SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
---------------------------
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 1-14064
The Estee Lauder Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2408943
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
767 Fifth Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-572-4200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No[ ]
At October 24, 2002, 124,837,464 shares of the registrant's Class A Common
Stock, $.01 par value, and 108,412,533 shares of the registrant's Class B Common
Stock, $.01 par value, were outstanding.
THE ESTEE LAUDER COMPANIES INC.
Index
Part I. Financial Information Page
----
Consolidated Statements of Earnings --
Three Months Ended September 30, 2002 and 2001..................... 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 3
Consolidated Balance Sheets --
September 30, 2002 and June 30, 2002............................... 11
Consolidated Statements of Cash Flows --
Three Months Ended September 30, 2002 and 2001..................... 12
Notes to Consolidated Financial Statements............................ 13
Controls and Procedures............................................... 18
Part II. Other Information................................................. 19
THE ESTEE LAUDER COMPANIES INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
September 30
------------------
2002 2001
---- ----
(In millions, except per share data)
Net Sales................................................................. $1,242.5 $1,194.8
Cost of sales............................................................. 357.1 345.3
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Gross Profit.............................................................. 885.4 849.5
-------- --------
Operating expenses:
Selling, general and administrative.................................... 766.4 692.6
Related party royalties................................................ 4.6 4.0
-------- --------
771.0 696.6
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Operating Income.......................................................... 114.4 152.9
Interest expense, net..................................................... 2.9 3.8
-------- --------
Earnings before Income Taxes, Minority Interest
and Accounting Change.................................................... 111.5 149.1
Provision for income taxes................................................ 37.4 51.4
Minority interest, net of tax............................................. (0.7) (0.6)
-------- --------
Net Earnings before Accounting Change..................................... 73.4 97.1
Cumulative effect of a change in accounting principle..................... - (20.6)
-------- --------
Net Earnings ............................................................. 73.4 76.5
Preferred stock dividends................................................. 5.9 5.9
-------- --------
Net Earnings Attributable to Common Stock................................. $ 67.5 $ 70.6
======== ========
Basic net earnings per common share:
Net earnings attributable to common stock before accounting change... $ .29 $ .38
Cumulative effect of a change in accounting principle................ - (.08)
-------- --------
Net earnings attributable to common stock............................ $ .29 $ .30
======== ========
Diluted net earnings per common share:
Net earnings attributable to common stock before accounting change... $ .28 $ .38
Cumulative effect of a change in accounting principle................ - (.08)
-------- --------
Net earnings attributable to common stock............................ $ .28 $ .30
======== ========
Weighted average common shares outstanding:
Basic................................................................ 235.2 238.9
Diluted.............................................................. 237.4 242.3
Cash dividends declared per common share.................................. $ - $ .05
See notes to consolidated financial statements.
2
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results Of Operations
---------------------
We manufacture, market and sell skin care, makeup, fragrance and hair care
products which are distributed in over 130 countries and territories. The
following is a comparative summary of operating results for the three months
ended September 30, 2002 and 2001, and reflects the basis of presentation
described in Note 1 to the Notes to Consolidated Financial Statements for all
periods presented. Sales of products and services that do not meet our
definition of skin care, makeup, fragrance or hair care have been included in
the "other" category.
Three Months Ended
September 30
-------------------
2002 2001
---- ----
(In millions)
Net Sales (a)
By Region:
The Americas............................................... $ 787.7 $ 770.3
Europe, the Middle East & Africa........................... 304.5 273.8
Asia/Pacific............................................... 150.3 150.7
--------- ---------
$ 1,242.5 $ 1,194.8
========= =========
By Product Category:
Skin Care.................................................. $ 421.7 $ 396.1
Makeup..................................................... 468.0 449.9
Fragrance.................................................. 296.5 293.4
Hair Care.................................................. 50.4 50.0
Other...................................................... 5.9 5.4
--------- ---------
$ 1,242.5 $ 1,194.8
========= =========
Operating Income
By Region:
The Americas............................................... $ 65.1 $ 103.8
Europe, the Middle East & Africa........................... 44.6 38.8
Asia/Pacific............................................... 4.7 10.3
--------- ---------
$ 114.4 $ 152.9
========= =========
By Product Category:
Skin Care.................................................. $ 46.0 $ 66.6
Makeup..................................................... 37.7 54.1
Fragrance.................................................. 28.7 31.0
Hair Care.................................................. 3.8 1.7
Other...................................................... (1.8) (0.5)
--------- ---------
$ 114.4 $ 152.9
========= =========
(a) Effective January 1, 2002, we adopted Emerging Issues Task Force ("EITF")
Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer".
Upon adoption of this Issue, we reclassified revenues generated from our
purchase with purchase activities as sales, which were previously reported net
as operating expenses. Operating income has remained unchanged by this adoption.
For purposes of comparability, these reclassifications have been reflected
retroactively for all periods presented.
3
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents certain consolidated earnings data as a percentage
of net sales:
Three Months Ended
September 30
----------------------
2002 2001
---- ----
Net sales........................................................ 100.0% 100.0%
Cost of sales.................................................... 28.7 28.9
----- -----
Gross profit..................................................... 71.3 71.1
----- -----
Operating expenses:
Selling, general and administrative........................... 61.7 58.0
Related party royalties....................................... 0.4 0.3
----- -----
62.1 58.3
----- -----
Operating income................................................. 9.2 12.8
Interest expense, net............................................ 0.2 0.3
----- -----
Earnings before income taxes, minority interest and accounting
change.......................................................... 9.0 12.5
Provision for income taxes....................................... 3.0 4.3
Minority interest, net of tax.................................... (0.1) (0.1)
----- -----
Net earnings before accounting change............................ 5.9 8.1
Cumulative effect of a change in accounting principle............ - (1.7)
----- -----
Net earnings..................................................... 5.9% 6.4%
===== =====
First Quarter Fiscal 2003 as Compared with First Quarter Fiscal 2002
Net Sales
Net sales increased 4% or $47.7 million to $1,242.5 million reflecting growth in
all product categories. Skin care sales, fueled by new product launches in our
core brands, coupled with higher makeup sales driven largely by our makeup
artist brands, contributed to the increase in net sales. Geographically, the
United Kingdom helped contribute to double-digit growth in Europe, the Middle
East & Africa, while net sales in Asia/Pacific declined modestly. Excluding the
impact of foreign currency translation, net sales increased 2%.
Product Categories
Skin Care
Net sales of skin care products increased 6% or $25.6 million to $421.7 million.
This increase in net sales was primarily attributable to newly launched products
such as Advanced Stop Signs, Resilience Lift OverNight Face and Throat Creme and
Make a Difference Skin Rejuvenator Treatment. Additionally, the increase was
supported by strong sales of Advanced Night Repair Eye Recovery Complex,
Moisture Surge Extra and Moisture Surge Eye Gel, Re-Nutriv Ultimate Lifting
Creme and products in Clinique's 3-Step Skin Care System. Partially offsetting
these increases were lower net sales of certain existing products such as Stop
Signs, Turnaround Cream and Idealist Skin Refinisher, as well as of LightSource
Transforming Moisture Lotion and Cream, which was launched in the first quarter
last year. Excluding the impact of foreign currency translation, net sales
increased 4%.
4
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Makeup
Makeup net sales increased 4% or $18.1 million to $468.0 million. In addition to
strong sales of our makeup artist lines, the increase in net sales reflected the
current period launch of So Ingenious Multi-Dimension Liquid Foundation and
Loose Powder, Dewy Smooth Anti-Aging Makeup and Rich Texture Blush. Recently
launched products such as Illusionist Mascara and Moisture Sheer Lipstick, as
well as new and existing products in the Pure Color line, also contributed to
increased net sales. Offsetting these increases were lower net sales of certain
existing products such as Gentle Light Makeup and Powder, Sumptuous Lipstick and
High Impact Eye Shadow Duos. Excluding the impact of foreign currency
translation, makeup net sales increased 3%.
Fragrance
Net sales of fragrance products increased 1% or $3.1 million to $296.5 million.
The increase in net sales was primarily attributable to current period launches
of T girl, Estee Lauder pleasures intense and Donna Karan Black Cashmere and the
recent launch of Intuition for Men. These net sales increases were substantially
offset by lower net sales of tommy, Estee Lauder pleasures, T for Him, Beautiful
and tommy girl, as well as Intuition, which was launched in the United States
during the prior-year period. Excluding the impact of foreign currency
translation, fragrance net sales declined 1%. Fragrance results reflected the
overall softness of the fragrance business.
Hair Care
Hair care net sales increased 1% to $50.4 million. This increase was primarily
the result of sales growth from Bumble and bumble and Aveda products. Products
from both brands are now available in more salons and there are more Company-
owned Aveda Environmental Lifestyle Stores than in the prior-year period.
Partially offsetting these increases were lower sales from Clinique's Simple
Hair Care System, which rolled out internationally in the comparable prior-year
period, as well as the prior year launch of our Aveda affiliate business in
Korea.
The introduction of new products may have some cannibalizing effect on sales of
existing products, which we take into account in our business planning.
Geographic Regions
Net sales in the Americas increased 2% or $17.4 million to $787.7 million, as
the retail environment remains difficult. This increase was driven by sales in
the skin care, makeup and hair care categories and the success of new and
recently launched products. In Europe, the Middle East & Africa, net sales
increased 11% or $30.7 million to $304.5 million. This increase was primarily
the result of higher net sales in the United Kingdom, Spain, Italy and
Switzerland. Travel retail sales continue to recover from the levels experienced
after September 11, 2001, but they increased only slightly. However, our travel
retail business could be impacted again by unforeseen world events. Excluding
the impact of foreign currency translation, net sales in Europe, the Middle East
& Africa increased 5%. Net sales in Asia/Pacific decreased slightly to $150.3
million. This decrease reflected higher net sales in Korea, Japan and Thailand,
offset by lower net sales in Australia, which derived a benefit in the prior-
year period from a change in our retailer arrangements. Excluding the impact of
foreign currency translation, Asia/Pacific net sales decreased 4%.
We strategically stagger our new product launches by geographic market, which
may account for differences in regional sales growth.
Cost of Sales
Cost of sales as a percentage of total net sales improved to 28.7% from 28.9%,
primarily reflecting lower costs from promotional activities (the cost of
purchase with purchase and gift with purchase merchandise as a component of cost
of sales resulted from the adoption of EITF Issue No. 01-9). Changes in our
promotional calendar relate to variations in our launch schedule and the timing
of promotions. As we have previously indicated, we anticipate greater
fluctuations in the cost of sales percentage due to the inclusion of these
promotional activities. Also contributing to the improved cost of sales
percentage are our ongoing efforts relative to manufacturing and global sourcing
initiatives. Partially offsetting these improvements was an unfavorable change
in our mix of business during the current-year period, including product and
distribution mix.
5
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
Operating expenses increased to 62.1% of net sales as compared with 58.3% of net
sales in the prior-year period. The increase in spending primarily related to
advertising and promotional activities (excluding purchase with purchase and
gift with purchase activities, discussed as a component of cost of sales) to
support our sales growth and build momentum into the holiday selling season, as
well as to increased costs to expand and operate our retail stores. Changes in
advertising and promotional spending result from the type, timing and level of
advertising and promotional activities related to product launches and rollouts,
as well as the markets being emphasized.
Operating Income
Operating income decreased 25% or $38.5 million to $114.4 million as compared
with the prior-year period. Operating margins were 9.2% of net sales in the
current period as compared with 12.8% in the prior-year period. The decrease in
operating margin was primarily due to increased sales support spending on
advertising and promotional activities.
Product Categories
Operating income decreased 31% or $20.6 million in skin care, 30% or $16.4
million in makeup and 7% or $2.3 million in fragrance due to increased
advertising and promotional spending to promote new and recently launched
products. Hair care operating income increased $2.1 million primarily due to
higher sales of Bumble and bumble and Aveda products and reduced spending
related to Clinique's Simple Hair Care System.
Geographic Regions
Operating income in the Americas decreased 37% or $38.7 million to $65.1
million, due to increased sales support spending on advertising and promotional
activities. In Europe, the Middle East & Africa, operating income increased 15%
or $5.8 million to $44.6 million primarily due to improved operating results in
the United Kingdom, Spain, Italy and from the travel retailing business. In
Asia/Pacific, operating income decreased 54% or $5.6 million to $4.7 million.
This decrease reflects improved results in Korea, Japan, Taiwan and Thailand,
which were more than offset by decreases in Australia, which derived a benefit
in the prior-year period from a change in our retailer arrangements.
Interest Expense, Net
Net interest expense was $2.9 million as compared with $3.8 million in the
prior-year period. The decrease in net interest expense was primarily due to
higher interest income generated by higher invested cash balances and lower
outstanding net borrowings. This improvement was partially offset by a higher
effective interest rate, which resulted from the increased proportion of fixed
rate debt as compared with variable rate debt in the same period last 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 the three months ended
September 30, 2002 was 33.5% as compared with 34.5% in the prior-year period.
These rates differ from statutory rates reflecting the effect of state and local
taxes, tax rates in foreign jurisdictions and certain nondeductible expenses.
The decrease in the effective income tax rate was principally attributable to
ongoing tax planning initiatives.
Accounting Change
Effective July 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No 142, "Goodwill and Other Intangible Assets". In accordance
with SFAS No. 142, intangible assets, including purchased goodwill, must be
evaluated for impairment. Based upon initial impairment testing which was
completed during the second quarter of fiscal 2002, the Company recorded a write
down of goodwill in the amount of $20.6 million. This write down was reported as
a cumulative effect of a change in accounting principle, as of July 1, 2001, in
the accompanying consolidated statements of earnings.
6
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
-------------------
Liquidity and Capital Resources
Our principal sources of funds historically have been cash flows from operations
and borrowings under commercial paper and committed and uncommitted credit lines
provided by banks in the United States and abroad. At September 30, 2002, we had
cash and cash equivalents of $357.2 million compared with $546.9 million at June
30, 2002 and $157.4 million at September 30, 2001.
We have a $750.0 million commercial paper program, under which we have issued,
and intend to issue, commercial paper in the United States. Our commercial paper
is currently rated A-1 by Standard & Poor's and P-1 by Moody's. Our long-term
credit ratings are A+ by Standard & Poor's and A1 by Moody's. At September 30,
2002, our outstanding borrowings consisted of $130.0 million of commercial
paper; $248.9 million, net of $1.1 million of unamortized debt discount, of 6%
Senior Notes due January 2012; a 700.0 million yen loan payable (approximately
$5.8 million at current exchange rates), which is due in April 2003; and a 3.0
billion yen term loan (approximately $24.7 million at current exchange rates),
which is due in March 2006. Commercial paper is classified as long-term debt on
our balance sheet based upon our intent and ability to refinance maturing
commercial paper on a long-term basis. It is our policy to maintain backup
facilities to support our commercial paper program and its classification as
long-term debt. As of September 30, 2002, we had an unused $400.0 million
revolving credit facility, expiring on June 28, 2006. We also have an effective
shelf registration statement covering the potential issuance of up to $150.0
million in debt securities.
Our business is seasonal in nature and, accordingly, our working capital needs
vary. To meet these needs, we could issue up to an additional $620.0 million of
commercial paper under our program, issue long-term debt securities or borrow
under the revolving credit facility. As of September 30, 2002, we also had $23.3
million in additional credit facilities, of which $0.7 million was used.
Total debt as a percent of total capitalization was 19% at September 30, 2002 as
compared with 18% at June 30, 2002.
Net cash provided by operating activities was $3.1 million during the three
months ended September 30, 2002 as compared with net cash used in operating
activities of $104.4 million in the prior-year period. In spite of a
significantly lower inventory balance year over year, our operating cash
position reflects growth in inventory, from a lower base at June 30, 2002,
offset by a corresponding increase in accounts payable, in anticipation of
higher sales levels associated with the upcoming holiday season. Additionally,
in order to build sales momentum into the second quarter, we have increased the
level of advertising and promotional spending relative to the same period last
year, which resulted in a corresponding increase in accrued liabilities.
Accounts receivable also contributed favorably to our cash position as we were
successful in our efforts to improve domestic cash collection. Net cash used for
investing activities was $35.6 million during the three months ended September
30, 2002, which primarily reflects capital expenditures. Net cash used for
financing activities of $154.9 million primarily relates to common stock
repurchases and dividend payments.
Total dividends declared for the three months ended September 30, 2002,
represents dividends on the $6.50 Cumulative Redeemable Preferred Stock of $5.9
million. As previously disclosed, the Board of Directors determined that it
would pay dividends on the Company's common stock annually rather than
quarterly, so, no dividends were declared during the three months ended
September 30, 2002. The first annual dividend of $.20 per share is expected be
declared on October 30, 2002 and it will be payable in early January 2003.
In September 1998, our Board of Directors authorized a share repurchase program.
We have purchased, and may continue to purchase, over an unspecified period of
time, a total of up to eight million shares of Class A Common Stock in the open
market or in privately negotiated transactions, depending on market conditions
and other factors. During the first quarter of fiscal 2003, we purchased an
additional 4.4 million shares for $138.1 million, bringing the cumulative total
of acquired shares to 7.0 million.
We will be required to redeem the outstanding $6.50 Cumulative Redeemable
Preferred Stock on June 30, 2005. However, in the event that Mrs. Estee Lauder
were to pass away before such date, then we would have the right to redeem the
shares from the current holders, and the holders of such shares would have the
right to put the shares to us, at $100 per share (or an aggregate of $360.0
million). If shares of $6.50 Cumulative Redeemable Preferred Stock are put to
us, we would have up to 120 days after notice to purchase such shares.
7
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and price new products appropriately, 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 and Hedging Activities
We address certain financial exposures through a controlled program of risk
management that includes the use of derivative financial instruments. We
primarily enter into foreign currency forward exchange contracts and foreign
currency options to reduce the effects of fluctuating foreign currency exchange
rates. We categorize these instruments as entered into for purposes other than
trading.
For each derivative contract we enter into, we formally document the
relationship between the hedging instrument and hedged item, as well as its
risk-management objective and strategy for undertaking the hedge. This process
includes linking all derivatives that are designated as fair-value, cash-flow,
or foreign-currency hedges to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted transactions. We also
formally assess, both at the hedge's inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items. If it is
determined that a derivative is not highly effective, then we will be required
to discontinue hedge accounting with respect to that derivative prospectively.
Foreign Exchange Risk Management
We enter into forward exchange contracts to hedge anticipated transactions as
well as 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 that 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. While there are no foreign currency options outstanding in
fiscal 2003, we may enter into these agreements to hedge anticipated
transactions where there is a high probability that anticipated exposures will
materialize. The forward exchange contracts have been designated as cash-flow
hedges. As of September 30, 2002, these cash-flow hedges were highly effective,
in all material respects.
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 under these hedging contracts is remote and in any event would not be
material to the consolidated financial results. The contracts have varying
maturities through the end of September 2003. Costs associated with entering
into such contracts have not been material to our consolidated financial
results. We do not utilize derivative financial instruments for trading or
speculative purposes. At September 30, 2002, we had foreign currency contracts
in the form of forward exchange contracts in the amount of $382.1 million. The
foreign currencies included in the forward exchange contracts (notional value
stated in U.S. dollars) are principally the Swiss franc ($77.1 million), British
pound ($67.7 million), Euro ($60.3 million), Japanese yen ($49.8 million),
Canadian dollar ($33.4 million), Australian dollar ($18.1 million), Korean won
($16.1 million), Taiwan dollar ($12.0 million), Danish krone ($10.1 million),
and Swedish krona ($7.8 million).
Market Risk
Using the value-at-risk model, as discussed in our annual report on Form 10-K
for the fiscal year ended June 30, 2002, our average value-at-risk, calculated
for the most recent twelve months, is $5.4 million related to our foreign
exchange contracts. There have been no significant changes in market risk since
June 30, 2002 that would have a material effect on our calculated value-at-risk
exposure, as disclosed in the annual report on Form 10-K for the fiscal year
ended June 30, 2002.
8
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
As disclosed in the annual report on Form 10-K for the fiscal year ended June
30, 2002, the discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in conformity with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses reported in those financial statements. These
judgements can be subjective and complex, and consequently actual results could
differ from those estimates. Our most critical accounting policies relate to
revenue recognition; concentration of credit risk; inventory; pension and other
postretirement benefit costs; goodwill and other intangible assets; income
taxes; and derivatives. Since June 30, 2002, there have been no changes in our
critical accounting policies and no significant changes to the assumptions and
estimates related to them.
9
THE ESTEE LAUDER COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, in our press releases and in our
reports to stockholders. The words and phrases "will likely result," "expect,"
"believe," "planned," "will," "will continue," "is anticipated," "estimates,"
"projects" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements include, without limitation, our expectations
regarding sales, earnings or other future financial performance and liquidity,
product introductions, entry into new geographic regions, information systems
initiatives, new methods of sale and future operations or operating results.
Although we believe that our expectations are based on reasonable assumptions
within the bounds of our knowledge of our business and operations, actual
results may 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, restructurings, bankruptcies and reorganizations in the
retail industry causing a decrease in the number of stores that sell our
products, an increase in the ownership concentration within the retail
industry, ownership of retailers by our competitors and ownership of
competitors by our customers that are retailers;
(iv) shifts in the preferences of consumers as to where and how they shop for
the types of products and services we sell;
(v) social, political and economic risks to our foreign or domestic
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, trade rules and customs regulations, and legal or
regulatory proceedings, that affect, or will affect, our business;
(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 products in the same markets and our operating and
manufacturing costs outside of the United States;
(viii) changes in global or local economic conditions that could affect
consumer purchasing, the financial strength of our customers, the cost and
availability of capital, which we may need for new equipment, facilities or
acquisitions, and the assumptions underlying our critical accounting
estimates;
(ix) shipment delays, depletion of inventory and increased production costs
resulting from disruptions of operations at any of the facilities which, due
to consolidations in our manufacturing operations, now manufacture nearly all
of our supply of a particular type of product (i.e. focus factories);
(x) real estate rates and availability, which may affect our ability to
increase the number of retail locations at which we sell our products;
(xi) changes in product mix to products which are less profitable;
(xii) our ability to acquire or develop e-commerce capabilities, and other new
information and distribution technologies, on a timely basis and within our
cost estimates;
(xiii) our ability to capitalize on opportunities for improved efficiency,
such as globalization, and to integrate acquired businesses and realize value
therefrom; and
(xiv) consequences attributable to the events that took place in New York
City and Washington, D.C. on September 11, 2001, including further attacks,
retaliation and the threat of further attacks or retaliation.
We assume no responsibility to update forward-looking statements made herein or
otherwise.
10
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
September 30 June 30
2002 2002
------------ -----------
(Unaudited)
(In millions)
ASSETS
Current Assets
Cash and cash equivalents............................................................... $ 357.2 $ 546.9
Accounts receivable, net................................................................ 778.7 624.8
Inventory and promotional merchandise, net.............................................. 580.6 544.5
Prepaid expenses and other current assets............................................... 214.4 211.4
-------- --------
Total current assets............................................................... 1,930.9 1,927.6
-------- --------
Property, Plant and Equipment, net...................................................... 579.7 580.7
-------- --------
Other Assets
Investments, at cost or market value.................................................... 26.8 30.3
Deferred income taxes................................................................... 73.3 72.7
Goodwill, net .......................................................................... 676.4 675.6
Other intangible assets, net............................................................ 18.1 18.4
Other assets, net....................................................................... 104.7 111.2
-------- --------
Total other assets................................................................. 899.3 908.2
-------- --------
Total assets.............................................................. $3,409.9 $3,416.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt......................................................................... $ 6.5 $ 6.6
Accounts payable........................................................................ 237.6 216.4
Accrued income taxes.................................................................... 127.4 110.0
Other accrued liabilities............................................................... 646.0 626.6
-------- --------
Total current liabilities.......................................................... 1,017.5 959.6
-------- --------
Noncurrent Liabilities
Long-term debt.......................................................................... 403.6 403.9
Other noncurrent liabilities............................................................ 243.3 231.1
-------- --------
Total noncurrent liabilities....................................................... 646.9 635.0
-------- --------
Cumulative Redeemable Preferred Stock, at redemption value........................ 360.0 360.0
-------- --------
Stockholders' Equity
Common stock, $.01 par value; 650,000,000 shares Class A authorized; shares
issued: 131,621,024 at September 30, 2002 and 131,567,986 at June 30, 2002;
240,000,000 shares Class B authorized; shares issued and outstanding: 108,412,533
at September 30, 2002 and June 30, 2002.............................................. 2.4 2.4
Paid-in capital......................................................................... 267.4 268.8
Retained earnings....................................................................... 1,431.2 1,363.7
Accumulated other comprehensive loss.................................................... (96.9) (92.5)
-------- --------
1,604.1 1,542.4
Less: Treasury stock, at cost; 6,783,560 Class A shares at September 30, 2002
and 2,377,860 at June 30, 2002....................................................... (218.6) (80.5)
-------- --------
Total stockholders' equity......................................................... 1,385.5 1,461.9
-------- --------
Total liabilities and stockholders' equity................................ $3,409.9 $3,416.5
======== ========
See notes to consolidated financial statements.
11
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30
-------------------
2002 2001
---- ----
(In millions)
Cash Flows from Operating Activities
Net earnings............................................................................... $ 73.4 $ 76.5
Adjustments to reconcile net earnings to net cash
flows provided by (used for) operating activities:
Depreciation and amortization.......................................................... 41.7 37.7
Deferred income taxes.................................................................. 7.5 2.0
Minority interest...................................................................... 0.7 0.6
Cumulative effect of a change in accounting principle.................................. - 20.6
Non-cash stock compensation............................................................ (1.4) (2.0)
Changes in operating assets and liabilities:
Increase in accounts receivable, net................................................... (157.4) (197.4)
Increase in inventory and promotional merchandise, net................................. (38.3) (7.2)
Increase in other assets, net.......................................................... (12.2) (18.4)
Increase (decrease) in accounts payable................................................ 22.2 (15.3)
Increase in accrued income taxes....................................................... 17.8 25.5
Increase (decrease) in other accrued liabilities....................................... 39.1 (24.6)
Increase (decrease) in other noncurrent liabilities.................................... 10.0 (2.4)
--------- --------
Net cash flows provided by (used for) operating activities........................... 3.1 (104.4)
--------- --------
Cash Flows from Investing Activities
Capital expenditures....................................................................... (36.2) (50.1)
Acquisition of businesses, net of cash acquired............................................ (0.7) (10.0)
Proceeds from the disposition of long-term investments..................................... 1.3 2.1
--------- --------
Net cash flows used for investing activities......................................... (35.6) (58.0)
--------- --------
Cash Flows from Financing Activities
Increase (decrease) in short-term debt, net................................................ (0.1) 11.1
Proceeds from the issuance of commercial paper............................................. - 1.2
Net proceeds from employee stock transactions.............................................. 1.0 1.1
Payments to acquire treasury stock......................................................... (138.1) (34.2)
Dividends paid............................................................................. (17.7) (17.8)
--------- --------
Net cash flows used for financing activities......................................... (154.9) (38.6)
--------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents.................................. (2.3) 11.7
--------- --------
Net Decrease in Cash and Cash Equivalents.................................................. (189.7) (189.3)
Cash and Cash Equivalents at Beginning of Period........................................... 546.9 346.7
--------- --------
Cash and Cash Equivalents at End of Period................................................. $ 357.2 $ 157.4
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................................................. $ 8.5 $ 4.9
========= ========
Income taxes........................................................................... $ 23.9 $ 15.2
========= ========
Non-cash items:
Tax benefit from exercise of stock options............................................. $ 0.1 $ 0.6
========= ========
See notes to consolidated financial statements.
12
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of The
Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations of any interim period are not necessarily indicative of
the results of operations to be expected for the fiscal year. For further
information, refer to the consolidated financial statements and accompanying
footnotes included in the Company's annual report on Form 10-K for the fiscal
year ended June 30, 2002.
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
For the three month period ended September 30, 2002, net earnings per common
share ("basic EPS") is 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). Net earnings
per common share assuming dilution ("diluted EPS") is computed by reflecting
potential dilution from the exercise of stock options.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations is as follows:
Three Months Ended
September 30
------------------
2002 2001
---- ----
(Unaudited)
(In millions, except per share data)
Numerator:
Net earnings before accounting change................................. $ 73.4 $ 97.1
Preferred stock dividends............................................. (5.9) (5.9)
------- -------
Net earnings attributable to common stock before accounting change.... 67.5 91.2
Cumulative effect of a change in accounting principle................. - (20.6)
------- -------
Net earnings attributable to common stock............................. $ 67.5 $ 70.6
======= =======
Denominator:
Weighted average common shares outstanding - Basic.................... 235.2 238.9
Effect of dilutive securities: Stock options.......................... 2.2 3.4
------- -------
Weighted average common shares outstanding - Diluted.................. 237.4 242.3
======= =======
Basic net earnings per common share:
Net earnings before accounting change................................. $ .29 $ .38
Cumulative effect of a change in accounting principle................. - (.08)
------- -------
Net earnings.......................................................... $ .29 $ .30
======= =======
Diluted net earnings per common share:
Net earnings before accounting change................................. $ .28 $ .38
Cumulative effect of a change in accounting principle................. - (.08)
------- -------
Net earnings.......................................................... $ .28 $ .30
======= =======
13
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2002 and 2001, options to purchase 21.7 million and 12.3
million shares of common stock, respectively, were not included in the
computation of diluted EPS because the exercise prices of those options were
greater than the average market prices of the common stock at such dates. The
options were still outstanding at the end of the respective periods.
Dividends
In May 2002, the Board of Directors determined that it would pay future cash
dividends on the common stock annually rather than quarterly. The first annual
dividend is expected to be declared October 30, 2002 in the amount of $.20 per
share and it will be payable in January 2003.
Accounts Receivable
Accounts receivable is stated net of the allowance for doubtful accounts and
retail customer deductions of $31.2 million and $30.6 million as of September
30, 2002 and June 30, 2002, respectively.
Inventory and Promotional Merchandise
Inventory and promotional merchandise only includes inventory considered
saleable or usable in future periods, and is 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.
September 30 June 30
2002 2002
---- ----
(Unaudited)
(In millions)
Inventory and promotional merchandise consists of:
Raw materials......................................... $ 109.9 $ 117.5
Work in process....................................... 26.0 27.0
Finished goods........................................ 327.4 272.2
Promotional merchandise............................... 117.3 127.8
-------- -------
$ 580.6 $ 544.5
======== =======
Prepaid Expenses and Other Current Assets
As of September 30, 2002 and June 30, 2002, the Company had prepaid expenses and
other current assets of $214.4 million and $211.4 million, respectively, of
which $102.9 million and $112.4 million, respectively, related to current net
deferred tax assets.
14
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated depreciation
and amortization. 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.
September 30 June 30
2002 2002
---- ----
(Unaudited)
(In millions)
Land ................................................... $ 13.0 $ 13.0
Buildings and improvements.............................. 144.5 144.0
Machinery and equipment................................. 623.3 611.7
Furniture and fixtures.................................. 88.4 86.1
Leasehold improvements.................................. 465.6 447.2
--------- --------
1,334.8 1,302.0
Less accumulated depreciation and amortization.......... 755.1 721.3
--------- --------
$ 579.7 $ 580.7
========= ========
Depreciation and amortization of property, plant and equipment was $36.4 million
and $31.4 million during the three months ended September 30, 2002 and 2001,
respectively.
Restructuring Accrual
During the three-month period ending September 30, 2002, the Company paid $14.2
million against its restructuring accrual of which $12.0 million related to the
fiscal 2002 charges and $2.2 million related to the fiscal 2001 charges.
Approximately $10.2 million of this amount related to severance payments to 214
employees. There have been no material changes to the restructuring plans since
June 30, 2002.
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.
15
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Comprehensive Income
The components of accumulated other comprehensive income ("OCI") included in the
accompanying consolidated balance sheets consist of net unrealized investment
gain (loss), net gain or (loss) on derivative instruments designated and
qualifying as cash-flow hedging instruments, net minimum pension liability
adjustments and cumulative translation adjustments as of the end of each period.
Comprehensive income and its components, net of tax, are as follows:
Three Months Ended
September 30
------------------
2002 2001
---- ----
(Unaudited)
(In millions)
Net earnings.............................................................. $ 73.4 $ 76.5
--------- --------
Other comprehensive income:
Net unrealized investment gains (losses).............................. (1.3) (2.9)
Net derivative instruments gains (losses)............................. 3.6 (0.6)
Net minimum pension liability adjustments............................. (0.3) (0.3)
Translation adjustments............................................... (6.4) 22.5
--------- --------
Other comprehensive income (loss)..................................... (4.4) 18.7
--------- --------
Comprehensive income...................................................... $ 69.0 $ 95.2
========= ========
The accumulated net loss on derivative instruments consists of the following:
Three Months Ended
September 30
------------------
2002 2001
---- ----
(Unaudited)
(In millions)
OCI - Net derivative instruments, beginning of period................. $ (9.1) $ (2.0)
------- -------
Gain on derivative instruments....................................... 2.2 (1.2)
Reclassification to earnings of net loss during the period........... 3.4 0.4
Provision for deferred income taxes.................................. (2.0) 0.2
------- -------
Net derivative instruments gain (loss)............................ 3.6 (0.6)
------- -------
OCI - Net derivative instruments, end of period....................... $ (5.5) $ (2.6)
======= =======
The $5.5 million, net of tax, derivative instrument loss recorded in OCI at the
end of the current-year period related to forward contracts which the Company
will reclassify to earnings during the next nine months. Of the $2.6 million net
derivative instruments loss recorded in OCI at the end of the prior-year
period, $3.2 million, net of tax, related to interest rate swaps and options.
Offsetting the net loss was $0.6 million, net of tax, related to forward
contracts and foreign currency options that the Company reclassified to earnings
as gains during fiscal 2002. OCI losses relating to interest rate swaps or
options were reclassified to earnings in fiscal 2002 upon repayment of the term
loan in February 2002.
16
THE ESTEE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Segment Data and Related Information
Reportable operating segments 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. Although the Company operates
in one business segment, beauty products, management also evaluates performance
on a product category basis. Performance is measured based upon net sales and
operating income. Operating income represents earnings before income taxes and
net interest expense. The accounting policies for each of the reportable
segments are substantially the same as those for the consolidated financial
statements, as described in the segment data and related information footnote,
included in the June 30, 2002 annual report on Form 10-K. 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. There has
been no significant variance in the total or long-lived asset value associated
with each segment since June 30, 2002.
Three Months Ended
September 30
------------------
2002 2001
---- ----
(Unaudited)
(In millions)
SEGMENT DATA
Net Sales:
Skin Care........................................................ $ 421.7 $ 396.1
Makeup........................................................... 468.0 449.9
Fragrance........................................................ 296.5 293.4
Hair Care........................................................ 50.4 50.0
Other............................................................ 5.9 5.4
--------- ---------
$ 1,242.5 $ 1,194.8
========= =========
Operating Income:
Skin Care........................................................ $ 46.0 $ 66.6
Makeup........................................................... 37.7 54.1
Fragrance........................................................ 28.7 31.0
Hair Care........................................................ 3.8 1.7
Other............................................................ (1.8) (0.5)
--------- ---------
114.4 152.9
Reconciliation:
Interest expense, net......................................... 2.9 3.8
--------- ---------
Earnings before income taxes and minority interest
and Accounting Change......................................... $ 111.5 $ 149.1
========= =========
REGIONAL DATA
Net Sales:
The Americas..................................................... $ 787.7 $ 770.3
Europe, the Middle East & Africa................................. 304.5 273.8
Asia/Pacific..................................................... 150.3 150.7
--------- ---------
$ 1,242.5 $ 1,194.8
========= =========
Operating Income:
The Americas..................................................... $ 65.1 $ 103.8
Europe, the Middle East & Africa................................. 44.6 38.8
Asia/Pacific..................................................... 4.7 10.3
--------- ---------
$ 114.4 $ 152.9
========= =========
17
THE ESTEE LAUDER COMPANIES INC.
CONTROLS AND PROCEDURES
Item 4. Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. The Chief Executive Officer and the Chief Financial Officer have
reviewed the effectiveness of our disclosure controls and procedures within the
last ninety days and have concluded that the disclosure controls and procedures
are effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
last day they were evaluated by our Chief Executive Officer and Chief Financial
Officer.
18
THE ESTEE LAUDER COMPANIES INC.
PART II. OTHER INFORMATION
Item 1. 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 and in the aggregate, will not have a material adverse
effect on our business or consolidated financial condition.
In August 2000, an affiliate of Revlon, Inc. sued the Company and its
subsidiaries in the U.S. District Court, Southern District of New York, for
alleged patent infringement and related claims. Revlon alleges that five Estee
Lauder products, two Origins foundations, a La Mer concealer and a jane
foundation infringe its patent. Revlon is seeking, among other things, treble
damages, punitive damages, equitable relief and attorneys' fees. The Company
filed counterclaims, which, among other things, challenge the validity of the
patent. Mediation directed by the Court took place in August 2001 and in January
2002, but did not result in resolution of the litigation. In January 2002, the
Court indefinitely postponed the trial date (then set for February 2002) and
established a schedule for pretrial motions. Both parties have filed summary
judgment motions, and the Court is expected to schedule oral argument on the
motions. The Company intends to defend the lawsuit vigorously. Although the
final outcome cannot be predicted with certainty, based on legal analysis and
the discovery proceedings in the litigation, management believes that the case
will not have a material adverse effect on the Company's consolidated financial
condition.
In February 2000, the Company and eight other manufacturers of cosmetics (the
"Manufacturer Defendants") were added as defendants in a consolidated class
action lawsuit that had been pending in the Superior Court of the State of
California in Marin County. The plaintiffs purport to represent a class of all
California residents who purchased prestige cosmetic products at retail for
personal use from a number of department stores that sold such products in
California (the "Department Store Defendants"). Plaintiffs filed their initial
actions against the Department Store Defendants in May 1998. In May 2000,
plaintiffs filed an amended complaint alleging that the Department Store
Defendants and the Manufacturer Defendants conspired to fix and maintain retail
prices and to limit the supply of prestige cosmetic products sold by the
Department Store Defendants in violation of California state law. The plaintiffs
are seeking, among other things, treble damages, equitable relief, attorneys'
fees, interest and costs. Pre-trial proceedings and discovery have commenced.
Court-directed mediation and related settlement discussions are continuing. The
Company intends to defend the lawsuit vigorously. While no assurance can be
given as to the ultimate outcome, based on preliminary investigation,
management believes that the case will not have a material adverse effect on the
Company's consolidated financial condition.
In 1998, the Office of the Attorney General of the State of New York (the
"State") notified the Company and ten other entities that they are potentially
responsible parties ("PRPs") with respect to the Blydenburgh landfill in Islip,
New York. Each PRP may be jointly and severally liable for the costs of
investigation and cleanup, which the State estimates to be $16 million. While
the State has sued other PRPs in connection with the site (including Hickey's
Carting, Inc., Dennis C. Hickey and Maria Hickey, collectively the "Hickey
Parties"), the State has not sued the Company. The Company and certain other
PRPs are in discussions with the State regarding possible settlement of the
matter. On September 9, 2002, the Hickey Parties brought contribution actions
against the Company and other Blydenburgh PRPs in the State's lawsuit against
the Hickey Parties in the U.S. District Court for the Eastern District of New
York. These actions seek to recover, among other things, any damages for which
the Hickey Parties are found liable in the State's lawsuit against them, and
related costs and expenses, including attorneys' fees. The Company intends to
defend the contribution claim vigorously. While no assurance can be given as to
the ultimate outcome, management believes that the Blydenburgh matters will not
have a material adverse effect on the Company's consolidated financial
condition.
In 1998, the State notified the Company and fifteen other entities that they are
PRPs with respect to the Huntington/East Northport landfill. The cleanup costs
are estimated at $20 million. No litigation has commenced. The Company and other
PRPs are in discussions with the State regarding possible settlement of the
matter. While no assurance can be given as to the ultimate outcome, management
believes that the matter will not have a material adverse effect on the
Company's consolidated financial condition.
19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits --
None.
(b) Reports on Form 8-K --
On July 2, 2002, we filed a Current Report on Form 8-K. Pursuant to Item 5 of
Form 8-K, we announced our expectations for our fiscal 2002 fourth-quarter and
full-year results.
On August 15, 2002, we filed a Current Report on Form 8-K. Pursuant to Item 5
of Form 8-K, we reported our fiscal 2002 full-year and fourth-quarter results
and our then anticipated fiscal 2003 full-year and first-quarter results.
On September 18, 2002, we filed a Current Report on Form 8-K. Pursuant to Item 9
of Form 8-K, we described our plans for long-term sales and earnings growth.
On September 18, 2002, we filed a Current Report on Form 8-K. Pursuant to Item
9 of Form 8-K, we disclosed that our Chief Executive Officer and Chief Financial
Officer each file a sworn statement pursuant to Securities and Exchange
Commission Order No. 4-460 and filed certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
On September 26, 2002, we filed a Current Report on Form 8-K. Pursuant to Item 9
of Form 8-K, we disclosed that William P. Lauder would become Chief Operating
Officer, effective January 1, 2003, and certain other changes in management that
would become effective that date.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ESTEE LAUDER COMPANIES INC.
Date: October 29, 2002 By: /s/Richard W. Kunes
-----------------------
Richard W. Kunes
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
21
CERTIFICATIONS
I, Fred H. Langhammer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Estee Lauder
Companies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report ("Evaluation Date"); and
c)presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: October 29, 2002
/s/ Fred H. Langhammer
-------------------------------
Fred H. Langhammer
President and Chief Executive Officer
22
I, Richard W. Kunes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Estee Lauder
Companies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report ("Evaluation Date"); and
c)presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect.
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: October 29, 2002
/s/ Richard W. Kunes
----------------------------------
Richard W. Kunes
Senior Vice President and Chief Financial Officer
23