As filed with the Securities and Exchange Commission on April 9, 2001
Registration No. 333-57520
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE ESTEE LAUDER COMPANIES INC.
(Exact name of registrant as specified in its charter)
Delaware 2844 11-2408943
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
767 Fifth Avenue
New York, New York 10153
(212) 572-4200
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive office)
Paul E. Konney, Esq.
Senior Vice President,
General Counsel and Secretary
The Estee Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
(212) 572-4200
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Please send copies of communications to:
Jeffrey J. Weinberg, Esq. Jean E. Hanson, Esq.
Matthew Bloch, Esq. Fried, Frank, Harris, Shriver & Jacobson
Weil, Gotshal & Manges LLP One New York Plaza
767 Fifth Avenue New York, New York 10004
New York, New York 10153 (212) 859-8000
(212) 310-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES
TO THE PUBLIC: From time to time after the effective date of this Registration
Statement.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
NY2:\1010794\10\LNXM10!.DOC\44090.0045
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] ___________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================== ========================== ==========================
PROPOSED
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) FEE (2)
------------------------------------------------------------------ -------------------------- --------------------------
Class A Common Stock, par value $.01 per share................... $341,150,000 $85,288
================================================================== ========================== ==========================
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933.
(2) Previously paid
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION. DATED APRIL 9, 2001.
PRELIMINARY PROSPECTUS
ESTEE
LAUDER
COMPANIES
10,000,000 Shares
THE ESTEE LAUDER COMPANIES INC.
Class A Common Stock
-------------------
This is an offering of shares of Class A common stock of The Estee
Lauder Companies Inc. This prospectus relates to 10,000,000 outstanding shares
of Class A common stock of The Estee Lauder Companies Inc. owned by the persons
named in this prospectus under the caption "Selling Stockholders." Each selling
stockholder may from time to time sell shares in negotiated transactions
directly with purchasers, block or other institutional trades, or one or more
underwritten public offerings.
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. As of the date of this
prospectus, members of the Lauder family own shares of Class A common stock and
Class B common stock having 91.9% 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 April 6, 2001 was $36.76 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.
-------------------
JPMORGAN
-------------------
Prospectus dated April __, 2001.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that
we filed with the SEC utilizing a "shelf" registration process. Under this shelf
registration process, the selling stockholders may offer from time to time up to
10,000,000 shares of our Class A common stock. Each time shares of Class A
common stock are offered, we will provide you with a prospectus supplement that
will describe, among other things, the specific amounts and price of the shares
of Class A common stock being offered and the terms of the offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. Any statement that we make in this prospectus will be modified
or superseded by any inconsistent statement made in a prospectus supplement. You
should read this prospectus together with additional information described below
under the headings "Where You Can Find More Information" and "Incorporation of
Documents by Reference."
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.
As noted above, 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, 2000;
o our Quarterly Reports on Form 10-Q for the fiscal quarters
ended September 30, 2000 and December 31, 2000; and
2
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 until the
selling stockholders sell all of the shares of Class A common stock to be
offered hereby or terminate 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, "fiscal 2000" refers to our
fiscal year ended June 30, 2000). 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 our "common stock."
3
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 120 countries and territories under the following well-recognized brand
names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, MoAoC, Bobbi
Brown essentials, La Mer, jane, Aveda, Stila, Jo Malone and Bumble and bumble.
We are also the global licensee for fragrances and cosmetics sold under the
Tommy Hilfiger, Donna Karan and Kate Spade brands. Each brand is distinctly
positioned within the cosmetics market.
We are a pioneer in the cosmetics industry and believe we are a
leader in the industry due to the global recognition of our brand names, our
leadership in product innovation, our strong market position in key geographic
markets and the consistently high quality of our products. We sell our products
principally through limited distribution channels to complement the images
associated with our brands. These channels, encompassing over 10,000 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. We
believe that our strategy of pursuing limited distribution strengthens our
relationships with retailers, enables our brands to be among the best selling
product lines at the stores and heightens the aspirational quality of our
brands. With the acquisitions of jane and Aveda in fiscal 1998, we broadened our
distribution to include new channels, namely self-select outlets and salons. In
November 1998, we began selling products directly to consumers over the
Internet. We now offer Estee Lauder, Clinique, Origins, Bobbi Brown essentials
and MoAoC products on-line, and we are developing e-commerce capabilities for
several of our other brands.
In fiscal 2000, we acquired Stila, principally a line of prestige
makeup products, Jo Malone Ltd., a London-based skin care and fragrance company,
and a controlling majority equity interest in Bumble and bumble, a salon and
hair care products business. In addition, we obtained an exclusive worldwide
license to manufacture, market and sell Kate Spade beauty products. We also
acquired gloss.com, an Internet beauty site, as part of our strategy to use the
Internet to benefit our overall business. In August 2000, we formed a joint
venture with Chanel, Inc. and Clarins (U.S.A.) Inc. to re-launch the gloss.com
website as a multi-brand site. Upon re-launch, gloss.com is expected to feature
select brands from each of the participating companies.
We have been controlled by the Lauder family since the founding of
our company. Members of the Lauder family, some of whom are directors, executive
officers, and/or employees, beneficially own, directly or indirectly, as of
April 6, 2001, shares of Class A common stock and Class B common stock having
approximately 91.9% of the outstanding voting power of our common stock.
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 eyes. Skin care products accounted for approximately 33% and 36% of our
net sales in the six months ended December 31, 2000 and fiscal 2000,
respectively.
4
MAKEUP - We manufacture, market and sell a full array of makeup
products, including lipsticks, mascaras, foundations, eyeshadows, nail polishes
and powders. Many of the products are offered in an extensive array of shades
and colors. We also sell related items such as compacts, brushes and other
makeup tools. Makeup products accounted for approximately 34% and 36% of our net
sales in the six months ended December 31, 2000 and fiscal 2000, respectively.
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. Fragrance products accounted for approximately 28% and 25%
of our net sales in the six months ended December 31, 2000 and fiscal 2000,
respectively.
HAIR CARE - We increased the range and depth of our hair care product
offerings with the acquisitions of the Aveda business in December 1997 and a
controlling majority equity interest in Bumble and bumble in June 2000. Hair
care products are offered mainly in salons and in free-standing retail stores
and include styling products, shampoos, conditioners and finishing sprays. Hair
care products accounted for approximately 4% and 3% of our net sales in the six
months ended December 31, 2000 and fiscal 2000, respectively.
Given the personal nature of our products and the wide array of
consumer preferences and tastes, as well as competition for the attention of
consumers, our strategy has been to market and promote our products through
distinctive brands seeking to address broad preferences and tastes. Each brand
has a single global image that is promoted with consistent logos, packaging and
advertising designed to enhance its image and differentiate it from other
brands.
ESTEE LAUDER - Estee Lauder brand products, which we have sold since
1946, are positioned as luxurious, classic and aspirational. We believe that
Estee Lauder brand products are technologically advanced and innovative and have
a worldwide reputation for excellence. The broad product line principally
consists of skin care, makeup and fragrance products that are presented in high
quality packaging.
CLINIQUE - First introduced in 1968, Clinique skin care and makeup
products are all allergy tested and 100% fragrance free and have been designed
to address individual skin types and needs. The products are based on the
research and related expertise of leading dermatologists. Clinique skin care
products are generally marketed as part of the 3-Step System: Cleanse,
Exfoliate, Moisturize. Since autumn 1997, we have been broadening Clinique's
product offerings by adding new fragrances and hair care products.
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.
5
ORIGINS - Origins, our most recent internally-developed brand, was
introduced in 1990. It is positioned as a plant-based 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 directly to consumers over the Internet.
TOMMY HILFIGER - We have an exclusive global license arrangement to
develop and market 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. These
fragrances, together with our complementary line of face, body and hair
products, are available at traditional department store counters as well as
"tommy's shops", separate areas within department stores dedicated to promoting
all of our Tommy Hilfiger licensed products.
MOAOC - MoAoC 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, at stand-alone MoAoC stores and, beginning
in July 2000, directly to consumers over the Internet. We acquired Make-Up Art
Cosmetics Limited, the manufacturer of MoAoC 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 and directly to consumers over the Internet.
LA MER - La Mer products consist of moisturizing creams, lotions,
cleansers, toners and other skin care products. The line, which is available in
very limited distribution in the United States and certain other countries, is
an extension of the initial Creme De La Mer product that we acquired in 1995.
JANE - In October 1997, we acquired Sassaby, Inc., the owner of the
jane brand of color cosmetics targeted to young consumers. We added jane
goodskin, a line of youth oriented skin care products, in fiscal 2000. 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 The Donna Karan Company.
We launched the first DKNY women's fragrance under the license in fiscal 2000
and a DKNY men's fragrance in fiscal 2001.
AVEDA - We acquired the Aveda business in December 1997 and have
since acquired select distributors and retail stores. Aveda, a prestige hair
care leader, is a manufacturer and marketer of plant-based hair care, skin care,
makeup and body care products. We sell Aveda products to third-party
distributors and prestige salons and spas, and directly to consumers at our own
stand-alone Aveda Environmental Lifestyle stores and Aveda Institutes.
6
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. Stila products are currently available in limited
distribution in the United States and certain other 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.
BUMBLE AND BUMBLE - In June 2000, we acquired a controlling majority
equity interest in Bumble and Bumble Products, LLC, a marketer and distributor
of quality hair care products, and Bumble and Bumble, LLC, operator of a premier
hair salon in New York City. Bumble and bumble styling and other hair care
products are distributed to top-tier salons and select specialty stores. The
founder and two of his partners own the remaining equity interests and will
continue to manage the domestic operations.
In addition to the foregoing brands, we manufacture and sell Kiton
fragrances as a licensee. We recently became the global licensee for Kate Spade
beauty products, and we expect the first products in the Kate Spade line to be
launched in fiscal 2002. These products are marketed separately from our other
brands.
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.
7
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 CLASS A COMMON STOCK AND DIVIDENDS
Our Class A common stock is publicly 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 April 6,
2001 was $36.76 per share.
MARKET PRICE OF
CLASS A
COMMON STOCK* CASH
HIGH LOW DIVIDENDS*
---- --- ----------
FISCAL 1999
First Quarter.................................. $35.13 $24.75 $ .0425
Second Quarter................................. 43.25 23.34 .0425
Third Quarter.................................. 47.75 38.38 .0425
Fourth Quarter ................................ 51.50 41.88 .0500
FISCAL 2000
First Quarter.................................. $56.50 $38.25 $ .0500
Second Quarter................................. 51.44 37.25 .0500
Third Quarter.................................. 55.88 38.13 .0500
Fourth Quarter................................. 54.31 41.13 .0500
FISCAL 2001
First Quarter.................................. $49.75 $34.25 $ .0500
Second Quarter................................. 47.25 33.75 .0500
Third Quarter ................................. 44.00 33.18 .0500
Fourth Quarter (through April 6, 2001)......... 37.31 35.85
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* 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. As of April 9, 2001,
our board has not met to consider dividends for the fourth quarter of fiscal
2001. It is expected to consider dividends at its regular meeting in May.
--------------
We expect to continue the payment of cash dividends in the future,
but there can be no assurance that the Board of Directors will continue to
declare dividends.
As of April 6, 2001, there were approximately 3,986 record holders of
Class A common stock and 14 record holders of Class B common stock.
8
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following information has been derived from our consolidated
financial statements as of and for the six-month periods ended December 31, 2000
and 1999 and as of and for each of the years in the five-year period ended June
30, 2000. 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.
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------- ---------------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
STATEMENT OF EARNINGS DATA:
Net sales.................... $2,469.3 $2,328.8 $4,366.8 $3,961.5 $3,618.0 $3,381.6 $3,194.5
Gross profit................. 1,928.0 1,793.9 3,394.7 3,061.6 2,798.5 2,616.5 2,463.5
Operating income............. 356.8 322.6 515.8 456.9 409.1 359.1 310.3
Earnings before income taxes
and minority interest...... 347.4 312.0 498.7 440.2 402.8 362.9 313.0
Net earnings................. 219.7(a) 196.5 314.1 272.9 236.8 197.6 160.4
Preferred stock dividends.... 11.7 11.7 23.4 23.4 23.4 23.4 57.5
Net earnings attributable to
common stock............... 208.0 184.8 290.7 249.5 213.4 174.2 102.9
CASH FLOW DATA:
Net cash flows provided by
operating activities........ $ 235.7 $ 244.9 $ 442.5 $ 352.3 $ 258.2 $ 253.1 $ 172.0
Net cash flows used for investing
activities.................. $ (94.4) (199.8) (374.3) (200.3) (577.2) (130.7) (74.5)
Net cash flows (used for)
provided by activities (34.8) (45.3) (87.9) (73.2) 345.2 (116.8) (113.4)
OTHER DATA:
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(b)................ $ 437.6 $ 392.9 $ 662.6 $ 574.2 $ 506.6 $ 435.1 $ 369.1
PER SHARE DATA:
Net earnings per common
share(d):
Basic...................... $ .87(a) $ .78 $ 1.22 $ 1.05 $ .90 $ .74 $ .59(c)
Diluted.................... $ .86(a) $ .76 $ 1.20 $ 1.03 $ .89 $ .73 $ .59(c)
Weighted average common
shares outstanding(d):
Basic...................... 238.2 237.5 237.7 237.0 236.8 235.4 232.6(c)
Diluted.................... 242.2 242.4 242.5 241.2 239.5 237.1 233.2(c)
Cash dividends declared per
common share(d)............ $ .10 $ .10 $ .20 $ .1775 $ .17 $ .17 $ .085
9
AT AT JUNE 30
DECEMBER 31, ----------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------ ---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS)
BALANCE SHEET DATA:
Working capital................... $ 883.7 $ 716.7 $ 708.0 $ 617.2 $ 551.6 $ 467.5
Total assets...................... 3,245.2 3,043.3 2,746.7 2,512.8 1,873.1 1,779.4
Total debt........................ 421.2 425.4 429.1 436.5 31.1 127.5
Redeemable preferred stock........ 360.0 360.0 360.0 360.0 360.0 360.0
Stockholders' equity.............. 1,328.5 1,160.3 924.5 696.4 547.7 394.2
------------------
(a) Net earnings for the six months ended December 31, 2000 include a
one-time charge of $2.2 million, after tax, or $.01 per common share,
attributable to the cumulative effect of adopting Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and
Hedging Activities".
(b) 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 (fully amortized in November 2000),
leasehold improvements and other intangible assets. While we consider
EBITDA useful in analyzing our operating 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.
(c) Due to the change in the capital structure effected by our
recapitalization in connection with our initial public offering in fiscal
1996, 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 had been effected at the beginning of
the fiscal year.
(d) On April 26, 1999, the Board of Directors approved a two-for-one stock
split in the form of a 100% stock dividend on all of our outstanding
common stock. The stock dividend was paid on June 2, 1999 to all holders
of record of shares of our common stock at the close of business on May
10, 1999. All share and per share data presented in this prospectus has
been restated to reflect the stock split.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
We manufacture, market and sell skin care, makeup, fragrance and hair
care products which are distributed in over 120 countries and territories. The
following is a comparative summary of our operating results for the six month
periods ended December 31, 2000 and 1999 and the fiscal years ended June 30,
2000, 1999 and 1998. Sales of products and services that do not meet our
definition of skin care, makeup, fragrance or 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.
SIX MONTHS ENDED
DECEMBER 31 YEAR ENDED JUNE 30
------------------ -------------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS)
NET SALES
BY REGION:
The Americas............................. $ 1,530.2 $ 1,432.3 $ 2,658.8 $2,397.9 $ 2,204.7
Europe, the Middle East & Africa......... 622.0 607.4 1,131.0 1,082.4 960.8
Asia/Pacific............................. 317.1 289.1 577.0 481.2 452.5
----------- ----------- ----------- -------- -----------
$ 2,469.3 $ 2,328.8 $ 4,366.8 $3,961.5 $ 3,618.0
=========== =========== =========== ======== ===========
BY PRODUCT CATEGORY:
Skin Care................................ $ 818.4 $ 743.2 $ 1,552.4 $1,398.8 $ 1,248.3
Makeup................................... 851.8 777.1 1,579.5 1,412.8 1,317.7
Fragrance................................ 696.7 741.1 1,092.3 1,048.6 987.6
Hair Care................................ 88.6 52.9 113.9 82.4 52.4
Other.................................... 13.8 14.5 28.7 18.9 12.0
----------- ----------- ----------- -------- -----------
$ 2,469.3 $ 2,328.8 $ 4,366.8 $3,961.5 $ 3,618.0
=========== =========== =========== ======== ===========
OPERATING INCOME
BY REGION:
The Americas............................. $ 217.5 $ 199.9 $ 287.9 $ 265.0 $ 248.0
Europe, the Middle East & Africa......... 103.8 87.4 168.9 145.5 131.3
Asia/Pacific............................. 35.5 35.3 59.0 46.4 29.8
----------- ----------- ----------- -------- -----------
$ 356.8 $ 322.6 $ 515.8 $ 456.9 $ 409.1
=========== =========== =========== ======== ===========
BY PRODUCT CATEGORY:
Skin Care................................ $ 152.3 $ 127.9 $ 240.5 $ 205.9 $ 174.3
Makeup................................... 118.4 95.2 181.8 158.2 151.8
Fragrance................................ 78.6 93.0 80.6 79.7 75.5
Hair Care................................ 6.4 6.8 12.4 11.4 8.0
Other.................................... 1.1 (0.3) 0.5 1.7 (0.5)
----------- ----------- ----------- -------- -----------
$ 356.8 $ 322.6 $ 515.8 $ 456.9 $ 409.1
=========== =========== =========== ======== ===========
11
The following table presents certain consolidated earnings data as a
percentage of net sales:
SIX MONTHS ENDED
DECEMBER 31 YEAR ENDED JUNE 30
---------------- -----------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 21.9 23.0 22.3 22.7 22.7
------ ------ ------ ------ ------
Gross profit...................................... 78.1 77.0 77.7 77.3 77.3
------ ------ ------ ------ ------
Operating expenses before depreciation
and amortization:
Selling, general and administrative............ 59.8 59.4 61.7 62.0 62.4
Related party royalties........................ 0.6 0.7 0.8 0.8 0.9
------ ------ ------ ------ ------
60.4 60.1 62.5 62.8 63.3
------ ------ ------ ------ ------
Earnings before interest, taxes, depreciation and
amortization (EBITDA)........................... 17.7 16.9 15.2 14.5 14.0
Depreciation and amortization..................... 3.2 3.0 3.4 3.0 2.7
------ ------ ------ ------ ------
Operating income.................................. 14.5 13.9 11.8 11.5 11.3
Interest expense, net............................. 0.4 0.5 0.4 0.4 0.2
------ ------ ------ ------ ------
Earnings before income taxes and minority
interest........................................ 14.1 13.4 11.4 11.1 11.1
Provision for income taxes........................ 5.1 5.0 4.2 4.2 4.5
Minority interest, net of tax..................... - - - - (0.1)
------ ------ ------ ------ ------
Net earnings before accounting change............. 9.0 8.4 7.2 6.9 6.5
Cumulative effect of a change in accounting
principle, net of tax........................... (0.1) - - - -
------ ------ ------ ------ ------
Net earnings...................................... 8.9% 8.4% 7.2% 6.9% 6.5%
===== ===== ===== ===== =====
SIX MONTHS FISCAL 2001 AS COMPARED WITH SIX MONTHS FISCAL 2000
NET SALES
Net sales increased 6% or $140.5 million to $2,469.3 million for the
six months ended December 31, 2000 as compared with the prior-year period.
Excluding the impact of foreign currency translation, net sales increased 10%.
Growth on a reported basis reflects a strong U.S. dollar relative to the
prior-year period's exchange rates in virtually all markets in which we do
business. The increase was due to growth in our skin care, makeup and hair care
product categories and growth from our newer brands partially offset by a
decline in fragrance net sales.
PRODUCT CATEGORIES
SKIN CARE. Net sales of skin care products increased 10% or $75.2
million to $818.4 million. The skin care category increase is primarily
attributable to recently launched products such as Idealist, Anti-Gravity
Firming Lift Cream, Body Power and Have a Nice Day. The Asia/Pacific region
provided double-digit growth with the success of popular whitening products such
as Active White and White Light Brightening System, which continue to be well
received. We have added a number of products to the Ginger Bath and Body
Collection, which has helped maintain excitement about the products and resulted
12
in increased sales. The Clinique Body Line rollout in the European and
Asia/Pacific markets has also contributed to an increase in net sales.
MAKEUP. Makeup net sales increased 10% or $74.7 million to $851.8
million supported by new and existing products and increased sales of M-A-C
products. New launches of High Impact Eye Shadow, Equalizer and Luxe Makeup have
contributed to the growth in this category. Recently launched products such as
Go Pout Lipcolor, ColorOptions and Skin Clarifying Makeup also contributed to
the increase in makeup sales. In addition, established products such as the
Futurist line and Sheer Powder Blusher added to increased sales.
FRAGRANCE. Net sales of fragrance products decreased 6% or $44.4
million to $696.7 million. The recent launches of Intuition and Ginger Essence
contributed positively to growth and partially offset lower sales in the
fragrance category. The rollout of DKNY for women also contributed to growth in
the category. The decrease in net sales is attributable to lower sales of Tommy
Hilfiger licensed products, as well as softness of the fragrance business in the
United States this holiday season. Results for the prior-year period include the
international rollout of Freedom for him, Freedom for her and Clinique Happy for
Men, which creates a difficult comparison to the current year.
HAIR CARE. Net sales of hair care products increased 67% or $35.7
million to $88.6 million. The increase in hair care sales is attributable to
strong sales of Aveda products such as Custom Control and Sap Moss Shampoo and
new Company-owned retail stores. The Clinique Simple Hair Care System, acquired
distributors, as well as sales of products and services offered by Bumble and
bumble, in which we acquired a controlling majority interest in June 2000, also
benefited the category.
The introduction of new products may have some cannibalizing effect
on sales of existing products, which we take into account in our business
planning.
GEOGRAPHIC REGIONS
Sales in the Americas increased 7% or $97.9 million to $1,530.2
million for the six months ended December 31, 2000 as compared with the
prior-year period. This increase was driven by sales in the skin care, makeup
and hair care categories, the success of new and recently launched products and
the growth of our newer brands. In Europe, the Middle East & Africa, net sales
increased 2% or $14.6 million to $622.0 million compared with the prior-year
period. The increase was primarily the result of higher net sales in the United
Kingdom, the travel retail and distributor businesses and the addition of Jo
Malone (acquired in October 1999). These increases were offset by decreased
sales in Germany, Italy, South Africa and France. Excluding the impact of
foreign currency translation, sales in Europe, the Middle East & Africa
increased 15% reflecting growth in all countries in the region. Net sales in
Asia/Pacific increased 10% or $28.0 million to $317.1 million primarily due to
higher net sales in Korea, Taiwan, Hong Kong and Thailand partially offset by
lower sales in Japan, which remains a difficult market. Excluding the impact of
foreign currency translation, all countries in the Asia/Pacific region
contributed to 14% growth over the prior-year period.
We strategically stagger our new product launches by geographic
market, which may account for differences in regional sales growth.
13
COST OF SALES
Cost of sales as a percentage of total net sales decreased to 21.9%
from 23.0%, reflecting changes in distribution and product mix, as well as the
impact of our manufacturing and sourcing initiatives. Changes in distribution
include the rollout of our own retail stores and the acquisition of certain
distributor operations, both of which contributed to higher gross margins. In
addition, the synergies achieved by incorporating our recently acquired
businesses in our manufacturing and sourcing initiatives had a favorable impact
on gross margins.
OPERATING EXPENSES
Operating expenses increased to 63.6% of net sales as compared with
63.1% of net sales in the prior-year period. This change primarily relates to
the increased cost of our retail store operations, including start-up costs, and
Internet operations, which have higher operating cost structures than our
traditional distribution channels, and also reflects additional fixed costs
associated with these distribution methods. Additionally, depreciation and
amortization charges have increased compared to the prior-year period,
reflecting increased goodwill amortization from acquisitions and depreciation
related to capital investments partially offset by the conclusion of
amortization related to purchased royalty rights. Operating expenses of the
period are subject to the type and 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 11% or $34.2 million to $356.8 million as
compared to the prior-year period. Operating margins were 14.5% of net sales in
the current period as compared to 13.9% in the prior-year period. The increase
in operating income and margins was due to higher net sales and gross profit
margins due to manufacturing efficiencies achieved and changes in distribution
and product mix. This was partially offset by increased spending related to
retail store expansion, increased costs to implement our Internet strategy and
higher depreciation and amortization expenses.
PRODUCT CATEGORIES
Operating income in the makeup and skin care categories increased 24%
and 19%, respectively, primarily due to increased net sales and a reduction in
the cost of goods sold. Operating income in the fragrance category decreased
15%, reflecting continued advertising and promotional spending in a difficult
fragrance business and tough comparisons to a strong prior-year period.
Operating income in the hair care category decreased 6%, primarily due to
increased costs related to changes in distribution and investments in the hair
care category.
GEOGRAPHIC REGIONS
Operating income in the Americas increased 9% or $17.6 million to
$217.5 million for the six months ended December 31, 2000 as compared with the
prior-year period, primarily due to net sales increases related to new and
recently launched products and the inclusion of Bumble and bumble partially
offset by a decline in fragrance net sales. In Europe, the Middle East & Africa,
operating income increased 19% or $16.4 million to $103.8 million primarily due
to improved operating results in the United Kingdom, the travel retail and
distributor businesses and Germany, partially offset by lower operating income
in South Africa and France. In Asia/Pacific, operating income increased 1% or
$0.2 million to $35.5 million due to slightly higher results in most markets
offset by lower income in Japan.
14
INTEREST EXPENSE, NET
Net interest expense was $9.4 million for the six months ended
December 31, 2000 as compared to $10.6 million in the prior-year period. As a
result of an increase in available working capital during the period, we have
higher interest income on invested funds and lower interest expense related to
reduced short-term borrowings.
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 six months ended
December 31, 2000 was 36% compared with 37% in the prior-year period. These
rates reflect the effect of state and local taxes, tax rates in foreign
jurisdictions and certain nondeductible expenses. The decrease in the effective
income tax rate was principally attributable to ongoing tax-planning
initiatives. Our expected effective tax rate for the full fiscal year is 36%.
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 (fully amortized in
November 2000), 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 operating 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 11% to $437.6 million or 17.7% of net sales as
compared to $392.9 million or 16.9% of net sales in the prior-year period. The
improvement in EBITDA is primarily attributable to sales growth and gross margin
improvements.
FISCAL 2000 AS COMPARED WITH FISCAL 1999
NET SALES
Net sales increased 10% or $405.3 million to $4,366.8 million,
reflecting improvements in each product category and each geographic region. We
achieved double-digit growth in net sales of our makeup products, both
domestically and abroad, on the strength of new and existing products, expanded
distribution of MoAoC products and the addition of Stila. Improvements in sales
of skin care products primarily relate to new products targeting diverse groups
of consumers. Growth of hair care sales was fueled by new product introductions
and changes in our lines of distribution. Before considering the effect of
converting foreign currencies, total net sales grew 11%, with double-digit
contributions from each region.
15
PRODUCT CATEGORIES
SKIN CARE. Skin care product sales increased 11% or $153.6 million to
$1,552.4 million, partially reflecting our ability to capitalize on the success
of Resilience Lift by rolling it out internationally and our introduction of a
complementary product, Resilience Lift Eye Creme. Initial shipments of Idealist
Skin Refinisher as well as sales of other new products, such as Body Clinique,
Clinique Acne Solutions and Spotlight Skin Tone Perfector, contributed to
improvements in the category, as did a line of Origins brand ginger-based
products, including Ginger Souffle and Ginger Body Wash. Sales of certain
existing products, such as those in the Clinique 3-Step Skin Care System, were
consistently strong, while others such as Diminish and Turnaround Cream were
lower.
MAKEUP. Our net sales of makeup products increased 12% or $166.7
million to $1,579.5 million supported by new and existing products, the addition
of Stila and increased sales of MoAoC products. Sales growth of our MoAoC lines
has been achieved through growth in existing business and expansion of both
traditional and retail distribution. New products such as the recently launched
* magic by Prescriptives, City Stick and Longstemmed Lashes contributed to
improvements in the category, as did existing products such as Long Last
Lipstick and Liquid Lipstick. Our makeup business also benefited from the
domestic launch of Go Pout Lipstick and the rollout of Superfit Makeup and Pure
Color Lipstick internationally. Improvements were partially offset by lower
sales of Indelible Lipstick and Smudgesicles.
FRAGRANCE. Net sales of fragrance products increased 4% or $43.7
million to $1,092.3 million. For the year, sales of Tommy Hilfiger licensed
products improved. Sales of the recently launched Freedom for him and Freedom
for her outpaced decreased sales of existing Tommy Hilfiger fragrances. DKNY for
women was launched domestically and Donna Karan Cashmere Mist was rolled out
internationally. Both of these products have added to growth in the category. In
its second full fiscal year, sales of Clinique Happy continued to improve and
during fiscal 2000 we completed the master brand with the launch of Clinique
Happy for Men. Dazzling Gold and Dazzling Silver, which were rolled out in the
prior year, caused difficult comparisons for the fragrance category this year.
HAIR CARE. Sales of hair care products increased 38% or $31.5 million
to $113.9 million primarily due to Aveda, driven by an increase in the number of
company-owned retail stores, the successful introduction of new products and the
effect of the acquisitions of third-party distributors. In June 2000, we
acquired a majority interest in Bumble and bumble. Bumble and bumble offers an
array of prestige styling and other hair care products, which are sold to
exclusive salons and spas.
GEOGRAPHIC REGIONS
Sales in the Americas increased 11% or $260.9 million to $2,658.8
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 4% or $48.6 million to $1,131.0 million. The
increase was primarily the result of higher net sales in Spain, Italy, France
and the travel retail business, partially offset by lower sales in Germany. Also
contributing to regional sales growth were sales by Jo Malone, which was
acquired in October 1999. Excluding the impact of foreign currency translation,
sales in Europe, the Middle East & Africa increased 12%. Net sales in
Asia/Pacific increased 20% or $95.8 million to $577.0 million, reflecting
16
increases in all regions, particularly Japan, Korea, Taiwan and Australia.
Excluding the impact of foreign currency translation, Asia/Pacific sales grew
10% over the prior-year period.
COST OF SALES
Cost of sales increased $72.2 million or 8% to $972.1 million from
$899.9 million last year. Cost of sales as a percentage of total net sales
decreased 40 basis points to 22.3% from 22.7%, reflecting changes in product
distribution, as well as the impact of our production and sourcing initiatives.
Changes in product distribution include the rollout of our own retail stores and
the acquisition of certain distributor operations both of which contributed to
higher gross margins. In addition, our cost of sales reduction program had a
favorable impact on gross margins of products offered by our newer acquisitions.
OPERATING EXPENSES
Total operating expenses increased to 65.9% of net sales as compared
with 65.8% of net sales in the prior year. This change primarily relates to
increased costs of new/modified channels of distribution, which have higher
operating cost structures than our 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 $58.9 million to $515.8 million as
compared with 12% growth to $456.9 million last year. Operating margins were
11.8% of net sales in the current period as compared to 11.5%. The increase in
operating income and margins was due to higher net sales coupled with production
efficiencies achieved and changes in distribution, partially offset by planned
increases in selling, general and administrative spending related to businesses
acquired and new/modified channels of distribution.
PRODUCT CATEGORIES
Operating income increased in the skin care, makeup and hair care
categories by 17%, 15% and 9%, respectively, primarily due to sales growth.
Fragrance operating income increased 1% as strong sales increases in the early
portion of the year gave way to softer sales in the latter half, while planned
advertising and promotional spending was relatively constant throughout the
year. The advertising and promotion for fragrance indirectly supports other
categories by generating increased traffic at points of sale.
GEOGRAPHIC REGIONS
Operating income in the Americas increased 9% or $22.9 million to
$287.9 million 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 16% or $23.4 million to $168.9
million reflecting improved operating results in Spain, Italy and the travel
retail business. In Asia/Pacific, operating income increased 27% or $12.6
million to $59.0 million due to improved results in Taiwan, Japan, Korea and
Australia.
17
INTEREST EXPENSE, NET
Net interest expense was $17.1 million and $16.7 million for the
years ended June 30, 2000 and 1999, respectively. This net increase reflects
lower interest income from investments, related to lower average cash balances,
partially offset by lower interest expense resulting from our management of
interest rates and short-term borrowings.
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 2000 was 37%
compared with 38% in the prior year. 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 is principally attributable to tax planning
initiatives and reduction of certain local market statutory tax rates.
EBITDA
EBITDA increased 15% to $662.6 million or 15.2% of net sales as
compared to $574.2 million or 14.5% of net sales last year. The improvement in
EBITDA is primarily attributable to improvements in gross profit related to
sales growth and production efficiencies achieved.
FISCAL 1999 AS COMPARED WITH FISCAL 1998
NET SALES
Net sales increased in all product categories and all geographic
segments resulting in an increase in fiscal 1999 net sales of 9% to $3,961.5
million. Hair care and makeup benefited from a full year of sales of Aveda and
jane products. New skin care products were well received, driving growth in that
category. Internationally, the Europe, Middle East & Africa region contributed a
13% increase in net sales over the prior year. Foreign currency translation did
not significantly impact net sales.
PRODUCT CATEGORIES
SKIN CARE. Skin Care sales increased 12% to $1,398.8 million,
reflecting the launch of Stop Signs and Resilience Lift and a full year of sales
of Diminish internationally. In addition to these increases, Clinique All About
Eyes contributed to the category's year over year improvement. The overall
increase was partially offset by lower net sales of Fruition Extra.
MAKEUP. Net sales of makeup products increased 7% to $1,412.8 million
due in part to the inclusion of a full year of sales of Aveda and jane products.
The 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. Fragrance sales 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
18
markets contributed to higher fragrance sales, offset in part by lower sales of
"tommy".
HAIR CARE. Net sales of hair care products increased $30.0 million or
57%, to $82.4 million. This increase primarily reflected the inclusion of Aveda
products for a full year.
GEOGRAPHIC REGIONS
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
Cost of sales as a percent of net sales was 22.7% in each of the last
two years, reflecting the integration of Aveda and jane products, which have
higher product cost structures than our other brands, offset by continued cost
reduction efforts and a shift in product mix for our core brands.
OPERATING EXPENSES
Operating expenses as a percent of net sales decreased to 65.8% in
fiscal 1999 from 66.0% in fiscal 1998. The decrease 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
Operating income increased 12% to $456.9 million and operating
margins increased to 11.5% in fiscal 1999 from 11.3% in fiscal 1998. These
increases were achieved by maintaining our gross profit margins and controlling
certain operating expenses so they increased at a lower rate than net sales.
PRODUCT CATEGORIES
Operating income in the skin care category increased 18% to $205.9
million due primarily to the launches of Stop Signs and Resilience Lift. Skin
care products, which are primarily marketed under our core brand names,
typically have lower cost of goods than our other products. Operating income for
makeup increased 4% to $158.2 million as a result of higher sales from new
product introductions, including Quickliner for Eyes, Superfit Makeup and Sheer
Powder Blusher. Operating income for fragrance products was $79.7 million, an
increase of $4.2 million or 6%. This increase was primarily attributable to
19
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
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.
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.
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.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash flows from
operations and borrowings under commercial paper and committed and uncommitted
credit lines provided by banks in the United States and abroad. At December 31,
2000, we had cash and cash equivalents of $424.0 million as compared to $320.3
million at June 30, 2000.
20
We have a $750.0 million commercial paper program, under which we
have issued, and intend to issue, commercial paper in the United States. Our
commercial paper is currently rated A-1 by Standard & Poor's and P-1 by Moody's.
Our long-term credit ratings are A+ by Standard & Poor's and A1 by Moody's. At
December 31, 2000, we had $205.0 million of commercial paper outstanding and a
$200.0 million term loan outstanding which is due in February 2005. Commercial
paper is classified as long-term debt in our balance sheet based upon our intent
and ability to refinance maturing commercial paper on a long-term basis. We also
have an effective shelf registration statement covering the potential issuance
of up to $400.0 million in debt securities. It is our policy to maintain backup
facilities to support our commercial paper program, and its classification as
long-term debt. As of December 31, 2000, we had an unused $400.0 million
revolving credit facility. We expect to renew or replace this facility before it
expires on July 1, 2001.
Our business is seasonal in nature and, accordingly, our working
capital needs vary. To meet these needs, we could issue up to an additional
$545.0 million of commercial paper under our program. We also have $30.8 million
in uncommitted facilities. No borrowings were outstanding under these facilities
as of December 31, 2000.
Total debt as a percentage of total capitalization was 20% at
December 31, 2000 and 22% at June 30, 2000.
Net cash provided by operating activities was $235.7 million in the
six months ended December 31, 2000 as compared to $244.9 million in the
prior-year period. This decrease in net cash provided by operating activities
primarily reflects a smaller increase in accrual balances, which are subject to
the type and timing of various expenditures, including advertising and
promotional activities, partially offset by increased profits before
depreciation and amortization. Net cash used for investing activities was $94.4
million in the six months ended December 31, 2000 as compared to $199.8 million
in the prior-year period primarily reflecting fewer acquisitions. Net cash used
for financing activities of $34.8 million principally reflects the payment of
dividends.
In September 1998, our Board of Directors authorized a share
repurchase program. We have purchased, and may continue to purchase, over an
unspecified period of time, a total of up to eight million shares of Class A
common stock in the open market or in privately negotiated transactions,
depending on market conditions and other factors. Since inception, we have
purchased approximately 1.1 million shares under this program.
Capital expenditures amounted to $87.9 million, $76.5 million, $180.9
million, $117.9 million and $120.6 million in the six-month periods ended
December 31, 2000 and 1999, and in fiscal 2000, 1999 and 1998, 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 $35.5 million, $35.4 million, $70.9 million,
$65.4 million and $63.6 million in the six-month periods ended December 31, 2000
and 1999, and in fiscal 2000, 1999 and 1998, 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
six-month periods ended December 31, 2000 and 1999 and in fiscal 2000, 1999 and
1998, dividends declared on our common stock totaled $23.8 million, $23.7
21
million, $47.5 million, $42.0 million and $40.2 million, respectively. On
February 14, 2001, the Board of Directors declared a quarterly dividend of $.05
per share on our common stock, payable on April 3, 2001 to stockholders of
record at the close of business on March 16, 2001.
The effects of inflation have not been significant to our overall
operating results in recent years. Generally, we have been able to increase
selling prices sufficiently to offset cost increases, which have been moderate.
We believe that cash on hand, cash generated from operations,
available credit lines and access to credit markets will be adequate to support
currently planned business operations and capital expenditures on both a
near-term and long-term basis.
DERIVATIVE FINANCIAL INSTRUMENTS
We address certain financial exposures through a controlled program
of risk management that includes the use of derivative financial instruments. We
primarily enter into foreign currency forward exchange contracts and foreign
currency options to reduce the effects of fluctuating foreign currency exchange
rates. We enter into interest rate swaps and options to manage the effects of
interest rate movements on our aggregate liability portfolio. We categorize
these instruments as entered into for purposes other than trading.
For each derivative contract we enter into, we formally document the
relationship between the hedging instrument and hedged item, as well as its
risk-management objective and strategy for undertaking the hedge. This process
includes linking all derivatives that are designated as fair-value, cash-flow,
or foreign-currency hedges to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted transactions. We also
formally assess, both at the hedge's inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items. If it is
determined that a derivative is not highly effective, then we will be required
to discontinue hedge accounting prospectively.
FOREIGN EXCHANGE RISK MANAGEMENT
We enter into forward exchange contracts to hedge purchases,
receivables and payables denominated in foreign currencies for periods
consistent with our identified exposures. The purpose of the hedging activities
is to minimize the effect of foreign exchange rate movements on our costs and on
the cash flows which we receive from foreign subsidiaries. Almost all foreign
currency contracts are denominated in currencies of major industrial countries
and are with large financial institutions rated as strong investment grade by a
major rating agency. We also enter into foreign currency options to hedge
anticipated transactions where there is a high probability that anticipated
exposures will materialize. The forward exchange contracts and foreign currency
options have been designated as cash-flow hedges. As of December 31, 2000, these
cash-flow hedges have been highly effective.
As a matter of policy, we only enter into contracts with
counterparties that have at least an "A" (or equivalent) credit rating. The
counterparties to these contracts are major financial institutions. We do not
have significant exposure to any one counterparty. Our exposure to credit loss
in the event of nonperformance by any of the counterparties is limited to only
the recognized, but not realized, gains attributable to the contracts.
Management believes risk of loss is remote and in any event would not be
material. The contracts have varying maturities with none exceeding 24 months.
22
Costs associated with entering into such contracts have not been material to our
financial results. We do not utilize derivative financial instruments for
trading or speculative purposes. At December 31, 2000, we had foreign currency
contracts in the form of forward exchange contracts and purchased currency
options in the amount of $85.5 million and $27.1 million, respectively. The
foreign currencies included in these contracts (notional value stated in U.S.
dollars) are principally the Japanese yen ($32.4 million), U.K. pound ($13.2
million), Euro ($10.2 million), Danish krone ($7.6 million), Australian dollar
($6.9 million), Swiss franc ($6.4 million) and Swedish krona ($6.3 million).
INTEREST RATE RISK MANAGEMENT
We have entered into interest rate swaps to exchange floating rate
for fixed rate interest payments periodically over the life of the agreements.
In addition, we have purchased interest rate options that offer similar interest
rate protection. The interest rate swaps and options have been designated as
cash-flow hedges and have been highly effective as of December 31, 2000. At
December 31, 2000, we had interest rate swap and option agreements outstanding
with a notional principal amount of $67.0 million and $133.0 million,
respectively. Our interest rate swap carried a weighted average pay rate of
6.14% and a receive rate of 6.34%. The interest rate option agreements carried a
weighted average pay rate of 6.14% and a receive rate of 6.47%.
MARKET RISK
Using the value-at-risk model, as discussed in our annual report on
Form 10-K for the fiscal year ended June 30, 2000, our average value-at-risk,
calculated for the twelve month period ending December 31, 2000, is $3.2 million
and $3.0 million related to our foreign exchange contracts and interest rate
contracts, respectively. There have been no significant changes in market risk
since June 30, 2000 that would have a material effect on our calculated
value-at-risk exposure, as disclosed in the annual report on Form 10-K for the
year ended June 30, 2000.
ACCOUNTING STANDARDS
Effective July 1, 2000, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended, requires the recognition of all derivative instruments as
either assets or liabilities in the statement of financial position measured at
fair value.
In accordance with the provisions of SFAS No. 133, as amended, we
recorded a non-cash charge to earnings of $2.2 million, after tax, to reflect
the change in time-value from the date of the contracts' inception through the
date of transition (July 1, 2000). This charge is reflected as the cumulative
effect of a change in accounting principle in the accompanying consolidated
statements of earnings. Additionally, on the date of transition, a comparable
amount of deferred unrealized gains on these instruments was recorded in
accumulated other comprehensive income which we expect to accrete into earnings
over the remaining life of the debt instruments (through February 2005).
23
The Emerging Issues Task Force ("EITF") has reached consensus on
Issue No. 00-14, "Accounting for Certain Sales Incentives". This consensus
addresses when sales incentives and discounts should be recognized, as well as
where the related revenues and expenses should be classified in a registrant's
financial statements. Currently, the cost of merchandise used in our
gift-with-purchase and purchase-with-purchase activities, as well as any related
revenues, are reported net as operating expenses in the accompanying
consolidated statements of earnings. Upon adoption, revenues generated by these
promotional activities will be classified in sales resulting in an increase of
approximately 1.0% to 2.0%. The cost of promotional merchandise will be
reclassified into cost of goods. Although operating income remains unchanged,
gross margins will decrease by approximately 5.0% to 6.0% offset by a decrease
in operating expenses. Due to variations in our launch calendar and the timing
of promotions, we anticipate greater fluctuations in our gross margins on a
quarter-by-quarter basis. Issue No. 00-14 will become effective in our fiscal
fourth quarter and will be applied retroactively for purposes of comparability.
INTERNET
Our strategic goals for the Internet are to enhance our brand
equities, to reach new consumers, to forge deeper relationships with existing
consumers and to strengthen our business through our traditional retailers. The
strategy includes a planned launch of a multi-brand website offering products
from our portfolio, specially designed sites which will be available through the
e-commerce sites of retailers who meet specific requirements and individual
sites for our brands. We currently have nine individual brand websites that
educate and inform consumers about specific brands, with more in development.
Five of the existing sites - esteelauder.com, clinique.com, origins.com,
bobbibrown.com and maccosmetics.com - have e-commerce capabilities. We are
currently re-developing the gloss.com multi-brand site we acquired in May 2000
and expect to re-launch it this fall. Initially, the site will feature Estee
Lauder, Clinique, Prescriptives, Origins, Bobbi Brown essentials, Mo Ao C and
Stila products. The site also will feature products from Chanel, Inc. and
Clarins (U.S.A.) Inc. which became co-venturers in gloss.com in August 2000. Our
Internet sales, which were not significant during the six months ended December
31, 2000, are currently limited to consumers in the United States and Canada.
The impact of our overall Internet strategy on earnings is expected to be
initially dilutive, particularly as we re-develop the multi-brand site. We
expect our Internet business to become profitable some time after the re-launch
of gloss.com.
EURO CONVERSION
Under the direction of the European Economic and Monetary Union
(EMU), a single currency (the "Euro") will replace the national currencies of
most of the European countries in which we conduct business. The conversion
rates between the Euro and the participating nations' currencies were fixed
irrevocably as of January 1, 1999, with the participating national currencies to
be removed from circulation between January 1 and June 30, 2002 and replaced by
Euro notes and coinage. During the "transition period" from January 1, 1999
through December 31, 2001, public and private entities, as well as individuals,
may pay for goods and services using either checks, drafts, or wire transfers
denominated in Euros or the participating country's national currency.
Under the regulations governing the transition to a single currency,
there is a "no compulsion, no prohibition" rule which states that no one is
obliged to use the Euro until the notes and coinage have been introduced on
24
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.
RECENT DEVELOPMENTS - CERTAIN FORECASTS
On March 15, 2001, we issued a press release in which we stated,
among other things, that based on our business plans and current economic
conditions and subject to the uncertainties described below under
"Forward-Looking Information," management estimates that we can achieve the
following results for our fiscal 2001 third quarter and full year.
We expect that our net sales for the fiscal 2001 third quarter will
grow between 8% and 9% on a constant currency basis versus last fiscal year's
third quarter. The increase in third quarter net sales in constant currency is
expected to be led by double-digit growth in Europe, the Middle East & Africa
and Asia/Pacific regions, while sales growth in the Americas is expected to be
in the low to mid-single digits. We continue to be cautious that current U.S.
economic conditions are creating softer retail sell-through and may affect our
results for the second half of the fiscal year. In product categories, we expect
double-digit growth in hair care sales, off of a smaller base, followed by
strong growth in makeup and skin care, while fragrance sales will likely be
consistent with the prior-year period. The adverse effect of exchange rates in
Europe and Asia could temper reported sales growth by two and a half to three
and a half percentage points. We expect to achieve diluted earnings per share
for the fiscal 2001 third quarter of between $.23 and $.25.
For the full 2001 fiscal year, we expect sales to increase along our
historical growth pattern of 8% to 10% in constant currency. In uncertain
economic environments, we may invest more aggressively to maintain sales
momentum. Given our continued cautious outlook for the remainder of the fiscal
year, we estimate that we will achieve diluted earnings per share for the full
fiscal 2001, before the cumulative effect of a change in accounting principle,
of between $1.32 and $1.35.
See "Forward-Looking Information."
FORWARD-LOOKING INFORMATION
We and our representatives from time to time make written or oral
forward-looking statements, including statements contained in this and other
filings with the Securities and Exchange Commission (including the statements
contained in this prospectus under the caption "Recent Developments - Certain
Forecasts), in our press releases and in our reports to stockholders. The words
and phrases "will likely result," "expect," "believe," "planned," "will," "will
continue," "is anticipated," "estimates," "projects" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements include,
without limitation, our expectations regarding sales, earnings or other future
financial performance and liquidity, product introductions, entry into new
geographic regions, new methods of sale and future operations or operating
results. Although we believe that our expectations are based on reasonable
assumptions within the bounds of our knowledge of our business and operations,
we cannot assure that actual results will not differ materially from our
25
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, ownership of
retailers by our competitors and ownership of competitors by our
customers that are retailers;
(iv) shifts in the preferences of consumers as to where and how they shop
for the types of products and services we sell;
(v) social, political and economic risks to our foreign manufacturing,
distribution and retail operations, including changes in foreign
investment and trade policies and regulations of the host countries and
of the United States;
(vi) changes in the laws, regulations and policies, including changes in
accounting standards, that affect, or will affect, us in the United
States and abroad;
(vii) foreign currency fluctuations affecting our results of operations
and the value of our foreign assets, the relative prices at which we sell
our products and our foreign competitors sell their products in the same
market and our operating and manufacturing costs outside of the United
States;
(viii) changes in global or localized economic conditions that could
affect consumer purchasing and the cost and availability of capital,
which we may need for new equipment, facilities or acquisitions;
(ix) shipment delays, depletion of inventory and increased production
costs resulting from disruptions of operations at any of the facilities
which, due to consolidations in our manufacturing operations, now
manufacture nearly all of our supply of a particular type of product
(i.e., focus factories);
(x) real estate rates and availability, which may affect our ability to
increase the number of retail locations at which we sell our products;
(xi) changes in product mix to products which are less profitable;
(xii) our ability to develop e-commerce capabilities, and other new
information and distribution technologies on a timely basis and within
our cost estimates; and,
(xiii) our ability to integrate acquired businesses and realize value
therefrom.
26
We assume no responsibility to update forward-looking statements made
in this prospectus or otherwise.
27
SELLING STOCKHOLDERS
The following table sets forth certain information for the selling
stockholders identified below with respect to that selling stockholder's
beneficial ownership of Class A common stock and Class B common stock and the
percentage of total voting power represented by those shares. No estimate can be
given as to the amount of our common stock that will be held by the selling
stockholders after completion of this offering because the selling stockholders
may offer all, some or none of their shares. The shares offered by this
prospectus may be offered from time to time by the selling stockholders named
below.
COMMON STOCK BENEFICIALLY OWNED
----------------------------------------------------------------------
PERCENTAGE
OF TOTAL
NAME OF SELLING STOCKHOLDER CLASS A CLASS B VOTING POWER
--------------------------- ------- ------- ------------
Ronald S. Lauder(1)(2) 10,833,662 45,561,544 37.0
Jewish Renaissance Foundation(3) 153,257 - *
The Ronald S. Lauder Foundation(2)(4) 36,457 - *
Neue Galerie New York(5) 230,000 - *
------------------
* means less than 0.1%
(1) Ronald S. Lauder beneficially owns or is deemed to beneficially own:
2,710,959 shares of Class A common stock and 29,522,356 shares of Class B
common stock directly and with respect to which he has sole voting and
investment power; 3,182 shares of Class A common stock and 3,182 shares of
Class B common stock as sole trustee of a trust for the benefit of his
children and with respect to which he has sole voting and investment
power; 7,370,561 shares of Class A common stock and 12,189,852 shares of
Class B common stock as co-trustee of The Estee Lauder 1994 Trust with
respect to which he shares voting power with Leonard A. Lauder, as
co-trustee, and investment power with Leonard A. Lauder and Ira T. Wender,
as co-trustees; 15,384 shares of Class A common stock and 3,846,154 shares
of Class B common stock as an individual general partner of a limited
partnership and as co-trustee of a trust (the "RSL Trust"), which is a
general partner of the same limited partnership, and with respect to which
he shares voting power with Leonard A. Lauder, who also is an individual
general partner of the limited partnership and co-trustee of a trust (the
"LAL Trust"), which is a general partner of the limited partnership, and
investment power with Leonard A. Lauder, as an individual general partner
of the limited partnership and as co-trustee of the LAL Trust, Richard D.
Parsons and Ira T. Wender, as co-trustees of the RSL Trust, and Joel S.
Ehrenkranz and Ira T. Wender, as co-trustees of the LAL Trust; 313,862
shares of Class A common stock as a director of The Lauder Foundation and
with respect to which he shares voting and investment power; 36,457 shares
of Class A common stock as a Director of The Ronald S. Lauder Foundation
with respect which he shares voting and investment power; 153,257 shares
of Class A common stock as a Director of the Jewish Renaissance Foundation
with respect to which he shares voting and investment power; and 230,000
shares of Class A common stock as a director of Neue Galerie New York and
with respect to which he shares voting and investment power. Ronald S.
Lauder disclaims beneficial ownership of the shares of Class A common
stock and Class B common stock owned by trusts for the benefit of one or
more of his children, The Lauder Foundation, The Ronald S. Lauder
Foundation, the Jewish Renaissance Foundation and Neue Galerie New York.
Ronald S. Lauder borrowed shares of Class A common stock from certain
28
Family Controlled Trusts (as defined below) and Leonard A. Lauder, which
he sold in the Company's initial public offering. Ronald S. Lauder is
obligated to repay the outstanding loans, which in the aggregate are in
respect of 7,394,986 shares of Class A common stock, by delivering to the
lending Family Controlled Trusts and Leonard A. Lauder shares equal in
number to the borrowed shares. This obligation is secured by pledges of
1,000,000 shares of Class A common stock and 6,394,986 shares of Class B
common stock owned by Ronald S. Lauder as to which he has sole voting
power and shares investment power with the respective pledgees. Ronald S.
Lauder also has options with respect to 1,300,000 shares of Class A common
stock granted to him pursuant to his prior employment agreement none of
which are included in this table. Of these, options to purchase 550,002
shares of Class A common stock are presently exercisable. The term "Family
Controlled Trust" includes certain trusts existing on November 16, 1995
and trusts the primary beneficiaries of which are Mrs. Estee Lauder,
Lauder Descendants, spouses of Lauder Descendants and/or charitable
organizations provided that if the trust is a wholly charitable trust, at
least 80% of the trustees of such trust consist of Mrs. Lauder and/or
Lauder Descendants. The term "Lauder Descendants" means each descendant of
Mrs. Lauder.
(2) Shares owned by Ronald S. Lauder and The Ronald S. Lauder Foundation do
not include shares that may be attributed to them by reason of the
Stockholders' Agreement among them, other Lauder family members and
related entities and us. In general, the Stockholders' Agreement requires
stockholders that are party thereto to vote for the election of Mr.
Lauder, Leonard A. Lauder and a designee of each as directors and contains
restrictions on the ability to transfer shares to persons who are not
Lauder family members or related entities.
(3) 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.
(4) 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.
(5) Ronald S. Lauder is a director of Neue Galerie New York and shares
investment and voting power as to the shares owned by Neue Galerie New
York. Mr. Lauder disclaims beneficial ownership of all such shares owned
by Neue Galerie New York.
------------------
The prospectus supplement relating to any shares of Class A common
stock offered by the selling stockholders will set forth the number of shares of
Class A common stock being offered in the offering by each selling stockholder
and the number of shares and the percentage of our common stock to be
beneficially owned by each selling stockholder upon completion of the offering.
29
PLAN OF DISTRIBUTION
The selling stockholders may from time to time sell all or a portion
of the shares of Class A common stock covered by this prospectus to J.P. Morgan
Securities Inc. and other designated underwriters or dealers, in negotiated
transactions directly with purchasers, or through agents. If the selling
stockholders sell shares to J.P. Morgan and other designated underwriters, the
shares may be acquired by the underwriters for their own accounts and resold
from time to time at fixed prices or at varying prices determined at the time of
sale.
The names of J.P. Morgan Securities Inc. and other designated
underwriters, as well as other important information, will be set forth in a
prospectus supplement. The discounts and commissions that the selling
stockholders will allow or pay to the underwriters and the discounts and
commissions that the underwriters may allow or pay to dealers or agents, if any,
will be set forth in, or may be calculated from, the prospectus supplement.
Discounts or commissions on sales of shares sold in the initial distribution
will not exceed 8%. We may indemnify any brokers, underwriters, dealers or
agents against certain liabilities, including liabilities under the Securities
Act.
In effecting sales, brokers or dealers engaged by the selling
stockholders or the purchasers of the shares of Class A common stock may arrange
for other brokers or dealers to participate in the sales process. The selling
stockholders and any broker-dealers participating in the distribution of the
shares may be deemed to be "underwriters" within the meaning of the Securities
Act and any profit on the sale of shares by the selling stockholders and any
commissions or discounts given to any broker-dealers may be deemed to be
underwriting commissions or discounts under the Securities Act.
Any underwriters, brokers, dealers and agents who participate in any
sale of the shares offered by this prospectus may also engage in transactions
with, or perform services for the selling stockholders or their affiliates or us
in the ordinary course of business.
Any underwriters, brokers or dealers who participate in the offering
may engage in the following activities in accordance with applicable securities
rules:
- Over-allotments involving sales in excess of the offering
size, creating a short position. Any underwriters, brokers
or dealers may elect to reduce a short position by
exercising some or all of any over-allotment option.
- Stabilizing and short covering purchases. Stabilizing bids
to purchase the shares are permitted if they do not exceed
a specified maximum price. After the distribution of shares
has been completed, short covering purchases in the open
market may also reduce the short position. These activities
may cause the price of the shares to be higher than would
otherwise exist in the open market.
- Penalty bids. Penalty bids permit any representatives to
reclaim concessions from a syndicate member for the shares
purchased in stabilizing or short covering transactions.
The above-mentioned activities, which may be commenced and
discontinued at any time, may be effected on the NYSE, in the over-the-counter
market or otherwise. Also, prior to the pricing of the shares, and until such
time when a stabilizing bid may have been made, some of the underwriters who are
30
market makers in the shares may make bids for or purchases of shares subject to
certain restrictions, known as passive market making activities.
The Chase Manhattan Bank and Morgan Guaranty Trust Company of New
York, both affiliates of J.P. Morgan Securities Inc. and J.P. Morgan Securities
Ltd., are lenders to us and certain Lauder family members. If more than 10% of
the net proceeds of any offering of shares will be received by NASD members
participating in the offering or affiliates or associated persons of such NASD
members, the 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 in
this prospectus 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).
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, 2000 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.
31
======================================================================= =============================================
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 10,000,000 Shares
representations. This prospectus is an offer to sell only the
securities offered hereby, but only under circumstances and in THE ESTEE LAUDER
jurisdictions where it is lawful to do so. The information contained COMPANIES INC.
in this prospectus is current only as of its date.
Class A Common Stock
-----------
TABLE OF CONTENTS ------------
Page ESTEE
---- LAUDER
COMPANIES
About This Prospectus....................................... 2
------------
Where You Can Find More Information......................... 2
Incorporation of Documents by Reference..................... 2
The Estee Lauder Companies Inc.............................. 4
Use of Proceeds............................................. 8
Price Range of Class A Common Stock and
Dividends................................................ 8
Selected Consolidated Financial
Information.............................................. 9
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................................... 11
Selling Stockholders........................................ 28
Plan of Distribution........................................ 30
Legal Matters............................................... 31
Experts..................................................... 31
======================================================================= =============================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred
in connection with the issuance and distribution of the securities described in
this Registration Statement, other than the underwriting discount. All amounts,
except the SEC registration fees and the National Association of Securities
Dealers, Inc. ("NASD") filing fee, are estimated. All amounts will be paid by
the selling stockholders identified in the Prospectus and not by the Registrant.
SEC registration fee.................................. $ 85,288
NASD filing fee....................................... 30,500
Printing, engraving and postage fees.................. 170,000
Legal fees and expenses... 75,000
Accounting fees and expenses.......................... 50,000
Miscellaneous......................................... 20,000
---------
Total $ 430,788
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Generally, Section 145 of the General Corporation Law of the State of
Delaware (the "GCL") permits a corporation to indemnify any person made a party
to an action by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise. To the extent that person has been successful in any
such matter, that person shall be indemnified against expenses actually and
reasonably incurred by him. In the case of an action by or in the right of the
corporation, no indemnification may be made in respect of any matter as to which
that person was adjudged liable unless and only to the extent that the Delaware
Court of Chancery or the court in which the action was brought determines that
despite the adjudication of liability that person is fairly and reasonably
entitled to indemnity for proper expenses.
Our By-Laws provide for indemnification of our directors and officers
to the fullest extent permitted by law.
Section 102(b)(7) of the GCL enables a Delaware corporation to
include a provision in its certificate of incorporation limiting a director's
liability to the corporation or its stockholders for monetary damages for
breaches of fiduciary duty as a director. Our Certificate of Incorporation
provides for such limitation to the full extent permitted under Delaware law.
Our directors and officers are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act which might be incurred by them in such capacities and
against which we may not indemnify them.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit Number Exhibit Description
-------------- -------------------
**1 Form of Underwriting Agreement.
3.1 Form of Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to
Amendment No. 3 to the Registrant's Registration Statement
on Form S-1 (No. 33-97180), as filed with the SEC on
November 13, 1995).
3.2 Certificate of Amendment to Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999, as filed with the SEC
on January 27, 2000).
3.3 Amended and Restated By-Laws (incorporated herein by
reference to Exhibit 3.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1999, as filed with the SEC on January 27, 2000).
**5 Opinion of Weil, Gotshal & Manges LLP with respect to the
legality of the Class A Common Stock.
*23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Weil, Gotshal & Manges LLP (included in the
Opinion filed as Exhibit 5).
**24 Power of Attorney (included on signature page to this
Registration Statement).
------------------------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required
by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any
facts or events arising after the
effective date of the registration
statement (or the most recent
post-effective amendment thereof)
which, individually or in the
aggregate, represent a fundamental
change in the information set forth
in the registration statement.
Notwithstanding the foregoing, any
increase or decrease in volume of
securities offered (if the total
II-2
dollar value of securities offered
would not exceed that which was
registered) and any deviation from
the low or high end of the estimated
maximum offering range may be
reflected in the form of a
prospectus filed with the Commission
pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and
price represent no more than a 20
percent change in the maximum
aggregate offering price set forth
in the "Calculation of Registration
Fee" table in the effective
registration statement; and
(iii) To include any material information
with respect to the plan of
distribution not previously
disclosed in the registration
statement or any material change to
such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) To remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on this 9th day of April, 2001.
THE ESTEE LAUDER COMPANIES INC.
By: /s/ Richard W. Kunes
----------------------------------------
Name: Richard W. Kunes
Title: Senior Vice President and Chief
Financial Officer
SIGNATURE TITLE DATE
--------- ----- ----
* President and Chief Executive Officer April 9, 2001
------------------------------------------ and a Director (Principal Executive
Fred H. Langhammer Officer)
* Chairman of the Board of Directors April 9, 2001
------------------------------------------
Leonard A. Lauder
* Director April 9, 2001
------------------------------------------
Ronald S. Lauder
* Director April 9, 2001
------------------------------------------
William P. Lauder
* Director April 9, 2001
------------------------------------------
Lynn Forester
* Director April 9, 2001
------------------------------------------
Richard D. Parsons
* Director April 9, 2001
------------------------------------------
Marshall Rose
* Director April 9, 2001
------------------------------------------
Faye Wattleton
* Senior Vice President and Chief April 9, 2001
------------------------------------------ Financial Officer (Principal Financial
Richard W. Kunes and Accounting Officer)
II-4
* By: /s/ Richard W. Kunes
---------------------------------------
Name: Richard W. Kunes
Title: Senior Vice President and Chief
Financial Officer
II-5
EXHIBIT INDEX
Exhibit Number Exhibit Description
-------------- -------------------
**1 Form of Underwriting Agreement.
3.1 Form of Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to
Amendment No. 3 to the Registrant's Registration Statement
on Form S-1 (No. 33-97180), as filed with the SEC on
November 13, 1995).
3.2 Certificate of Amendment to Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999, as filed with the SEC
on January 27, 2000).
3.3 Amended and Restated By-Laws (incorporated herein by
reference to Exhibit 3.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1999, as filed with the SEC on January 27, 2000).
**5 Opinion of Weil, Gotshal & Manges LLP with respect to the
legality of the Class A Common Stock.
*23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Weil, Gotshal & Manges LLP (included in the
Opinion filed as Exhibit 5).
**24 Power of Attorney (included on signature page to this
Registration Statement).
------------------------
* Filed herewith.
** Previously filed.