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Estee Lauder Companies Inc – ‘10-Q’ for 12/31/96

As of: Tuesday, 1/28/97 · For: 12/31/96 · Accession #: 909518-97-48 · File #: 1-14064

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

 1/28/97  Estee Lauder Companies Inc        10-Q       12/31/96    5:61K                                    Weil Gotshal & Ma… 04/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        2nd Qtr 10-Q                                          16     85K 
 2: EX-10.1     Form of Deferred Compensation Agreement                2     10K 
 3: EX-10.2     Amendment No. 2 to Stockholders' Agreement             5     17K 
 4: EX-27.1     Financial Data Schedule                                1      8K 
 5: EX-99.1     Cautionary Statements                                  2±    10K

10-Q — 2nd Qtr 10-Q
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Interest income (expense), net Legal Proceedings Net sales Notes to Consolidated Financial Statements Operating income Other Events Part Ii. Other Information Submission of Matters to A Vote of Security Holders
1	1st Page - Filing Submission
3	Interest income (expense), net
4	Net sales
"	Operating income
11	Notes to Consolidated Financial Statements
14	Part Ii. Other Information
"	Item 1. Legal Proceedings
"	Item 4. Submission of Matters to A Vote of Security Holders
"	Item 5. Other Events
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 16 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 DECEMBER 31, 1996            

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 January 27, 1997, 60,486,913 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 16 TOC 1st Previous Next ↓Bottom Just 2nd
 THE ESTEE LAUDER COMPANIES INC.

 INDEX

                                                        [Enlarge/Download Table]

                                                                                                        PAGE
                                                                                                        ----
PART I. FINANCIAL INFORMATION                                                                               

                                                                                                            
         Consolidated Statements of Earnings --                                                             
              Three Months and Six Months Ended December 31, 1996 and 1995.............................    2

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

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

         Consolidated Statements of Cash Flows --                                                           
              Six Months Ended December 31, 1996 and 1995..............................................    9

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

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


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10-Q 3rd Page of 16 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            SIX MONTHS ENDED   
                                                                       DECEMBER 31                DECEMBER 31      
                                                                       -----------                -----------      
                                                                    1996      1995              1996        1995   
                                                                    ----      ----              ----        ----   
                                                                          (IN MILLIONS, EXCEPT PER SHARE DATA)     

                                                                                                                   
NET SALES........................................................   $941.5     $860.8        $1,814.3     $1,693.9 

Cost of sales....................................................    217.6      210.4           417.4        403.7 
                                                                   -------    -------       ---------     -------- 
GROSS PROFIT.....................................................    723.9      650.4         1,396.9      1,290.2 

Selling, general and administrative expenses:                                                                      
   Selling, general and administrative...........................    589.0      530.5         1,152.7      1,067.0 
   Related party royalties.......................................      9.0       10.9            17.0         21.3 
                                                                   -------    -------         -------     -------- 
                                                                     598.0      541.4         1,169.7      1,088.3 
                                                                   -------    -------         -------     -------- 
OPERATING INCOME.................................................    125.9      109.0           227.2        201.9 

Interest income (expense), net:                                                                                    
   Interest income (expense), net................................      0.1        -              (1.1)        (1.4)
   Interest income from stockholders, net........................      -          1.1             -            2.7 
                                                                   -------    -------         -------     -------- 
                                                                       0.1       1.1             (1.1)         1.3 
                                                                   -------    -------         -------     -------- 
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST...............    126.0      110.1           226.1        203.2 

Provision for income taxes.......................................     50.5       47.3            95.0         91.4 
Minority interest................................................     (5.6)      (4.3)           (8.5)        (6.9)
                                                                   -------    -------         -------     -------- 
NET EARNINGS.....................................................     69.9       58.5           122.6        104.9 

Preferred stock dividends........................................      5.8       30.2            11.7         45.8 
                                                                   -------    -------         -------     -------- 
NET EARNINGS ATTRIBUTABLE TO COMMON STOCK (Note 1)...............  $  64.1    $  28.3         $ 110.9     $   59.1 
                                                                   =======    =======         =======     ======== 

Net earnings per common share (Note 1)...........................  $   .54        -           $   .93          -   
Weighted average common shares outstanding.......................    118.9        -             118.7          -   

Cash dividends declared per common share.........................  $  .085        -           $   .17          -   


 See notes to consolidated financial statements.

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10-Q 4th Page of 16 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 six months ended     
December 31, 1996 and 1995 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            SIX MONTHS ENDED     
                                                                       DECEMBER 31                 DECEMBER 31        
                                                                  ----------------------      ------------------------
                                                                      1996       1995            1996         1995    
                                                                      ----       ----            ----         ----    
                                                                                      (IN MILLIONS)                   
                                                                                                                      
NET SALES                                                                                                             
   BY REGION:                                                                                                         
      The Americas:                                                                                                   
         United States...........................................     $486.6     $441.8       $   993.8     $  931.3  
         Other Americas..........................................       38.8       30.6            70.8         58.8  
                                                                      ------     ------       ---------      -------  
           Total Americas........................................      525.4      472.4         1,064.6        990.1  
      Europe, the Middle East & Africa...........................      266.7      235.7           472.7        425.3  
      Asia/Pacific...............................................      149.4      152.7           277.0        278.5  
                                                                      ------     ------       ---------     --------  
                                                                      $941.5     $860.8        $1,814.3     $1,693.9  
                                                                      ======     ======        ========     ========  

   BY PRODUCT CATEGORY:                                                                                               
      Skin Care..................................................     $324.3     $298.8       $   650.2     $  634.5  
      Makeup.....................................................      319.1      273.4           637.0        563.0  
      Fragrance..................................................      298.1      288.6           527.1        496.4  
                                                                      ------     ------       ---------     --------  
                                                                      $941.5     $860.8       $ 1,814.3     $1,693.9  
                                                                      ======     ======       =========     ========  

OPERATING INCOME                                                                                                      
   The Americas:                                                                                                      
      United States..............................................     $ 59.0     $ 54.9       $   120.5     $  112.0  
      Other Americas.............................................       15.5        6.7            22.5         10.6  
                                                                      ------     ------       ---------     --------  
         Total Americas..........................................       74.5       61.6           143.0        122.6  
   Europe, the Middle East & Africa..............................       35.4       19.4            59.3         40.1  
   Asia/Pacific..................................................       16.0       28.0            24.9         39.2  
                                                                      ------     ------       ---------     --------  
                                                                      $125.9     $109.0       $   227.2     $  201.9  
                                                                      ======     ======       =========     ========  

The following table sets forth certain consolidated statement of earnings data  
as a percentage of net sales:                                                   

                                                        [Enlarge/Download Table]


                                                                   THREE MONTHS ENDED        SIX MONTHS ENDED      
                                                                       DECEMBER 31             DECEMBER 31         
                                                                  ----------------------  -------------------------
                                                                      1996       1995         1996         1995    
                                                                      ----       ----         ----         ----    

                                                                                                                   
Net sales........................................................      100.0%     100.0%      100.0%       100.0%  
Cost of sales....................................................       23.1       24.4        23.0         23.8   
                                                                      ------       ----       -----        -----   
Gross profit.....................................................       76.9       75.6        77.0         76.2   
Selling, general and administrative expenses:                                                                      
   Selling, general and administrative...........................       62.5       61.6        63.5         63.0   
   Related party royalties.......................................        1.0        1.3         1.0          1.3   
                                                                      ------     ------       -----        -----   
                                                                        63.5       62.9        64.5         64.3   
                                                                      ------     ------       -----        -----   
Operating income.................................................       13.4       12.7        12.5         11.9   
Interest income (expense), net...................................        -          0.1         -            0.1   
                                                                      ------     ------       -----        -----   
Earnings before income taxes and minority interest...............       13.4       12.8        12.5         12.0   
Provision for income taxes.......................................        5.4        5.5         5.2          5.4   
Minority interest................................................       (0.6)      (0.5)       (0.5)        (0.4)  
                                                                      ------     ------       -----        -----   
Net earnings  ...................................................        7.4%       6.8%        6.8%         6.2%  
                                                                      ======     ======       =====        =====   

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10-Q 5th Page of 16 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 9% to $941.5 million from $860.8 million, and 7% to $1,814.3
million from $1,693.9 million for the three and six months ended December 31,   
1996, respectively, compared with the same prior-year periods, on the strength  
of new product launches, the global rollout of recent fragrance introductions,  
the reformulation/relaunch of Fruition Extra and the continued solid performance
of existing key products. The continuing strength of the U.S. dollar negatively 
impacted net sales for the current three and six month periods by approximately 
$21.0 million and $39.0 million, respectively. This movement of the U.S. dollar 
negatively affected the operating results of each of the Company's regions and  
product categories. Excluding the impact of foreign currency translation, net   
sales would have increased 12% and 9% during the three and six months ended     
December 31, 1996, respectively. Net sales for the current year include six     
months of sales of Bobbi Brown essentials, in which a 100% interest was acquired
in late October 1995.                                                           

Net sales of skin care products increased 9% to $324.3 million from $298.8      
million, and 2% to $650.2 million from $634.5 million for the three and six     
months ended December 31, 1996, respectively, compared with the corresponding   
prior-year periods. These increases were due in part to the worldwide           
reformulation/relaunch of Fruition Extra, the introduction of LipZone, Moisture 
On-Line and All About Lips, and the continued growth of existing products such  
as Moisture On-Call, Dramatically Different Moisturizing Lotion and Day Wear    
Super Anti-Oxidant Complex. In addition, the current quarter benefited from the 
domestic debut of Nutritious Bio-Moisture Complex. Net sales of makeup products 
rose 17% to $319.1 million from $273.4 million, and 13% to $637.0 million from  
$563.0 million for the current three and six-month periods, respectively,       
compared with the same prior-year periods. Higher makeup product sales were due 
to the recent launches of City Base Compact Foundation, Long Last Soft Shine    
Lipstick, Virtual Skin, Futurist Age-Resisting Makeup, Lip Shaper and Ultra     
Mascara and increased sales of M.A.C. and Bobbi Brown products. The current-year
periods also benefited from the international rollout of True Lipstick and      
increased contributions from existing products such as Soft Finish Makeup and   
Enlighten Skin-Enhancing Makeup. Net sales of fragrance products increased 3% to
$298.1 million from $288.6 million, and 6% to $527.1 million from $496.4 million
for the three and six months ended December 31, 1996, respectively, compared    
with the same prior-year periods. Outstanding sales results from the            
introduction of Estee Lauder pleasures in the Asian markets and the initial     
holiday sales in Europe, combined with increased worldwide sales of "tommy," the
successful fall 1996 domestic debut of "tommy girl," the launch of Kiton in     
selected European markets and the international launch of Havana Pour Elle were 
the primary factors contributing to the higher sales in the fragrance product   
category. The highly successful domestic launch of Estee Lauder pleasures in the
six months ended December 31, 1995 reduced the period over period favorable     
comparisons. 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.                  

Sales in the Americas increased 11% to $525.4 million from $472.4 million, and  
8% to $1,064.6 million from $990.1 million for the three and six months ended   
December 31, 1996, respectively, compared with the prior-year periods. This     
increase is driven by sales of new products across all categories and sales     
growth of existing products particularly in the United States coupled with      
higher sales from the Company's Canadian operations. In Europe, the Middle East 
& Africa, net sales increased 13% to $266.7 million from $235.7 million, and 11%
to $472.7 million from $425.3 million for the current three and six month       
periods ended December 31, 1996, respectively, compared with the same prior-year
periods, primarily because of strong sales performances in the United Kingdom,  
Italy, France, Benelux, distributor and travel retail businesses and the        
inclusion of sales from the Company's recent joint venture, which was formed for
the purpose of developing and distributing fragrances within Europe. Lower sales
in Germany in the six months ended December 31, 1996, resulting from a          
continuing difficult retail environment, partially offset these increases. Net  
sales in Asia/Pacific decreased 2% to $149.4 million from $152.7 million, and 1%
to $277.0 million from $278.5 million for the three and six months ended        
December 31, 1996, respectively, compared with the same prior-year periods. All 
markets reported sales increases except Japan, with strong sales growth in      
Taiwan, Korea, Australia and Hong Kong being more than offset by lower Japan    
sales principally due to the impact of the strength of the U.S. dollar versus   
the yen. In Japan, while units sold increased, on a local currency basis, sales 
declined slightly due to selective price reductions on certain products,        
competitive pricing on new product introductions and difficult market           
conditions. Excluding the impact of currency translation, Asia/Pacific sales    
would have grown 3% and 6% over the prior-year three and six month periods,     
respectively. The Company strategically staggers its new product launches by    
geographic markets, which may account for differences in regional sales growth. 

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10-Q 6th Page of 16 TOC 1st Previous Next ↓Bottom Just 6th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cost of sales for the three and six months ended December 31, 1996 were 23.1%   
and 23.0%, respectively, of net sales compared with 24.4% and 23.8% 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, as well as shifts in product mix.        

Total selling, general and administrative expenses increased to 63.5% and 64.5% 
of net sales in the current three and six month periods, respectively, compared 
with 62.9% and 64.3% of net sales in the prior-year periods. Higher operating   
expenses primarily reflect increases in, and timing of, the Company's           
advertising and promotional spending due to significant fragrance launches and  
rollouts and incremental advertising in selective markets. The increase was     
partially offset by lower related party royalty expenses resulting from the     
purchase in the prior year of a stockholder's rights to receive certain U.S.    
royalty payments.                                                               

Operating income rose 16% to $125.9 million from $109.0 million, and 13% to     
$227.2 million from $201.9 million for the three and six months ended December  
31, 1996, respectively, compared with the same prior-year periods. Operating    
margins were 13.4% and 12.5% in the current periods as compared to 12.7% and    
11.9% in the corresponding prior-year periods. The increase in operating income 
and margins was due to higher net sales coupled with cost of sales efficiencies,
partially offset by higher advertising and promotional spending. Operating      
income in the Americas increased 21% to $74.5 million from $61.6 million, and   
17% to $143.0 million from $122.6 million for the three and six months ended    
December 31, 1996, respectively, compared with the same prior-year periods,     
primarily due to the net sales increases in the United States, the inclusion of 
a full six months of operating results from Bobbi Brown and improved operating  
results in Canada and Latin America. In Europe, the Middle East & Africa,       
operating income increased 82% to $35.4 million from $19.4 million and 48% to   
$59.3 million from $40.1 million for the three and six months ended December 31,
1996, respectively, primarily because of improved operating results in Germany, 
the United Kingdom, France, Benelux and distributor and travel retail           
businesses. In Asia/Pacific, operating income decreased 43% to $16.0 million    
from $28.0 million and 36% to $24.9 million from $39.2 million for the three and
six months ended December 31, 1996, respectively, compared with the same        
prior-year periods due to an unfavorable foreign exchange impact, an increase in
promotional support for new product launches and new Origins doors and a        
difficult retail environment in Japan, which were minimally offset by improved  
operating results in Australia, Malaysia and Thailand. 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 introductions.   

Net interest income was $0.1 million for the three months ended December 31,    
1996 and net interest expense was $1.1 million for the current six-month period 
compared with net interest income of $1.1 million and $1.3 million in the same  
prior-year periods, primarily because the prior-year periods included net       
interest income from stockholders.                                              

The provision for income taxes represents federal, foreign, state and local     
income taxes. The effective rate for income taxes in the three and six months   
ended December 31, 1996 was 40.1% and 42.0%, respectively, compared with 43.0%  
and 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.                              

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 abroad. At December 31, 1996, the Company had cash and cash equivalents of  
$288.5 million compared with $254.8 million at June 30, 1996.                   

Uncommitted lines of credit amounted to $312.1 million at December 31, 1996, of 
which $12.4 million were used. Unused committed lines of credit available to the
Company at December 31, 1996 amounted to $400 million. Total debt as a          
percentage of total capitalization (including short-term debt) was 6% at        
December 31, 1996 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 six months ended December 31, 1996.                                  

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10-Q 7th Page of 16 TOC 1st Previous Next ↓Bottom Just 7th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net cash provided by operating activities decreased to $154.5 million in the six
months ended December 31, 1996 from $171.5 million in the prior year six-month  
period. This decrease is due to higher working capital levels during the current
six-month period as compared to the same prior-year period, principally         
attributable to a higher level of activity occurring in the latter part of the  
current six-month period in certain working capital components, such as accounts
receivable, inventories and promotional merchandise and accounts payable. Net   
cash used for investing activities of $30.7 million and $22.4 million in the six
months ended December 31, 1996 and 1995, 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. In addition, investment activities in the six     
months ended December 31, 1995, reflect cash generated from a decrease in       
marketable securities. Financing activities reflect dividends paid and repayment
of debt and, in 1995, cash proceeds received from the issuance of common stock  
in the Company's initial public offering.                                       

The Company owns a majority equity interest in M.A.C., and through contractual  
agreement, the Company has the right to acquire the remaining interest in M.A.C.
at certain times between 1997 and 1999. The Company anticipates that it will    
exercise its right to acquire an additional interest in M.A.C. during the second
half of fiscal 1997.                                                            

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 plans on         
beginning construction in the current fiscal year and anticipates completion in 
approximately one to two years. The cost of the new distribution center is      
estimated at approximately $22.0 million at current exchange rates.             

Dividend payments were $21.7 million in the six months ended December 31, 1996, 
a decrease from $75.6 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 $10.0 million on the Company's Class A and Class B   
Common Stock, which dividends on such stock in the prior year were not declared 
and paid until the prior year fiscal third quarter. In November 1996, the       
Company declared a quarterly dividend on its common stock totaling approximately
$10.0 million which was paid in January 1997.                                   

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 December 31, 1996, the Company had  
contracts to exchange foreign currencies in the form of purchased currency      
options and forward exchange contracts in the amount of $61.5 million and $147.0
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.    

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10-Q 8th Page of 16 TOC 1st Previous Next ↓Bottom Just 8th
 THE ESTEE LAUDER COMPANIES INC.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EFFECTS OF ACCOUNTING FOR STOCK-BASED COMPENSATION                              

In October 1995, the Financial Accounting Standards Board issued Statement of   
Financial Accounting Standards ("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       
companies not to apply the new accounting method and continue to apply existing 
accounting standards, which generally result in no compensation cost for most   
fixed stock-option plans. Companies that do not elect the new method of         
accounting under SFAS No. 123 will be required to provide pro forma disclosures 
as if the fair value method had been applied. The Company 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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10-Q 9th Page of 16 TOC 1st Previous Next ↓Bottom Just 9th
 THE ESTEE LAUDER COMPANIES INC.

 CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                                         DECEMBER 31           JUNE 30 
                                                                                             1996               1996   
                                                                                             ----               ----   
                                                                                          (UNAUDITED)                  
                                                                                                    (IN MILLIONS)      
                                                                                                                       
                                    ASSETS                                                                             

CURRENT ASSETS                                                                                                         
Cash and cash equivalents...............................................................   $  288.5            $  254.8
Accounts receivable, net................................................................      604.4               476.2
Inventory and promotional merchandise...................................................      391.4               452.8
Prepaid expenses and other current assets...............................................      158.2               148.8
                                                                                           --------            --------
     TOTAL CURRENT ASSETS...............................................................    1,442.5             1,332.6

PROPERTY, PLANT AND EQUIPMENT, NET......................................................      241.7               229.3

OTHER ASSETS                                                                                                           
Investments, at cost or market value....................................................       25.5                24.7
Deferred taxes..........................................................................       45.6                43.1
Intangible assets.......................................................................      138.3               146.6
Other assets  ..........................................................................       45.7                45.3
                                                                                           --------            --------
                                                                                              255.1               259.7
                                                                                           --------            --------
                                                                                           $1,939.3            $1,821.6
                                                                                           ========            ========

                  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                 

CURRENT LIABILITIES                                                                                                    
Notes payable and current maturities of long-term debt..................................   $   56.1            $  105.6
Accounts payable........................................................................      148.4               175.3
Accrued income taxes....................................................................      100.2                72.9
Other accrued liabilities...............................................................      588.7               511.3
                                                                                           --------            --------
     TOTAL CURRENT LIABILITIES..........................................................      893.4               865.1

NONCURRENT LIABILITIES                                                                                                 
Long-term debt..........................................................................        -                  21.9
Other noncurrent liabilities............................................................      200.1               180.4
                                                                                           --------            --------
                                                                                              200.1               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 60,486,913 at December 31, 1996 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.........................................................................      122.6               121.6
Retained earnings.......................................................................      343.2               252.2
Unrealized investment gains, net........................................................        3.5                 2.9
Cumulative translation adjustments......................................................       15.3                16.3
                                                                                           --------            --------
                                                                                              485.8               394.2
                                                                                           --------            --------
                                                                                           $1,939.3            $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]

                                                                                                 SIX MONTHS ENDED      
                                                                                                    DECEMBER 31        
                                                                                                1996            1995   
                                                                                                ----            ----   
                                                                                                      (IN MILLIONS)    
                                                                                                                       
CASH FLOWS FROM OPERATING ACTIVITIES                                                                                   
   Net earnings............................................................................... $   122.6      $  104.9 
   Adjustments to reconcile net earnings to net cash                                                                   
     flows provided by operating activities:                                                                           
       Depreciation and amortization..........................................................      27.5          22.1 
       Amortization of purchased royalty rights...............................................       8.9           2.2 
       Deferred income taxes..................................................................     (10.6)          6.5 
       Minority interest......................................................................       8.5           6.9 
       Employee share grants..................................................................       -             4.3 
   Changes in operating assets and liabilities:                                                                        
       Increase in accounts receivable, net...................................................    (133.5)        (56.3)
       Decrease (increase) in inventory and promotional merchandise...........................      62.3         (25.2)
       Decrease in due from stockholders......................................................       -           103.4 
       Increase in other assets...............................................................     (11.3)       (111.8)
       Decrease in accounts payable...........................................................     (27.1)         (8.3)
       Increase in accrued income taxes.......................................................      27.3          30.5 
       Increase in other accrued liabilities..................................................      68.7          74.7 
       Increase in other noncurrent liabilities...............................................      11.2          17.6 
                                                                                               ---------      -------- 
         NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES......................................     154.5         171.5 

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                   
   Capital expenditures.......................................................................     (30.7)        (37.5)
   Decrease in marketable securities..........................................................       -            13.3 
   Increase in long-term investments..........................................................      (0.3)         (1.4)
   Decrease in long-term investments..........................................................       0.3           3.2 
                                                                                               ---------      -------- 
         NET CASH FLOWS USED FOR INVESTING ACTIVITIES.........................................     (30.7)        (22.4)

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                   
   Decrease in notes payable..................................................................     (49.5)        (89.4)
   Repayments of long-term debt...............................................................     (21.9)         (3.2)
   Proceeds from issuance of common stock, net of issuance costs..............................       -            63.6 
   Proceeds from exercise of stock options....................................................       0.7           -   
   Dividends paid.............................................................................     (21.7)        (75.6)
                                                                                               ---------      -------- 
         NET CASH FLOWS USED FOR FINANCING ACTIVITIES.........................................     (92.4)       (104.6)

Effect of Exchange Rate Changes on Cash and Cash Equivalents..................................       2.3           0.3 
                                                                                               ---------      -------- 
NET INCREASE IN CASH AND CASH EQUIVALENTS.....................................................      33.7          44.8 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..............................................     254.8         267.9 
                                                                                               ---------      -------- 
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $   288.5      $  312.7 
                                                                                               =========      ======== 


 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 year periods 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 three and
six months ended December 31, 1995, are reflected on a pro forma basis only, as 
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                  THREE MONTHS ENDED           SIX MONTHS ENDED 
                                                                   DECEMBER 31, 1995           DECEMBER 31, 1995
                                                                  --------------------         -----------------
                                                                          (IN MILLIONS, EXCEPT PER SHARE DATA)  

                                                                                                                
Net earnings.....................................................        $  58.5                   $  104.9     
Pro forma preferred stock dividends..............................            5.8                       11.7     
                                                                         -------                   --------     
Pro forma net earnings attributable to common stock..............        $  52.7                   $   93.2     
                                                                         =======                   ========     
Pro forma net earnings per common share..........................        $   .45                   $    .81     
Pro forma weighted average common shares outstanding.............          116.2                      115.4     

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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.                              

                                                        [Enlarge/Download Table]


                                                         DECEMBER 31          JUNE 30
                                                             1996               1996 
                                                             ----               ---- 
                                                                   (IN MILLIONS)     
                                                                                     
Inventory and promotional merchandise consists of:                                   
  Raw materials.........................................    $  110.1          $ 105.6
  Work in process.......................................        21.6             30.2
  Finished goods........................................       157.4            203.1
  Promotional merchandise...............................       102.3            113.9
                                                            --------          -------
                                                            $  391.4          $ 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.                    

                                                        [Enlarge/Download Table]

                                                         DECEMBER 31          JUNE 30
                                                             1996               1996 
                                                             ----               ---- 
                                                                   (IN MILLIONS)     

                                                                                     
Land....................................................    $   12.0          $  11.8
Buildings and improvements..............................        87.3             82.6
Machinery and equipment.................................       340.7            319.3
Furniture and fixtures..................................        43.8             42.2
Leasehold improvements..................................        81.2             73.7
                                                            --------          -------
                                                               565.0            529.6
Less accumulated depreciation and amortization..........       323.3            300.3
                                                            --------          -------
                                                            $  241.7          $ 229.3
                                                            ========          =======

STATEMENT OF CASH FLOWS                                                         

Supplemental disclosures of cash flow information:                              

                                                        [Enlarge/Download Table]


                                                         SIX MONTHS ENDED DECEMBER 31
                                                             1996               1995 
                                                             ----               ---- 
                                                                   (IN MILLIONS)     
                                                                                     
Cash paid during the period for:                                                     
  Interest .............................................    $  4.2             $  6.7
  Income taxes..........................................    $ 69.6             $ 48.2

MANAGEMENT ESTIMATES                                                            

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

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 THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 -- INITIAL PUBLIC OFFERING                                               

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.
Prior to the Offering, there was no public market for the Company's capital     
stock.                                                                          

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. 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 Offering, after deducting applicable underwriting discounts and        
offering expenses, were $59.3 million. The net proceeds to the Company were used
to repay short-term debt.                                                       

NOTE 3 -- ACQUISITION OF BUSINESS                                               

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.             

The Company owns a majority equity interest in M.A.C., and through contractual  
agreement, the Company has the right to acquire the remaining interest in M.A.C.
at certain times between 1997 and 1999. The Company anticipates that it will    
exercise its right to acquire an additional interest in M.A.C. during the second
half of fiscal 1997.                                                            

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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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                    

(a)  The Annual Meeting of the Stockholders of the Company was held on November 
6, 1996.                                                              

(b)  The following directors were elected at the Annual Meeting of Stockholders:
Fred H. Langhammer and Faye Wattleton, as Class I Directors for a term
    expiring at the 1997 Annual Meeting; William P. Lauder and P. Roy Vagelos,
     M.D., as Class II Directors for a term expiring at the 1998 Annual Meeting;
 and Leonard A. Lauder, Ronald S. Lauder and Marshall Rose, as Class III
Directors for a term expiring at the 1999 Annual Meeting.             

(c) (i)Each person elected as a director received the number of votes indicated 
beside his or her name:                                                         

                                                                [Download Table]


Name (Director Class)       Votes For   Votes Withheld
---------------------       ---------   --------------
                                                      
Fred H. Langhammer (I)     625,584,834      96,312    
Faye Wattleton (I)         625,581,065     100,081    
William P. Lauder (II)     625,586,356      94,790    
P. Roy Vagelos, M.D. (II)  625,586,184      94,962    
Leonard A. Lauder (III)    625,587,267      93,879    
Ronald S. Lauder (III)     625,581,645      99,501    
Marshall Rose (III)        625,587,539      93,607    

     (ii) 625,652,570 votes were cast for and 12,205 votes were cast against the
        ratification of the selection of Arthur Andersen LLP as auditors for
 the Company. Abstentions totaled 16,371; there were no broker
nonvotes.                                                   

ITEM 5. OTHER EVENTS.                                                           

In connection with the "safe harbor" provisions of the Private Securities       
Litigation Reform Act of 1995, the Company is hereby filing cautionary          
statements identifying important factors that could cause the Company's actual  
results to differ materially from those projected in forward looking statements 
of the Company made by, or on behalf of, the Company.                           

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

(a)      Exhibits--                                                             

           10.1  Form of Deferred Compensation Agreement with Outside Directors.

10.2  Amendment No. 2 to Stockholders' Agreement.         

27.1  Financial Data Schedule.                            

   99.1  Cautionary Statements for Purposes of the "Safe Harbor"
               Provisions of the Private Securities Litigation Reform Act of
1995.                                         

(b)      Reports on Form 8-K -- There were no reports on Form 8-K for the three 
months ended December 31, 1996.                               

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 THE ESTEE LAUDER COMPANIES INC.

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:  January 27, 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  Form of Deferred Compensation Agreement with Outside Directors.

10.2  Amendment No. 2 to Stockholders' Agreement.         

27.1  Financial Data Schedule.                            

   99.1  Cautionary Statements for Purposes of the "Safe Harbor"
               Provisions of the Private Securities Litigation Reform Act of
1995.                                         

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Dates Referenced Herein and Documents Incorporated by Reference

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

Filed on:	1/28/97			S-3
	1/27/97	1	15
For Period End:	12/31/96	1	14
	11/6/96	14		DEF 14A
	6/30/96	2	11
	12/31/95	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 0000909518-97-000048 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Estee Lauder Companies Inc – ‘10-Q’ for 12/31/96

As of: Tuesday, 1/28/97 · For: 12/31/96 · Accession #: 909518-97-48 · File #: 1-14064

Quarterly Report — Form 10-QFiling Table of Contents

10-Q — 2nd Qtr 10-QDocument 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 — 2nd Qtr 10-Q
Document Table of Contents