<PAGE>
[ESTEE LAUDER COMPANIES LOGO]
Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-37370
8,000,000 Shares
THE ESTEE LAUDER COMPANIES INC.
Class A Common Stock
----------------------
This prospectus relates to an offering of 8,000,000 shares of Class A
common stock of The Estee Lauder Companies Inc. The selling stockholders
identified in this prospectus are offering all of the shares to be sold in the
offering. The Estee Lauder Companies Inc. will not receive any of the proceeds
from the offering.
The Class A common stock and Class B common stock vote as a single class on
all matters, except as otherwise required by law, with each share of Class A
common stock entitling its holder to one vote and each share of Class B common
stock entitling its holder to ten votes. After completion of this offering,
members of the Lauder family will own shares of Class A common stock and
Class B common stock having 92% of the outstanding voting power of our common
stock.
The Class A common stock is listed on the New York Stock Exchange under the
symbol "EL". The last reported sale price of the Class A common stock on
May 25, 2000 was $43.75 per share.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------------
<S> <C> <C>
Initial price to public.................................................. $ 43.50 $ 348,000,000
Underwriting discount.................................................... $ 1.35 $ 10,800,000
Proceeds, before expenses, to the selling stockholders................... $ 42.15 $ 337,200,000
</TABLE>
To the extent that the underwriters sell more than 8,000,000 shares of
common stock, they have the option to purchase up to an additional 1,200,000
shares from the selling stockholders at the initial price to the public less
the underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on May 31, 2000.
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
----------------------
Prospectus dated May 25, 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. As a result, we file reports and other information with the SEC.
You may read and copy the reports, proxy statements and other information we
file with the SEC at the SEC's public reference facilities at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may obtain
information on the operation of the public reference facilities by calling the
SEC at 1-800-SEC-0330. You may also obtain information about us from the
following regional offices of the SEC: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of these materials can be obtained at prescribed rates. Our
filings with the SEC are also available on the SEC's home page on the Internet
at http://www.sec.gov. Our Class A common stock is listed on the New York Stock
Exchange, and reports, proxy statements and other information can be inspected
at the offices of the NYSE at 20 Broad Street, New York, New York 10005.
We have filed with the SEC a registration statement on Form S-3. This
prospectus, which is a part of the registration statement, omits selected
information contained in the registration statement. Statements made in this
prospectus as to the contents of any contract, agreement or other documents are
not necessarily complete. With respect to each contract, agreement or other
document filed as an exhibit to the registration statement, we refer you to that
exhibit for a more complete description of the matter involved, and each
statement is deemed qualified in its entirety by reference to that exhibit.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC. This permits us to disclose important information to you by
referencing those filed documents. We incorporate by reference in this
prospectus the following documents which have been filed with the SEC:
o our Annual Report on Form 10-K for the fiscal year ended June 30, 1999;
o our Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000; and
o the description of the Class A common stock contained in our registration
statement on Form 8-A, dated November 8, 1995.
We also incorporate by reference all documents filed pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act after the
date of this prospectus and prior to the termination of this offering.
We will promptly provide without charge to you, upon written or oral
request, a copy of any or all of the documents incorporated by reference in this
prospectus, other than exhibits to those documents, unless the exhibits are
specifically incorporated by reference in those documents. Requests should be
directed to the Investor Relations Department, The Estee Lauder Companies Inc.,
767 Fifth Avenue, New York, New York 10153, telephone number (212) 572-4184.
------------------------
Unless we otherwise indicate, (1) references to "we," "us" and "our" are to
The Estee Lauder Companies Inc., a Delaware corporation, and its subsidiaries
and (2) references to a fiscal year refer to our fiscal year which ends on June
30 of each year (and so, for example, our "fiscal 1999" refers to the year ended
June 30, 1999). We sometimes refer in this prospectus to our Class A common
stock, par value $.01 per share, and Class B common stock, par value $.01 per
share, collectively as the "common stock."
2
<PAGE>
THE ESTEE LAUDER COMPANIES INC.
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 110 countries and territories under the following well-recognized brand
names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C., Bobbi
Brown essentials, jane, Aveda, Stila and Jo Malone. 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. We 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 Aveda and jane in fiscal 1998, we broadened our distribution to
include new channels, namely self-select outlets and salons. We also began
selling Clinique products in November 1998 and Origins products in July 1999
directly to consumers over the Internet.
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 34% and 35% of
our net sales in the nine months ended March 31, 2000 and fiscal 1999,
respectively.
MAKEUP--We manufacture, market and sell a full array of makeup products,
including lipsticks, mascaras, foundations, eyeshadows, nail polishes and
powders. We offer many of the products 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 both
the nine months ended March 31, 2000 and 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 27% and 26% of our net sales in
the nine months ended March 31, 2000 and fiscal 1999, respectively.
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. Hair care
products accounted for approximately 2% of our net sales in each of the nine
months ended March 31, 2000 and fiscal 1999.
Given the generally personal nature of our products and the wide array of
consumer preferences and tastes, as well as the 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 we have sold since 1946,
are positioned as luxurious, classic and aspirational. We believe that Estee
Lauder brand products are
3
<PAGE>
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 launched 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 an 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. We launched the line in 1995 with a men's fragrance, tommy.
Today, we manufacture and sell a variety of fragrances for men and women, as
well as skin care, makeup and hair care products under the license. In addition
to traditional department store counters, these 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 makeup 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. We recently
launched jane goodskin, a line of skin care products. jane products are
currently distributed only in the United States through the self-select
distribution channel.
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
4
<PAGE>
The Donna Karan Company. We launched the first DKNY women's fragrance under the
license in September 1999, and we commenced a national rollout in February 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 several foreign countries.
JO MALONE--We acquired London-based Jo Malone Limited in October 1999. Jo
Malone is known for its prestige skin care, fragrance and hair care products
showcased at its flagship store in London. Products are also available through a
company catalogue and at a very limited group of specialty stores in the United
States and Canada.
In addition to the brands mentioned above, 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.
We have been controlled by the Lauder family since the founding of our
company. Members of the Lauder family, some of whom are our directors, executive
officers and/or employees, beneficially own, directly or indirectly, as of
May 25, 2000, shares of Class A common stock and Class B common stock having
approximately 93% of the outstanding voting power of our common stock.
Our principal executive offices are located at 767 Fifth Avenue, New York,
New York 10153. The telephone number at that location is (212) 572-4200.
5
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sales of the shares of Class A
common stock. All of the shares of Class A common stock being offered are
beneficially owned by the selling stockholders named in this prospectus.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Class A common stock is traded on the NYSE under the symbol "EL." The
following table sets forth for the fiscal quarters indicated the high and low
sales prices for the Class A common stock, as reported on the NYSE Composite
Tape, and the dividends per share declared in respect of those quarters. The
last reported sale price of the Class A common stock on May 25, 2000 was $43.75
per share.
<TABLE>
<CAPTION>
MARKET PRICE
OF CLASS A
COMMON STOCK*
-------------- CASH
HIGH LOW DIVIDENDS*
---- --- ----------
<S> <C> <C> <C>
FISCAL 1998
First Quarter................................................................. $25 15/32 $22 3/8 $.0425
Second Quarter................................................................ 28 3/16 19 1/2 .0425
Third Quarter................................................................. 34 1/2 24 1/4 .0425
Fourth Quarter................................................................ 36 31/32 30 7/16 .0425
FISCAL 1999
First Quarter................................................................. $35 1/8 $24 3/4 $.0425
Second Quarter................................................................ 43 1/4 23 11/32 .0425
Third Quarter................................................................. 47 3/4 38 3/8 .0425
Fourth Quarter................................................................ 51 1/2 41 7/8 .05
FISCAL 2000
First Quarter................................................................. $56 1/2 $38 1/4 $ .05
Second Quarter................................................................ 51 7/16 37 1/4 .05
Third Quarter................................................................. 55 7/8 38 1/8 .05
Fourth Quarter (through May 25, 2000)......................................... 54 5/16 41 1/8 .05
</TABLE>
- ------------------
* Adjusted to reflect the two-for-one stock split on our common stock that we
declared and paid in the fourth quarter of fiscal 1999.
- ------------------
We expect to continue the payment of cash dividends in the future, but we
cannot assure you that they will continue.
As of May 24, 2000, there were 3,876 record holders of Class A common stock
and 13 record holders of Class B common stock.
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following income statement and balance sheet information has been
derived from our consolidated financial statements as of and for the nine-month
periods ended March 31, 2000 and 1999 and as of and for each of the years in the
five-year period ended June 30, 1999. You should read this information along
with our consolidated financial statements and the related notes incorporated in
this prospectus by reference and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" elsewhere in this prospectus. See
"Incorporation of Documents by Reference." The results of interim periods are
not necessarily indicative of results that may be expected for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales............................ $3,367.9 $3,052.8 $3,961.5 $3,618.0 $3,381.6 $3,194.5 $2,899.1
Gross profit......................... 2,602.3 2,357.3 3,061.6 2,798.5 2,616.5 2,463.5 2,224.3
Operating income..................... 422.0 373.7 456.9 409.1 359.1 310.3 230.9
Earnings before income taxes and
minority interest.................. 408.1 359.4 440.2 402.8 362.9 313.0 233.0
Net earnings......................... 256.9 222.5 272.9 236.8 197.6 160.4 121.2
Preferred stock dividends............ 17.6 17.6 23.4 23.4 23.4 57.5 25.3
Net earnings attributable to common
stock.............................. 239.3 204.9 249.5 213.4 174.2 102.9 95.9
OTHER DATA:
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(a)........................ $ 529.8 $ 462.4 $ 574.2 $ 506.6 $ 435.1 $ 369.1 $ 272.9
PER SHARE DATA:
Net earnings per common share(b)(d):
Basic.............................. $ 1.01 $ .87 $ 1.05 $ .90 $ .74 $ .59(c) --
Diluted............................ $ .99 $ .85 $ 1.03 $ .89 $ .73 $ .59(c) --
Weighted average common shares
outstanding(b)(d):
Basic.............................. 237.7 236.8 237.0 236.8 235.4 232.6(c) --
Diluted............................ 242.5 240.7 241.2 239.5 237.1 233.2(c) --
Cash dividends declared per common
share(d)........................... $ .15 $ .1275 $ .1775 $ .17 $ .17 $ .085 --
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
AT ----------------------------------------------------
MARCH 31,
2000 1999 1998 1997 1996 1995
------------ -------- -------- -------- -------- --------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 755.0 $ 708.0 $ 617.2 $ 551.6 $ 467.5 $ 469.6
Total assets................................ 2,956.7 2,746.7 2,512.8 1,873.1 1,779.4 1,701.4
Total debt.................................. 428.5 429.1 436.5 31.1 127.5 194.0
Redeemable preferred stock.................. 360.0 360.0 360.0 360.0 360.0 360.0
Stockholders' equity........................ 1,124.0 924.5 696.4 547.7 394.2 335.1
</TABLE>
- ------------------
(a) 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 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
EBITDA useful in analyzing our results; however, it is not intended to
replace, or act as
(Footnotes continued on next page)
7
<PAGE>
(Footnotes continued from previous page)
a substitute for, any presentation included in our consolidated financial
statements prepared in conformity with generally accepted accounting
principles.
(b) In December 1997, we adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which requires
the presentation of both Basic and Diluted earnings per common share.
Consistent with the requirements of SFAS No. 128, net earnings per common
share and weighted average common shares outstanding 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 were effected at the beginning of fiscal
1996.
(d) On April 26, 1999, our 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 presented in this prospectus has been restated to
reflect the stock split.
8
<PAGE>
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 110 countries and territories. The following is a
comparative summary of our operating results for the nine month periods ended
March 31, 2000 and 1999 and the fiscal years ended 1999, 1998 and 1997. 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>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES
BY REGION:
The Americas.................................. $2,091.7 $1,883.2 $2,397.9 $2,204.7 $1,939.4
Europe, the Middle East & Africa.............. 854.5 815.5 1,082.4 960.8 909.3
Asia/Pacific.................................. 421.7 354.1 481.2 452.5 532.9
-------- -------- -------- -------- --------
$3,367.9 $3,052.8 $3,961.5 $3,618.0 $3,381.6
======== ======== ======== ======== ========
BY PRODUCT CATEGORY:
Skin Care..................................... $1,147.7 $1,020.8 $1,398.8 $1,248.3 $1,291.0
Makeup........................................ 1,197.2 1,104.2 1,412.8 1,317.7 1,251.7
Fragrance..................................... 921.9 848.3 1,048.6 987.6 817.7
Hair Care..................................... 81.5 63.9 82.4 52.4 16.5
Other......................................... 19.6 15.6 18.9 12.0 4.7
-------- -------- -------- -------- --------
$3,367.9 $3,052.8 $3,961.5 $3,618.0 $3,381.6
======== ======== ======== ======== ========
OPERATING INCOME
BY REGION:
The Americas.................................. $ 256.1 $ 232.3 $ 265.0 $ 248.0 $ 189.9
Europe, the Middle East & Africa.............. 121.9 108.6 145.5 131.3 122.7
Asia/Pacific.................................. 44.0 32.8 46.4 29.8 46.5
-------- -------- -------- -------- --------
$ 422.0 $ 373.7 $ 456.9 $ 409.1 $ 359.1
======== ======== ======== ======== ========
BY PRODUCT CATEGORY:
Skin Care..................................... $ 177.5 $ 152.3 $ 205.9 $ 174.3 $ 175.9
Makeup........................................ 142.7 127.4 158.2 151.8 143.8
Fragrance..................................... 93.4 84.0 79.7 75.5 37.8
Hair Care..................................... 8.8 8.7 11.4 8.0 1.6
Other......................................... (0.4) 1.3 1.7 (0.5) --
-------- -------- -------- -------- --------
$ 422.0 $ 373.7 $ 456.9 $ 409.1 $ 359.1
======== ======== ======== ======== ========
</TABLE>
9
<PAGE>
The following table sets forth selected consolidated earnings data as a
percent of net sales:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31, YEAR ENDED JUNE 30,
--------------- -------------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................ 22.7 22.8 22.7 22.7 22.6
----- ----- ----- ----- -----
Gross profit................................................. 77.3 77.2 77.3 77.3 77.4
----- ----- ----- ----- -----
Operating expenses before depreciation and amortization:
Selling, general and administrative..................... 60.8 61.3 62.0 62.4 63.5
Related party royalties................................. 0.8 0.8 0.8 0.9 1.0
----- ----- ----- ----- -----
61.6 62.1 62.8 63.3 64.5
----- ----- ----- ----- -----
Earnings before interest, taxes, depreciation and
amortization ("EBITDA").................................... 15.7 15.1 14.5 14.0 12.9
Depreciation and amortization................................ 3.2 2.9 3.0 2.7 2.3
----- ----- ----- ----- -----
Operating income............................................. 12.5 12.2 11.5 11.3 10.6
Interest income (expense), net............................... (0.4) (0.4) (0.4) (0.2) 0.1
----- ----- ----- ----- -----
Earnings before income taxes and minority interest........... 12.1 11.8 11.1 11.1 10.7
Provision for income taxes................................... 4.5 4.5 4.2 4.5 4.5
Minority interest............................................ -- -- -- (0.1) (0.4)
----- ----- ----- ----- -----
Net earnings................................................. 7.6% 7.3% 6.9% 6.5% 5.8%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS FISCAL 2000 COMPARED WITH NINE MONTHS FISCAL 1999
NET SALES
Our net sales increased 10%, or $315.1 million, to $3,367.9 million for the
nine months ended March 31, 2000 as compared with the same prior-year period.
Sales growth is primarily due to increased sales of skin care products and the
domestic strength of fragrance product sales. Excluding the impact of foreign
currency exchange rate changes, net sales increased 11%, mainly due to the
strength of the U.S. dollar against certain European currencies.
PRODUCT CATEGORIES
SKIN CARE. Our net sales of skin care products increased 12%, or $126.9
million, to $1,147.7 million. The international rollout of Resilience Lift and
the worldwide introduction of Resilience Lift Eye Cream have contributed to net
sales increases in the current year. Other new products such as Body Clinique
and the Clinique Acne Solutions line are also being well received. The La Mer
brand has more than doubled its sales this year in all regions on the strength
of its original products as well as a new eye cream.
MAKEUP. Our makeup product sales increased 8%, or $93.0 million, to
$1,197.2 million supported by new and existing products, the addition of Stila
and increased sales by M.A.C. During this fiscal year we introduced City Stick,
Longstemmed Lashes and *magic by Prescriptives, as well as a variety of products
in the Tommy Hilfiger line of color cosmetics. Successful existing products
include ReNutriv All Day Lipstick. M.A.C. has experienced great success through
expansion of both traditional and retail distribution. These improvements were
partially offset by lower sales of Indelible Lipstick and Smudgesicles, among
others.
FRAGRANCE. Net sales of fragrance products increased 9%, or $73.6 million,
to $921.9 million. The increase was primarily attributable to the worldwide
introduction of Freedom for him and Freedom for her, which were introduced this
year. Donna Karan Cashmere Mist and DKNY Women both contributed to sales
improvements. These increases were partially offset by lower sales of previously
launched Tommy Hilfiger products.
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HAIR CARE. Our net sales of hair care products increased 28%, or $17.6
million, to $81.5 million due to growth of the Aveda hair care product line and
refinements in the distribution channel. Improvements in distribution include a
greater degree of selectivity with regard to salons that carry Aveda products
and an increase in the number of company-owned retail stores.
The introduction of new products may, to some extent, divert sales from
existing products. This possibility is taken into account in our business
planning.
GEOGRAPHIC REGIONS
Our net sales in the Americas increased 11%, or $208.5 million, to
$2,091.7 million. This increase was driven by sales of new and existing products
across all categories and growth in our newer brands. In Europe, the Middle East
& Africa, net sales increased 5%, or $39.0 million, to $854.5 million. The
increase was primarily the result of higher net sales in Italy, Spain and the
distributor and travel retail businesses. Excluding the impact of foreign
currency translation, sales in Europe, the Middle East & Africa increased 12%.
Net sales in Asia/Pacific increased 19%, or $67.6 million, to $421.7 million,
reflecting increases in all regions, particularly Japan, Korea, Australia and
Taiwan. Excluding the impact of foreign currency translation, Asia/Pacific sales
grew 9% over the prior-year period.
We strategically stagger our new product launches by geographic markets,
which may account for differences in regional sales growth.
COST OF SALES
Our cost of sales for the nine months ended March 31, 2000 were 22.7% of
net sales compared with 22.8% of net sales in the prior-year period. Cost of
sales has been relatively consistent throughout the period reflecting production
efficiencies, offset by growth in newer brands with higher product cost
structures relative to our core brands. In the most recent quarter we have
experienced improvements related to growth and change in our channels of
distribution as well as the rollout of our production and sourcing initiative.
OPERATING EXPENSES
Total operating expenses decreased to 64.8% of net sales for the nine
months ended March 31, 2000, compared with 65.0% of net sales in the same
prior-year period. This improvement primarily relates to operating expense
efficiencies achieved and the growth of acquired companies, which have lower
operating cost structures, partially offset by increased costs related to
new/modified distribution channels, which have higher operating cost structures
than traditional channels, as well as higher depreciation and amortization.
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 13%, or $48.3 million, to $422.0 million for the
nine months ended March 31, 2000 as compared with the same prior-year period.
Operating margins were 12.5% of net sales in the current period as compared to
12.2% in the same prior-year period. The increase in operating income and
margins was due to higher net sales coupled with production and operational
efficiencies achieved and the planned timing and execution of advertising and
promotional spending.
PRODUCT CATEGORIES
Operating income increased in the skin care, makeup and fragrance
categories by 17%, 12% and 11%, respectively, primarily due to sales growth.
Hair care operating income was relatively flat as a result of increased
spending, particularly in the most recent quarter, related to retail expansion,
changes in distribution and support of new product introductions.
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GEOGRAPHIC REGIONS
Operating income in the Americas increased 10%, or $23.8 million, to
$256.1 million for the nine months ended March 31, 2000, primarily due to
increases in skin care product sales, as well as the inclusion of operating
results from recent acquisitions. In Europe, the Middle East & Africa, operating
income increased 12%, or $13.3 million, to $121.9 million, reflecting improved
operating results in South Africa and the distributor and travel retail
businesses. Improvements in these regions were partially offset by lower
operating income in France. In Asia/Pacific, operating income increased 34%, or
$11.2 million, to $44.0 million due to higher results in Japan, Taiwan,
Australia and Korea.
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 15% to $529.8 million, or 15.7% of net sales, as compared
to $462.4 million, or 15.1%, of net sales in the same prior-year period. The
improvement in EBITDA is primarily attributable to sales growth as well as
production and operating expense efficiencies achieved.
INTEREST EXPENSE, NET
Net interest expense was $13.9 million and $14.3 million for the nine
months ended March 31, 2000 and 1999, respectively. Interest expense decreased
as a result of our management of interest rates, partially offset by lower
average invested cash balances.
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 nine months ended
March 31, 2000 was 37% compared with 38% in the same prior-year period. These
rates reflect the effect of state and local taxes, tax rates in certain foreign
jurisdictions and certain nondeductible expenses. The decrease in the effective
income tax rate is principally attributable to implementing tax planning
initiatives.
FISCAL 1999 AS COMPARED WITH FISCAL 1998
NET SALES
Our 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.
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PRODUCT CATEGORIES
SKIN CARE. Our net sales of skin care products 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. Our 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 fiscal 1999 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 lower
sales of Superlast Cream Lipstick, which was successfully launched in fiscal
1998.
FRAGRANCE. Our net sales of fragrance products increased 6% to $1,048.6
million. The increase was primarily attributable to the worldwide success of
Clinique Happy and the fiscal 1999 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. Our net sales of hair care products increased 57%, or $30.0
million, to $82.4 million. This increase primarily reflected the inclusion of
Aveda products for a full year.
GEOGRAPHIC REGIONS
Our net 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.
COST OF SALES
Our 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
Our operating expenses as a percent of net sales decreased to 65.8% in
fiscal 1999 from 66.0% in fiscal 1998. The decrease was 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
Our 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.
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PRODUCT CATEGORIES
Our 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 was 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 REGIONS
Our 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.
EBITDA
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.
This improvement was 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
Our 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%.
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PRODUCT CATEGORIES
SKIN CARE. Our 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. Our 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. Our 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 ongoing 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. Our 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 REGIONS
Our 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
Our 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.
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OPERATING EXPENSES
Selling, general and administrative expenses decreased to 66.0% of our 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.
OPERATING INCOME
Our operating income rose 14% to $409.1 million in fiscal 1998. Operating
margins were 11.3% in fiscal 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
Our operating income in the skin care segment decreased 1% to $174.3
million 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 a 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 REGIONS
Our 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 our 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
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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.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds are cash flow from operations, issuance of
commercial paper, long-term borrowings and borrowings under committed credit
lines provided by banks in the United States and abroad. We believe that these
sources of funds will be adequate to support currently planned business
operations, acquisitions and capital expenditures on both a near-term and long-
term basis. At March 31, 2000, we had cash and cash equivalents of $367.6
million as compared to $347.5 million at June 30, 1999.
The classification of commercial paper as long-term debt in our balance
sheet is based upon our intent and ability to refinance maturing commercial
paper on a long-term basis. As of March 31, 2000, we had committed credit
facilities in the amount of $750.0 million, of which none was used. We also had
uncommitted credit facilities in the amount of $61.2 million, of which none was
used. Total debt as a percentage of total capitalization (including short-term
debt) was 22% at March 31, 2000 and 25% at June 30, 1999.
We currently have an effective shelf registration statement covering the
potential issuance of up to $400.0 million in debt securities.
Net cash provided by operating activities was $344.6 million in the nine
months ended March 31, 2000 as compared to $311.6 million in the same prior-year
period. This favorable change in net cash provided by operating activities
primarily reflects increased profitability.
Net cash used for investing activities of $248.9 million during the nine
months ended March 31, 2000 reflects capital expenditures, the acquisitions of
Stila and Jo Malone Limited, and the ongoing acquisition of certain Aveda
distributors in the United States and the United Kingdom as well as certain
Aveda retail stores.
Net cash used for financing activities of $68.6 million during the nine
months ended March 31, 2000 principally reflects dividends and payments to
acquire treasury stock.
In May 2000, we acquired the business of Gloss.com, Inc., an Internet
beauty site, for cash.
In April 1999, our 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
common stock at the close of business on May 10, 1999.
In September 1998, our Board of Directors authorized a share repurchase
program under which we may 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 1,094,000 shares under this
program.
Capital expenditures amounted to $121.3 million, $82.6 million, $117.9
million, $120.6 million and $82.9 million in the nine-month periods ended March
31, 2000 and 1999, and in fiscal 1999, 1998 and 1997, respectively. Spending in
all periods 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 $53.2 million, $47.7 million, $65.4 million,
$63.6 million and $63.4 million in the nine-month periods ended March 31, 2000
and 1999, and in fiscal 1999, 1998 and 1997, respectively. The Board of
Directors increased the quarterly dividend rate from $.0425 per share of common
stock to $.05 per share, effective with the dividend paid in July 1999. For the
nine
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month periods ended March 31, 2000 and 1999 and in fiscal 1999, 1998 and 1997,
dividends declared on our common stock totaled $35.6 million, $30.2 million,
$42.0 million, $40.2 million and $40.0 million, respectively. On May 4, 2000,
the Board of Directors declared a dividend of $.05 per share on our common
stock, payable at July 6, 2000 to stockholders of record at the close of
business on June 16, 2000.
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 those 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 these contracts have not been material to our financial results. We do not
utilize derivative financial instruments for trading or speculative purposes. At
March 31, 2000, we had foreign currency contracts in the form of purchased
currency options and forward exchange contracts in the amount of $24.3 million
and $212.9 million, respectively. The foreign currencies included in these
contracts are principally the Euro, Japanese yen, Swiss franc and British pound.
We have entered into interest rate swaps to exchange floating rate for
fixed rate interest payments periodically over the life of the agreements.
Amounts currently due to or from interest rate swap counterparties are recorded
in interest expense in the period in which they accrue. At June 30, 1999, we had
interest rate swap agreements outstanding with a notional principal amount of
$200 million. On February 2, and April 28, 2000 we terminated $66 million and
$67 million, respectively, of our $200 million interest rate swap at a gain. In
order to maintain interest rate protection, we used a portion of the proceeds to
purchase interest rate caps set at the same rate as the previously terminated
interest rate swaps.
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.
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
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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 those derivative instruments, using a variance/covariance model
with a 95 percent confidence level, assuming normal market conditions at
March 31, 2000 was not material.
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.
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 obligated
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
19
<PAGE>
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.
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. Our 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. Some of these sites are under development and we currently
have seven websites that educate and inform consumers about specific brands.
Three of the existing sites--clinique.com, origins.com and bobbibrown.com--have
e-commerce capabilities, either directly or through one of our retail customers.
Our acquisition of Gloss.com, Inc. will allow us to accelerate the
implementation of this strategy. Our Internet sales are currently limited to
consumers in the United States and, during the three and nine months ended
March 31, 2000, these sales were not significant. The initial impact of our
overall Internet strategy on earnings is expected to be immaterially dilutive
for the first two years and accretive thereafter.
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 SEC 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. 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;
(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;
(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;
20
<PAGE>
(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 us, 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;
and,
(xii) our ability to integrate acquired businesses and realize value
from them.
We assume no responsibility to update forward-looking statements made in
this prospectus or otherwise.
21
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information for the selling
stockholders identified below with respect to (1) that selling stockholder's
beneficial ownership of Class A common stock and Class B common stock prior to
the offering and the percentage of total voting power represented by those
shares and (2) the number of shares of Class A common stock and Class B common
stock to be beneficially owned by the selling stockholder after the offering and
the percentage of total voting power represented thereby (without taking into
account the underwriters' over-allotment option).
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
----------------------------------- -----------------------------------
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED SHARES OF TO BE BENEFICIALLY OWNED
----------------------------------- CLASS A -----------------------------------
COMMON PERCENTAGE
PERCENTAGE STOCK OF
OF TOTAL TO BE SOLD TOTAL
VOTING IN THE VOTING
NAME OF SELLING STOCKHOLDER CLASS A CLASS B POWER OFFERING CLASS A CLASS B POWER
- -------------------------------------- --------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
The 4202 Corporation(1) .............. 5,494,559 2,837,642 2.69% 4,747,892 746,667 2,837,642 2.31%
Jewish Renaissance Foundation(2)...... 268,200 -- 0.02% 114,943 153,257 -- 0.01%
The Ronald S. Lauder Foundation(3).... 151,400 -- 0.01% 114,943 36,457 -- *
The Leonard A. Lauder Charitable
Trust(4)............................ 3,475,555 -- 0.28% 3,022,222 453,333 -- 0.04%
</TABLE>
- ------------------
* less than 0.01%.
(1) All of the issued and outstanding shares of common stock of The 4202
Corporation are owned by Deborah F. Stiles in her capacity as the sole
trustee of The RSL 4202 Trust f/b/o Ronald S. Lauder u/a/d May 18, 1999,
created by Ronald S. Lauder, as grantor. Deborah F. Stiles, as the sole
trustee of The RSL 4202 Trust and a director and officer of The 4202
Corporation, H. William Healy, as a director and officer of The 4202
Corporation, and Lloyd O. Martin, as a director and officer of The 4202
Corporation, share voting and investment power over the shares owned by The
4202 Corporation and are deemed to beneficially own all these shares. Ms.
Stiles, Mr. Healy and Ms. Martin disclaim beneficial ownership of those
shares. Neither Ms. Stiles nor Ms. Martin owns, either directly or
indirectly, any additional shares of Class A common stock or Class B common
stock. Mr. Healy owns 2,226 shares of Class A common stock and no shares of
Class B common stock.
(2) Ronald S. Lauder is a director of the Jewish Renaissance Foundation and
shares investment and voting power as to the shares owned by the Jewish
Renaissance Foundation. Mr. Lauder disclaims beneficial ownership of all
such shares owned by the Jewish Renaissance Foundation.
(3) Ronald S. Lauder is a director of The Ronald S. Lauder Foundation and shares
investment and voting power as to the shares owned by The Ronald S. Lauder
Foundation. Mr. Lauder disclaims beneficial ownership of all such shares
owned by The Ronald S. Lauder Foundation.
(4) The Leonard A. Lauder Charitable Trust f/b/o Leonard A. Lauder and
charitable organizations u/a/d May 18, 2000, is a charitable trust created
by Leonard A. Lauder, as grantor. Roger A. Goldman, as the sole trustee of
The Leonard A. Lauder Charitable Trust, has sole investment and voting power
with respect to the shares owned by the trust and is deemed to beneficially
own all such shares. Mr. Goldman disclaims beneficial ownership of all such
shares. Mr. Goldman does not own, either directly or indirectly, any
additional shares of Class A common stock or Class B common stock.
22
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 650,000,000 shares of Class A
common stock, 240,000,000 shares of Class B common stock, and 23,600,000 shares
of Preferred Stock, par value $.01 per share, including 3,600,000 shares of
$6.50 Cumulative Redeemable Preferred Stock. As of May 24, 2000, there were
124,121,028 shares of Class A common stock and 113,679,334 shares of Class B
common stock outstanding. All of the shares of Class B common stock are
beneficially owned by members of the Lauder family. Of the authorized shares of
Preferred Stock, 3,600,000 shares of $6.50 Cumulative Redeemable Preferred Stock
are outstanding and, as of the date of this prospectus, are beneficially owned
by members of the Lauder family. The following description of our capital stock
is a summary and is subject to and qualified in its entirety by reference to the
provisions of our Certificate of Incorporation, which is filed as an exhibit to
the registration statement of which this prospectus forms a part.
COMMON STOCK
The shares of Class A common stock and Class B common stock are identical
in all respects, except for voting rights, certain conversion rights and
transfer restrictions in respect of the shares of the Class B common stock, as
described below.
VOTING RIGHTS. Each share of Class A common stock entitles its holder to
one vote on each matter submitted to a vote of our stockholders and each share
of Class B common stock entitles its holder to ten votes on that matter,
including the election of directors. There is no cumulative voting. Except as
required by applicable law, holders of the Class A common stock and Class B
common stock vote together on all matters submitted to a vote of the
stockholders. With respect to specified corporate changes, including
liquidations, reorganizations, recapitalizations, mergers, consolidations and
sales of all or substantially all of our assets, holders of the Class A common
stock and Class B common stock vote together as a single class and the approval
of 75% of the outstanding voting power is required to authorize or approve those
transactions.
Any action that can be taken at a meeting of the stockholders may be taken
by written consent in lieu of the meeting if we receive consents signed by
stockholders having the minimum number of votes that would be necessary to
approve the action at a meeting at which all shares entitled to vote on the
matter were present. This could permit the holders of Class B common stock to
take all actions required to be taken by the stockholders without providing the
other stockholders the opportunity to make nominations or raise other matters at
a meeting. The right to take action by less than unanimous written consent
expires at the time when there are no shares of Class B common stock
outstanding.
DIVIDENDS. Holders of Class A common stock and Class B common stock are
entitled to receive dividends at the same rate if, as and when those dividends
are declared by our Board of Directors out of assets legally available for
dividends after payment of dividends required to be paid on any shares of our
Preferred Stock.
If a dividend or distribution payable in shares of Class A common stock is
made on the Class A common stock, we must also make a pro rata and simultaneous
dividend or distribution on the Class B common stock payable in shares of
Class B common stock. Conversely, if a dividend or distribution payable in
shares of Class B common stock is made on the Class B common stock, we must also
make a pro rata and simultaneous dividend or distribution on the Class A common
stock payable in shares of Class A common stock.
RESTRICTIONS ON TRANSFER. If a holder of Class B common stock transfers its
shares by sale, assignment, gift, bequest, appointment or otherwise, to a person
other than a Lauder Family Member (as defined below), those shares will be
converted automatically into shares of Class A common stock. In the case of a
pledge of shares of Class B common stock to a financial institution, those
shares will not be deemed to be transferred unless and until a foreclosure
occurs.
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<PAGE>
The term "Lauder Family Member" includes only the following persons:
o Mrs. Estee Lauder and her estate, guardian, conservator or committee;
o each descendant of Mrs. Lauder (a "Lauder Descendant") and each of their
respective estates, guardians, conservators or committees;
o each "Family Controlled Entity" (as defined below); and
o the trustees, in their respective capacities as such, of each "Family
Controlled Trust" (as defined below).
The term "Family Controlled Entity" means:
o any not-for-profit corporation if at least 80% of its board of directors
is composed of Mrs. Lauder and/or Lauder Descendants;
o any other corporation if at least 80% of the value of its outstanding
equity is owned by Lauder Family Members;
o any partnership if at least 80% of the value of its partnership interests
is owned by Lauder Family Members; and
o any limited liability or similar company if at least 80% of the value of
the company is owned by Lauder Family Members.
The term "Family Controlled Trust" includes certain trusts existing on
November 16, 1995 and trusts whose primary beneficiaries are Mrs. Lauder, Lauder
Descendants, spouses of Lauder Descendants and/or charitable organizations
provided that if the trust is a wholly charitable trust, at least 80% of the
trustees of that trust consist of Mrs. Lauder and/or Lauder Descendants.
CONVERSION. Class A common stock has no conversion rights. Class B common
stock is convertible into Class A common stock, in whole or in part, at any time
and from time to time at the option of its holder. Each share of Class B common
stock is convertible into one share of Class A common stock. If any shares of
Class B common stock are transferred to any person other than a Lauder Family
Member, those shares of Class B common stock automatically will be converted
into shares of Class A common stock. Each share of Class B common stock will
also automatically convert into one share of Class A common stock if, on the
record date for any meeting of the stockholders, the number of shares of
Class B common stock then outstanding is less than 10% of the total number of
shares of Class A common stock and Class B common stock then outstanding.
LIQUIDATION. If we liquidate, after we pay our debts and other liabilities
and provide for any holders of our Preferred Stock, our remaining assets will be
distributable ratably among the holders of the Class A common stock and Class B
common stock treated as a single class.
MERGERS AND OTHER BUSINESS COMBINATIONS. Upon a merger or consolidation,
holders of each class of common stock are entitled to receive equal per share
payments or distributions, except that in any transaction in which shares of
capital stock are distributed, those shares may differ as to voting rights to
the extent and only to the extent that the voting rights of the Class A common
stock and Class B common stock differ at that time. We may not dispose of all or
any substantial part of our assets to, or merge or consolidate with, any person,
entity or "group" (as defined in Rule 13d-5 of the Securities Exchange Act),
which beneficially owns in the aggregate ten percent or more of our outstanding
common stock (a "Related Person") without the affirmative vote of the holders,
other than that Related Person, of not less than 75% of the voting power of
outstanding Class A common stock and Class B common stock voting as a single
class. For the sole purpose of determining the 75% vote, a Related Person will
also include the seller or sellers from whom the Related Person acquired, during
the preceding six months, at least five percent of the outstanding shares of
Class A common stock in a single transaction or series of related transactions
under one or more agreements or other arrangements (and not through a broker's
transaction) but only if that seller or those sellers have beneficial ownership
of shares of common stock having a fair market value
24
<PAGE>
greater than $10 million in total following the disposition to that Related
Person. This 75% voting requirement is not applicable, however, if (1) the
proposed transaction is approved by a vote of not less than a majority of our
Board of Directors who are neither affiliated nor associated with the Related
Person (or the seller of shares to the Related Person as described above) or (2)
in the case of a transaction in which the holders of common stock are entitled
to receive cash, property, securities or other consideration, the cash or fair
market value of the property, securities or other consideration to be received
per share in that transaction is not less than the higher of (A) the highest
price per share paid by the Related Person for any of its holdings of common
stock within the two-year period immediately prior to the announcement of the
proposed transaction or (B) the highest closing sale price during the 30-day
period immediately preceding that date or during the 30-day period immediately
preceding the date on which the Related Person became a Related Person,
whichever is higher.
OTHER PROVISIONS. The holders of the Class A common stock and Class B
common stock are not entitled to preemptive rights. Neither the Class A common
stock nor the Class B common stock may be subdivided or combined in any manner
unless the other class is subdivided or combined in the same proportion.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Class A common stock is ChaseMellon Shareholder Services.
PREFERRED STOCK
$6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK. Holders of our $6.50
Cumulative Redeemable Preferred Stock are entitled to receive cumulative cash
dividends at a rate of $6.50 annually per share payable in quarterly
installments. If those dividends are not paid in full, or declared in full and
sums set apart for their full payment, then no dividends may be paid or declared
upon the common stock or any other capital stock ranking junior to or on parity
with the $6.50 Cumulative Redeemable Preferred Stock. If, at the time of an
annual meeting of our stockholders, the equivalent of six quarterly dividends
are in arrears, then the number of directors on our Board of Directors will be
increased by two and the holders of the outstanding $6.50 Cumulative Redeemable
Preferred Stock voting separately as a class will be entitled at the meeting to
vote for the election of two directors. The right to elect two directors and
those directors' terms on our Board of Directors will continue until the
arrearage in the payment of dividends ceases to exist. Shares of $6.50
Cumulative Redeemable Preferred Stock are subject to mandatory redemption on
June 30, 2005 at a redemption price of $100 per share. Following that date and
so long as those mandatory redemption obligations have not been discharged in
full, no dividends may be paid or declared upon the common stock, or on any
other capital stock ranking junior to or on a parity with the $6.50 Cumulative
Redeemable Preferred Stock and no shares of common stock or that junior or
parity stock may be redeemed or acquired by us for any consideration. We may
redeem the $6.50 Cumulative Redeemable Preferred Stock owned by The Estee Lauder
1994 Trust and a trust for the primary benefit of Leonard A. Lauder ("LAL 1995
Trust"), in whole or in part, after the death of Mrs. Lauder or, if owned by
persons other than The Estee Lauder 1994 Trust or the LAL 1995 Trust, after five
years following the disposition of those shares by The Estee Lauder 1994 Trust
or the LAL 1995 Trust, as applicable. After the later of June 30, 2000 and
Mrs. Lauder's death, holders of the $6.50 Cumulative Redeemable Preferred Stock
may put their shares to us at a price of $100 per share (which amount represents
the liquidation preference per share).
OTHER PREFERRED STOCK. Our Board of Directors is authorized, subject to any
limitations prescribed by Delaware law or the rules of the NYSE or other
organizations on whose systems our stock may be quoted or listed, to provide for
the issuance of additional shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in that series,
to fix the rights, powers, preferences and privileges of the shares of each
wholly unissued series and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of that series,
without any further vote or action by the stockholders. The approval of the
holders of at least 75% of the outstanding shares of Class B common stock,
however, is required for
25
<PAGE>
the issuance of shares of Preferred Stock that have the right to vote for the
election of directors under ordinary circumstances or to elect 50% or more of
the directors under any circumstances. Depending upon the terms of the Preferred
Stock established by our Board of Directors, any or all series of Preferred
Stock could have preference over the common stock with respect to dividends and
other distributions and upon liquidation or could have voting or conversion
rights that could adversely affect the holders of the outstanding common stock.
In addition, the Preferred Stock could delay, defer or prevent a change of
control. We have no present plans to issue any additional shares of Preferred
Stock.
STOCKHOLDERS' AGREEMENT
All Lauder Family Members (other than The Lauder Foundation, a tax exempt,
private foundation, Aerin Lauder Zinterhofer, Jane Lauder, The 4202 Corporation,
The RSL 4202 Trust and The Leonard A. Lauder Charitable Trust) who beneficially
own shares of common stock have agreed under a stockholders' agreement with us
(the "Stockholders' Agreement") to vote all shares beneficially owned by them
for Leonard A. Lauder, Ronald S. Lauder and one person (if any) designated by
each as directors of our company. As of May 25, 2000 these stockholders
beneficially owned, in the aggregate, shares of common stock having
approximately 89.9% of our voting power.
REGISTRATION RIGHTS AGREEMENT
We and certain members of the Lauder family, certain trusts and other
entities controlled by members of the Lauder family and Morgan Guaranty Trust
Company of New York are parties to a Registration Rights Agreement (the "Master
Registration Rights Agreement"), under which each of Leonard A. Lauder, Ronald
S. Lauder and Morgan Guaranty have three demand registration rights and The
Estee Lauder 1994 Trust has six demand registration rights in respect of shares
of Class A common stock (including Class A common stock issued upon conversion
of Class B common stock) held by them. All the parties to the Master
Registration Rights Agreement (other than us) also have an unlimited number of
piggyback registration rights in respect of their shares. The rights of Morgan
Guaranty and any pledgee of The Estee Lauder 1994 Trust under the Master
Registration Rights Agreement will be exercisable only in the event of a default
under certain loan arrangements.
26
<PAGE>
UNDERWRITING
The selling stockholders and the underwriters for the offering (the
"Underwriters") named below have entered into an underwriting agreement with
respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table.
<TABLE>
<CAPTION>
Number of
Shares of Class A
Underwriters Common Stock
- ------------------------------------------------------------------------------------ -----------------
<S> <C>
Goldman, Sachs & Co................................................................. 3,200,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................ 2,400,000
J.P. Morgan Securities Inc.......................................................... 2,400,000
---------
Total............................................................................... 8,000,000
=========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
1,200,000 shares from the selling stockholders to cover such sales. They may
exercise that option for 30 days. If any shares are purchased pursuant to this
option, the Underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by the selling stockholders. Such
amounts are shown assuming both no exercise and full exercise of the
Underwriters' option to purchase 1,200,000 additional shares.
<TABLE>
<CAPTION>
Paid by the Selling
Stockholders
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.............................................................. $ 1.35 $ 1.35
Total.................................................................. $10,800,000 $12,420,000
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $0.81 per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the Underwriters to certain other
brokers or dealers at a discount of up to $0.10 per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
Underwriters may change the offering price and the other selling terms.
The Estee Lauder Companies Inc., the selling stockholders, Leonard A.
Lauder and Ronald S. Lauder, have agreed with the Underwriters not to dispose of
any of their Class A common stock or securities convertible into or exchangeable
for shares of Class A common stock during the period from the date of this
prospectus continuing through the date 90 days after the date of this
prospectus, except with the prior written consent of Goldman, Sachs & Co., or as
otherwise provided in the underwriting agreement, and except for transfers among
Lauder Family Members. This agreement does not apply to any existing employee
benefit plans.
In connection with the offering, the Underwriters may purchase and sell
shares of Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
common stock while the offering is in progress.
The Underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a portion of the
underwriting discount received by it because the Underwriters have repurchased
shares sold by or for the account of such underwriter in stabilizing or short
covering transactions.
27
<PAGE>
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the Class A common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the Underwriters at any time. These transactions may be effected on the NYSE,
in the over-the-counter market or otherwise.
The selling stockholders, who are paying all of the expenses of this
offering, estimate that their total expenses in the offering, excluding
underwriting discounts and commissions, will be approximately $480,000. The
Estee Lauder Companies Inc. will not pay any expenses in the offering.
The Estee Lauder Companies Inc. and the selling stockholders have each
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Certain of the Underwriters and their affiliates have provided, are
currently providing, and expect to provide in the future, commercial and
investment banking services to The Estee Lauder Companies Inc. and certain
Lauder Family Members for which such Underwriters and their affiliates have
received and will receive fees and commissions. Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan Securities Inc. and J.P. Morgan Securities
Ltd., is a lender to The Estee Lauder Companies Inc. and certain Lauder Family
Members. More than ten percent of the net proceeds of the offering may be used
to repay borrowings to Morgan Guaranty. Accordingly, this offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).
LEGAL MATTERS
The validity of the shares of Class A common stock being offered hereby
will be passed upon for us by Weil, Gotshal & Manges LLP, New York, New York
(members of which own approximately 60,000 shares of Class A common stock) and
certain legal matters will be passed upon for the Underwriters by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional corporations),
New York, New York.
EXPERTS
The financial statements and schedule incorporated by reference in this
prospectus that are contained in our Annual Report on Form 10-K for the fiscal
year ended June 30, 1999 have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
28
<PAGE>
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
Page
----
Where You Can Find More Information................. 2
Incorporation of Documents by Reference............. 2
The Estee Lauder Companies Inc. .................... 3
Use of Proceeds..................................... 6
Price Range of Common Stock and Dividends........... 6
Selected Consolidated Financial
Information....................................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 9
Selling Stockholders................................ 22
Description of Capital Stock........................ 23
Underwriting........................................ 27
Legal Matters....................................... 28
Experts............................................. 28
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8,000,000 Shares
THE ESTEE LAUDER
COMPANIES INC.
Class A Common Stock
----------------------
[ESTEE LAUDER COMPANIES LOGO]
----------------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
J.P. Morgan & Co.
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