-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OoJ3eWDGDvUdqrHvOB9R2kyzBH+UfALmVpkMBoHEcv85Mr1kdBo34OsQ8W8xfEv7 wgxabx6dh2Cb9R92CgjrxA== 0000889812-99-002680.txt : 19990914 0000889812-99-002680.hdr.sgml : 19990914 ACCESSION NUMBER: 0000889812-99-002680 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESTEE LAUDER COMPANIES INC CENTRAL INDEX KEY: 0001001250 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 112408943 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14064 FILM NUMBER: 99710465 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153 BUSINESS PHONE: 2125724200 MAIL ADDRESS: STREET 1: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153 10-K 1 ANNUAL REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 --------------------------- FORM 10-K (Mark One) /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 1999 Commission file number 1-14064 OR / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 --------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Class A Common Stock, $.01 par value New York Stock Exchange ----------- Securities registered pursuant to Section 12(g) of the Act: None 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the registrant's voting common equity held by nonaffiliates of the registrant was approximately $3.95 billion at September 8, 1999. * At September 8, 1999, 123,504,898 shares of the registrant's Class A Common Stock, $.01 par value, and 113,679,334 shares of the registrant's Class B Common Stock, $.01 par value, were outstanding. Documents Incorporated by Reference Document Where Incorporated -------- ------------------ Proxy Statement for Annual Meeting of Part III Stockholders to be held November 10, 1999 * Calculated by excluding all shares held by executive officers and directors of registrant and certain trusts without conceding that all such persons are "affiliates" of registrant for purposes of the Federal securities laws. ================================================================================ Forward-Looking Statements This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, our expectations regarding sales, earnings or other future financial performance and liquidity, product introductions, entry into new geographic regions and future operations or operating results. Certain factors that could cause actual results to differ from expectations are described herein, in particular, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Forward-Looking Information." PART I Item 1. Business. The Estee Lauder Companies Inc., founded in 1946 by Estee and Joseph Lauder, is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. Our products are sold in over 100 countries and territories under the following well-recognized brand names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown essentials, jane, Aveda and Stila. We are also the global licensee for fragrances and cosmetics sold under the Tommy Hilfiger and Donna Karan brands. Each brand is distinctly positioned within the cosmetics market. We are a pioneer in the cosmetics industry and believe we are a leader in the industry due to the global recognition of our brand names, our leadership in product innovation, our strong market position in key geographic markets and the consistently high quality of our products. We sell our products principally through limited distribution channels to complement the images associated with our brands. These channels, encompassing over 9,000 points of sale, consist primarily of upscale department stores, specialty retailers, upscale perfumeries and pharmacies and, to a lesser extent, free-standing company stores, stores on cruise ships, in-flight and duty free shops in airports and cities. We believe that our strategy of pursuing limited distribution strengthens our relationships with retailers, enables our brands to be among the best selling product lines at the stores and heightens the aspirational quality of our brands. With the acquisitions of jane and Aveda in fiscal 1998, we broadened our distribution to include new channels, namely self-select outlets and salons. We also began selling Clinique products (November 1998) and Origins products (July 1999) directly to consumers over the Internet. We have been controlled by the Lauder family since the founding of our company. Members of the Lauder family, some of whom are directors, executive officers, and/or employees, beneficially own, directly or indirectly, as of September 8, 1999, shares of Class A Common Stock and Class B Common Stock having approximately 93.3% of the outstanding voting power of the Common Stock. Unless the context requires otherwise, references to "we", "us", "our" and the "Company" refer to The Estee Lauder Companies Inc. and its subsidiaries. Products Skin Care - Our broad range of skin care products addresses various skin care needs for women and men. These products include moisturizers, creams, lotions, cleansers, sun screens and self tanning products, a number of which are developed for use on particular areas of the body, such as the face, the hands or the eye area. Skin care products accounted for approximately 35% of our net sales in fiscal 1999. Makeup - We manufacture, market and sell a full array of makeup products including lipsticks, mascaras, foundations, eyeshadows, nail polishes and powders. Many of the products are offered in an extensive array of shades and colors. We also sell related items such as compacts, brushes and other makeup tools. Makeup products accounted for approximately 36% of our net sales in fiscal 1999. Fragrance - We offer a variety of fragrance products for women and men. The fragrances are sold in various forms, including eau de parfum sprays and colognes, as well as lotions, powders, creams and soaps that are based on a particular fragrance. They also include bath and aromatherapy products. Fragrance products accounted for approximately 26% of our net sales in fiscal 1999. -1- Hair Care - We increased the range and depth of our hair care product offerings with the acquisition of the Aveda business in December 1997. Hair care products include shampoo, conditioner, styling gel and hairspray. In fiscal 1999, hair care products accounted for approximately 2% of net sales. Given the generally personal nature of our products and the wide array of consumer preferences and tastes, as well as competition for the attention of consumers, our strategy has been to market and promote our products through distinctive brands seeking to address broad preferences and tastes. Each brand has a single global image that is promoted with consistent logos, packaging and advertising designed to enhance its image and differentiate it from other brands. Estee Lauder - Estee Lauder brand products, which have been sold since 1946, are positioned as luxurious, classic and aspirational. We believe that Estee Lauder brand products are technologically advanced and innovative and have a worldwide reputation for excellence. The broad product line principally consists of skin care, makeup and fragrance products that are presented in high quality packaging. Clinique - First introduced in 1968, Clinique skin care and makeup products are all allergy tested and 100% fragrance free and have been designed to address individual skin types and needs. The products are based on the research and related expertise of leading dermatologists. Clinique skin care products are generally marketed as part of the Three-Step System: Cleanse, Exfoliate, Moisturize. In the fall of 1997, we launched Clinique Happy, a fragrance, and, in September 1999, we are launching Clinique Happy for Men. Since November 1998 we have been selling Clinique products directly to consumers over the Internet. Aramis - We pioneered the marketing of prestige men's grooming and skin care products and fragrances with the introduction of Aramis products in 1964. Aramis continues to offer one of the broadest lines of prestige men's products and has extended the line to include fragrances for women. Prescriptives - We developed and introduced Prescriptives in 1979. Prescriptives is positioned as a color authority with an advanced collection of highly individualized products primarily addressing the makeup and skin care needs of contemporary women with active lifestyles. The products are characterized by simple concepts, minimalist design and an innovative image and, through a system of color application and extensive range of makeup shades, accommodate a diverse group of consumers. Origins - Origins, our most recent internally-developed brand, was introduced in 1990. It is positioned as a plant-based cosmetics line of skin care, makeup and aromatherapy products that combine time-tested botanical ingredients with modern science to promote total well-being. Origins sells its products through stand-alone Origins stores, stores-within-stores (which are designed to replicate the Origins store environment within a department store), at traditional retail counters and, since July 1999, directly to consumers over the Internet. Tommy Hilfiger - We have an exclusive global license arrangement to develop and market a line of men's and women's fragrances and cosmetics under the Tommy Hilfiger brand. In 1995, we launched a men's fragrance, tommy, with cologne and aftershave products, and in the fall of 1996 we launched a women's fragrance, tommy girl. In the summer of 1999, we launched Tommy Hilfiger Freedom, which consists of separate fragrances for men and women. These fragrances, together with our complementary line of face, body and hair products, are available at "tommy's shops", a separate area within department stores dedicated to promoting all of our Tommy Hilfiger licensed products. M.A.C - M.A.C products comprise a broad line of color-oriented, professional cosmetics and professional makeup tools targeting make-up artists and fashion-conscious consumers. The products are sold through a limited number of department and specialty stores and stand-alone M.A.C stores. We acquired Make-Up Art Cosmetics Limited, the manufacturer of M.A.C products, in three stages; in December 1994, March 1997 and February 1998. Bobbi Brown essentials - In October 1995, we acquired the Bobbi Brown essentials line of color cosmetics, professional makeup brushes and skin care products. Bobbi Brown products are manufactured to our specifications, primarily by third parties, and sold through a limited number of department and specialty stores. In March 1998, we introduced the brand's first fragrance, bobbi. jane - In October 1997, we acquired Sassaby, Inc., the owner of the jane brand of color cosmetics targeted to the young consumer market. jane products are currently distributed only in the United States through the self-select distribution channel. -2- Donna Karan Cosmetics - In November 1997, we obtained the exclusive global license to develop and market a line of fragrances and other cosmetics under the Donna Karan New York and DKNY trademarks. We are continuing to market and sell certain products that were originally sold by The Donna Karan Company and are planning to launch the first DKNY fragrances under the license in fiscal 2000. Aveda - We acquired the Aveda business in December 1997. Aveda, a prestige hair care leader, is a manufacturer and marketer of plant-based hair, skin, makeup and body care products. The products are principally sold by us through third-party distributors and are available in salons and stand-alone Aveda Environmental Lifestyle stores. Stila - In August 1999, we acquired the business of Los-Angeles-based Stila Cosmetics, Inc. Stila is known for its stylish, wearable makeup products and eco-friendly packaging and has developed a following among young, fashion-forward consumers. These products are currently available in limited distribution in the United States and certain foreign countries. In addition to the foregoing brands, we manufacture and sell La Mer skin care products, including Creme De La Mer, and fragrances under the Kiton name (for which we are a licensee). These products are marketed separately from our other brands. Distribution We sell our products principally through limited distribution channels to complement the images associated with our core brands. These channels include more than 9,000 points of sale in over 100 countries and territories and consist primarily of upscale department stores, specialty retailers, upscale perfumeries and pharmacies and, to a lesser extent, free-standing company stores and spas, stores on cruise ships, in-flight and duty-free shops in airports and cities. We maintain a dedicated sales force who sell to our retail accounts in North America and in the major overseas markets, such as Western Europe and Japan. We have wholly-owned operations in over 30 countries through which we market, sell and distribute our products. In certain markets, we sell our products through selected local distributors under contractual arrangements designed to protect the image and position of the brands. In addition, we sell certain products in selected domestic and international military locations. There are risks inherent in foreign operations, including changes in social, political and economic conditions. We are also exposed to risks associated with changes in the laws and policies that govern foreign investment in countries where we have operations as well as, to a lesser extent, changes in United States laws and regulations relating to foreign trade and investment. In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates. Changes in such rates also may affect the relative prices at which we and foreign competitors sell products in the same market. Similarly, the cost of certain items required in our operations may be affected by changes in the value of the relevant currencies. With the acquisitions of jane and Aveda in fiscal 1998, we broadened our distribution to include new channels, namely self-select outlets and salons. jane products are currently sold only in the United States in approximately 16,000 points of sale, including mass merchandise stores, drug stores and specialty stores. Aveda principally sells its products to third-party distributors, which resell such products to independent salons, and to Aveda Environmental Lifestyle stores for sale to consumers. There are currently about 14,000 salons, primarily in the United States, that sell Aveda products. Customers Our strategy has been to build strong strategic relationships with selected retailers globally. Senior management works with executives of its major retail accounts on a regular basis, and we believe we are viewed as an important supplier to these customers. Customers affiliated with Federated Department Stores, Inc. (e.g., Bloomingdale's, Burdines, Macy's and Rich's/Lazarus) accounted for 11%, 12% and 12% of net sales in each of the fiscal years ended June 30, 1999, 1998 and 1997, respectively. For the same years then ended The May Department Stores Company (e.g., Foley's, Lord & Taylor and Robinsons-May) accounted for 11%, 10% and 10% of our net sales. -3- Marketing Our marketing strategy is built around our "vision" statement: "Bringing the Best to Everyone We Touch." Estee Lauder formulated this marketing philosophy to provide high quality service and products as the foundation for a solid and loyal consumer base. We principally focus our marketing efforts on promoting the quality and benefits of our products. Each of our brands is distinctively positioned, has a single global image, and is promoted with consistent logos, packaging and advertising designed to enhance its image and differentiate it from other brands. In recent years, we have increased our emphasis on media advertising while decreasing the level of promotional spending as a percentage of sales. We regularly advertise our products on television and radio, in upscale magazines and prestigious newspapers and through direct mail and photo displays at international airports. Promotional activities and in-store displays are designed to introduce existing consumers to different products in the line and to attract new consumers. Our marketing efforts also benefit from cooperative advertising programs with retailers, some of which are supported by coordinated promotions, such as "gift with purchase" and "purchase with purchase." At in-store counters, sales representatives offer personal demonstrations to market individual products as well as to provide education on basic skin care and makeup application. We conduct extensive sampling programs, and we pioneered "gift with purchase" as a sampling program. We believe that the quality and perceived benefits of sample products have been effective inducements in selling products to new and existing consumers. Nearly all of our creative marketing work is done by in-house creative teams. The creative staff designs and produces the sales materials, advertisements and packaging for all products in the brand. Total advertising and promotional expenditures were $1,100.8 million, $1,027.8 million and $976.2 million for fiscal 1999, 1998 and 1997, respectively. In addition, our products receive extensive editorial coverage in prestige publications and other media worldwide. Our marketing and sales executives spend considerable time in the field meeting with consumers and key retailers, checking activities of competitors and consulting with sales representatives at the points of sale. These include Estee Lauder Beauty Advisors, Clinique Consultants, Aramis Selling Specialists, Prescriptives Analysts and Origins Guides. As is customary in the cosmetics industry, our practice is to accept returns of our products from retailers. In accepting returns, we typically provide a credit to the retailer with respect to accounts receivable from that retailer on a dollar-for-dollar basis. In recognition of this practice, and in accordance with generally accepted accounting principles, we report sales levels on a net basis, which is computed by deducting the amount of actual returns received and an amount established for anticipated returns from gross sales. As a percent of gross sales, returns were 5.0% in fiscal 1999, 4.4% in fiscal 1998 and 4.9% in fiscal 1997. Management Information Systems Management information systems provide order processing, production and financial support for our business. We have a sales analysis system to track weekly sales by stock keeping unit at retail sales locations (i.e., sell-through data). The system is currently tracking sell-through data for almost all units of Estee Lauder, Clinique, Aramis, Prescriptives and Origins products shipped to customers in the United States and Canada. The increased understanding of consumer preferences gained from sell-through data enables us to coordinate more effectively our product development, manufacturing and marketing strategies. We are also implementing similar systems in certain international markets. In addition, we entered into automated replenishment arrangements with a number of our key customers in the United States and Canada. These arrangements enable us to replenish inventories for individual points of sale automatically, with minimal paperwork. Customer orders for a substantial majority of sales of Estee Lauder, Clinique, Aramis, Prescriptives and Origins products in the United States are placed through automated replenishment systems. We have implemented a proprietary inventory management system which tracks inventory at the stock keeping unit level in all of our locations. This system results in improved inventory control and disposition for both existing products and new product launches. We have also designed and implemented a data warehouse for our domestic business that captures essentially all shipping, sell-through and inventory data. This system has resulted in streamlined and standardized reporting as well as timely and accurate retail sales and marketing information. The use of sell-through data combined with the implementation of automated replenishment systems, inventory management systems and data warehousing has resulted in increased sales, fewer "out-of-stocks" and reduced retail inventories. We expect that these systems will continue to provide inventory and sales efficiencies. -4- We have developed a system to manage the overall promotional business and its processes on both an individual brand and corporate basis. The system is currently utilized by several brands and is being rolled out domestically on a company-wide basis. The system is the model for an International Promotional System currently in development and planned for rollout in the Year 2000. The system was designed to provide tools to plan, monitor, and analyze our promotional business. In so doing we expect to reduce costs, improve return on investment, and maximize retail results. We have placed extensive focus on the Year 2000 issue including the review of, and where necessary the modification of, affected information systems. For a complete summary of our review and remediation efforts see the related discussion in "Year 2000" within "Management's Discussion and Analysis of Financial Condition and Results of Operations". Research and Development We believe that we are an industry leader in the development of new products. Marketing, product development and packaging groups work with our research and development group to identify shifts in consumer preferences, develop new products and redesign or reformulate existing products. In addition, research and development personnel work closely with quality assurance and manufacturing personnel on a worldwide basis to ensure a consistent global standard for our products and to deliver such products with attributes that fulfill consumer expectations. We maintain ongoing research and development programs at our facilities in Melville, New York; Oevel, Belgium; Tokyo, Japan; Markham, Ontario; and Blaine, Minnesota. As of June 30, 1999, we had approximately 390 employees engaged in research and development. Research and development expenditures totaled $48.0 million, $43.5 million and $37.7 million for fiscal 1999, 1998 and 1997, respectively. Our research and development group makes significant contributions toward improving existing products and developing new products and provides ongoing technical assistance and know-how to our manufacturing activities. The research and development group has had long-standing working relationships with several U.S. and international medical and educational facilities which supplement internal capabilities. We do not conduct animal-testing of our products. Manufacturing and Raw Materials We manufacture skin care, makeup, fragrance and hair care products in the United States, Belgium, Switzerland, the United Kingdom and Canada and, to a lesser extent, in Australia and South Africa. We continue to streamline our manufacturing processes and identify sourcing opportunities to increase efficiencies and reduce costs. We have converted our major manufacturing facilities into "focus" plants that primarily manufacture one type of product (e.g., powders) for all of the principal brands. Our plants are modern and the manufacturing processes are substantially automated. While we believe that our manufacturing facilities are sufficient to meet current and reasonably anticipated manufacturing and related requirements, there are ongoing improvement programs in manufacturing and distribution facilities in both North America and Europe. A limited number of finished products are manufactured to our specifications by third parties. The principal raw materials used in the manufacture of our products are essential oils, alcohol and specialty chemicals. We also purchase packaging components, which are manufactured to design specifications. Procurement of materials for all manufacturing facilities is generally made on a global basis through our centralized supplier relations department. The use of "focus" plants has contributed to greater efficiencies in sourcing and manufacturing. As a result of sourcing initiatives, there is increased dependency on certain suppliers, but we believe that these suppliers have adequate resources and multiple facilities to overcome any unforeseen interruption of supply from any single facility. We have, in the past, been able to obtain an adequate supply of essential raw materials and currently believe we have adequate sources of supply for virtually all components of our products. Competition The skin care, makeup, fragrance and hair care businesses are characterized by vigorous competition throughout the world. Product recognition, quality, performance and price have a significant influence on consumers' choices among competing products and brands. Advertising, promotion, merchandising, the pace and timing of new product introductions, line extensions and the quality of in-store sales staff also have a significant impact on consumer buying decisions. We compete against a number of manufacturers and marketers of skin care, makeup, fragrance and hair care products, some of which have substantially greater resources than we do. -5- Our principal competitors among manufacturers and marketers of skin care, makeup, fragrance and hair care products include L'Oreal S.A. (which markets Lancome, Ralph Lauren, L'Oreal, Maybelline, Plenitude and other products), Unilever N.V. (which markets Calvin Klein, Elizabeth Arden and other products), The Procter & Gamble Company (which markets Cover Girl, Giorgio fragrances, Max Factor, Vidal Sassoon and other products), LVMH Moet Hennessy Louis Vuitton ("LVMH") (which markets Christian Dior, Givenchy, Guerlain and other products), Shiseido Company, Ltd. (which markets Shiseido and other products), Avon Products, Inc., Wella Group (which markets Wella, Gucci, Sebastian and other products), Artemis (which markets Yves St. Laurent and other products), Revlon, Inc. (which markets Revlon, Almay and Ultima products), Joh. A. Benckiser GmbH (which markets Coty, Lancaster, Davidoff, Joop!, Jil Sander and other products), Bristol-Myers Squibb Co. (which markets Clairol and Matrix Essentials products), Chanel, Inc. (which markets Chanel and Bourjois products) and Clarins. We also face competition from retailers that have developed their own brands, such as Gap Inc. (for Gap and Banana Republic) and Sephora, or have acquired brands, such as the Neiman Marcus Group (which acquired Laura Mercier). Some of our competitors also have interests in retailers that are customers of ours. For example, LVMH has interests in Duty Free Shoppers, Sephora and Parfumeries Douglas. Trademarks, Patents and Copyrights We own all of the material trademark rights used in connection with the manufacturing, marketing and distribution of our major products both in the United States and in the other countries where such products are principally sold, except for the trademark rights relating to Tommy Hilfiger (including tommy and tommy girl) and Donna Karan New York and DKNY, as to which we are the exclusive worldwide licensee for fragrances, cosmetics and related products. Trademarks for our principal products are registered in the United States and in each of the countries in which such products are sold. The major trademarks used in our business include the brand names Estee Lauder, Clinique, Aramis, Prescriptives, Origins, Tommy Hilfiger, Donna Karan New York, M.A.C, Bobbi Brown essentials, jane, Aveda, Stila and the names of many of the products sold under each of these brands. We consider the protection of our trademarks to be important to our business. A number of our products incorporate patented or patent-pending formulations. In addition, several products are covered by design patents, patent applications or copyrights. While we consider these patents and copyrights, and the protection thereof, to be important, no single patent or copyright is considered material to the conduct of our business. Employees At June 30, 1999, we had approximately 17,700 full-time employees worldwide (inclusive of sales representatives at points of sale who are employed by the Company), of whom approximately 8,200 are employed in the United States and Canada. None of our U.S. employees is covered by a collective bargaining agreement. In Belgium, some employees are covered by a Works Council agreement and in South Africa some employees are covered by a collective bargining agreement. We believe that relations with our employees are good. We have never encountered a material strike or work stoppage in the United States or in any other country where we have a significant number of employees. Government Regulation We and our products are subject to regulation by the Food and Drug Administration and the Federal Trade Commission in the United States, as well as various other federal, state and local and foreign regulatory authorities. Such regulations relate principally to the ingredients, labeling, packaging and marketing of our products. We believe that we are in substantial compliance with such regulations, as well as applicable federal, state, local and foreign rules and regulations governing the discharge of materials hazardous to the environment. There are no significant capital expenditures for environmental control matters either planned in the current year or expected in the near future. Seasonality Our results of operations in total, by region, and by product category are subject to seasonal fluctuations, with net sales in the first and second fiscal quarters typically being slightly higher than in the third and fourth fiscal quarters. The higher net sales in the first two fiscal quarters are attributable to the increased levels of purchasing by retailers for the Christmas selling season and for fall fashion makeup introductions. Greater variation exists in quarterly operating income and margin, which typically are lower in the second half of the fiscal year than in the first half. In addition to the effect of lower net sales on operating income in the third and fourth fiscal quarters as compared to the first and second fiscal quarters, operating income and operating margin in the third and fourth fiscal quarters are negatively affected by our relatively consistent dollar amount of advertising and promotional spending in each fiscal quarter. In addition, fluctuations in net sales, operating income and product category results in any fiscal quarter may be attributable to the level and scope of new product introductions. -6- Item 2. Properties. The following table sets forth the principal owned and leased manufacturing and research and development facilities as of September 13, 1999. The leases expire at various times through 2011, subject to certain renewal options.
Approximate Location Use Square Footage -------- --- -------------- The Americas Melville, New York (owned) Manufacturing 300,000 Melville, New York (owned) R&D 78,000 Blaine, Minnesota (owned) Manufacturing and R&D 275,000 Oakland, New Jersey (leased) Manufacturing 148,000 Bristol, Pennsylvania (leased) Manufacturing 67,000 Agincourt, Ontario, Canada (owned) Manufacturing 96,000 Markham, Ontario, Canada (leased) Manufacturing 58,000 Markham, Ontario, Canada (leased) R&D 26,000 Europe, the Middle East & Africa Oevel, Belgium (owned) Manufacturing 113,000 Oevel, Belgium (owned) R&D 2,000 Petersfield, England (owned) Manufacturing 225,000 Lachen, Switzerland (owned) Manufacturing 53,000 Sandton, Transvaal, South Africa (leased) Manufacturing 72,000 Asia/Pacific Rosebery, NSW, Australia (leased) Manufacturing 71,000 Tokyo, Japan (leased) R&D 4,000
We occupy numerous offices, assembly and distribution facilities and warehouses in the United States and abroad. We consider our properties to be generally in good condition and believe that our facilities are adequate for our operations and provide sufficient capacity to meet anticipated requirements. We lease approximately 250,000 square feet of space for our principal offices in New York, New York and own an office building of approximately 57,000 square feet in Melville, New York. We operate free-standing retail stores, including 2 for the Estee Lauder brand, 1 for Clinique, 56 for Origins, 38 for M.A.C and 10 for Aveda. Item 3. Legal Proceedings. We are involved in various routine legal proceedings incident to the ordinary course of business. In management's opinion, the outcome of pending legal proceedings, separately or in the aggregate, will not have a material adverse effect on our business or financial condition. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the quarter ended June 30, 1999. -7- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Our Class A Common Stock is publicly traded on the New York Stock Exchange under the symbol "EL". The following table sets forth the high and low sales prices as reported on the New York Stock Exchange Composite Tape and the cash dividends per share declared in fiscal 1999 and fiscal 1998.
Fiscal 1999 Fiscal 1998 --------------------------------- ----------------------------------- Cash Cash High Low Dividends High Low Dividends ---- --- --------- ---- --- --------- First Quarter $35 1/8 $24 3/4 $.0425 $25 15/32 $22 3/8 $.0425 Second Quarter 43 1/4 23 11/32 .0425 28 3/16 19 1/2 .0425 Third Quarter 47 3/4 38 3/8 .0425 34 1/2 24 1/4 .0425 Fourth Quarter 51 1/2 41 7/8 .0500 36 31/32 30 7/16 .0425 ------ ------ Year 51 1/2 23 11/32 $.1775 36 31/32 19 1/2 $.1700 ====== ======
On April 26, 1999, the Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend on all of our outstanding Common Stock. The stock dividend was paid on June 2, 1999 to all holders of record of shares of our Common Stock at the close of business on May 10, 1999. All share and per-share data in this report and the consolidated financial statements have been restated to reflect the effect of the two-for-one stock split. We expect to continue the payment of cash dividends in the future, but there can be no assurance that such payment will continue. As of September 8, 1999, there were approximately 3,150 record holders of Class A Common Stock and 13 record holders of Class B Common Stock. -8- Item 6. Selected Financial Data. The table below summarizes selected financial information. For further information, refer to the audited consolidated financial statements and the notes thereto contained elsewhere herein.
Year Ended or at June 30 ---------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- -------- -------- -------- -------- (In millions, except per share data) Statement of Earnings Data: Net sales.......................................... $3,961.5 $3,618.0 $3,381.6 $3,194.5 $2,899.1 Gross profit....................................... 3,061.6 2,798.5 2,616.5 2,463.5 2,224.3 Operating income................................... 456.9 409.1 359.1 310.3 230.9 Earnings before income taxes and minority interest. 440.2 402.8 362.9 313.0 233.0 Net earnings....................................... 272.9 236.8 197.6 160.4 121.2 Preferred stock dividends.......................... 23.4 23.4 23.4 57.5 25.3 Net earnings attributable to common stock.......... 249.5 213.4 174.2 102.9 95.9 Other Data: Earnings before interest, taxes, depreciation and amortization (EBITDA) (a)................... $ 574.2 $ 506.6 $ 435.1 $ 369.1 $272.9 Per Share Data: Net earnings per common share (b) (d): Basic.......................................... $ 1.05 $ .90 $ .74 $ .59(c) - Diluted........................................ $ 1.03 $ .89 $ .73 $ .59(c) - Weighted average common shares outstanding (b) (d): Basic.......................................... 237.0 236.8 235.4 232.6(c) - Diluted........................................ 241.2 239.5 237.1 233.2(c) - Cash dividends declared per common share (d)....... $.1775 $ .17 $ .17 $ .085 - Balance Sheet Data: Working capital.................................... $ 708.0 $ 617.2 $ 551.6 $ 467.5 $ 469.6 Total assets....................................... 2,746.7 2,512.8 1,873.1 1,779.4 1,701.4 Total debt......................................... 429.1 436.5 31.1 127.5 194.0 Redeemable preferred stock......................... 360.0 360.0 360.0 360.0 360.0 Stockholders' equity............................... 924.5 696.4 547.7 394.2 335.1
- ---------- (a) EBITDA is an additional measure of operating performance used by management. EBITDA, like operating income, does not include the effects of interest and taxes and additionally excludes the "non-cash" effects of depreciation and amortization on current earnings. While the components of EBITDA may vary from company to company, we exclude our minority interest adjustment, all depreciation charges related to property, plant and equipment and all amortization charges including amortization of goodwill, purchased royalty rights, leasehold improvements and other intangible assets. We consider this measure useful in analyzing our results; however, it is not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with generally accepted accounting principles. (b) In December 1997, we adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Consistent with the requirements of SFAS No. 128, net earnings per common share and weighted average common shares outstanding for all prior years presented have been restated for purposes of comparability. (c) Due to the change in the capital structure effected by our recapitalization in connection with our initial public offering in fiscal 1996, historical share and per share data for the fiscal year ended June 30, 1995 is not presented. Net earnings per common share and weighted average common shares outstanding for the year ended June 30, 1996 are reflected on a pro forma basis as if the recapitalization was effected at the beginning of fiscal 1996. (d) On April 26, 1999, the Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend on all of our outstanding Common Stock. The stock dividend was paid on June 2, 1999 to all holders of record of shares of our Common Stock at the close of business on May 10, 1999. All share and per share data has been restated to reflect the effect of the two-for-one stock split. -9- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS We manufacture skin care, makeup, fragrance and hair care products which are distributed in over 100 countries and territories. The following is a comparative summary of operating results for fiscal 1999, 1998 and 1997 and reflects the basis of presentation described in Note 2 to the consolidated financial statements for all periods presented. Sales of products and services that do not meet our definition of skin care, makeup, fragrance and hair care have been included in the "other" category. Prior-year information has been restated to include the results of operations related to those products and services.
Year Ended June 30 ------------------------------------------- 1999 1998 1997 -------- -------- -------- (In millions) NET SALES By Region: The Americas................................................ $2,397.9 $2,204.7 $1,939.4 Europe, the Middle East & Africa............................ 1,082.4 960.8 909.3 Asia/Pacific................................................ 481.2 452.5 532.9 -------- -------- -------- $3,961.5 $3,618.0 $3,381.6 ======== ======== ======== By Product Category: Skin Care................................................... $1,398.8 $1,248.3 $1,291.0 Makeup...................................................... 1,412.8 1,317.7 1,251.7 Fragrance................................................... 1,048.6 987.6 817.7 Hair Care................................................... 82.4 52.4 16.5 Other 18.9 12.0 4.7 -------- -------- -------- $3,961.5 $3,618.0 $3,381.6 ======== ======== ======== OPERATING INCOME By Region: The Americas................................................ $ 265.0 $ 248.0 $ 189.9 Europe, the Middle East & Africa............................ 145.5 131.3 122.7 Asia/Pacific................................................ 46.4 29.8 46.5 -------- -------- -------- $ 456.9 $ 409.1 $ 359.1 ======== ======== ======== By Product Category: Skin Care................................................... $ 205.9 $ 174.3 $ 175.9 Makeup...................................................... 158.2 151.8 143.8 Fragrance................................................... 79.7 75.5 37.8 Hair Care................................................... 11.4 8.0 1.6 Other 1.7 (0.5) - -------- -------- -------- $ 456.9 $ 409.1 $ 359.1 ======== ======== ========
-10- The following table sets forth certain consolidated earnings data as a percent of net sales:
Year Ended June 30 ------------------------------------- 1999 1998 1997 ------ ------ ------ Net sales...................................................... 100.0% 100.0% 100.0% Cost of sales.................................................. 22.7 22.7 22.6 ------ ----- ----- Gross profit................................................... 77.3 77.3 77.4 ------ ----- ----- Operating expenses before depreciation and amortization: Selling, general and administrative........................ 62.0 62.4 63.5 Related party royalties.................................... 0.8 0.9 1.0 ------ ----- ----- 62.8 63.3 64.5 ------ ----- ----- Earnings before interest, taxes, depreciation and amortization ("EBITDA")................................. 14.5 14.0 12.9 Depreciation and amortization.................................. 3.0 2.7 2.3 ------ ----- ----- Operating income............................................... 11.5 11.3 10.6 Interest income (expense), net................................. (0.4) (0.2) 0.1 ------ ----- ----- Earnings before income taxes and minority interest............. 11.1 11.1 10.7 Provision for income taxes..................................... 4.2 4.5 4.5 Minority interest.............................................. - (0.1) (0.4) ------ ----- ----- Net earnings................................................... 6.9% 6.5% 5.8% ====== ===== =====
Fiscal 1999 as compared with Fiscal 1998 NET SALES Net sales increased in all product categories and all geographic segments resulting in an increase in fiscal 1999 net sales of 9% to $3,961.5 million. Hair care and makeup benefited from a full year of sales of Aveda and jane products. New skin care products were well received driving growth in that category. Internationally, the Europe, Middle East & Africa region contributed a 13% increase in net sales over the prior year. Foreign currency translation did not significantly impact net sales. Product Categories Skin Care Skin care sales increased 12% to $1,398.8 million, reflecting the launch of Stop Signs and Resilience Lift and a full year of sales of Diminish internationally. In addition to these increases, Clinique All About Eyes contributed to the category's year over year improvement. The overall increase was partially offset by lower net sales of Fruition Extra. Makeup Net sales of makeup products increased 7% to $1,412.8 million due in part to the inclusion of a full year of sales of Aveda and jane products. The current year launch of Quickliner for Eyes, Superfit Makeup and Sheer Powder Blusher increased sales, and Two-In-One Eyeshadow, DoubleWear and Photochrome experienced continued success. These increases were partially offset by the anniversary of the fiscal 1998 launch of Superlast Cream Lipstick. Fragrance Fragrance sales increased 6% to $1,048.6 million. The increase is primarily attributable to the worldwide success of Clinique Happy and the current year introduction of Dazzling Gold and Dazzling Silver. The rollout of Hilfiger Athletics and tommy girl into remaining international markets contributed to higher fragrance sales, offset in part by lower sales of tommy. Hair Care Net sales of hair care products increased $30.0 million or 57% to $82.4 million. This increase primarily reflects the inclusion of Aveda products for a full year. The introduction of new products may have some cannibalization effect on sales of existing products, which we take into account in our business planning. -11- Geographic Sales in the Americas were $2,397.9 million representing a 9% increase. The region benefited from the inclusion of a full year of sales of Aveda and jane products as well as strong sales from new skin care products. Net sales in Europe, the Middle East & Africa increased 13% to $1,082.4 million with double-digit sales increases in the skin care and fragrance categories. Net sales in Spain, the United Kingdom, Italy, Germany, France, Belgium and the distributor and travel retail businesses all increased as we introduced new products and rolled out products that were previously not available in the region. In Asia\Pacific, net sales increased 6% to $481.2 million, primarily due to higher net sales in Japan, Korea and Thailand, offset by slightly lower sales in Australia and Hong Kong. Currency translation did not have a material impact on any of these geographic segments. We strategically stagger our new product launches by geographic markets, which may account for differences in regional sales growth. COST OF SALES Cost of sales as a percent of net sales was 22.7% in each of the last two years, reflecting the integration of Aveda and jane products, which have higher product cost structures than our other brands, offset by continued cost reduction efforts and a shift in product mix for our core brands. OPERATING EXPENSES Operating expenses as a percent of net sales decreased to 65.8% in fiscal 1999 from 66.0% in fiscal 1998. The decrease is the result of productivity gains in advertising and promotional spending and other cost controls, partially offset by a full year of goodwill amortization and incremental spending related to our Year 2000 remediation program. Shifts in product mix and the timing and type of new product introductions affect our level of selling, advertising and promotional spending. In addition to these market influences, our ratio of operating expenses to net sales benefited from the integration of favorable operating cost structures of acquired companies. OPERATING INCOME Operating income increased 12% to $456.9 million and operating margins increased to 11.5% in fiscal 1999 from 11.3% in fiscal 1998. These increases were achieved by maintaining our gross profit margins and controlling certain operating expenses so they increased at a lower rate than net sales. Product Categories Operating income in the skin care category increased 18% to $205.9 million due primarily to the launches of Stop Signs and Resilience Lift. Skin care products, which are primarily marketed under our core brand names, typically have lower cost of goods than our other products. Operating income for makeup increased 4% to $158.2 million as a result of higher sales from new product introductions including Quickliner for Eyes, Superfit Makeup and Sheer Powder Blusher. Operating income for fragrance products was $79.7 million, an increase of $4.2 million or 6%. This increase is primarily attributable to increased sales from the introduction of Dazzling Gold and Dazzling Silver and the continued success of Clinique Happy. Operating income from fragrances as a percent of net sales is typically lower than other product segments as fragrance products generally have a higher cost of goods and are often supported by higher advertising and promotional spending. The higher advertising and promotion for fragrance indirectly supports other categories by generating increased traffic at points of sale. Operating income from the hair care category increased 43% to $11.4 million primarily due to the inclusion of Aveda products for a full year. Geographic Operating income in the Americas increased 7% to $265.0 million primarily due to increased sales in the skin care and makeup segments, as well as a full year of operating profits from Aveda. In Europe, the Middle East & Africa, operating income increased 11% to $145.5 million as a result of a strong travel retail business and better operating results in Spain, Germany, Italy and Belgium, partially offset by lower results in the United Kingdom. In Asia/Pacific, operating income increased $16.6 million or 56% to $46.4 million due to increased sales and the implementation of planned operating expense efficiencies in Japan, Australia, Taiwan and Thailand. -12- EBITDA Earnings before interest, taxes, depreciation and amortization ("EBITDA") is an additional measure of operating performance used by management. EBITDA, like operating income, does not include the effects of interest and taxes and additionally excludes the "non-cash" effects of depreciation and amortization on current earnings. While the components of EBITDA may vary from company to company, we exclude minority interest adjustments, all depreciation charges related to property, plant and equipment and all amortization charges including amortization of goodwill, purchased royalty rights, leasehold improvements and other intangible assets. These components of operating income do not necessarily result in a capital requirement in the current period, and, in the opinion of management, many of the underlying assets, both tangible and intangible, create value by supporting the global recognition of brand names and product innovation and by consistently producing quality products for our customers and consumers. While we consider EBITDA useful in analyzing our results, it is not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with generally accepted accounting principles. EBITDA increased by $67.6 million to $574.2 million or 14.5% of net sales as compared to $506.6 million or 14.0% of net sales in fiscal 1998. Such improvement is primarily attributable to higher net sales and operating expense efficiencies achieved. INTEREST EXPENSE, NET Net interest expense increased $10.4 million to $16.7 million as borrowings related to fiscal 1998 business acquisitions were outstanding for the full year. PROVISION FOR INCOME TAXES The provision for income taxes represents federal, foreign, state and local income taxes. The effective rate for income taxes for fiscal 1999 was 38% compared to 40% in the prior-year period. These rates are higher than the statutory federal tax rate due to the effect of state and local taxes, higher tax rates in certain foreign jurisdictions and certain nondeductible expenses. The decrease in the effective income tax rate was principally attributable to tax planning initiatives and the tax effect of foreign operations. Fiscal 1998 as compared with Fiscal 1997 NET SALES Net sales in fiscal 1998 increased 7% to $3,618.0 million as compared to fiscal 1997. Fiscal 1998 net sales increased as a result of new product introductions, the continued success of our core products, and the international rollout of existing products. Additionally, net sales in fiscal 1998 benefited from the inclusion of Aveda and jane from the date of acquisition in December and October 1997, respectively, through the fiscal year end. The strength of the U.S. dollar negatively impacted net sales by approximately $135 million and $87 million for fiscal 1998 and fiscal 1997, respectively. Excluding the impact of foreign currency translation, net sales increased 11%. -13- Product Categories Skin Care Net sales of skin care products in fiscal 1998 decreased 3% to $1,248.3 million as compared to fiscal 1997. The decrease was primarily due to lower sales in the Asia/Pacific region and the strengthening of the U.S. dollar against foreign currencies. Accordingly, net sales of skin care products increased 2% on a constant exchange rate basis. Additionally, fiscal 1998 decreases were due in part to the successful fiscal 1997 launch of Fruition Extra and lower year-to-year sales of Advanced Night Repair. Partially offsetting these decreases were sales related to the introduction of Diminish, Uncircle and Clinique All About Eyes, the international introduction of Nutritious and the continued success of DayWear. Makeup Net sales of makeup products increased 5% to $1,317.7 million in fiscal 1998. The increase was attributable to the introduction of new products such as Superbalanced Makeup, Superlast Cream Lipstick, Two-In-One Eyeshadow and Blush All Day. In addition to new product introductions, existing products such as DoubleWear and Futurist recorded a full year's sales and were introduced internationally, while sales of True Lipstick improved for the third straight year. Net sales of makeup also reflect sales of jane and Aveda after they were acquired and the continued success of Bobbi Brown essentials. The foregoing increases were partially offset by the successful fiscal 1997 introduction and full year's sales of City Base, and the decline in net sales of Long Last Lipstick. Fragrance Net sales of fragrance products increased 21% to $987.6 million in fiscal 1998. The increase was primarily attributable to the introduction of Clinique Happy and Lauder Pleasures for Men, the domestic introduction of Hilfiger Athletics, and the on-going success of tommy and tommy girl. Sales of Estee Lauder pleasures and Beautiful were relatively consistent with prior years, although they continued to generate significant sales. Offsetting these improvements were declines in existing products such as White Linen Breeze, Aramis Classic, and Havana Pour Elle. Hair Care Net sales of hair care products increased significantly in fiscal 1998 as compared with the prior year due to the inclusion of sales from the Aveda hair care product lines beginning in December 1997. Geographic Net sales in the Americas rose 14% to $2,204.7 million in fiscal 1998. Increases in fiscal 1998 were recognized across all product categories in the region, with the most significant increases being attributable to fragrances and hair care as a result of new product introductions and the integration of Aveda, respectively. Growth in all product categories was supported by the continued success of existing products. In Europe, the Middle East & Africa, net sales increased 6% to $960.8 million in fiscal 1998. Net sales increased 13% for fiscal 1998 excluding the impact of foreign currency translation. Higher net sales were recorded in the United Kingdom and Spain. Significant sales improvements in the United Kingdom were favorably impacted as the dollar weakened against the British pound. Excluding the effect of a stronger U.S. dollar against local currencies, double digit increases were achieved in Spain, Italy and Germany. In Asia/Pacific, net sales decreased 15% to $452.5 million, and, on a local currency basis, decreased 3%. The volatile economic climate in Japan and the surrounding Asian marketplace had contributed to a difficult retail environment. Sales in Japan, Hong Kong and Taiwan decreased on both a local currency and a translated basis. Partially offsetting these decreases, net sales increased in all other Asia/Pacific markets on a local currency basis, particularly in Thailand and Malaysia. COST OF SALES Cost of sales in fiscal 1998 was 22.7% of net sales compared with 22.6% of net sales in fiscal 1997. Increased cost of sales in fiscal 1998 related to the inclusion of Aveda and jane, both of which have product cost structures higher than our other brands, as well as a shift in product mix. This increase was partially offset by continued improvements in operating efficiency. OPERATING EXPENSES Selling, general and administrative expenses decreased to 66.0% of net sales in fiscal 1998, compared with 66.8% of net sales in fiscal 1997. Fiscal 1998 decreases reflect operating expenses growing at a slower rate than net sales primarily due to spending efficiencies achieved in the selling, advertising and promotional expense areas and the favorable effect of integrating the Aveda and jane operating cost structures. -14- OPERATING INCOME Operating income rose 14% to $409.1 million in fiscal 1998. Operating margins were 11.3% in 1998, compared with 10.6% in fiscal 1997. These increases were due to higher net sales and total operating expenses growing at a slower rate than net sales. Product Categories Operating income in the skin care segment decreased 1% to $174.3 milion as a result of lower sales in this category, particularly in the Asia/Pacific region. The makeup segment's operating income increased 6% to $151.8 million as a result of higher sales from new and existing products, as well as contributions from Aveda and jane. Operating income for fragrance products increased $37.7 million to $75.5 million, primarily as the result of contributions from new products in addition to improved margins on existing products. The increase in operating income in the hair care segment of $6.4 million to $8.0 million was primarily due to the inclusion of Aveda hair care products. Geographic Operating income in the Americas increased by 31% to $248.0 million. In fiscal 1998, the increase related to continued net sales improvements in the United States due to strong performances from core products and the inclusion of Aveda and jane. In Europe, the Middle East & Africa, operating income increased 7% to $131.3 million in fiscal 1998. Increased net sales in the United Kingdom resulted in the most significant improvement in operating income for the region. On a constant exchange rate basis, Spain, France and Italy would have made greater operating income contributions. These increases were partially offset by lower operating income in the travel retail business. In Asia/Pacific, operating income decreased 36% to $29.8 million in fiscal 1998. This decrease is principally due to operating income declines in Japan due to lower net sales, compounded by a stronger U.S. dollar against the yen. A difficult retail market adversely affected Japan and the surrounding areas. As a result, operating expenses grew at a faster rate than net sales for most of the Asian markets, partially offset by strong results in Korea. EBITDA EBITDA increased to 14.0% of net sales in fiscal 1998 as compared to 12.9% in fiscal 1997. The improvement in EBITDA in fiscal 1998 was primarily attributable to increased sales and operating expense efficiencies. INTEREST INCOME (EXPENSE), NET Net interest expense was $6.3 million for fiscal 1998 as compared to net interest income of $3.8 million in fiscal 1997. Net interest expense in fiscal 1998 is primarily due to higher borrowings associated with the Company's acquisitions. PROVISION FOR INCOME TAXES The provision for income taxes represents federal, foreign, state and local taxes. The effective rate for income taxes in fiscal 1998 was 40% as compared to 42% in fiscal 1997. These rates principally reflect the effect of state and local taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. The decrease in the effective tax rate for fiscal 1998 was attributable to tax planning initiatives, a relative change in the mix of earnings from higher tax countries such as Japan to lower tax countries, the effect of a reduction in the statutory rate in the United Kingdom and the effect of U.S. federal tax regulations. -15- FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Our principal sources of funds historically have been cash flows from operations and borrowings under uncommitted and committed credit lines provided by banks in the United States and abroad. At June 30, 1999, we had cash and cash equivalents of $347.5 million compared with $277.5 million at June 30, 1998. In order to more efficiently manage our debt position and interest rate risk, the Board of Directors authorized a $750.0 million commercial paper program. We have issued, and intend to issue, our commercial paper in the United States. Our commercial paper is currently rated A1 by Standard & Poor's and P1 by Moody's . In May 1999, we issued $205.2 million of commercial paper and used the proceeds to prepay a like amount of our $405.0 million term loan, due February 2005. There remains $200.0 million of the original term loan outstanding with a fixed rate of interest of 6.69%. Commercial paper is classified as long-term debt in our balance sheet based upon our intent and ability to refinance maturing commercial paper on a long-term basis. On August 26, 1999, we filed a "shelf" registration statement with the SEC covering the potential issuance of up to $400.0 million in debt securities. Total committed credit facilities are $750.0 million all of which are unused. These committed credit facilities consist of (i) our existing $400.0 million five-year revolving credit facility; and, (ii) a 364-day, $350.0 million Senior Unsecured Revolving Credit Facility, entered into in July 1999. We also have uncommitted facilities, which amounted to $219.1 million, of which $0.8 million was used. Total debt as a percent of total capitalization was 25% at June 30, 1999 as compared to 29% at June 30, 1998, primarily as a result of higher total capital. Net cash provided by operating activities was $352.3 million in fiscal 1999 as compared to $258.2 million in fiscal 1998 and $253.1 million in fiscal 1997. These increases primarily relate to increased earnings, particularly before depreciation and amortization. Greater changes in operating assets and liabilities in fiscal 1998 were partially due to the acquisitions of Aveda and jane. Net cash used for investing activities in fiscal 1999 was $200.3 million, compared with $577.2 million in fiscal 1998 and $130.7 million in fiscal 1997. The fiscal 1999 decrease in cash used for investing activities relates primarily to lower spending on acquisitions as compared to fiscal 1998, when we acquired Aveda, jane and the remaining interest in M.A.C. In March 1999, we made a payment to satisfy the earn-out of the Bobbi Brown acquisition. Additionally, in August 1999, we acquired the business of Los Angeles-based Stila Cosmetics, Inc. Cash used for financing activities in fiscal 1999 was $73.2 million as compared to $345.2 million provided in fiscal 1998 and $116.8 million used in fiscal 1997. These changes are primarily attributable to the fiscal 1998 issuance of debt related to business acquisitions. Fiscal 1999 financing activities reflect the shift in debt from our term loan to commercial paper, payments to acquire treasury stock, and an increase in dividends paid, due mostly to the timing of dividend distributions, partially offset by proceeds received upon the exercise of stock options. On September 18, 1998, our Board of Directors authorized a share repurchase program. We have purchased, and may continue to purchase, over an unspecified period of time, a total of up to eight million shares of Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. Capital expenditures amounted to $117.9 million, $120.6 million and $82.9 million in fiscal 1999, 1998 and 1997, respectively. Spending in all three years primarily reflects the continued upgrade of manufacturing equipment, dies and molds, new store openings, store improvements, counter construction and information technology advancements, as well as incremental capital spending by acquired companies. Fiscal 1998 spending included costs related to the construction of the Lachen distribution center and the purchase of a facility in Blaine, Minnesota. Dividends declared were $65.4 million, $63.6 million and $63.4 million in fiscal 1999, 1998 and 1997, respectively. From the third quarter of fiscal 1996 through the third quarter of fiscal 1999 the Board of Directors declared, and we paid, quarterly dividends at the rate of $.0425 per share on our Class A and Class B Common Stock. On April 26, 1999, the Board of Directors approved an increase of 17.6% in the next quarterly Class A and Class B Common Stock dividend to $.05 per share. In fiscal 1999, 1998 and 1997, dividends declared on such common stock totaled $42.0 million, $40.2 million and $40.0 million, respectively. -16- We enter into forward exchange contracts to hedge purchases, receivables and payables denominated in foreign currencies for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on our costs and on the cash flows which we receive from foreign subsidiaries. Almost all foreign currency contracts are denominated in currencies of major industrial countries and are with large financial institutions rated as strong investment grade by a major rating agency. Gains and losses related to qualifying hedges of these exposures are deferred and recognized in operating income when the underlying hedged transaction occurs. We also enter into purchased foreign currency options to hedge anticipated transactions where there is a high probability that anticipated exposures will materialize. Any gains realized on such options that qualify as hedges are deferred and recognized in operating income when the underlying hedged transaction occurs. Premiums on foreign currency options are amortized over the period being hedged. Foreign currency transactions which do not qualify as hedges are marked to market on a current basis with gains and losses recognized through income and reflected in operating expenses. In addition, any previously deferred gains and losses on hedges which are terminated prior to the transaction date are recognized in current income when the hedge is terminated. As a matter of policy, we only enter into contracts with counterparties that have at least an "A" (or equivalent) credit rating. The counterparties to these contracts are major financial institutions. We do not have significant exposure to any one counterparty. Our exposure to credit loss in the event of nonperformance by any of the counterparties is limited to only the recognized, but not realized, gains attributable to the contracts. Management believes risk of loss is remote and in any event would not be material. The contracts have varying maturities with none exceeding 24 months. Costs associated with entering into such contracts have not been material to our financial results. We do not utilize derivative financial instruments for trading or speculative purposes. At June 30, 1999, we had foreign currency contracts in the form of purchased currency options and forward exchange contracts in the amount of $57.2 million and $191.5 million, respectively. The foreign currencies included in these contracts are principally the Euro, Japanese yen, Swiss franc and U.K. pound. We have entered into interest rate swaps to convert floating interest rate debt to fixed rate debt. These swap agreements are contracts to exchange floating rate for fixed rate interest payments periodically over the life of the agreements. Amounts currently due to or from interest swap counterparties are recorded in interest expense in the period in which they accrue. The related amounts payable to, or receivable from, the counterparties are included in other accrued liabilities. At June 30, 1999 we had interest rate swap agreements outstanding with a notional principal amount of $200.0 million. The effects of inflation have not been significant to our overall operating results in recent years. Generally, we have been able to increase selling prices sufficiently to offset cost increases, which have been moderate. We believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support currently planned business operations and capital expenditures on both a near-term and long-term basis. DERIVATIVE FINANCIAL INSTRUMENTS We conduct business in many foreign currencies. As a result, we are subject to foreign currency exchange rate risk due to the effects that foreign exchange rate movements of these currencies have on our costs and cash flows which we receive from our foreign subsidiaries. We believe that currently there is no other material market risk exposure. We address our risks through a controlled program of risk management that includes the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts and purchase foreign currency options to reduce the effects of fluctuating foreign currency exchange rates, and, accordingly, categorize these instruments as entered into for purposes other than trading. We use a value-at-risk model to assess the market risk of our derivative financial instruments. Value-at-risk represents the potential losses for an instrument or portfolio from adverse changes in market factors, for a specified time period and confidence level. We estimate value-at-risk across all of our derivative financial instruments using a model with historical volatilities and correlations calculated over the past 250 day period. The measured value-at-risk from holding such derivative instruments, using a variance/co-variance model with a 95 percent confidence level, assuming normal market conditions at June 30, 1999 was not material. -17- Our calculated value-at-risk exposure represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results which may or may not occur. It does not represent the maximum possible loss nor any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in the portfolio of derivative financial instruments during the year. We believe, however, that any loss incurred would be offset by the effects of currency movements on the respective underlying transactions for which the hedge is intended. In addition, the maximum exposure associated with the purchase of options is limited to the premiums paid, which are recognized against income over the period being hedged. YEAR 2000 We have a comprehensive program to address Year 2000 issues and are in the final stages of implementing all aspects. The program addresses three main areas: (a) information systems; (b) embedded chips; and (c) supply chain readiness, as well as contingency planning related thereto. A Steering Committee, comprised of senior executives representing our various business units around the world, meets periodically to oversee the program, and its representatives report regularly to the Audit Committee of the Board of Directors. We identified potential deficiencies related to Year 2000 in our information systems and are finalizing our upgrades and other remediations. Testing is essentially completed. We are in the process of having an independent third party validate our information systems remediation processes, the completion of which is expected in October 1999. We identified other equipment with date sensitive operating controls and have completed the assessment, remediation and testing of critical embedded chips. We had another independent third party validate our embedded chip procedures and the validation has been completed. To mitigate the risk of Year 2000 non-compliance by third parties, we have identified, contacted and met with critical inventory suppliers, our larger customers, and critical non-inventory suppliers and have finalized the assessment of their Year 2000 readiness and have developed our contingency plans accordingly. We believe it is difficult to specifically identify the cause of the most reasonable worst case Year 2000 scenario. As with all manufacturers and distributors of products such as ours and based upon our work to date, a reasonable worst case scenario would be the result of the failure of third parties to be Year 2000 compliant. Such failures may include, without limitation, failures by governmental entities and entities with which we have no direct involvement that continue for more than several days in various geographic areas where our products are sold at retail, or areas from which our raw materials are sourced. Accordingly, we have finalized contingency plans to limit, to the extent reasonably possible, lost revenues and other adverse effects arising from third party failures. These plans are necessarily limited to matters which we can reasonably control and include the acceleration of certain shipments which necessitated adjustments to our production and procurement schedules. In order to support ongoing global operations on or about January 1, 2000, we will be establishing, prior to that date, a Y2K Communications Center which will expedite the implementation of certain contingency plans, if necessary. We are implementing our overall contingency plans and estimate an immaterial shift of net sales and related expenses from the third fiscal quarter to the second fiscal quarter. Notwithstanding the impact on any given quarter, incremental out-of-pocket costs incurred through June 30, 1999 have not been significant and, based upon current estimates, the costs of our Year 2000 program are not expected to be material. Such costs do not include internal employee costs and costs related to the deferral of other information technology projects. While we do not have a system to track internal employee costs specifically related to the Year 2000, those costs are not expected to be material to our consolidated results of operations or financial condition. Our Year 2000 efforts are ongoing and our overall plan, as well as the implementation of contingency plans, will continue to evolve as new information becomes available. While we anticipate continuity of our business activities, that continuity will be dependent upon our ability, and the ability of third parties on whom we rely directly or indirectly to be Year 2000 compliant. -18- EURO CONVERSION As part of the European Economic and Monetary Union (EMU), a single currency (the "Euro") will replace the national currencies of most of the European countries in which we conduct business. The conversion rates between the Euro and the participating nations' currencies were fixed irrevocably as of January 1, 1999, with the participating national currencies to be removed from circulation between January 1, and June 30, 2002 and replaced by Euro notes and coinage. During the "transition period" from January 1, 1999 through December 31, 2001, public and private entities, as well as individuals, may pay for goods and services using either checks, drafts, or wire transfers denominated in Euros or the participating country's national currency. Under the regulations governing the transition to a single currency, there is a "no compulsion, no prohibition" rule which states that no one is obliged to use the Euro until the notes and coinage have been introduced on January 1, 2002. In keeping with this rule, we were Euro "compliant" (able to receive Euro denominated payments and able to invoice in Euros as requested) as of January 1, 1999 in the affected countries. Full conversion of all affected country operations to the Euro is expected to be completed by the time national currencies are removed from circulation. Phased conversion to the Euro is currently underway and the effects on revenues, costs and various business strategies continue to be assessed. The cost of software and business process conversion is not expected to be material. ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 and will not require retroactive restatement of prior period financial statements. This statement requires the recognition of all derivative instruments as either assets or liabilities in the statement of financial position measured at fair value. Generally, increases or decreases in the fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If certain conditions are met, where the derivative instrument has been designated as a fair value hedge, the hedged item may also be marked to market through earnings thus creating an offset. If the derivative is designated and qualifies as a cash flow hedge, the changes in fair value of the derivative instrument may be recorded in comprehensive income. Based on current analysis, we believe that conversion to SFAS No. 133 will not have a material impact on our financial position or results of operations. However, the statement will likely result in a change in reported assets and liabilities and may affect comprehensive income. FORWARD-LOOKING INFORMATION We and our representatives from time to time make written or oral forward looking statements, including statements contained in this and other filings with the Securities and Exchange Commission and in our reports to stockholders. The words and phrases "will likely result," "expects," "believes," "will continue," "is anticipated," "estimates," "projects" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, our expectations regarding sales, earnings or other future financial performance and liquidity, product introductions, entry into new geographic regions and future operations or operating results. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, we cannot assure that actual results will not differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation: (i) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than we do; (ii) our ability to develop, produce and market new products on which future operating results may depend; (iii) consolidations and restructurings in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry or ownership of retailers by our competitors or ownership of competitors by our customers that are retailers; (iv) shifts in the preferences of consumers as to where and how they shop for beauty and related products; -19- (v) social, political and economic risks to our foreign manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States; (vi) changes in the laws, regulations and policies, including changes in accounting standards, that affect, or will affect, us in the United States and abroad; (vii) foreign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell our products in the same market and our operating and manufacturing costs outside of the United States; (viii) changes in global economic conditions that could affect the cost and availability of capital to the Company, which may be needed for new equipment, facilities or acquisitions; (ix) shipment delays, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities which, due to consolidations in our manufacturing operations, now manufacture nearly all of our supply of a particular type of product (i.e., focus factories); (x) real estate rates and availability, which may affect our ability to increase the number of retail locations at which we sell our products; (xi) changes in product mix to products which are less profitable; (xii) our ability and the ability of third parties, including customers, suppliers and governmental entities to adequately address Year 2000 issues; and (xiii) our ability to integrate acquired businesses and realize value therefrom. We assume no responsibility to update forward-looking statements made herein or otherwise. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The information required by this item is set forth in Item 7 of this Annual Report on Form 10-K under the captions "Liquidity and Capital Resources" and "Derivative Financial Instruments" and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The information required by this item appears beginning on page F-1 of this Annual Report on Form 10-K and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. -20- PART III Item 10. Directors and Executive Officers of the Registrant. The other information required by Item 10 will be included in our Proxy Statement for the 1999 Annual Meeting of Stockholders, which will be filed within 120 days after the close of the fiscal year ended June 30, 1999, and such information is incorporated herein by reference to such Proxy Statement. The following table sets forth certain information with respect to our executive officers.
Name Age Position(s) Held - ---- --- ---------------- Leonard A. Lauder 66 Chairman of the Board of Directors and Chief Executive Officer Ronald S. Lauder 55 Chairman of Clinique Laboratories, Inc. and Estee Lauder International, Inc. and a Director Fred H. Langhammer 55 President and Chief Operating Officer and a Director Robert J. Bigler 51 Senior Vice President and Chief Financial Officer Patrick Bousquet-Chavanne 41 President of Estee Lauder International, Inc. Daniel J. Brestle 54 President of Estee Lauder (U.S.A. & Canada) Andrew J. Cavanaugh 52 Senior Vice President - Corporate Human Resources John B. Chilton 67 Senior Vice President - Global Operations John M. Corrigan 57 Senior Vice President - Global Information Services Joseph Gubernick 65 Senior Vice President - Research and Development Paul E. Konney 55 Senior Vice President, General Counsel and Secretary Evelyn H. Lauder 63 Senior Corporate Vice President William P. Lauder 39 President of Clinique Laboratories, Inc. Mary Carroll Linder 52 Senior Vice President - Global Communications Robert A. Nielsen 69 Group President Jeanette S. Wagner 70 Vice Chairman
Leonard A. Lauder has served as Chief Executive Officer of the Company since 1982 and as President from 1972 until 1995. He has been a director of the Company since 1958. He became Chairman of the Board of Directors of the Company in 1995. Mr. Lauder formally joined the Company in 1958 after serving as an officer in the U.S. Navy. Since joining the Company, he has served in various positions, including executive officer positions other than those described above. He is Chairman of the Board of Trustees of the Whitney Museum of American Art, a Charter Trustee of the University of Pennsylvania, a Trustee of The Aspen Institute and a Director of RSL Communications, Ltd. He also served as a member of the White House Advisory Committee on Trade Policy and Negotiations under President Reagan. Ronald S. Lauder has served as Chairman of Clinique Laboratories, Inc., Chairman of Estee Lauder International, Inc. and as a director of the Company since returning from government service in 1987. Mr. Lauder joined the Company in 1964 and has served in various capacities, including those described above, since then. From 1983 to 1986, Mr. Lauder was Deputy Assistant Secretary of Defense for European and NATO Affairs. From 1986 to 1987, he was U.S. Ambassador to Austria. He is non-executive Chairman of the Board of Directors of Central European Media Enterprises Ltd. and is the co-founder, controlling investor and Chairman of the Board of Directors of RSL Communications, Ltd. He is Chairman of the Board of Trustees of the Museum of Modern Art. Fred H. Langhammer has been President of the Company since 1995 and Chief Operating Officer of the Company since 1985. He was elected to the Board of Directors in January 1996. He was Executive Vice President from 1985 until 1995. Mr. Langhammer joined the Company in 1975 as President of its operations in Japan and, in 1982, he was appointed Managing Director of the Company's operations in Germany. He is a member of the Board of Directors of RJR Nabisco Holdings Corp.; RSL Communications, Ltd.; the Cosmetics, Toiletries and Fragrance Association; the German American Chamber of Commerce, Inc.; and the American Institute for Contemporary German Studies at Johns Hopkins University. He is also a Senior Fellow of the Foreign Policy Association. -21- Robert J. Bigler is Senior Vice President and Chief Financial Officer of the Company, a position he assumed in 1992. Before that, he had served as Senior Vice President - Controller of Estee Lauder International, Inc. from 1986. He is a certified public accountant. Patrick Bousquet-Chavanne rejoined the Company in September 1998 as President of Estee Lauder International, Inc. ("ELII"). From June 1992 through December 1996, Mr. Bousquet-Chavanne was Senior Vice President - General Manager/Travel Retailing of ELII. From September 1989 through June 1992, he was Vice President and General Manager of Aramis International, a division of ELII. From December 1996 through March 1998, he was Executive Vice President/General Manager International Operations of Parfums Christian Dior S.A., based in Paris. Daniel J. Brestle is President of Estee Lauder (U.S.A. & Canada). Prior to July 1998, he was President of Clinique Laboratories, Inc. and the senior officer of that division since 1992. Prior thereto, he was President of Prescriptives U.S.A. since 1988. Mr. Brestle joined the Company in 1978. Andrew J. Cavanaugh has been Senior Vice President - Corporate Human Resources since 1994. Mr. Cavanaugh joined the Company in 1988 as Executive Director - Human Resources. John B. Chilton is Senior Vice President - Global Operations and has been in charge of the Company's global manufacturing operations since 1993. Before that, Mr. Chilton managed the Company's United States manufacturing operations since 1978. He joined the Company in 1973 as Managing Director of the Company's manufacturing unit in the United Kingdom, and managed international operations from 1974 to 1978. John M. Corrigan is Senior Vice President - Global Information Systems and has been the senior officer in charge of information systems and technology since joining the Company in 1990. Joseph Gubernick is Senior Vice President - Research and Development of the Company. Mr. Gubernick joined the Company in 1972 as Vice President - Research and Development. Paul E. Konney is Senior Vice President, General Counsel and Secretary. Prior to joining the Company in August 1999, Mr. Konney was Senior Vice President, General Counsel and Secretary of Quaker State Corporation from 1994. Prior to that, he was Senior Vice President - General Counsel and Secretary of Tambrands Inc. Evelyn H. Lauder has been Senior Corporate Vice President of the Company since 1989, and previously served as Vice President and in other executive capacities since first joining the Company in 1959 as Education Director. She is a member of the Board of Overseers, Memorial Sloan-Kettering Cancer Center, a member of the Board of Trustees of Central Park Conservancy, Inc. and The Trinity School in New York City, a member of the Board of Directors of The Parks Council and the Founder and President of The Breast Cancer Research Foundation. William P. Lauder is President of Clinique Laboratories, Inc. He has been a director of the Company since January 1996. Prior to July 1998, he was President of Origins Natural Resources Inc., and the senior officer of that division since its inception in 1990. Previously, he served in various positions since joining the Company in 1986. He is a member of the Board of Trustees of The Trinity School in New York City and the Board of Directors of the Educational Foundation for the Fashion Industries. Mary Carroll Linder has been Senior Vice President - Global Communications since 1996. From 1992 until she joined the Company, Ms. Linder headed the public relations area of Grand Metropolitan, PLC, a broadly based consumer products company, as Group Corporate Communications Director. Robert A. Nielsen serves as Group President. He is President of Aramis Inc. (including Tommy Hilfiger toiletries) and President of Prescriptives Inc. and has been the senior executive of those divisions since 1992 and 1995, respectively. In July 1998, he was appointed President of the Donna Karan Cosmetics Company. He is also President of Max Huber Research Labs, Inc. which markets La Mer products. Mr. Nielsen first joined the Company in 1960 and has been associated with it for three periods since that date. -22- Jeanette S. Wagner is Vice Chairman of the Company. Prior to July 1998, she was President of Estee Lauder International, Inc., a position she held since 1985. Mrs. Wagner joined the Company in 1975 to head the activity of the Estee Lauder brand in international markets. Mrs. Wagner is a Director of Tricon Global Restaurants, Inc. and a member of the Nominating Committee of the New York Stock Exchange. In 1994, Mrs. Wagner was appointed by President Clinton to serve on the White House Advisory Committee on Trade Policy and Negotiations, and she is Chairman Emeritus and a director of the Fragrance Foundation, an industry group. Each executive officer serves for a one-year term ending at the next annual meeting of the Company's Board of Directors, subject to his or her applicable employment agreement and his or her earlier death, resignation or removal. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13. Certain Relationships and Related Transactions. The information required to be included by Items 11 through 13 of Form 10-K will be included in our Proxy Statement for the 1999 Annual Meeting of Stockholders, which will be filed within 120 days after the close of our fiscal year ended June 30, 1999. Such information is incorporated herein by reference to such Proxy Statement. -23- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K. (a) 1, 2. Financial Statements and Schedules - See index on Page F-1. 3. Exhibits - Exhibit Description Number 3.1 Form of Restated Certificate of Incorporation (filed as Exhibit 3.1 to Amendment No. 3 to the Company's Registration Statement on Form S-1 (No. 33-97180) on November 13, 1995 (the "S-1")).* 3.2 Form of Amended and Restated By-laws. 10.1 Form of Stockholders' Agreement (filed as Exhibit 10.1 to the S-1).* 10.1a Amendment No. 1 to Stockholders' Agreement (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).* 10.1b Amendment No. 2 to Stockholders' Agreement (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 (the "FY 1997 Q2 10-Q")).* 10.1c Amendment No. 3 to Stockholder's Agreement (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the "FY 1997 Q3 10-Q")).* 10.2 Form of Registration Rights Agreement (filed as Exhibit 10.2 to the S-1).* 10.2a First Amendment to Registration Rights Agreement (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996).* 10.2b Second Amendment to Registration Rights Agreement (filed as Exhibit 10.1 to the FY 1997 Q3 10-Q).* 10.3 Fiscal 1996 Share Incentive Plan (filed as Exhibit 10.3 to the S-1).* + 10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c) to the Company's Registration Statement on Form S-8 (No. 333-66851) on November 5, 1998). * + 10.5 The Estee Lauder Inc. Retirement Growth Account Plan. + 10.6 The Estee Lauder Inc. Retirement Benefits Restoration Plan. + 10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998).* + 10.8 Employment Agreement with Leonard A. Lauder (filed as Exhibit 10.7 to the S-1).* + 10.9 Employment Agreement with Ronald S. Lauder (filed as Exhibit 10.8 to the S-1).* + 10.10 Employment Agreement with Fred H. Langhammer (filed as Exhibit 10.9 to the S-1).* + 10.11 Employment Agreement with Daniel J. Brestle (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).* + 10.12 Employment Agreement with William P. Lauder (filed as Exhibit 10.1 to Amendment No. 2 to the Company's Registration Statement on Form S-3 (No. 333-77977) on May 19, 1999).* + 10.13 Employment Agreement with Patrick Bousquet-Chavanne. + 10.14 Form of Deferred Compensation Agreement with Outside Directors (filed as Exhibit 10.1 to the FY 1997 Q2 10-Q).*+ 21.1 List of significant subsidiaries of the Company. 23.1 Consent of Arthur Andersen LLP. 24.1 Power of Attorney. 27.1 Financial Data Schedule. (b) Registrant filed no reports on Form 8-K during the last quarter of the period covered by this report. - ---------- * Incorporated herein by reference. + Exhibit is a management contract or compensatory plan or arrangement. -24- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By /s/ ROBERT J. BIGLER --------------------------------- Robert J. Bigler Senior Vice President and Chief Financial Officer Date: September 13, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title (s) Date --------- --------- ---- LEONARD A. LAUDER* Chairman of the Board of September 13, 1999 - ------------------------------------ Directors and Chief Leonard A. Lauder Executive Officer (Principal Executive Officer) RONALD S. LAUDER* Director September 13, 1999 - ------------------------------------ Ronald S. Lauder WILLIAM P. LAUDER* Director September 13, 1999 - ------------------------------------ William P. Lauder FRED H. LANGHAMMER* Director September 13, 1999 - ------------------------------------ Fred H. Langhammer RICHARD D. PARSONS* Director September 13, 1999 - ------------------------------------ Richard D. Parsons MARSHALL ROSE* Director September 13, 1999 - ------------------------------------ Marshall Rose P. ROY VAGELOS* Director September 13, 1999 - ------------------------------------ P. Roy Vagelos FAYE WATTLETON* Director September 13, 1999 - ------------------------------------ Faye Wattleton /s/ ROBERT J. BIGLER Senior Vice President and September 13, 1999 - ------------------------------------ Chief Financial Officer Robert J. Bigler (Principal Financial and Accounting Officer)
- ---------- * By signing his name hereto, Robert J. Bigler signs this document in the capacities indicated above and on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed herewith. By /s/ ROBERT J. BIGLER -------------------------------- Robert J. Bigler (Attorney-in-Fact) -25- THE ESTEE LAUDER COMPANIES INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page ---- Financial Statements: Report of Independent Public Accountants................................ F-2 Consolidated Statements of Earnings..................................... F-3 Consolidated Balance Sheets............................................. F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Income.............................................. F-5 Consolidated Statements of Cash Flows................................... F-6 Notes to Consolidated Financial Statements.............................. F-7 Financial Statement Schedule: Report of Independent Public Accountants on Schedule.................... S-1 Schedule II - Valuation and Qualifying Accounts......................... S-2 All other schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Estee Lauder Companies Inc.: We have audited the accompanying consolidated balance sheets of The Estee Lauder Companies Inc. (a Delaware corporation) and subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of earnings, stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Estee Lauder Companies Inc. and subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP New York, New York August 10, 1999 F-2 THE ESTEE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended June 30 ---------------------------------------------- 1999 1998 1997 ---------- --------- --------- (In millions, except per share data) Net Sales..................................................... $3,961.5 $3,618.0 $3,381.6 Cost of sales................................................. 899.9 819.5 765.1 -------- -------- -------- Gross Profit.................................................. 3,061.6 2,798.5 2,616.5 -------- -------- -------- Operating expenses: Selling, general and administrative....................... 2,572.1 2,357.6 2,224.6 Related party royalties................................... 32.6 31.8 32.8 -------- -------- -------- 2,604.7 2,389.4 2,257.4 -------- -------- -------- Operating Income.............................................. 456.9 409.1 359.1 Interest income (expense), net................................ (16.7) (6.3) 3.8 -------- -------- -------- Earnings before Income Taxes and Minority Interest............ 440.2 402.8 362.9 Provision for income taxes ................................... 167.3 161.1 152.4 Minority interest ............................................ - (4.9) (12.9) -------- -------- -------- Net Earnings.................................................. 272.9 236.8 197.6 Preferred stock dividends..................................... 23.4 23.4 23.4 -------- -------- -------- Net Earnings Attributable to Common Stock .................... $ 249.5 $ 213.4 $ 174.2 ======== ======== ======== Net earnings per common share: Basic..................................................... $ 1.05 $ .90 $ .74 Diluted................................................... $ 1.03 $ .89 $ .73 Weighted average common shares outstanding: Basic..................................................... 237.0 236.8 235.4 Diluted................................................... 241.2 239.5 237.1
See notes to consolidated financial statements. F-3 THE ESTEE LAUDER COMPANIES INC. CONSOLIDATED BALANCE SHEETS
June 30 ----------------------------- 1999 1998 -------- -------- (In millions) ASSETS Current Assets Cash and cash equivalents............................................................ $ 347.5 $ 277.5 Accounts receivable, net............................................................. 533.7 497.8 Inventory and promotional merchandise, net........................................... 513.0 513.2 Prepaid expenses and other current assets............................................ 176.0 166.1 -------- -------- Total current assets............................................................. 1,570.2 1,454.6 -------- -------- Property, Plant and Equipment, net................................................... 383.6 335.8 -------- -------- Other Assets Investments, at cost or market value................................................. 35.5 27.7 Deferred taxes....................................................................... 63.6 59.6 Goodwill, net........................................................................ 557.9 496.2 Other intangible assets, net......................................................... 50.6 67.1 Other assets, net.................................................................... 85.3 71.8 -------- -------- 792.9 722.4 -------- -------- $2,746.7 $2,512.8 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term debt...................................................................... $ 6.6 $ 11.5 Accounts payable..................................................................... 223.1 209.1 Accrued income taxes................................................................. 87.6 79.4 Other accrued liabilities............................................................ 544.9 537.4 -------- -------- Total current liabilities........................................................ 862.2 837.4 -------- -------- Noncurrent Liabilities Long-term debt....................................................................... 422.5 425.0 Other noncurrent liabilities......................................................... 177.5 194.0 -------- -------- 600.0 619.0 -------- -------- Commitments and contingencies (Note 15) $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 issued: 123,936,464 in 1999 and 122,935,868 in 1998: 120,000,000 shares Class B authorized, shares issued and outstanding: 113,679,334 in 1999 and 1998.. 2.4 2.4 Paid-in capital...................................................................... 211.6 168.6 Retained earnings.................................................................... 766.2 559.6 Accumulated other comprehensive income............................................... (44.3) (34.2) -------- -------- 935.9 696.4 Less: Treasury stock, at cost; 455,306 Class A shares at June 30, 1999............... (11.4) - -------- -------- 924.5 696.4 -------- -------- $2,746.7 $2,512.8 ======== ========
See notes to consolidated financial statements. F-4 THE ESTEE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Year Ended June 30 ------------------------------------- 1999 1998 1997 ------ ------ ------ (In millions) STOCKHOLDERS' EQUITY Common stock, beginning of year........................................... $ 2.4 $ 2.4 $ 2.4 ------ ------ ------ Common stock, end of year................................................. 2.4 2.4 2.4 ------ ------ ------ Paid-in capital, beginning of year........................................ 168.6 164.1 120.4 Common stock issued, net of issuance costs................................ - - 38.1 Stock compensation programs............................................... 43.0 4.5 5.6 ------ ------ ------ Paid-in capital, end of year.............................................. 211.6 168.6 164.1 ------ ------ ------ Retained earnings, beginning of year...................................... 559.6 386.4 252.2 Preferred stock dividends................................................. (23.4) (23.4) (23.4) Common stock dividends.................................................... (42.0) (40.2) (40.0) Issuance of treasury stock................................................ (0.9) - - Net earnings for the year................................................. 272.9 236.8 197.6 ------ ------ ------ Retained earnings, end of year............................................ 766.2 559.6 386.4 ------ ------ ------ Accumulated other comprehensive income, beginning of year................. (34.2) (5.2) 19.2 Other comprehensive income................................................ (10.1) (29.0) (24.4) ------ ------ ------ Accumulated other comprehensive income, end of year....................... (44.3) (34.2) (5.2) ------ ------ ------ Treasury stock, beginning of year......................................... - - - Acquisition of treasury stock............................................. (12.7) - - Issuance of treasury stock................................................ 1.3 - - ------ ------ ------ Treasury stock, end of year............................................... (11.4) - - ------ ------ ------ Total stockholders' equity............................................ $924.5 $696.4 $547.7 ====== ====== ====== COMPREHENSIVE INCOME Net earnings.............................................................. $272.9 $236.8 $197.6 ------ ------ ------ Other comprehensive income: Net unrealized investment gains....................................... 0.3 2.9 - Translation adjustments............................................... (10.4) (31.9) (24.4) ------ ------ ------ Other comprehensive income............................................ (10.1) (29.0) (24.4) ------ ------ ------ Total comprehensive income............................................ $262.8 $207.8 $173.2 ====== ====== ======
See notes to consolidated financial statements. F-5 THE ESTEE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30 -------------------------------------- 1999 1998 1997 ------- ------ ------- (In millions) Cash Flows from Operating Activities Net earnings.......................................................... $ 272.9 $ 236.8 $ 197.6 Adjustments to reconcile net earnings to net cash flows provided by operating activities: Depreciation and amortization..................................... 99.6 79.8 58.3 Amortization of purchased royalty rights.......................... 17.7 17.7 17.7 Deferred income taxes............................................. (4.2) (12.2) (12.6) Minority interest................................................. - 4.9 12.9 Non-cash stock compensation....................................... 8.3 - - Changes in operating assets and liabilities: Increase in accounts receivable, net.............................. (38.0) (31.9) (56.3) (Increase) decrease in inventory and promotional merchandise...... - (71.8) 4.4 Increase in other assets.......................................... (39.9) (72.4) (25.5) Increase (decrease) in accounts payable........................... 14.0 40.7 (5.5) Increase (decrease) in accrued income taxes....................... 21.2 25.0 (13.9) Increase in other accrued liabilities............................. 7.8 17.6 47.5 (Decrease) increase in other noncurrent liabilities............... (7.1) 24.0 28.5 ------- ------- ------- Net cash flows provided by operating activities................. 352.3 258.2 253.1 ------- ------- ------- Cash Flows from Investing Activities Capital expenditures.................................................. (117.9) (120.6) (82.9) Acquisition of businesses, net of acquired cash....................... (75.0) (459.9) (46.5) Purchases of long-term investments.................................... (8.4) (1.8) (1.5) Proceeds from disposition of long-term investments.................... 1.0 5.1 0.2 ------- ------- ------- Net cash flows used for investing activities.................... (200.3) (577.2) (130.7) ------- ------- ------- Cash Flows from Financing Activities Decrease in short-term debt, net...................................... (5.8) (10.7) (52.7) Proceeds from long-term debt.......................................... 205.2 431.2 - Repayments of long-term debt.......................................... (210.9) (21.9) (43.7) Proceeds from issuance of common stock, net of issuance costs......... - - 38.1 Proceeds from exercise of stock options............................... 14.6 0.2 4.9 Payments to acquire treasury stock.................................... (12.7) - - Dividends paid........................................................ (63.6) (53.6) (63.4) ------- ------- ------- Net cash flows (used for) provided by financing activities...... (73.2) 345.2 (116.8) ------- ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents.............. (8.8) (4.3) (4.8) ------- ------- ------- Net Increase in Cash and Cash Equivalents................................. 70.0 21.9 0.8 Cash and Cash Equivalents at Beginning of Year............................ 277.5 255.6 254.8 ------- ------- ------- Cash and Cash Equivalents at End of Year.................................. $ 347.5 $ 277.5 $ 255.6 ======= ======= ======= Supplemental disclosures of cash flow information Cash paid during the year for: Interest.......................................................... $ 31.2 $ 13.0 $ 7.4 ======= ======= ======= Income Taxes...................................................... $ 157.3 $ 145.5 $ 167.9 ======= ======= =======
See notes to consolidated financial statements. F-6 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- DESCRIPTION OF BUSINESS The Estee Lauder Companies Inc. manufactures, markets and sells skin care, makeup, fragrance and hair care products around the world. Products are marketed under the following brand names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown essentials, jane and Aveda. The Estee Lauder Companies Inc. is also the global licensee of the Tommy Hilfiger and Donna Karan brands for fragrances and cosmetics. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of The Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation for comparative purposes. Net Earnings Per Common Share In accordance with the requirements of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", net earnings per common share amounts ("basic EPS") are computed by dividing net earnings, after deducting preferred stock dividends on the Company's $6.50 Cumulative Redeemable Preferred Stock, by the weighted average number of common shares outstanding and contingently issuable shares (which satisfy certain conditions) and exclude any potential dilution. Net earnings per common share amounts assuming dilution ("diluted EPS") are computed by reflecting potential dilution from the exercise of stock options. Earnings per share amounts for prior-year periods have been restated to conform with the provisions of SFAS No. 128. A reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:
Year Ended June 30 ----------------------------------------- 1999 1998 1997 ------ ------ ------ (In millions, except per share data) Numerator: Net earnings........................................................... $272.9 $236.8 $197.6 Preferred stock dividends.............................................. (23.4) (23.4) (23.4) ------ ------ ------ Net earnings attributable to common stock.............................. $249.5 $213.4 $174.2 ====== ====== ====== Denominator: Weighted average common shares outstanding - Basic..................... 237.0 236.8 235.4 Effect of dilutive securities: Stock options........................... 4.2 2.7 1.7 ------ ------ ------ Weighted average common shares outstanding - Diluted................... 241.2 239.5 237.1 ====== ====== ====== Net earnings per common share: Basic.................................................................. $ 1.05 $ .90 $ .74 ====== ====== ====== Diluted ............................................................... $ 1.03 $ .89 $ .73 ====== ====== ======
F-7 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Split These consolidated financial statements have been restated to reflect the effects of a two-for-one common stock split declared April 26, 1999 and distributed on June 2, 1999 to stockholders of record on May 10, 1999. Cash and Cash Equivalents Cash and cash equivalents include $208.5 million and $174.6 million of short-term time deposits at June 30, 1999 and 1998, respectively. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Accounts Receivable Accounts Receivable is stated net of the allowance for doubtful accounts of $36.0 million and $43.6 million as of June 30, 1999 and 1998, respectively. Currency Translation and Transactions All assets and liabilities of foreign subsidiaries and affiliates are translated at year-end rates of exchange, while revenue and expenses are translated at weighted average rates of exchange for the year. Unrealized translation gains or losses are reported as cumulative translation adjustments through other comprehensive income. Such adjustments amounted to $10.4 million and $31.9 million of unrealized translation losses in fiscal 1999 and 1998, respectively. 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. Accordingly, the Company categorizes these instruments as entered into for purposes other than trading. Premiums on foreign currency options are amortized over the option period being hedged. The accompanying consolidated statements of earnings include net exchange losses of $1.8 million in fiscal 1999 and gains of $9.1 million and $8.8 million in fiscal 1998 and 1997, respectively, see Note 9. Inventory and Promotional Merchandise Inventory and promotional merchandise only include inventory considered saleable or usable in future periods, and are stated at the lower of cost or market, with cost being determined on the first-in, first-out method. Promotional merchandise is charged to expense at the time the merchandise is shipped to the Company's customers.
June 30 ----------------------------- 1999 1998 ------- ------ (In millions) Inventory and promotional merchandise consists of: Raw materials....................................... $128.3 $143.6 Work in process..................................... 22.6 26.7 Finished goods...................................... 238.7 227.8 Promotional merchandise............................. 123.4 115.1 ------ ------ $513.0 $513.2 ====== ======
F-8 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property, Plant and Equipment Property, plant and equipment are carried at cost less accumulated depreciation. For financial statement purposes, depreciation is provided principally on the straight-line method over the estimated useful lives of the assets ranging from 3 to 40 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lives of the respective leases or the expected useful lives of those improvements.
June 30 ----------------------------- 1999 1998 ------- ------ (In millions) Land.................................................... $ 13.0 $ 13.0 Buildings and improvements.............................. 129.9 124.0 Machinery and equipment................................. 432.0 385.2 Furniture and fixtures.................................. 71.7 61.2 Leasehold improvements.................................. 153.2 117.3 ------ ------ 799.8 700.7 Less accumulated depreciation and amortization.......... 416.2 364.9 ------ ------ $383.6 $335.8 ====== ======
Goodwill Goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets and is amortized on a straight-line basis over forty years. Goodwill is net of accumulated amortization of $25.2 million and $11.9 million at June 30, 1999 and 1998, respectively. Other Intangible Assets Other intangible assets principally consist of purchased royalty rights and trademarks. The cost of other intangible assets is amortized on a straight-line basis over their estimated useful lives. Other intangible assets are reported net of accumulated amortization of $70.1 million and $50.0 million at June 30, 1999 and 1998, respectively. Long-Lived Assets SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. The adoption of SFAS No. 121 in fiscal 1997 did not have a material effect on the Company's results of operations, cash flows or financial position. F-9 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accumulated Other Comprehensive Income The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes guidance for the reporting and display of comprehensive income and its components. The purpose of reporting comprehensive income is to report a measure of all changes in equity that resulted from recognized transactions and other economic events of the period other than transactions with stockholders. Adoption of SFAS No. 130 had no economic impact on the Company's consolidated financial position, net earnings, stockholders' equity or cash flows, although the presentation of certain items has changed. The components of accumulated other comprehensive income included in the accompanying consolidated balance sheets consist of the following:
Year Ended June 30 ----------------------------------------- 1999 1998 1997 ------ ------ ------ (In millions) Net unrealized investment gains, beginning of year..................... $ 5.8 $ 2.9 $ 2.9 Increase in unrealized investment gains................................ 0.5 4.8 - Deferred tax expense................................................... (0.2) (1.9) - ------ ------ ------ Net unrealized investment gains, end of year........................... 6.1 5.8 2.9 ------ ------ ------ Cumulative translation adjustments, beginning of year.................. (40.0) (8.1) 16.3 Translation adjustments................................................ (10.4) (31.9) (24.4) ------ ------ ------ Cumulative translation adjustments, end of year........................ (50.4) (40.0) (8.1) ------ ------ ------ Accumulated other comprehensive income................................. ($44.3) ($34.2) ($ 5.2) ====== ====== ======
Revenue Recognition Revenues from merchandise sales are recorded at the time the product is shipped to the customer. The Company reports its sales levels on a net sales basis, which is computed by deducting from gross sales the amount of actual returns received and an amount established for anticipated returns. Advertising and Promotion Costs associated with advertising are expensed during the year as incurred. Global advertising and promotional expenses which primarily include television, radio and print media were $1,100.8 million, $1,027.8 million and $976.2 million in fiscal 1999, 1998 and 1997, respectively. Research and Development Research and development costs, which amounted to $48.0 million, $43.5 million and $37.7 million in fiscal 1999, 1998 and 1997, respectively, are expensed as incurred. F-10 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Related Party Royalties and Trademarks Under agreements covering the purchase by the Company of trademarks for a percentage of related sales, royalty payments totaling $14.9 million, $14.1 million and $15.1 million in fiscal 1999, 1998 and 1997, respectively, have been charged to income. Such payments are made to stockholders of the Company. During fiscal 1996, the Company purchased a stockholder's rights to receive certain U.S. royalty payments for $88.5 million, which amount is being amortized over a five-year period. In fiscal 1999, 1998 and 1997, $17.7 million was amortized as a charge against income. Stock Compensation In fiscal 1997, the Company adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", by continuing to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," while providing the required pro forma disclosures as if the fair value method had been applied, see Note 14. Concentration of Credit Risk The Company is a worldwide manufacturer and marketer of skin care, makeup, fragrance and hair care products. Domestic and international sales are made primarily to department stores, specialty retailers, perfumeries and pharmacies. The Company grants credit to all qualified customers, and does not believe it is exposed significantly to any undue concentration of credit risk. In fiscal 1999, two department store groups each accounted for 11% of the Company's net sales. In both fiscal 1998 and 1997, one accounted for 12% and the other for 10% of the Company's net sales. Segment Data In June 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the reporting of operating segments in interim and annual financial statements, as well as requiring related disclosures about products and services, geographic areas and major customers. The Company has adopted SFAS No. 131 for the year ended June 30, 1999 and, as required, has restated prior years' segment information for comparability, see Note 18. Adoption of SFAS No. 131 did not affect the Company's consolidated financial position, net earnings, stockholders' equity or cash flows. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. Actual results could differ from those estimates and assumptions. Recently Issued Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 and will not require retroactive restatement of prior period financial statements. This statement requires the recognition of all derivative F-11 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS instruments as either assets or liabilities in the statement of financial position measured at fair value. Generally, increases or decreases in the fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If certain conditions are met, where the derivative instrument has been designated as a fair value hedge, the hedged item may also be marked to market through earnings thus creating an offset. If the derivative is designated and qualifies as a cash flow hedge, the changes in fair value of the derivative instrument may be recorded in comprehensive income. Based on current analysis, the Company does not expect conversion to SFAS No. 133 to have a material impact on its financial position or results of operations. However, the statement will likely result in a change in reported assets and liabilities and may affect comprehensive income. NOTE 3 -- PUBLIC OFFERINGS During May and June 1999, members of the Lauder family sold 7,386,000 shares of Class A Common Stock. The Company did not receive any proceeds from the sale of these shares. During June 1998, members of the Lauder family sold 9,271,300 shares of Class A Common Stock. The Company did not receive any proceeds from the sale of these shares. In February 1997, the Company completed a secondary public offering of 16,129,500 shares of Class A Common Stock at an initial offering price of $23.50 per share. Of the 16,129,500 shares of Class A Common Stock offered, 1,699,500 shares were issued and sold by the Company, pursuant to an underwriters' over-allotment provision, and 14,430,000 shares were sold by members of the Lauder family. NOTE 4 -- ACQUISITION OF BUSINESSES In February 1998, the Company exercised its right to acquire the remaining equity interest in M.A.C for cash. In December 1997, the Company acquired for cash the business of Aveda and certain of its affiliates ("Aveda"), a manufacturer and marketer of plant-based hair, skin, makeup and body care products. The purchase of Aveda was financed with proceeds received from borrowings. In October 1997, the Company acquired Sassaby, Inc. ("Sassaby"), the marketer and distributor of jane cosmetics for young consumers, for cash and the assumption of employee stock options. The stock options were valued as of the date of acquisition and accounted for as part of the consideration given. The aggregate purchase price for these transactions, which includes acquisition costs, was approximately $464.4 million and each transaction was accounted for using the purchase method of accounting. Accordingly, the results of operations are included in the accompanying consolidated financial statements since the dates of original acquisition. Pro forma results of operations as if the Sassaby, Aveda and M.A.C acquisitions had been completed as of July 1, 1996 have not been presented, as the impact on the Company's results of operations would not have been material. In October 1995, the Company acquired Bobbi Brown essentials, a line of professional color makeup and skin care products. The Company financed the acquisition by issuing short-term notes, which matured in January 1996, and accounted for the transaction as a purchase. In March 1999, the Company made a payment to satisfy the earn-out portion of the acquisition. F-12 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 -- SHORT-TERM DEBT Short-term debt consists of the following:
June 30 --------------------------- 1999 1998 ------ ----- (In millions) Current portion of long-term debt............. $ 5.8 $ 5.0 Other notes payable........................... 0.8 6.5 ------ ----- $ 6.6 $11.5 ====== =====
As of June 30, 1999 and 1998, the Company had uncommitted lines of credit in the amount of $219.1 million and $293.4 million, respectively, of which $218.3 million and $287.0 million was available. Borrowings under these lines during fiscal 1999 and 1998 carried an average interest rate of 8.3% and 9.2%, respectively. The monthly average amount outstanding was approximately $12.4 million and $72.1 million and the annualized monthly weighted average interest rate was approximately 7.5% and 6.8%, during fiscal 1999 and 1998, respectively. In July 1996, the Company entered into a five-year $400.0 million committed revolving credit facility, which includes a fee on the total commitment thereunder payable at an annual rate of .06%. At June 30, 1999 and 1998, the Company was in compliance with all related financial and other restrictive covenants, including limitations on indebtedness and liens. NOTE 6 -- INCOME TAXES The provision for income taxes is comprised of the following:
Year Ended June 30 -------------------------------------------------- 1999 1998 1997 ------- ------- ------- (In millions) Current: Federal................................... $ 88.6 $ 97.7 $ 83.7 Foreign................................... 68.8 60.3 69.5 State and local........................... 14.1 15.3 11.8 ------ ------ ------ 171.5 173.3 165.0 ------ ------ ------ Deferred: Federal................................... (4.3) (12.9) (10.6) Foreign................................... 0.9 1.8 0.8 State and local........................... (0.8) (1.1) (2.8) ------ ------ ------ (4.2) (12.2) (12.6) ------ ------ ------ $167.3 $161.1 $152.4 ====== ====== ======
F-13 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation between the provision for income taxes computed by applying the statutory federal income tax rate to earnings before income taxes and minority interest and the actual provision for income taxes is as follows:
Year Ended June 30 ---------------------------------------------------- 1999 1998 1997 -------- -------- ------- (In millions) Provision for income taxes at statutory rate... $154.1 $141.0 $127.0 Increase (decrease) due to: State and local income taxes, net of federal tax benefit..................... 8.6 9.2 5.9 Effect of foreign operations.............. (4.1) (2.7) 7.1 Domestic royalty expense not deductible for U.S. tax purposes........ 4.0 4.0 4.1 Other nondeductible expenses.............. 2.0 5.9 3.1 Other, net................................ 2.7 3.7 5.2 ------ ------ ------ Provision for income taxes..................... $167.3 $161.1 $152.4 ====== ====== ====== Effective tax rate............................. 38.0% 40.0% 42.0% ==== ==== ====
Significant components of the Company's deferred income tax assets and liabilities as of June 30, 1999 and 1998 were as follows:
1999 1998 -------- ------- (In millions) Deferred tax assets: Deferred compensation and other payroll related expenses................... $ 45.0 $ 38.2 Inventory obsolescence and other inventory related reserves................ 46.5 43.9 Pension plan reserves...................................................... 20.5 18.3 Postretirement benefit obligations......................................... 17.9 16.3 Various accruals not currently deductible.................................. 40.3 37.7 Net operating loss carryforwards........................................... 6.9 8.6 Other differences between tax and financial statement values............... 7.4 6.3 ------ ------ 184.5 169.3 Valuation allowance for deferred tax assets................................ (6.9) (8.6) ------ ------ Total deferred tax assets................................................ 177.6 160.7 ------ ------ Deferred tax liabilities: Depreciation............................................................... (27.2) (8.3) Domestic royalty expense................................................... (4.3) (7.4) Other differences between tax and financial statement values............... (4.0) (6.9) ------ ------ Total deferred tax liabilities........................................... (35.5) (22.6) ------ ------ Net deferred tax assets................................................ $142.1 $138.1 ====== ======
F-14 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of June 30, 1999 and 1998, the Company had current net deferred tax assets of $78.5 million which are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets, and noncurrent net deferred tax assets of $63.6 million and $59.6 million, respectively. Federal income and foreign withholding taxes have not been provided on $412.0 million, $398.0 million and $332.0 million of undistributed earnings of international subsidiaries at June 30, 1999, 1998 and 1997, respectively. The Company intends to permanently reinvest these earnings in its foreign operations, except where it is able to repatriate these earnings to the U.S. without any material incremental tax provision. As of June 30, 1999 and 1998, certain international subsidiaries had tax loss carryforwards for local tax purposes of approximately $24.3 million and $28.7 million, respectively. With the exception of $16.0 million of losses with an indefinite carryforward period as of June 30, 1999, these losses expire at various dates through fiscal 2010. The gross deferred tax assets recognized in connection with these tax loss carryforwards have been reduced to the extent to which benefit has been taken. A full valuation allowance has been provided against the remaining deferred tax assets relating to tax loss carryforwards. Earnings before income taxes and minority interest include amounts contributed by the Company's international operations of $277.2 million, $250.8 million and $263.5 million for fiscal 1999, 1998 and 1997, respectively. NOTE 7 -- OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following:
June 30 --------------------- 1999 1998 ------ ------ (In millions) Advertising and promotional accruals........................ $186.9 $167.0 Employee compensation....................................... 175.9 169.8 Other....................................................... 182.1 200.6 ------ ------ $544.9 $537.4 ====== ======
NOTE 8 -- LONG-TERM DEBT Long-term debt consists of the following:
June 30 --------------------- 1999 1998 ------ ------ (In millions) Commercial paper with an average interest rate of 5.17%..... $205.2 Unsecured notes payable, due February 1, 2005, swapped to an effective interest rate of 6.69%............ 200.0 $405.0 2% loan payable, due in installments through 2003........... 23.1 25.0 ------ ------ 428.3 430.0 Less current maturities..................................... 5.8 5.0 ------ ------ $422.5 $425.0 ====== ======
Commercial paper is classified as long-term debt based upon the Company's positive intent and ability to refinance on a long-term basis. During fiscal 1998, the Company entered into a 2% loan payable in Japan. Principal repayments of 350 million yen, approximately $2.9 million at current rates, will be made semi-annually through 2003. F-15 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 -- FINANCIAL INSTRUMENTS Derivative Financial Instrument Risk The Company selectively uses a combination of derivative financial instruments to maintain the value-at-risk inherent in its foreign currency exposures within acceptable parameters, as determined by senior management. The purpose of this approach is to reduce the Company's exposure to market risk resulting from fluctuations in foreign exchange rates. Derivative financial instruments currently utilized by the Company principally include forward exchange contracts and purchased foreign currency options. Hedges are executed centrally to facilitate the netting of offsetting currency exposures, to improve control over the use of derivative financial instruments and to minimize transaction costs. The Company does not hold or enter into financial instruments for trading or speculative purposes. The Company has a policy of only entering into contracts with counterparties that have at least an "A" (or equivalent) credit rating. The counterparties to these contracts are major financial institutions and the Company does not have significant exposure to any one counterparty. Management believes that risk of loss is remote and in any event would be immaterial. Foreign Exchange Risk Management The Company enters into forward exchange contracts to hedge purchases, receivables and payables denominated in foreign currencies for periods consistent with its identified exposures. Gains and losses related to qualifying hedges of these exposures are deferred and recognized in operating income when the underlying hedged transaction occurs. The Company also enters into purchased foreign currency options to hedge anticipated transactions where there is a high probability that anticipated exposures will materialize. Any gains realized on such options that qualify as hedges are deferred and recognized in operating income when the underlying hedged transaction occurs. Foreign currency transactions which do not qualify as hedges are marked to market on a current basis with associated gains and losses reflected in operating income. In addition, any previously deferred gains and losses on hedges which are terminated prior to the transaction date are recognized in current income when the hedge is terminated. The contracts have varying maturities with none exceeding 24 months. Foreign currencies exchanged under these contracts are principally the Euro, Japanese yen, Swiss franc and U.K. pound. Deferred unrealized gains and losses from derivative financial instruments are presented in the following table:
June 30 ---------------------------------------------------------------------------------- 1999 1998 --------------------------------------- -------------------------------------- Notional Notional (In millions) Amounts Gains Losses Amounts Gains Losses ----------------------------------------------------------------------------- -------------------------------------- Forward exchange contracts $ 191.5 $ 4.4 $ 2.3 $ 237.1 $ 6.0 $ 0.7 Foreign currency options 57.2 0.1 - 77.1 3.0 - - -------------------------------------------------------------------------------------------------------------------------
Interest Rate Risk Management The Company has entered into interest rate swaps to convert floating interest rate debt to fixed rate debt. These swap agreements are contracts to exchange floating rate for fixed rate interest payments periodically over the life of the agreements. Amounts currently due to or from interest swap counterparties are recorded in interest expense in the period in which they accrue. The related amounts payable to, or receivable from, the counterparties are included in other accrued liabilities. At June 30, 1999, the Company had interest rate swap agreements outstanding with a notional principal amount of $200.0 million. F-16 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents: The carrying amount approximates fair value, primarily because of the short maturity of cash equivalent instruments. Long-term debt: The fair value of the Company's long-term debt was estimated based on the current rates offered to the Company for debt with the same remaining maturities. Included in such amount is the fair value of the Company's interest rate swap agreements. Such fair value has been determined based upon estimated termination costs. Cumulative redeemable preferred stock: The fair value of the cumulative redeemable preferred stock is estimated utilizing a cash flow analysis at a discount rate equal to rates available for debt with terms similar to the preferred stock. Foreign currency options and forward exchange contracts: The fair value of foreign currency options and forward exchange contracts is the estimated amount the Company would receive or pay to terminate the agreements. The estimated fair values of the Company's financial instruments are as follows:
June 30 ---------------------------------------------------------- 1999 1998 -------------------------- ---------------------------- Carrying Fair Carrying Fair (In millions) Amount Value Amount Value - ----------------------------------------------------------------------------------------------- ---------------------------- Nonderivatives Cash and cash equivalents................................... $347.5 $347.5 $277.5 $277.5 Long-term debt, including current portion................... 428.3 427.3 430.0 437.5 Cumulative redeemable preferred stock....................... 360.0 353.0 360.0 366.0 Derivatives Foreign currency options.................................... 1.5 1.6 1.5 3.0 Forward exchange contracts.................................. - 2.1 - 5.3
F-17 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 -- PENSION, DEFERRED COMPENSATION AND POSTRETIREMENT BENEFIT PLANS The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. Most plans provide pension benefits based primarily on years of service and employees' earnings. Retirement Growth Account Plan (U.S.) The Retirement Growth Account Plan is a trust-based, noncontributory defined benefit pension plan. The Company's funding policy consists of an annual contribution at a rate that matches pension costs accrued, if any, but is not less than the ERISA minimum, and is not more than the maximum amount deductible for income tax purposes. Restoration Plan (U.S.) The Company also has an unfunded, nonqualified domestic benefit Restoration Plan to provide benefits in excess of Internal Revenue Code limitations. International Pension Plans The Company maintains International Pension Plans, the most significant of which are defined benefit pension plans. The Company's funding policies for these plans are determined by local tax laws and regulations. Postretirement Benefits The Company maintains a contributory postretirement benefit plan, which provides certain medical and dental benefits to eligible employees. Retired employees who are receiving monthly pension benefits are eligible for participation in the plan. Contributions required and benefits received by retirees and eligible family members are dependent on the age of the retiree. It is the Company's practice to fund these benefits as incurred. Certain of the Company's international subsidiaries and affiliates have postretirement plans, although most participants are covered by government-sponsored or administered programs. The cost of the Company-sponsored programs is not significant. F-18 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The significant components of the above mentioned plans as of and for the year ended June 30 are summarized as follows:
Other than Pension Plans Pension Plans ---------------------------------------------- ----------------- U.S. International Postretirement --------------------- -------------------- ----------------- (In millions) 1999 1998 1999 1998 1999 1998 -------- -------- ------- ------- ------- ------ Change in benefit obligation: Benefit obligation at beginning of year.......... $212.6 $177.0 $ 97.3 $87.2 $ 39.0 $ 37.1 Service cost.................................. 9.4 8.6 7.0 5.6 1.8 1.8 Interest cost................................. 14.6 13.6 5.5 5.2 2.3 2.7 Plan participants' contributions.............. - - 2.2 1.1 0.2 0.2 Actuarial loss/(gain)......................... 9.2 28.6 19.3 9.7 (5.2) (1.6) Foreign currency exchange rate impact......... - - - (7.1) - - Benefits paid................................. (17.0) (15.2) (7.7) (4.0) (1.2) (1.2) Plan amendments............................... 0.8 - 2.3 - - - Other......................................... - - (0.6) (0.4) - - ------ ------ ------ ----- ------ ------ Benefit obligation at end of year................ 229.6 212.6 125.3 97.3 36.9 39.0 ------ ------ ------ ----- ------ ------ Change in plan assets: Fair value of plan assets at beginning of year... 128.2 119.2 98.9 90.0 - - Actual return on plan assets.................. 10.8 13.8 1.9 12.1 - - Foreign currency exchange rate impact......... - - 0.1 (7.1) - - Employer contributions........................ 31.7 10.4 6.9 7.0 1.0 1.0 Plan participants' contributions.............. - - 2.2 1.1 0.2 0.2 Benefits paid from plan assets................ (17.0) (15.2) (7.7) (3.8) (1.2) (1.2) Other......................................... - - (0.3) (0.4) - - ------ ------ ------ ----- ------ ------ Fair value of plan assets at end of year......... 153.7 128.2 102.0 98.9 - - ------ ------ ------ ----- ------ ------ Funded status.................................... (75.9) (84.4) (23.3) 1.6 (36.9) (39.0) Unrecognized net actuarial loss/(gain)........... 44.7 35.8 16.8 (8.2) (5.9) (0.7) Unrecognized prior service cost.................. 4.9 4.4 3.4 1.9 (0.2) (0.3) Unrecognized net transition (asset)/obligation... (5.8) (7.3) 1.3 1.6 - - ------ ------ ------ ----- ------ ------ Accrued benefit cost............................. ($32.1) ($51.5) ($ 1.8) ($3.1) ($43.0) ($40.0) ====== ====== ====== ===== ====== ====== Amounts recognized in the Balance Sheets consist of: Prepaid benefit cost.......................... $ 19.8 $18.1 Accrued benefit liability..................... ($39.1) ($54.9) (22.3) (21.3) ($43.0) ($40.0) Intangible asset.............................. 5.1 3.4 0.7 0.1 - - Other......................................... 1.9 - - - - - ------ ------ ------ ----- ------ ------ Net amount recognized......................... ($32.1) ($51.5) ($ 1.8) ($3.1) ($43.0) ($40.0) ====== ====== ====== ===== ====== ======
F-19 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other than Pension Plans Pension Plans -------------------------------------------------------------- --------------------------- U.S. International Postretirement ----------------------------- ----------------------------- --------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- ---- ---- ---- Weighted-average assumptions Pre-retirement discount rate.... 7.50% 6.75% 7.75% 3.0- 3.0- 3.5- 7.50% 6.75% 7.75% 7.50% 12.0% 12.0% Post-retirement discount rate... 6.50% 6.75% 7.75% - - - - - - Expected return on assets....... 9.00% 9.00% 9.00% 3.75- 3.75- 3.5- N/A N/A N/A 8.25% 12.0% 12.0% Rate of compensation increase... 5.50- 4.75- 6.0- 2.0- 2.0- 2.5- N/A N/A N/A 11.50% 10.75% 12.0% 6.5% 9.5% 9.5% Components of net periodic benefit cost (In millions) Service cost, net............... $9.4 $8.6 $7.5 $7.0 $5.6 $7.0 $1.8 $1.8 $1.7 Interest cost................... 14.6 13.6 11.9 5.5 5.2 4.8 2.3 2.7 2.6 Expected return on assets....... (11.6) (9.8) (9.5) (6.1) (5.3) (5.3) - - - Amortization of: Transition (asset)/obligation.. (1.4) (1.4) (1.4) 0.3 0.2 0.3 - - - Prior service cost............. 0.3 0.3 0.3 0.1 0.1 0.1 - - - Actuarial loss................. 1.0 0.1 - 0.5 - - - - - ----- ----- ---- ---- ---- ---- ---- ---- ---- Net periodic benefit cost....... $12.3 $11.4 $8.8 $7.3 $5.8 $6.9 $4.1 $4.5 $4.3 ===== ===== ==== ==== ==== ==== ==== ==== ====
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates for fiscal 1999 would have the following effects:
One-Percentage-Point One-Percentage-Point (In millions) Increase Decrease -------------------------- -------------------------- Effect on total service and interest cost comparison ...... $0.5 ($0.5) ---- ------ Effect on postretirement benefit obligation ............... $3.8 ($3.8) ---- ------
F-20 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for certain U.S. and international pension plans with accumulated benefit obligations in excess of the plans' assets at June 30 are as follows:
Other than Pension Plans Pension Plans ---------------------------------------------------- ------------------------- U.S. International Postretirement ------------------------- ----------------------- ------------------------ (In millions) 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- Projected benefit obligation............ $46.2 $212.6 $23.8 $18.3 - - Accumulated benefit obligation.......... 33.6 162.4 19.4 14.8 - - Fair value of plan assets............... - 128.2 - - - -
The Retirement Growth Account Plan's fair value of plan assets exceeds the accumulated benefit obligation as of June 30, 1999. The unfunded Restoration Plan's accumulated benefit obligation was $33.6 million and $26.9 million as of June 30, 1999 and 1998, respectively. Incentive Thrift Plan (U.S.) The Company's Incentive Thrift Plan ("Thrift Plan") is a contributory defined contribution plan covering substantially all regular full-time U.S. employees who have completed one year of service, as defined by the plan document. The Thrift Plan is subject to the applicable provisions of the Employee Retirement Income Security Act of 1974 as amended and subsequent pension legislation. The Company matches a portion of the participant's contributions under a predetermined formula based on the participant's contribution level and years of service. The Company's contributions were approximately $4.8 million for the fiscal year ended June 30, 1999 and $4.6 million and $4.5 million in fiscal 1998 and 1997, respectively. Deferred Compensation The Company accrues for deferred compensation and interest thereon and for the increase in the value of share units pursuant to agreements with certain key executives. The amounts accrued under these plans were $77.0 million and $61.9 million as of June 30, 1999 and 1998, respectively. The expense for fiscal 1999, 1998 and 1997 was $15.3 million, $11.6 million and $7.8 million, respectively. NOTE 11 -- POSTEMPLOYMENT BENEFITS OTHER THAN TO RETIREES The Company provides certain postemployment benefits to eligible former or inactive employees and their dependents during the period subsequent to employment but prior to retirement. These benefits include certain disability and health care coverage and severance benefits. The cost of providing these benefits was not material to the Company's consolidated financial position or results of operations. NOTE 12 -- $6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE As of June 30, 1999, the Company's authorized capital stock included 23.6 million shares of preferred stock, par value $.01 per share, of which 3.6 million shares are designated as $6.50 Cumulative Redeemable Preferred Stock, all of which are issued and outstanding. The preferred stock was issued in June 1995 in exchange for nonvoting common stock of the Company owned by The Estee Lauder 1994 Trust. Holders of the $6.50 Cumulative Redeemable Preferred Stock are entitled to receive cumulative cash dividends at a rate of $6.50 per annum per share payable in quarterly installments. Such dividends have preference over all other dividends of stock issued by the Company. Shares are subject to mandatory redemption on June 30, 2005 at a redemption price of $100 per share. Following such date and so long as such mandatory redemption obligations have not been discharged in full, no dividends may be paid or declared upon the Class A or Class B Common Stock, or on any other capital stock ranking junior to or in parity with F-21 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS such $6.50 Cumulative Redeemable Preferred Stock and no shares of Class A or Class B Common Stock or such junior or parity stock may be redeemed or acquired for any consideration by the Company. Under certain circumstances, the Company may redeem the stock, in whole or in part, prior to the mandatory redemption date. Holders of such stock may put such shares to the Company at a price of $100 per share after June 30, 2000 and upon the occurrence of certain circumstances. The Company recorded the $6.50 Cumulative Redeemable Preferred Stock at its redemption value of $360.0 million and charged this amount, net of the par value of the prior Class B nonvoting Common Stock exchanged, to stockholders' equity in fiscal 1995. NOTE 13 -- COMMON STOCK As of June 30, 1999, the Company's authorized common stock consists of 300 million shares of Class A Common Stock, par value $.01 per share, and 120 million shares of Class B Common Stock, par value $.01 per share. Class B Common Stock is convertible into Class A Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted. Holders of the Company's Class A Common Stock are entitled to one vote per share and holders of the Company's Class B Common Stock are entitled to ten votes per share. Information about the Company's common stock outstanding is as follows: Class A Class B --------- ---------- (Shares in thousands) Balance at June 30, 1996................ 120,916.4 113,679.3 Common stock issued..................... 1,699.6 - Share grants............................ 7.4 - Stock option programs................... 250.0 - --------- --------- Balance at June 30, 1997................ 122,873.4 113,679.3 Share grants............................ 1.3 - Stock option programs................... 61.2 - ---------- --------- Balance at June 30, 1998................ 122,935.9 113,679.3 Acquisition of treasury stock........... (504.8) - Share grants............................ 1.0 - Stock option programs................... 1,049.1 - --------- --------- Balance at June 30, 1999................ 123,481.2 113,679.3 ========= ========= On September 18, 1998, the Company's Board of Directors authorized a share repurchase program. The Company has purchased, and may continue to purchase, over an unspecified period of time, a total of up to eight million shares of Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. NOTE 14 -- STOCK PROGRAMS The Company has established the Fiscal 1999 Share Incentive Plan and the Fiscal 1996 Share Incentive Plan (collectively, the "Plans") and, additionally, has made available stock options and share units that were, or will be, granted pursuant to certain employment agreements. These stock-based compensation programs are described below. Total compensation expense attributable to the granting of share units and the increase in value of existing share units was $8.9 million, $5.5 million and $3.0 million in fiscal 1999, 1998 and 1997, respectively. F-22 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Share Incentive Plans The Plans provide for the issuance of 18,450,000 shares to be awarded in the form of stock options, stock appreciation rights and other stock awards to key employees and non-employee directors of the Company. As of June 30, 1999, 10,057,000 shares of Class A Common Stock were reserved and are available to be granted pursuant to the Plans. The exercise period for all stock options generally may not exceed ten years from the date of grant. Pursuant to the Plans, stock option awards in respect of 2,303,000 and 1,375,000 shares were granted in fiscal 1999 and 1998, respectively, and share units in respect of 40,000 shares were granted in fiscal 1999. Generally, these awards become exercisable at various times through January 2003. In addition to awards made by the Company, certain outstanding stock options were assumed as part of the October 1997 acquisition of Sassaby, as discussed in Note 4. These options were converted into options to acquire an aggregate of approximately 221,200 shares of the Company's Class A Common Stock carrying an exercise price corresponding to the value that existed in the Sassaby options. Approximately 126,600 shares of common stock have been issued upon exercise of these options, an additional 23,700 were exercisable as of June 30, 1999, and the remainder become exercisable periodically through June 2001 and will expire through May 2007. Executive Employment Agreements The Executive Employment Agreements provide for the issuance of 11,400,000 shares to be awarded in the form of stock options and other stock awards to certain key executives. The Company has reserved 2,308,000 shares of its Class A Common Stock pursuant to such agreements as of June 30, 1999. In accordance with such employment agreements, stock option awards in respect of 1,650,000, 1,975,000 and 1,975,000 shares were granted in fiscal 1999, 1998 and 1997, and approximately 48,000, 61,000 and 77,000 share units were granted in fiscal 1999, 1998 and 1997, respectively. The stock options may be exercised in installments at various times through July 2008, while the share units will be paid out in shares of Class A Common Stock at a time to be determined by the Company, but no later than 90 days subsequent to the termination of employment of the executive. A summary of the Company's stock option programs as of June 30, 1999, 1998 and 1997 and changes during the years then ended, is presented below:
1999 1998 1997 ---------------------------- ------------------------- -------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise (Shares in thousands) Shares Price Shares Price Shares Price - --------------------------------------------------------------------- ------------------------- -------------------------- Outstanding at beginning of year....... 12,977.0 $18.20 9,467.0 $15.99 6,263.0 $13.00 Granted at fair value............... 3,953.0 35.34 3,350.0 25.17 3,529.0 21.49 Assumed ............................ - - 221.2 2.91 - - Exercised........................... (1,049.1) 13.94 (61.2) 3.51 (250.0) 19.65 Cancelled or Expired................ (441.8) 20.83 - - (75.0) 13.00 -------- -------- ------- Outstanding at end of year............. 15,439.1 22.80 12,977.0 18.20 9,467.0 15.99 ======== ======== ======= Options exercisable at year-end........ 1,191.8 13.24 61.8 3.84 - - ======== ======== ======= Weighted-average fair value of options granted during the year..... $ 12.21 $ 8.81 $ 7.31 ======== ======== ======= Weighted-average fair value of options assumed during the year..... $ - $ 18.94 $ - ======== ======== =======
F-23 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for stock options and share units granted under these programs. Under APB Opinion No. 25, no compensation cost is recognized if the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant. Accordingly, no compensation cost has been recognized. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to provide pro forma information regarding net earnings and net earnings per common share as if compensation cost for the Company's stock option programs had been determined in accordance with the fair value method prescribed therein. Had compensation cost for these programs been determined based upon the fair value at the grant dates consistent with SFAS No. 123, the Company's pro forma net earnings and net earnings per common share would have been as follows:
Year Ended June 30 -------------------------------------- 1999 1998 1997 -------- ------- -------- (In millions, except per share data) Net earnings..................................... As reported $272.9 $236.8 $197.6 Pro forma 246.2 219.1 182.3 Net earnings per common share - Basic............ As reported $ 1.05 $ .90 $ .74 Pro forma .94 .83 .68 Net earnings per common share - Diluted.......... As reported $ 1.03 $ .89 $ .73 Pro forma .92 .81 .67
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Year Ended June 30 ------------------------------------------- 1999 1998 1997 -------- ------- ------- Expected volatility....................... 27% 26% 23% Average expected option life.............. 7 years 7 years 7 years Average risk-free interest rate........... 5.3% 6.3% 6.6% Dividend yield............................ .75% 1.0% 1.0%
Summarized information about the Company's stock options outstanding and exercisable at June 30, 1999 is as follows:
Outstanding Exercisable -------------------------------------------- ------------------------------- Exercise Average Average Average Price Range Options (a) Life (b) Price (c) Options (a) Price (c) - -------------------------------------------------------------------------------------- ------------------------------- $2.065 to $3.10.................. 94.6 7.9 $ 2.99 23.7 $ 2.98 $13.00 to $20.813................ 5,116.5 6.4 13.05 1,110.5 13.00 $21.313 to $29.813................ 6,499.0 7.5 23.38 57.6 22.09 $31.875 to $47.625................ 3,729.0 9.2 35.66 - - -------- ------- $2.065 to $47.625................ 15,439.1 $22.80 1,191.8 $13.24 ======== =======
- ---------------- (a) Shares in thousands. (b) Weighted average contractual life remaining in years. (c) Weighted average exercise price. F-24 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Subsequent to June 30, 1999, the Company granted options under the terms of the Plans and executive employment agreements described above to purchase an additional 4,045,000 shares and 1,650,000 shares, respectively, of the Company's Class A Common Stock with an exercise price equal to fair market value on the date of grant. In addition, the Company granted approximately 33,000 share units to a key executive pursuant to an executive employment agreement. NOTE 15 -- COMMITMENTS AND CONTINGENCIES Total rental expense included in the accompanying consolidated statements of earnings was $86.4 million in fiscal 1999, $79.6 million in fiscal 1998 and $77.3 million in fiscal 1997. At June 30, 1999, the future minimum rental commitments under long-term operating leases are as follows: Year Ending June 30 (In millions) ------------------- 2000........................................ $59.5 2001........................................ 50.3 2002........................................ 43.9 2003........................................ 37.7 2004........................................ 34.3 Thereafter.................................. 99.4 ------ $325.1 ====== The Company is involved in various routine legal proceedings incident to the ordinary course of its business. In management's opinion the outcome of pending legal proceedings, separately or in the aggregate, will not have a material adverse effect on the Company's results of operations or financial condition. NOTE 16 -- NET UNREALIZED INVESTMENT GAINS Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," available-for-sale securities are recorded at market value. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of stockholders' equity until realized. The Company's noncurrent investments subject to the provisions of SFAS No. 115 are treated as available-for-sale and, accordingly, the applicable investments have been adjusted to market value with a corresponding adjustment to net unrealized investment gains in accumulated other comprehensive income. Unrealized investment gains (net of deferred taxes) included in other comprehensive income amounted to $6.1 million and $5.8 million at June 30, 1999 and 1998, respectively. NOTE 17 -- STATEMENT OF CASH FLOWS Supplemental disclosure of significant non-cash transactions As discussed in Notes 4 and 14, consideration for the October 1997 acquisition of Sassaby included $4.3 million representing the value of stock options assumed. Such amount was calculated as the aggregate difference between the exercise prices of the options and the fair market value of the Sassaby stock on the date of acquisition. As a result of stock option exercises, the Company recorded a tax benefit of $11.8 million for the year ended June 30, 1999. F-25 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - SEGMENT DATA AND RELATED INFORMATION Reportable operating segments, as defined by SFAS No. 131, include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the "Chief Executive") in deciding how to allocate resources and in assessing performance. As a result of the similarities in the manufacturing, marketing and distribution processes for all of the Company's products, much of the information provided in the consolidated financial statements is similar to, or the same as, that reviewed on a regular basis by the Chief Executive. While the Company's results of operations are also reviewed on a consolidated basis, the Chief Executive reviews data segmented on a basis that facilitates comparison to industry statistics. Accordingly, net sales, depreciation and amortization, and operating income are available with respect to the manufacture and distribution of skin care, makeup, fragrance, hair care and other products. These product categories meet the FASB's definition of operating segments and therefore, additional financial data are provided below. The "Other" segment includes the sales and related results of ancillary products and services that do not fit the definition of skin care, makeup, fragrance and hair care. The Company evaluates segment performance based upon operating income, which represents earnings before income taxes, minority interest and net interest income or expense. The accounting policies for each of the reportable segments are the same as those described in the summary of significant accounting policies, except for depreciation and amortization charges, which are allocated primarily, based upon net sales. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements, thus no additional information is produced for the Chief Executive or included herein. F-26 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30 ---------------------------------------- 1999 1998 1997 -------- --------- -------- (In millions) SEGMENT DATA Net Sales: Skin Care ................................................ $1,398.8 $1,248.3 $1,291.0 Makeup ................................................... 1,412.8 1,317.7 1,251.7 Fragrance ................................................ 1,048.6 987.6 817.7 Hair Care ................................................ 82.4 52.4 16.5 Other .................................................... 18.9 12.0 4.7 -------- -------- -------- $3,961.5 $3,618.0 $3,381.6 ======== ======== ======== Depreciation and amortization: Skin Care ................................................ $ 29.9 $ 23.7 $ 21.9 Makeup ................................................... 39.2 32.4 22.1 Fragrance ................................................ 23.9 19.6 14.1 Hair Care ................................................ 5.6 3.4 0.2 Other .................................................... 1.0 0.7 - -------- -------- -------- $ 99.6 $ 79.8 $ 58.3 ======== ======== ======== Operating Income: Skin Care ................................................ $ 205.9 $ 174.3 $ 175.9 Makeup ................................................... 158.2 151.8 143.8 Fragrance ................................................ 79.7 75.5 37.8 Hair Care ................................................ 11.4 8.0 1.6 Other .................................................... 1.7 (0.5) - -------- -------- -------- 456.9 409.1 359.1 Reconciliation: Interest (expense) income, net ........................ (16.7) (6.3) 3.8 -------- -------- -------- Earnings before Income Taxes and Minority Interest ....... $ 440.2 $ 402.8 $ 362.9 ======== ======== ======== GEOGRAPHIC DATA Net Sales: The Americas ............................................. $2,397.9 $2,204.7 $1,939.4 Europe, the Middle East & Africa ......................... 1,082.4 960.8 909.3 Asia/Pacific ............................................. 481.2 452.5 532.9 -------- -------- -------- $3,961.5 $3,618.0 $3,381.6 ======== ======== ======== Operating Income: The Americas ............................................. $ 265.0 $ 248.0 $ 189.9 Europe, the Middle East & Africa ......................... 145.5 131.3 122.7 Asia/Pacific ............................................. 46.4 29.8 46.5 -------- -------- -------- $ 456.9 $ 409.1 $ 359.1 ======== ======== ======== Total Assets: The Americas ............................................. $1,954.1 $1,803.9 $1,170.3 Europe, the Middle East & Africa ......................... 587.9 541.2 493.7 Asia/Pacific ............................................. 204.7 167.7 209.1 -------- -------- -------- $2,746.7 $2,512.8 $1,873.1 ======== ======== ======== Long-Lived Assets: The Americas ............................................. $ 304.4 $ 256.2 $ 191.2 Europe, the Middle East & Africa ......................... 69.5 71.0 64.4 Asia/Pacific ............................................. 9.7 8.6 9.4 -------- -------- -------- $ 383.6 $ 335.8 $ 265.0 ======== ======== ========
F-27 THE ESTEE LAUDER COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA The following summarizes the unaudited quarterly operating results of the Company for the years ended June 30, 1999 and 1998:
Quarter Ended --------------------------------------------------------------- September 30 December 31 March 31 June 30 Total Year ------------ ----------- -------- ------- ---------- (In millions, except per share data) Fiscal 1999 Net sales...................... $997.0 $1,091.0 $964.8 $908.7 $3,961.5 Gross profit................... 767.4 841.2 748.7 704.3 3,061.6 Operating income............... 121.6 161.8 90.3 83.2 456.9 Net earnings................... 71.6 97.3 53.6 50.4 272.9 Basic EPS...................... .28 .39 .20 .19 1.05 Diluted EPS.................... .27 .38 .20 .18 1.03 Fiscal 1998 Net sales...................... $900.6 $1,000.9 $871.5 $845.0 $3,618.0 Gross profit................... 696.2 771.6 676.4 654.3 2,798.5 Operating income............... 106.0 144.9 80.8 77.4 409.1 Net earnings................... 61.8 85.3 45.7 44.0 236.8 Basic EPS...................... .24 .34 .17 .16 .90 Diluted EPS.................... .23 .33 .17 .16 .89
F-28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To The Estee Lauder Companies Inc.: We have audited, in accordance with generally accepted auditing standards, the financial statements of The Estee Lauder Companies Inc. and subsidiaries included in this Annual Report on Form 10-K and have issued our report thereon dated August 10, 1999. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. This schedule (Schedule II - Valuation and Qualifying Accounts) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. New York, New York Arthur Andersen LLP August 10, 1999 S-1 THE ESTEE LAUDER COMPANIES INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Three Years Ended June 30, 1999 (In millions) - ------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------------------------------- Additions ---------------------------- (2) (1) Charged to Balance Charged to Other Balance at Beginning Costs and Accounts - Deductions -- at End of Description of Period Expenses Describe Describe Period - ------------------------------------------------------------------------------------------------------------------------------- Reserves deducted in the balance sheet from the assets to which they apply: Allowance for doubtful accounts: Year ended June 30, 1999.......... $ 43.6 $ 27.8 --- $ 35.4 (a) $ 36.0 ====== ====== ====== ====== Year ended June 30, 1998.......... $ 36.4 $ 25.4 --- $ 18.2 (a) $ 43.6 ====== ====== ====== ====== Year ended June 30, 1997.......... $ 32.8 $ 23.6 --- $ 20.0 (a) $ 36.4 ====== ====== ====== ======
- ---------- (a) Includes amounts written-off, net of recoveries. S-2 THE ESTEE LAUDER COMPANIES INC. INDEX TO EXHIBITS Exhibit Number Description ------ ----------- 3.1 Form of Restated Certificate of Incorporation (filed as Exhibit 3.1 to Amendment No. 3 to the Company's Registration Statement on Form S-1 (No. 33-97180) on November 13, 1995 (the "S-1")).* 3.2 Form of Amended and Restated By-laws. 10.1 Form of Stockholders' Agreement (filed as Exhibit 10.1 to the S-1).* 10.1a Amendment No. 1 to Stockholders' Agreement (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).* 10.1b Amendment No. 2 to Stockholders' Agreement (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 (the "FY 1997 Q2 10-Q")).* 10.1c Amendment No. 3 to Stockholder's Agreement (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the "FY 1997 Q3 10-Q")).* 10.2 Form of Registration Rights Agreement (filed as Exhibit 10.2 to the S-1).* 10.2a First Amendment to Registration Rights Agreement (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996).* 10.2b Second Amendment to Registration Rights Agreement (filed as Exhibit 10.1 to the FY 1997 Q3 10-Q).* 10.3 Fiscal 1996 Share Incentive Plan (filed as Exhibit 10.3 to the S-1).* + 10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c) to the Company's Registration Statement on Form S-8 (No. 333-66851) on November 5, 1998). * + 10.5 The Estee Lauder Inc. Retirement Growth Account Plan. + 10.6 The Estee Lauder Inc. Retirement Benefits Restoration Plan. + 10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998).* + 10.8 Employment Agreement with Leonard A. Lauder (filed as Exhibit 10.7 to the S-1).* + 10.9 Employment Agreement with Ronald S. Lauder (filed as Exhibit 10.8 to the S-1).* + 10.10 Employment Agreement with Fred H. Langhammer (filed as Exhibit 10.9 to the S-1).* + 10.11 Employment Agreement with Daniel J. Brestle (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).* + 10.12 Employment Agreement with William P. Lauder (filed as Exhibit 10.1 to Amendment No. 2 to the Company's Registration Statement on Form S-3 (No. 333-77977) on May 19, 1999).* + 10.13 Employment Agreement with Patrick Bousquet-Chavanne. + 10.14 Form of Deferred Compensation Agreement with Outside Directors (filed as Exhibit 10.1 to the FY 1997 Q2 10-Q).* + 21.1 List of significant subsidiaries of the Company. 23.1 Consent of Arthur Andersen LLP. 24.1 Power of Attorney. 27.1 Financial Data Schedule. - ---------- * Incorporated herein by reference. + Exhibit is a management contract or compensatory plan or arrangement. EX-3.2 2 AMENDED AND RESTATED BYLAWS Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF THE ESTEE LAUDER COMPANIES INC. (a Delaware corporation) (As adopted by the Board of Directors of the Corporation, and effective on September 6, 1999) ARTICLE I. OFFICES SECTION 1. Registered Office. The registered office of The Estee Lauder Companies Inc. (the "Corporation") in the State of Delaware shall be at 1013 Centre Road, in the City of Wilmington, County of New Castle and its registered agent at such address shall be Corporation Services Company or such other office or agent as the Board of Directors of the Corporation (the "Board") shall from time to time select. SECTION 2. Other Offices. The Corporation may also have an office or offices, and keep the books and records of the Corporation, except as may otherwise be required by law, at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meeting. All meetings of the stockholders of the Corporation shall be held at the office of the Corporation or at such other places, within or without the State of Delaware, as may from time to time be fixed by the Board. SECTION 2. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at such date and time, within or without the State of Delaware, as the Board shall determine. SECTION 3. Special Meetings. Except as otherwise required by law or the Restated Certificate of Incorporation of the Corporation (the "Certificate"), special meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board or a majority of the entire Board. Only such business as is specified in the notice of any special meeting of the stockholders shall come before such meeting. 1 SECTION 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of the stockholders, whether annual or special, shall be given, either by personal delivery or by mail, not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to notice of the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Each such notice shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy without protesting, prior to or at the commencement of the meeting, the lack of proper notice to such stockholder, or who shall sign a written waiver of notice thereof, whether before or after such meeting. Notice of adjournment of a meeting of stockholders need not be given if the time and place to which it is adjourned are announced at such meeting, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. SECTION 5. Quorum. Except as otherwise provided by law or by the Certificate, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders; provided, however, that in the case of any vote to be taken by classes, the holders of a majority of the votes entitled to be cast by the stockholders of a particular class shall constitute a quorum for the transaction of business by such class. When a quorum is once present it is not broken by the subsequent withdrawal of any stockholder. SECTION 6. Adjournments. The chairman of the meeting or the holders of a majority of the votes entitled to be cast by the stockholders who are present in person or by proxy may adjourn the meeting from time to time whether or not a quorum is present. In the event that a quorum does not exist with respect to any vote to be taken by a particular class, the chairman of the meeting or the holders of a majority of the votes entitled to be cast by the stockholders of such class who are present in person or by proxy may adjourn the meeting with respect to the vote(s) to be taken by such class. At such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 7. Order of Business. (a) At each meeting of the stockholders, the Chairman of the Board or, in the absence of the Chairman of the Board, such person as shall be selected by the Board shall act as chairman of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. (b) At any annual meeting of stockholders, only such business shall be conducted as shall have been brought before the annual meeting (i) by or at the direction of the chairman of the meeting, (ii) pursuant to the notice provided for in Section 4 of this Article II or 2 (iii) by any stockholder who is a holder of record at the time of the giving of such notice provided for in this Section 7, who is entitled to vote at the meeting and who complies with the procedures set forth in this Section 7. (c) For business properly to be brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation (the "Secretary") and such business must be a proper matter for stockholder action under the Delaware General Corporation Law ("DGCL"). To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 60 days after the first anniversary of the preceding year's annual meeting of stockholders, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. To be in proper written form, a stockholder's notice to the Secretary shall set forth in writing as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of the stockholder proposing such business and all persons or entities acting in concert with the stockholder; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and all persons or entities acting in concert with such stockholder; and (iv) any material interest of the stockholder in such business. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such stockholder's proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided, however, that if such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 7. The chairman of an annual meeting shall, if the facts warrant, determine that business was not properly brought before the annual meeting in accordance with the provisions of this Section 7 and, if the chairman should so determine, the chairman shall so declare to the annual meeting and any such business not properly brought before the annual meeting shall not be transacted. SECTION 8. List of Stockholders. It shall be the duty of the Secretary or other officer who has charge of the stock ledger to prepare and make, at least 10 days before each meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in such stockholder's name. Such list shall be produced and kept available at the times and places required by law. 3 SECTION 9. Voting. (a) Except as otherwise provided by law or by the Certificate, each stockholder of record of any class or series of capital stock of the Corporation shall be entitled at each meeting of stockholders to such number of votes for each share of such stock as may be fixed in the Certificate or in the resolution or resolutions adopted by the Board providing for the issuance of such stock, registered in such stockholder's name on the books of the Corporation: (i) on the date fixed pursuant to Section 6 of Article VII of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or (ii) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice of such meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) Each stockholder entitled to vote at any meeting of stockholders may authorize not in excess of three persons to act for such stockholder by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated for holding such meeting. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. (c) At each meeting of the stockholders, all corporate actions to be taken by vote of the stockholders (except as otherwise required by law and except as otherwise provided in the Certificate or these Bylaws) shall be authorized by a majority of the votes cast affirmatively or negatively by the stockholders, and where a separate vote by class is required, a majority of the votes cast affirmatively or negatively by the stockholders of such class shall be the act of such class. (d) Unless required by law or determined by the chairman of the meeting to be advisable, the vote on any matter, including the election of directors, need not be by written ballot. In the case of a vote by written ballot, each ballot shall be signed by the stockholder voting, or by such stockholder's proxy. (e) Any action required or permitted to be taken at any meeting of stockholders may, except as otherwise required by law or the Certificate, be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of record of the issued and outstanding capital stock of the Corporation having a majority of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and the writing or writings are filed with the permanent records of the Corporation. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. SECTION 10. Inspectors. The chairman of the meeting may appoint one or more inspectors to act at any meeting of stockholders. If appointed, such inspectors shall perform such duties as shall be required by law and as shall be specified by the chairman of the meeting. Inspectors need not be stockholders. No director or nominee for the office of director shall be appointed such inspector. 4 ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualification and Election. (a) Except as otherwise fixed by or pursuant to the provisions of Article IV of the Certificate relating to the rights of the holders of any class or series of stock having preference over the common stock of the Corporation as to dividends or upon liquidation, the number of directors of the Corporation shall be determined from time to time by the Board by the affirmative vote of directors constituting at least a majority of the entire Board. The use of the phrase "entire board" herein refers to the total number of directors which the Corporation would have if there were no vacancies. (b) At the first annual meeting of stockholders of the Corporation held after the consummation of the initial offering and sale by the Corporation of shares of common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, the directors, other than those who may be elected by the holders of shares of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation pursuant to the terms of Article IV of the Certificate or any resolution or resolutions providing for the issuance of such stock adopted by the Board, shall be divided into three classes, designated Class I, Class II and Class III. Initially, Class I directors shall be elected for a one-year term, Class II directors for a two-year term, and Class III directors for a three-year term. At each succeeding annual meeting of the stockholders beginning at the annual meeting after such first meeting, successors to the class of directors whose term expires at that meeting shall be elected for a three-year term. Any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected, subject, however, to his or her prior death, resignation, retirement or removal from office. (c) Each director shall be at least 18 years of age. Directors need not be stockholders of the Corporation. (d) In any election of directors held at a meeting of stockholders, the persons receiving a plurality of the votes cast by the stockholders entitled to vote thereon at such meeting who are present or represented by proxy, up to the number of directors to be elected in such election, shall be deemed elected. 5 SECTION 3. Notification of Nomination. Subject to the rights of the holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board or by any stockholder who is a stockholder of record at the time of giving of the notice of nomination provided for in this Section 3 of this Article III and who is entitled to vote for the election of directors. Any stockholder of record entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if timely written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at an annual meeting of stockholders, not less than 60 days nor more than 90 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 60 days after the first anniversary of the preceding year's annual meeting of stockholders, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be selected at such meeting. Each such notice shall set forth: (i) the name and address of the stockholder who intends to make the nomination, of all persons or entities acting in concert with the stockholder, and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii)a description of all arrangements or understandings between the stockholder and each nominee and any other person or entities acting in concert with the stockholder (naming such person or entities) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by the stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board; (v) the class and number of shares of the Corporation that are beneficially owned by the stockholder and all persons or entities acting in concert with the stockholder; and (vi) the consent of each nominee to being named in a proxy statement as nominee and to serve as a director of the Corporation if so elected. Only persons nominated in accordance with this Section shall be qualified to serve as directors. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Only such persons who are nominated in accordance with the procedures set forth in this Section 3 of this Article III shall be eligible to serve as directors of the Corporation. Notwithstanding anything in the third sentence of this Section 3 of Article III to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board made by the Corporation at least 70 days prior to the first anniversary of date on 6 which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders, a stockholder's notice required by these Bylaws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. For purposes of the Bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. SECTION 4. Quorum and Manner of Acting. Except as otherwise provided by law, the Certificate or these Bylaws, a majority of the entire Board shall constitute a quorum for the transaction of business at any meeting of the Board, and, except as so provided, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. The chairman of the meeting or a majority of the directors present may adjourn the meeting to another time and place whether or not a quorum is present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 5. Place of Meeting. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notice or waivers of notice thereof. SECTION 6. Regular Meetings. Regular meetings of the Board shall be held at such times and places as the Chairman of the Board or the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday under the laws of the place where the meeting is to be held, the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. SECTION 7. Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman of the Board or by a majority of the directors then in office. SECTION 8. Notice of Meetings. Notice of regular meetings of the Board or of any adjourned meeting thereof need not be given. Notice of each special meeting of the Board shall be given by overnight delivery service or mailed to each director, in either case addressed to such director at such director's residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such director at such place by telegraph or telecopy or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting other than for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Every such notice shall state the time and place but need not state the purpose of the meeting. 7 SECTION 9. Organization. At all meetings of the Board, the Chairman, if any, or if none or in the Chairman's absence or inability to act the President, or in the President's absence or inability to act any Vice-President who is a member of the Board of Directors, or in such Vice-President's absence or inability to act a chairman chosen by the directors, shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board when present, and, in the Secretary's absence, the presiding officer may appoint any person to act as secretary. SECTION 10. Rules and Regulations. The Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these Bylaws for the conduct of its meetings and management of the affairs of the Corporation as the Board may deem proper. SECTION 11. Participation in Meeting by Means of Communication Equipment. Any one or more members of the Board or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 12. Action without Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all of the members of the Board or of any such committee consent thereto in writing and the writing or writings are filed with the minutes or proceedings of the Board or of such committee. SECTION 13. Resignations. Any director of the Corporation may at any time resign by giving written notice to the Board, the Chairman of the Board, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 14. Removal of Directors. Any director (including all members of the Board) may be removed from office at any time, but only by the affirmative vote of the holders of at least 75% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class; provided, however, that after the election of directors in accordance with the provisions of Section 2(b) of this Article III, such removal shall be only for cause. For the purposes of this Section 14, "cause" shall mean the wilful failure of a director to substantially perform such director's duties to the Corporation (other than any such failure resulting from incapacity due to physical or mental illness) or the wilful engaging by a director in gross misconduct injurious to the Corporation. SECTION 15. Vacancies. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation, any vacancy in the Board for any reason and any newly created directorship resulting by reason of any increase in the number of directors may be filled only by the Board (and not by the stockholders), by resolution adopted by the affirmative vote of a majority of the remaining directors then in office, even though less than a 8 quorum (or by a sole remaining director); provided, however, that if not so filled, any such vacancy shall be filled by the stockholders at the next annual meeting or at a special meeting called for that purpose. Any director so appointed shall hold office until the next meeting of stockholders at which directors of the class for which such director has been chosen are to be elected and until his or her successor is elected and qualified. SECTION 16. Compensation. Each director, in consideration of such person serving as a director, shall be entitled to receive from the Corporation such amount per annum and such fees for attendance at meetings of the Board or of committees of the Board, or both, as the Board shall from time to time determine. In addition, each director shall be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person's duties as a director. Nothing contained in this Section 16 of this Article III shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving proper compensation therefor. SECTION 17. Director Emeritus. The Board may at any meeting duly convened elect as Director Emeritus any person who has, in the opinion of the Board, given long and meritorious service as a member of the Board. A Director Emeritus shall be entitled to attend and participate in any meeting of the Board; provided, however, that a Director Emeritus shall not be entitled to vote at any such meeting and shall not be included in the calculation of a quorum at any such meeting; and provided, further, that notice of any meeting of the Board shall not be required be given to a Director Emeritus. ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. Establishment of Committees of the Board of Directors; Election of Members of Committees of the Board of Directors; Functions of Committees of the Board of Directors. The Board may, in accordance with and subject to the DGCL, from time to time establish committees of the Board to exercise such powers and authorities of the Board, and to perform such other functions, as the Board may from time to time determine. SECTION 2. Procedure; Meetings; Quorum. Regular meetings of committees of the Board, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of any committee of the Board shall be called at the request of a majority of the members thereof. Notice of each special meeting of any committee of the Board shall be given by overnight delivery service or mailed to each member, in either case addressed to such member at such member's residence or normal place of business, at least two days before the day on which the meeting is to be held or shall be sent to such members at such place by telegraph or telecopy or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting other than for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting 9 was not lawfully called or convened. Any special meeting of any committee of the Board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the Board need not be given. Any committee of the Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these Bylaws for the conduct of its meetings as such committee of the Board may deem proper. A majority of the members of any committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. Each committee of the Board shall keep written minutes of its proceedings and shall report on such proceedings to the Board. SECTION 3. Action by Written Consent. Any action required or permitted to be taken at any meeting of any committee of the Board may be taken without a meeting if all the members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee. SECTION 4. Term; Termination. In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board. ARTICLE V OFFICERS SECTION 1. Number; Term of Office. The Board shall elect the officers of the Corporation, which shall include a President and a Secretary, and may include, by election or appointment, one of more Vice-Presidents (any one or more of whom may be given an additional designation of rank, such as "Executive Vice-President" or "Senior Vice-President," or function), a Treasurer and such Assistant Secretaries, such Assistant Treasurers and such other officers as the Board may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these Bylaws and as may be assigned by the Board or the President. Any two or more offices may be held by the same person except the offices of President and Secretary; provided, however, that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Certificate or these Bylaws to be executed, acknowledged or verified by two or more officers. The Board may from time to time authorize any officer to appoint and remove any such other officers and agents and to prescribe their powers and duties. The Board may require any officer or agent to give security for the faithful performance of such person's duties. SECTION 2. Term of Office; Removal; Remuneration. Each officer shall hold office for such term as may be prescribed by the Board and until such person's successor shall have been chosen and shall qualify, or until such person's death or resignation, or until such person's removal in the manner hereinafter provided. Any officer may be removed, either with or without cause, by the Board. 10 SECTION 3. Resignation. Any officer may resign at any time by giving notice to the Board, the President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term by the Board. SECTION 5. Chairman of the Board; Powers and Duties. The Chairman of the Board shall be the Chief Executive Officer of the Corporation. Subject to the control of the Board, the Chairman of the Board shall supervise and direct generally all the business and affairs of the Corporation. The Chairman of the Board shall preside at all meetings of the stockholders and the Board. Any document may be signed by the Chairman of the Board or any other person who may be thereunto authorized by the Board or the Chairman of the Board. The Chairman of the Board may appoint such assistant officers as are deemed necessary. SECTION 6. President; Chief Executive Officer; Executive Vice Presidents, Senior Vice Presidents and Vice Presidents; Powers and Duties. The President shall be the chief operating officer of the Corporation. The Chief Executive Officer, the President and each Executive Vice President, each Senior Vice President, and each Vice President shall have such powers and perform such duties as may be assigned by the Board or the Chairman of the Board. In case of the absence or disability of the Chairman of the Board or a vacancy in the office, the President, an Executive Vice President, a Senior Vice President, or a Vice President designated by the Chairman of the Board or the Board shall exercise all the powers and perform all the duties of the Chairman of the Board. The Board may elect one or more persons to be the President and/or Chief Executive Officer of a division or business unit of the Corporation. SECTION 7. Secretary and Assistant Secretary; Powers and Duties. The Secretary shall attend all meetings of the stockholders and the Board and shall keep the minutes for such meetings in one or more books provided for that purpose. The Secretary shall be custodian of the corporate records, except those required to be in the custody of the Treasurer or the Controller, shall keep the seal of the Corporation, and shall execute and affix the seal of the Corporation to all documents duly authorized for execution under seal on behalf of the Corporation, and shall perform all of the duties incident to the office of Secretary, as well as such other duties as may be assigned by the Chairman of the Board or the Board. The Assistant Secretaries shall perform such of the Secretary's duties as the Secretary shall from time to time direct. In case of the absence or disability of the Secretary or a vacancy in the office, an Assistant Secretary designated by the Chairman of the Board or by the Secretary, if the office is not vacant, shall perform the duties of the Secretary. SECTION 8. Chief Financial Officer; Powers and Duties. The Chief Financial Officer shall be responsible for maintaining the financial integrity of the Corporation, shall prepare the financial plans for the Corporation, and shall monitor the financial performance of 11 the Corporation and its subsidiaries, as well as performing such other duties as may be assigned by the Chairman of the Board or the Board. SECTION 9. Treasurer and Assistant Treasurers; Powers and Duties. The Treasurer shall have care and custody of the funds and securities of the Corporation, shall deposit such funds in the name and to the credit of the Corporation with such depositories as the Treasurer shall approve, shall disburse the funds of the Corporation for proper expenses and dividends, and as may be ordered by the Board, taking proper vouchers for such disbursements. The Treasurer shall perform all of the duties incident to the office of Treasurer, as well as such other duties as may be assigned by the Chairman of the Board or the Board. The Assistant Treasurers shall perform such of the Treasurer's duties as the Treasurer shall from time to time direct. In case of the absence or disability of the Treasurer or a vacancy in the office, an Assistant Treasurer designated by the Chairman of the Board or by the Treasurer, if the office is not vacant, shall perform the duties of the Treasurer. SECTION 10. General Counsel; Powers and Duties. The General Counsel shall be a licensed attorney at law and shall be the chief legal officer of the Corporation. The General Counsel shall have such power and exercise such authority and provide such counsel to the Corporation as deemed necessary or desirable to enforce the rights and protect the property and integrity of the Corporation, shall also have the power, authority, and responsibility for securing for the Corporation all legal advice, service, and counselling, and shall perform all of the duties incident to the office of General Counsel, as well as such other duties as may be assigned by the Chairman of the Board or the Board. SECTION 11. Controller and Assistant Controllers; Powers and Duties. The Controller shall be the chief accounting officer of the Corporation and shall keep and maintain in good and lawful order all accounts required by law and shall have sole control over, and ultimate responsibility for, the accounts and accounting methods of the Corporation and the compliance of the Corporation with all systems of accounts and accounting regulations prescribed by law. The Controller shall audit, to such extent and at such times as may be required by law or as the Controller may think necessary, all accounts and records of corporate funds or property, by whomsoever kept, and for such purposes shall have access to all such accounts and records. The Controller shall make and sign all necessary and proper accounting statements and financial reports of the Corporation, and shall perform all of the duties incident to the office of Controller, as well as such other duties as may be assigned by the Chairman of the Board or the Board. The Assistant Controllers shall perform such of the Controller's duties as the Controller shall from time to time direct. In case of the absence or disability of the Controller or a vacancy in the office, an Assistant Controller designated by the Chairman of the Board or the Controller, if the office is not vacant, shall perform the duties of the Controller. SECTION 12. Salaries. The salaries of all officers of the Corporation shall be fixed by the Board, or an authorized committee thereof, or in such manner as the Board, or any authorized committee thereof, shall provide. No officer shall be disqualified from receiving a salary by reason of also being a director of the Corporation. 12 ARTICLE VI INDEMNIFICATION SECTION 1. Scope of Indemnification. (a) Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in Section 3 of this Article VI with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board. (b) If an indemnitee is not entitled to indemnification with respect to a portion of any liabilities to which such person may be subject, the Corporation shall nonetheless indemnify such indemnitee to the maximum extent for the remaining portion of the liabilities. (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the indemnitee is not entitled to indemnification. (d) To the extent permitted by law, the payment of indemnification provided for by this Article, including the advancement of expenses pursuant to Section 2 of this Article VI, with respect to proceedings other than those brought by or in the right of the Corporation, shall be subject to the conditions that the indemnitee shall give the Corporation prompt notice of any proceeding, that the Corporation shall have complete charge of the defense of such proceeding and the right to select counsel for the indemnitee, and that the indemnitee shall assist and cooperate fully in all matters respecting the proceeding and its defense or settlement. The Corporation may waive any or all of the conditions set forth in the preceding sentence. Any such waiver shall be applicable only to the specific payment for which the waiver is made and shall not in any way obligate the Corporation to grant such waiver at any future time. In the event of a conflict of interest between the indemnitee a the indemnitee under the rules of professional conduct applicable to attorneys, it 13 shall be the policy of the Corporation to waive any or all of the foregoing conditions subject to such limitations or conditions as the Corporation shall deem to be reasonable in the circumstances. SECTION 2. Advancing Expenses. The right to indemnification conferred in Section 1 of this Article VI shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, an advancement of expenses incurred by an indemnitee shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. No advance shall be made by the Corporation if a determination is reasonably and promptly made by a majority vote of disinterested directors, even if the disinterested directors constitute less than a quorum, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, that, based upon the facts known to the Board or counsel at the time such determination is made, the indemnitee has acted in such a manner as to permit or require the denial of indemnification pursuant to the provisions of Section 1 of this Article VI. SECTION 3. Right of Indemnitee to Bring Suit. The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 of this Article VI shall be contract rights. If a claim under Sections 1 and 2 of this Article VI is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by (a) the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee has not met the applicable standard of conduct and (b) the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to 14 be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the Corporation. SECTION 4. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Certificate, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 5. Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any indemnitee against any expenses, judgments, fines and amounts payable as specified in this Article VI, to the fullest extent permitted by applicable law as then in effect. The Corporation may enter into contracts with any indemnitee in furtherance of the provisions of this Article VI and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article VI. SECTION 6. Effects of Amendments. Neither the amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article VI (including, without limitation, this Section 6) shall adversely affect the rights of any indemnitee under this Article VI with respect to any proceeding commenced or threatened prior to such amendment, repeal or adoption of an inconsistent provision. SECTION 7. Severability. If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE VII CAPITAL STOCK SECTION 1. Share Ownership. (a) Holders of shares of stock of each class of the Corporation shall be recorded on the books of the Corporation and ownership of such stock shall be evidenced by a certificate or other form as shall be approved by the Board. Certificates representing shares of stock of each class shall be signed by, or in the name of, the Corporation by the Chairman or Vice-Chairman of the Board, or the President or any Vice President and by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer of the Corporation, and sealed with the seal of the Corporation, which may be a facsimile thereof. Any or all such signatures and the signatures of any transfer agent or registrar may be facsimiles. Although any 15 officer, transfer agent or registrar whose manual or facsimile signature is affix ed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, the certificate may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. (b) The stock ledger and blank share certificates shall be kept by the Secretary or by a transfer agent or by a registrar or by any officer or agent designated by the Board. SECTION 2. Transfer of Shares. Transfers of shares of stock of each class of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by such holder's attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent for such stock, if any, and on surrender of the certificate or certificates, if any, for such shares properly endorsed or accompanied by a duly executed stock transfer power (or by proper evidence of succession, assignment or authority to transfer) and the payment of any taxes thereon; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. The person in whose name shares are registered on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation; provided, however, that whenever any transfer of shares shall be made for collateral security and not absolutely, and written notice thereof shall be given to the Secretary or to such transfer agent, such fact shall be stated in the entry of the transfer. No transfer of shares shall be valid as against the Corporation, its stockholders and creditors for any purpose, until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. SECTION 3. Registered Stockholders and Addresses of Stockholders. (a) The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by applicable law. (b) Each stockholder shall designate to the Secretary or transfer agent of the Corporation an address at which notices of meetings and all other corporate notices may be delivered or mailed to such person, and, if any stockholder shall fail to designate such address, corporate notices may be delivered to such person by mail directed to such person at such person's post office address, if any, as the same appears on the stock record books of the Corporation or at such person's last known post office address. SECTION 4. Lost, Stolen, Destroyed and Mutilated Certificates. The Corporation may issue to any holder of shares of stock the certificate for which has been lost, stolen, destroyed or mutilated a new certificate or certificates for shares, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction. The Board, or a committee designated thereby, or the transfer agents and registrars for the stock, may, in their discretion, require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to give the Corporation a bond in such sum and with such surety or sureties as they may direct to indemnify the Corporation and 16 said transfer agents and registrars against any claim that may be made on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 5. Regulations. The Board may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares of stock of each class of the Corporation and may make such rules and take such action as it may deem expedient concerning the issue of certificates in lieu of certificates claimed to have been lost, destroyed, stolen or mutilated. SECTION 6. Fixing Date for Determination of Stockholders of Record. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment or any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board to fix a record date. The Board shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the board adopts the resolution taking such prior action. SECTION 7. Transfer Agents and Registrars. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. 17 ARTICLE VIII DIVIDENDS Subject always to the provisions of law and the Certificate, the Board shall have full power to determine whether any, and, if any, what part of any, funds legally available for the payment of dividends shall be declared as dividends and paid to stockholders; the division of the whole or any part of such funds of the Corporation shall rest wholly within the lawful discretion of the Board, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the stockholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board shall think conducive to the interest of the Corporation, and the Board may modify or abolish any such reserve in the manner in which it was created. ARTICLE IX CORPORATE SEAL The Board shall provide a corporate seal which shall have inscribed thereon the name of the Corporation and the year of its incorporation, and shall be in such form and contain such other words and/or figures as the Board shall determine. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal. ARTICLE X FISCAL YEAR The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board. Unless otherwise fixed by the Board, the fiscal year of the Corporation shall be the twelve-month period beginning July 1 and ending June 30. 18 ARTICLE XI WAIVER OF NOTICE Whenever notice is required to be given by these Bylaws or by the Certificate of Incorporation or by law, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE XII BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC. SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts as may be authorized by the Board, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by the Treasurer. SECTION 2. Contracts. The Board may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 3. Proxies; Powers of Attorney; Other Instruments. The Chairman, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to the ownership of stock by the Corporation. The Chairman, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote at any meeting of stockholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board, from time to time, may confer like powers upon any other person. SECTION 4. Financial Reports. The Board may appoint the primary financial officer or other fiscal officer and/or the Secretary or any other officer to cause to be prepared and furnished to stockholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law. 19 ARTICLE XIII AMENDMENTS The Board shall have the power to adopt, amend or repeal these Bylaws by the affirmative vote of at least a majority of the members then in office. The affirmative vote of the holders of not less than seventy-five (75%) of the voting power of all shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting as a single class shall be required to adopt, amend or repeal these Bylaws (notwithstanding the fact that approval by a lesser percentage may be permitted by the DGCL). 20 EX-10.5 3 RETIREMENT GROWTH ACCOUNT PLAN THE ESTEE LAUDER INC. RETIREMENT GROWTH ACCOUNT PLAN TABLE OF CONTENTS SECTION 1 NAME AND CONSTRUCTION................................................2 SECTION 2 DEFINITIONS..........................................................4 SECTION 3 PARTICIPATION.......................................................12 SECTION 4 RETIREMENT DATES....................................................14 SECTION 5 PARTICIPANTS' RETIREMENT ACCOUNTS...................................15 SECTION 6 CONTRIBUTIONS.......................................................22 SECTION 7 DEATH BENEFIT.......................................................23 SECTION 8 TERMINATION OF EMPLOYMENT...........................................25 SECTION 9 OPTIONAL FORMS OF BENEFIT...........................................27 SECTION 10 PAYMENT OF RETIREMENT INCOME.......................................31 SECTION 11 ADMINISTRATION OF THE PLAN.........................................33 SECTION 12 INVESTMENT OF PLAN ASSETS; DUTIES OF FUDICIARY COMMITTEE...........36 SECTION 13 OBLIGATIONS OF THE EMPLOYER........................................38 SECTION 14 MISCELLANEOUS PROVISIONS...........................................39 SECTION 15 ADOPTION OF PLAN BY MEMBERS OF THE GROUP...........................41 SECTION 16 AMENDMENT AND TERMINATION..........................................43 SECTION 17 LIMITATION ACCORDING TO TREASURY DEPARTMENT REQUIREMENTS...........45 SECTION 18 TOP-HEAVY PLAN PROVISIONS..........................................46 Exhibit 10.5 AMENDMENT AND RESTATEMENT OF THE ESTEE LAUDER INC. RETIREMENT GROWTH ACCOUNT PLAN SECTION 1 NAME AND CONSTRUCTION 1.1 Name of Plan. This Plan shall be known as the "Estee Lauder Inc. Retirement Growth Account Plan." 1.2 Construction. It is the intention of Estee Lauder that the amended and restated Plan, and its attendant trust fund, will continue to meet the requirements of ERISA and be qualified and exempt from taxes under Sections 401 and 501 of the Code. Effective January 1, 1996, the Plan also is intended to be a "multiple employer plan" within the meaning of Section 413(c) of the Code. The Plan is intended to be a defined benefit plan for purposes of ERISA and the Code. 1.3 Effective Date. (a) This Amendment and Restatement of the Plan shall generally be effective as of January 1, 1999; provided, however, that: (i) The provisions of Sections 2.12, 2.16, 5.2, 7.1(a), 7.3, 8.4(b), 8.4(c) and 15 (other than Section 15.5) shall be effective January 1, 1991. (ii) The provisions of Section 14.10 shall be effective December 12, 1994. (iii) The provisions of Sections 2.6, 2.10, 2.15, 2.19, 2.21, 15.5 and 16, and Appendix K, shall be effective January 1, 1996. (iv) The provisions of Section 7.1(b) shall be effective October 1, 1996, and prior to such date the terms and conditions of such Section are governed by Section 6.1(b) of the Plan in effect on January 1, 1993. (v) The provisions of Sections 2.11 and 5.4 shall be effective January 1, 1997. (vi) The provisions of Appendix L shall be effective November 10, 1997. (vii) The provisions of the last paragraph of Section 5.5 and Section 8.4(a) shall be effective January 1, 1998. (viii) The provisions of Appendix A shall be effective January 1, 1999 (except that those provisions thereof which, by their terms, are not limited to periods on and after that date, shall be effective January 1, 1991). (ix) The changes to such other provisions of the Plan shall be effective as of such dates as are set forth in such provisions. (x) Other provisions of the Plan shall be effective as of such other earlier or later dates as shall be necessary to comply with those changes in applicable law which were effective prior to January 1, 1999. (b) The rights of any person who terminated employment or retired on or before the effective date of any of the relevant provisions of this amendment and restatement of the Plan, including his or her eligibility for benefits, shall be determined solely under the terms of the Plan as in effect on the date of his termination or retirement, unless such person is thereafter reemployed (and, to the extent relevant, again becomes an Active Participant) on or after the effective date of any such provision of amendment and restatement, in which case such provision shall apply to such person. 3 SECTION 2 DEFINITIONS "Accrued Benefit" means a monthly amount of retirement income determined for a Participant as of a specified date, commencing on a Participant's Normal Retirement Date, and payable as a single life annuity. The Accrued Benefit as of a specified date equals the Participant's Retirement Account divided by the applicable factor from Appendix A. For those who were participants in the Prior Plans as of December 31, 1990 and satisfy the applicable requirements set forth in Appendix B, the Accrued Benefit is the greater of the accrued benefit described above or the accrued benefit determined under the Prior Plans, as described in Section 5.5 hereof. 2.1 "Actuarial Equivalent" means, with respect to a Participant's Accrued Benefit, another annuity or benefit that commences at a different date and/or is payable in a different form than the Accrued Benefit, but which has the same present value as the Accrued Benefit, when measured on the basis of the applicable interest rate, mortality table and other factors specified in Appendix A as of the date of commencement of payment of such annuity or benefit, as calculated by or under the supervision of an actuary appointed by Estee Lauder or the Fiduciary Committee, which actuary has been enrolled under Subtitle C of Title III of ERISA. 2.2 "Approved Absence" means (a) any period of absence from work (other than any such absence on account of a period of Disability), with the approval or direction of the Employer, for up to 12 months and, provided said Employee returns to work for the Employer at such time as the Employer may reasonably require, the Approved Absence may exceed such 12-month period but will not be in excess of 24 months, (b) any period of absence during which the Employee was in military service with the armed forces (including Coast Guard and Merchant Marine Service) if the Employee has reemployment rights under applicable laws and complies with the requirements of the law as to reemployment and is reemployed, and (c) any period of Disability, but (except as provided in the last paragraph of Section 5.5) not to exceed twelve months. An Approved Absence will be disregarded for the purpose of the Plan, and the Employee will be regarded as in the service of the Employer during any period of an Approved Absence. The Hours of Service credited during an Approved Absence shall be those which would normally have been credited but for such absence, or in any case in which the Employer is unable to determine such hours normally credited, eight (8) Hours of Service per day. 2.3 "Average Final Compensation" means the highest average annual "compensation" which is produced by averaging an Employee's compensation for any Five (5) consecutive calendar years within the Employee's Years of Credited Service. For purposes of this Section only, "compensation" means the straight time basic salary or wages paid to an Employee by the Employer for his services during each calendar year, inclusive of salary 4 reduction contributions made by an Employer on behalf of the Employee under a "cash or deferred arrangement" described in Section 401(k) of the Code and pre-tax contributions made by the Employee under a "cafeteria plan" described in Section 125 of the Code and maintained by an Employer, but excluding bonuses, payments for overtime, other Employer contributions for pension, insurance or other welfare benefits, or any other special payments. Notwithstanding the foregoing provisions of this Section 2.4, except to the extent otherwise provided in Section 5.5, "compensation" for each calendar year shall not exceed $150,000, subject to any adjustment, for Plan Years beginning on or after January 1, 1994, to reflect increases in the cost of living determined by the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code. 2.4 "Beneficiary" means any person entitled pursuant to Section 7.3 of this Plan to receive benefits because of the death of a Participant. 2.5 "Board of Directors" or "Board" means the Board of Directors of Estee Lauder. 2.6 "Break in Service" means, with respect to any person, a Plan Year during which such person does not perform more than 500 Hours of Service; provided, however, that for purposes of Years of Eligibility Service, such term shall mean the 12-month period commencing on a person's Employment Commencement Date or a Plan Year, as the case may be (a "computation period"), during which such person does not perform more than 500 Hours of Service. A person who is absent from work for maternity or paternity reasons shall be credited with the lesser of the number of Hours of Service necessary to prevent a Break in Service or the number of hours which otherwise would normally have been credited to such person but for such absence (i) in the computation period in which the absence begins, if necessary to prevent a Break in Service, and (ii) in all other cases, in the following computation period. For purposes of this Section, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the person, (ii) by reason of the birth of a child of the person, (iii) by reason of the placement of a child with the person in connection with the adoption of such child by such person or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement. No person shall incur a Break in Service solely on account of an absence which qualifies under the Family Medical Leave Act of 1993, to the extent required under the provisions of such Act. 2.7 "Code" means the Internal Revenue Code of 1986, as amended. 2.8 "Committee" means The Estee Lauder Inc. Employee Benefits Committee appointed pursuant to Section 11 hereof. 2.9 "Compensation" means, for a particular Plan Year, the straight time basic salary or wages paid to an Employee by the Employer for his services during such Plan Year, inclusive of salary reduction contributions made by an Employer on behalf of the Employee under a "cash or deferred arrangement" described in Section 401(k) of the Code, and pre-tax contributions made by the Employee under a "cafeteria plan" described in Section 125 of the Code and maintained by the Employer, and including bonuses, payments for overtime and shift differential, but excluding commissions, other Employer contributions for pension, insurance or 5 other welfare benefits, or any other special payments and excluding amounts paid under Estee Lauder's Short-Term Disability Plan or Long-Term Disability Plan. In addition to other applicable limitations that may be set forth in the Plan and notwithstanding any other contrary provision of the Plan, Compensation taken into account under the Plan for the purpose of calculating a Plan Participant's Accrued Benefit shall not exceed $200,000 ($150,000 for Plan Years beginning on or after January 1, 1994), subject to any adjustment to reflect increases in the cost of living determined by the Secretary or the Treasury pursuant to Section 401(a)(17) of the Code. 2.10 "Disability" means, with respect to any Employee, a condition which constitutes a disability under the terms of the Employer's Long-Term Disability Plan and under Title II of the Federal Social Security Act, regardless of whether such Employee is otherwise in fact entitled to receive benefits under the Employer's Long-Term Disability Plan and/or Title II of the Federal Social Security Act. 2.11 "Early Retirement Date" means the first day of the month which next follows a Participant's termination of employment on or after attainment of at least age 55 and completion of at least ten (10) Years of Service, but prior to the Participant's Normal Retirement Date. 2.12 "Effective Date," with respect to the Plan as amended and restated and set forth herein, means January 1, 1999; provided, however, that certain provisions of the Plan shall be effective as of the dates set forth in Section 1.3. 2.13 "Employee" means any person who is classified as a common law employee of an Employer, in accordance with the Employer's standard personnel practices; provided, however, that such term shall not include: (a) a person who is represented by or included in a collective bargaining unit recognized by the Employer unless the Employer and the collective bargaining agent have agreed that the Plan shall apply to such unit; (b) with respect to periods prior to July 1, 1998, a In-Store Employee; (c) a person who would be an In-Store Employee, but for the fact that such person is classified as an international military sales person; (d) a person who is a nonresident alien who receives no compensation from an Employer which constitutes income from sources within the United States; (e) a "leased employee," within the meaning of Section 414(n) of the Code; (f) a person who is classified as an "on-call employee" in accordance with the Employer's standard personnel practices; 6 (g) with respect to periods on and after December 1, 1997, a person who is employed by the Aveda Division of Aramis Inc.; or (h) a person who is otherwise classified by the Employer as an independent contractor, in accordance with the Employer's standard personnel practices, regardless of whether such person may thereafter be held to be a common law employee of an Employer by a court, the Internal Revenue Service or any other relevant federal, state or local governmental authority or agency. 2.14 "Employer" means Estee Lauder, and any other company included within the Group that includes Estee Lauder (or any other corporation or unincorporated trade or business not included within the Group that includes Estee Lauder) that adopts the Plan with the approval of Estee Lauder, as provided in Section 15 hereof, and any successor to any such other company. With respect to each Employee, "Employer" shall mean his principal employer. 2.15 "Employment Commencement Date" means, with respect to any person, the date coincident with or next following the date on which such person first performs an Hour of Service; provided, however, that with respect to a person who incurs a Break in Service and is thereafter reemployed, such term shall mean the date subsequent to such Break in Service on which he first performs an Hour of Service. 2.16 "Entry Date" means each January 1 and July 1; provided, however, that prior to January 1, 1993, with respect to any person who was a regular and non-contingent Employee of the Employer, "Entry Date" means the first date coincident with or next following such person's Employment Commencement Date. 2.17 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.18 "Estee Lauder" means Estee Lauder Inc., a corporation duly organized under the laws of the State of Delaware, and any successor thereto. 2.19 "Fiduciary Committee" means the Estee Lauder Inc. Fiduciary Investment Committee, the members of which shall be appointed by the Board. 2.20 "Group" means Estee Lauder and any other unit or organization that is related to Estee Lauder as a member of a "controlled group of corporations," a group under "common control" or an "affiliated service group," all as determined pursuant to Sections 414(b), (c), and (m) of the Code. With respect to a participating Employer which is not in the same Group as Estee Lauder, "Group" means such Employer and any other unit or organization that is related to such employer as a member of a "controlled group of corporations," a group under "common control" or an "affiliated service group," all as determined pursuant to Sections 414(b), (c) and (m) of the Code. For purposes of determining whether or not a person is an Employee and the period of employment of such person, each such unit or organization shall be included in the Group only for such period or periods during which it is a "member" of the Group. 2.21 "Hour of Service" means: 7 (a) Each hour for which an Employee is directly or indirectly compensated, or entitled to be compensated, by the Employer for the performance of duties. (b) Each hour for which an Employee is credited by the Employer during an Approved Absence. (c) Each hour, to a maximum of 501 hours for any single continuous period, for which an Employee is directly or indirectly compensated, or entitled to be compensated, by the Employer for reasons other than the performance of duties (irrespective of whether the employment relationship has terminated) due to vacation, holidays, incapacity, layoff, jury duty or military duty. Hours shall not be credited for payment to an Employee from a plan required by workers' compensation, unemployment compensation or disability insurance laws, nor shall hours be credited for reimbursement of such an Employee for his medical or medically-related expenses. (d) Each hour for which back pay, irrespective of mitigation of damages, has been awarded or agreed to by the Employer provided that if such award or agreement of back pay is for reasons other than the performance of duties, such hours shall be subject to the restrictions of paragraph (c). The same Hours of Service shall not be credited under more than one of the paragraphs above. All Hours of Service shall be computed and credited to computation periods in accordance with Sections 2530.200b-2(b) and (c) of the Department of Labor regulations; provided, however, that Hours of Service under paragraph (a) above, with respect to any payroll period, shall be credited for the Plan Year in which such payroll period ends. In determining an Employee's Hours of Service, he shall receive credit for all Hours of Service performed for any corporation or other entity which is a member of the Group; provided that (a) he shall not be credited with any Hours of Service performed for any such corporation or other entity prior to the time that such entity becomes a member of the Group and (b) the number of Hours of Service so credited with respect to his employment with such entity shall cease at the time such entity is no longer a member of the Group. Notwithstanding any of the foregoing requirements of this definition, an individual employed by the Employer (or by any other member of the Group which includes the Employer) as a common law employee, but who is not then classified as an Employee (including, but not limited to, an individual who was an Employee and thereafter becomes an Inactive Participant on account of a transfer of employment to a non-Employer member of the Group) shall, except for purposes of determining Years of Credited Service, nevertheless be credited with Hours of Service for all periods with respect to which such person is in fact so employed as a common law employee, to the same extent as if he had been an Employee. 2.22 "In-Store Employee" means any person who: (a) is classified by Estee Lauder, or by any other member of the Group of which Estee Lauder is a part, as a common law employee of such Employer, under such Employer's standard personnel practices; and 8 (b) is paid a commission or whose principal function is making sales directly to the public, other than any such person who is classified by such Employer, under its standard personnel practices, as an international military sales person. 2.23 "Initial Effective Date" means January 1, 1991. 2.24 "Normal Retirement Date" means the first day of the month which next follows a Participant's attainment of at least age 65 and completion of at least Five (5) Years of Service. 2.25 "Normal Retirement Income" means a Participant's Accrued Benefit payable hereunder at his Normal Retirement Date in the form provided in Section 9.1 hereof. 2.26 "Participant" means any person who has become eligible to participate in the Plan in accordance with Section 3, and who has neither been paid in full any benefit to which he may be entitled under the Plan nor completely forfeited such benefit. An "Active Participant" means a Participant who is an Employee. An "Inactive Participant" means a Participant who is not an Active Participant. 2.27 "Periodic Adjustment Percentage" means the greater of (i) the arithmetic daily average of one-year Treasury Constant Maturities for each calendar year immediately preceding the applicable Plan Year for which it is applied, as published in the Federal Reserve Statistical Release H.15 (519) of the Board of Governors of the Federal Reserve System, or (ii) 4%. 2.28 "Plan" means The Estee Lauder Inc. Retirement Growth Account Plan as effective January 1, 1991, and as it hereafter may be further amended from time to time. 2.29 "Plan Year" means the calendar year. 2.30 "Prior Plan" means the Estee Lauder Inc. Employee Retirement Plan, As Amended Effective July 1, 1975 (incorporating all amendments adopted through December 31, 1990), or the Estee Lauder Hemisphere Corporation Pension Plan, As Amended and Restated Effective January 1, 1986 (incorporating all amendments adopted through December 31, 1990), as such plans were in effect immediately prior to January 1, 1991, whichever plan (if any) is applicable to a Participant. The terms and provisions of the applicable Prior Plan fix and determine the rights and obligations under the Plan with respect to any Employee whose employment terminated prior to January 1, 1991. 2.31 "Retirement Account" means the bookkeeping account maintained with respect to a Participant as described in Section 5.1 hereof. 2.32 "Retirement Income Commencement Date" means the first day of the first period for which a benefit under the Plan is paid as an annuity or any other form. 9 2.33 "Social Security Earnings Limit" means the thirty-five year average of the maximum annual wages covered by the Federal Social Security Act as in effect, ending in the year Social Security retirement age (as defined in Section 415(b)(8) of the Code) is attained. 2.34 "Surviving Spouse" means a wife or husband of a Participant who has been married to such Participant by legal contract throughout the one-year period ending on the earlier of the death of the Participant or the Participant's Retirement Income Commencement Date; provided, however, that such term shall also include a wife or husband who married the Participant during the one-year period prior to such date and, at the date of the Participant's death, has been married to the Participant for at least one (1) year. 2.35 "Trustee" means the trustee or trustees which may at any time be acting as trustee of the Trust Fund, as provided in Section 12 hereof. 2.36 "Trust Fund" or "Fund" means all funds at any time held by the Trustee and/or insurance company for the purposes of the Plan, as provided in Section 12 hereof. 2.37 "Year of Credited Service" means, with respect to any Participant, a Plan Year during which the Participant completes at least 1,000 Hours of Service as an Employee, commencing on such Participant's Entry Date, or, if later, January 1, 1993. In the case of a Participant who participated in the Plan prior to January 1, 1993, Years of Credited Service shall also include all Years of Credited Service accrued under the Plan as of December 31, 1992; fractional Years of Credited Service accrued under the Plan as of December 31, 1992 shall be converted to Hours of Service by crediting such Participant, for the Plan Year commencing on January 1, 1993, with 190 Hours of Service for each calendar month during which the Participant performed an Hour of Service. In the case of a Participant who was a participant in a Prior Plan, Years of Credited Service shall, in addition, include all Credited Service (as defined in the Prior Plan) recognized under such Prior Plan for benefit accrual purposes as of December 31, 1990. 2.38 "Year of Eligibility Service" means, with respect to any person, a consecutive 12-month period beginning on such person's Employment Commencement Date during which he completes at least 1,000 Hours of Service. If such person fails to complete at least 1,000 Hours of Service during such 12-month period, then a "Year of Eligibility Service" shall be determined based on the completion of at least 1,000 Hours of Service in the Plan Year beginning with or within the 12-month period beginning on such person's Employment Commencement Date, and then each Plan Year thereafter. In the case of a Participant who terminates employment and does not have any nonforfeitable right to his Accrued Benefit, Years of Eligibility Service before a period of consecutive one-year Breaks in Service shall not be taken into account if the number of consecutive one-year Breaks in Service in such period equals or exceeds Five (5). A Participant whose Years of Eligibility Service are disregarded pursuant to the preceding sentence shall, upon his reemployment, be treated as newly employed for eligibility purposes. If a Participant's Years of Service may not thus be disregarded, such Participant shall again become an Active Participant immediately upon the date he first performs an Hour of Service as an Employee. 10 2.39 "Year of Service" means, with respect to any person, a Plan Year during which the person completes at least 1,000 Hours of Service (except as set forth in Section 8.4 hereof (relating to the "rule of parity")) commencing on the later of January 1, 1993, or (i) for purposes of Section 5.2 hereof, in the case of any In-Store Employee who becomes a Participant on July 1, 1998 or in the case of employment by a non-Employer member of the Group, the Employment Commencement Date, (ii) for purposes of Section 5.2, in the case of any Participant not described in the foregoing clause (ii), such person's Entry Date, and (iii) for purposes of Section 8 hereof, the Employment Commencement Date. In the case of a person who was in the employ of an Employer or other member of the Group prior to January 1, 1993, Years of Service shall also include all Years of Service accrued under the Plan as of December 31, 1992; fractional Years of Service accrued under the Plan as of December 31, 1992 shall be converted to Hours of Service by crediting such person, for the Plan Year commencing on January 1, 1993, with 95 Hours of Service for each semi-monthly period during which the person performed an Hour of Service. In the case of a person who was a participant in a Prior Plan, Years of Service shall, in addition, include (i) for purposes of Section 8 hereof, all Service (as defined in the Prior Plan) recognized for purposes of vesting under such Prior Plan as of December 31, 1990 and (ii) for purposes of Section 5.2, all Credited Service (as defined in the Prior Plan) recognized under such Prior Plan for benefit accrual purposes as of December 31, 1990. The masculine pronoun wherever used herein shall include the feminine pronoun, and the singular shall include the plural. 11 SECTION 3 PARTICIPATION 3.1 Each Employee who was a participant in a Prior Plan immediately prior to the Initial Effective Date shall become a Participant herein as of the Initial Effective Date. 3.2 Each person who becomes an Employee on or after the Initial Effective Date, or who became an Employee prior to that date but was not a participant in a Prior Plan immediately prior to the Initial Effective Date, shall become a Participant on the first Entry Date on which such person is an Employee coincident with or next following his completion of a Year of Eligibility Service; provided, however, that any person who was an In-Store Employee on June 30, 1998 and completed at least a Year of Eligibility Service at any time on or prior to such date shall become a Participant on July 1, 1998 if such person remains an Employee on such date; and further, provided, that, in the case of any Employee whose Entry Date, determined without regard to any Year of Eligibility Service requirement, would otherwise have occurred prior to January 1, 1993, such Employee shall become a Participant as of such Entry Date, without the need to also complete a Year of Eligibility Service. 3.3 If a person who has been in the employ of an Employer or another member of the Group as a non-Employee subsequently becomes an Employee, such Employee shall become a Participant in accordance with Section 3.2 hereof. 3.4 A Participant who has become an Inactive Participant on account of his ceasing to be an Employee, while remaining employed by a member of the Group, shall once again become an Active Participant upon the date on which he first performs an Hour of Service as an Employee following the date he becomes an Inactive Participant. 3.5 Except as otherwise provided in this Section, benefits commencing after Normal Retirement Age shall not be less than the Actuarial Equivalent of the benefits to which the Participant would have been entitled if such benefits had commenced at Normal Retirement Age. Upon written notification to a Participant who elects to remain in service pursuant to Section 4.3 hereof, or to a former retired Participant who returns to the service of an Employer as a Participant herein, the retirement income payments to which the Participant is entitled on and after Normal Retirement Age but before he retires (or, in the case of a former retired Participant, again retires) shall be permanently forfeited so long as such Participant remains in "section 203(a)(3)(B) service," as described in Department of Labor Regulation Section 2530.203-3(c). For this purpose, a Participant's service shall be deemed "section 203(a)(3)(B) service" for any month in which he is credited with at least 40 Hours of Service or such other standard as may be applicable under Section 203(a)(3)(B) of ERISA. In the case of a Participant whose retirement income commenced to be paid before his Normal Retirement Date, upon his subsequent retirement, his retirement income shall be recomputed, based on the amount credited to his 12 Retirement Account pursuant to Section 5 hereof and reduced on an actuarial basis to take account of retirement income payments previously received by him. 13 SECTION 4 RETIREMENT DATES 4.1 Except as otherwise provided in this Section 4, each Participant may retire on his Normal Retirement Date and shall receive the Normal Retirement Income. 4.2 A Participant may retire on or after his Early Retirement Date and shall be entitled to receive his Accrued Benefit on or after his termination of employment in accordance with the provisions of Sections 9 and 10 hereof. 4.3 Any Participant whose employment is continued by the Employer after the Participant has reached his Normal Retirement Date shall receive retirement income payments commencing on the first day of the month following the date of his actual retirement, based on the amount credited to his Retirement Account at such date. 14 SECTION 5 PARTICIPANTS' RETIREMENT ACCOUNTS 5.1 A Retirement Account shall be established and maintained for each Participant pursuant to this Section 5 (and for certain individuals who were participants in a Prior Plan) to which credits shall be made in accordance with the provisions of this Section 5. Except as otherwise provided in Section 5 hereof, an Inactive Participant who was a participant in a Prior Plan before January 1, 1991 but is not an Active Participant at any time on or after January 1, 1991 shall be credited with an amount equal to his "Accrued Benefit under the Prior Plan," determined in accordance with Appendix A, but a Retirement Account shall not be established for such Inactive Participant. Except as otherwise provided in Section 5.5 and 5.6 hereof, a Participant's Accrued Benefit under this Plan shall be based on the amount credited to his Retirement Account. The Retirement Account established and maintained pursuant to this Section 5 is intended to be a bookkeeping account. Neither the establishment of such Retirement Account nor the making of credits to such Retirement Account shall be construed as an allocation of assets of the Plan to, or a segregation of such assets in, such account, or otherwise as creating a right of the Participant to receive specific assets of the Plan. Benefits provided under the Plan shall be paid from the general assets of the Plan in the amounts, in the forms and at the times provided in Sections 4, 8, 9 and 10 hereof. 5.2 The annual amount credited to a Participant's Retirement Account pursuant to this Section shall be based upon the Participant's Years of Service and the Participant's Compensation for the applicable Plan Year or portion thereof. Credits pursuant to this Section shall be made to a Participant's Retirement Account as of the last day of each Plan Year beginning with 1991 and ending with the last day of the month in which occurs the Participant's termination of employment. (a) For each Participant who has fewer than Five (5) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to three percent (3%) of the Participant's Compensation earned while an Active Participant for such Plan Year. (b) For each Participant who has Five (5) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to the sum of (i) three percent (3%) of the Participant's Compensation earned while an Active Participant for such Plan Year multiplied by a fraction, the numerator of which is the number of whole calendar months in such Plan Year while an Active Participant preceding the anniversary of his Entry Date ("Anniversary Date") and the denominator of which is the number of whole months in such Plan Year while an Active Participant, and (ii) four percent (4%) of the Participant's Compensation earned while an Active Participant for such Plan Year multiplied by a fraction, the numerator of which is the number of whole calendar months in such Plan Year while an Active Participant following the Anniversary Date (including the calendar month in 15 which the Anniversary Date occurs) and the denominator of which is the number of whole months in such Plan Year while an Active Participant. (c) For each Participant who has more than Five (5) but fewer than ten (10) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to four percent (4%) of the Participant's Compensation earned while an Active Participant for such Plan Year. (d) For each Participant who has ten (10) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to the sum of (i) four percent (4%) of the Participant's Compensation earned while an Active Participant for such Plan Year multiplied by a fraction, the numerator of which is the number of whole calendar months in such Plan Year while an Active Participant preceding the Anniversary Date and the denominator of which is the number of whole months in such Plan Year while an Active Participant, and (ii) five percent (5%) of the Participant's Compensation earned while an Active Participant for such Plan Year multiplied by a fraction, the numerator of which is the number of whole calendar months in such Plan Year while an Active Participant following the Anniversary Date (including the calendar month in which the Anniversary Date occurs) and the denominator of which is the number of whole months in such Plan Year while an Active Participant. (e) For each Participant who has more than ten (10) Years of Service as of the last day of the Plan Year, credits shall be made to the Participant's Retirement Account in an amount equal to five percent (5%) of the Participant's Compensation earned while an Active Participant for such Plan Year. No credits shall be made pursuant to this Section with respect to any period during which a Participant is an Inactive Participant. In the event that a Participant becomes an Inactive Participant by reason of his transfer of employment to a non-Employer member of the Group, no credits shall be made to his Retirement Account pursuant to this Section after the end of the month in which the transfer occurs, and for purposes of this Section his Compensation shall be considered to be $0 after the end of the Plan Year in which the transfer occurs until such time that he again performs an Hour of Service as an Employee (i.e., again becomes an Active Participant); provided, however, that such Participant's Retirement Account balance shall continue to be increased in accordance with Section 5.4 hereof following such transfer. 5.3 In the case of an Active Participant in the Plan who as of the Initial Effective Date had an accrued benefit under a Prior Plan as of December 31, 1990, there shall be credited to the Retirement Account of such Participant as of January 1, 1991, an amount that is the single sum value of his "Accrued Benefit under the Prior Plan," determined in accordance with Appendix A. 5.4 For Plan Years beginning on or after the Initial Effective Date, each Participant's Retirement Account balance on the first day of the Plan Year shall be automatically increased as of the last day of the Plan Year by an amount equal to the Retirement Account balance on the first day of the Plan Year multiplied by the Periodic Adjustment Percentage; 16 provided, however, in the case of a Participant who terminates employment, for any reason, such increase shall continue to be made until the last date as of which a Retirement Account balance is maintained for such Participant; further provided, however, if such increase is for less than a full Plan Year, the Periodic Adjustment Percentage shall be proportionately reduced. 5.5 In the case of any Participant on or after the Initial Effective Date who was a Participant under a Prior Plan on December 31, 1990 and satisfies the applicable requirements set forth in Appendix B, such Participant's Accrued Benefit shall be the greater of (ii) the amount credited to his Retirement Account or (ii) the accrued benefit which would have been determined for him under the terms and provisions of the Prior Plan as in effect immediately prior to the Initial Effective Date, had such Prior Plan continued in effect until the date of his termination of employment. For this purpose, in the case of the Prior Plan which is the Estee Lauder Inc. Employee Retirement Plan, the annual amount of the Participant's Normal Retirement Income is equal to the greater of (a), (b), (c) or (d) below: (a) One percent (1%) of that portion of his Average Final Compensation which is not in excess of his Social Security Earnings Limit plus one and one-half percent (1-1/2%) of that portion of such Average Final Compensation which is in excess of such Social Security Earnings Limit, multiplied by the number of his Years of Credited Service. (b) $2,500 with 25 or more Years of Credited Service and reduced proportionately for Years of Credited Service less than 25. (c) The amount which would otherwise have been determined under (a) above had such Participant terminated employment on December 31, 1988, calculated without regard to any dollar limitations on the amount of "Average Final Compensation" otherwise taken into account under the Estee Lauder Inc. Employee Retirement Plan as then in effect. (d) The amount which would otherwise have been determined under (a) above had such Participant terminated employment on December 31, 1993 (or, if earlier, his actual date of termination of employment) and had such Participant's "compensation" (as used in Section 1.4) for each Plan Year during the period ending on such applicable date been limited to $200,000 (or such greater amount as may have been permitted after taking into account increases for cost of living for such Plan Year, as determined by the Secretary of the Treasury) and with such dollar limit further applied by taking into account the family aggregation rules of Section 414(q)(6) of the Code pursuant to Section 401(a)(17) of the Code (as in effect on such applicable date). In the case of the Estee Lauder Hemisphere Corporation Pension Plan, the annual amount of the Participant's Normal Retirement Income would be equal to the greater of (a), (b), (c) or (d) below: (a) One percent (1%) of that portion of his Average Final Compensation which is not in excess of his Social Security Earnings Limit plus one and one-half percent (1-1/2%) of that portion of such Average Final Compensation which is in excess of such Social Security Earnings Limited, multiplied by the number of his Years of Credited Service. 17 (b) $1,620 with 25 or more Years of Credited Service and reduced proportionately for Years of Credited Service less than 25. (c) The amount which would otherwise have been determined under (a) above had such Participant terminated employment on December 31, 1988 and calculated without regard to any dollar limitations on the amount of "Average Final Compensation" otherwise taken into account under the Estee Lauder Hemisphere Corporation Pension Plan as then in effect. (d) The amount which would otherwise have been determined under (a) above had such Participant terminated employment on December 31, 1993 (or, if earlier, his actual date of termination of employment) and had such Participant's "compensation" (as used in Section 1.4) for each Plan Year during the period ending on such applicable date been limited to $200,000 (or such greater amount as may have been permitted after taking into account increases for cost of living for such Plan Year, as determined by the Secretary of the Treasury) and with such dollar limit further applied by taking into account the family aggregation rules of Section 14(q)(6) of the Code pursuant to Section 401(a)(17) of the Code (as in effect on such applicable date). In the case of a Participant whose Accrued Benefit is determined under the terms of a Prior Plan under this Section, a Participant may, subject to consent as provided in Sections 9.4 and 9.5 hereof, elect a reduced retirement income to commence on the first day of any month which is between the date of his Early Retirement Date and his Normal Retirement Date. In the case of the Estee Lauder Inc. Employee Retirement Plan, the amount of the percentage of such reduction shall be equal to the sum of (a) the product derived by multiplying 7/12ths of one percent (1%) times the number of whole calendar months by which the pension commencement date precedes the Participant's attainment of age 57 and (b) the product derived by multiplying 5/12ths of one percent (1%) by the excess of (i) the number of whole calendar months by which the pension commencement date precedes the Participant's attainment of age 62 over (ii) the number of whole calendar months specified in (a). No reduction shall be applied to such early retirement income amount if the pension commencement date occurs on or after the Participant's attainment of age 62. In the case of the Estee Lauder Inc. Hemisphere Corporation Pension Plan, the amount of the percentage of such reduction shall be equal to the sum of (a) the product derived by multiplying 1/4 of one percent (1%) times the number of whole calendar months (up to and including the first 60 thereof) by which the pension commencement date precedes the Normal Retirement Date and (b) the product derived by multiplying 1/2 of one percent (1%) by the number of calendar months, if any, by which the pension commencement date precedes by more than 60 calendar months the Normal Retirement Date. Notwithstanding any other provision of the Plan to the contrary: (a) in the case of any Participant who is eligible for a benefit set forth in this Section 5.5 and incurs a Disability prior to January 1, 1998, such Participant (i) shall continue to be credited with Hours of Service during the period of such Disability, to the same extent as if such person 18 had not become so disabled, for purposes of determining such person's Years of Credited Service used in calculating such person's benefit pursuant to this Section 5.5, and (ii) shall, during the portion of such Participant's period of such Disability beginning on January 1st of the year following the year in which such period of Disability first commenced, be considered to continue to receive "compensation" for purposes of determining such person's Average Final Compensation, based upon such person's level of "base pay" as in effect immediately prior to the incurring of such Disability, and (b) in the case of any Participant who is eligible for a benefit set forth in this Section 5.5 and incurs a Disability on or after January 1, 1998, such Participant (i) shall continue to be credited with Hours of Service during a period not exceeding the first twelve months of such Disability, to the same extent as if such person had not become so disabled, for purposes of determining such person's Years of Credited Service used in calculating such person's benefit pursuant to this Section 5.5, and (ii) shall, during that portion (if any) of such Participant's period of such Disability beginning on January 1st of the year following the year in which such period of Disability first commenced during which such Participant continues to be so credited with Hours of Service pursuant to the immediately preceding clause (i), be considered to continue to receive "compensation" for purposes of determining such person's Average Final Compensation, based upon such person's level of "base pay" as in effect immediately prior to the incurring of such Disability; provided, however, that in no event shall such person continue to be so credited with Hours of Service or be imputed with "compensation" for periods after such person's Normal Retirement Date. 5.6 Notwithstanding anything to the contrary provided herein or elsewhere in the Plan, any Participant who retires on or after his Normal Retirement Date with at least Five (5) Years of Credited Service but less than ten (10) Years of Credited Service shall be entitled to a Normal Retirement Income of not less than $100 per month for life, and any Participant who retires on or after his Normal Retirement Date with at least ten (10) Years of Credited Service shall be entitled to a Normal Retirement Income of not less than $200 per month for life. 5.7 The benefits otherwise payable to a Participant or a Beneficiary under this Plan and, where relevant, the Accrued Benefit of a Participant, shall be limited to the extent required, and only to the extent required, by the provisions of Section 415 of the Code and rulings, notices and regulations issued thereunder. To the extent applicable, Section 415 of the Code and rulings, notices and regulations issued thereunder are hereby incorporated by reference into this Plan. In calculating these limits, the following rules shall apply: (a) Except where otherwise specifically set forth in rulings, notices and regulations incorporated into this Plan by reference, the limitations applicable to alternative forms of benefits (other than a "qualified joint and survivor annuity," as defined in Section 417(b) of the Code) shall be determined using the factors set forth in Appendix A. (b) If the applicable limits of Section 415 of the Code are increased after a benefit is in pay status by virtue of an adjustment to those limits reflecting a change in the cost of 19 living index, benefit payments to a Participant or his Beneficiary shall be increased automatically to the maximum extent permitted under the revised limits. This increase shall occur only to the extent it would not cause the benefit to exceed the benefit to which the Participant or Beneficiary would have been entitled in the absence of the limits under Section 415 of the Code. (c) If, upon the death of a Participant whose benefits were limited under this Section, the Surviving Spouse shall be entitled to a benefit payment smaller than that which was payable while the Participant was alive, the benefit payments to the Surviving Spouse shall equal the lesser of: (i) the benefit payment which would be payable to the Surviving Spouse if benefits under this Plan had not been limited by this Section, and (ii) the benefit payment which would be payable to the Surviving Spouse if the benefit provided under this Plan had been a "qualified joint and survivor annuity," as defined in Section 417(b) of the Code, with survivor benefits equal to 100% of the amount payable while the Participant was alive, in an amount equal to the maximum limitations provided under this Section. (d) If the Participant is, or ever has been, covered under one or more qualified defined contribution plans maintained by the Employer or another member of the Group, the combined plan limits of Section 415(e) of the Code shall be calculated by reducing the limits applicable to this Plan first, prior to restricting annual additions to any such defined contribution plan; provided, however, that this paragraph (d) shall apply only with respect to Plan Years commencing prior to January 1, 2000. Notwithstanding the foregoing, or any other provision of this Plan to the contrary, the benefits otherwise payable to (or on account of) any Participant on or after January 1, 2,000 (including any Participant who is already receiving an annuity under the Plan prior to that date) shall, to the maximum extent permitted by the Code, be determined by disregarding any limit which may have been previously imposed on such person's benefits under this Plan pursuant to the provisions of the preceding sentence; provided, however, that there shall be no adjustment in the benefits otherwise paid to such person with respect to periods prior to January 1, 2,000; and, further provided, that this sentence shall not apply with respect to any person who has, prior to January 1, 2000, received a lump sum distribution under the Plan. (e) If the Participant is entitled to a benefit under any defined benefit plan which is, or ever has been, maintained by the Employer or another member of the Group, the limits under this Section shall be applied to the combined benefits payable and the benefit payable hereunder shall be reduced to the extent necessary to make the combined benefits meet the limits under this Section. (f) To calculate average compensation for a Participant's high-three years of service, compensation shall be the Employee's Compensation, and the three-year average shall be calculated using consecutive limitation years. A limitation year shall be a Plan Year for purposes of this Section. 20 (g) The amendments to Section 415(b) of the Code made by Public Law 103-465 (as modified by Public Law 104-188) shall first be effective January 1, 1999. 5.8 Notwithstanding any other provision of the Plan to the contrary, the Accrued Benefit of an Inactive Participant who (i) was a participant in a Prior Plan and (ii) had a condition of Disability as of December 30, 1990, shall continue to be determined under the benefit formula of such Prior Plan, unless such Inactive Participant is eligible for the benefit set forth in Section 5.5 hereof. A Participant who first has a condition of Disability on or after January 1, 1991 shall be covered under the benefit formula of this Plan as of the Initial Effective Date unless such Participant is eligible for the benefit set forth in Section 5.5 hereof. For purposes of determining the opening Retirement Account balance under this Plan, Average Final Compensation shall be used, except that with respect to any year in which there were no earnings or earnings were reduced because of Disability, such Participant's last year of actual base pay shall be used on an annualized basis. 21 SECTION 6 CONTRIBUTIONS 6.1 No contributions are to be made by Participants under this Plan. 6.2 Subject to the provisions of Section 13 hereof, the Employer intends to contribute over a period of time such amounts as may be determined by actuarial calculations to be required of the Employer to provide benefits in accordance with the Plan. Any forfeitures arising under the Plan shall not be applied to increase the benefits any Participant would otherwise receive under the Plan but shall be applied to reduce the Employer contributions under the Plan. 6.3 Subject to the provisions of Section 13 hereof, the administrative expenses of the Plan, except to the extent paid by the Employer, shall be paid out of the funds of the Plan. 6.4 Except as provided in paragraphs (a) and (b) below, and except as provided in Section 16 hereof, Employer contributions made under the Plan will be held for the exclusive benefit of Participants, and their joint annuitants or Beneficiaries and may not revert to the Employer. (a) A contribution made by the Employer under a mistake of fact may be returned to the Employer within one (1) year after it is contributed to the Plan. (b) A contribution conditioned upon its deductibility under Section 404 of the Code may be returned, to the extent the deduction is disallowed, to the Employer within one (1) year after the disallowance. The maximum contribution that may be returned to the Employer will not exceed the amount actually contributed to the Plan, or the value of such contribution on the date it is returned to the Employer, if less. 6.5 In recognition of the fact that the Plan is, effective January 1, 1996, subject to the requirements of Section 413(c) of the Code, the provisions of Section 413(c)(4) of the Code shall, with respect to periods on and after that date, be applied consistent with such rules and procedures as shall be adopted by the actuary appointed under the Plan. 22 SECTION 7 DEATH BENEFIT 7.1 Death Before Retirement Date. (a) If a Participant with a nonforfeitable right to the amount credited to his Retirement Account pursuant to Section 8 hereof dies prior to commencement of benefits, then his Surviving Spouse, or if (i) the Participant elects a Beneficiary other than his Surviving Spouse and such Surviving Spouse consents to such designation pursuant to Section 7.3 of the Plan or (ii) the Participant is unmarried, the Participant's designated Beneficiary, shall receive the amount credited to the Retirement Account, payable in a single life annuity. The Surviving Spouse (or designated Beneficiary, if applicable) may elect to receive such benefit in a cash lump sum payment; provided, however, that if the Actuarial Equivalent value of such amount does not exceed $3,500 (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after January 1, 1998), such value shall automatically be paid in a cash lump sum in accordance with the last sentence of Section 10.1 hereof. (b) Notwithstanding the foregoing subsection (a), if (i) a Participant described in such subsection (a) was subject to the provisions of Section 5.5 and (ii) at the time of his death there is a Surviving Spouse and the Participant has not designated a Beneficiary other than his Surviving Spouse with such Surviving Spouse's consent pursuant to Section 7.3, the single life annuity otherwise payable to such Surviving Spouse pursuant to this Section 7.1 shall not be less than the single life annuity otherwise payable to such person determined in accordance with the provisions of Section 6.1 or 6.2, as the case may be, of the appropriate Prior Plan and based solely on such Participant's Normal Retirement Income determined in accordance with Section 5.5; provided, however, that if the Actuarial Equivalent value of the single life annuity otherwise so determined pursuant to this subsection (b) does not exceed $3,500 (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after January 1, 1998), such value shall automatically be paid in a cash lump sum in accordance with the last sentence of Section 10.1 hereof. 7.2 Death After Date of Commencement of Benefits. In the event of a Participant's death after commencement of benefits, and if an optional form of benefit under Section 9.3 hereof is applicable, then the death benefit payable hereunder, if any, shall be determined in accordance with such optional election. Otherwise, no death benefit shall be payable. 7.3 Beneficiary Designation. If a Participant has a Surviving Spouse, his Surviving Spouse shall be his Beneficiary, unless the Participant designates someone other than his Surviving Spouse as his Beneficiary (other than as a contingent Beneficiary) and the Surviving Spouse consents to such designation. If the Participant does not have a Surviving Spouse or if his Surviving Spouse consents, the Participant shall have the right to designate any 23 person as a Beneficiary, to receive the amount, if any, payable pursuant to this Plan upon his death and may from time to time change any such designation in accordance with procedures established by the Committee. Each such designation shall be in a written instrument filed with the Committee or its designee, and shall be in such form as may be required by the Committee or its designee. In the event that a Participant designates someone other than his Surviving Spouse as his Beneficiary (other than as a contingent Beneficiary), such Beneficiary designation shall not be effective unless (i) the Surviving Spouse consents to such Beneficiary designation in writing, in a form acceptable to the Committee or its designee, and such consent is witnessed by a Plan representative or a notary public or (ii) the Participant provides the Committee or its designee with sufficient evidence to show that the Participant does not have a Surviving Spouse or that his Surviving Spouse cannot be located. The Committee shall decide which Beneficiary, if any, shall have been validly designated. If a Participant does not have a Surviving Spouse and no Beneficiary has been designated, or if a Participant does not have a Surviving Spouse and the Committee determines that a designation made by the Participant is not effective for any reason, the Committee shall designate as Beneficiary the estate of the deceased Participant. 24 SECTION 8 TERMINATION OF EMPLOYMENT 8.1 A Participant shall be 100% vested in the amount credited to his Retirement Account after having completed at least Five (5) Years of Service. If a Participant terminates employment other than by early or normal retirement or death after having completed at least Five (5) Years of Service, he shall be entitled to elect payment of the amount credited to his Retirement Account as of such date of termination in a cash lump sum or, (i) if the Participant has a Surviving Spouse at the time of such termination of employment, as an annuity of the form described in Section 9.2 hereof or (ii) if the Participant has no Surviving Spouse at the time of such termination of employment, as an annuity of the form of benefit described in Section 9.1 hereof. Such payment shall be made (or in the case of an annuity, shall commence) in accordance with the last sentence of Section 10.1 hereof, and such election to be subject to consent as provided in Sections 9.4 and 9.5 hereof; provided, however, that if the Actuarial Equivalent value of such amount does not exceed $3,500 (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after January 1, 1998), such value shall automatically be paid in a cash lump sum in accordance with the last sentence of Section 10.1 hereof. If such Participant does not elect such lump sum or annuity, he shall be entitled to receive a Normal Retirement Income commencing on his Normal Retirement Date, payable in a lump sum or as an annuity, in accordance with Sections 9.1 or 9.2 hereof, to the extent applicable. For purposes of this Section 8, a Participant who is terminated for Disability after a one-year absence because of Disability shall be deemed to have completed at least Five (5) Years of Service. 8.2 In no event shall the retirement income of a terminated Employee who was a participant under a Prior Plan immediately prior to the Initial Effective Date be less than the Actuarial Equivalent of the benefit that would have been payable under the Prior Plan had the Participant's employment terminated immediately prior to the Initial Effective Date. 8.3 Notwithstanding any other provision of this Plan, each Participant shall be 100% vested in his Retirement Account on his Normal Retirement Date. 8.4 (a) If a Participant's service terminates prior to having completed Five (5) Years of Service, and at a time when he is 0% vested in the amount credited to his Retirement Account, he shall, notwithstanding any other provision of the Plan to the contrary, be deemed to automatically receive, as of such person's date of termination of employment, a single lump sum distribution which is the Actuarial Equivalent of his entire vested Accrued Benefit under the Plan, and he shall thereupon forfeit his Retirement Account as of such same date. Any forfeiture resulting from the operation of this Section, or any other provisions of the Plan, shall be used to reduce future Employer contributions. (b) If a Participant's Retirement Account is forfeited pursuant to the preceding paragraph (a) above and such Participant is subsequently reemployed as an Employee of an Employer (i) after the number of consecutive one-year Breaks in Service equals or exceeds Five (5), the Years of Service completed prior to the Breaks in Service shall not be aggregated 25 with Years of Service completed after the reemployment date, or (ii) prior to incurring Five (5) or more consecutive one-year Breaks in Service, the amounts previously credited to his Retirement Account will be restored, the Years of Service completed prior to the Breaks in Service will be aggregated with the Years of Service after his reemployment date and the Participant shall become a Participant of the Plan upon his reemployment. (c) If a Participant's vested percentage is 100% at the time of his termination of employment, and such Participant is subsequently reemployed as an Employee of an Employer, Years of Service completed prior to any number of one-year Breaks in Service shall be aggregated with Years of Service after the reemployment. If such Participant received a complete distribution of his benefits under the Plan prior to his reemployment, then the amounts credited to his Retirement Account as of his date of termination shall be restored on his reemployment date, but any subsequent distribution paid to the Participant after his reemployment shall be offset by the present value of any distributions previously paid to him at any time in accordance with the requirements of Section 411(a)(7) of the Code and the regulations promulgated thereunder. 8.5 Notwithstanding the foregoing provisions of this Section 8 and solely in the case of a Participant subject to the provisions of Section 5.5: (a) if such Participant's Accrued Benefit is in fact determined pursuant to Section 5.5, rather than with reference to the amount credited to his Retirement Account, then the provisions of Section 8.1 shall instead be applied with reference to such Accrued Benefit so determined pursuant to Section 5.5, and in connection therewith, the amount of any cash lump sum shall be the Actuarial Equivalent of such Accrued Benefit; and (b) regardless of whether such Participant's Accrued Benefit is in fact so determined pursuant to Section 5.5, the provisions of Section 8.4 shall be applied with reference to both such person's Retirement Account and the amount otherwise calculated pursuant to Section 5.5. 26 SECTION 9 OPTIONAL FORMS OF BENEFIT 9.1 Normal Form of Benefit. (a) The normal form of benefit shall be an income payable monthly for life, commencing on the Normal Retirement Date and terminating with the payment preceding death; provided, however, that a Participant may, with spousal consent under the terms of Section 9.4 hereof, if applicable, elect to receive the amount credited to his Retirement Account in a single cash lump sum; further provided, however, that if the Actuarial Equivalent value of such amount does not exceed $3,500 (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after January 1, 1998), such value shall automatically be paid to the Participant in a cash lump sum in accordance with the last sentence of Section 10.1 hereof. (b) Notwithstanding the foregoing subsection (a) and solely in the case of a Participant subject to the provisions of Section 5.5, if such Participant's Accrued Benefit is in fact determined pursuant to Section 5.5, rather than with reference to the amount credited to his Retirement Account, then the provisions of the foregoing subsection (a) shall instead be applied with reference to such Accrued Benefit so determined pursuant to Section 5.5, and in connection therewith, the amount of any cash lump sum shall be the Actuarial Equivalent of such Accrued Benefit. 9.2 Automatic Post-Retirement Surviving Spouse Option. Subject to the conditions hereinafter set forth in this Section, if a Participant has a Surviving Spouse at his Retirement Income Commencement Date, the amount of retirement income payment to which he would otherwise be entitled under the normal form of benefit described in Section 9.1 shall be reduced on an Actuarial Equivalent basis to reflect the fact that, if such spouse shall survive him, a retirement income shall be payable under the Plan to his Surviving Spouse during such spouse's remaining lifetime after his death in an amount equal to 50% of the reduced amount of retirement income payments. A married Participant may elect (and may revoke such election and thereafter reelect) that his retirement income not be paid in the 50% joint and survivor form described in the preceding sentence, subject to the provisions of Section 9.4 hereof. 9.3 Notwithstanding the foregoing provisions of this Section 9, a Participant who retires on or after his Early Retirement Date may, subject to consent as provided in Sections 9.4 and 9.5 hereof, elect to receive the value of (i) his entire Accrued Benefit in accordance with one of the following optional forms, except that Option 1 or 2 may not be elected with respect to an Accrued Benefit accrued prior to January 1, 1991; (ii) his Accrued Benefit as of his Retirement Income Commencement Date less the value of his Accrued Benefit as of December 31, 1990 separately in accordance with Option 1 or 2; and (iii) his Accrued Benefit as of December 31, 1990, under a Prior Plan separately in accordance with Option 3, 4 or 5; provided, however, that 27 the Prior Plan benefit may be received separately only if a Participant elects Option 1 or 2 under clause (ii) hereof. Option 1. An Actuarial Equivalent retirement income to be paid to the retired Participant for the rest of his life, and after his death either 50% or 100% (in accordance with his election) of such Actuarial Equivalent retirement income to be paid to his contingent annuitant for the rest of the contingent annuitant's life. Option 2. An Actuarial Equivalent retirement income to be paid to the retired Participant payable for the greater of his lifetime or a period of ten (10) years. If the retired Participant dies before the expiration of ten (10) years, the remaining installments of his Actuarial Equivalent retirement income shall be paid to his Beneficiary. Option 3. An Actuarial Equivalent retirement income to be paid to the retired Participant for the rest of his life, and after his death either 25%, 66.67%, 75% or 100% (in accordance with his election) of such Actuarial Equivalent retirement income to be paid to his contingent annuitant for the rest of the contingent annuitant's life. Option 4. An Actuarial Equivalent retirement income to be paid to the retired Participant for the rest of his life, and if he dies before receiving 120 monthly payments, such Actuarial Equivalent retirement income to be paid to his Beneficiary for the remainder of the 120 months. Option 5. A Participant who retires early in accordance with Section 4.2 hereof may elect to receive an Actuarial Equivalent retirement income providing larger monthly payments, in lieu of the retirement income otherwise payable upon early retirement, until the earliest date on which his Social Security benefit could commence; thereafter his monthly retirement income payments shall be reduced by the estimated monthly amount of his Social Security benefit computed to commence on such date. This optional form provides, insofar as practical, a level total retirement income (from this Plan and Social Security) for the Participant. In the event of the election of this Social Security adjustment option, the monthly payment of the adjusted retirement income shall commence at the date of retirement and shall cease with the earlier of the last payment prior to the death of the Participant or the last payment payable as calculated under this option. 9.4 The following rules and requirements must be met in order for any optional form of retirement income to be applicable. (a) The election must be made pursuant to a qualified election (as described in paragraphs (b) and (g) of this Section) and filed with the Committee or its designee within the 90-day period ending on the Retirement Income Commencement Date. (b) The consent of a contingent annuitant or Beneficiary shall not be required for a qualified election of an option; except that, if a married Participant elects to receive a form of benefit other than the Automatic Post-Retirement Survivor Spouse Option described in Section 9.2 hereof, a qualified election requires that the Surviving Spouse waive such spouse's 28 right to the Automatic Post-Retirement Surviving Spouse Option. Such waiver shall not be effective unless (i) the consent is in writing; (ii) the election designates a specific alternate Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, which may not be changed without spousal consent (or the Surviving Spouse expressly permits designations by the Participant without any further spousal consent); (ii) the Surviving Spouse's consent acknowledges the effect of the election; (iv) the Surviving Spouse's consent is witnessed by a Plan representative or notary public; and (v) the election designates a form of benefit payment that may not be changed without spousal consent (or the Surviving Spouse expressly permits designations by the Participant without any further spousal consent). In the absence of a waiver by such spouse, other than for the reason that such spouse cannot be located, the election of a form of payment other than as provided in Section 9.2 hereof shall be null and void. Any consent by a Surviving Spouse obtained under this provision (or establishment that the consent of a Surviving Spouse may not be obtained) shall be effective only with respect to such Surviving Spouse. A consent that permits designations by the Participant without any requirement of further consent by the Surviving Spouse must acknowledge that such spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that such spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior waiver may be made by a Participant without the consent of the Surviving Spouse at any time prior to the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in paragraph (g) of this Section. (c) An election may not be made nor will it be accepted by the Committee or its designee, or if accepted it shall become null and void, if the Actuarial Equivalent value of the Participant's entire Accrued Benefit as of his Retirement Income Commencement Date would be $3,500 or less (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 or less (with respect to Plan Years beginning on or after January 1, 1998), and such value shall automatically be paid to the Participant in a cash lump sum. (d) If the stated effective date of the option is prior to the Participant's Normal Retirement Date and the Participant continues in service after such stated effective date, the election shall become null and void but, subject to the rules and requirements contained in this Section, the Participant may thereafter make another election. If the stated effective date is the Participant's Normal Retirement Date or any later date and he continues in service after such stated effective date, the option shall take effect upon his subsequent death or retirement. (e) If a Participant who has elected Option 4 under Section 9.3 hereof dies while the option is in effect, and his Beneficiary is a natural person who survives the Participant but dies before the 120 monthly payments have been paid to the Participant and the Beneficiary, the lump sum discounted value of the unpaid balance of such 120 monthly payments shall be paid to the Beneficiary's estate. (f) If the contingent annuitant is other than the Surviving Spouse, and if the actuarial present value of the payments to be made to the Participant under an option will be less than 51% of the Actuarial Equivalent value of the normal form of retirement benefit provided in Section 9.1 hereof, the optional benefit shall be adjusted so that the value of the 29 Participant's benefit will be equal to 51% of the Actuarial Equivalent value of the Participant's normal form of retirement benefit. (g) No election shall be a qualified election unless, at least 30 days (or such a shorter period permitted by the Code and the regulations promulgated thereunder) and no more than 90 days prior to the Participant's Retirement Income Commencement Date, the Committee shall furnish him (by mail or personal delivery) a statement generally describing the 50% joint and survivor form and explaining the relative financial effects of making an election under Section 9.2 hereof, or an election of an optional form of payment under Section 9.3 hereof. The statement shall also describe the right of the Participant and his Surviving Spouse to waive the 50% joint and survivor form, the effect of such a waiver, and the right to revoke such waiver. 9.5 If the Actuarial Equivalent value of a Participant's vested Accrued Benefit exceeds (or at the time of any prior distribution exceeded) $3,500 (with respect to Plan Years beginning prior to January 1, 1998) or $5,000 (with respect to Plan Years beginning on or after January 1, 1998), and the Accrued Benefit is "immediately distributable" (as defined below), the Participant and any Surviving Spouse (or where either the Participant or the spouse has died, the survivor) must consent to any distribution of such Accrued Benefit. An Accrued Benefit is "immediately distributable" if any part of the Accrued Benefit could be distributed to the Participant (or Surviving Spouse) before the Participant attains (or would have attained if not deceased) Normal Retirement Age. The consent of the Participant and any Surviving Spouse shall be obtained in writing within the 90-day period ending on the Retirement Income Commencement Date. The Participant and any Surviving Spouse shall be notified of the right to defer any distribution until the Participant's Accrued Benefit is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code, and shall be provided no less than 30 days (or such shorter period permitted by the Code and the regulations promulgated thereunder) and no more than 90 days prior to the Retirement Income Commencement Date. Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the 50% or 100% joint and survivor form while the Accrued Benefit is immediately distributable. Neither the consent of the Participant nor the Surviving Spouse shall be required to the extent that a distribution is required to satisfy Section 401(a)(9) or 415 of the Code. 30 SECTION 10 PAYMENT OF RETIREMENT INCOME 10.1 Subject to the provisions of Sections 9 and 11 hereof, retirement income payable in other than a lump sum shall be payable in monthly installments, as of the first day of each month with the first payment to be made as of the appropriate retirement date or earlier date of termination of employment, but in no event later than the 60th day after the later of the close of the Plan Year in which the Participant attains age 65 or terminates employment or in which occurs his tenth (10th) Year of Credited Service, and with final payment to be made as of the first day of the month in which death occurs, or, if earlier, the first day of the month payments cease under the option elected. Subject to the foregoing sentence, retirement income payable in a single cash lump sum shall be paid on or as soon as administratively possible following the date he becomes entitled thereto. 10.2 Anything elsewhere in the Plan to the contrary notwithstanding, the entire nonforfeitable interest of each Participant shall be either: (a) distributed to the Participant not later than the Participant's "Required Beginning Date" (as defined in Section 10.2(b)), or (b) distributed to, or for the benefit of, the Participant and the Participant's contingent annuitant in installments beginning not later than the Participant's Required Beginning Date and continuing, in accordance with such regulations as the Secretary of the Treasury may prescribe, (i) over the life of the Participant or over the lives of the Participant and the Participant's contingent annuitant or (ii) over a period certain not extending beyond the life expectancy of the Participant and the Participant's Beneficiary. For purposes of this Section, the "Required Beginning Date" shall mean the later of April 1 of the calendar year which follows the calendar year in which the Participant attains age 70 1/2, or the calendar year in which the Participant retires; provided, however, that a distribution to a Participant who is a five percent owner (as defined in Section 416 of the Code) shall begin no later than April 1 of the calendar year which follows the calendar year in which such Participant attains age 70-1/2. Notwithstanding the foregoing, any Participant who attains age 70-1/2 after December 31, 1995 but on or before December 31, 1997 may elect to nevertheless commence his distribution on April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2 even if the Participant is still employed by the Employer. In addition to the foregoing, in applying the rules of this Section 10.2, the regulations promulgated under Section 401(a)(9) of the Code are incorporated herein by reference, as are the rules promulgated by the Department of the Treasury and the Internal Revenue Service with respect to compliance with Section 401(a)(9) of the Code without violating Section 411(d)(6) of the Code. If distribution of a Participant's nonforfeitable interest has begun in accordance with Section 10.2(b) hereof and the Participant dies before his entire nonforfeitable interest has 31 been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution being used under Section 10.2(b) hereof as of the date of the Participant's death. If a Participant dies before distribution of the Participant's nonforfeitable interest has begun in accordance with Section 10.2(b) hereof, the entire nonforfeitable interest shall be distributed within five years after the death of the Participant, except such portion thereof as shall be payable in installments to, or for the benefit of, the Participant's contingent annuitant, beginning not later than one (1) year after the date of the Participant's death and continuing, in accordance with such regulations as the Secretary of the Treasury may prescribe, over the life of the contingent annuitant (or over a period certain not extending beyond the life expectancy of the contingent annuitant); provided, however, that if the Surviving Spouse is the Participant's contingent annuitant, the date on which the distributions are required to begin shall not be later than the Participant's Required Beginning Date and, if the Surviving Spouse dies before the distributions to the Surviving Spouse begin, this paragraph shall be applied as if the Surviving Spouse was the Participant. 32 SECTION 11 ADMINISTRATION OF THE PLAN 11.1 Except with respect to those responsibilities delegated to the Fiduciary Committee hereunder, the Plan shall be administered by the Committee, which shall be responsible for carrying out the provisions of the Plan. The Committee shall be a "named fiduciary" under Section 402(a)(2) of ERISA. The Committee shall consist of at least three (3) members who shall be appointed in the manner authorized by the Board. Vacancies therein shall be filled in the same manner as appointments. Any member of the Committee may be removed by action of the Board or may resign of his own accord by delivering his written resignation to the Board and to the secretary of the Committee. 11.2 The members of the Committee shall elect from their number a chairman and shall appoint a secretary, who need not be a member of the Committee. They may appoint from their number subcommittees with such powers as they shall determine, may authorize one or more of their number or any agent to execute or deliver any instrument or make any payment in their behalf, and may employ clerks and may employ such counsel, accountants, and actuaries as may be required in carrying out the provisions of the Plan. 11.3 The Committee shall hold meetings upon such notice, at such time, and at such place as they may determine. 11.4 A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee shall be by vote of a majority of those present at the meeting, but not less than two (2), or in writing by a majority of members at the time in office, if they act without a meeting. 11.5 No member of the Committee who is also an Employee shall receive any compensation for his services as such, but the Employer may reimburse any member for any necessary expenses incurred. 11.6 The Committee shall from time to time establish rules for the administration of the Plan and the transaction of its business. Except as herein otherwise expressly provided, the Committee shall have the exclusive right to interpret the Plan and to decide any matters arising thereunder in connection with the administration of the Plan, the eligibility of any person to benefits thereunder and the amounts of such benefits. It shall endeavor to act by general rules so as not to discriminate in favor of any person. Its decisions and the records of the Committee shall be conclusive and binding upon the Employer, the Participants, and all other persons having any interest under the Plan. The Committee shall have the power to amend the Plan in order to comply with applicable law and to ensure effective operation of the Plan for the benefit of Participants, provided that such amendment does not increase the total cost of providing benefits under the 33 Plan by an amount in excess of $200,000 in any Plan Year computed in accordance with generally accepted accounting or actuarial principles; and provided, further, that such amendment does not affect the duties delegated hereunder to the Fiduciary Committee. The Committee may appoint a Plan administrator for the Plan and shall delegate to the Plan administrator the duty to maintain all records and accounts necessary for the effective administration of the Plan, and to take any actions necessary to comply with the reporting and disclosure requirements imposed by the Code, ERISA and any other applicable federal or state statute or regulation, including any law or regulation promulgated by any foreign governing body which applies to the Plan. The Committee may delegate to any Plan administrator such other duties as it may deem necessary and appropriate. The Committee shall receive reports from each such Plan administrator as the Committee may request. 11.7 The Committee shall cause to be maintained accounts showing the fiscal transactions of the Plan, and in connection therewith shall require the Trustee to submit any necessary reports, and shall keep in convenient form such data as may be necessary for actuarial valuations of the assets and liabilities of the Plan. 11.8 The members of the Committee, the Fiduciary Committee, the Board, and the officers and directors of the Employer shall be entitled to rely upon all tables, valuations, certificates, and reports furnished by any duly appointed actuary, upon all certificates and reports made by any duly appointed accountant, and upon all opinions given by any duly appointed legal counsel. The members of the Committee, the Fiduciary Committee, the Board, and the officers and directors of the Employer shall not be held liable for any action taken in good faith in reliance upon any such tables, valuations, certificates, reports, or opinions. All actions so taken shall be conclusive upon each of them and upon all persons having any interest under the Plan. No member of the Committee shall be personally liable by virtue of any instrument executed by him or on his behalf as a member of the Committee, or for any mistake of judgment made by himself or any other member or by anyone employed by the Employer, or for any loss unless resulting from his own actions, including gross negligence or willful misconduct. Each member of the Committee shall be indemnified by the Employer against losses reasonably incurred by him in connection with any claim, proceeding or action to which he may be a party by reason of his membership in the Committee (including amounts paid in a settlement approved by the Employer and reasonable attorney's fees and expenses incurred in connection with such claim, proceeding or action); provided, however, that such indemnification shall not apply to matters as to which he shall be finally adjudged, by a court of competent jurisdiction in a decision from which no appeal may be taken or with respect to which the time to appeal has expired without an appeal having been made, to have engaged in gross negligence or willful misconduct. The foregoing right of indemnification shall be in addition to any other rights to which any such member may be entitled as a matter of law or pursuant to the bylaws of Estee Lauder or any other Employer. 11.9 In the event that any Participant, contingent annuitant or Beneficiary claims to be entitled to a benefit under the Plan, and the Committee determines that such claim 34 should be denied in whole or in part, the Committee shall, in writing, notify such claimant within 90 days of receipt of such claim that his claim has been denied, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by such Participant or other payee and shall set forth the pertinent sections of the Plan relied on and, where appropriate, an explanation of how the claimant can obtain review of such denial. Within 60 days after the mailing or delivery by the Committee of such notice, such claimant may request, by mailing or delivery of written notice to the Committee, a review by the Committee of the decision denying the claim. If the claimant fails to request such a hearing within such 60-day period, it shall be conclusively determined for all purposes of this Plan that the denial of such claim by the Committee is correct. If such claimant requests a review within such 60-day period, he shall have the opportunity to review pertinent documents and to submit a written statement to the Committee. After such review, the Committee shall determine whether such denial of the claim was correct and shall notify such claimant in writing of its determination within 60 days from receipt of his request and no further review shall thereafter be required by the Committee. 35 SECTION 12 INVESTMENT OF PLAN ASSETS; DUTIES OF FUDICIARY COMMITTEE 12.1 All assets for providing the benefits of the Plan shall be held in trust for the exclusive benefit of Participants, contingent annuitants and Beneficiaries under the Plan, and no part of the corpus or income shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants, contingent annuitants, and Beneficiaries under the Plan except as provided in Sections 6.3 and 16.4 hereof. No Participant, contingent annuitant, or Beneficiary under the Plan, nor any other person, shall have any interest in or right to any part of the earnings of the Trust Fund, or any rights in, to, or under the Trust Fund or any part of its assets, except to the extent expressly provided in the Plan. 12.2 All contributions to the Plan by the Employer shall be committed in trust to the Trustee and/or to an insurance company as provided for in Section 404 of ERISA. The Trustee shall be appointed from time to time by the Fiduciary Committee by the appropriate instrument, with such powers in the Trustee as to investment, reinvestment, control, and disbursement of the funds as the Fiduciary Committee shall approve and as shall be in accordance with the Plan. The Fiduciary Committee may remove, replace, or add a Trustee at any time. Upon the removal, replacement, or resignation of any Trustee, the Fiduciary Committee may designate a successor Trustee. 12.3 In the discretion of the Fiduciary Committee all contributions to the Plan by the Employer committed to the Trustee and/or insurance company may be commingled from time to time in whole or in part with any other fund or funds held by the Trustee and/or insurance company for use in connection with the payment of pensions of any Employee of the Employer or with any other fund or funds held by the Trustee and/or insurance company pursuant to any other retirement plan which is a qualified pension plan under Section 401(a) of the Code. For purposes of this Plan, the word "fund" or "funds" as used in this Section 12 and hereafter in this Plan shall mean the allocable portion of the fund or funds held by the Trustee and/or insurance company in respect of the contributions made pursuant to this Plan. 12.4 The Fiduciary Committee shall determine the manner in which the funds of the Plan shall be disbursed in accordance with the Plan and the provisions of the trust instrument, including the form of voucher or warrant to be used in making disbursements and the qualifications of persons authorized to approve and sign the same and any other matters incident to the disbursement of such funds. 12.5 The Fiduciary Committee shall adopt from time to time actuarial tables to be used as the basis for all actuarial calculations and shall recommend the rates of contribution payable by the Employer to the Plan as provided in Section 6 hereof. The Fiduciary Committee shall determine from time to time the per centum rate of interest to be used as the basis for all 36 calculations. As an aid to the Fiduciary Committee in adopting tables and in recommending the rates of contribution payable by the Employer to the Plan, the actuary appointed by the Fiduciary Committee shall make annual actuarial valuations of the assets and liabilities of the Plan and shall certify to the Fiduciary Committee the tables and rates of contribution which he would recommend for use by the Fiduciary Committee. 37 SECTION 13 OBLIGATIONS OF THE EMPLOYER 13.1 All contributions by the Employer for benefits under the Plan shall be voluntary, and the Employer shall be under no legal obligation to make and/or continue to make them. The Employer shall have no liability in respect to payments or benefits or otherwise under the Plan, and the Employer shall have no liability in respect to the administration of the Trust Fund or of the funds, securities, or other assets paid over to the Trustee, and each Participant, each contingent annuitant, and each Beneficiary shall look solely to such Trust Fund for any payments or benefits under the Plan. 38 SECTION 14 MISCELLANEOUS PROVISIONS 14.1 Except as otherwise provided by law (which shall include a "qualified domestic relations order" pursuant to Section 414(p) of the Code and any other circumstance described in Section 401(a)(13) of the Code and the Treasury regulations promulgated thereunder), no benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefit. 14.2 If any Participant, contingent annuitant, or Beneficiary under the Plan shall become bankrupt or attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit in a manner not allowed pursuant to Section 14.1, then such benefit shall, in the discretion of the Committee, cease and terminate. In that event the Committee shall hold or apply the benefit or any part thereof to or for such Participant, contingent annuitant or Beneficiary, his spouse, children, or other dependents, or any of them, in such manner and in such proportions as the Committee shall in its sole discretion determine. 14.3 The establishment and/or maintenance of the Plan shall not be construed as conferring any rights upon any Employee or any person for a continuation of employment, and shall not be construed as limiting in any way the right of the Employer to discharge any Employee or to treat him without regard to the effect which such treatment might have upon him as a Participant of the Plan. 14.4 If any person entitled to receive any benefits from the Trust Fund is a minor or, in the judgment of the Committee, legally, physically or mentally incapable of personally receiving any distributions, the Committee may instruct the Trustee to make distribution to such other person, persons, or institutions that, in the judgment of the Committee, are then maintaining or have custody of such distributee. 14.5 The determination of the Committee as to the identity of the proper payee of any benefit under the Plan and the amount of such benefit properly payable shall be conclusive, and payment in accordance with such determination shall constitute a complete discharge of all obligations on account of such benefit. 14.6 In the event any amount shall become payable from the Trust Fund to a Beneficiary or the estate of any deceased person and if, after written notice from the Trustee mailed to the last known address of such Beneficiary, or of the executor or administrator of such estate (as certified to the Trustee by the Committee), such person or such executor or administrator shall not have presented himself to the Trustee within two years after the mailing of such notice, the Trustee shall notify the Committee, and the Committee shall instruct the Trustee 39 to distribute such amount due to such Beneficiary or such estate among one or more of the spouse and blood relatives of such deceased person, as designated by the Committee. 14.7 This Plan may be adopted, by action of the Board of Directors, with respect to Employees who are United States citizens employed by a foreign subsidiary (as defined in Section 3121(1)(8) of the Code) of the Employer, with such Employees being treated as Employees of an Employer for the purpose described in Section 406 of the Code if the following conditions are met: (a) the Employer has entered into an agreement under Section 3121(1) of the Code which applies to the foreign subsidiary by which such Employees are employed; and (b) no contributions under another funded plan of deferred compensation (whether or not a plan described in Section 401(a), 403(a), or 405(a) of the Code) are provided by any other Employer with respect to the remuneration paid to such Employees by such subsidiary. 14.8 In the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan each Participant in the Plan will (if the Plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated). Such merger, consolidation or transfer shall comply with Section 414(l) of the Code and the regulations promulgated thereunder. 14.9 The rights of any person who terminated employment or retired on or before the effective date of any of the relevant provisions of this restatement, including his eligibility for benefits, shall be determined solely under the terms of the Plan as in effect on the date of his termination of employment or retirement, unless such person is thereafter reemployed and again becomes a Participant. 14.10 Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. 40 SECTION 15 ADOPTION OF PLAN BY MEMBERS OF THE GROUP 15.1 Any member of the Group, other than Estee Lauder, or any other corporation or unincorporated trade or business which is not a member of the Group may, with the consent of the Board of Directors, adopt this Plan, thereby bringing such Group member or other corporation or unincorporated trade or business within the definition of Employer. With respect to such member of the Group or other corporation or unincorporated trade or business, the term "Original Effective Date" of the Plan shall refer to the date as to which such member adopts the Plan or the date as of which the Plan is extended to such member as the case may be. 15.2 The Board of Directors shall, subject to the requirements of ERISA and the Code, determine the extent to which, if at all, the period of employment prior to the extension of the Plan to a member of the Group or other corporation or unincorporated trade or business shall be recognized for purposes of the Plan. 15.3 In the event that a retirement plan or pension plan maintained by a member of the Group, or other corporation or unincorporated trade or business, for any other division, plant, or location is added to this Plan, the rights and benefits of Employees who were covered under such other plan shall, from and after the Original Effective Date of the Plan with respect to said Employer, be determined under such terms and conditions with respect to such Employees as shall be specified by the Board of Directors in the resolution approving the adoption or extension of the Plan as to the said Employees. The assets under such other plans maintained by a member of the group applicable to Employees to be covered by this Plan shall, to the extent practicable and subject to the provisions of Section 14.8 hereof, be transferred to the Fund under this Plan, and such transferred assets shall be merged with the Fund held under this Plan. 15.4 If any Employer which has come within the definition of Employer pursuant to this Section 15 subsequently withdraws or is withdrawn from the Plan, or discontinues the Plan with respect to all or part of its Employees, the Committee shall determine the share of the Fund which shall be allocated to the Employees of such Employer who are thereby affected. If a separate defined benefit pension plan is being continued for such Employees, such Employer shall, subject to the provisions of Section 14.8 hereof, designate a successor Trustee under a separate instrument to whom such allocable funds shall be transferred with respect to all or the specified classifications of its Employees, as the case may be, unless the Board of Directors shall determine that such Employer and its affected Employees may upon proper action of such Employer continue to participate in the Trust Fund maintained in connection with this Plan. If the Plan is discontinued with respect to all or part of such Employer's Employees, such allocable funds shall be allocated with respect to each Employee affected, and shall be applied pursuant to Section 16.4 hereof. 41 15.5 If any Employer which is not a member of the Group which includes Estee Lauder adopts the Plan in accordance with Section 15.1, the Plan shall be treated as a "multiple employer plan" within the meaning of Section 413(c) of the Code, and it shall comply with all the requirements of the Code and ERISA applicable to such plans. 42 SECTION 16 AMENDMENT AND TERMINATION 16.1 Estee Lauder reserves the right at any time, and from time to time, by action of the Committee to amend, in whole or in part, retroactively or prospectively or both, any or all of the provisions of the Plan; provided, however, that no part of the assets of the Plan shall, by reason of any amendment, be used for or diverted to purposes other than for the exclusive benefit of Participants, contingent annuitants, and Beneficiaries; and further provided that any amendment adopted by the Committee which would cause the Plan and the trust established under the Plan to cease to meet the requirements of Section 401(a) or 501(a) of the Code respectively, shall be null and void; and any actions taken under the Plan pursuant to such amendment, any benefit increases (or decreases) accruing under the Plan as a result of such amendment, and any increases (or decreases) in benefit payments under the Plan made as a result of such amendment, during the period from the date of adoption of such amendment to the date it is determined that such amendment should so cause the Plan and the trust under the Plan to cease to meet such requirements, shall be, respectively, rectified, nullified, and restored as soon as possible to the extent necessary to permit the Plan and the trust under the Plan to continue to meet the requirements of Section 401(a) and 501(a) of the Code, respectively. Notwithstanding the previous paragraph herein, no amendment to the Plan shall: (a) reduce the Participant's accrued normal retirement income as of the date on which the amendment is adopted, (b) eliminate or reduce any early retirement benefit or retirement-type subsidy to be determined by regulation), or an optional form of retirement income under the Plan, with respect to the accrued normal retirement income, or (c) reduce a retired Participant's retirement income as of the beginning of the Plan Year in which the amendment is effective. The Board of Directors' approval shall be required for any amendment to the Plan which is anticipated by the Committee to increase the cost to Estee Lauder of maintaining the Plan by $200,000 or more in any year, computed in accordance with generally accepted accounting or actuarial principles. 16.2 The Board of Directors may terminate the Plan at any time as to all or any particular group or groups of Participants and such other persons, if any, who have or may become entitled to benefits under the Plan on account of such Participants as to whom the Plan shall have been terminated, which Participants and other persons shall be referred to collectively as the terminated group in this Section 16. After the Plan termination date which is applicable to the terminated group, benefits shall be provided to the terminated group in accordance with Section 16.4 hereof. In the event of such termination, each member of the terminated group will be fully (100%) vested in his accrued benefit. 43 16.3 The terminated group's portion of the Fund shall equal the sum of that part of the fair market value on the Plan termination date of the entire Fund that would have been allocated to each person in the terminated group in accordance with Section 16.4 hereof if the Plan had been terminated on such date as to all Participants in the Plan and no expenses were incurred in connection with such termination of the Plan. 16.4 A terminated group's share of the Fund shall be allocated as follows: (a) first, to provide benefits to each person in the terminated group in accordance with Section 4044(a) of ERISA, and the regulations issued pursuant thereto; (b) then, to the extent that after the making of the allocation described in (a) above, there remain in the Fund any assets which are applicable to the terminated group, the said assets shall be applied to pay for any unpaid administrative expenses for the administration of the Plan as to the terminated group; and (c) lastly, to the extent that after making the allocations described in (a) and (b) above, there remain in the Fund any assets which are applicable to the terminated group, then such remaining assets shall be paid to the Employer for its own use and benefit provided that such payment to the Employer does not contravene any provision of law. 44 SECTION 17 LIMITATION ACCORDING TO TREASURY DEPARTMENT REQUIREMENTS The purpose of this Section is to conform the Plan to the requirements of Section 1.401(a)(4)-5(b) of the Income Tax Regulations. 17.1 If a benefit becomes or is payable for a Plan Year to a Participant who is among the 25 highest paid "highly compensated employees" or "highly compensated former employees" (each as defined in Section 414(q) of the Code and regulations and rulings issued thereunder) for a Plan Year, such benefit cannot exceed an amount equal to the payments that would be made during the Plan Year on behalf of the Participant under a single life annuity that is the Actuarial Equivalent of the sum of the Participant's Accrued Benefit and any other benefits under the Plan; provided, however, that this Section shall not apply if (i) benefits that would be payable to such a Participant are less than one percent (1%) of the total value of current liabilities under the Plan, or (ii) the assets of the Trust Fund exceed, immediately after payment of a benefit to such a Participant, 110% of the value of current liabilities under the Plan. (For purposes of this Section, the value of current liabilities shall be as defined in Section 412(l)(7) of the Code.) 17.2 In the event of a termination of the Plan, the benefit of any highly compensated employee or highly compensated former employee shall be limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code. 17.3 In the event Congress should provide by statute, or the Internal Revenue Service or Department of the Treasury should provide by regulation or ruling, that such limitations are no longer necessary for the Plan to meet the requirements of Section 401(a) or other applicable provisions of the Code then in effect, such limitations shall become void and shall no longer apply, without the necessity of further amendment to the Plan. 45 SECTION 18 TOP-HEAVY PLAN PROVISIONS 18.1 Anything elsewhere in this Plan to the contrary notwithstanding, the provisions of this Section 18 shall apply to the Plan for any Plan Year if, on the last day of the preceding Plan Year, either (i) the present equivalent actuarial value of the cumulative accrued normal retirement income of Key Employees exceeds 60% of the present equivalent actuarial value of the cumulative accrued normal retirement income of all Participants, or (ii) the sum of (A) the present equivalent actuarial value of the cumulative accrued normal retirement income of Key Employees under the Plan, (B) the present equivalent actuarial value of the accumulated accrued benefits of Key Employees under all other qualified defined benefit plans included in the Aggregation Group, and (C) the cumulative accrued benefits of Key Employees under all qualified defined contribution plans included in the Aggregation Group exceeds 60% of the sum of (D) the present equivalent actuarial value of the cumulative accrued normal retirement income of all Participants under the Plan, (E) the present equivalent actuarial value of the accumulated accrued benefits of all Participants under all other qualified defined benefit plans included in the Aggregation Group, and (F) the cumulative accrued benefits of all Participants under all qualified defined contribution plans included in the Aggregation Group. For the purpose of the foregoing sentence, the "equivalent actuarial value" of the cumulative accrued normal retirement income of each Participant under the Plan shall be calculated utilizing a five percent (5%) interest rate assumption and is increased by the amount of the aggregate distributions, if any, made with respect to the Participant under the Plan during the five-year period ending on the last day of the preceding Plan Year; and the present equivalent actuarial value of the accumulated accrued benefit of each Participant under all other qualified defined benefit plans and the cumulative accrued benefit of each Participant under any qualified defined contribution plan shall be increased by the amount of the aggregate distributions, if any, made with respect to the Participant under such other plan during that five-year period. The term "Aggregation Group" shall mean all plans to which the Employer contributes in which a Key Employee is a Participant and all other plans to which the Employer contributes that enable any such plan to meet the requirements of Section 401(a)(4) or Section 410 of the Code. If a Participant is not a Key Employee for any Plan Year, but was a Key Employee in a prior Plan Year, the accrued normal retirement income for such Participant shall not be taken into account. The accrued normal retirement income of any Participant or former Participant who has not during the five-year period ending on the last day of the preceding Plan Year received from the Employer any compensation (other than benefits under the Plan) shall not be taken into account. In any Plan Year for which the provisions of this Section 18 apply and thereafter, each Employee who is a Participant during that Plan Year and has completed at least three (3) Years of Service shall have a nonforfeitable right, in the event he ceases to be an Employee prior to his Normal Retirement Date, otherwise than by death or early retirement, to receive for the remainder of his life (beginning at his Normal Retirement Date if he is still living) a deferred vested retirement income in an amount per month equal to his accrued normal retirement income computed as of 46 the date he ceases to be an Employee (including benefits accrued before the provisions of this Section 18 apply). Notwithstanding the foregoing, each such Employee who has completed not less than three (3) Years of Service shall be permitted to elect, within 90 days after the first day of the Plan Year for which the provisions of this Section 18 apply, to have his nonforfeitable percentage computed in accordance with the provisions of Section 8 hereof without regard to this paragraph. 18.2 In any Plan Year for which the provisions of this Section 18 apply, if the accrued normal retirement income of any Participant who is not a Key Employee, when expressed as an equivalent actuarial value of a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning when the Participant attains age 65 (without taking into account contributions or benefits under Chapter 2 of Chapter 21 of Title II of the Social Security Act, or any other Federal or State law), is less than the Compensation from Estee Lauder not in excess of $150,000, for years in the Participant's Testing Period, then the accrued normal retirement income of that Participant shall be increased to an amount equal at the last day of that Plan Year to such Applicable Percentage of the Participant's average Compensation from the Employer for years in the Participant's Testing Period. 18.3 In any Plan Year for which the provisions of this Section 18 apply, the Compensation from the Employer of each Participant taken into account under the Plan shall not exceed the first $150,000 (or such other figure as shall result from such annual cost-of-living adjustments as the Secretary of the Treasury or his delegate shall make pursuant to Section 401(a)(17)(B) of the Code). 18.4 In any Plan Year commencing prior to January 1, 2000 for which the provisions of this Section 18 apply, the figure "1.0" shall be substituted for the figure "1.25" as required by Section 416 of the Code for the purpose of determining an Employee's "defined contribution plan fraction" and "defined benefit plan fraction" under Section 415(e) of the Code. 18.5 For purposes of this Section, the following definitions shall apply: (a) "Applicable Percentage" means, in respect of any Participant, the lesser of (i) 2 percent multiplied by the number of the Participant's Years of Service (disregarding any Year of Service in which ended a Plan Year for which the provisions of this Section 18 were not applicable and any Year of Service completed in a Plan Year beginning before January 1, 1984) or (ii) 20 percent. (b) "Compensation" means, for purposes of this Section only, Compensation as defined in Section 2.10 hereof but including any special pay or remuneration reportable to the Internal Revenue Service on Form W-2 for Federal income tax purposes, but with respect to Plan Years commencing prior to January 1, 1998, "Compensation" excludes contributions made by an Employer on behalf of an Employee under a "cash or deferred arrangement" described in Section 401(k) of the Code. 47 (c) "Key Employee" means a Participant, former Participant or the contingent annuitant of any Participant who, at any time during the Plan Year or any of the four preceding Plan Years, is or was (i) an officer of an Employer whose compensation from the Employer for the Plan Year exceeds $45,000 (or such other figure as shall result from such annual cost-of-living adjustments as the Secretary of the Treasury or his delegate shall make pursuant to Section 415(d) of the Code), or (ii) one (1) of the ten (10) employees of the Employer whose Compensation for the Plan Year exceeds $30,000 (or such other figure as shall result from such annual cost-of-living adjustments as the Secretary of the Treasury or his delegate shall make pursuant to Section 415(d) of the Code) and who owns the largest interests in the Employer, or (iii) the owner of five percent (5%) or more of the outstanding stock of the Employer (or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer), or (iv) an owner of one percent (1%) or more of the outstanding stock of the Employer (or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer) whose Compensation from the Employer for the Plan Year is more than $150,000. Any Employee who is not a Key Employee shall be deemed a Non-Key Employee. (d) "Testing Period" means, in respect of any Participant, the period of consecutive years (not exceeding Five (5)), and disregarding any Year of Service in which ended a Plan Year for which the provisions of this Section 18 were not applicable, any Year of Service completed in a Plan Year beginning before January 1, 1984, and any year that begins after the close of the last Plan Year for which the provisions of this Section 18 were applicable) during which the Participant had the greatest aggregate Compensation from the Employer. 48 THE ESTEE LAUDER INC. RETIREMENT GROWTH ACCOUNT PLAN As Amended and Restated Generally Effective January 1, 1999 TABLE OF CONTENTS APPENDIX A A-1 APPENDIX B B-1 APPENDIX C C-1 APPENDIX D D-1 APPENDIX E E-1 APPENDIX F F-1 APPENDIX G G-1 APPENDIX H H-1 APPENDIX I I-1 APPENDIX J J-1 APPENDIX K K-1 APPENDIX L L-1 APPENDIX M M-1 APPENDIX A 1. Except as otherwise noted below, the assumptions to be used to convert a single life annuity into any other form of benefit, other than a lump sum distribution, are as follows: Interest Rate: 6% Mortality Table: 1971 TPF&C Mortality Table for male lives, set back four years 2. To the extent that (A) any Participant's Retirement Account is to be converted into an equivalent, immediately payable, annual amount of single life annuity and (B) the distribution of such single life annuity is to begin as of date prior to January 1, 1999, such conversion shall be done by applying an immediate conversion factor to such Participant's Retirement Account, with such factor based upon the above specified mortality table and the Pension Benefit Guaranty Corporation ("PBGC") immediate interest rate applicable to the month as of which the distribution of the single life annuity is otherwise to begin. To the extent that (A) any Participant's Retirement Account is to be converted into an equivalent, immediately payable, annual amount of single life annuity and (B) the distribution of such single life annuity is to begin as of date during calendar year 1999, such conversion shall be done by applying an immediate conversion factor to such Participant's Retirement Account, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the following two interest rates results in the larger single life annuity: (i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which the distribution of the single life annuity is otherwise to begin, and (ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution of the single life annuity is otherwise to begin. To the extent that (A) any Participant's Retirement Account is to be converted into an equivalent, immediately payable, annual amount of single life annuity and (B) the distribution of such single life annuity is to begin as of date on or after January 1, 2000, such conversion shall be done by applying an immediate conversion factor to such Participant's Retirement Account, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as similarly so amended) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which the distribution of the single life annuity is otherwise to begin. A-1 3. To the extent that (A) any immediately payable, lump sum distribution under the Plan is the equivalent of a single life annuity otherwise deferred to a Participant's Normal Retirement Date and (B) such distribution is to occur as of a date prior to January 1, 1999, such Participant's Retirement Account is converted into an annual amount of such a deferred single life annuity using a deferred conversion factor, with such factor based upon the above specified mortality table and the PBGC immediate/deferred blended interest rate (under Section 417(e)(3) of the Code, as in effect immediately prior to the enactment of Public Law 103-465) applicable to the month as of which the distribution of such lump sum benefit is otherwise to occur. To the extent that (A) any immediately payable, lump sum distribution under the Plan is the equivalent of a single life annuity otherwise deferred to a Participant's Normal Retirement Date and (B) such distribution is to occur as of a date during calendar year 1999, such Participant's Retirement Account is converted into an annual amount of such a deferred single life annuity using a deferred conversion factor, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the following two interest rates results in the larger single life annuity: (i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur, and (ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution is otherwise to occur. To the extent that (A) any immediately payable, lump sum distribution under the Plan is the equivalent of a single life annuity otherwise deferred to a Participant's Normal Retirement Date and (B) such distribution is to occur as of a date on or after January 1, 2000, such Participant's Retirement Account is converted into an annual amount of such a deferred single life annuity using a deferred conversion factor, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as similarly so amended) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur. 4. To the extent that (A) any Participant's single life annuity otherwise payable immediately is converted into an equivalent, immediately payable lump sum distribution and (B) the distribution of such lump sum benefit is to occur as of a date prior to January 1, 1999, such conversion shall be done by applying an immediate conversion factor to the annual A-2 amount of such single life annuity, with such factor based upon the above specified mortality table and the PBGC immediate interest rate applicable to the month as of which the distribution of such lump sum benefit is otherwise to occur. To the extent that (A) any Participant's single life annuity otherwise payable immediately is converted into an equivalent, immediately payable lump sum distribution and (B) the distribution of such lump sum benefit is to occur as of a date during calendar year 1999, such conversion shall be done by applying an immediate conversion factor to the annual amount of such single life annuity, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and whichever of the following two interest rates results in the larger single life annuity: (i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur, and (ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution is otherwise to occur. To the extent that (A) any Participant's single life annuity otherwise payable immediately is converted into an equivalent, immediately payable lump sum distribution and (B) the distribution of such lump sum benefit is to occur as of a date on or after January 1, 2000, such conversion shall be done by applying an immediate conversion factor to the annual amount of such single life annuity, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as also so amended) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur. 5. Each Participant's single life annuity otherwise deferred to such Participant's Normal Retirement Date is, if the distribution of a lump sum benefit is otherwise to occur as of a date prior to January 1, 1999, converted into an equivalent, immediately payable lump sum distribution by using a deferred conversion factor, with such factor based upon the above specified mortality table and the PBGC immediate/deferred blended interest rate (under Section 417(e)(3) of the Code, as in effect immediately prior to the enactment of Public Law 103-465) applicable to the month as of which the distribution of such lump sum benefit is otherwise to occur. Each Participant's single life annuity otherwise deferred to such Participant's Normal Retirement Date is, if the distribution of a lump sum benefit is otherwise to occur as of a date during calendar year 1999, converted into an equivalent, immediately payable lump sum distribution by using a deferred conversion factor, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law A-3 103-465) and whichever of the following two interest rates results in the larger single life annuity: (i) the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur, and (ii) such same "applicable interest rate" as in effect for the second calendar month immediately prior to the month in which falls the date as of which such distribution is otherwise to occur. Each Participant's single life annuity otherwise deferred to such Participant's Normal Retirement Date is, if the distribution of a lump sum benefit is otherwise to occur as of a date on or after January 1, 2000, converted into an equivalent, immediately payable lump sum distribution by using a deferred conversion factor, with such factor based upon the "applicable mortality table" (as defined under Section 417(e)(3)(A) of the Code, as amended by Public Law 103-465) and the "applicable interest rate" (as defined under Section 417(e)(3)(A) of the Code, as similarly so amended) as in effect for the second calendar month immediately prior to the first day of the calendar quarter in which falls the date as of which such distribution is otherwise to occur. A-4 APPENDIX B In order to receive the benefits described in Section 5.5 of the Plan, a Participant must have been a participant under a Prior Plan on December 31, 1990 and must satisfy the requirements set forth below that correspond to his termination of employment date.
Termination of Employment Date Requirements ------------------------------ ------------ 1. After December 31, 1990 and prior to 1. Age 50 with 10 Years of Service on July 1, 1991 December 31, 1990; age 55 with 10 Years of Service on his termination of employment date 2. After June 30, 1991 and prior to 2. Age 55 with 10 Years of Service on January 1, 1993 his termination of employment date 3. After December 31, 1992 3. Age 50 with 5 Years of Service, or any age and 10 Years of Service, as of January 1, 1993
B-1 APPENDIX C ADDITIONAL EARLY RETIREMENT BENEFITS ------------------------------------ 1.1 Eligibility for Additional Benefits A. Any Participant employed in the United States by an Employer, or on sick leave or long-term disability under the Employer's Long-Term Disability Plan, may elect to retire on August 1, 1991 (such designated date of retirement hereinafter referred to in this Appendix C as the "Retirement Day") and be eligible to receive the additional benefits ("Additional Benefits") set forth under this Appendix C, provided that () on or before July 31, 1991 such Participant shall have attained at least age 55 and completed at least ten Years of Service under the Plan (including periods of disability in which no Years of Service were credited), () the document entitled "Special Retirement Option Agreement," which includes a General Release in favor of the Employer, is signed, witnessed and dated no earlier than July 8, 1991 but no later than July 18, 1991 in strict accordance with the instructions contained therein, and () such Participant shall have made an election to retire on such other forms as the Employer may require during the period commencing forty-five days after such Participant receives the "Special Retirement Option Agreement" from the Employer but ending no later than July 31, 1991. Participants who previously retired on or after January 1, 1991 and before August 1, 1991 and who were employed in the United States by the Employer shall also be eligible for the Additional Benefits under this Appendix C, provided the preceding requirements in clauses (i)-(iii) hereof are satisfied. B. Notwithstanding the provisions of paragraph A hereof, any individual whose active employment with an Employer ceased by mutual agreement on or before May 17, 1991 shall not be eligible for any benefits under this Appendix C. C. Notwithstanding the provisions of paragraph A above, any individual who is classified by an Employer as a Corporate Department Head or President of a division shall not be eligible for the Additional Benefits under this Appendix C. 1.2 Additional Benefits Each Participant eligible for Additional Benefits under this Appendix C to the Plan who elects to retire on the Retirement Day shall be entitled to the following: A. The Additional Benefits shall be equal to the benefit determined, under Section 5.5 of the Plan, by increasing the Participant's age as of August 1, 1991, by Five (5) years and Years of Service as of August 1, 1991, by Five (5) years. The Additional Benefits shall be added to the regular pension benefit determined under Section 5.5 of the Plan. B. The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Participant's benefits prior to age 62, shall be applied after increasing the Participant's age by Five (5) years as provided under paragraph A above. C-1 C. The Additional Benefits provided under this Appendix C to the Plan shall be payable in the form applicable to the Participant in accordance with the provisions of Section 9 of the Plan. D. Participants who (i) retired on or after January 1, 1991 and prior to August 1, 1991, (ii) are receiving retirement benefits under the Plan prior to August 1, 1991, and (iii) are eligible under Section 1.01 A hereof, shall have the amount of their retirement benefits recomputed under this Appendix C from the date of their previous retirement and paid in accordance with the form of benefit previously elected under Section 9 of the Plan. No changes to the form of benefit previously elected shall be permitted; however, the Additional Benefits payable for the period of time from the date of the previous retirement to July 31, 1991 shall be paid in the form of a lump sum distribution at the time prescribed under paragraph E hereof. In no event shall Additional Benefits be paid to Participants who retired before January 1, 1991. E. If a Participant elects the Additional Benefits provided under this Appendix C to the Plan, such Participant's retirement benefits shall be payable commencing in the first month following the month in which the Retirement Day occurs. C-2 APPENDIX D ADDITIONAL EARLY RETIREMENT BENEFITS ------------------------------------ 1.1 Eligibility for Additional Benefits A. Any Participant employed in the Commonwealth of Puerto Rico by the Estee Lauder Hemisphere Division of Clinique (the "Employer"), or on sick leave or long-term disability under the Employer's Long-Term Disability Plan, may elect to retire on December 1, 1991 (such designated date of retirement hereinafter referred to in this Appendix D as the "Retirement Day") and be eligible to receive the additional benefits ("Additional Benefits") set forth under this Appendix D, provided that (i) on or before November 30, 1991 such Participant shall have attained at least age 55 and completed at least ten Years of Service under the Plan (including periods of disability in which no Years of Service were credited), (ii) the document entitled "Special Retirement Option Agreement and General Release," which includes a General Release in favor of the Employer, is signed, witnessed and dated no earlier than November 4, 1991 but no later than November 14, 1991 in strict accordance with the instructions contained therein, and (iii) such Participant shall have made an election to retire on such other forms as the Employer may require during the period commencing forty-five days after such Participant receives the "Special Retirement Option Agreement" from the Employer but ending no later than November 30, 1991. Participants who previously retired on or after January 1, 1991 and before December 1, 1991 and who were employed in the Commonwealth of Puerto Rico by the Employer shall also be eligible for the Additional Benefits under this Appendix D, provided the preceding requirements in clauses (i)-(iii) hereof are satisfied. B. Notwithstanding the provisions of paragraph A hereof, any individual whose active employment with the Employer ceased by mutual agreement on or before September 19, 1991 shall not be eligible for any benefits under this Appendix D. C. Notwithstanding the provisions of paragraph A above, any individual who is classified by the Employer as a Corporate Department Head or President of a division shall not be eligible for the Additional Benefits under this Appendix D. 1.2 Additional Benefits Each Participant eligible for Additional Benefits under this Appendix D to the Plan who elects to retire on the Retirement Day shall be entitled to the following: A. The Additional Benefits shall be equal to the benefit determined, under Section 5.5 of the Plan, by increasing the Participant's age as of December 1, 1991, by Five (5) years and Years of Service as of December 1, 1991, by Five (5) years. The Additional Benefits shall be added to the regular pension benefit determined under Section 5.5 of the Plan. B. The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Participant's benefits, shall be applied after increasing the Participant's age by Five (5) years as provided under paragraph A above. D-1 C. The Additional Benefits provided under this Appendix D to the Plan shall be payable in the form applicable to the Participant in accordance with the provisions of Section 9 of the Plan. D. Participants who (i) retired on or after January 1, 1991 and prior to December 1, 1991, (ii) are receiving retirement benefits under the Plan prior to December 1, 1991, and (iii) are eligible under Section 1.01 A hereof, shall have the amount of their retirement benefits recomputed under this Appendix D from the date of their previous retirement and paid in accordance with the form of benefit previously elected under Section 8 of the Plan. No changes to the form of benefit previously elected shall be permitted; however, the Additional Benefits payable for the period of time from the date of the previous retirement to November 30, 1991 shall be paid in the form of a lump sum distribution at the time prescribed under paragraph E hereof. In no event shall Additional Benefits be paid to Participants who retired before January 1, 1991. E. If a Participant elects the Additional Benefits provided under this Appendix D to the Plan, such Participant's retirement benefits shall be payable commencing in the first month following the month in which the Retirement Day occurs. D-2 APPENDIX E SPECIAL PROVISIONS GOVERNING EMPLOYEES OF WHITMAN PACKAGING CORPORATION WHO DID NOT OTHERWISE BECOME ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992 A. SCOPE. (i) The provisions of this Appendix E shall apply with respect to each person who first became an employee of Whitman Packaging Corporation prior to January 1, 1992; other than any such person who, prior to that date, terminated such employment and immediately thereupon transferred to, and became an employee of, an entity which was then an Employer under the Plan as then in effect (a "Whitman Employee"). The provisions of this Appendix E shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part. (ii) Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to either the Plan as in effect on January 1, 1991 or the Plan as amended and restated generally effective as of January 1, 1993 or January 1, 1997, as the context shall require. (iii) The provisions of this Appendix E shall not apply with respect to (a) any person described in Appendix F or (b) any person who first becomes an employee of Whitman Packaging Corporation ("Whitman") on or after January 1, 1992. B. COMMENCEMENT OF STATUS AS A PARTICIPATING EMPLOYER C. Whitman shall become an Employer under the Plan on January 1, 1992. (i) COMMENCEMENT OF PLAN PARTICIPATION A.1.C.i.A.1.1 BY WHITMAN EMPLOYEES D. No Whitman Employee shall be permitted to become a Participant prior to January 1, 1992. The first date on or after January 1, 1992 on which any such person E-1 may become a Participant shall be governed by the otherwise applicable provisions of Section 3 of the Plan. In applying the terms of such participation eligibility provision, there shall be taken into account all of such Whitman Employee's period of employment with Whitman on or after January 1, 1984, but only to the extent that any such period of employment would have been taken into account had Whitman otherwise been an Employer throughout such person's entire such period of employment. E-2 E. CREDITS TO RETIREMENT ACCOUNTS (i) In determining the amount to be credited to the Retirement Account of a Whitman Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, there shall be taken into account all periods of such person's employment with Whitman on or after January 1, 1984 which would otherwise have been taken into account for such purpose had Whitman otherwise been an Employer throughout such person's entire such period of employment; provided, however, that there shall be taken into account for this purpose with respect to any Whitman Employee who becomes a Participant (i) who transferred from a non-exempt position to an exempt position prior to January 1, 1992, all periods of employment beginning with the date on which such Whitman Employee first became a regular, full-time employee of Whitman; (ii) who is in a non-exempt position, all periods of employment beginning on the later of (A) January 1, 1984, or (B) such Whitman Employee's Plan Entry Date for purposes of the Whitman Packaging Corporation Money Purchase Plan. F. VESTING (i) In determining the extent to which any Whitman Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Whitman which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.4 of this Appendix E. E-3 APPENDIX F SPECIAL PROVISIONS GOVERNING EMPLOYEES OF WHITMAN PACKAGING CORPORATION WHO OTHERWISE BECOME ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992 SECTION 1.1 SCOPE The provisions of this Appendix F shall apply with respect to each person who, prior to January 1, 1992, (a) became an employee of Whitman Packaging Corporation and (b) thereafter terminated such employment and immediately thereupon transferred to, and became an employee of an entity which was then an Employer under the Plan as then in effect (a "Transferred Whitman Employee"). The provisions of this Appendix F shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part. Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to either the Plan as in effect on January 1, 1991 or the Plan as amended and restated generally effective as of January 1, 1993 or January 1, 1997, as the context shall require. The provisions of this Appendix F shall not apply with respect to (a) any person subject to the provisions of Appendix E or (b) any person who first becomes an employee of Whitman Packaging Corporation ("Whitman") on or after January 1, 1992. SECTION 1.2 CREDITS TO RETIREMENT ACCOUNTS In determining the amount to be credited to the Retirement Account of a Transferred Whitman Employee for the Plan Year commencing January 1, 1992 and for each subsequent Plan Year (but not for any prior Plan Year) pursuant to the provisions of Section 5 of the Plan, but only in the case of such a person who is otherwise entitled to have an amount so credited for such Plan Year, there shall be taken into account all periods of such person's employment with Whitman on or after January 1, 1984 which would otherwise have been taken into account for such purpose had Whitman otherwise been an Employer throughout such person's entire such period of employment; provided, however, that there shall be taken into account for this purpose with respect to any Transferred Whitman Employee (i) who transferred from a non-exempt position to an exempt position with Whitman prior to becoming a Transferred Whitman Employee, all periods of employment beginning with the date on which such Transferred Whitman Employee first became a regular, full-time employee of Whitman; (ii) who was in a non-exempt position with Whitman prior to becoming a Transferred Whitman Employee, all periods of employment beginning on the later of (iii) January 1, 1984, or (iv) such Transferred Whitman Employee's Plan Entry Date for purposes of the Whitman Packaging Corporation Money Purchase Plan. F-1 SECTION 1.3 VESTING In determining the extent to which any Transferred Whitman Employee is, for the Plan Year commencing January 1, 1992 and each subsequent Plan Year, vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Whitman which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.2 of this Appendix F. In determining the extent to which any Transferred Whitman Employee is, for any Plan Year beginning prior to January 1, 1992, vested in such aforementioned Account, such person's prior employment with Whitman shall be taken into account only to the extent required under the provisions of Section 411 of the Code. F-2 APPENDIX G SPECIAL PROVISIONS GOVERNING EMPLOYEES OF NORTHTEC INC. WHO DID NOT OTHERWISE BECOME ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992 SECTION 1.1 SCOPE The provisions of this Appendix G shall apply with respect to each person who first became an employee of Northtec Inc. prior to January 1, 1992 at either its Trevose, Pa. or Bristol, Pa. locations; other than any such person who, prior to that date, terminated such employment and immediately thereupon transferred to, and became an employee of, an entity which was then an Employer under the Plan as then in effect (a "Northtec Employee"). The provisions of this Appendix G shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part. Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to either the Plan as in effect on January 1, 1991 or the Plan as amended and restated generally effective as of January 1, 1993 or January 1, 1997, as the context shall require. The provisions of this Appendix G shall not apply with respect to (a) any person described in Appendix H or (b) any person who first becomes an employee of Northtec Inc. ("Northtec") on or after January 1, 1992. SECTION 1.2 COMMENCEMENT OF STATUS AS A PARTICIPATING EMPLOYER Northtec shall become an Employer under the Plan on January 1, 1992. SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY NORTHTEC EMPLOYEES A. No Northtec Employee shall be permitted to become a Participant prior to January 1, 1992. The first date on or after January 1, 1992 on which any such person may become a Participant shall be governed by the otherwise applicable provisions of Section 2 of the 1992 Plan. B. In applying the terms of the participation eligibility provision referred to in subsection (a) of this Section 1.3 in the case of any Northtec Employee employed at the Trevose, Pa. location prior to January 1, 1992, there shall be taken into account all of such employee's period of employment with Northtec on or after July 17, 1989, but only to the extent that any such period of employment would have been taken into account had Northtec otherwise been an Employer throughout such person's entire such period of employment. G-1 C. In applying the terms of the participation eligibility provision referred to in Section 1.3 in the case of any Northtec Employee employed at the Bristol, Pa. location prior to January 1, 1992, there shall be taken into account all of such employee's period of employment with Northtec (including, for such purpose, all periods of employment on and after November 1, 1987, with Powder Masters, which formerly operated such location), but only to the extent that any such period of employment would have been taken into account had Northtec (or Powder Masters, as the case may be) otherwise been an Employer throughout such person's entire such period of employment. SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS B. In determining the amount to be credited to the Retirement Account of a Northtec Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, on behalf of any Northtec Employee employed at the Trevose, Pa. location prior to January 1, 1992, who otherwise becomes a Participant, there shall be taken into account all periods of such person's employment with Northtec on or after July 17, 1989 which would otherwise have been taken into account for such purpose had Northtec otherwise been an Employer throughout such person's entire such period of employment. C. In determining the amount to be credited to the Retirement Account of a Northtec Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, on behalf of any Northtec Employee employed at the Bristol, Pa. location prior to January 1, 1992, who otherwise becomes a Participant, there shall be taken into account all periods of such person's employment with Northtec (including, for such purpose, all periods of employment on and after November 1, 1987, with Powder Masters) which would otherwise have been taken into account for such purpose had Northtec (or Powder Masters, as the case may be) otherwise been an Employer throughout such person's entire such period of employment. D. In addition to the credits referred to in subsections (b) and (c) of this Section 1.4, each Northtec Employee who becomes a Participant on January 1, 1992 shall, as of such date, be credited with $400 for each full calendar year of employment prior to January 1, 1992, but with such calendar years being limited to the period otherwise taken into account under the foregoing provisions of this Section 1.4. SECTION 1.1 VESTING In determining the extent to which any Northtec Employee is vested in his Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Northtec which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.4 of this Appendix G. G-2 SECTION 1.2 TRANSFER BETWEEN LOCATIONS In the case of any Northtec Employee who, prior to January 1, 1992 had been employed at both the Trevose, Pa. location and the Bristol, Pa. location, the provisions of this Appendix G shall, notwithstanding any other provision of this Appendix G to the contrary, be applied as if such person had, throughout the entire period prior to January 1, 1992, remained employed at whichever of such two locations such Northtec Employee was first employed. G-3 APPENDIX H SPECIAL PROVISIONS GOVERNING EMPLOYEES OF NORTHTEC INC. WHO OTHERWISE BECOME ELIGIBLE EMPLOYEES PRIOR TO JANUARY 1, 1992 SECTION 1.1 SCOPE The provisions of this Appendix H shall apply with respect to each person who, prior to January 1, 1992, (a) became an employee of Northtec Inc. at either its Trevose, Pa. or Bristol, Pa. locations and (b) thereafter terminated such employment and immediately thereupon transferred to, and became an employee of an entity which was then an Employer under the Plan as then in effect (a "Transferred Northtec Employee"). The provisions of this Appendix H shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part. Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be to either the Plan as in effect on January 1, 1991 or the Plan as amended and restated generally effective as of January 1, 1993 or January 1, 1997, as the context shall require. The provisions of this Appendix H shall not apply with respect to (a) any person subject to the provisions of Appendix G or (b) any person who first becomes an employee of Northtec Inc. ("Northtec") on or after January 1, 1992. SECTION 1.2 CREDITS TO RETIREMENT ACCOUNTS B. In determining the amount to be credited to the Retirement Account of a Transferred Northtec Employee, who was employed at the Trevose, Pa. location prior to becoming a Transferred Northtec Employee, for the Plan Year commencing January 1, 1992 and for each subsequent Plan Year (but not for any prior Plan Year) pursuant to the provisions of Section 5 of the Plan, but only in the case of such a person who is otherwise entitled to have an amount so credited for such Plan Year, there shall be taken into account all periods of such person's employment with Northtec on or after July 17, 1989 which would otherwise have been taken into account for such purpose had Northtec otherwise been an Employer throughout such person's entire such period of employment. C. In determining the amount to be credited to the Retirement Account of a Transferred Northtec Employee, who was employed at the Bristol, Pa. location prior to becoming a Transferred Northtec Employee, for the Plan Year commencing January 1, 1992 and for each subsequent Plan Year (but not for any prior Plan Year) pursuant to the provisions of Section 5 of the Plan, but only in the case of such a person who is otherwise entitled to have an amount so credited for such Plan Year, there shall be taken into account all periods of such person's employment with Northtec (including, for such purpose, all periods of H-1 employment on and after November 1, 1987, with Powder Masters) which would otherwise have been taken into account for such purpose had Northtec (or Powder Masters, as the case may be) otherwise been an Employer throughout such person's entire such period of employment. D. In addition to the credits referred to in subsections (b) and (c) of this Section 1.2, each Transferred Northtec Employee who was otherwise a Participant in the Plan on January 1, 1992, shall, as of such date, be credited with the greater of (a) the balance otherwise determined under the Plan as of that date, without regard to this Appendix H or (b) an amount equal to the sum of $400 multiplied by the number of such person's full calendar years of employment prior to January 1, 1992. For this purpose, such calendar years of employment for any Transferred Northtec Employee shall be determined by taking into account all periods of employment otherwise taken into account with respect to such person under the foregoing provisions of this Section 1.2 as well as all periods otherwise recognized under the Plan without regard to this Appendix H. SECTION 1.1 VESTING In determining the extent to which any Transferred Northtec Employee is, for the Plan Year commencing January 1, 1992 and each subsequent Plan Year, vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with Northtec which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.2 of this Appendix H. In determining the extent to which any Transferred Northtec Employee is, for any Plan Year beginning prior to January 1, 1992, vested in such aforementioned Account, such person's prior employment with Northtec shall be taken into account only to the extent required under the provisions of Section 411 of the Code. SECTION 1.2 TRANSFER BETWEEN LOCATIONS In the case of any Transferred Northtec Employee who, prior to so becoming a Transferred Northtec Employee, had been employed at both the Trevose, Pa. location and the Bristol, Pa. location, the provisions of this Appendix H shall, notwithstanding any other provisions of this Appendix H to the contrary, be applied as if such person had, throughout the entire period prior to becoming a Transferred Northtec Employee, remained employed at whichever of such two locations such person was first employed. H-2 APPENDIX I ADDITIONAL RETIREMENT BENEFITS ------------------------------ SECTION 1.1 Eligibility for Additional Benefits The following Participants shall receive the additional benefits provided pursuant to this Appendix I: NAME SOCIAL SECURITY NO. ---- ------------------- Acevedo, Muthmet Juarbe ###-##-#### Agosto Pagan, Francisco ###-##-#### DeJesus Moreira, Lydia ###-##-#### Del Valle, Maria T. ###-##-#### Iglesia Anglero, Josephina ###-##-#### Morales Borrero, Alicia ###-##-#### Suris Mallo, Julieta ###-##-#### SECTION 1.2 Additional Benefits Each Participant described in the foregoing Section 1.1 of this Appendix I shall be entitled to the following: B. The Additional Benefits shall be equal to the benefit determined, under Section 5.5 of the Plan, by increasing the Participant's age by Five (5) years and Years of Credited Service by Five (5) years. The Additional Benefits shall be added to the regular pension benefit determined under Section 5.5 of the Plan. C. The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Participant's benefits, shall be applied after increasing the Participant's age by Five (5) years as provided under paragraph A above. D. The Additional Benefits provided under this Appendix I shall be payable in the form otherwise applicable to the Participant in accordance with the generally applicable provisions of the Plan. I-1 APPENDIX J ADDITIONAL EARLY RETIREMENT BENEFITS - II ----------------------------------------- 1.1 Eligibility for Additional Benefits. (1) Any Participant who is (i) employed by the Employer, (ii) on an Approved Absence (paid or unpaid) from the Employer, (iii) on sick leave or long-term disability under the Employer's Long-Term Disability Plan with disability payments continuing on and after January 1, 1997 or (iv) receiving severance payments from the Employer that are being paid on or after January 1, 1997 (such persons being hereinafter referred to as a "Covered Employee"), may elect to retire on the first day of any month commencing on January 1, 1997 and ending on July 1, 1998 as designated by the Employer and Covered Employee in the "General Release" (such designated date of retirement hereinafter referred to in this Appendix J as the "Retirement Date"). Such Covered Employee shall be eligible to receive the benefit described in Paragraph 1.2 of this Appendix J, provided that (i) on or before December 31, 1996, such Covered Employee shall have attained at least age 50 and completed at least ten Years of Service or Years of Credited Service under the Plan, (ii) on or before December 31, 1996, any such Covered Employee who was employed by Whitman Packaging Corporation has completed at least four Years of Eligibility Service under the Plan, (iii) the document entitled "Special Retirement Opportunity" is signed, witnessed and dated no earlier than November 8, 1996 in strict accordance with the instructions contained therein, and (iv) such Covered Employee shall have made an election to retire on such other forms as the Employer may require during the period commencing at least forty-five days after such Covered Employee receives the "General Release" from the Employer but ending no later than June 4, 1998. Participants who previously retired on or after January 1, 1996 and before January 1, 1997 and who were employed in the United States by the Employer shall also be eligible for the benefits described in Paragraph 1.2 of this Appendix J, provided the preceding requirements in clauses (i)-(iv) hereof are satisfied (such persons are hereinafter referred to as "Retired Covered Employees"). (2) Notwithstanding the provisions of paragraph 1 above, any individual who is classified by an Employer as a Corporate Department Head or President of a division shall not be eligible for the benefit described in Paragraph 1.2 of this Appendix J. 1.2 Additional Benefits. (1) Each Covered Employee who elects to retire on the Retirement Date shall be entitled to his Accrued Benefit which will be calculated as if such Covered Employee was five years older than his actual age as of December 31, 1996, and by increasing his Years of Service and Years of Credited Service as of December 31, 1996 (the difference between the Covered Employee's benefit determined under this Appendix J and his benefit determined without regard to the enhancement provided under this Appendix J shall hereinafter be referred to as the "Additional Benefit"). (2) The reduction contained in Section 5.5 of the Plan, which applies to the early commencement of a Covered Employee's Accrued Benefit determined under the terms of J-1 the Prior Plan, shall be applied after increasing the Covered Employee's age by Five (5) years as provided under Paragraph 1.2(1) above. (3) If the Covered Employee elects to retire pursuant to the provisions of this Appendix J, such Covered Employee may elect at any time prior to the date of commencement of his benefit to receive his benefit, calculated in accordance with the provisions of the Plan and this Appendix J, in the forms of payment applicable to the Covered Employee in accordance with the provisions of Section 9 of the Plan. (4) All Retired Covered Employees who (i) retired on or after January 1, 1996 and prior to January 1, 1997 and (ii) are receiving retirement benefits under the Plan prior to January 1, 1997 shall have the amount of their retirement benefits recomputed under this Appendix J (taking into the account the provisions of paragraphs (1) and (2) hereof) from the date of their previous retirement and paid in accordance with the form of benefit previously elected under Section 9 of the Plan. No changes to the form of benefit previously elected shall be permitted. In no event shall Additional Benefits be paid to Participants who retired before January 1, 1996. (5) If a Covered Employee or Retired Covered Employee elects to receive the Additional Benefits provided under this Appendix J to the Plan, such Covered Employee's or Retired Covered Employee's retirement benefits shall be payable with respect to or commencing on the first month following the month in which the Retirement Date occurs. 1.3 Defined Terms. Except to the extent set forth above, the provisions of this Appendix J are subject to the terms and conditions of the Plan and defined terms used in this Appendix J shall have the same meaning as used in the Plan. J-2 APPENDIX K SPECIAL PROVISIONS GOVERNING EMPLOYEES OF BOBBI BROWN PROFESSIONAL COSMETICS, INC. WHO DID NOT OTHERWISE BECOME ELIGIBLE EMPLOYEES ------------------------------------- SECTION 1.1 SCOPE The provisions of this Appendix K shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part. Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall (except with reference to the first sentence of the preceding paragraph) be the Plan as amended and restated generally effective as of January 1, 1993 or January 1, 1997, as the context shall require. SECTION 1.2 COMMENCEMENT OF STATUS AS A PARTICIPATING EMPLOYER Bobbi Brown Professional Cosmetics, Inc. ("Bobbi Brown") shall become an Employer under the Plan on January 1, 1996. SECTION 1.3 COMMENCEMENT OF PLAN PARTICIPATION BY BOBBI BROWN EMPLOYEES No Bobbi Brown employee shall be permitted to become a Participant prior to January 1, 1996. Each person who (i) is employed by Bobbi Brown on January 1, 1996 and (ii) is otherwise an Employee on that date shall become a Participant on January 1, 1996. (Each person who so becomes a Participant on that date is hereafter referred to as a "Bobbi Brown Employee".) SECTION 1.4 CREDITS TO RETIREMENT ACCOUNTS In determining the amount to be credited to the Retirement Account of a Bobbi Brown Employee who becomes a Participant, pursuant to the provisions of Section 5 of the Plan, such person's Years of Service, for such purpose, shall be determined based upon the date that such person would otherwise have, without regard to this Appendix K, first become a Participant had Bobbi Brown been an Employer throughout such person's entire period of employment with Bobbi Brown. SECTION 1.5 VESTING K-1 In determining the extent to which any Bobbi Brown Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, such person's Years of Service, for such purpose, shall be determined by taking into account all periods of such person's employment with Bobbi Brown which would otherwise have been taken into account for such purpose had Bobbi Brown otherwise been an Employer throughout such person's entire period of employment with Bobbi Brown. K-2 APPENDIX L SPECIAL PROVISIONS GOVERNING ESTEE LAUDER EMPLOYEES WHO WERE PREVIOUSLY EMPLOYED BY THE DONNA KARAN COMPANY WHO DID NOT OTHERWISE BECOME ELIGIBLE EMPLOYEES ------------------------------------------------- SECTION 1.1 SCOPE The provisions of this Appendix L shall apply with respect to each person who was an employee of The Donna Karan Company ("DK") immediately prior to November 10, 1997 and becomes an Employee prior to December 31, 1998 (a "DK Employee"). The provisions of this Appendix L shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part. Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall be the Plan as amended and restated generally effective as of January 1, 1997. SECTION 1.2 COMMENCEMENT OF PLAN PARTICIPATION BY DK EMPLOYEES No DK Employee shall be permitted to become a Participant prior to November 10, 1997. The first date on or after November 10, 1997 on which any such person may become a Participant shall be governed by the otherwise applicable provisions of Section 3 of the Plan. In applying the terms of such participation eligibility provision, there shall be taken into account all of such DK Employee's period of employment with DK, but only to the extent that any such period of employment would have been taken into account had DK otherwise been an Employer throughout such person's entire period of employment with DK. SECTION 1.3 CREDITS TO RETIREMENT ACCOUNTS In determining the amount to be credited to the Retirement Account of a DK Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, there shall be taken into account all periods of such person's employment with DK which would otherwise have been taken into account for such purpose had DK otherwise been an Employer throughout such person's entire such period of employment. L-1 SECTION 1.4 VESTING In determining the extent to which any DK Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with DK which are otherwise taken into account with respect to such employee pursuant to the provisions of Section 1.4 of this Appendix L. L-2 APPENDIX M SPECIAL PROVISIONS GOVERNING CERTAIN TRANSFERRED EMPLOYEES SECTION 1.1 SCOPE The provisions of this Appendix M shall apply with respect to each person (i) who was an employee of one of the companies listed below on or after the date specified below for such company, and (ii) whose employment is subsequently transferred from such company to an Employer (each a "Transferred Employee"): ----------------------------------------------------------------------- Company Date ----------------------------------------------------------------------- Make-Up Art Cosmetics Inc. December 28, 1994 Make-Up Art Cosmetics (U.S.) Inc. FFJD, Inc. ----------------------------------------------------------------------- Sassaby Cosmetics, Inc. October 31, 1997 ----------------------------------------------------------------------- Aveda Corporation December 1, 1997 Aveda Services Inc. ----------------------------------------------------------------------- The provisions of this Appendix M shall apply notwithstanding any contrary provisions of the Plan, of which this Appendix is a part. Except to the extent expressly provided to the contrary herein, all defined terms shall have the same meanings as provided under the Plan. Each reference to the Plan shall be the Plan as amended and restated generally effective as of January 1, 1999. SECTION 1.2 COMMENCEMENT OF PLAN PARTICIPATION BY TRANSFERRED EMPLOYEES The first date on which any Transferred Employee may become a Participant shall be governed by the otherwise applicable provisions of Section 3 of the Plan. In applying the terms of such participation eligibility provision, there shall be taken into account all of such Transferred Employee's period of employment with his prior employer listed in Section 1.1 of this Appendix M (including any corporate predecessor thereof), but only to the extent that any such period of employment would have been taken into account had such prior employer otherwise been an Employer throughout such person's entire period of employment. SECTION 1.3 CREDITS TO RETIREMENT ACCOUNTS In determining the amount to be credited to the Retirement Account of a Transferred Employee who becomes a Participant pursuant to the provisions of Section 5 of the Plan, there shall be taken into account all periods of such person's employment with his prior employer listed in Section 1.1 of this Appendix M (including any corporate predecessor thereof) which would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment. M-1 SECTION 1.4 VESTING In determining the extent to which any Transferred Employee is vested in his Retirement Account pursuant to the provisions of Section 8 of the Plan, there shall be taken into account all periods of such person's employment with his prior employer listed in Section 1.1 of this Appendix M (including any corporate predecessor thereof) which would otherwise have been taken into account for such purpose had such prior employer otherwise been an Employer throughout such person's entire period of employment. M-2 IN WITNESS WHEREOF, the undersigned, being duly authorized by the Benefits Committee, has caused this amended restated Plan to be executed this 14 day of July, 1999. ESTEE LAUDER INC. By: /s/ Andrew J. Cavanaugh -------------------------------- Name: Andrew J. Cavanaugh Title: Senior Vice President-- Corporate Human Resources EX-10.6 4 RETIREMENT BENEFITS RESTORATION PLAN THE ESTEE LAUDER INC. RETIREMENT BENEFITS RESTORATION PLAN Effective as of January 1, 1984 Amended and Restated as of January 1, 1999 THE ESTEE LAUDER INC. RETIREMENT BENEFITS RESTORATION PLAN ARTICLE I INTRODUCTION ------------ 1. This instrument amends and restates as of January 1, 1999, the terms and conditions of the Estee Lauder Inc. Retirement Benefits Restoration Plan, as previously adopted effective as of January 1, 1984. 2. The purpose of this Plan is to provide for certain Employees of the Company and its subsidiaries retirement benefits over and above the benefits provided by the Estee Lauder Inc. Retirement Growth Account Plan. This Plan is not intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). 3. The Plan is intended to be an "excess benefit plan" as that term is defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") with respect to those participants whose benefits under the Retirement Plan have been limited by Section 415 of the Code, and a "top hat" plan meeting the requirements of Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA with respect to those participants whose benefits under the Retirement Plan have been limited by Section 401(a)(17) of the Code. ARTICLE II DEFINITIONS ----------- 1. "Beneficiary" shall mean the individual entitled to receive a death or survivor benefit under the Retirement Plan. 2. "Board" shall mean the Board of Directors of the Company. 3. "Code" shall mean the Internal Revenue Code of 1986, as amended. 2 4. "Company" shall mean Estee Lauder Inc. or any successor thereto. 5. "Employee" shall mean any employee who is a participant in the Retirement Plan whose benefit thereunder is limited by Section 415 or Section 401(a)(17) of the Code. 6. "Employee Benefits Committee" shall mean the Estee Lauder Inc. Employee Benefits Committee, which administers the Retirement Plan. 7. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 8. "Fiduciary Committee" shall mean the Estee Lauder Inc. Fiduciary Investment Committee, which performs certain fiduciary functions with respect to the Retirement Plan. 9. "Plan" shall mean the Estee Lauder Inc. Retirement Benefits Restoration Plan as hereinafter from time to time amended. 10. "Plan Year" shall mean the period beginning January 1 and ending December 31 of each calendar year. 11. "Retirement Plan" shall mean the Estee Lauder Inc. Retirement Growth Account Plan, as amended and restated as of January 1, 1999, and as amended from time to time thereafter. 12. "Retirement Plan Supplemental Benefit" shall mean the benefit provided for pursuant to Article III hereof. ARTICLE III BENEFITS PAYABLE UNDER THIS PLAN -------------------------------- 1. An Employee who is a participant in the Retirement Plan shall be entitled to a Retirement Plan Supplemental Benefit as hereinafter provided. Such benefit shall be an amount equal to the excess of (i) over (ii) where: (i) is the benefit which would have been paid to such Employee (or his Beneficiary) under the Retirement Plan, if the provisions of the 3 Retirement Plan were administered without regard to the limitations set forth in Section 415 of the Code and reflected in the Retirement Plan; and (ii) is the limited benefit which is payable to such Employee (or his Beneficiary) under the Retirement Plan after giving effect to the limitations set forth in Section 415 of the Code and reflected in the Retirement Plan. 2. In addition, each Employee who is a participant in the Retirement Plan shall be entitled to a Retirement Plan Supplemental Benefit equal to the amount by which the Retirement Plan Supplemental Benefit determined under Section 1 of this Article III would be greater if it were determined by disregarding, in addition to Section 415 limitations, any limitations on such Employee's "Compensation" and "Average Final Compensation" imposed by reason of Section 401(a)(17) of the Code. ARTICLE IV PAYMENT OF BENEFITS ------------------- 1. Payment of Retirement Plan Supplemental Benefits shall commence as of the day as of which payments are first paid to such Employee (or his Beneficiary) under the Retirement Plan, and shall be payable in the same manner and with the same limitations, including any applicable actuarial reductions or increases, as payments made pursuant to the Retirement Plan. Notwithstanding the foregoing, the Fiduciary Committee shall be permitted to designate actuarial assumptions different from those used under the Retirement Plan, which alternative assumptions, if so designated, shall be set forth in Appendix A to this Plan. 2. Notwithstanding the foregoing Section 1 of this Article IV, in the event an Employee elects to receive a lump sum payment under the Retirement Plan, the Company reserves the right to make any payment of Retirement Plan Supplemental Benefits in equal annual installments over a period not to exceed five years. 4 ARTICLE V VESTING ------- 1. An Employee shall be vested in his Retirement Plan Supplemental Benefit to the same extent such Employee is vested in his accrued benefit under the Retirement Plan. ARTICLE VI BENEFICIARIES ------------- 1. An Employee's Beneficiary or Beneficiaries under this Plan shall be deemed to be the same individual or individuals designated, or otherwise determined to be the beneficiary or beneficiaries of the death benefit payable under the Retirement Plan. 2. In the event of the death of an Employee who would have been entitled to a Retirement Plan Supplemental Benefit or who has begun to receive a Retirement Plan Supplemental Benefit, such Employee's Beneficiary shall be entitled to a death or survivor benefit only if such Beneficiary would be entitled to a death or survivor benefit under the Retirement Plan, and payment shall be made to such Beneficiary pursuant to the provisions of the Article IV hereof. ARTICLE VII FUNDING ------- 1. Benefit payment shall be paid in cash from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of distributions. Nothing contained in this Plan and no action taken pursuant to its provisions shall create or be construed to create a trust of any kind, nor a fiduciary relationship between the Company and the Employee or any other person. To the extent that any person acquires a right to receive benefits from the Company under this Plan, such right shall be no greater than the right of an unsecured creditor of the Company. 5 ARTICLE VIII ADMINISTRATION OF THE PLAN -------------------------- 1. This Plan shall be operated under direction of the Board and administered by the Employee Benefits Committee, in a manner consistent with the operation and administration of the Retirement Plan as set forth in the appropriate articles of such plan. The Employee Benefits Committee's decision in any matter involving the interpretation and application of this Plan shall be final and binding. ARTICLE IX LOSS OF BENEFITS ---------------- 1. Notwithstanding any provision of this Plan to the contrary, in the sole discretion of the Company and after written notice to the Employee or such other person designated by the Employee, rights to receive any benefits under this Plan may be forfeited, suspended, reduced or terminated in cases of gross misconduct by the Employee, or of any conduct, activity or competitive occupation which is reasonably deemed to be prejudicial to the interests of the Company, including but not limited to the utilization or disclosure of confidential information for gain or otherwise. ARTICLE X AMENDMENT AND TERMINATION ------------------------- 1. The Company expects to continue this Plan indefinitely but reserves the right to amend or terminate it if, in its sole judgment, such a change is deemed necessary or desirable. If the Company shall amend this Plan, the rights of an Employee to his accrued benefit under the Plan, determined as of the date of such amendment, shall be nonforfeitable to the extent that any such amendment would reduce such Employee's benefit hereunder. If the Company shall terminate this Plan, the rights of an Employee to his accrued benefit hereunder shall, as of the date of such termination, be nonforfeitable and, unless the Fiduciary Committee approves earlier payment, such accrued benefit shall be paid at such time or times as provided in Article IV hereof. 2. If the Company should terminate the Retirement Plan with respect to participants therein, Employees shall cease to accrue additional benefits hereunder and, unless the Fiduciary Committee approves 6 earlier payment, their accrued benefits under this Plan as of the date of such Retirement Plan termination shall continue to be payable at the same time or times, in the same manner and with the same limitations (including any applicable actuarial reductions or increases) as their benefits would have been paid under the Retirement Plan if such plan had not terminated. Notwithstanding the foregoing, the Fiduciary Committee shall be permitted to designate actuarial assumptions different from those used under the Retirement Plan, which alternative assumptions, if so designated, shall be set forth in Appendix A to this Plan. The Employee Benefits Committee may specify any election forms or other procedures necessary to carry out the intent of this Section 2. ARTICLE XI MISCELLANEOUS ------------- 1. (a) No right to payment or any other interest of an Employee shall be assignable or subject to attachment, execution or levy of any kind, except to the extent permitted by law or a court ruling. (b) No contribution to or benefit payable under this Plan shall be deemed salary or other compensation to the Employee for the purpose of computing benefits to which he may be entitled under the Retirement Plan. This Plan shall be binding upon and inure to the benefit of the Company and its successors and assigns and the Employee and his Beneficiary or Beneficiaries. (c) Neither the eligible Employee nor his Beneficiary or Beneficiaries shall encumber, sell or dispose of the right to receive the payments provided under this Plan, which payments and the rights thereto are expressly declared to be nontransferable and nonassignable. (d) The Company may withhold from any benefits payable under the Plan any taxes required to be withheld pursuant to any law or governmental regulation or ruling. (e) Nothing in this Plan shall be construed as giving any Employee the right to be retained in the employ of the Company or any other "Employer" (within the meaning of the Retirement 7 Plan). Each Employer expressly reserves the right to dismiss any Employee at any time without regard to the effect which such dismissal might have upon him under the Plan. (f) This Plan shall be construed, administered and enforced according to the laws of the State of New York. 8 APPENDIX A Actuarial Assumptions Different From Those Used Under Retirement Plan --------------------------------------------------------------------- As of January 1, 1999 --------------------- None. 9 EX-10.13 5 EMPLOYMENT AGREEMENT Exhibit 10.13 EMPLOYMENT AGREEMENT AGREEMENT (this "Agreement") between THE ESTEE LAUDER COMPANIES INC., a Delaware corporation (the "Company"), and PATRICK BOUSQUET-CHAVANNE, currently a resident of Paris, France (the "Executive"). W I T N E S S E T H : WHEREAS, the Company and its subsidiaries are principally engaged in the business of manufacturing and marketing prestige skin care, makeup and fragrance products (the "Business"); and WHEREAS, the Company desires to retain the services of the Executive in the capacity of President of Estee Lauder International, Inc. ("ELII"), a subsidiary of the Company, and the Executive desires to provide such services in such capacity to the Company, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Employment; Term. The Company hereby agrees to employ in its employ, and the Executive hereby agrees to enter into such employment, as President of ELII for an initial period commencing on the date that Executive notifies the Company that his undertaking such employment shall neither violate nor conflict with the terms of any agreement then enforceable regarding Executive's employment (the "Effective Date"), and ending on June 30, 2001 unless terminated sooner pursuant to Section 5 hereof (the "Term of Employment"). In no event shall the Effective Date be later than October 20 , 1998. The Term of Employment shall automatically continue for successive twelve (12) month periods commencing on July 1, 2001 and each July 1 thereafter unless, prior to December 31, 2000 or each December 31 thereafter one party shall provide to the other written notice of its election to terminate this Agreement, in which case the Term of Employment shall terminate as of the next succeeding June 30. The period commencing with the Effective Date and ending June 30, 1999 shall be the "First Contract Year" hereunder, and subsequent twelve-month periods shall be subsequent "Contract Years" hereunder. 1 2. Duties and Extent of Services. (a) During the Term of Employment, the Executive shall serve as the President of ELII, a subsidiary of the Company, and, in such capacity, shall render such managerial, administrative and other services as customarily are associated with and incident to such positions, and as the Company may, from time to time, reasonably require of him consistent with such position; (b) The Executive shall hold such other positions and executive offices of the Company and/or of any of the Company's subsidiaries or affiliates as may from time to time be authorized by the Board of Directors of the Company, provided that each such position shall be commensurate with the Executive's standing in the business community as President of ELII. The Executive shall not be entitled to any compensation other than the compensation provided for herein for serving during the Term of Employment in any other office or position of the Company or any of its subsidiaries or affiliates, unless the Board of Directors of the Company shall have specifically approved such additional compensation. (c) The Executive shall be a full time employee of the Company and shall exclusively devote all his business time and efforts to perform faithfully, competently and diligently to the best of his ability all of the duties required of him as President of ELII, and in the other positions or offices of the Company or its subsidiaries or affiliates required of him hereunder. Notwithstanding the foregoing provisions of this Section 2(c), the Executive may serve as a non-management director of such business corporations (or in a like capacity in other not-for-profit or profit-making organizations) as the Board of Directors or Chief Executive Officer of the Company shall approve. 3. Compensation. (a) Base Salary: As compensation for all services to be rendered pursuant to this Agreement and as payment for the rights and interests granted by Executive hereunder, the Company shall pay or cause any of its subsidiaries to pay the Executive a base salary (the "Base Salary") during the Term of Employment as follows: For the First Contract Year $ 900,000 For the Second Contract Year $ 950,000 For the Third Contract Year $ 1,000,000 2 Base Salary for subsequent Contract Years, if any, shall be determined by further agreement between the parties provided, however, that the Base Salary for any Contract Year shall not be less than the Base Salary established for the preceeding Contract Year. All amounts of Base Salary provided for hereunder shall be payable in accordance with the regular payroll policies of the Company in effect from time to time. (b) Incentive Bonus Compensation: During the Term of Employment, the Executive shall participate in the Company's Annual Incentive Plan (the "Bonus Plan") or in any successor incentive bonus plans or programs hereafter adopted which provide for the rendering of incentive compensation to senior officers. During the Term of Employment hereunder, the Executive's target award under the Bonus Plan (i.e., the maximum bonus which may be awarded) shall be established as follows: - For the period from the Effective Date through the end of the First Contract Year, the target bonus award shall be $600,000; - For the Second Contract Year, the target bonus award shall be $700,000, and - For the Third Contract Year, the target bonus award shall be $800,000. Target bonus awards for subsequent Contract Years, if any, shall be determined by further agreement between the parties provided, however, that the target bonus award for any Contract Year shall not be less than the target bonus award established for the preceeding Contract Year. The amount of the actual bonus award to the Executive shall be calculated with reference to the attainment by the Company and by the Executive of performance goals for the relevant Contract Year, which goals shall be established by the Board of Directors of the Company upon the recommendation of the Compensation Committee thereof and after consultation with the Executive; provided, however, in the event that the actual award for the period from the Effective Date through the end of the First Contract Year shall be less than $500,000, the amount by which such award shall be less than $500,000 shall be added to the target award for the Second Contract Year as set out above. (c) In addition to the amounts of base salary and bonus set out at subparagraphs 3(a) and 3(b), above, the Company shall pay to Executive a one time signing 3 bonus, in the gross amount of $200,000. Such amount shall be paid as soon as practicable after the Effective Date, but in no event later than thirty days after the Effective Date. (d) The Company shall loan to the Executive the principal amount of $1,000,000, as soon as practicable after the Effective Date. Such loan shall bear interest at the Intermediate Term Applicable Federal Rate as established as of the date of such loan. Such interest shall be capitalized and not paid currently. Such loan shall be forgiven in five approximately equal annual installments, each installment consisting of a portion of principal and capitalized interest outstanding, plus an amount equal to the federal, state and local income tax incurred by the executive in connection with each such event of forgiveness. The first such forgiveness shall be effective as of the last day of the First Contract Year, and an additional forgiveness shall occur as of the last day of each of the four successive Contract Years provided that the Executive shall remain in the continuous employ of the Company during the entirety of such five year period. Amounts not forgiven shall be repayable by the Executive as of the date of termination of his employment with the Company. (e) Deferral: The Executive may elect to defer payment of all or any part of his bonus incentive compensation payable in accordance with Section 3(b) hereof in respect of any Contract Year during the Term of Employment, by giving the Company written notice thereof on or before March 31 of such Contract Year. Additionally, in the event that in respect of any fiscal year of the Company any amount of Base Salary, any amount payable under the Bonus Plan or any other amount payable to the Executive hereunder or otherwise shall, either alone or in combination with other amounts payable hereunder or otherwise, result in the payment by the Company of any amount that shall not be currently deductible by it pursuant to the provisions of Section 162(m) of the Internal Revenue Code, as amended (the "Code"), or like or successor provisions (a "Non-Deductible Amount"), the Company may elect to defer the payment of the Non-Deductible Amount. Any amounts so deferred, either by election of the Executive or by election of the Company, shall be credited to a bookkeeping account in the name of the Executive as of the date scheduled for payment hereunder. Such amounts shall be credited with interest as of each June 30 during the term of deferral, compounded annually, at a rate per annum equal to the annual rate of interest announced by Citibank N.A. in New York, New 4 York as its base rate in effect on such June 30, but in no event shall such rate exceed 9%. The entire amount credited to such bookkeeping account shall be paid to the Executive on a date to be chosen by the Company, but in no event later than the first anniversary of the termination of the Executive from employment with the Company. Any amount of bonus deferred by election of the Executive or the Company pursuant to this paragraph 3(e) (but not interest credits thereon) shall be considered pensionable compensation in connection with the calculation of the Executive's benefit, if any, under the Company's Retirement Growth Account plan and Benefits Restoration Plan (the "Pension Plans") or successor plans of similar import. (f) Share Incentive Plan: The Executive shall participate in the Company's Share Incentive Plan according to the terms thereof. The Company shall recommend to the Compensation Committee of the Board of Directors that the Executive be awarded 75,000 options to purchase shares of Class A Common Stock of the Company as of the Effective Date,under the terms of such Plan. Thereafter, the Company shall recommend to the Compensation Committee of the Board of Directors that Executive be awarded no fewer than 50,000 of such options as of July 1, 1999 (in respect of the Second Contract Year) and 50,000 of such options as of July 1, 2000 (in respect of the Third Contract Year). 4. Benefits. a. Standard Benefits: During the Term of Employment, the Executive shall be entitled to (i) participate in any and all benefit programs and arrangements now in effect and hereinafter adopted and made generally available by the Company to its senior officers, including but not limited to, Pension Plans, incentive savings (i.e., "401(k)) plans, contributory and non-contributory Company welfare and benefit plans, disability plans, and medical, death benefit and life insurance plans for which the Executive shall be eligible, or may become eligible during the Term of Employment; and (ii) paid vacations during each year of the Term of Employment in accordance with the policies and procedures of the Company as in effect from time to time for its senior officers. The prior service of the Executive with the Company shall be recognized for all purposes related to the employee benefit plans of the Company, in accordance with the provisions of each such plan. 5 (b) Additional Insurance. The Company shall provide Executive, subject to usual underwriting considerations, additional executive life insurance in the amount of $1,000,000. Executive acknowledges that this coverage, if issued, will result in the receipt by him of additional taxable income. (c) Perquisites; Financial Counselling. Executive will participate in the Executive Perquisite program of the Company, and will be reimbursed amounts up during to $15,000 in respect of each full calendar year the Term of Employment for expenses qualifying under the terms of such program. Additionally, the Executive will be provided financial consulting services through a firm chosen by the Company. Executive acknowledges that participation in such programs will result in the receipt by him of additional taxable income. (d) Executive Auto. The Executive will participate in the Executive Automobile program of the Company, and may elect to be provided an automobile having an acquisition value of up to $30,000. Executive acknowledges that participation in this program will result in the receipt by him of additional taxable income. (e) Parking Company shall provide to Executive, at its cost, parking facilities in the General Motors Building. (f) Expenses: The Company agrees to reimburse the Executive for all reasonable and necessary travel (including first class air fare), business entertainment and other business out-of-pocket expenses incurred or expended by him in connection with the performance of his duties hereunder upon presentation of proper expense statements or vouchers or such other supporting information as the Company may reasonably require of the Executive. (g) Spousal Travel and Home Leave. The Executive will participate in the Spousal Travel program of the Company under the terms thereof, and additionally will be provided two round trip airfares from New York City to Paris, France for himself and his immediate family members during each full year of the Term of Employment. (h) Certain Social Security Accounts. To the extent permitted by applicable law and regulation, the Company shall, at its expense, maintain contributions to the Executive's French Social Security Account, up to the generally applied limit on annual contribution amounts. 6 (i) Relocation Assistance. The Company shall reimburse to the Executive the reasonable actual cost of freightage (including customs imposts, if any) of household goods from Paris, France to New York City, and the actual cost of air transport for the Executive and his family undertaken in connection with his relocation to New York. Additionally, the Company shall provide temporary living expenses for the Executive and his family in the New York area for a period not to exceed three (3) months. Other than as set out in this subparagraph 4(h), the Company shall have no obligation to Executive with respect to his relocation, or his acquisition of a principal residence in the New York area. 5. Termination. (a) Permanent Disability. In the event of the "permanent disability" (as hereinafter defined) of the Executive during the Term of Employment, the Company shall have the right, upon written notice to the Executive, to terminate the Executive's employment hereunder, effective upon the giving of such notice (or such later date as shall be specified in such notice). In the event of such termination, the Executive shall be entitled (i) to receive any amounts or benefits to which the Executive may otherwise have been entitled but for the Executive's permanent disability prior to the effective date of termination, (ii) to be paid his Base Salary as established under Section 3(a) hereof for a period of one (1) year from the effective date of termination; provided, however, that the Company shall only be required to pay that amount of the Executive's Base Salary which shall not be covered by long-term disability payments, if any, to the Executive; and (iii) to any and all bonus compensation under Section 3(b) hereof prorated to the date of termination. In addition, upon termination for permanent disability, the Executive shall continue to participate in any and all pension, insurance and other benefit plans and programs of the Company during the period the Executive is continuing to receive his Base Salary in accordance with this Section 5(a). Thereafter, the Executive's rights to participate in such programs and plans, or to receive similar coverage, if any, shall be as determined under such programs. For purposes of this paragraph, "permanent disability" means any disability as defined under the Company's applicable disability insurance policy or, if no such policy is available, any physical or mental disability or incapacity that renders the Executive incapable of performing the services required of him in accordance with his obligations under Section 2 hereof 7 for a period of six (6) consecutive months or for shorter periods aggregating six (6) months during any twelve-month period. (a) Death. In the event of the death of the Executive during the Term of Employment, this Agreement shall automatically terminate and the Company shall have no further obligations hereunder, except to pay the Executive's beneficiary or legal representative (i) the Executive's Base Salary as established under Section 3(a) hereof to the day on which his death occurs; (ii) any and all bonus compensation under Section 3(b) hereof prorated to the date of death; and (iii) any other amounts to which the Executive otherwise would have been entitled but for his death. (b) Termination Without Cause. The Company shall have the right, upon sixty (60) days' written notice given to the Executive, to terminate this Agreement for any reason whatsoever. In the event of termination pursuant to this Section 5(c) during the First Contract Year or the Second Contract Year, for a period of two (2) years from the date of such termination, the Executive shall be entitled as damages to (i) receive his Base Salary as established under Section 3(a) hereof; (ii) receive bonus compensation equal to fifty percent (50%) of the average of incentive compensation bonuses previously paid or payable to the Executive under Section 3(b) hereof during the Term of Employment (or, if no such bonuses have been paid or are payable as of the date of such termination, fifty percent (50%) of the Base Salary as in effect on such date of termination); and (iii) participate in all pension, insurance and other benefit plans, programs or arrangements, on terms identical to those applicable to full term senior officers of the Company. In the event of termination pursuant to this Section 5(c) at any time thereafter, for a period of one (1) year from the date of such termination , the Executive shall be entitled as damages to (i) receive his Base Salary as established under Section 3(a) hereof; (ii) receive bonus compensation equal to fifty percent (50%) of the average of incentive compensation bonuses previously paid or payable to the Executive under Section 3(b) hereof during the Term of Employment (or, if no such bonuses have been paid or are payable as of the date of such termination, fifty percent (50%) of the Base Salary as in effect on such date of termination); and (iii) participate in all pension, insurance and other benefit plans, programs or arrangements, on terms identical to those applicable to full term senior officers of the Company. 8 In the event of termination pursuant to this Section 5(c), the Executive shall not be required to mitigate his damages hereunder. (c) Cause. The Company shall have the right, upon written notice to the Executive, to terminate the Executive's employment under this Agreement for "Cause" (as hereinafter defined), effective upon the giving of such notice (or such later date as shall be specified in such notice), and the Company shall have no further obligations hereunder, except to pay the Executive any amounts otherwise payable pursuant to Section 3 hereof and provide the Executive any benefits to which the Executive may otherwise have been entitled prorated to the effective date of termination. The Executive's right to participate in any of the Company's retirement, insurance and other benefit plans and programs shall be as determined under such programs and plans. For purposes of this Agreement, "Cause" means: (i) fraud, embezzlement or gross insubordination on the part of the Executive or material breach by the Executive of his obligations under Section 6 or 7 hereof; (ii) conviction of or the entry of a plea of nolo contendere by the Executive for any felony; (iii) a material breach of, or the willful failure or refusal by the Executive to perform and discharge, his duties, responsibilities or obligations under this Agreement (other than under Sections 6 and 7 hereof, which shall be governed by clause (i) above, and other than by reason of disability or death) that is not corrected within thirty (30) days following written notice thereof to the Executive by the Company, such notice to state with specificity the nature of the breach, failure or refusal; provided that if such breach, failure or refusal cannot reasonably be corrected within thirty (30) days of written notice thereof, correction shall be commenced by the Executive within such period and may be corrected within a reasonable period thereafter; or (iv) any act of moral turpitude or willful misconduct by the Executive which (A) is intended to result in substantial personal enrichment of the Executive at the expense of the Company or any of its subsidiaries or affiliates or (B) has a material adverse impact on the business or reputation of the Company or any of its subsidiaries or affiliates (such determination to be made by the Company's Board of Directors in its reasonable judgment). 9 (e) Termination by Executive for Material Breach. The Executive may elect to terminate his employment after a "material breach" (as defined below) of this Agreement by the Company effective thirty (30) days after the Executive gives the Company notice of such material breach; provided, however, that such notice must be provided to the Company within five (5) days of the occurrence of such material breach; and provided, further, that such termination will not become effective if within such thirty (30) day period the Company shall have cured all such material breaches of its obligations hereunder. For purposes of this Section 5(e), a material breach shall include, but not be limited to, (i) a material reduction in the Executive's authority, functions, duties or responsibilities provided in Section 2 hereof, or (ii) the Company's failure to cause the Executive to serve in the position set forth in Section 1 hereof for any time period in which he is entitled to so serve. (f) Certain Limitations. Notwithstanding anything to the contrary contained herein, in the event that any payment received or to be received by the Executive pursuant to Section 5 hereof or otherwise (a "Severance Payment") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Code (in whole or part), the Severance Payment shall be reduced (but not below zero) until no portion of such payments would be subject to Excise Tax. (g) Effect of Termination. Upon the termination of the Executive's employment hereunder for any reason, the Company shall have no further obligations hereunder, except as otherwise provided herein. The Executive, however, shall continue to have the obligations provided for in Sections 6 and 7 hereof. Furthermore, upon such termination, the Executive shall be deemed to have resigned immediately from all offices and directorships held by him in the Company or any of its subsidiaries. 6. Confidentiality; Ownership. (a) The Executive agrees that he shall forever keep secret and retain in strictest confidence and not divulge, disclose, discuss, copy or otherwise use or suffer to be used in any manner, except in connection with the Business of the Company and the businesses of any of its subsidiaries or affiliates, any "Protected Information" in any "Unauthorized" manner or for any Unauthorized purpose (as such terms are hereinafter defined). 10 (i) "Protected Information" means trade secrets, confidential or proprietary information and all other knowledge, know-how, information, documents or materials owned, developed or possessed by the Company or any of its subsidiaries or affiliates, whether in tangible or intangible form, pertaining to the Business of the Company or the businesses of any of its subsidiaries or affiliates, including, but not limited to, research and development operations, systems, data bases, computer programs and software, designs, models, operating procedures, knowledge of the organization, products (including prices, costs, sales or content), processes, formulas, techniques, machinery, contracts, financial information or measures, business methods, business plans, details of consultant contracts, new personnel acquisition plans, business acquisition plans, customer lists, business relationships and other information owned, developed or possessed by the Company or its subsidiaries or affiliates, except as required in the course of performing duties hereunder; provided that Protected Information shall not include information that becomes generally known to the public or the trade without violation of this Section 6. (ii) "Unauthorized" means: (A) in contravention of the policies or procedures of the Company or any of its subsidiaries or affiliates; (B) otherwise inconsistent with the measures taken by the Company or any of its subsidiaries or affiliates to protect their interests in any Protected Information; (C) in contravention of any lawful instruction or directive, either written or oral, of an employee of the Company or any of its subsidiaries or affiliates empowered to issue such instruction or directive; or (D) in contravention of any duty existing under law or contract. Notwithstanding anything to the contrary contained in this Section 6, the Executive may disclose any Protected Information to the extent required by court order or decree or by the rules and regulations of a governmental agency or as otherwise required by law; provided that the Executive shall provide the Company with prompt notice of such required disclosure in advance thereof so that the Company may seek an appropriate protective order in respect of such required disclosure. (b) The Executive acknowledges that all developments, including, without limitation, inventions (patentable or otherwise), discoveries, formulas, improvements, patents, trade secrets, designs, reports, computer software, flow charts and diagrams, procedures, data, documentation, ideas and writings and applications thereof relating to the Business or planned 11 business of the Company or any of its subsidiaries or affiliates that, alone or jointly with others, the Executive may conceive, create, make, develop, reduce to practice or acquire during the Term of Employment (collectively, the "Developments") are works made for hire and shall remain the sole and exclusive property of the Company and the Executive hereby assigns to the Company in consideration of the payments set forth in Section 3(a) hereof, all of his right, title and interest in and to all such Developments. The Executive shall promptly and fully disclose all future material Developments to the Board of Directors of the Company and, at any time upon request and at the expense of the Company, shall execute, acknowledge and deliver to the Company all instruments that the Company shall prepare, give evidence and take all other actions that are necessary or desirable in the reasonable opinion of the Company to enable the Company to file and prosecute applications for and to acquire, maintain and enforce all letters, patent and trademark registrations or copyrights covering the Developments in all countries in which the same are deemed necessary by the Company. All memoranda, notes, lists, drawings, records, files, computer tapes, programs, software, source and programming narratives and other documentation (and all copies thereof) made or compiled by the Executive or made available to the Executive concerning the Developments or otherwise concerning the Business or planned business of the Company or any of its subsidiaries or affiliates shall be the property of the Company or such subsidiaries or affiliates and shall be delivered to the Company or such subsidiaries or affiliates promptly upon the expiration or termination of the Term of Employment. (c) The provisions of this Section 6 shall, without any limitation as to time, survive the expiration or termination of the Executive's employment hereunder, irrespective of the reason for any termination. 7. Covenant Not to Compete. Subject to the next to last sentence of this Section 7, the Executive agrees that during the Term of Employment and for a period of one (1) year commencing upon the expiration or termination of the Executive's employment hereunder (the "Non-Compete Period"), the Executive shall not, directly or indirectly, without the prior written consent of the Company: (a) solicit, entice, persuade or induce any employee, consultant, agent or independent contractor of the Company or of any of its subsidiaries or affiliates to terminate her 12 or his employment with the Company or such subsidiary or affiliate, to become employed by any person, firm or corporation other than the Company or such subsidiary or affiliate or approach any such employee, consultant, agent or independent contractor for any of the foregoing purposes, or authorize or assist in the taking of any such actions by any third party (for purposes of this Section 7(a), the terms "employee," "consultant," "agent" and "independent contractor" shall include any persons with such status at any time during the six (6) months preceding any solicitation in question); or (b) directly or indirectly engage, participate, or make any financial investment in, or become employed by or render consulting, advisory or other services to or for any person, firm, corporation or other business enterprise, wherever located, which is engaged, directly or indirectly, in competition with the Company's Business or the businesses of its subsidiaries or affiliates as conducted or any business proposed to be conducted at the time of the expiration or termination of the Executive's employment hereunder; provided, however, that nothing in this Section 7(b) shall be construed to preclude the Executive from making any investments in the securities of any business enterprise whether or not engaged in competition with the Company or any of its subsidiaries or affiliates, to the extent that such securities are actively traded on a national securities exchange or in the over-the-counter market in the United States or on any foreign securities exchange and represent, at the time of acquisition, not more than 3% of the aggregate voting power of such business enterprise. During the Non-Compete Period, the Company may, at its election, pay or cause to be paid to the Executive his Base Salary under Section 3(a) hereof for that portion of the Non-Compete Period during which the Executive is required to comply and does comply with the provisions of this Section 7. 8. Specific Performance. The Executive acknowledges that the services to be rendered by the Executive are of a special, unique and extraordinary character and, in connection with such services, the Executive will have access to confidential information vital to the Company's Business and the businesses of its subsidiaries and affiliates. By reason of this, the Executive consents and agrees that if the Executive violates any of the provisions of Sections 6 or 7 hereof, the Company and its subsidiaries and affiliates would sustain irreparable injury and that monetary damages would not provide adequate remedy to the Company and that the Company shall be entitled to have Section 13 6 or 7 hereof specifically enforced by any court having equity jurisdiction. Nothing contained herein shall be construed as prohibiting the Company or any of its subsidiaries or affiliates from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Executive. 9. Deductions and Withholding. The Executive agrees that the Company or its subsidiaries or affiliates, as applicable, shall withhold from any and all compensation paid to and required to be paid to the Executive pursuant to this Agreement, all Federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes or regulations from time to time in effect and all amounts required to be deducted in respect of the Executive's coverage under applicable employee benefit plans. For purposes of this Agreement and calculations hereunder, all such deductions and withholdings shall be deemed to have been paid to and received by the Executive. 10. Entire Agreement. This Agreement embodies the entire agreement of the parties with respect to the Executive's employment and supersedes any other prior oral or written agreements, arrangements or understandings between the Executive and the Company, and any such prior agreements, arrangements or understandings are hereby terminated and of no further effect. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. 11. Waiver. The waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any subsequent breach by him. The waiver by the Executive of a breach of any provision of this Agreement by the Company shall not operate or be construed as a waiver of any subsequent breach by the Company. 12. Governing Law; Jurisdiction. This Agreement shall be subject to, and governed by, the laws of the State of New York applicable to contracts made and to be performed therein. Any action to enforce any of the provisions of this Agreement shall be brought in a court of the State of New York located in the Borough of Manhattan of the City of New York or in a Federal court located within the 14 Southern District of New York. The parties consent to the jurisdiction of such courts and to the service of process in any manner provided by New York law. Each party irrevocably waives any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such court and any claim that such suit, action or proceeding brought in such court has been brought in an inconvenient forum and agrees that service of process in accordance with the foregoing sentences shall be deemed in every respect effective and valid personal service of process upon such party. 13. Assignability. The obligations of the Executive may not be delegated and, except with respect to the designation of beneficiaries in connection with any of the benefits payable to the Executive hereunder, the Executive may not, without the Company's written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest herein. Any such attempted delegation or disposition shall be null and void and without effect. The Company and the Executive agree that this Agreement and all of the Company's rights and obligations hereunder may be assigned or transferred by the Company to and shall be assumed by and be binding upon any successor to the Company. The term "successor" means, with respect to the Company or any of its subsidiaries, any corporation or other business entity which, by merger, consolidation, purchase of the assets or otherwise acquires all or a material part of the assets of the Company. 14. Severability. If any provision of this Agreement or any part thereof, including, without limitation, Sections 6 and 7 hereof, as applied to either party or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any other provision of this Agreement or remaining part thereof, which shall be given full effect without regard to the invalid or unenforceable part thereof, or the validity or enforceability of this Agreement. If any court construes any of the provisions of Section 6 or 7 hereof, or any part thereof, to be unreasonable because of the duration of such provision or the geographic scope thereof, 15 such court may reduce the duration or restrict or redefine the geographic scope of such provision and enforce such provision as so reduced, restricted or redefined. 15. Notices. All notices to the Company or the Executive permitted or required hereunder shall be in writing and shall be delivered personally, by telecopier or by courier service providing for next-day delivery or sent by registered or certified mail, return receipt requested, to the following addresses: The Company: The Estee Lauder Companies Inc. 767 Fifth Avenue New York, New York 10153 Tel: (212) 572-4200 Fax: (212) 572- 6737 Attn: Senior Vice President - Human Resources The Executive: 16 Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. Any such notice shall be deemed given, if delivered personally, upon receipt; if telecopied, when telecopied; if sent by courier service providing for next-day delivery, the next business day following deposit with such courier service; and if sent by certified or registered mail, three days after deposit (postage prepaid) with the U.S. mail service. 16. No Conflicts. The Executive represents and warrants to the Company that his execution and delivery of this Agreement as of the date hereof, and his performance of services under this Agreement and any other agreement to be delivered pursuant to this Agreement from and after the Effective Date hereof, will not (i) require the consent, approval or action of any other person or (ii) violate, conflict with or result in the breach of any of the terms of, or constitute (or with notice or lapse of time or both, constitute) a default under, any agreement, arrangement or understanding with respect to the Executive's employment to which the Executive is a party or by which the Executive is bound or subject. The Executive hereby agrees to indemnify and hold harmless the Company and its directors, officers, employees, agents, representatives and affiliates (and such affiliates' directors, officers, employees, agents and representatives) from and against any and all losses, liabilities or claims (including, interest, penalties and reasonable attorneys' fees, disbursements and related charges) based upon or arising out of the Executive's breach of any of the foregoing representations and warranties. 17. Paragraph Headings. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 17 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above. THE ESTEE LAUDER COMPANIES INC. By: /s/ Andrew J. Cavanaugh --------------------------------------- Name: Andrew J. Cavanaugh Title: Senior Vice President - Corporate Human Resources /s/ Patrick Bousquet-Chavanne --------------------------------------- Patrick Bousquet-Chavanne Date: September 1, 1998 18 EX-21.1 6 SIGNIFICANT SUBSIDIARIES Exhibit 21.1 THE ESTEE LAUDER COMPANIES INC. SIGNIFICANT SUBSIDIARIES All significant subsidiaries are wholly-owned by The Estee Lauder Companies Inc. and/or one or more of its wholly-owned subsidiaries. Jurisdiction Name in which Organized - -------------------------------- ------------------ Aramis Inc. Delaware Clinique Laboratories, Inc. Delaware Estee Lauder Europe, Inc. Delaware Estee Lauder Inc. Delaware Estee Lauder International, Inc. Delaware Estee Lauder AG Lachen Switzerland EX-23.1 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File Nos. 33-99554, 333-39237, 333-66851 and 333-85947. ARTHUR ANDERSEN LLP New York, NY September 13, 1999 EX-24.1 8 POWER OF ATTORNEY Exhibit 24.1 POWER-OF-ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Leonard A. Lauder, Fred H. Langhammer, Robert J. Bigler and Paul E. Konney, and each of them, such person's true and lawful attorneys-in-fact and agents, with full power of substitution and revocation, for such person and in such person's name, place and stead, in any and all capacities to sign the Annual Report on Form 10-K for the fiscal year ended June 30, 1999 of The Estee Lauder Companies Inc. and any and all amendments thereto, and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and things requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date --------- ----- ---- /s/ Leonard A. Lauder Chief Executive -------------------------------- Officer and Director September 10, 1999 Leonard A. Lauder (Principal Executive Officer) /s/ Ronald S. Lauder Director September 10, 1999 ------------------------------- Ronald S. Lauder /s/ Fred H. Langhammer Director September 10, 1999 ------------------------------- Fred H. Langhammer /s/ Richard D. Parsons Director September 1, 1999 ------------------------------- Richard D. Parsons /s/ William P. Lauder Director September 10, 1999 ------------------------------- William P. Lauder /s/ Marshall Rose Director September 10, 1999 ------------------------------- Marshall Rose /s/ P. Roy Vagelos Director September 1, 1999 ------------------------------- P. Roy Vagelos /s/ Faye Wattleton Director September 10, 1999 ------------------------------- Faye Wattleton /s/ Robert J. Bigler Senior Vice President ------------------------------- and Chief Financial September 10, 1999 Robert J. Bigler Officer (Principal Financial and Accounting Officer)
EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ESTEE LAUDER COMPANIES INC. FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 348 0 570 36 513 1,570 780 416 2,747 862 423 360 0 2 922 2,747 3,962 3,962 900 900 0 28 17 440 167 273 0 0 0 273 1.05 1.03
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