOME ELIGIBLE EMPLOYEES
-------------------------------------
SECTION 1.1 SCOPE
The provisions of this Appendix K shall apply notwithstanding any contrary
provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined
terms shall have the same meanings as provided under the Plan. Each reference to
the Plan shall (except with reference to the first sentence of the preceding
paragraph) be the Plan as amended and restated generally effective as of January
1, 1993 or January 1, 1997, as the context shall require.
SECTION 1.2 COMMENCEMENT OF STATUS AS A
PARTICIPATING EMPLOYER
Bobbi Brown Professional Cosmetics, Inc. ("Bobbi Brown") shall become an
Employer under the Plan on January 1, 1996.
SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION
BY BOBBI BROWN EMPLOYEES
No Bobbi Brown employee shall be permitted to become a Participant prior to
January 1, 1996. Each person who (i) is employed by Bobbi Brown on January 1,
1996 and (ii) is otherwise an Employee on that date shall become a Participant
on January 1, 1996. (Each person who so becomes a Participant on that date is
hereafter referred to as a "Bobbi Brown Employee".)
SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a
Bobbi Brown Employee who becomes a Participant, pursuant to the provisions of
Section 5 of the Plan, such person's Years of Service, for such purpose, shall
be determined based upon the date that such person would otherwise have, without
regard to this Appendix K, first become a Participant had Bobbi Brown been an
Employer throughout such person's entire period of employment with Bobbi Brown.
SECTION 1.5 VESTING
K-1
<PAGE>
In determining the extent to which any Bobbi Brown Employee is vested in
his Retirement Account pursuant to the provisions of Section 8 of the Plan, such
person's Years of Service, for such purpose, shall be determined by taking into
account all periods of such person's employment with Bobbi Brown which would
otherwise have been taken into account for such purpose had Bobbi Brown
otherwise been an Employer throughout such person's entire period of employment
with Bobbi Brown.
K-2
<PAGE>
APPENDIX L
SPECIAL PROVISIONS GOVERNING
ESTEE LAUDER EMPLOYEES WHO WERE PREVIOUSLY
EMPLOYED BY THE DONNA KARAN COMPANY
WHO DID NOT OTHERWISE
BECOME ELIGIBLE EMPLOYEES
-------------------------------------------------
SECTION 1.1 SCOPE
The provisions of this Appendix L shall apply with respect to each person
who was an employee of The Donna Karan Company ("DK") immediately prior to
November 10, 1997 and becomes an Employee prior to December 31, 1998 (a "DK
Employee"). The provisions of this Appendix L shall apply notwithstanding any
contrary provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all defined
terms shall have the same meanings as provided under the Plan. Each reference to
the Plan shall be the Plan as amended and restated generally effective as of
January 1, 1997.
SECTION 1.2 COMMENCEMENT OF PLAN PARTICIPATION
BY DK EMPLOYEES
No DK Employee shall be permitted to become a Participant prior to November
10, 1997. The first date on or after November 10, 1997 on which any such person
may become a Participant shall be governed by the otherwise applicable
provisions of Section 3 of the Plan. In applying the terms of such participation
eligibility provision, there shall be taken into account all of such DK
Employee's period of employment with DK, but only to the extent that any such
period of employment would have been taken into account had DK otherwise been an
Employer throughout such person's entire period of employment with DK.
SECTION 1.3 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a DK
Employee who becomes a Participant pursuant to the provisions of Section 5 of
the Plan, there shall be taken into account all periods of such person's
employment with DK which would otherwise have been taken into account for such
purpose had DK otherwise been an Employer throughout such person's entire such
period of employment.
L-1
<PAGE>
SECTION 1.4 VESTING
In determining the extent to which any DK Employee is vested in his
Retirement Account pursuant to the provisions of Section 8 of the Plan, there
shall be taken into account all periods of such person's employment with DK
which are otherwise taken into account with respect to such employee pursuant to
the provisions of Section 1.4 of this Appendix L.
L-2
<PAGE>
APPENDIX M
SPECIAL PROVISIONS GOVERNING
CERTAIN TRANSFERRED EMPLOYEES
SECTION 1.1 SCOPE
The provisions of this Appendix M shall apply with respect to each
person (i) who was an employee of one of the companies listed below on or after
the date specified below for such company, and (ii) whose employment is
subsequently transferred from such company to an Employer (each a "Transferred
Employee"):
-----------------------------------------------------------------------
Company Date
-----------------------------------------------------------------------
Make-Up Art Cosmetics Inc. December 28, 1994
Make-Up Art Cosmetics (U.S.) Inc.
FFJD, Inc.
-----------------------------------------------------------------------
Sassaby Cosmetics, Inc. October 31, 1997
-----------------------------------------------------------------------
Aveda Corporation December 1, 1997
Aveda Services Inc.
-----------------------------------------------------------------------
The provisions of this Appendix M shall apply notwithstanding any contrary
provisions of the Plan, of which this Appendix is a part.
Except to the extent expressly provided to the contrary herein, all
defined terms shall have the same meanings as provided under the Plan. Each
reference to the Plan shall be the Plan as amended and restated generally
effective as of January 1, 1999.
SECTION 1.2 COMMENCEMENT OF PLAN PARTICIPATION BY TRANSFERRED
EMPLOYEES
The first date on which any Transferred Employee may become a
Participant shall be governed by the otherwise applicable provisions of Section
3 of the Plan. In applying the terms of such participation eligibility
provision, there shall be taken into account all of such Transferred Employee's
period of employment with his prior employer listed in Section 1.1 of this
Appendix M (including any corporate predecessor thereof), but only to the extent
that any such period of employment would have been taken into account had such
prior employer otherwise been an Employer throughout such person's entire period
of employment.
SECTION 1.3 CREDITS TO RETIREMENT ACCOUNTS
In determining the amount to be credited to the Retirement Account of a
Transferred Employee who becomes a Participant pursuant to the provisions of
Section 5 of the Plan, there shall be taken into account all periods of such
person's employment with his prior employer listed in Section 1.1 of this
Appendix M (including any corporate predecessor thereof) which would otherwise
have been taken into account for such purpose had such prior employer otherwise
been an Employer throughout such person's entire period of employment.
M-1
<PAGE>
SECTION 1.4 VESTING
In determining the extent to which any Transferred Employee is vested
in his Retirement Account pursuant to the provisions of Section 8 of the Plan,
there shall be taken into account all periods of such person's employment with
his prior employer listed in Section 1.1 of this Appendix M (including any
corporate predecessor thereof) which would otherwise have been taken into
account for such purpose had such prior employer otherwise been an Employer
throughout such person's entire period of employment.
M-2
<PAGE>
IN WITNESS WHEREOF, the undersigned, being duly authorized by the
Benefits Committee, has caused this amended restated Plan to be executed this
14 day of July, 1999.
ESTEE LAUDER INC.
By: /s/ Andrew J. Cavanaugh
--------------------------------
Name: Andrew J. Cavanaugh
Title: Senior Vice President--
Corporate Human Resources
<PAGE>
THE
ESTEE LAUDER INC.
RETIREMENT BENEFITS RESTORATION PLAN
Effective as of January 1, 1984
Amended and Restated as of January 1, 1999
<PAGE>
THE
ESTEE LAUDER INC.
RETIREMENT BENEFITS RESTORATION PLAN
ARTICLE I
INTRODUCTION
------------
1. This instrument amends and restates as of January 1, 1999, the terms and
conditions of the Estee Lauder Inc. Retirement Benefits Restoration Plan,
as previously adopted effective as of January 1, 1984.
2. The purpose of this Plan is to provide for certain Employees of the Company
and its subsidiaries retirement benefits over and above the benefits
provided by the Estee Lauder Inc. Retirement Growth Account Plan. This Plan
is not intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
3. The Plan is intended to be an "excess benefit plan" as that term is defined
in Section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") with respect to those participants whose benefits under
the Retirement Plan have been limited by Section 415 of the Code, and a
"top hat" plan meeting the requirements of Sections 201(2), 301(a)(3),
401(a)(1) and 4021(b)(6) of ERISA with respect to those participants whose
benefits under the Retirement Plan have been limited by Section 401(a)(17)
of the Code.
ARTICLE II
DEFINITIONS
-----------
1. "Beneficiary" shall mean the individual entitled to receive a death or
survivor benefit under the Retirement Plan.
2. "Board" shall mean the Board of Directors of the Company.
3. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2
<PAGE>
4. "Company" shall mean Estee Lauder Inc. or any successor thereto.
5. "Employee" shall mean any employee who is a participant in the Retirement
Plan whose benefit thereunder is limited by Section 415 or Section
401(a)(17) of the Code.
6. "Employee Benefits Committee" shall mean the Estee Lauder Inc. Employee
Benefits Committee, which administers the Retirement Plan.
7. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
8. "Fiduciary Committee" shall mean the Estee Lauder Inc. Fiduciary Investment
Committee, which performs certain fiduciary functions with respect to the
Retirement Plan.
9. "Plan" shall mean the Estee Lauder Inc. Retirement Benefits Restoration
Plan as hereinafter from time to time amended.
10. "Plan Year" shall mean the period beginning January 1 and ending December
31 of each calendar year.
11. "Retirement Plan" shall mean the Estee Lauder Inc. Retirement Growth
Account Plan, as amended and restated as of January 1, 1999, and as amended
from time to time thereafter.
12. "Retirement Plan Supplemental Benefit" shall mean the benefit provided for
pursuant to Article III hereof.
ARTICLE III
BENEFITS PAYABLE UNDER THIS PLAN
--------------------------------
1. An Employee who is a participant in the Retirement Plan shall be entitled
to a Retirement Plan Supplemental Benefit as hereinafter provided. Such
benefit shall be an amount equal to the excess of (i) over (ii) where:
(i) is the benefit which would have been paid to such
Employee (or his Beneficiary) under the Retirement Plan, if
the provisions of the
3
<PAGE>
Retirement Plan were administered without regard to the
limitations set forth in Section 415 of the Code and reflected
in the Retirement Plan; and
(ii) is the limited benefit which is payable to such
Employee (or his Beneficiary) under the Retirement Plan after
giving effect to the limitations set forth in Section 415 of
the Code and reflected in the Retirement Plan.
2. In addition, each Employee who is a participant in the Retirement Plan
shall be entitled to a Retirement Plan Supplemental Benefit equal to the
amount by which the Retirement Plan Supplemental Benefit determined under
Section 1 of this Article III would be greater if it were determined by
disregarding, in addition to Section 415 limitations, any limitations on
such Employee's "Compensation" and "Average Final Compensation" imposed by
reason of Section 401(a)(17) of the Code.
ARTICLE IV
PAYMENT OF BENEFITS
-------------------
1. Payment of Retirement Plan Supplemental Benefits shall commence as of the
day as of which payments are first paid to such Employee (or his
Beneficiary) under the Retirement Plan, and shall be payable in the same
manner and with the same limitations, including any applicable actuarial
reductions or increases, as payments made pursuant to the Retirement Plan.
Notwithstanding the foregoing, the Fiduciary Committee shall be permitted
to designate actuarial assumptions different from those used under the
Retirement Plan, which alternative assumptions, if so designated, shall be
set forth in Appendix A to this Plan.
2. Notwithstanding the foregoing Section 1 of this Article IV, in the event an
Employee elects to receive a lump sum payment under the Retirement Plan,
the Company reserves the right to make any payment of Retirement Plan
Supplemental Benefits in equal annual installments over a period not to
exceed five years.
4
<PAGE>
ARTICLE V
VESTING
-------
1. An Employee shall be vested in his Retirement Plan Supplemental Benefit to
the same extent such Employee is vested in his accrued benefit under the
Retirement Plan.
ARTICLE VI
BENEFICIARIES
-------------
1. An Employee's Beneficiary or Beneficiaries under this Plan shall be deemed
to be the same individual or individuals designated, or otherwise
determined to be the beneficiary or beneficiaries of the death benefit
payable under the Retirement Plan.
2. In the event of the death of an Employee who would have been entitled to a
Retirement Plan Supplemental Benefit or who has begun to receive a
Retirement Plan Supplemental Benefit, such Employee's Beneficiary shall be
entitled to a death or survivor benefit only if such Beneficiary would be
entitled to a death or survivor benefit under the Retirement Plan, and
payment shall be made to such Beneficiary pursuant to the provisions of the
Article IV hereof.
ARTICLE VII
FUNDING
-------
1. Benefit payment shall be paid in cash from the general funds of the Company
and no special or separate fund shall be established and no segregation of
assets shall be made to assure payment of distributions. Nothing contained
in this Plan and no action taken pursuant to its provisions shall create or
be construed to create a trust of any kind, nor a fiduciary relationship
between the Company and the Employee or any other person. To the extent
that any person acquires a right to receive benefits from the Company under
this Plan, such right shall be no greater than the right of an unsecured
creditor of the Company.
5
<PAGE>
ARTICLE VIII
ADMINISTRATION OF THE PLAN
--------------------------
1. This Plan shall be operated under direction of the Board and administered
by the Employee Benefits Committee, in a manner consistent with the
operation and administration of the Retirement Plan as set forth in the
appropriate articles of such plan. The Employee Benefits Committee's
decision in any matter involving the interpretation and application of this
Plan shall be final and binding.
ARTICLE IX
LOSS OF BENEFITS
----------------
1. Notwithstanding any provision of this Plan to the contrary, in the sole
discretion of the Company and after written notice to the Employee or such
other person designated by the Employee, rights to receive any benefits
under this Plan may be forfeited, suspended, reduced or terminated in cases
of gross misconduct by the Employee, or of any conduct, activity or
competitive occupation which is reasonably deemed to be prejudicial to the
interests of the Company, including but not limited to the utilization or
disclosure of confidential information for gain or otherwise.
ARTICLE X
AMENDMENT AND TERMINATION
-------------------------
1. The Company expects to continue this Plan indefinitely but reserves the
right to amend or terminate it if, in its sole judgment, such a change is
deemed necessary or desirable. If the Company shall amend this Plan, the
rights of an Employee to his accrued benefit under the Plan, determined as
of the date of such amendment, shall be nonforfeitable to the extent that
any such amendment would reduce such Employee's benefit hereunder. If the
Company shall terminate this Plan, the rights of an Employee to his accrued
benefit hereunder shall, as of the date of such termination, be
nonforfeitable and, unless the Fiduciary Committee approves earlier
payment, such accrued benefit shall be paid at such time or times as
provided in Article IV hereof.
2. If the Company should terminate the Retirement Plan with respect to
participants therein, Employees shall cease to accrue additional benefits
hereunder and, unless the Fiduciary Committee approves
6
<PAGE>
earlier payment, their accrued benefits under this Plan as of the date of
such Retirement Plan termination shall continue to be payable at the same
time or times, in the same manner and with the same limitations (including
any applicable actuarial reductions or increases) as their benefits would
have been paid under the Retirement Plan if such plan had not terminated.
Notwithstanding the foregoing, the Fiduciary Committee shall be permitted
to designate actuarial assumptions different from those used under the
Retirement Plan, which alternative assumptions, if so designated, shall be
set forth in Appendix A to this Plan. The Employee Benefits Committee may
specify any election forms or other procedures necessary to carry out the
intent of this Section 2.
ARTICLE XI
MISCELLANEOUS
-------------
1. (a) No right to payment or any other interest of an Employee shall be
assignable or subject to attachment, execution or levy of any kind, except
to the extent permitted by law or a court ruling.
(b) No contribution to or benefit payable under this Plan shall be
deemed salary or other compensation to the Employee for the purpose of
computing benefits to which he may be entitled under the Retirement Plan.
This Plan shall be binding upon and inure to the benefit of the Company and
its successors and assigns and the Employee and his Beneficiary or
Beneficiaries.
(c) Neither the eligible Employee nor his Beneficiary or Beneficiaries
shall encumber, sell or dispose of the right to receive the payments
provided under this Plan, which payments and the rights thereto are
expressly declared to be nontransferable and nonassignable.
(d) The Company may withhold from any benefits payable under the Plan
any taxes required to be withheld pursuant to any law or governmental
regulation or ruling.
(e) Nothing in this Plan shall be construed as giving any Employee the
right to be retained in the employ of the Company or any other "Employer"
(within the meaning of the Retirement
7
<PAGE>
Plan). Each Employer expressly reserves the right to dismiss any Employee
at any time without regard to the effect which such dismissal might have
upon him under the Plan.
(f) This Plan shall be construed, administered and enforced according
to the laws of the State of New York.
8
<PAGE>
APPENDIX A
Actuarial Assumptions Different From Those Used Under Retirement Plan
---------------------------------------------------------------------
As of January 1, 1999
---------------------
None.
9
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
AGREEMENT (this "Agreement") between THE ESTEE LAUDER COMPANIES INC., a
Delaware corporation (the "Company"), and PATRICK BOUSQUET-CHAVANNE, currently a
resident of Paris, France (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company and its subsidiaries are principally engaged in
the business of manufacturing and marketing prestige skin care, makeup and
fragrance products (the "Business"); and
WHEREAS, the Company desires to retain the services of the Executive in
the capacity of President of Estee Lauder International, Inc. ("ELII"), a
subsidiary of the Company, and the Executive desires to provide such services in
such capacity to the Company, upon the terms and subject to the conditions
hereinafter set forth;
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 in its employ, and the Executive
hereby agrees to enter into such employment, as President of ELII for an initial
period commencing on the date that Executive notifies the Company that his
undertaking such employment shall neither violate nor conflict with the terms of
any agreement then enforceable regarding Executive's employment (the "Effective
Date"), and ending on June 30, 2001 unless terminated sooner pursuant to Section
5 hereof (the "Term of Employment"). In no event shall the Effective Date be
later than October 20 , 1998. The Term of Employment shall automatically
continue for successive twelve (12) month periods commencing on July 1, 2001 and
each July 1 thereafter unless, prior to December 31, 2000 or each December 31
thereafter one party shall provide to the other written notice of its election
to terminate this Agreement, in which case the Term of Employment shall
terminate as of the next succeeding June 30. The period commencing with the
Effective Date and ending June 30, 1999 shall be the "First Contract Year"
hereunder, and subsequent twelve-month periods shall be subsequent "Contract
Years" hereunder.
1
<PAGE>
2. Duties and Extent of Services.
(a) During the Term of Employment, the Executive shall serve
as the President of ELII, a subsidiary of the Company, and, in such capacity,
shall render such managerial, administrative and other services as customarily
are associated with and incident to such positions, and as the Company may, from
time to time, reasonably require of him consistent with such position;
(b) The Executive shall hold such other positions and
executive offices of the Company and/or of any of the Company's 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 of ELII. 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 subsidiaries or affiliates,
unless the Board of Directors 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 perform
faithfully, competently and diligently to the best of his ability all of the
duties required of him as President of ELII, and in the other positions or
offices of the Company or its 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 not-for-profit or profit-making organizations)
as the Board of Directors or Chief Executive Officer of the Company shall
approve.
3. Compensation.
(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") during the
Term of Employment as follows:
For the First Contract Year $ 900,000
For the Second Contract Year $ 950,000
For the Third Contract Year $ 1,000,000
2
<PAGE>
Base Salary for subsequent Contract Years, if any, shall be determined by
further agreement between the parties provided, however, that the Base Salary
for any Contract Year shall not be less than the Base Salary established for the
preceeding Contract Year. 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: During the Term of
Employment, the Executive shall participate in the Company's Annual Incentive
Plan (the "Bonus Plan") or in any successor incentive bonus plans or programs
hereafter adopted which provide for the rendering of incentive compensation to
senior officers. During the Term of Employment hereunder, the Executive's target
award under the Bonus Plan (i.e., the maximum bonus which may be awarded) shall
be established as follows:
- For the period from the Effective Date through the end of the First
Contract Year, the target bonus award shall be $600,000;
- For the Second Contract Year, the target bonus award shall be
$700,000, and
- For the Third Contract Year, the target bonus award shall be
$800,000.
Target bonus awards for subsequent Contract Years, if any, shall be determined
by further agreement between the parties provided, however, that the target
bonus award for any Contract Year shall not be less than the target bonus award
established for the preceeding Contract Year. The amount of the actual bonus
award to the Executive shall be calculated with reference to the attainment by
the Company and by the Executive of performance goals for the relevant Contract
Year, which goals shall be established by the Board of Directors of the Company
upon the recommendation of the Compensation Committee thereof and after
consultation with the Executive; provided, however, in the event that the actual
award for the period from the Effective Date through the end of the First
Contract Year shall be less than $500,000, the amount by which such award shall
be less than $500,000 shall be added to the target award for the Second Contract
Year as set out above.
(c) In addition to the amounts of base salary and bonus set
out at subparagraphs 3(a) and 3(b), above, the Company shall pay to Executive a
one time signing
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bonus, in the gross amount of $200,000. Such amount shall be paid as soon as
practicable after the Effective Date, but in no event later than thirty days
after the Effective Date.
(d) The Company shall loan to the Executive the principal
amount of $1,000,000, as soon as practicable after the Effective Date. Such loan
shall bear interest at the Intermediate Term Applicable Federal Rate as
established as of the date of such loan. Such interest shall be capitalized and
not paid currently. Such loan shall be forgiven in five approximately equal
annual installments, each installment consisting of a portion of principal and
capitalized interest outstanding, plus an amount equal to the federal, state and
local income tax incurred by the executive in connection with each such event of
forgiveness. The first such forgiveness shall be effective as of the last day of
the First Contract Year, and an additional forgiveness shall occur as of the
last day of each of the four successive Contract Years provided that the
Executive shall remain in the continuous employ of the Company during the
entirety of such five year period. Amounts not forgiven shall be repayable by
the Executive as of the date of termination of his employment with the Company.
(e) 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 during the Term of
Employment, by giving 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, 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
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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 the first anniversary of the termination of the Executive from employment
with the Company. Any amount of bonus deferred by election of the Executive or
the Company pursuant to this paragraph 3(e) (but not interest credits thereon)
shall be considered pensionable compensation in connection with the calculation
of the Executive's benefit, if any, under the Company's Retirement Growth
Account plan and Benefits Restoration Plan (the "Pension Plans") or successor
plans of similar import.
(f) Share Incentive Plan: The Executive shall participate in
the Company's Share Incentive Plan according to the terms thereof. The Company
shall recommend to the Compensation Committee of the Board of Directors that the
Executive be awarded 75,000 options to purchase shares of Class A Common Stock
of the Company as of the Effective Date,under the terms of such Plan.
Thereafter, the Company shall recommend to the Compensation Committee of the
Board of Directors that Executive be awarded no fewer than 50,000 of such
options as of July 1, 1999 (in respect of the Second Contract Year) and 50,000
of such options as of July 1, 2000 (in respect of the Third Contract Year).
4. Benefits.
a. Standard 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,
Pension Plans, incentive savings (i.e., "401(k)) plans, contributory and
non-contributory Company welfare and benefit plans, disability plans, and
medical, death benefit and life insurance plans for which the Executive shall be
eligible, or may become eligible during the Term of Employment; and (ii) 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. The prior service of the Executive with the Company shall be
recognized for all purposes related to the employee benefit plans of the
Company, in accordance with the provisions of each such plan.
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(b) Additional Insurance. The Company shall provide Executive,
subject to usual underwriting considerations, additional executive life
insurance in the amount of $1,000,000. Executive acknowledges that this
coverage, if issued, will result in the receipt by him of additional taxable
income.
(c) Perquisites; Financial Counselling. Executive will
participate in the Executive Perquisite program of the Company, and will be
reimbursed amounts up during to $15,000 in respect of each full calendar year
the Term of Employment for expenses qualifying under the terms of such program.
Additionally, the Executive will be provided financial consulting services
through a firm chosen by the Company. Executive acknowledges that participation
in such programs will result in the receipt by him of additional taxable income.
(d) Executive Auto. The Executive will participate in the
Executive Automobile program of the Company, and may elect to be provided an
automobile having an acquisition value of up to $30,000. Executive acknowledges
that participation in this program will result in the receipt by him of
additional taxable income.
(e) Parking Company shall provide to Executive, at its cost,
parking facilities in the General Motors Building.
(f) 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.
(g) Spousal Travel and Home Leave. The Executive will
participate in the Spousal Travel program of the Company under the terms
thereof, and additionally will be provided two round trip airfares from New York
City to Paris, France for himself and his immediate family members during each
full year of the Term of Employment.
(h) Certain Social Security Accounts. To the extent permitted
by applicable law and regulation, the Company shall, at its expense, maintain
contributions to the Executive's French Social Security Account, up to the
generally applied limit on annual contribution amounts.
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(i) Relocation Assistance. The Company shall reimburse to
the Executive the reasonable actual cost of freightage (including customs
imposts, if any) of household goods from Paris, France to New York City, and the
actual cost of air transport for the Executive and his family undertaken in
connection with his relocation to New York. Additionally, the Company shall
provide temporary living expenses for the Executive and his family in the New
York area for a period not to exceed three (3) months. Other than as set out in
this subparagraph 4(h), the Company shall have no obligation to Executive with
respect to his relocation, or his acquisition of a principal residence in the
New York area.
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
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 Executive shall be entitled (i) to receive
any amounts or benefits to which the Executive may otherwise have been entitled
but for the Executive's permanent disability prior to the effective date of
termination, (ii) to be paid his Base Salary as established 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 long-term disability
payments, if any, to the Executive; and (iii) to any and all bonus compensation
under Section 3(b) hereof prorated to the date of termination. 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. For
purposes of this paragraph, "permanent disability" means any disability as
defined under the Company's applicable disability insurance policy or, if no
such policy is available, 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
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for a period of six (6) consecutive months or for shorter periods aggregating
six (6) months during any twelve-month period.
(a) Death. In the event of the death of the Executive during
the Term of Employment, this Agreement shall automatically terminate and 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 to the day on which his death occurs;
(ii) any and all bonus compensation under Section 3(b) hereof prorated to the
date of death; and (iii) any other amounts to which the Executive otherwise
would have been entitled but for his death.
(b) 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 termination pursuant
to this Section 5(c) during the First Contract Year or the Second Contract Year,
for a period of two (2) years from the date of such termination, the Executive
shall be entitled as damages to (i) receive his Base Salary as established under
Section 3(a) hereof; (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 Base Salary as in effect on such date of
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. In the event of termination pursuant to
this Section 5(c) at any time thereafter, for a period of one (1) year from the
date of such termination , the Executive shall be entitled as damages to (i)
receive his Base Salary as established under Section 3(a) hereof; (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
Base Salary as in effect on such date of 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.
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In the event of termination pursuant to this Section 5(c), the Executive shall
not be required to mitigate his damages hereunder.
(c) 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 hereof and provide the
Executive any benefits to which the Executive may otherwise have been 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 programs and plans.
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 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).
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(e) Termination by Executive for Material Breach. The
Executive may elect to terminate his employment after a "material breach" (as
defined below) of this Agreement by the Company effective thirty (30) days after
the Executive gives the Company notice of such material breach; provided,
however, that such notice must be provided to the Company within five (5) 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(e), a material breach shall include,
but not be limited to, (i) a material reduction in the Executive's authority,
functions, duties or responsibilities provided in Section 2 hereof, or (ii) 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.
(f) 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 (but not below zero) until no portion of such payments would be
subject to Excise Tax.
(g) Effect of Termination. Upon the termination of the
Executive's employment hereunder 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).
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(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.
(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
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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
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 next to 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
hereunder (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 her
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or his employment with the Company or such 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 3% of the aggregate voting power of such business enterprise. During the
Non-Compete Period, the Company may, at its election, pay or cause to be paid to
the Executive his Base Salary under Section 3(a) hereof for that portion of the
Non-Compete Period during which the Executive is required to comply and does
comply with the provisions of this Section 7.
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
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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 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 and supersedes any other prior oral or
written agreements, arrangements or understandings between the Executive and the
Company, 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.
12. Governing Law; Jurisdiction.
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. 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
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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.
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,
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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
Tel: (212) 572-4200
Fax: (212) 572- 6737
Attn: Senior Vice President - Human Resources
The Executive:
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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 represents and warrants to the Company that his execution
and delivery of this Agreement as of the date hereof, and his performance of
services under this Agreement and any other agreement to be delivered pursuant
to this Agreement from and after the Effective Date hereof, 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 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. 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.
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18. 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: /s/ Andrew J. Cavanaugh
---------------------------------------
Name: Andrew J. Cavanaugh
Title: Senior Vice President -
Corporate Human Resources
/s/ Patrick Bousquet-Chavanne
---------------------------------------
Patrick Bousquet-Chavanne
Date: September 1, 1998
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Exhibit 21.1
THE ESTEE LAUDER COMPANIES INC.
SIGNIFICANT SUBSIDIARIES
All significant subsidiaries are wholly-owned by The Estee Lauder
Companies Inc. and/or one or more of its wholly-owned subsidiaries.
Jurisdiction
Name in which Organized
- -------------------------------- ------------------
Aramis Inc. Delaware
Clinique Laboratories, Inc. Delaware
Estee Lauder Europe, Inc. Delaware
Estee Lauder Inc. Delaware
Estee Lauder International, Inc. Delaware
Estee Lauder AG Lachen Switzerland
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-99554, 333-39237, 333-66851 and 333-85947.
ARTHUR ANDERSEN LLP
New York, NY
September 13, 1999
<PAGE>
Exhibit 24.1
POWER-OF-ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Leonard A. Lauder, Fred H. Langhammer, Robert J. Bigler
and Paul E. Konney, and each of them, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
capacities to sign the Annual Report on Form 10-K for the fiscal year ended June
30, 1999 of The Estee Lauder Companies Inc. and any and all amendments thereto,
and to file the same with all exhibits thereto, and the other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and things requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Leonard A. Lauder Chief Executive
-------------------------------- Officer and Director September 10, 1999
Leonard A. Lauder (Principal Executive Officer)
/s/ Ronald S. Lauder Director September 10, 1999
-------------------------------
Ronald S. Lauder
/s/ Fred H. Langhammer Director September 10, 1999
-------------------------------
Fred H. Langhammer
/s/ Richard D. Parsons Director September 1, 1999
-------------------------------
Richard D. Parsons
/s/ William P. Lauder Director September 10, 1999
-------------------------------
William P. Lauder
/s/ Marshall Rose Director September 10, 1999
-------------------------------
Marshall Rose
/s/ P. Roy Vagelos Director September 1, 1999
-------------------------------
P. Roy Vagelos
/s/ Faye Wattleton Director September 10, 1999
-------------------------------
Faye Wattleton
/s/ Robert J. Bigler Senior Vice President
------------------------------- and Chief Financial September 10, 1999
Robert J. Bigler Officer (Principal Financial and
Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ESTEE
LAUDER COMPANIES INC. FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 348
<SECURITIES> 0
<RECEIVABLES> 570
<ALLOWANCES> 36
<INVENTORY> 513
<CURRENT-ASSETS> 1,570
<PP&E> 780
<DEPRECIATION> 416
<TOTAL-ASSETS> 2,747
<CURRENT-LIABILITIES> 862
<BONDS> 423
360
0
<COMMON> 2
<OTHER-SE> 922
<TOTAL-LIABILITY-AND-EQUITY> 2,747
<SALES> 3,962
<TOTAL-REVENUES> 3,962
<CGS> 900
<TOTAL-COSTS> 900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 440
<INCOME-TAX> 167
<INCOME-CONTINUING> 273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.03
</TABLE>
