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Estee Lauder Companies Inc – ‘10-Q’ for 3/31/97

As of: Tuesday, 4/29/97 · For: 3/31/97 · Accession #: 909518-97-251 · File #: 1-14064

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/29/97  Estee Lauder Companies Inc        10-Q        3/31/97    4:67K                                    Weil Gotshal & Ma… 04/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        10Q for Period End 03/31/97                           15     86K 
 2: EX-10       Exhibit 10.1                                           7     30K 
 3: EX-10       Exhibit 10.2                                           5     17K 
 4: EX-27       Exhibit 27.1                                           1      7K

10-Q — 10Q for Period End 03/31/97
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Accounting for Stock-Based Compensation Earnings Per Share Exhibits and Reports on Form 8-K Interest income, net Legal Proceedings Net sales Notes to Consolidated Financial Statements Operating income Part Ii. Other Information
1	1st Page - Filing Submission
3	Interest income, net
4	Net sales
"	Operating income
8	Earnings Per Share
"	Accounting for Stock-Based Compensation
11	Notes to Consolidated Financial Statements
14	Part Ii. Other Information
"	Item 1. Legal Proceedings
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 15 TOC ↑Top Previous Next ↓Bottom Just 1st
 
================================================================================

SECURITIES AND EXCHANGE COMMISSION

 WASHINGTON, D.C. 20549-1004
----------------------

 FORM 10-Q

(Mark One)                                                                      

/X/       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES    
EXCHANGE ACT OF 1934                                        

 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

OR

/ /       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES   
EXCHANGE ACT OF 1934                                        

COMMISSION FILE NUMBER 1-14064

 THE ESTEE LAUDER COMPANIES INC.
(Exact name of registrant as specified in its charter)

DELAWARE                                      11-2408943
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)                                                  

767 FIFTH AVENUE, NEW YORK, NEW YORK                                10153       
(Address of principal executive offices)                          (Zip Code)    

 Registrant's telephone number, including area code 212-572-4200

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days. Yes /X/  No / /                              

At April 28, 1997, 61,336,663 shares of the registrant's Class A Common Stock,  
$.01 par value, and 56,839,667 shares of the registrant's Class B Common Stock, 
$.01 par value, were outstanding.                                               

================================================================================

10-Q 2nd Page of 15 TOC 1st Previous Next ↓Bottom Just 2nd
 THE ESTEE LAUDER COMPANIES INC.

 INDEX

                                                                            PAGE
PART I. FINANCIAL INFORMATION                                                   

Consolidated Statements of Earnings --                                      
      Three Months and Nine Months Ended March 31, 1997 and 1996.........    2

Management's Discussion and Analysis of                                     
      Financial Condition and Results of Operations......................    3

Consolidated Balance Sheets --                                              
      March 31, 1997 and June 30, 1996...................................    8

Consolidated Statements of Cash Flows --                                    
      Nine Months Ended March 31, 1997 and 1996..........................    9

 Notes to Consolidated Financial Statements..............................   10

PART II. OTHER INFORMATION................................................   13 

1 

10-Q 3rd Page of 15 TOC 1st Previous Next ↓Bottom Just 3rd
 THE ESTEE LAUDER COMPANIES INC.

 PART I. FINANCIAL INFORMATION

 CONSOLIDATED STATEMENTS OF EARNINGS
 (UNAUDITED)

                                                        [Enlarge/Download Table]

                                                                  THREE MONTHS ENDED           NINE MONTHS ENDED   
                                                                        MARCH 31                    MARCH 31       
                                                                  --------------------        -------------------- 
                                                                    1997      1996              1997        1996   
                                                                    ----      ----              ----        ----   

                                                                          (IN MILLIONS, EXCEPT PER SHARE DATA)     
                                                                                                                   
NET SALES........................................................   $791.4     $763.9        $2,605.7     $2,457.8 

Cost of sales....................................................    167.3      163.4           584.7        567.1 
                                                                   -------    -------       ---------     -------- 
GROSS PROFIT.....................................................    624.1      600.5         2,021.0      1,890.7 

Selling, general and administrative expenses:                                                                      
   Selling, general and administrative...........................    547.5      535.4         1,700.2      1,602.4 
   Related party royalties.......................................      7.7        6.8            24.7         28.1 
                                                                   -------    -------         -------     -------- 
                                                                     555.2      542.2         1,724.9      1,630.5 
                                                                   -------    -------         -------     -------- 
OPERATING INCOME.................................................     68.9       58.3           296.1        260.2 

Interest income, net:                                                                                              
   Interest income (expense), net................................      2.3        0.4             1.2         (1.0)
   Interest income from stockholders, net........................      -          -               -            2.7 
                                                                   ------     ------          ------      -------- 
                                                                       2.3        0.4             1.2          1.7 
                                                                   -------    -------         -------     -------- 
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST...............     71.2       58.7           297.3        261.9 

Provision for income taxes.......................................     29.9       26.4           124.9        117.8 
Minority interest................................................     (3.0)      (4.1)          (11.5)       (11.0)
                                                                   -------    -------         -------     -------- 
NET EARNINGS.....................................................     38.3       28.2           160.9        133.1 

Preferred stock dividends........................................      5.9        5.9            17.6         51.7 
                                                                   -------    -------         -------     -------- 
NET EARNINGS ATTRIBUTABLE TO COMMON STOCK (Note 1)...............  $  32.4    $  22.3         $ 143.3     $   81.4 
                                                                   =======    =======         =======     ======== 

Net earnings per common share (Note 1)...........................  $   .27    $  .19          $  1.20        n/a   
Weighted average common shares outstanding.......................    119.4      118.2           119.0        n/a   

Cash dividends declared per common share.........................  $ .085     $ .085          $  .255     $   .085 


 See notes to consolidated financial statements.

2 

10-Q 4th Page of 15 TOC 1st Previous Next ↓Bottom Just 4th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS                                                           

The Estee Lauder Companies Inc. and its subsidiaries (collectively, the         
"Company") manufacture skin care, makeup and fragrance products which are       
distributed in over 100 countries and territories. The following is a           
comparative summary of operating results for the three and nine months ended    
March 31, 1997 and 1996 and reflects the basis of presentation described in Note
1 to the consolidated financial statements for all periods presented:           

                                                        [Enlarge/Download Table]

                                                                   THREE MONTHS ENDED           NINE MONTHS ENDED   
                                                                        MARCH 31                     MARCH 31       
                                                                  ----------------------      ----------------------
                                                                      1997       1996            1997         1996  
                                                                      ----       ----            ----         ----  
                                                                                      (IN MILLIONS)                 
                                                                                                                    
NET SALES                                                                                                           
   BY REGION:                                                                                                       
      The Americas:                                                                                                 
         United States...........................................     $439.6     $409.6       $ 1,433.4     $1,340.9
         Other Americas..........................................       25.4       29.4            96.2         88.2
                                                                     -------    -------       ---------      -------
           Total Americas........................................      465.0      439.0         1,529.6      1,429.1
      Europe, the Middle East & Africa...........................      207.6      204.4           680.3        629.7
      Asia/Pacific...............................................      118.8      120.5           395.8        399.0
                                                                     -------    -------       ---------     --------
                                                                      $791.4     $763.9        $2,605.7     $2,457.8
                                                                      ======     ======        ========     ========

   BY PRODUCT CATEGORY:                                                                                             
      Skin Care..................................................     $328.2     $338.0       $   978.4     $  972.5
      Makeup.....................................................      324.9      300.3           961.9        863.3
      Fragrance..................................................      138.3      125.6           665.4        622.0
                                                                     -------    -------       ---------     --------
                                                                      $791.4     $763.9       $ 2,605.7     $2,457.8
                                                                      ======     ======       =========     ========

OPERATING INCOME                                                                                                    
   The Americas:                                                                                                    
      United States..............................................    $  24.8    $  25.5       $   145.3     $  137.5
      Other Americas.............................................        5.9        6.0            28.4         16.6
                                                                     -------    -------       ---------     --------
         Total Americas..........................................       30.7       31.5           173.7        154.1
   Europe, the Middle East & Africa..............................       29.6       20.2            88.9         60.3
   Asia/Pacific..................................................        8.6        6.6            33.5         45.8
                                                                     -------    -------       ---------     --------
                                                                     $  68.9    $  58.3       $   296.1     $  260.2
                                                                     =======    =======       =========     ========

The following table sets forth certain consolidated statements of earnings data 
as a percentage of net sales for the three and nine months ended March 31, 1997 
and 1996, respectively:                                                         

                                                        [Enlarge/Download Table]

                                                                   THREE MONTHS ENDED       NINE MONTHS ENDED      
                                                                         MARCH 31                 MARCH 31         
                                                                  ----------------------  -------------------------
                                                                      1997       1996         1997         1996    
                                                                      ----       ----         ----         ----    
                                                                                                                   
Net sales........................................................      100.0%     100.0%      100.0%       100.0%  
Cost of sales....................................................       21.1       21.4        22.4         23.1   
                                                                      ------    -------       -----        -----   
Gross profit.....................................................       78.9       78.6        77.6         76.9   
Selling, general and administrative expenses:                                                                      
   Selling, general and administrative...........................       69.2       70.1        65.2         65.2   
   Related party royalties.......................................        1.0        0.9         1.0          1.1   
                                                                      ------     ------       -----        -----   
                                                                        70.2       71.0        66.2         66.3   
                                                                      ------     ------       -----        -----   
Operating income.................................................        8.7        7.6        11.4         10.6   
Interest income, net.............................................        0.3        0.1          -           0.1   
                                                                      ------     ------       ----         -----   
Earnings before income taxes and minority interest...............        9.0        7.7        11.4         10.7   
Provision for income taxes.......................................        3.8        3.5         4.8          4.8   
Minority interest................................................       (0.4)      (0.5)       (0.4)        (0.5)  
                                                                      ------     ------       -----        -----   
Net earnings  ...................................................        4.8%       3.7%        6.2%         5.4%  
                                                                      ======     ======       =====        =====   

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10-Q 5th Page of 15 TOC 1st Previous Next ↓Bottom Just 5th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net sales increased by $27.5 million and $147.9 million, or 4% and 6%, for the  
three and nine months ended March 31, 1997, respectively, as compared to the    
prior year. The increase in net sales is due to the strength of new makeup and  
skin care product launches, the global rollout of recent women's and men's      
fragrance introductions, the introduction of Fruition Extra and the continued   
solid performance of existing core products. The continuing strength of the U.S.
dollar negatively impacted net sales for the current three and nine month       
periods by approximately $24 million and $63 million, respectively. During the  
three months ended March 31, 1997, the strengthening of the U.S. dollar against 
most European currencies was particularly pronounced. Excluding the impact of   
foreign currency translation, net sales would have increased 7% and 9% during   
the three and nine months ended March 31, 1997, respectively. This movement of  
the U.S. dollar continues to negatively affect the operating results of each of 
the Company's regions and product categories, as compared to the prior year. Net
sales for the current year include nine months of sales of Bobbi Brown          
essentials, in which a 100% interest was acquired in late October 1995.         

Net sales of skin care products decreased by $9.8 million or 3%, and increased  
$5.9 million or 1%, for the three and nine months ended March 31, 1997,         
respectively, as compared to the prior year. The continuing strength of the U.S.
dollar versus the Japanese yen and the European currencies, affects skin care   
sales to a greater extent than makeup or fragrance sales, since skin care sales 
in the Japanese and European markets represent a larger portion of total sales  
than in the other markets. Excluding the impact of foreign currency translation,
skin care net sales for the three months ended March 31, 1997, would have been  
favorable by 1%. The increase in skin care net sales for the nine months ended  
March 31, 1997, was due in part to the introduction of Moisture On-Line,        
Nutritious Bio-Protein Moisture Complex, All About Lips, LipZone, Fruition Extra
and Advanced Sun Care Products, the continued growth of existing products such  
as Dramatically Different Moisturizing Lotion and Daywear Super Anti-Oxidant    
Complex and the introduction during the current quarter of Firm Believer. Lower 
sales of ThighZone Body Streamlining Complex partially offset the sales         
increase. Net sales of makeup products increased by $24.6 million and $98.6     
million, or 8% and 11%, for the three and nine months ended March 31, 1997,     
respectively, as compared to the prior year. Higher makeup product sales were   
due to the launch during the quarter ended March 31, 1997 of Stay The Day       
Eyeshadow and DoubleWear Stay-In-Place Makeup and current year launches of City 
Base Compact Foundation, Long Last Soft Shine Lipstick, Virtual Skin, Futurist  
Age-Resisting Makeup, Ultra Mascara and Indelible Lipstick. The current three   
and nine month periods also benefited from increased contributions from existing
M.A.C. and Bobbi Brown products and other products such as True Lipstick and    
Enlighten Skin-Enhancing Makeup. Net sales of fragrance products increased by   
$12.7 million and $43.4 million, or 10% and 7%, for the three and nine months   
ended March 31, 1997, respectively, as compared to the prior year. Higher sales 
in fragrance products were primarily due to strong sales results from the       
ongoing worldwide success of "tommy," the United States rollout of "tommy girl,"
the international debut of White Linen Breeze and the European introduction of  
Kiton. Comparison with the prior-year quarter is difficult given the highly     
successful international launch of Estee Lauder pleasures during that period.   
The introduction of new products may have some cannibalization effect on sales  
of existing products, which is taken into account by the Company in its business
planning. The Company's quarterly net sales are subject to seasonal             
fluctuations, particularly in the fragrance category.                           

Net sales in the Americas increased by $26.0 million and $100.5 million, or 6%  
and 7%, for the three and nine months ended March 31, 1997, respectively, as    
compared to the prior year. This increase is driven by the sales of new products
across all categories and the sales growth of existing products, particularly   
"tommy" and "tommy girl" and solid performances from M.A.C. and Bobbi Brown in  
the United States; however, core brand sales were impacted by a generally       
lackluster retail environment as well as lower Canadian net sales for the       
quarter ended March 31, 1997. In Europe, the Middle East & Africa, net sales    
increased by $3.2 million and $50.6 million, or 2% and 8%, for the three and    
nine months ended March 31, 1997, as compared to the prior year. Excluding the  
impact of foreign currency translation, Europe, the Middle East & Africa net    
sales would have increased 9% and 12% for the three and nine month prior-year   
periods, respectively. Higher net sales were achieved in the United Kingdom,    
South Africa and Italy for the three months ended March 31, 1997 in addition to 
impressive sales increases for Benelux, Nordic, the distributor and travel      
retail businesses and the inclusion of sales from the Company's fragrance joint 
venture in the nine months ended March 31, 1997. Lower sales in Germany and     
France resulting from continuing difficult retail environments for the three and
nine months ended March 31, 1997, partially offset these increases. Net sales in
Asia/Pacific decreased by $1.7 million and $3.2 million, or 1% for the three and
nine months ended March 31, 1997, respectively, as compared to the prior year.  
Excluding the impact of foreign currency translation, Asia/Pacific sales would  
have increased 7% and 6% for the three and nine month prior-year periods,       
respectively. All markets except Hong Kong reported sales increases for the     
three months ended March 31, 1997, with strong sales growth in Korea, Thailand, 
Singapore, Taiwan and Australia. The region's growth was more than offset by the
translation impact of the strength of the U.S. dollar versus the yen on Japanese
sales. For the nine months ended March 31, 1997, modest                         

4 

10-Q 6th Page of 15 TOC 1st Previous Next ↓Bottom Just 6th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

increases in Japanese local currency sales, along with double digit sales growth
in most countries were more than offset by the translation impact of the        
strength of the U.S. dollar versus the yen. The Company strategically staggers  
its new product launches by geographic markets, which may account for           
differences in regional sales growth.                                           

Cost of sales were 21.1% and 22.4% of net sales for the three and nine months   
ended March 31, 1997, respectively, as compared with 21.4% and 23.1% of net     
sales in the prior-year periods. The improvements principally reflect the       
efficiencies achieved as a result of the Company's continuing efforts to        
globalize its sourcing and manufacturing activities.                            

Total selling, general and administrative expenses decreased to 70.2% and 66.2% 
of net sales for the current three and nine month periods, respectively,        
compared with 71.0% and 66.3% of net sales in the prior-year periods. Lower     
operating expenses as a percent of net sales for the three months ended March   
31, 1997, primarily reflect the timing of the Company's advertising and         
promotional spending. For the nine months ended March 31, 1997, operating       
expenses as a percent of net sales was comparable with the same prior-year      
period.                                                                         

Operating income increased by $10.6 million and $35.9 million, or 18% and 14%,  
for the three and nine months ended March 31, 1997, respectively, as compared   
with the prior year. Operating margins were 8.7% and 11.4% in the current       
periods as compared to 7.6% and 10.6% in the corresponding prior-year periods.  
The increase in operating income and margins was due to higher net sales coupled
with lower cost of sales and operating expenses. Operating income in the        
Americas decreased 3% to $30.7 million from $31.5 million for the three months  
ended March 31, 1997, compared with the same prior-year period, as higher sales 
in the United States were offset by the timing and level of U.S. advertising and
promotional expenditures to support the increased sales levels of "tommy" and   
"tommy girl" and to provide funds to stimulate the core brands. For the nine    
months ended March 31, 1997, improved operating results in the United States,   
Canada and Latin America and the inclusion of a full nine months of operating   
results from Bobbi Brown increased the operating income in the Americas by $19.6
million, or 13%. In Europe, the Middle East & Africa, operating income increased
by $9.4 million and $28.6 million, or 47%, for the three and nine months ended  
March 31, 1997, respectively, as compared to the prior year. Higher operating   
results in Italy, the United Kingdom, France, Eastern Europe and the distributor
and travel retail businesses were primarily responsible for the increase for the
three months ended March 31, 1997. Higher sales in the United Kingdom, Italy,   
Benelux, Nordic, Eastern Europe, and the distributor and travel retail          
businesses and improved operating efficiencies in Germany and France were       
responsible for the operating income increase for the nine months ended March   
31, 1997. In Asia/Pacific, operating income increased 30% to $8.6 million for   
the three months ended March 31, 1997, compared to the same prior-year period,  
on the strength of higher operating results in Korea, Singapore, New Zealand,   
Malaysia and Thailand. While Japan's operating income was slightly favorable in 
the current quarter due to the timing of advertising and promotional spending,  
for the nine months ended March 31, 1997 the continued difficult retail         
environment, incremental promotional spending and an unfavorable foreign        
exchange impact, more than offset higher operating results primarily in         
Singapore, New Zealand, Malaysia, Korea, Thailand and Australia. The Company's  
quarterly operating results are subject to seasonal net sales fluctuations in   
addition to the level, scope and timing of expenditures related to product      
promotions or introductions.                                                    

Net interest income increased $1.9 million to $2.3 million and decreased $0.5   
million to $1.2 million for the three and nine months ended March 31, 1997,     
respectively, as compared with the prior year. The increase for the current     
quarter over the prior year relates to lower borrowing levels and increased     
investment income. Lower net interest income year to date as compared to the    
prior year is primarily attributable to decreased interest expense associated   
with lower borrowing levels which was offset by the inclusion of net interest   
income from stockholders in the prior year.                                     

The provision for income taxes represents federal, foreign, state and local     
income taxes. The effective rate for income taxes for the three and nine months 
ended March 31, 1997 was 42.0% as compared with 45.0% in the prior-year periods.
The decrease in the effective tax rate is due to a relative change in the mix of
earnings from higher tax countries such as Japan to lower tax countries and the 
reduced relative negative impact of a stockholder's rights to receive certain   
U.S. royalty payments by reason of the Company's purchase of the rights in      
November 1995.                                                                  

5 

10-Q 7th Page of 15 TOC 1st Previous Next ↓Bottom Just 7th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company's principal sources of funds have historically been, and are        
expected to continue to be, cash flow from operations and borrowings under      
uncommitted and committed credit lines provided by banks in the United States   
and overseas. At March 31, 1997, the Company had cash and cash equivalents of   
$265.2 million compared with $254.8 million at June 30, 1996.                   

Uncommitted lines of credit amounted to $475.1 million at March 31, 1997, of    
which $11.6 million were used. Unused committed lines of credit available to the
Company at March 31, 1997 amounted to $408.0 million. Total debt as a percentage
of total capitalization (including short-term debt) was 6% at March 31, 1997 and
14% at June 30, 1996. This decrease is due to a lower level of notes payable    
resulting from reduced seasonal working capital borrowing requirements, the     
repayment of long-term debt and the Company's profitability during the nine     
months ended March 31, 1997.                                                    

Net cash provided by operating activities increased to $199.4 million for the   
nine months ended March 31, 1997 from $158.5 million in the prior year          
nine-month period. This increase primarily reflects the Company's increased     
profitability and lower inventory and promotional merchandise levels during the 
current year, which was partially offset by the repayment of a stockholder loan 
receivable in the prior year. Net cash used for investing activities of $106.1  
million and $59.5 million in the nine months ended March 31, 1997 and 1996,     
respectively, principally reflects capital expenditures, which primarily include
the continued upgrade of manufacturing and computer equipment, dies and molds,  
store and counter construction and renovations, and in 1997, the acquisition of 
an additional interest in M.A.C. In addition, investment activities for the nine
months ended March 31, 1996, reflect cash generated from a decrease in          
marketable securities and the cash portion of the acquisition for a 100%        
interest in Bobbi Brown. Financing activities reflect dividends paid and        
repayment of debt and, in 1997 and 1996, cash proceeds received from the        
issuance of common stock in the Company's secondary and initial public          
offerings, respectively.                                                        

The Company holds a majority equity interest in M.A.C and at the end of March   
1997, the Company acquired an additional interest in M.A.C. The Company has the 
right to acquire the remaining interest in M.A.C. at certain times between 1998 
and 1999.                                                                       

The Company has developed plans to construct a state-of-the-art warehouse and   
distribution center in Lachen, Switzerland, which is being designed to          
accommodate the Company's projected future growth. The Company has begun        
construction and to date has spent approximately $6.0 million. The cost of the  
new distribution center is estimated at approximately $19.0 million at current  
exchange rates, with completion anticipated in approximately 12 to 18 months.   

Dividend payments were $47.5 million for the nine months ended March 31, 1997, a
decrease from $91.5 million in the prior year period. The decrease reflects the 
absence of special dividends discussed below, as well as dividends paid on the  
Company's Participating Class I Preferred Stock, which stock ceased to be       
outstanding after the Company completed a recapitalization in fiscal 1996 as    
described in Note 1 to the Consolidated Financial Statements. Immediately prior 
to the recapitalization, Estee Lauder AG Lachen, a subsidiary of the Company,   
declared a special cash dividend in the aggregate amount of $20.0 million       
payable to the then holders of its SFr 1,000 par value shares. The Company also 
declared a special dividend, payable to the then holders of its common stock,   
consisting of interests in corporations and partnerships holding certain assets 
of the Company, which were unrelated to the Company's core business, and $29.6  
million in cash. The aggregate fair value of the assets in such corporations and
partnerships was $19.6 million. The current year dividend payments reflect      
dividends of approximately $30.0 million on the Company's Class A and Class B   
Common Stock. Dividends declared and paid on the Company's Class A and Class B  
Common Stock for the nine months ended March 31, 1996 were approximately $10.0  
million.                                                                        

6 

10-Q 8th Page of 15 TOC 1st Previous Next ↓Bottom Just 8th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company enters into forward foreign exchange contracts and purchases foreign
currency options to hedge foreign currency transactions for periods consistent  
with its identified exposures. The purpose of the hedging activities is to      
minimize the effect of foreign exchange rate movements on the Company's costs   
and on the cash flows which it receives from its foreign subsidiaries. Almost   
all foreign currency contracts are denominated in currencies of major industrial
countries and are with large financial institutions rated as strong investment  
grade by a major rating agency. The contracts have varying maturities with none 
exceeding 24 months. As hedges, gains and losses on forward contracts are       
reflected in operating income along with the corresponding underlying           
transactions. Premiums on foreign currency options are amortized over the period
being hedged. Costs associated with entering into such contracts have not been  
material to the Company's financial results. As a matter of policy, the Company 
does not engage in currency speculation. At March 31, 1997, the Company had     
contracts to exchange foreign currencies in the form of purchased currency      
options and forward exchange contracts in the amount of $145.1 million and      
$276.2 million, respectively. Foreign currencies exchanged under these contracts
are principally the Belgian franc, U.K. pound, and Swiss franc.                 

The Company believes that cash on hand, internally generated cash flow and      
available credit lines will be adequate to support currently planned business   
operations and capital expenditures both on a near-term and long-term basis.    

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS                                 

EARNINGS PER SHARE                                                              

In March 1997, the Financial Accounting Standards Board issued Statement of     
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This     
statement establishes standards for computing and presenting earnings per share 
("EPS"), replacing the presentation of currently required Primary EPS with a    
presentation of Basic EPS. For entities with complex capital structures, the    
statement requires the dual presentation of both Basic EPS and Diluted EPS on   
the face of the statement of earnings. Under this new standard, Basic EPS is    
computed based on weighted average common shares outstanding and contingently   
issuable shares (which satisfy certain conditions) and excludes any potential   
dilution; Diluted EPS reflects potential dilution from the exercise or          
conversion of securities into common stock, or from other contracts to issue    
common stock, and is similar to the currently required Fully Diluted EPS. SFAS  
128 is effective for financial statements issued for periods ending after       
December 15, 1997, including interim periods, and earlier application is not    
permitted. When adopted, the Company will be required to restate its EPS data   
for all prior periods presented. The Company does not expect the impact of the  
adoption of this statement to be material to previously reported EPS amounts.   

ACCOUNTING FOR STOCK-BASED COMPENSATION                                         

In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,  
"Accounting for Stock-Based Compensation." The statement encourages, but does   
not require, companies to account for stock compensation awards based on their  
fair value at the date the awards are granted. The resulting compensation award 
would be shown as an expense on the statement of earnings. Alternatively, the   
statement allows for the continued use of Accounting Principles Board ("APB")   
Opinion No. 25, "Accounting for Stock Issued to Employees," which generally     
results in no compensation cost for most fixed stock-option plans, with pro     
forma disclosure of net income and earnings per share determined as if the fair 
value based method had been applied in measuring compensation cost. The Company 
shall continue to apply APB Opinion No. 25 and will adopt the provisions of SFAS
No. 123 in the current fiscal year by providing the required year end pro forma 
disclosures.                                                                    

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 THE ESTEE LAUDER COMPANIES INC.

 CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                                          MARCH 31             JUNE 30
                                                                                            1997                1996  
                                                                                            ----                ----  
                                                                                         (UNAUDITED)                  
                                                                                                   (IN MILLIONS)      
                                    ASSETS                                                                            
                                                                                                                      
CURRENT ASSETS                                                                                                        
Cash and cash equivalents...............................................................  $  265.2            $  254.8
Accounts receivable, net................................................................     571.4               476.2
Inventory and promotional merchandise...................................................     358.4               452.8
Prepaid expenses and other current assets...............................................     161.2               148.8
                                                                                          --------            --------
     TOTAL CURRENT ASSETS...............................................................   1,356.2             1,332.6

PROPERTY, PLANT AND EQUIPMENT, NET......................................................     249.7               229.3

OTHER ASSETS                                                                                                          
Investments, at cost or market value....................................................      23.8                24.7
Deferred taxes..........................................................................      46.8                43.1
Intangible assets.......................................................................     179.8               146.6
Other assets  ..........................................................................      47.6                45.3
                                                                                          --------            --------
                                                                                             298.0               259.7
                                                                                          --------            --------
                                                                                          $1,903.9            $1,821.6
                                                                                          ========            ========


LIABILITIES AND STOCKHOLDERS' EQUITY        

                                                        [Enlarge/Download Table]
                                                                                                            
CURRENT LIABILITIES                                                                                         
Notes payable and current maturities of long-term debt.................................. $   53.8   $  105.6
Accounts payable........................................................................    133.5      175.3
Accrued income taxes....................................................................     86.6       72.9
Other accrued liabilities...............................................................    546.3      511.3
                                                                                         --------   --------
     TOTAL CURRENT LIABILITIES..........................................................    820.2      865.1

NONCURRENT LIABILITIES                                                                                      
Long-term debt..........................................................................      -         21.9
Other noncurrent liabilities............................................................    192.9      180.4
                                                                                         --------   --------
                                                                                            192.9      202.3

$6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE........................    360.0      360.0

STOCKHOLDERS' EQUITY                                                                                        
Common stock, $.01 par value; 300,000,000 shares Class A authorized, shares                                 
   outstanding 61,336,663 at March 31, 1997 and 60,458,235 at June 30, 1996;                                
   120,000,000 shares Class B authorized, shares outstanding 56,839,667.................      1.2        1.2
Paid-in capital.........................................................................    160.7      121.6
Retained earnings.......................................................................    378.4      252.2
Unrealized investment gains, net........................................................      2.0        2.9
Cumulative translation adjustments......................................................    (11.5)      16.3
                                                                                         --------   --------
                                                                                            530.8      394.2
                                                                                         --------   --------
                                                                                         $1,903.9   $1,821.6
                                                                                         ========   ========


 See notes to consolidated financial statements.

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 THE ESTEE LAUDER COMPANIES INC.

 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)

                                                        [Enlarge/Download Table]

                                                                                                    NINE MONTHS ENDED     
                                                                                                         MARCH 31         
                                                                                                --------------------------
                                                                                                  1997            1996    
                                                                                                  ----            ----    
                                                                                                      (IN MILLIONS)       
                                                                                                                          
CASH FLOWS FROM OPERATING ACTIVITIES                                                                                      
   Net earnings............................................................................... $   160.9      $  133.1    
   Adjustments to reconcile net earnings to net cash                                                                      
     flows provided by operating activities:                                                                              
       Depreciation and amortization..........................................................      42.3          35.3    
       Amortization of purchased royalty rights...............................................      13.3           6.6    
       Deferred income taxes..................................................................     (14.3)          8.5    
       Minority interest......................................................................      11.5          11.0    
       Employee share grants..................................................................       -             4.3    
   Changes in operating assets and liabilities:                                                                           
       Increase in accounts receivable, net...................................................    (117.4)       (102.3)   
       Decrease (increase) in inventory and promotional merchandise...........................      84.9         (19.8)   
       Decrease in due from stockholders......................................................       -           103.4    
       Increase in other assets...............................................................     (23.0)       (103.6)   
       Decrease in accounts payable...........................................................     (37.2)        (13.9)   
       Increase in accrued income taxes.......................................................      15.1           5.1    
       Increase in other accrued liabilities..................................................      46.7          77.9    
       Increase in other noncurrent liabilities...............................................      16.6          12.9    
                                                                                               ---------      --------    
         NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES......................................     199.4         158.5    

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                      
   Capital expenditures.......................................................................     (58.8)        (51.2)   
   Decrease in marketable securities..........................................................       -            13.3    
   Acquisition of businesses (net of acquired cash)...........................................     (46.5)        (25.6)   
   Increase in long-term investments..........................................................      (1.0)         (1.5)   
   Decrease in long-term investments..........................................................       0.2           5.5    
                                                                                               ---------      --------    
         NET CASH FLOWS USED FOR INVESTING ACTIVITIES.........................................    (106.1)        (59.5)   

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                      
   Decrease in notes payable..................................................................     (50.4)        (90.3)   
   Repayments of long-term debt...............................................................     (23.4)         (4.7)   
   Proceeds from issuance of common stock, net of issuance costs..............................      38.1          60.7    
   Proceeds from exercise of stock options....................................................       0.7           -      
   Dividends paid.............................................................................     (47.5)        (91.5)   
                                                                                               ---------      --------    
         NET CASH FLOWS USED FOR FINANCING ACTIVITIES.........................................     (82.5)       (125.8)   

Effect of Exchange Rate Changes on Cash and Cash Equivalents..................................      (0.4)          2.7    
                                                                                               ---------      --------    
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..........................................      10.4         (24.1)   
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..............................................     254.8         267.9    
                                                                                               ---------      --------    
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $   265.2      $  243.8    
                                                                                               =========      ========    


 See notes to consolidated financial statements.

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 THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING  POLICIES                           

BASIS OF PRESENTATION                                                           

The accompanying consolidated financial statements include the accounts of The  
Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company"). 
In November 1995, the Company, its stockholders and certain affiliates          
consummated a recapitalization (the "Recapitalization"). As a result of the     
Recapitalization, the Company has three classes of stock outstanding (i.e.,     
Class A Common Stock, Class B Common Stock and $6.50 Cumulative Redeemable      
Preferred Stock), and owns a majority equity interest in Make-Up Art Cosmetics  
Limited and a related entity (collectively, "M.A.C."), and all the outstanding  
shares of Estee Lauder AG Lachen ("Lachen") and Estee Lauder Realty Corp. ("EL  
Realty"), which ownership interests were previously held by certain members of  
the Lauder family. The Recapitalization included the following transactions: (i)
the conversion of all the outstanding shares of the Company (other than the     
$6.50 Cumulative Redeemable Preferred Stock) into shares of newly created Class 
A Common Stock and Class B Common Stock, (ii) the exchange of all outstanding   
shares of preferred stock of two subsidiaries of the Company that were not then 
owned by the Company for shares of Class A Common Stock and Class B Common      
Stock, (iii) the acquisition by the Company of all the shares of Lachen not then
owned by the Company and all of the outstanding shares of EL Realty in exchange 
for shares of Class A Common Stock and Class B Common Stock and (iv) the        
acquisition by the Company of all the outstanding partnership interests of      
Lauder Family Partners, L.P. (which initially acquired the interest in M.A.C.)  
in exchange for shares of Class A Common Stock and Class B Common Stock.        

The consolidated financial statements have been prepared in accordance with     
generally accepted accounting principles for interim financial information and  
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.            
Accordingly, they do not include all of the information and footnotes required  
by generally accepted accounting principles for complete financial statements.  
In the opinion of management, all adjustments (consisting of normal recurring   
accruals) considered necessary for a fair presentation have been included. The  
results of operations of any interim period are not necessarily indicative of   
the results of operations to be expected for the fiscal year. For further       
information, refer to the consolidated financial statements and accompanying    
footnotes included in the Company's annual report on Form 10-K for the year     
ended June 30, 1996.                                                            

PRO FORMA NET EARNINGS PER SHARE                                                

Pro forma net earnings per share amounts for the prior nine-month period ended  
March 31, 1996 are based on the weighted average common and dilutive common     
equivalent (e.g., stock options) shares outstanding during the period. As a     
result of the Recapitalization and the issuance of common stock in the Company's
initial public offering (the "Offering"), as described in Note 2, the pro forma 
weighted average number of outstanding common shares have been computed assuming
the Recapitalization occurred at the beginning of fiscal 1996 and, includes the 
amount of shares issued by the Company in the Offering from the date of issuance
plus the effect of common shares contingently issuable, primarily from stock    
options, from that same date.                                                   

Pro forma net earnings per share are computed by dividing the pro forma weighted
average common shares outstanding into the earnings applicable to such shares.  
The net earnings attributable to common stock reflects recurring preferred stock
dividends on the Company's $6.50 Cumulative Redeemable Preferred Stock as well  
as nonrecurring preferred stock dividends associated with several classes of    
preferred stock converted or exchanged into common shares in the                
Recapitalization. For purposes of computing pro forma net earnings per share,   
dividends paid or accrued on the classes of preferred stock which were converted
or exchanged in the Recapitalization are assumed not to have occurred and are   
excluded from the computation. Accordingly, earnings per share for the nine     
months ended March 31, 1996, are reflected on a pro forma basis only, as        
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                            NINE MONTHS ENDED         
                                                                              MARCH 31, 1996          
                                                                          ---------------------       
                                                                  (IN MILLIONS, EXCEPT PER SHARE DATA)
                                                                                                      
Net earnings.....................................................              $ 133.1                
Pro forma preferred stock dividends..............................                 17.6                
                                                                               -------                
Pro forma net earnings attributable to common stock..............              $ 115.5                
                                                                               =======                

Pro forma net earnings per common share..........................              $   .99                
Pro forma weighted average common shares outstanding.............                116.3                


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 THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVENTORY AND PROMOTIONAL MERCHANDISE                                           

Inventory and promotional merchandise include only items saleable or usable in  
future periods and are stated at the lower of first-in, first-out cost or       
market. Promotional merchandise is charged to expense at the time the           
merchandise is shipped to the Company's customers.                              

                                                                [Download Table]

                                                         MARCH 31           JUNE 30
                                                           1997               1996 
                                                           ----               ---- 
                                                                 (IN MILLIONS)     
                                                                                   
Inventory and promotional merchandise consists of:                                 
  Raw materials.........................................  $   91.6          $ 105.6
  Work in process.......................................      19.1             30.2
  Finished goods........................................     173.9            203.1
  Promotional merchandise...............................      73.8            113.9
                                                          --------          -------
                                                          $  358.4          $ 452.8
                                                          ========          =======

PROPERTY, PLANT AND EQUIPMENT                                                   

Property, plant and equipment are carried at cost. For financial statement      
purposes, depreciation is provided principally on the straight-line method over 
the estimated useful lives of the assets ranging from 3 to 40 years. Leasehold  
improvements are amortized on a straight-line basis over the shorter of the     
lives of the respective leases or the expected useful lives.                    

                                                                [Download Table]

                                                         MARCH 31           JUNE 30
                                                           1997               1996 
                                                           ----               ---- 
                                                                 (IN MILLIONS)     
                                                                                   
Land....................................................  $   11.8          $  11.8
Buildings and improvements..............................      89.3             82.6
Machinery and equipment.................................     344.5            319.3
Furniture and fixtures..................................      45.1             42.2
Leasehold improvements..................................      86.4             73.7
                                                          --------          -------
                                                             577.1            529.6
Less accumulated depreciation and amortization..........     327.4            300.3
                                                          --------          -------
                                                          $  249.7          $ 229.3
                                                          ========          =======

STATEMENT OF CASH FLOWS                                                         

Supplemental disclosures of cash flow information:                              

                                                                [Download Table]

                                                         NINE MONTHS ENDED MARCH 31
                                                          1997               1996  
                                                          ----               ----  
                                                                (IN MILLIONS)      
                                                                                   
Cash paid during the period for:                                                   
  Interest ............................................. $    5.8          $   7.3 
  Income taxes.......................................... $  111.3          $  81.8 

MANAGEMENT ESTIMATES                                                            

The preparation of financial statements in conformity with generally accepted   
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in    
those financial statements. Actual results could differ from those estimates and
assumptions.                                                                    

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 THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 -- PUBLIC OFFERINGS                                                      

In February 1997, the Company completed a secondary public offering of 8,064,750
shares of Class A Common Stock at an initial offering price of $47.00 per share.
Of the 8,064,750 shares of Class A Common Stock offered, 849,750 shares were    
issued and sold by the Company, pursuant to an underwriters over-allotment      
provision, and 7,215,000 shares were sold by members of the Lauder family.      

In November 1995, the Company completed an initial public offering of 17,606,252
shares of Class A Common Stock at an initial offering price of $26.00 per share.
Of the 17,606,252 shares of Class A Common Stock offered, 2,731,252 shares were 
issued and sold by the Company and 14,875,000 shares were sold by members of the
Lauder family. Prior to the Offering, there was no public market for the        
Company's capital stock.                                                        

The Company did not receive any of the proceeds from the sales of the shares    
sold by the Lauder family members. The net proceeds to the Company from the     
secondary public offering and initial public offering, after deducting          
applicable underwriting discounts and offering expenses, were $38.1 and $59.3   
million, respectively. These net proceeds to the Company were used for general  
corporate purposes and to repay short-term debt.                                

NOTE 3 -- ACQUISITION OF BUSINESSES                                             

The Company holds a majority equity interest in M.A.C. and at the end of March  
1997, the Company acquired an additional interest in M.A.C. The acquisition has 
been accounted for as a purchase. Had the acquisition been completed as of July 
1, 1996 for pro forma financial data, the impact on the Company's reported      
results of operations would not have been material. The Company has the right to
acquire the remaining interest in M.A.C. at certain times between 1998 and 1999.

In October 1995, the Company acquired a 100% interest in Bobbi Brown essentials,
a line of professional color makeup and skin care products. The Company acquired
the interest by issuing short-term notes, which matured in January 1996.        
Additional contingent earn-out payments will be made in later periods. The      
acquisition has been accounted for as a purchase and the financial statements   
include the results of its operations from the date of acquisition.             

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 THE ESTEE LAUDER COMPANIES INC.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.                                                      

The Company is involved in various routine legal proceedings incident to the    
ordinary course of its business. The Company believes that the outcome of all   
pending legal proceedings in the aggregate will not have a material adverse     
effect on its business or financial condition.                                  

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                       

(a)      Exhibits--                                                             

10.1    Second Amendment to Registration Rights Agreement.

10.2    Amendment No. 3 to Stockholders' Agreement.       

27.1    Financial Data Schedule.                          

 (b)     Reports on Form 8-K --  There were no reports on Form 8-K for the three
months ended March 31, 1997.                                  

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the        
registrant has duly caused this report to be signed on its behalf by the        
undersigned, thereunto duly authorized.                                         

                                       THE ESTEE LAUDER COMPANIES INC.

Date:  April 29, 1997                    By: /s/ Robert J. Bigler               
                                 -----------------------
                          Robert J. Bigler
                               Senior Vice President
                                     and Chief Financial Officer
                                  (Principal Financial and
                             Accounting Officer)

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 EXHIBIT INDEX

Exhibit No.                          Description                                
-----------                          -----------                                

10.1                  Second Amendment to Registration Rights Agreement.        

10.2                  Amendment No. 3 to Stockholders' Agreement.               

27.1                  Financial Data Schedule.                                  

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	12/15/97	8		4
Filed on:	4/29/97	14
	4/28/97	1
For Period End:	3/31/97	1	14
	7/1/96	13
	6/30/96	2	11
	3/31/96	2	11
				List all Filings

4 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/18/23  Estee Lauder Companies Inc.       10-K        6/30/23  158:26M
 8/24/22  Estee Lauder Companies Inc.       10-K        6/30/22  161:35M
 8/27/21  Estee Lauder Companies Inc.       10-K        6/30/21  165:28M
 8/28/20  Estee Lauder Companies Inc.       10-K        6/30/20  162:32M

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Filing Submission 0000909518-97-000251 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Estee Lauder Companies Inc – ‘10-Q’ for 3/31/97

As of: Tuesday, 4/29/97 · For: 3/31/97 · Accession #: 909518-97-251 · File #: 1-14064

Quarterly Report — Form 10-QFiling Table of Contents

10-Q — 10Q for Period End 03/31/97Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

4 Subsequent Filings that Reference this Filing

Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q — 10Q for Period End 03/31/97
Document Table of Contents