<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
----------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-14064
The Estee Lauder Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2408943
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
767 Fifth Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-572-4200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
At October 20, 2000, 124,255,334 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.
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
INDEX
<TABLE>
<CAPTION>
Page
Part I. Financial Information
<S> <C>
Consolidated Statements of Earnings --
Three Months Ended September 30, 2000 and 1999........................................... 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................ 3
Consolidated Balance Sheets --
September 30, 2000 and June 30, 2000..................................................... 11
Consolidated Statements of Cash Flows --
Three Months Ended September 30, 2000 and 1999........................................... 12
Notes to Consolidated Financial Statements.................................................... 13
Part II. Other Information............................................................................. 19
</TABLE>
-1-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
(In millions, except per share data)
2000 1999
---- ----
<S> <C> <C>
Net Sales................................................................. $ 1,177.7 $ 1,093.7
Cost of sales............................................................. 263.3 251.8
--------- ---------
Gross Profit.............................................................. 914.4 841.9
--------- ---------
Operating expenses:
Selling, general and administrative.................................... 752.9 697.4
Related party royalties................................................ 8.2 8.0
--------- ---------
761.1 705.4
--------- ---------
Operating Income.......................................................... 153.3 136.5
Interest expense, net..................................................... 5.1 5.4
--------- ---------
Earnings before Income Taxes and Minority Interest........................ 148.2 131.1
Provision for income taxes................................................ 53.4 48.5
Minority interest, net of tax............................................. (0.2) -
--------- ---------
Net Earnings before Accounting Change..................................... 94.6 82.6
Cumulative effect of a change in accounting principle, net of tax......... (2.2) -
--------- ---------
Net Earnings ............................................................. 92.4 82.6
--------- ---------
Preferred stock dividends................................................. 5.9 5.9
--------- ---------
Net Earnings Attributable to Common Stock................................. $ 86.5 $ 76.7
========= =========
Basic net earnings per common share:
Net earnings attributable to common stock before accounting change... $ .37 $ .32
Cumulative effect of a change in accounting principle, net of tax.... (.01) -
--------- ---------
Net earnings attributable to common stock............................ $ .36 $ .32
========= =========
Diluted net earnings per common share:
Net earnings attributable to common stock before accounting change... $ .37 $ .32
Cumulative effect of a change in accounting principle, net of tax.... (.01) -
--------- ---------
Net earnings attributable to common stock............................ $ .36 $ .32
========= =========
Weighted average common shares outstanding:
Basic................................................................ 238.1 237.5
Diluted.............................................................. 242.2 242.6
Cash dividends declared per common share.................................. $ .05 $ .05
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
We manufacture, market and sell skin care, makeup, fragrance and hair care
products which are distributed in over 120 countries and territories. The
following is a comparative summary of operating results for the three months
ended September 30, 2000 and 1999, and reflects the basis of presentation
described in Note 1 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.
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
---- ----
(In millions)
<S> <C> <C>
NET SALES
By Region:
The Americas............................................... $ 783.1 $ 715.8
Europe, the Middle East & Africa........................... 255.1 257.1
Asia/Pacific............................................... 139.5 120.8
--------- ---------
$ 1,177.7 $ 1,093.7
========= =========
By Product Category:
Skin Care.................................................. $ 395.2 $ 353.4
Makeup..................................................... 431.3 403.9
Fragrance.................................................. 299.8 307.1
Hair Care.................................................. 45.6 23.1
Other...................................................... 5.8 6.2
--------- ---------
$ 1,177.7 $ 1,093.7
========= =========
OPERATING INCOME
By Region:
The Americas............................................... $ 111.1 $ 100.4
Europe, the Middle East & Africa........................... 33.2 27.2
Asia/Pacific............................................... 9.0 8.9
--------- ---------
$ 153.3 $ 136.5
========= =========
By Product Category:
Skin Care.................................................. $ 66.8 $ 54.1
Makeup..................................................... 53.8 48.5
Fragrance.................................................. 32.5 31.3
Hair Care.................................................. 0.2 2.5
Other...................................................... - 0.1
--------- ---------
$ 153.3 $ 136.5
========= =========
</TABLE>
-3-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents certain consolidated earnings data as a percentage
of net sales:
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
---- ----
<S> <C> <C>
Net sales........................................................ 100.0% 100.0%
Cost of sales.................................................... 22.4 23.0
----- -----
Gross profit..................................................... 77.6 77.0
----- -----
Operating expenses before depreciation and amortization:
Selling, general and administrative........................... 60.5 60.7
Related party royalties....................................... 0.7 0.7
----- -----
61.2 61.4
----- -----
Earnings before interest, taxes, depreciation and amortization
("EBITDA")..................................................... 16.4 15.6
Depreciation and amortization.................................... 3.4 3.1
------ -----
Operating income................................................. 13.0 12.5
Interest expense, net............................................ 0.4 0.5
----- -----
Earnings before income taxes and minority interest............... 12.6 12.0
Provision for income taxes....................................... 4.6 4.4
Minority interest, net of tax.................................... - -
----- -----
Net earnings before accounting change............................ 8.0 7.6
Cumulative effect of a change in accounting principle, net of tax (0.2) -
----- -----
Net earnings..................................................... 7.8% 7.6%
===== =====
</TABLE>
First Quarter Fiscal 2001 as compared with First Quarter Fiscal 2000
NET SALES
Net sales increased 8% or $84.0 million to $1,177.7 million reflecting continued
growth in our skin care, makeup and hair care business, led by the Americas with
an increase of 9% or $67.3 million primarily from the growth of our newer
brands. Excluding the impact of foreign currency translation, net sales
increased 10% reflecting a stronger U.S. dollar against most European
currencies.
Product Categories
Skin Care
Net sales of skin care products increased 12% or $41.8 million to $395.2
million. Skin care sales benefited from the strong performances of Body
Clinique, Have a Nice Day Cream and Lotion, as well as our Ginger Bath and Body
Collection. In response to the success of whitening products in the Asia/Pacific
region, we recently launched two new products White Light Brightening System and
Active White, both of which were well received. Contributing to net sales growth
were new products such as Idealist, Anti-Gravity Firming Lift Cream, and
Pro-Preferred Skincare products, the first skin care line for our MAC brand.
Partially offsetting these increases were lower sales of certain existing
products such as Fruition Extra and Diminish.
Makeup
Net sales of makeup products increased 7% or $27.4 million to $431.3 million.
This increase was primarily attributable to new and existing products as well as
increased sales of MAC and Stila products. We recently launched *magic by
Prescriptives, Pure Color Lipstick, Go Pout Lipcolor and Bobbi Brown's
ColorOptions, which also contributed to the category growth. Additionally,
initial shipments of Luxe Makeup and High Impact Eye Shadow contributed to sales
growth. Existing product successes include Superfit Makeup, Sheer Powder Blush
and the Futurist line of makeup products.
-4-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fragrance
Net sales of fragrance products decreased 2% or $7.3 million to $299.8 million,
and increased 1% on a local currency basis. This quarter anniversaries the
launches of Freedom for him, Freedom for her and Clinique Happy for Men which
caused difficult comparisons. We also saw decreased sales in previously launched
Tommy Hilfiger licensed products. Partially offsetting these decreases were
higher sales of Beautiful, the rollout of DKNY for women and the recent launches
of Intuition and DKNY for men.
Hair Care
Net sales of hair care products increased 97% or $22.5 million to $45.6 million.
The increase in hair care sales is attributable to an increase in new store
openings, acquired distributors and strong sales of Aveda products such as
Custom Control and Sap Moss Shampoo. We also launched the Clinique Simple Hair
Care System, a collection of hair care products with 11 stock keeping units. The
category also benefited from sales of products and services offered by Bumble
and bumble, a majority of which we acquired in June 2000.
Geographic Regions
Net sales in the Americas increased 9% or $67.3 million to $783.1 million. This
increase was driven by higher sales on the strength of new products and
continued strong sales of existing products, double-digit growth from most newer
brands, particularly Aveda, contributions from Bumble and bumble and higher
results in Canada. In Europe, the Middle East & Africa, net sales decreased 1%
or $2.0 million to $255.1 million primarily due to a stronger U.S. dollar
against most European currencies. Excluding the impact of foreign currency
translation, sales in Europe, the Middle East & Africa increased 9%. On a
reported basis, increases in the United Kingdom, the travel retail and
distributor businesses and the October 1999 acquisition of Jo Malone were
partially offset by decreased sales in Germany. Net sales in Asia/Pacific
increased 16% or $18.7 million to $139.5 million. Sales increased in most
markets with the strongest growth in Korea, Taiwan and Thailand. Foreign
currency translation did not have a significant impact on Asia/Pacific net
sales.
COST OF SALES
Cost of sales as a percentage of total net sales decreased to 22.4% from 23.0%,
reflecting changes in product distribution and mix, as well as the impact of our
production and sourcing initiatives. Changes in product distribution include the
rollout of our own retail stores and the acquisition of certain distributor
operations both of which contributed to higher gross margins. In addition, our
cost of sales reduction program had a favorable impact on gross margins of
products offered by our newer acquisitions.
OPERATING EXPENSES
Operating expenses increased to 64.6% of net sales as compared with 64.5% of net
sales in the prior-year period. This change primarily relates to increased costs
of new/modified channels of distribution including our investment in the
Internet, which have higher operating cost structures than our traditional
channels, as well as higher depreciation and amortization partially offset by
efficiencies in other areas. Quarterly operating expenses are subject to the
timing of advertising and promotional spending due to product launches and
rollouts as well as incremental advertising in select markets.
OPERATING INCOME
Operating income increased 12% or $16.8 million to $153.3 million as compared to
the same prior-year period. Operating margins were 13.0% of net sales in the
current period as compared to 12.5% in the prior-year period. The increase in
operating income and margins was due to higher net sales coupled with production
and operating efficiencies achieved and changes in distribution, partially
offset by increased depreciation and amortization and spending related to
businesses acquired and new/modified channels of distribution.
-5-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Product Categories
Operating income increased 23% and 11% in skin care and makeup, respectively,
due primarily to strong new and existing product sales. Operating income related
to fragrance products increased 4% to $32.5 million reflecting the launch of
Intuition and a lower level of advertising and promotional spending this period
versus last year where we were supporting several major domestic launches.
Although we had higher sales of hair care products, operating income decreased
to $0.2 million as we invested in our distribution channel through retail
expansion and increased spending to support new product introductions and the
integration of Bumble and bumble.
Geographic Regions
Operating income in the Americas increased 11% or $10.7 million to $111.1
million primarily due to strong sales growth and the inclusion of operating
results from recent acquisitions partially offset by increased goodwill
amortization associated with acquisitions as well as incremental Internet
spending. In Europe, the Middle East & Africa operating income increased 22% or
$6.0 million to $33.2 million reflecting improved operating results in the
United Kingdom, Germany, the Benelux countries, our travel retail business and
Jo Malone. Improvements in these markets were partially offset by lower income
in South Africa and Italy. In Asia/Pacific, operating income increased 1% to
$9.0 million reflecting improved results in Thailand and Korea offset by lower
operating results in Japan, reflecting increased investment spending to support
new product launches and to build existing sales momentum.
EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is an
additional measure of operating performance used by management. While the
components of EBITDA may vary from company to company, 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 (expiring in November 2000), leasehold improvements,
and other intangible assets. 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 13% to $193.4 million or 16.4% of net sales as compared to
$170.5 million or 15.6% of net sales in the same prior-year period. The
improvement in EBITDA is primarily attributable to sales growth and margin
improvements.
INTEREST EXPENSE, NET
Net interest expense was $5.1 million for the three months ended September 30,
2000, as compared with $5.4 million in the same prior-year period. The net
decrease is primarily due to a higher rate of interest earned on available
working capital.
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign, state and local
income taxes. The effective rate for income taxes for the three months ended
September 30, 2000 was 36% compared to 37% in the same prior-year period. These
rates reflect the effect of state and local taxes, tax rates in foreign
jurisdictions and certain nondeductible expenses. The decrease in the effective
income tax rate was principally attributable to continuing tax planning
initiatives. Our effective tax rate for the full fiscal year is expected to be
36%.
-6-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash flows from operations
and borrowings under commercial paper and committed and uncommitted credit lines
provided by banks in the United States and abroad. At September 30, 2000, we had
cash and cash equivalents of $233.8 million as compared to $320.3 million at
June 30, 2000.
The Board of Directors has authorized a $750.0 million commercial paper program,
under which we have issued, and intend to issue, commercial paper in the United
States. Our commercial paper is currently rated A-1 by Standard & Poor's and P-1
by Moody's. Our long-term credit ratings are A+ by Standard & Poor's and A1 by
Moody's. At September 30, 2000, we have $205.0 million of commercial paper
outstanding and a $200.0 million term loan outstanding which is due in February
2005. 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. We also have an effective shelf registration statement covering
the potential issuance of up to $400.0 million in debt securities. It is our
policy to maintain backup facilities to support our commercial paper program,
and its classification as long-term debt. As of September 30, 2000, we had an
unused $400.0 million revolving credit facility, expiring July 1, 2001.
Our business is seasonal in nature and, accordingly, our working capital needs
vary. To meet these needs, we could issue up to an additional $545.0 million of
commercial paper under our program. We also have $45.2 million in uncommitted
facilities. No borrowings were outstanding under these facilities as of
September 30, 2000.
Total debt, as a percentage of total capitalization was 21% at September 30,
2000 and 22% at June 30, 2000.
Net cash used for operating activities was $26.7 million in the three months
ended September 30, 2000 as compared to $48.9 million in the same prior-year
period. This favorable change in net cash used for operating activities
primarily reflects increased profitability. Net cash used for investing
activities of $40.3 million during the three months ended September 30, 2000
reflects capital expenditures. Net cash used for financing activities of $16.5
million principally reflects payment of dividends.
On August 17, 2000, The Board of Directors declared a quarterly dividend of $.05
per share on our Class A and Class B Common Stock, payable on October 3, 2000 to
stockholders of record at the close of business on September 15, 2000. Total
dividends declared, which includes the Cumulative Redeemable Preferred Stock,
for the three months ended September 30, 2000 was $17.7 million.
In September 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. To date, we have purchased approximately 1.1 million shares
under this program.
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.
-7-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Derivative Financial Instruments
We address certain financial exposures 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 foreign
currency options to reduce the effects of fluctuating foreign currency exchange
rates. We enter into interest rate swaps and options to manage the effects of
interest rate movements on our aggregate liability portfolio. We categorize
these instruments as entered into for purposes other than trading.
For each derivative contract we enter, we formally document the relationship
between the hedging instrument and hedged item, as well as its risk-management
objective and strategy for undertaking the hedge. This process includes linking
all derivatives that are designated as fair-value, cash-flow, or
foreign-currency hedges to specific assets and liabilities on the balance sheet
or to specific firm commitments or forecasted transactions. We also formally
assess, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items. If it is
determined that a derivative is not highly effective, then we will be required
to discontinue hedge accounting prospectively.
Foreign Exchange Risk Management
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. We also enter into foreign currency options to hedge anticipated
transactions where there is a high probability that anticipated exposures will
materialize. The forward exchange contracts and foreign currency options have
been designated as cash-flow hedges. As of September 30, 2000, these cash-flow
hedges have been highly effective.
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
September 30, 2000, we had foreign currency contracts in the form of forward
exchange contracts and purchased currency options in the amount of $207.1
million and $72.2 million, respectively. The foreign currencies included in
these contracts are principally the Euro, Japanese yen, Swiss franc and U.K.
pound.
Interest Rate Risk Management
We have entered into interest rate swaps to exchange floating rate for fixed
rate interest payments periodically over the life of the agreements. In
addition, we have purchased interest rate options that offer similar interest
rate protection. The interest rate swaps and options have been designated as
cash-flow hedges and have been highly effective as of September 30, 2000. At
September 30, 2000, we had interest rate swap and option agreements outstanding
with a notional principal amount of $67.0 million and $133.0 million,
respectively.
Market Risk
There have been no significant changes in market risk since June 30, 2000 that
would have a material effect on our calculated value-at-risk exposure, as
disclosed in the annual report on Form 10-K for the year ended June 30, 2000.
-8-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACCOUNTING STANDARDS
Effective July 1, 2000, we adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended, requires the recognition of all derivative instruments as
either assets or liabilities in the statement of financial position measured at
fair value.
In accordance with the provisions of SFAS No. 133, as amended, we recorded a
non-cash charge to earnings of $2.2 million, after tax, to reflect the change in
time-value from the date of the contracts' inception through the date of
transition (July 1, 2000). This charge is reflected as the cumulative effect of
a change in accounting principle in the accompanying consolidated statements of
earnings. Additionally, on the date of transition, a comparable amount of
deferred unrealized gains on these instruments were recorded in accumulated
other comprehensive income which we expect to accrete into earnings over the
remaining life of the debt instruments (through February 2005).
INTERNET
Our strategic goals for the Internet are to enhance our brand equities, to reach
new consumers, to forge deeper relationships with existing consumers and to
strengthen our business through our traditional retailers. The strategy includes
a planned launch of a multi-brand website offering products from our portfolio,
specially designed sites which will be available through the e-commerce sites of
retailers who meet specific requirements and individual sites for our brands. We
currently have nine individual brand websites that educate and inform consumers
about specific brands, with more in development. Five of the existing sites -
esteelauder.com, clinique.com, origins.com, bobbibrown.com and maccosmetics.com
- have e-commerce capabilities. We are currently re-developing the gloss.com
multi-brand site we acquired in May 2000 and expect to re-launch it in the third
quarter of fiscal 2001. The site initially will feature Estee Lauder, Clinique,
Origins, Bobbi Brown essentials, and MAC products. The site also will feature
products from Chanel, Inc. and Clarins (U.S.A.) Inc. which became co-venturers
in gloss.com in August 2000. Our Internet sales, which were not significant
during the three months ended September 30, 2000, are currently limited to
consumers in the United States and Canada. The initial impact of our overall
Internet strategy on earnings is expected to be immaterially dilutive,
particularly as we re-develop the multi-brand site, and accretive some time
after the re-launch.
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, in our press releases and
in our reports to stockholders. The words and phrases "will likely result,"
"expects," "believes," "planned," "will," "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. These statements include, without limitation, our
expectations regarding sales, earnings or other future financial performance and
liquidity, product introductions, entry into new geographic regions, new methods
of sale 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;
-9-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(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, ownership of
retailers by our competitors and ownership of competitors by our
customers that are retailers;
(iv) shifts in the preferences of consumers as to where and how they
shop for the types of products and services we sell;
(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
sell our products and our foreign competitors sell their 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 to develop e-commerce capabilities, and other new
information and distribution technologies on a timely basis and within
our cost estimates; 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.
-10-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
2000 2000
---- ----
(Unaudited)
(In millions)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents............................................................... $ 233.8 $ 320.3
Accounts receivable, net................................................................ 725.7 550.2
Inventory and promotional merchandise, net.............................................. 521.5 546.3
Prepaid expenses and other current assets............................................... 220.7 201.7
-------- --------
Total current assets............................................................... 1,701.7 1,618.5
-------- --------
Property, Plant and Equipment, net...................................................... 488.9 480.3
-------- --------
Other Assets
Investments, at cost or market value.................................................... 62.1 61.4
Deferred taxes.......................................................................... 49.3 48.9
Goodwill, net .......................................................................... 706.3 708.1
Other intangible assets, net............................................................ 26.0 31.1
Other assets, net....................................................................... 103.6 95.0
-------- --------
Total other assets................................................................. 947.3 944.5
-------- --------
Total assets.............................................................. $3,137.9 $3,043.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt......................................................................... $ 6.6 $ 7.0
Accounts payable........................................................................ 222.3 236.5
Accrued income taxes.................................................................... 116.7 84.2
Other accrued liabilities............................................................... 584.2 574.1
-------- --------
Total current liabilities.......................................................... 929.8 901.8
-------- --------
Noncurrent Liabilities
Long-term debt.......................................................................... 418.1 418.4
Other noncurrent liabilities............................................................ 208.8 202.8
-------- --------
Total noncurrent liabilities....................................................... 626.9 621.2
-------- --------
$6.50 Cumulative Redeemable Preferred Stock, at redemption value........................ 360.0 360.0
-------- --------
Stockholders' Equity
Common stock, $.01 par value; 650,000,000 shares Class A authorized; shares
issued: 125,132,314 at September 30, 2000 and 125,058,658 at June 30, 2000;
240,000,000 shares Class B authorized; shares issued and outstanding 113,679,334..... 2.4 2.4
Paid-in capital......................................................................... 237.2 237.1
Retained earnings....................................................................... 1,083.2 1,008.6
Accumulated other comprehensive income.................................................. (70.9) (57.1)
-------- --------
1,251.9 1,191.0
Less: Treasury stock, at cost; 876,980 Class A shares at September 30, 2000
and June 30, 2000.................................................................... (30.7) (30.7)
-------- --------
Total stockholders' equity......................................................... 1,221.2 1,160.3
-------- --------
Total liabilities and stockholders' equity................................ $3,137.9 $3,043.3
======== ========
</TABLE>
See notes to consolidated financial statements.
-11-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
---- ----
(In millions)
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings............................................................................... $ 92.4 $ 82.6
Adjustments to reconcile net earnings to net cash
flows used for operating activities:
Depreciation and amortization.......................................................... 35.7 29.6
Amortization of purchased royalty rights............................................... 4.4 4.4
Deferred income taxes.................................................................. (2.0) (4.0)
Minority interest...................................................................... 0.2 -
Cumulative effect of a change in accounting principle.................................. 2.2 -
Non-cash stock compensation............................................................ (2.1) (3.5)
Changes in operating assets and liabilities:
Increase in accounts receivable, net................................................... (194.2) (155.4)
Decrease in inventory and promotional merchandise, net................................. 13.3 10.9
Increase in other assets, net.......................................................... (35.2) (11.9)
Decrease in accounts payable........................................................... (8.6) (12.8)
Increase in accrued income taxes....................................................... 35.8 14.8
Increase (decrease) in other accrued liabilities....................................... 24.5 (9.3)
Increase in other noncurrent liabilities............................................... 6.9 5.7
--------- --------
Net cash flows used for operating activities........................................ (26.7) (48.9)
--------- --------
Cash Flows from Investing Activities
Capital expenditures................................................................... (38.7) (33.1)
Acquisition of businesses, net of cash acquired........................................ (2.4) (100.9)
Purchase of long-term investments...................................................... (0.1) (1.5)
Proceeds from the disposition of long-term investments................................. 0.9 3.0
--------- --------
Net cash flows used for investing activities........................................ (40.3) (132.5)
--------- --------
Cash Flows from Financing Activities
Increase (decrease) in short-term debt, net............................................ (0.3) 104.2
Repayments of long-term debt........................................................... - (0.2)
Net proceeds from employee stock transactions.......................................... 1.5 0.4
Payments to acquire treasury stock..................................................... - (8.7)
Dividends paid......................................................................... (17.7) (17.7)
--------- --------
Net cash flows provided by (used for) financing activities.......................... (16.5) 78.0
--------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents............................... (3.0) 6.1
--------- --------
Net Decrease in Cash and Cash Equivalents.................................................. (86.5) (97.3)
Cash and Cash Equivalents at Beginning of Period........................................... 320.3 347.5
Cash and Cash Equivalents at End of Period................................................. $ 233.8 $ 250.2
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................................................. $ 6.7 $ 8.2
========= ========
Income taxes ......................................................................... $ 24.4 $ 34.9
========= ========
Non-cash items:
Tax benefit from exercise of stock options............................................. $ 0.7 $ 0.3
========= ========
</TABLE>
See notes to consolidated financial statements.
-12-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of The
Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations of any interim period are not necessarily indicative of
the results of operations to be expected for the fiscal year. For further
information, refer to the consolidated financial statements and accompanying
footnotes included in the Company's annual report on Form 10-K for the year
ended June 30, 2000.
Net Earnings Per Common Share
For the three month period ended September 30, 2000, net earnings per common
share ("basic EPS") is 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). Net earnings
per common share assuming dilution ("diluted EPS") is computed by reflecting
potential dilution from the exercise of stock options.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
---- ----
(Unaudited)
(In millions, except per share data)
<S> <C> <C>
Numerator:
Net earnings before accounting change................................. $ 94.6 $ 82.6
Preferred stock dividends............................................. (5.9) (5.9)
------- -------
Net earnings attributable to common stock before accounting change.... $ 88.7 $ 76.7
Cumulative effect of a change in accounting principle, net of tax..... (2.2) -
------- -------
Net earnings attributable to common stock............................. $ 86.5 $ 76.7
======= =======
Denominator:
Weighted average common shares outstanding - Basic.................... 238.1 237.5
Effect of dilutive securities: Stock options.......................... 4.1 5.1
------- -------
Weighted average common shares outstanding - Diluted.................. 242.2 242.6
======= =======
Basic net earnings per common share:
Net earnings before accounting change................................. $ .37 $ .32
Cumulative effect of a change in accounting principle, net of tax..... (.01) -
------- -------
Net earnings.......................................................... $ .36 $ .32
======= =======
Diluted net earnings per common share:
Net earnings before accounting change................................. $ .37 $ .32
Cumulative effect of a change in accounting principle, net of tax..... (.01) -
------- -------
Net earnings.......................................................... $ .36 $ .32
======= =======
</TABLE>
-13-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2000, options to purchase 9.5 million shares of common stock
were not included in the computation of diluted EPS because the exercise price
of those options were greater than the average market price of the common stock.
The options were still outstanding at the end of the period.
Accounts Receivable
Accounts receivable is stated net of the allowance for doubtful accounts and
retail customer deductions of $31.8 million and $31.7 million as of September
30, 2000 and June 30, 2000, respectively.
Inventory and Promotional Merchandise
Inventory and promotional merchandise only include inventory considered saleable
or usable in future periods, and are stated at the lower of cost or market, with
cost being determined on the first-in, first-out method. Promotional merchandise
is charged to expense at the time the merchandise is shipped to the Company's
customers.
<TABLE>
<CAPTION>
September 30 June 30
2000 2000
---- ----
(Unaudited)
(In millions)
<S> <C> <C>
Inventory and promotional merchandise consists of:
Raw materials......................................... $ 119.8 $ 140.9
Work in process....................................... 25.4 21.5
Finished goods........................................ 285.4 271.2
Promotional merchandise............................... 90.9 112.7
-------- -------
$ 521.5 $ 546.3
======== =======
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation
and amortization. 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>
September 30 June 30
2000 2000
---- ----
(Unaudited)
(In millions)
<S> <C> <C>
Land ................................................... $ 13.0 $ 13.0
Buildings and improvements.............................. 133.7 134.9
Machinery and equipment................................. 496.6 490.1
Furniture and fixtures.................................. 98.5 95.8
Leasehold improvements.................................. 259.7 240.4
-------- -------
1,001.5 974.2
Less accumulated depreciation and amortization.......... 512.6 493.9
-------- -------
$ 488.9 $ 480.3
======== =======
</TABLE>
Depreciation and amortization of property, plant and equipment was $24.7 million
and $20.7 million during the three months ended September 30, 2000 and 1999,
respectively.
-14-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses
reported in those financial statements. Actual results could differ from those
estimates and assumptions.
Recently Issued Accounting Standards
Effective July 1, 2000, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended, requires the recognition of all derivative instruments as
either assets or liabilities in the statement of financial position measured at
fair value.
In accordance with the provisions of SFAS No. 133, as amended, we recorded a
non-cash charge to earnings of $2.2 million, after tax, to reflect the change in
time-value from the date of the contracts' inception through the date of
transition (July 1, 2000). This charge is reflected as the cumulative effect of
a change in accounting principle in the accompanying consolidated statements of
earnings. Additionally, on the date of transition, a comparable amount of
deferred unrealized gains on these instruments were recorded in accumulated
other comprehensive income which the Company expects to accrete into earnings
over the remaining life of the debt instruments (through February 2005).
NOTE 2 - COMPREHENSIVE INCOME
The components of accumulated other comprehensive income ("OCI") included in the
accompanying consolidated balance sheets consist of net unrealized investment
gains, net gain or (loss) on derivative instruments designated and qualifying as
cash-flow hedging instruments and cumulative translation adjustments as of the
end of each period.
Comprehensive income and its components, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
---- ----
(Unaudited)
(In millions)
<S> <C> <C>
Net earnings.............................................. $ 92.4 $ 82.6
-------- --------
Other comprehensive income:
Net unrealized investment gains (losses)............. 1.0 (0.3)
Net derivative instruments gains (losses)............ 5.2 -
Translation adjustments.............................. (20.0) 11.3
-------- --------
Other comprehensive income........................... (13.8) 11.0
-------- --------
Comprehensive income...................................... $ 78.6 $ 93.6
======== ========
</TABLE>
-15-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accumulated net gain on derivative instruments for the three months ending
September 30, 2000 consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
------------------
(Unaudited)
(In millions)
<S> <C>
OCI - derivative instruments, beginning of period............ $ -
Gains on derivative instruments........................... 9.6
Reclassification to earnings as gains during the period... (1.5)
Provision for deferred income taxes....................... (2.9)
-----------
OCI - derivative instruments, end of period.................. $ 5.2
===========
</TABLE>
Of the $5.2 million recorded in OCI at the end of the period $2.7 million, net
of tax, relates to forward contracts and foreign currency options that we
estimated will be reclassified to earnings as gains during the next twelve
months. The remaining $2.5 million, net of tax, relates to interest rate swaps
and caps that we expect to accrete into earnings over the remaining life of the
debt instruments (through February 2005).
NOTE 3 - FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company addresses certain financial exposures through a controlled program
of risk management that includes the use of derivative financial instruments.
The Company primarily enters into foreign currency forward exchange contracts
and foreign currency options to reduce the effects of fluctuating foreign
currency exchange rates. The Company enters into interest rate swaps and options
to manage the effects of interest rate movements on our aggregate liability
portfolio. The Company categorizes these instruments as entered into for
purposes other than trading.
All derivatives are recognized on the balance sheet at their fair value. On the
date the derivative contract is entered into, the Company designates the
derivative as (i) a hedge of the fair value of a recognized asset or liability
or of an unrecognized firm commitment ("fair value" hedge), (ii) a hedge of a
forecasted transaction or of the variability of cash flows to be received or
paid related to a recognized asset or liability ("cash flow" hedge), (iii) a
foreign-currency fair-value or cash-flow hedge ("foreign currency" hedge), (iv)
a hedge of a net investment in a foreign operation, or (v) "held for trading"
("trading" instruments). Changes in the fair value of a derivative that is
highly effective as - and that is designated and qualifies as - a fair-value
hedge, along with the loss or gain on the hedged asset or liability that is
attributable to the hedged risk (including losses or gains on firm commitments),
are recorded in current-period earnings. Changes in the fair value of a
derivative that is highly effective as and that is designated and qualifies as -
a cash-flow hedge are recorded in other comprehensive income, until earnings are
affected by the variability of cash flows (e.g., when periodic settlements on a
variable-rate asset or liability are recorded in earnings). Changes in the fair
value of derivatives that are highly effective as - and that are designated and
qualify as - foreign-currency hedges are recorded in either current-period
earnings or other comprehensive income, depending on whether the hedge
transaction is a fair-value hedge (e.g., a hedge of a firm commitment that is to
be settled in a foreign currency) or a cash-flow hedge (e.g., a
foreign-currency-denominated forecasted transaction). If, however, a derivative
is used as a hedge of a net investment in a foreign operation, its changes in
fair value, to the extent effective as a hedge, are recorded in the cumulative
translation adjustments account within equity. Last, changes in the fair value
of derivative trading instruments are reported in current-period earnings.
The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair-value, cash-flow, or foreign-currency
hedges to specific assets and liabilities on the balance sheet or to specific
firm commitments or forecasted transactions. The Company also formally assesses,
both at the hedge's inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. When it is determined that a
derivative is not highly effective, as a hedge or that it has ceased to be a
highly effective hedge, the Company discontinues hedge accounting prospectively.
-16-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 our identified exposures. The purpose of the hedging activities
is to minimize the effect of foreign exchange rate movements on costs and on the
cash flows which the Company receives 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. The Company also enters into foreign currency
options to hedge anticipated transactions where there is a high probability that
anticipated exposures will materialize. The forward exchange contracts and
foreign currency options have been designated as cash-flow hedges. As of
September 30, 2000, these cash-flow hedges have been highly effective.
As a matter of policy, the Company only enters into contracts with
counterparties that have at least an "A" (or equivalent) credit rating. The
counterparties to these contracts are major financial institutions. The Company
does not have significant exposure to any one counterparty. 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 the
Company's financial results. The Company does not utilize derivative financial
instruments for trading or speculate purposes. At September 30, 2000, the
Company had foreign currency contracts in the form of forward exchange contracts
and purchased currency options in the amount of $207.1 million and $72.2
million, respectively. The foreign currencies included in these contracts are
principally the Euro, Japanese yen, Swiss franc and U.K. pound.
Interest Rate Risk Management
The Company has entered into interest rate swaps to exchange floating rate for
fixed rate interest payments periodically over the life of the agreements. In
addition, the Company has purchased interest rate options that offer similar
interest rate protection. The interest rate swaps and options have been
designated as cash-flow hedges and have been highly effective as of September
30, 2000. At September 30, 2000, the Company had interest rate swap and option
agreements outstanding with a notional principal amount of $67.0 million and
$133.0 million, respectively.
-17-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - SEGMENT DATA AND RELATED INFORMATION
Reportable operating segments include components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company evaluates segment performance based upon net
sales and operating income. Operating income represents earnings before income
taxes and net interest expense. The accounting policies for each of the
reportable segments are substantially the same as those for the consolidated
financial statements, as described in the segment data and related information
footnote, included in the June 30, 2000 annual report on Form 10-K. There has
been no significant variance in the total or long-lived asset values associated
with each segment since June 30, 2000.
<TABLE>
<CAPTION>
Three Months Ended
September 30
2000 1999
---- ----
(Unaudited)
(In millions)
<S> <C> <C>
SEGMENT DATA
Net Sales:
Skin Care........................................................ $ 395.2 $ 353.4
Makeup........................................................... 431.3 403.9
Fragrance........................................................ 299.8 307.1
Hair Care........................................................ 45.6 23.1
Other............................................................ 5.8 6.2
--------- ---------
$ 1,177.7 $ 1,093.7
========= =========
Operating Income:
Skin Care........................................................ $ 66.8 $ 54.1
Makeup........................................................... 53.8 48.5
Fragrance........................................................ 32.5 31.3
Hair Care........................................................ 0.2 2.5
Other............................................................ - 0.1
--------- ---------
153.3 136.5
Reconciliation:
Interest expense, net......................................... 5.1 5.4
--------- ---------
Earnings before income taxes and minority interest............... $ 148.2 $ 131.1
========= =========
REGIONAL DATA
Net Sales:
The Americas..................................................... $ 783.1 $ 715.8
Europe, the Middle East & Africa................................. 255.1 257.1
Asia/Pacific..................................................... 139.5 120.8
--------- ---------
$ 1,177.7 $ 1,093.7
========= =========
Operating Income:
The Americas..................................................... $ 111.1 $ 100.4
Europe, the Middle East & Africa................................. 33.2 27.2
Asia/Pacific..................................................... 9.0 8.9
--------- ---------
$ 153.3 $ 136.5
========= =========
</TABLE>
-18-
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various legal proceedings incident to our business, including
those described in our annual report on Form 10-K for the year ended June 30,
2000. 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits--
10.1 Employment Agreement with Ronald S. Lauder +
27.1 Financial Data Schedule
(b) Reports on Form 8-K -- There were no reports on Form 8-K for the three
months ended September 30, 2000.
+ Exhibit is a management contract or compensatory plan or arrangement.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ESTEE LAUDER COMPANIES INC.
Date: October 24, 2000 By: /s/Richard W. Kunes
---------------------
Richard W. Kunes
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
INDEX TO EXHIBITS
Exhibit Description
Number
10.1 Employment Agreement with Ronald S. Lauder.
27.1 Financial Data Schedule.
