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University of Tennessee, Knoxville

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University of Tennessee Honors Thesis Projects

University of Tennessee Honors Program

5-2002

The Estee Lauder Companies Background and
History
Ashley Brooke Howerton
University of Tennessee - Knoxville

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Howerton, Ashley Brooke, "The Estee Lauder Companies Background and History" (2002). University of Tennessee Honors Thesis
Projects.
http://trace.tennessee.edu/utk_chanhonoproj/553

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Appendix E-

UNIVERSITY HONORS PROGRAM
SENIOR PROJECT - APPROVAL

College: -I!h~
Faculty Mentor:

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his completed senior honors thesis with this student and certify that it is a project
ith honors 1 el undergraduate research in this field.
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Date:

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General Assessment - please provide a short paragraph that highlights the most significant
features of the project.
Comments (Optional):

Brooke has done a gcxxl job of researching and analyzing the major business
theroos associated with Estee Lauder I s marketplace perfonnance. She merged
data from a variety of primary and secondary sources, and did a nice job
organizing and analyzing the data.
Brooke was a pleasure to work with, she responded well to my carments and feedback,
and she put in significant effort on this reIX>rt.

The Estee Lauder Companies
Background and History
by
Ashley.Brooke Howerton

Executive Summary

I selected the topic of "Estee Lauder Companies Background and History"
because I am thoroughly interested in the subject matter. I am a consultant for Clinique at
Proffitts Knoxville Center. I am interested in moving forward with the company and
developing a future with Clinique by making it a career.
Research on this topic has been extensive. I have gotten basic company
information, internal documents, company chronology, press releases, financial
institution information and of course first-hand knowledge. The researched information
came in most part from the Internet at various sites. The internal documents consist of
information sent to consultants worldwide. The financial information came from Morgan
Stanley.
I discovered in the research a great deal of knowledge about the Estee Lauder
Companies Inc. in which I was unaware of prior to the research. The five key subjects
'that I focused on were background and history, financial development, operational
strategies, brand equity and innovation/social responsibility. One key finding is the
number of companies in which the Estee Lauder Companies consist. The Company's

products are sold in over 120 countries and territories under well-recognized brand
names, including Estee Lauder, Aramis, Clinique, Prescriptives, Origins, MAC, La Mer,
Bobbi Brown, Tommy Hilfiger,jane, Donna Karan, Aveda, Stila, Jo Malone and Bumble
and bumble. I also discovered a large amount of research from Morgan Stanley about the
flllancial development of the company. The Company has posted a 23% compound
annual growth since 1996 and has completed about $800 million in acquisitions in recent

years. Also, Estee Lauder holds the number one position with a market share of at least

500/0 in the U.S. prestige beauty market, with a 550/0 share in makeup and skincare and
30% in fragrances.
I have thoroughly enjoyed researching this topic of choice. I learned a great deal
about the Estee Lauder Companies Inc. I feel confident that the company" will continue its
successfulness in the upcoming years. I look forward to continuing my career with them
in the future.

................... 17-18 Employee Volunteerism ..................................... ............................................. ....... ........................................................... ................................................................................................................................... ...................................................................... 16-1 7 Corporate Contributions ....................................... 11 Internet Strategy ............................................................................. 13-19 Safe Environment ............................................ 15-16 Philanthropy ......... 2-9 Press Release ........ ......... 4 Morgan Stanley Research Update ....................................................................................................................................... ......................................................................................................................Table of Contents Estee Lauder Companies Background and History .................................... 13 Innovation/Social Responsibility ...... ...... 12 Brand Equity ..................... 8-9 Operational Strategies ........................................................................ ........... .... 11 Company Addition ................................ 6-7 Growth Strategies ........................................... 14 Equal Opportunity Employment....................................................................... : ............4-6 Downgrade ...... 1 Company Timeline ............................................................. 7 Investment Risks ..................... 18 ................................................. 9-12 Supply-Chain Management........ 1-2 Financial Development...........................................

in 1964 . recently.... • . . fragrance and. . was founded in 1979 . was launched with four products: Super Rich All Purpose ~ . and Skin Lotion .. was introduced in 1990 . including Estee Lauder.. Tommy Hilfiger... Company Timeline The Company was founded in 1946 by Mrs. . .. makeup. Clinique.. The .. Origins. dermatologist-guided... . Bobbi Brown.. a line of high prestige fragrance and grooming products for men.. followed in 1968 .. . .. La Mer. Following this launch was Aramis.... • --. bath/body and Sensory Therapy products that use age-old remedies from nature. . Cleansing Oil. Jo Malone and Bumble and bumble .. . .. Creme.. hair care products.. ~ Company's products are sold in over 120 countries and territories under well-recognized brand names. . Joseph Lauder.. a line of skin care.... . ~ ... Creme Pack.... . the first allergy-tested.-... jane. fragrance free "IIIJt ....Estee Lauder Companies Background and History The Estee Lauder Companies is one of the world's leading manufacturers and marketers of quality skin care. Estee Lauder and her husband. .. Although the principal brand began with Estee Lauder the company progressed to a great deal more ... Stila. ~ .. MAC. . A veda.. Prescriptives... • Origins Natural Resources.. Donna Karan.... Prescriptives. a color authority with an advanced collection of highly individualized products.. • Clinique. cosmetics brand.. . Aramis. • Estee Lauder.. makeup. ~ ....

... .. Financial Development The Estee Lauder Companies hoped to accomplish diversity in the marketplace by undertaking this dynamic strategy. a Los Angeles- .. DKNY and Kate Spade brands . -. ..... . Bobbi Brown was acquired in 1995 . . a developer... Donna Karan New York... In 2000.. Bumble and bumble.... • In 1999.. the Company acquired a majority equity interest in New York-based • The Estee Lauder Companies is also the global licensee for fragrances and cosmetics for the Tommy Hilfiger. prestige hair care .. ... marketer and distributor of quality hair care products .. . According to Morgan Stanley this acquisition became a success for the once meager cosmetics company.... a premier hair salon. the Company invented Sassaby...... Inc.... completing the acquisition in 1998.... .... MAC in 1994.. • brand jane.. owner of the color cosmetics industry. ~ ...S.. . . a leader ip the U.. .. .. ~ • .... based prestigious cosmetics company.. and Bumble and bumble products.. ..2 • In the 1990s the Company acquired two important makeup artist brands: MAC and Bobbi Brown.... Inc. marketer of prestige skin care and fragrance products.. Morgan Stanley calculates that the company has posted a 230/0 compound annual growth since 1996 and has completed about $800 million in acquisitions in recent years... . and Jo Malone... . Trade industry data have shown that . In 1997. . ... the London-based .... the Company then invented Stila Cosmetics.. The Company acquired a majority equity interest in ...... and Aveda Corporation.

and solid returns on assets. The Estee Lauder Companies shares' drop in 2001 has been deeper in retreats by the company's global peers and the S & P 500-stock index. Morgan Stanley rates Estee Lauder Outperform. During this time the Americas region represented 61 % of net sales and 540/0 of operating income before restructuring and other nonrecurring charges. The Company has recorded more than 45 years of consecutive annual sales increases. and amortization for calendar 2002. in Morgan Stanley's view. aided by its strong portfolio of brands (7). or 630/0 of the financial corporations estimate of net income. and travel retailing (13). a strong balance sheet. in terms of its relative price-to-eamings multiple and their estimates of the ratio of the company's earnings before interest.. Estee Lauder has dominant market shares. It has increased its market share. taxes.7 million. depreciation. partly through adjusted production ~ates and a gradual recovery expected in U. with nearterm EPS uncertainties linked to consumer spending.S. J Estee Lauder holds the number one position with a market share of at least 500/0 in the U.. prestige beauty market. based on a weighted average of traditional multiples and intrinsic valuation.6 billion and net earnings before the cumulative effect of a change in accounting principle and before restructuring and other one-time charges were $347. For fiscal year 2001. which they calculate to be a fair value.S. Yet Estee Lauder is statistically attractive. Estee Lauder has - indicated that excess inventories should be eliminated by the third quarter of fiscal 2002. with a $37 price target. Morgan Stanley forecasts Estee Lauder will generate free cash flow of $222 million. net sales were $4. Morgan Stanley believes possible elimination of excess inventories soon could be a catalyst for the stock. slightly less . with a 550/0 share in makeup and skincare and 300/0 in fragrances.

. low debt.. and a low capital-spending business. point in the quarter... While growth has been stymied. and they project interest coverage and return on net assets that would exceed the free cash flow. travel....S. The lower expectations are primarily due to the significant inventory contraction ~ by U... .. in their view .. --.. Morgan Stanley believes that Estee Lauder is underleveraged.... . With a 460/0 share in the U.4 .. With its outsize returns. company's weighted average cost of capital.....S. ~ . In addition... .. ..... Estee Lauder has become a market .. . .... -- . retailers and softness at travel retail.33.15 (versus $ L20 previously). . They also reduced their F2002 EPS ending June to $1.. 2001. -- "lIP . Despite erosion of economic conditions and consumer sentiment.. . -- . The Estee Lauder Companies Inc . strong . consumer take away of the Company's products has outpaced sell-in by approximately 50/0 in the U. This unexpected drop lowered consumer confidence.. announced it is revising downward its net sales and net earnings expectations for its fiscal 2002 second quarter..... Morgan Stanley thinks Estee Lauder needs to do a better job retrenching and restricting capital.. retailers...S. the Company's freestanding retail stores continue to generate strong results (9). Morgan Stanley Research Update In a recent Morgan Stanley research update on January 30.. reflecting inventory contraction by U....-- .. Press Release In a recent press release on December 19. at this ~ . ....S.. Their initial point estimate for F2003 is $1.-- -- ~ . Estee Lauder was downgraded to neutral from outperform..... spending and . than the sector average. the company s~ould be able to accumulate a lot of cash to make further strategic acquisitions and repurchase its shares.

leader.5 .. The shares are trading at 25 times C2002 PIE versus 24 times for the global peer group .. . In the last 12 months... ... Still.. Morgan Stanley sees 12-month fair value of $33. ... ..lently more capital intensive. The company recommended Estee Lauder in 1999 because they believed Estee Lauder -- was in the early innings of its development as a prestige cosmetics company. Although the stock has rebounded off its December low... its ROrC is F1997... Morgan Stanley forecasts asset turns to decline to lAx in F2002 from 2...... . . industry demand is slowing... That said. . -- ... .. Morgan Stanley believes the current valuation does not reflect Estee Lauder's deteriorating business fundamentals . . Lauder's competition position is good and getting better.. for return on net operating assets of 17-18% versus 320/0 in 1997....0x in .... Morgan Stanley believes this is a stock the market will likely come back to.. Based on a weighted average of traditional multiples. .. it . below its current price... ...1 % a year ago and all while .. in their view. Returns will likely be hampered by working capital inefficiencies and a business model that is becoming more retail-oriented. and conseql. particularly if the company does a good job of retrenching and restricting capitaL Estee Lauder's market shares at Makeup and Skincare .. .. and Morgan Stanley has little doubt that two to three years from now the company will remain a dominant player in the industry (13) . . . has not done well. the S & P 500 and up 6% for the global peer universe.... "W .. Morgan Stanley's sector investment approach has been to try to identify undervalued companies that will likely generate improving return on net operating assets . .. . .5%) from 12... While Estee . declining.... the shares are down 21 % versus down 20% for .. Morgan Stanley expects operating margins to decline to 10.." . ~ ..... .... .. .

- . followed by Skincare. Downgrade .. revenues...6 are still strong. ~ 14%) to reflect higher-than-expected marketing investments in the second half ofF2002 to bolster revenue growth... the balance sheet is rock solid and travel retail could certainly become more cooperative (13)... .. Returns are still under pressure ... The primary reasons for the downgrade are the following: 1... . . partly offset by increased minority interests. Makeup.. Over the past few years... while .000 to $1 million in the first year of operation... as a result of lower department store and travel retail . ...... MAC and Origins brands.. Fragrance should decline 10%.. Earnings should be helped by a lower tax rate and reduced interest expenses.. Estee Lauder has been actively opening new free-standing stores under the Aveda. ..".. while sales should remain virtually flat hit by contiriw~g weakness in travel retail. This should be driven by Asia Pacific. Haircare should be the fastest growing division.... The opening of new standing store requires a capital investment of $350-400 million and sales usually reach $750.. Morgan Stanley forecasts F2002 sales to be flat to down 1% . Morgan Stanley has lowered their F2002 EPS forecast by $0.Estee Lauder's return on invested capital has been trending down over the past five years and they forecast ROlC to fall 340/bps to 17. and Americas should decline 1-20/0. .. The company now owns 340 stores and intends to open another 60160 doors within the next couple of years. .60/0 in F2002... Once again..15 (down ..05 to $1. After two to three years .

The slowdown was triggered by the U. Deteriorating profitability Due to the before mentioned F2002 operating margins to 10. on average. 3. recession and compounded by September 11 th events. Estee Lauder management could be more proactive with cost cutting. Morgan Stanley calculated that a decrease of overhead expenses to the sector average level. and internationally (4). they must focus on quality and innovation. 2.1 % a year ago.not cannibalize . they must have the potential for global development and they must have the potential for long-term growth both in the U. profitability ramps up to 150/0. Sluggish industry growth .7 of business.S.50/0 from 12.00 on earnings.its existing brands. There is significant potential for overhead cost improvement. Growth Strategies One of the ways the Company is growing is by acquiring companies that make sense to the organization. Estee Lauder projects long-term earnings growth at 7 -90/0 annually and has an EBIT margin target of 150/0.While Estee Lauder fared somewhat better than the market in 2001. as strong volume gro~h more than offsets start-up costs. Department stores declined 20/0 in the fourth quarter versus more normalized growth of 4-50/0. would generate $780 million extra profits. Morgan Stanley expects 2002 to remain challenging with a potential upturn in the economy lying ahead in the back half of the year. The following are criteria which the Company uses in acquiring new brands or companies: they must be unique business opportunities that complement . or an additional $2.S.S. Prestige Beauty sales in U. .

The company has taken excess inventories into account in its production forecast and shipped at rates less than those of consumption. Morgan Stanley believes proactive management should bode well for cash flow and could be a catalyst for Estee Lauder shares. after cutting that recently from 2-30/0. recession. Morgan Stanley has • lowered their estimate of Estee Lauder's sales growth for fiscal 2002 to 1-20/0. Surplus products should work their way through the supply chain with the next two quarters. Because Estee Lauder derives about 40% of its sales and operating profit internationally. To counter exposure to global markets.8 Investment Risks . its results are susceptible to any recession overseas or weakness in currencies. Morgan Stanley's EPS estimates also reflect expected pressure on margins and a more tempered outlook for travel retail in Europe and Japan. they expect.S. and especially effects on U. doubts about consumer confidence and spending. and 7%.S. this business accounts for 5-6% of sales. Estee Lauder's'EPS face pressure from the U. • Foreign-exchange factors. Estee Lauder enters into forward- . though they do not expect this to emerge until calendar 2002. and U. sales.The Estee Lauder Companies face three key investment risks: • Susceptibility to economic downturns. 4%.S. retailers' contraction of inventories. In response to slowing economies.

90/0 of the voting power of the .. . --- --.....000 points-of-sale globally.. ~ exchange contracts to hedge purchases....... upscale perfumeries and pharmacies and.. freestanding company stores and spas. ... The Estee Lauder Companies created a new division. ELC Online.... which should in turn generate superior margins. in-flight and duty free shops in airports and cities... . 2002.... specialty retailers.. the Estee Lauder Companies said it won a lawsuit that addressed questions about advertising in cyberspace. and owns 90. to a lesser extent.... . .. The public float . Morgan Stanley believes that because of Estee Lauder Companies exclusive distribution. .... The Lauder family has controlled Estee Lauder since its founding.... stores on cruise ships. totals 105 million Class . . . . ..... receivables....... or 440/0 of the total common stock 'W' outstanding. in the Spring of 1999 (3). the perceived quality of its bran9-s should heighten... and payables in- • Limited public float. . Its range of brands covers strategically different niche markets.A shares... responsible for all online strategies and activities for all brands.. . • foreign currencies .. They primarily consist of upscale department stores. the Company also began to sell certain of its products over the Internet. .... Estee Lauder sells and markets its products at more than 9. common stock and 53... . . minimizing cannibalization of brand share. On March 15. ... ....70/0 of the shares outstanding... The New York cosmetics company said that Germany's District Court of .. . In November 1998.. .. -- Operational Strategies The Company sells its products basically through limited distribution channels to complement the images associated with its brands. 'W ~ 9 ..

a unit of Excite@home Corp. federal court in New York. and said '~he did know what effect the nlling could have on Estee's U. It said the court also ordered iBeauty. alleging trademark infringement. unfair competition and false advertising. Estee Lauder has filed similar suits against iBeauty and Excite in France and in U. formerly named Fragrance Counter Inc. (11). based in Redwood City. and iBeauty to stop using certain Estee Lauder trademarks as keywords to trigger banner ads on Web sites. an analyst for Jupiter Communications in New York. Clinique. said the case "has major implications for many sites across the Web". "is at least a flrst precedent out there in cyberspace related to this type of conflict. said they had not reviewed the ruling with their German trademark lawyers. case".10 Hamburg ordered Internet companies Excite Inc. California. to stop shipping products not sold by ." Representatives of Excite. since keyword-based ads generate hundreds of millions of dollars in revenue. .. but that the company reserves the right to appeaL Drew Ianni. authorized Estee Lauder retailers to Germany from the U. He said the German decision. since iBeauty does not ship these products internationally. and said it expects rulings in those cases soon. and Origins as keywords amounted to unfair competition under Germany law.S.S. Estee Lauder filed the German suit in January 1999. false representation. An iBeauty representative said the German court's ruling "will have little to no effect on iBeauty's business. Estee said the court decided that Excite's sale to iBeauty of the trademarks Estee Lauder. He said Germany is known for "having strict laws that tend to favor trademark corporations".S.

com and revamp its Internet strategy. In addition. . 11 Supply-Chain Management . on which consumers can buy a range of Estee Lauder beauty products :.... they expect the launch of new material-requirement planning.. The move would make Estee Lauder the second business .. The moves include reconfiguring the global brand structure.... associated carrying costs. The Estee Lauder Companies initiatives to streamline supply-chain management and enhance working capital bode well for process-led growth in the long term. ... ..-- ...... along with better sales forecasting procedures.. the 'deal would have no impact on its earnings.. .. ....... .com and MacCosmetics.....com. .. Terms were not disclosed. ... and closing underperforming brand-name shops in .. ..... Morgan Stanley believes.. In fiscal 2003.. Internet Strategy The Estee Lauder Con1panies recently announced that it would buy Gloss. The company projects total savings from inventory cuts... ... ... but Estee Lauder says .... stores.. reevaluating supply-chain systems. it will incorporate all of its brands . The .com. should enable Estee Lauder 'W' . it will launch two more branded sites... new systems.. ..... transportation and distribution optimization.. and quality procurement and manufacturing activities at $90-110 million in the next three years (7)..... . . ... Estee Lauder says it plans to implement a -- three-pronged strategy..... into Gloss.. Finally. .. It says it will protect its brand by developing modules on sites ..... and obsolescence write-offs ..- .... to improve inventory reductions.... EsteeLauder. (8) . 'W' that already sell its products. to absorb a beauty-oriented pure-play. . "- ..

. She will also make personal appearances around the world on behalf of Estee Lauder. In this new dual image. 2001. Chairman of The Estee Lauder Companies Inc. Elizabeth Hurley will continue to appear in ads for the very lucrative fragrance lines. Straw will oversee the corporate senior vice presidents heading Estee Lauder's manufacturing. Carolyn Murphy will promote the makeup. Straw will help the New York-based company manage its complex web of distribution outlets. "Elizabeth and C~rolyn complement each other perfectly in both personality and natural beauty". Former executive for Compaq. In his new job. new brands and expanded distribution. skincare and spa products plus the free standing stores. On September 6. Leonard Lauder. "As the Estee Lauder Companies increases its global presence with innovative products. said of the global plan. . there has been an addition to the Estee Lauder Companies. The new Estee Lauder dual global image maximizes the combined beauty and potential of Elizabeth Hurley's captivating persona and Carolyn Murphy's classic American style to convey the unique messages of the brand to consumers worldwide (1). Edward Straw is the new president of operations for the Estee Lauder Companies. information systems. American supermodel Carolyn Murphy joined British actress and producer Elizabeth Hurley as spokesmodels for Estee Lauder." said the president and chief executive Fred Langhammer (10).12 Company Addition Recently. packaging and quality assurance areas. research and development. the skill and efficiencies of our operating units become increasingly important to our success.

the Estee Lauder Companies announced that Jim Nevins would become a senior member of the team leading the conceptual brand renewal process for the Estee Lauder brand. "He is a creative visionary who will work closely with the Estee Lauder leadership group and me as we continue to redefine luxury and aspiration in contemporary terms" (15). biologists. Therefore. it is nunlber one in prestige..13 Brand Equity Building brand equity is one of the fundamentals the Company was built on. microbiologists and physicists are currently on staff. their product safety testing requires a collaboration of experts across several sciences. the company believes this will continue to make their aggressive marketing programs a success. From Estee Lauder's core brands to its newer brands. is committed to ~~Bringing the Best to Everyone We Touch" (5). Consumer safety has always been top priority at the Estee Lauder Companies Inc. To ensure the safety of all products brought to market by the Estee Lauder Companies Inc. "Clearly. On November 30 th of last year. Innovation/Social Responsibility The Company has been at the forefront of technology over the years by virtue of its investment in Research and Development. The Company invests heavily in aggressive. Each individual brand has a single global image in advertising and merchandising presentation. Jim has a strong track record in marketing and brand building. Approximately 395 leading chemists. Due to this new personnel development. Bousquet-Chavanne said. and a deep understanding of the retail business on a worldwide basis. well-funded marketing programs. The Estee Lauder Companies Inc." Mr. formulations and their packaging must exceed the high Company standards for ingredient .

~ . . .. Japan.. . ... All Estee Lauder Companies Inc. "Wt .... and .. ~ 14 preservation and stability. and package compatibility... The President of Operations establishes their environmental and safety philosophy.. . . New York.. Oevel.. .. All operations and facilities are dedicated to excellence .. Markham. who directs the activities of the Department of Environmental Affairs & Safety and the Facility Managers/Subsidiary VP's. using biological assays and human volunteers. is also highly committed to maintaining a safe 'W . product efficacy. The Company's commitment to excellence begins at the top. developed at Research and Development within the previous three years.. The Chief Executive Officer and the Corporate Environmental Committee. Companies' Research and Development facilities are located in Melville.. and healthy work place for all employees. .... and to protect the environment and the communities in which they operate through continued responsible action. safe.. and Blaine. They are proud of the enviable safety record the Estee Lauder Companies Inc... Safe Environment The Estee Lauder Companies Inc... Generally. . one-third of the Company's sales volume in a year comes from products . The success of the Company's environmental and safety programs is a result of the commitment of its employees.. This is executed through the Senior Vice-President of Global Operations. ... Ontario. Minnesota (12) . nor do they ask others to conduct animal testing on their behalf. . .... comprised of senior level executives from all ~ areas of the Company. They do not test their products on animals. products are tested for irritancJ and allergy.. has sustained since their Company was founded in 1946 and their continued commitment to producing quality products that are clean. -.. . pure. Estee Lauder . Tokyo.... Belgium. provide overall guidance and direction.

.. . 15 and to continuous improvement through implementation of environmental and safety initiatives. -. .. and its officers... manufactured. production.. where products are developed... reuse. . -.. . ~ .... and . - To provide support to all organizational units via the Company's • To encourage and apply pollution prevention. Equal Opportunity Employment It is the policy and practice of the Estee Lauder Companies Inc. age.. sex.... w .. and distribution ..... . • To promote responsible environmental and safety practices.. 'w • To strive to continuously improve their environmental and safety management systems and practices. This includes an annual review of objectives and targets. enhancing awareness among their employees and the communities in which they ~ operate. • Environmental Affairs & Safety department. ...... and recycling practices .. . religion. resource conservation. . color.... This will promote employee safety and mirumize environmental impact throughout their products' -... waste minimization... national . • To minimize waste disposal costs and promote application of safe and innovative technologies for waste disposal.. ..... The Company has set specific objectives to meet these commitments (14): • To meet or exceed all requirements of applicable environmental... .. and distributed . to ensure equal opportunities without regard to race. .. development... safety laws and regulations. .." .. health....

disabled veterans and Vietnam-era veterans. • Ensure that all personnel actions. transfers. benefits. company sponsored training. and social and recreational programs are administered in accordance with the principles of equalopponxullty. The above-stated policy and Affirmative Action Plan confirm the Company's commitment to (6): • Recruit. handicap. hire. train and promote in accordance with the principles of equal employment opportunity. disabled veteran or Vietnam-era veteran status. they work to preserve the . education.16 origin.and • Reaffirm its policy to provide equal employment opportunities to qualified handicapped persons. the environment and the arts. tuition assistance. the corporate philanthropy program and community involvement initiatives have supported the activities and growth of numerous organizations dedicated to health and human services. Philanthropy Over the years. terminations. citizenship status. The Company stri ves to be responsible citizens in every community they serve: their corporate fund drives help sustain local public schools and needy charities. and to affirmatively seek to advance the principles of equal employment opportunity to ensure that there is equality of opportunity in all terms and conditions of employment. • Ensure that promotion decisions comply with the principles of equal employment opportunity. including compensation.

more than $31.000 has been raised by the Foundation. Corporate Contributions The Estee Lauder Companies make corporate contributions each and every year. As part of their strategy to maximize the effectiveness and sustained impact of their . Lauder. The "Pink Ribbon" Breast Cancer Awareness Program is now globally recognized as the symbol of breast health." In 1993. fifteen'ofwhich have officially designated a month to Breast Cancer Awareness.000. In addition.initiated by Estee Lauder U. Mrs. On June 8. CNN's "Business Un-Usual" featured The Breast Cancer Research Foundation as an exemplary organization in its work to combat breast cancer (5). is their highly visible ~'Pink Ribbon" Breast Cancer Awareness Program introduced in October 1992 to draw public attention to breast cancer and spread the message to women that early detection certainly saves lives. established The Breast Cancer Research Foundation. The Company's most significant philanthropic endeavor .17 environment through broad-based recycling programs. In the millenium year the program was implemented in 43 countries.A. to fill critical gaps in medical research funding. More than 17 million pink ribbons have been distributed at counters worldwide. a not-forprofit organization.S.200. 1999. Since its founding. and the activities organized and supported by employees of the Estee Lauder Companies Inc.000 is attributable to their collaborative fund raising endeavors with retailers. of which $4. 21 cities around the world launched International Breast Cancer Awareness by joining them in their "'2000 Global Landmarks Illumination Initiative. Senior Corporate Vice-President. Evelyn H. and they strongly endorse employee volunteerism.

enthusiasm and talents to a number of causes: First Step lob Readiness Program. Corporate Recycling Programs & Collection Drives.. Employees are heavily encouraged to contribute their time... Lighthouse International. etc.. . Look Good .. Feel Better.... ~ ~ .... also sustains numerous volunteer endeavors that exemplify their commitment to "be responsible citizens in every community we serve" (5). Dear Santa Holiday Program.. Employee Volunteerism In conjunction with their corporate philanthropy. Due to the Estee Lauder Companies Inc. the Estee Lauder Companies Inc.. raffles.18 contribution dollars. does not reflect the many hundreds of institutions to which they annually contribute in the millions of dollars through contributions of products.. . Operational Strategies. New York Cares Day. ... This.S. . lHS 99.... .. Roberto Clemente HighSchool. 20.. . significant resources. and from the many beneficiaries select a few to which they pledge long-term. Support/partnerships with other public "..S.. they carefully screen the recipient institutions. . however.- auctions. Financial Development. Take Our Daughters to Work Day. for Business Careers.. Partnerships with Schools. See Appendix B for a full list of the charities in which the Estee Lauder Companies are involved. They would have been so successful hadn't they had a global marketing .. .. The Murry Bergtraum H.. (5).. . PS811X. . .. ~ school related organizations.. 'W' . and Corporate Drives/Collections (5) .. P. fundraisers. Donations support women's "self-help" groups. . Brand Equity and Innovation/Social Responsibility they have been in business for 56 years.... ".. charity benefit events.. 'W' .

.19 strategic plan and the drive of "Bringing the Best to Everyone We Touch" (5). I feel confident that the company will continue its successfulness in the upcoming years.

Available: http://www.. "Estee Lauder Wins Suit over Web Use of Trademark. Available: http://www. Downgrade to Neutral. February 7. "Estee Lauder Snags Compaq Executive. Internet." Online.comfhtmlcontent/mI2.htm - 13.IIS1 .comlfe/daily/20000316/efe160 18. Internet. 6." Morgan Stanley. "Estee Lauder Companies Revised Outlook for Fiscal 2002 Second Quarter. "Company Chronology. 14.eicompanies." Online. Available: http://www." Online.elcompanies. Available: http://www.com/htmlcontentimll. Internet.00. Available: http://www.html .co. Names Jim Nevins to Creative Post On Estee Lauder Brand. asp 2. fashionwindows.comlinvestor/news/newsitemlO-9900-1 028-8029577 -0 .zdnet. Available: http://www." Online.uk/story/0.thestandard.com/article/display/0.htm ." Online. Available: http://news.htm 15.00.com/htmlcontentim13. Internet. 2002.com/htm/contentlmI5.com/htmlframesetlfnnm4. Internet. "Company Overview. Available: http://www. Internet.com/htmlcontent/mI45.html 12. December 18. Available: http://www." Online.htm 3." Morgan Stanley.Works Cited 1.comlfashion models/200 1/ carD lyn mumhv. 8." Online.htm 7.com/htm/contentlm14.2001. "Corporate Philanthropy/Community Involvement.s2076737. "Estee Lauder. '''Safety and the Environment.. "Product Testing. "Equal Opportunity Employment." Online.com/htrnlcontent/mI44. Available: http://www. Internet. Internet.elcompanies.html 9.elcompanies." Online. Available: http://www. "Estee Lauder Applies Internet Gloss. Internet.cnet. Internet.html 11.htm 5.htm 4.eicompanies." Online.htm 10. Internet. "The Estee Lauder Companies Inc." Online. Available: http://www.financialexpress. Internet.elcornpanies.l4071. Internet.' Online. "Carolyn & Liz: Estee Lauder Faces.eicompanies." Online. Available: http://investor. '"Company Facts at a Glance. "ROre Still Under Pressure.elcompanies.

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7 5.4% 13.6 471.5 147.7 533..6 223.5 166.512.2 128.4 153.6 175.0% 3.1 165.5% 5.9 847.435.5% 3.8 360.8 221.4 255.2 320.0 1.2% 4.5 242.511.7 229. t ) »t ) ) .5% 21.2 546.3 3.0 194.8 148.8 6502 658.1 2.3 184.2 1.5 3.9 258.4 837.4 360.3 246.8 240.4 2.9% 3.5 2.2% 13.7 589.4 447.2% 4.9% 4.7 580.8 434.2 166.8 188.8 532.2 7.218.5% 12.0 161.0 1.70/0 5.197.5% 19.2 74.385.Payables Outstanclng Length of Cash Cycle ~ .5 251.2 .9 360.3 410. $6.385.7 251.570.8% 15.0 45.5 46.8 513.4% 13.0 176.0% 3.0 42.1 1.]0/0 23.1 544.0% 224.1 537.8 563.2 96.6 608.8% 12.5 177.8% 14.7 52.1 533.1 1.1 48.0 1.9% 5.7 5.4% 5.1% 19.7 360.3 545.5 174.8 5.0 555.8 360.8 1.9 377.7% 11.3 3.9 239.3% 13.8 455.160.2 5.6 813.3 62.5 77.0 186.8 574.218.6 74.6% 13.721.2% 11.2 152. » » .5 3.3 251.0 187.50/0 14.9 157.8 552.0 811.6 53.7% 10.5 190.0 887.873.4 3.7 187.4 226.8 739.0 452.511. ») ) JU"l A"Jg"··tta-ivPieo-t ) J ) »• .8 239.4 6. net Intangible assets Other TotBI Assets 199. Length of Operating Cycle .7 5. Days Inventory + Receivables Outstanding .643.9% 22.3 3.8 609. e>eept per share 1995 1996 1997 1998 1999 2000 2001 2002E 2003E 2oo4E 200sE Assets Cash and equivalents Receivables Inventories Prepaid Expenses and Olher Current assets 281.3 550.0 236.0 1.9 1.7 21.3 146.9 79.3 181.3 65.1 1.8 410.4 202.1 277.1 72.4 186.779.4 210.512.5% 20.1% 4.3 159.70/0 3.5 liquidity Analysis Avg t.3 201.9% 14.9 87.5% 4.~ • t n.8 410.7n.738.5 184.3 708.3 580.2 57.779.5 79.3 135.4 2.5 3. » t ) • ) } .4 261.5% 3.9 31.2 Liabilities Ie Equity Notes Payable Accounts Payable Acc Uabilities Income taxes Current lIablllUM long-Term Debt Other Noncurrent UablHtles Preferred Stock.2 1572 » ) » ) ) ».9 360.6 113.9 822.9% 22.679.1 410.9 260.1 805.0% 3.1 335.454.311.043. 1995-200SE Fiscal year ends June 30 $ Millions.5 392.8 254.0 547.4 205.6 347.2 12.352.5% 3.4 1.7 440.2 188.7 699.2 524.7262 3.5 574.0 924.4 79.1 251.746.5% 18.261.2% 11.0 861.5 533.4 179.5 360.873.1% 12.8 1.8% 20.6 271.0 360.0 837.5% 11.1 197.1% 13.2 231.0% 211.6 207.011.9 253.8 360.2 1.9% 5.9% 4.1 425.5 209.5 161.0% 4.6 143.290.5 612.4 759.6% 13.2 Property & equipment.3 1.6 56.6% 14.843.0 50.1% 12.9 251. 261.0 335.282.3 469.043.3 208.3 49.9 360.9 72.721.5 497.6 630.7 513.7 418.2% 3.9 .5 3.528.2% 13.9 180.2% 10.6 862.7% 12.6% 5.8 383.702.4 79.9% 4.4% 4.8 505.2 174.0 449.5 11.9 182.1 3.261.50 Shareholder's equity Total Llabllltln and Equity A•• % of LTM revenues Receivables Inventories Raw Material Inventories Prepald ElCpenses Accounts Payable Acc UablllUes WOI'klng Capital 15.7% 22.7 1.7 630.9% 4.4 265.1 360.1 236.3 528.6% 5.7 78.0 3942 1.0% 11.9 243.9% 5.0 1.1 163.0 856.5% 18.0 1.2 105.8 527.9 616.5 3.5 3.1 606.5 346.5 44.8% 11.2 42.4 234.9% 12.618.1 79.5 556.0 1.0 197.4 78.9 73.8% 14.6% 5.7 480.625.9 410.7 2.9% 13.0 696.4 79.7 1.3% 4.6% 12.6 84.5 616.1 84.8 228.2 901.8 229.8 422.~ MorganStanley El<hibit 12 The Estee Lauder Companies: Annual Balance Sheet.9 1.9 248.8% 11.746.8 226.7 1.

.5 lQ5 9.1 11.3 17.6 115.4 4% 11% 24.7 80.3 9. ) .N Colgate ($) G.3 12.) .2 104.5 10% 23.6 95.N 15.8 98.8 14B 4% 11% 27.1 19.4 102 36 12% 1% 9% 23.8 101.8 12j Unilavsr PLC (p) NR 77 Large Cap Average 20.N Kimberly Clark ($) 141.0 13.6 75.6 21.9 30.9 8.3 135.9 165.nur' M= MpJlfrnl· np = ()lIfnprfnrm: NR = Nnt Rated • .7 8% 15% 43.0 1.4 174.L RB.0 11. ) J ) ) ) » _ ) ).3 65.2 1~8 13.1 10.9 2~5 20.5 22.0 100.7 9% 4% % N IFEN 102 13.7 76.PA Inti Flavors& Frag ($) 102.3 4% -2% 17% 3% N OP 142 10.1 19.9 103.9 100.3 1~8 13.5 14.1 13.N Estee Lauder ($) N 31 32 1.8 29.4 68.3 84 N Unc.5 13.1 83 Procter & Gamble ($) PG.3 24.1 11.9 70 33 60 14B ~4 32 N OP 15.3 1~4 12.9 172.2 575 na na na 4 na na 4% 14% 17.0 77.5 13.4 ULVR.5 103.7 15. » J ~ • t » • » .1 66. Rnf.3 123.6 90.AS 1~5 81.6 113.3 1&7 16.0 21.3 63.2 11.7 19.0 4% 57 la8 10% 3% 55 Mid & Small Cap AveraDe 5% 10% 21.9 18.2 77.6 12.0 Avon Products ($) N BEIG.6 87.N 134.0 100.6 75.4 89.3 10. Unilever.DE Belarsdorl (auro) OP EL.0 16.L la6 33.2 20.150 9% OP 26.8 166.7 1Q8 117.8 114. ~ ) J ) • • .4 15.6 17.4 107.7 118.2 97.9 22.2 1% Unilever NV (auro) AVP.4 33 7% 4% 9% 24.9 98.7 104.7 10.9 16. Beiersdoif and Reckitt covered by Sylvain Massot.1 10.4 10.» • .9 137 135 -1 % 10% 150/0 40.3 9.3 25.1 20.7 115. J ). Household & Personal Care: Global Valuation Table N CL.' KMB co-covered by Matt Berler.9 49 55 14% 5% 11% 23.9 102.3 8% 9% OREP.0 115.7 155.8 1~4 tt2 L'Oraal (auro) Reckitt Bencklser (p) 12~ 2a5 18.1 184.4 110.6 96.7 9.4 11.4 3~9 33.~ MorganStanley ElChibit 9 Cosmetics. » .N Gillatte ($) KMB.3 65 na 14% 18.084 Source: Morgan Stanley Research. ) a .4 25.1 4% 11% 27.7 35.059 1.1 11.

3% 7.1% 6.2% 399 0.P_1on & 0Iher non-h.654 203 $ 216 MInat value 01 eqlity (WE) L_ed bela for !his Comperly 30 year risk frae raI8 Mar1Iet risk prernIun basad on sile (79) (85) $ 227 $ $ 242. 06103 EquIty nluelshar.702 $ 219 $ 139 150 144 $ $ S.)lDecr.7% 5.465 ~ ~ ~ ~ 4.8 Source: Morgan Stanley Research.493 240 Cost at equtty: (360) Martcat value 01 Ida! """esl banlg debI (MVD) Marginal cost 0I1ong-Iann debI Marginal tax raI8 AIIM'-alx co.580 13.9"'{' 6.Cash & securhlS $ (360) +LTdabt $ + Capilallzed leeses nat 01 depreciallon $ + Pension & aner non-fundad liability $ 6.203 $ 2.9% 5. 2001 AIMnJ85/ beg.ty.684 23% iI value from aci&1ing boOI vtiue $ 0% iI value from inIalmenlS $ 0% iI Y8Iua from ~.868 240 $ (215) 341 218 (254) (19) (228) 5.8% 4.7% 7.5% 20.4% 156 0.4% 692 (142) (42) 559 480 508 557 582 (221) 338 156 (1901 (188) 292 153 (222) 53 (16) 276 163.609 170 $ $ $ $ $ $ $ $ $ $ $ 485 $ 21.O'Yo 2.2% 10.h .3% 397 $ 18.117 $ ~ 4.9"'0.160 1125 532 $ 22.9% 3. 8lCepl per stUI'S 2001 2OO3E 2002£ 2OO4E 2OO5E CanpotnIlng perkxl 2007E 2006E 200sE 2009E 8 9 839 25.6% 4.t.OZT 242.4% Q.9% 317 0.9"'838 (50) 355 256 (261) (56) (82) (87) 285 17.0% 0.753 0. capital Provkled $ STdabt $ .~ MorganStanley Exhibit 14 The Estee Lauder Companies: Discounted Cash Flow and Residual Income Valuations Dlacounllld Cah Flow Analy.6% 279 $ 0.5"715 (102) (54) AlIY8I1Uegrow1h eerrDAmll'gin (199) (233) 105 $ $ $ $ $ $ $ $ $ $ $ $ $ 1.9% 3.0% 4.111 1 $ 34.1% 5.6% 355 $ $ 338 $ $ 310 $ 341 17. 12103 l.943 $ ~ 2.t at debt: MVE/{MVD+MVE) MvD/(MVD+MVE) 7.529 189 $ 580 23.Q2 Residual Income .3% 7.-_ _ _ _ _.1% 3.37 1 $ Begimtng capillll 2002£ 1.503.::.=.702 188 $ 268 ~.alg-tenn slBtainabIe growtl rille 824 23.1% 358 $ 0.9"'- 440 $ 20.529 237 $ (92) 488 9.8% 16.568 310 15.Depreci8lial ..6% 7.75 + Prafa-rad Stock $ 30M +EalitY 1$ 32.7% 3.4% 1.1 % 5.753 215 $ 0. Years 11-50 available upon request 1.8'% 633 (111) (198) 310 184 (238) (14) (68) 242 -12.0"'{' 2.9"'1.792 14. EquIty capital (WACC) Shares wtslll'lding (mm) (105) (50) 859 (327) 854 25.428 100% $ (105) To.9"'25.4% 7.0% -<l.7% 0.875 $ 1.2 29. .34% 15.654 158 2.000 105 $ 7..6% 15.5% 9. 01 non-dedu:t.CapiIaIImd elf balance sheelleases .5% 0.2 + Minortty inIanIst $ 211.196 (212) (SO) 934 (354) 257 (262) (82) (87) Plicepll'share 7.5 14.hare 12102 EquIty value/share 0M:I3 Equity valUalsh_ 12103 2003E 2OO4E 2005E 2.rlded llablity . flow + MV 01 eqUly ~ts + MV 01 ~ asseIs +Olher ci.0% 4.0% 2.-tl flow 10 dI!bI & equity FCF grCMth raI8 Discan fecta PV 01 Ir.:$:.4)1 Equity valuelshar.MV 01 minoI1ty inter_ .000 0.288 2010 2009E 20081! 2007E $ 2. ISSeta .0% 4.0%.t..8'% 0.+ (In:r.021 16.1% 834 25.4 0. cash flow 10 debI & equity Sum PV 01 fr..809 0.527 16.625 2.859 2.O'Yo 2.7% 4.4% (176) (42) (206) (42) 746 21 .7% 0.C8pitaItzad elf ballrce slleelleases .616 15. nat PPE Net CAPEX as a '" 01 in:rementaI rllY8l1Ues 529 EBITDA .6 2.MV 01 opIIons 0IAI1Irdng Eq.4% 292 15.0% 4.P_ion & 0Ihar non-fulded Mabilly .2 30.493 2010 10 $ (87) (84) 448 11.n4 6.046 (210) 849 25..4% 905 (207) (SO) 648 (251) (50) 787 (301) 397 440 485 532 580 258 (263) (81) (86) 354 142% 260 (265) (80) 261 (266) 262 (267) 400 13.493 196 . WC Mel OCher .7% 7. goodwill EBlT .9"'975 (208) (SO) 716 (276) 17..34% 16.266 17.5% 17.98 7.3% 13.5% 4. 744 77'% illI8Iue from grc»1h + lrIderstalad boOI vl!iua $ 1.4)2 Equity nl~ 12102 equity nluelshar.0% 0.373 $ 2.120 (211) 6 Net PPE DepI9CiaIial as a '" 01 beg..5% 844 25.5% 7.0% 2.280 15.3% 13.3% 5.3% 8.IlnpIAed __ on eerr EBIAT + Deprecialion & amaIzaIion -Capital~ . caplal CapiI8II1c»!h rate EBIAT Ad~ted nJIUn on capilal employed (ROCE) WACC ~ on bela ROCE-WACC EVA discount factor PVEVA SumPV EVA + IllIated capilal aI mid )'811' + MV 01 eqlityi~ts + MV 01 elf na'\~ assets +Olher Enta-prisevalue .0% 7.4% 241 $ 0.1% 219 $ 173 $ 199 $ 206 1.6 II8Iue from ana$ 7.2% 10.IIy II8Iue Shares 0IAS1IIndlng (mil) equity nlualsMre &.568 180 $ 7 (320) 418 360 1.4)1 equity va~ MI2 Equity varu.Amort.3% 12.600 0.00 1 -Total caohal Drovlded 1$ 33.85 Weighted A".6 4.030 $ 1..4% 1.MV 01 opIIons 0IAI1IInding EquIy YIIIua Shares 0IAStan:l1ng (mil) equity valueWshant &.0% 3.868 135 $ 2OO6E 2.035 15.seta Netlrwelmenlln capital Frae c.1'" -191.493 6SO 21 .0% 2.e Cost of Debt .3% 7.3% 11. prafe-red slOck .963 + Defe-red tax liability 242..PV 01 milcrty Inta'esl .MV 01 net debI debt .0% 4.Preferred Stock .6OO 196 $ n4 829 25.MV 01 na'\ caw." SMilIons.2% 7. &.500 18.

5~ t.6 558. GIOAMltgin 1I..616.0 338."" 0.3 $0.0 (3.15 240 232 $1.0 3.57U 963.209.IO_ 6.ft El. 66.3 137. 54ft.13) 16.5~ O.~ 22.5% 4.6 (12.0'lI0 ·4."~ &8.9 ll!O.9 769..0'lI0 15.11ncI:Ime j8ll*1Ml P .6% ..0'lI0 .0'lI0 .1 16.4 1.2'M.2'lfo ll.0 138.579.0.0 95.8 32.967.3~ v _ _.1' 3&0'lI0 12.11 16.9 113.(13 $0.4 <481.~ ()peralInf PraIIt 15..4 3...9'110 ·1.412.274. 13.049.4~ 6.366.l~ ·7.IJ18.'" B.G&#.5 $O.5 1..7111.33 236 $1.QO 01'()sE Jtrt-OS Jun-03 3.2'M.9 16.5~ 13.5 271.722.8 2. 5.~ 12.11&0 37.0'lI0 12.7~ 4.9 3.0.~ 0.1 347.224.725.2'M.g.7 4.~ 13~ -1.267.3 1.7 <4.9) 160..618.73 $0.G&#..1~ 66."' 11.1 2.640.0'lI0 79.552.11 82.0% 21.fl.3 3!lO. 38.7 (6.<4 855. ~ MorganStanley ElChibit 10 The Estee Lauder Companies: Annual Income Statement.3 3. Ef'S II1II.9 604.33 $1.0'lI0 2. EBITO..3% ·14.6 1.7 5.~ 13..5 4.371. 21.579. Pacilc~ .7113.15 $1.7 2.7'110 12.3 49.248.3 1.11 «19..~ 1~ 8.571.0 108.4 lMaS 2!lO.~ o.7 1..1~ 6..091.2&9'110 0.0'lI0 8.0&1.8) 121.& 5.2 3.7 0.-.&1&.3 1.ft 11~ 1'.~ 11.1 la9 3.'~ oIO.7 3.0 1.0% 7.5 4.o.1 351.1 2.4~ 67.1~ 4..6 3.. 8. 239 241 $1.0 1.9'!Iio 21.5' 6.3% S7.96 1.7 230.O'lIo ~ 5.4 23.0'lI0 12.20 $1.3% 19.7 3.8 711.8 1.8~ 13.8HI.1 5StI.2 515.3% 34.3 1.4~ 11.~ 7.2 5.412.198.G6A Rei_lid PMy floyaIleI 0!Mr1II1n1l ProIIt.3IILfl 972.1 971.4 23.767.3 2..4% 1~ 0!Mr1IIIn1l Prallt-" .2 1.7 (3..8 25.1~ 9. Pacillc-F1X 1&~ 1S.5~ 51.~ O.7 31.791.9 1.6 41i1L9 (l6. out.4 4.291.082.5~ 24'.818.19<4.18 242 $1.11 36.o..2.4 lMaS 2!lO.799. 18.700.~ l'.3 186.03 2.4~ 66.866.9'!Iio 7.0% 27.34 $1..7 !iIil'.~ 8." -56.9 1.".99 Jun.11 4.4 275.7% 4.1'lI> 5.317.5~ 4.2'M.J.003.."..203.4 4.2'M.I_·FIX SIoIncInI._ COGS GroeaPtaii S.0'lI0 -o.1 3!lO.110 24% .~ S.4~ 10.1 608.0% 79.3 23.".0'lI0 22.."' 1S.~ 16.7~ 15.~ &7.9'!Iio .3 1.8 <462.7 284..204.111.9) 306.0% 9.~ 5.~ -3. d8'geI Dblll .4 12.9 (6.Ol Jun.o.259.llragionll 1999 2001 Jun.8 1.9 137.o.~ 7.2'M...8) "'IIInAna.0 53l.3'110 s.9'!Iio -14..0'lI0 68.~ 10.4 2..'" ·1'.3) 440..3 315.8 CAGR CAGR 95..8 1.3 (lo.312.O'lIo 8.0'lI0 7. <UII1roding Source: Morgan Stanley Research 21~ (39...ft 4.5 3.1~ 11. 9.3) 2.8 3..7 15..9'110 COGS 4. S.7 23&.3 (14.6 1."' 5.357.5 32.0'lI0 22.0 11.1~ 217.4% 5.li'ii0 1'.4 27&1 23.111 $1.4~ 11~ 13.0 1.1 5&2.0&1._Pacille .5% ·l. N<I- 2.6 S46.0% 1~ 16.0% 5.8 4.2'M.11 1.2 213.0'lI0 4.1 361.~ 0.8'lIo 9.9) 501. S7.O% 2.224.5 3.~ 0Ih.~ 65. 25.l~ 4.0'lI0 14.lotIcIdIeEall&NricII EMEA-Ic:GlI EIEA.. .0'lI0 10.~ -7.f'IX 8.3'JI.5~ .1 "-PradUCI Slikare WiIk&Ip F~e Hllin:aAl 19.1 23.1 507.4 91.'" 4.1~ 5~ ·1.845.5~ 1.2 3.11'% 11.n 489..~ 7.5~ ·14.255..0 819.6 3..4~ ''''~ 0.4 1.986.9 16.7 2.'" Groea COGS S.906.ft .207.~ EB1TOA 14..9 10.1) 498.~ 12.41 23& 237 B..Q80..<4 197.9 245.3 671.0'lI0 12. .'" 13.2 311.5'lro -6.20 243 $1.048.899.4 324..~ 7.5 2..ft 6.4 991..73 $0.8 609.6% 7.008.3 2.5~ 4.8% -3.0 3.. 11.~ 79.2 310.0'lI0 8.8 152.9 0402..~ -G.~ 3).0'lI0 .0 590.3'!Io .9) 1111. -3.71 228 2Q.38U 1.~ 6.1 2.2 1..5~ 1. 15.4 206..3) 382.1 315.. 64..I~ .5'lro 1'.1~ ·14.0 2..ft .0'lI0 -1..l~ .t~ 5..".2'M.083.9 1.1~ l'.215.5 2.1 1.4 23.2'M.1 171.7 3.41 $0.5~ 34.0 679. 10.~ 4. cIIInges R_ -- AInIricaa 7.39<4..2 2.R-. 6.8 212.2'M.2 299.7 817..2 313....4 9.0.2 3."~ 0.8 1.939.1~ .5 1.6% lD.668.G&A BIll goocIwiI .11 1.~ 1.4% 2..0 2OO3E Jun. 1ncI:Ime NIIo_lMIoreclwge ElirIordInIry clwge NIIo_IIIII• •rclwge EPS IMIfare cIw.035.8 374.899.9% 66.3~ 79.11 2.5 674.7 23.3% aO'llo -7.1 480..~ O..59 233 $0. .5 899.8 731.n 33..1 960. E~ YcIdIII Eaat&Alrica AsWPlCille R_.0 1.2'M.0'lI0 7~ 33.5% ·1..1 3."' 41.131. RIIIaIII PMy floyaIleI -l'.- R-.1~ 10.4 174.3 (17.1.8 -" 1.51 77."' 10.11 4.Q2 577.4 1. N.519. &.71 51. 64..9'!Iio 10.9 3.3~ 38..'" 1'..061.5% 6.0 174.Q..9 Sla3 539.935.397.89 $1.0 2.S')1.0'lI0 5.~ 4.~ 116.011.1% 11. _ _ 1.t~ ·1.961.5 5.572.4~ .89 51.8 52.1 (4. F~ HlliICln 1..5IlI.195....251.~ ·1.IfQpe.-_.1~ 7.~ 21.2 0IIMw R _ .1 233.2 213..~ ~.79<4.5 23.3% 11.0'lI0 .7 213.0'lI0 &7.5% O.- 11.0'lI0 9.825.0% 8.6 1..7 36.0% 11.7 1.1~ ~.8 162. ·1~ U'% 9. "_1~ l1.5~ '''4~ 9. T.0 1.3~ O..5~ 11.~ 2.9 1. ·15.~ ".5 952. ·12.Nil 1 0 _ EPS Sha'..2'lf.7 184.0'lI0 7.7 9..9 314.O'lIo 5.0'lI0 5.6 630.0'lI0 0.ft -1..38U 766.9 786.4 1.0 1.5 2.8'!10 77.ft 11.8 1.8 22.8% .4~ .S9 $0.1'lI> 1Q.0'lI0 RIIIaIII FqaIIyPartlel Pre-«. Pr_.4 23. 1995-2005E 1995 1996 1997 1998 R_rllg!on AI-*:.2 1&7...3% 9.0'lI0 -10.3'!1.9 2.~ a".-463..5 532..9 2&7 4.6 3.2'M.0'lI0 1S.131.4 (12.4~ 11.11'% IL2"Io o.~ 1'.181.2111'.092.6% $1.9'!Iio 29.7 23.'" 11~ 9.4 22.3 196.675.035.9 971.0'lI0 5.9 413.ft 2.398. 2Q.1~ .1940.0.0'lI0 8.&#.ft 23.8 3.

1"81.6'l!o -3.4 4.9 0.818.'7% 0.".Pa::iIc Pa::iIc-lDcal .4 722.O% -8.2% 12.8 1..20 $0. -3.8 599.0% 12.7% 5.5 59.Il% -1.22 SO.5 59.9 88.2 855.9 3. MIrQin S.2 0.8 3.. 1435 (3.36 00. 4.u'JI.3 145.4% -2!l.1"4 -2.3'!fo 11.0 4.8% -14.3% 5.0% . PF F200J is adjusted for goodwill amortization 3.n..1% 12.0% 4.2S1A 278. 15.1"7".c.. 10.1 366. 8.311 $0.4 0.7 879..8 3QU 212.5% 6.8% L3% 8.0% ".0 8. -3.5'110 -0.2% -8.1"O.5 1.0% 4••% -7.11 788.5 888.4"- .2 420.1 875..8 5.2 n8. 16.7 143.2% -0.101.cw.1"3.9 1.291.M.11"-8.1 150.5% 4.7 4.3 ---. -7.4% ..4 952.2 15.u.fA -0.0% -7.5"- 0.5% 71.cw.1) (4.1) 141.6'l!o . -1.5"8.8% .5% 4.8 5.3 (10..SO SO.0% .7% 15.5"- .2 206.0% -17.3) 148.3'l!.9 58.3 748.8 54.2% 12. 1.2 94.579.3 2.9 5.0% 4.9 291.cw..IIt AInericM Eu!:lpe.0 846.3 140.7 • .1"- -8. F2001·2002E "--region AmIIrIcaIs Eu!:lpe.0% -1.0% 22.3"- -17. -12.5% 4.0% -1.0% 7.0% 21.7 418.013.3% -53.0% 2.5 132.579.0'% -11.1 5."% 97. -21.0% 7_1"4 ttIIin:aN 11.1 5.8% 18.0% 0.8% -15.3% 6.0% 13.9% -14.7 762.5 1.2% 70.0% ·14. 13.0'11.2 53.0% 40.1% 10.G&A ~ProftI·d_ I_ _ tncome(~ Income_ MInarily IIt8n!IIt NtlIr1conM PnIIemId 0Mdands HI 10 common babrII ~ ~c~ HID common iIIfta' 1Idrc/wgB& 741..6) 17.7 832.5 393.3'!fo -S6.8 51.177.3% '.4 S.8% -18.5) 91.5 3116.9'!10 10.1 153.--product SWn:a1t 395..8"- 0.8% 9.0% 2.c.722...1'7.0% 79.7 (2.2 121.0 a2 152.M.5"7.2% 7.4% 78.FIX -10.3"16.0% 21.3 4.3"8. .cw. 19.fA -43.7 5.2% -8.1 431.1 1lO.1% 13.3 50.11"- 11.8% 10."% 8."% 13..4% 36.9 177..1 4111.7 3.15 SO.7 226.8 765..1% -22.4"- 68.50 $0.8 1.36 $O.3 3.2"2.0% "*' AMI ---.FrIIp'C4I ttIIin:aN 0IrIIr 299.3 4.5'lIo 2.37 $0. •..3% 9.046.4% -1..3 3.0.5 5U 5.5% Source: Morgan Stanley Research..9 43. 1.8 84.fA 8. 783.8% 1.0% -8.3 16. -1.3% 12.1 lllO..4 269.4 423.4"14.8% 21. -12.G&A RM..M.20 240 $0.7 359.8% 9.8 91.22 239 $1.9% -0.3 1.7 (2.4% 1.cI f'nIcpnce COGS 0.0% U% -S.4 981.1 $10.9 ReIIad Patty RqelIies .5 1.cI 431.1% 0.5 57. 83. 12.3 741.7 418.O 7. 3.8% ·10."% 0.8 2.0% -1..1 402.1% -30.4 227.4"- 0.07 241 242 SO-3S 241 $0.8 152.0 5.3% 34.0% S.207.7% -3.7 52.c.083.n.0'11. 0.101.0% -0.8 841. Midde EaIt&AIrica 9."5.5 348.0 47.0% 8.5"- -"-"'''- 7.3% 0.6'l!o -30.. ·10.9'!10 0.""-2.8 1.8 2.6 2.M.7 31.4% 12.3 (2.8'110 -0.n..n.n.3"- -0. L3% -3.8 D.9 91. P8ClIc·FlX ---.5 1.11 121.0 8.23 $10.8 48.S 39."8.4% 0Iher -8..8 34.6% ·1.4% 83.8'110 1. -1..1.no.083.5% -5.M.8% 70....1 (1.4 447.8 30.5) 87.15 240 MarvIn AnIty" GIoN COGS S.38 242 242 $0.8% 1.6) 149.1"- -25.G&A AIIIIIed Patty RO\IIIIII8S 0pemIng Profl EBlTDA PNotII"-"t NtllOcommcn EPS StweI ~1IW1dilg 4.2 MaIreI..4"11.fA 22.8 431.""- -0.3"34.0% eMeJ.9% ILI% -2.0% -84.7 COGS 263..3"8.0% "".1 278.11"-3.5 tm.5 399.0% ·'4.4 199.8'110 21.2'% ."-2.2 1.4 213.1 2S4.5"- 12.2% 1.2.3"- 2.. Mickie East&AfI1ca AlWPIdfic I'IIIIert» IIINgIonI 139.'7% -l4.4% -55.8% I.0'11.1% 7""' 5.5% 8.n.5 (5.4% 0.6 97_1 5.fA ·1.0% -3.0% 2.0% 68.3 GIoNPn:IIiI 914.5 00..2 480.5"2. $1.051.8 963."15.0 1.M.4 1.8 306.120 M.4 4.0 1.o.2 51. o.7 1.1"- 0.0% -a.cw.M.8% 0. -14.'''- 20. 1I.6 <459.0% y~~ f'IIrwoert.fA ·2.8'110 18.8 57.3 203.0% 68.4 23.8% .fA 36.5% 19.187.0% 11.9% -3.'7% ·28..3'l!.7% 7.2 48.1% lQ. .0 85.8'l1o 2.3% -2...2% .4% 34.2 71.1"- 2.8 182...2 1..fA 8.0% -3.5 175.8 48.7) 489.5"11.2 3.5% 9.257.2% 0.0% -71. 9.0% ·.1 0.5 (0.0..G&A 8ef goodwII S."- 8.0.lChibit 11 The Estee Lauder Companies: Quarterly Income Statement.fA .().""- 10.1 1.tEMoclII 9.041. 12...fA -2.- ~ MorganStanley E.4 599.0% 2..1% -2.5 464.2 1.3 5.8 51. 8.8 <45.0% 11.4"2.0% .5% 78.2.8 112.s RoIaIIIt PIrtIaa EBIltIA n.9% .5 I.7 2«1..9.1"-51.8 1.3 37.0'11.5% 0.8 5.M.8'110 -2.1 255.4% 71.no.1"- o.11 (37.1"-32.8% 3.0% 5.5 111..0% ·1.7% 34.5 282.cw.n.177..Il% .n.5'110 AI~·FIX SWfare MaIreI.1 (2.7"- 11.0% 34.8% -o.0% -1.0% a..0.0) 103.6'l!o -1.8% 86.5"- 10.cw.5% 20.875."35.1% 7.0% 14.1 0.1 3&4.3% 13.5% u.8 105."9.9) 116.0% 5.8"- -0.2% 18.0% 10.'7% 0.5 171.2% 88.9'!I.1"4 -1.8% -2.8% o.3 134.8 604.2% 3. -1."- 86. 10.787.3 278.2 121.4 278.1 299.3% 0.0% 1.K -2.---=- 18. 11.8% 79.7 15.0% 0.4% 79.1 .2) 88.051.0% 0.5 1.9% -1.8"- t.

begiming Cash.9 5.7 75% 173..4% 59.7 3.782.4) (91.S 254.4) 1S.S) (0.41 8..2) (212.6 18..4 58.3 (275.. .2 156.6 58.3) (225. ~ MorganStanley .2) (5Q.6 (6.5 217.1 2. assets I illig.2) 1.4% -132.7 305..8 13.4 (37.5% 3.9% 6.6) (82.9 4.0 (107. .4 lS..7 3. .3 183.5 320.3 1.4 m.1) (0..4 480.3% 1.0) 2.8 14..4 18.0) 2.4) (31.7 11...7 162.2 (54.1 17.2 16.5 347.1 1...9) 3.2 (74.0) (31.2% 7..3 (71...1 22.1 (16.9) (257.5 60.O) (41.2) (8.9% 1.9 (29.3 (24.0 42.8% 283.6 1.6 36..8 1.6 38.366..1% 2.9) 236.3% 81.1 (25..7 (42...7 1.9) (180.8% 314.3 (84.0) 24.1) (36..9) (120.4) 2.2) 75..892.7% 7.0 26.6 171.9 32.8 575.32 19.4 8.9 379.5) (192.0) (30.6) 345.1) (240.0 5.6 19.3) 4.0) (161..1) 12.9 254.6 42.1 (25.3) (102.2% 115.2 2.6) (75.3 91% 236.9% 6.3) (56.0% 1.0) 347.4) (118.0 (180.9) (84..835.6 2.9% 1.6 (30.6) 14.0 (459.5) 161.0) (12.3 6.0) 1.6 299.9 (145.S) 14.0 10.3% 12.0) (120.2 (4..6 2005E 1.6) 3.803.5 10.4 153.4) (214..9 254.6 T 5.7) 4.5) (0.1) 14.0) 253.5 (63.0) (117.9) 60.0 23.3) (232..6) 250.2% 6..0 1996 Financing Ac::IIvtti.44 9.9 13.3) (113.S 79.49 25.46 10.8% ..88 37. .3% 10..6 (23.0) 20.9 117.4) (3.8) (4.0) 40.48 m.5 1.1 (14.0) 14.8 21.5) 33.3 (577...9) 314.8 (38.6 20.7) (23. Purchase d PP&E SeIad PP&E ACQUisitials Divestitures Other Cuh from investing 1997 1998 1999 2000 2001 2002E 2003E 2004E 2006E 197.0% 7.1 146.5 346.4% 2..7 2.3 29..0 452.1 31.2) 2.7 42.0 (S..24 21.9 305.7 32.6% 33..7 11.9 5.6 20.3% o.3) 205..2'Yo 37..0 29.19 22.4 9.6) 272.9) (71..7 1S.S) 40.6 70.3 (25. Purchase d Stock Issuance d Stock Issuance d LT Debt RepI!'fI'I18'1td LT Debt Increasal (decrease) 5T Debt Exercise d Options DiYidends paid Cash from ftnandng Effect d Excha1ge Rate 18.2 6.7"10 -130.7% 1. .3% 245.2 23.6 11.6 12.951.8 1.7 64% 248..0 15.8) (31.2 131% 3.2 50% 299.1 24.6 3..8 21.7 9.6 121.0 (1.6 15.0) (83.2 (37.4 1..24 30.7 1.1 61.1 1.4 88.8 6.867.3% 13. -- .7) 272.0 (57.x Return on Capital WACC ROIC-WACC = CUlTentralio Total Debt I Capitat Interest cOoI8rage 607..0) (185.9 99.7) 0.3% 13.5% 1.6 372. - .5 E 1.6 27.3% 80.6) (117.51 10.6 1999 1.6% 173..6) (0.5 217.3 183.2 42. .4 47.0% 2.7 1.4) 13.4) (1.1) (57.5% 2.934.0% 2aI.5 9.1) (199.47 10.85 9.82 7. .1) 13...2 5.6 379.4) (245..1 23..3 17.8'% 5.7 s EV iVld Price I Forecast P8Ifamance 2003E 2001E 1..9% 6.4 (5. .1% 367.6) 410.1% 223. .625.S 12.2 626. -W .290.7) (52.~ (46.9 (63.. assets =ROA x illig.4) (38.1 172.2) 26.8 3.7) (43.6) (237..0 12.6% 6.9) (257.918...2 42.3 267.5 caen Free Flow calculation Net Incane Plus D~a1 iVld amatiZlliicn Lass Waking Capital Usage Less Capital Expenditures Lass restructuring cash rutlays Free Row as a percent d net incane caen RdoAnaly_ Net earnings I r8\/enUeS x l1MI'lues I avg.9 17.3 442.8 (43.9) (2n.0 (70.6 76.2% 1.1 17..1) 160.6 (63...8 255.5 1..9) 347..8% 357.2) 19.1) (3.9 (46..8) (6..0 337.6% 7.3) (272.3 236.3 67% 150.9 255.4 1.S) 1.2 352.4% 2.8 3O.1% 5.2 (1S. ..0% 1.3% 1.5 197. eJCepl per share Operating Ac::IIvIt* Net incane Depreciaticn and ama1izatial Am<lrtizaDal d purchased rO(Blty right Other na1 CUlTent 1IS$ets/ Nei> Changes in WoOOng Capital Rec8vabIes Inventories .4 518..7 16..9) (87.5% 3.3) (130..8 13..2 85% 4.- .3) (180..3) (24O..7) 3.2) (192.5) (9. Payables Other WC Items Change In WorIdng Capital ITotal cash from OperaUons DIscretionary Sourceal U.6 28.6% 58.5 (30.1) 16. .5) (15.3 28.8 Increeae (decreue) In cash Cash.7% 3..1% 2.5 (37..5) 1.9) (10.9 617..14 23.2 (21.7 346.7 52. .2 408.1) (100.0 1.4) (200. W' -.3 44.7 1998 1.6) (63.8) 372..7) (275.2 (19.5 1.3 27.8 13.2 511.0 16.S) 52.0 1995 121...6% 1..6 851. equity ROE After Tax Ebit Invested Capitat A'verage Invested C~taI Aft.5 (27.51 9.5 410.1 4.s 5.5 1.3% 1.9 1.8% 4.78 27.5 (19.S 17.3% 10.1 2.6 408.1) 267.2 655.2 (210.1) (14O..2% 402.5) (63.3 25..0 (27.8% 7.2 (53..53 34..4 86% 7.8 97. .9 (13.5) 19.1 1.5 19.4% 7. .6) 3. ..495.215.0) 160.0 253.7 15..8 35.9) (7.7 (225.S (44.4) (32.5 3.S) 3.9 8.1 1.9) 314.65 9.6 1.80 37. . .9) (5.2) (75.0 (24.6 17.6) (73.3) (1&.4 949.. 1997 1996 1.8 21.2) (2. 1995-2005E FISCaIl!! endS June 30 $ Mllia'lS..4 320. --.8 (86.6 (20. ending 96.1) 21.3 683.4) (82. .7 (55.0 55.S 19.9% 324. . Exhibit 13 The Estee Lauder Companies: Annual Cash Flow Statement.792.2 22..3 4.7 19.1 129.5 79% 351.5) (1.8) (254.1) o.4) 159...0 (31.1 (11.9) (374.7 (10.5% -114.4 153.0 Valudon I Perfonnance 1995 EV I Revenue EV I EBITOA EVI EBIT EV/Boc:j(Capitai Price I ElVTIings Price I Bod( Equity Source: Morgan Stanley Research Hist EV iVld Price I Hist Pert.5 337.0 1..3 5.1 25. --.703.3) (S.S 4.0 74% 214.7 (n.2) (313.3 1..2 43'Yo 133.S) 431.3 452. .0 (46. .2% 333.3 1.9 254.6) (4.5) (1. .6 4.2) 4.3) (206.1 258..6 25.

The Netherlands. Nevv Zealand. Estee Lauder receives The Neiman Marcus Award for Distinguished Service in the Field of Fashion 1963 Austrailia. is established France opens 1965 Manufacturing facilities open in Oevel. Greece. the first bath oil to double as a perfume 1957 Estee Lauder introduces Re-Nutriv 1958 Leonard Lauder joins the company 1960 Estee Lauder International operations begin. Estee Lauder Cleansing Oil. and Norway open . Belgium. New York City 1953 Estee Lauder introduces Youth Dew. Denmark and Hong Kong open 1962 Italy. Belgium. Germany. Portugal and Sweden open 1964 Ronald Lauder joins the Company Aramis Inc. Markets open in the United Kingdom (first account . Estee Lauder All Purpose Creme and Skin Lotion 1947 The first deparment store account is established with Saks Fifth Avenue.Appendix A (2) Company Chronology 1946 Joseph and Estee Lauder found Estee Lauder in New York City with four Products: Estee Lauder Creme Pack.Harrods in London) Canada and Puerto Rico open 1961 Central America. Finland. Spain and Switzerland open Golden Diamond Collection launches as the Company's first evening makeup collection Mrs.

K. Long Island 1968 Mrs. Estee Lauder products become available for sale in perfumeries in Moscow. Estee Lauder receives the Spirit of Achievement Award given by the Albert Einstein College of Medicine of Yeshiva University Clinique Laboratories. Leningrad and Kiev Aramis introduces JHL 1982 Estee Lauder introduces Night Repair Cellular Recovery Complex 1984 Aramis introduces Tuscany fragrance 1985 Mrs. the first superperfume is founded 1970 Aramis 900: Scientifically formulated. fragrance free.1966 Austria. ESTEE: A Success Story. Japan. U. Inc. Estee Lauder's autobiography. is published . Estee Lauder is named one of ten Outstanding Women in Business in The United States by business and financial editors The Whitman Plant opens in the United Kingdom The Estee Lauder Melville Plant opens in Melville. problem-solving products for men are introduced Melville Plant capacity is doubled. the first sports fragrance 1979 Prescripti ves is founded 1981 New expanded manufacturing facilities open in Petersfield. is founded Estee. separate Research and Development Laboratories Mexico 1971 open~ The Melville plant receives an award from the American Institute of Architects for notable design Clinique introduces Aromatics fragrance 1972 Estee Lauder introduces Aliage. Singapore and Thailand open 1967 Mrs.

Estee Lauder introduces Beautiful fragrance Prescriptives introduces Calyx fragrance 1986 Clinique is the first cosmetic company to be invited to exhibit at the Academy of Ophthalmology convention Aramis introduces the New West fragrance for him 1987 Estee Lauder introduces Eyzone Repair Gel Aramis introduces Lab Series for Men 1990 Estee Lauder introduces Time Zone Moisture Recharging Complex Prescriptives introduces Eyewear Origins is founded Origins introduces Starting Over. the first AHA product sold in department stores Origins launches Peace of Mind 1991 Estee Lauder introduces Advanced Night Repair Protective Recovery Complex Prescriptives introduces All Skins foundation Origins opens its first freestanding store in Cambridge.. Massachusetts . first chemical sunscreen-free sunblock for daily protection Astronauts us Clinique products on space shuttle 1992 Mrs.. Estee Lauder receives The Neiman Marcus Award for Distinguished Service in the Field of Fashion.. Germany Clinique launches City Block. making her the first person ever to be twice honored with this award Origins opens a freestanding store in SoHo. New York City . Origins International debuts in the KaDeWe department store in Berlin..

in Budapest. Florida Estee Lauder Companies acquires a majority interest in MAC Cosmetics (December 1994) and assumes distribution for MAC products outside the U. called Palladio Fragrances International.Origins launches at Nlagasin K in Copenhagen. with Herbert Frommen . Spring Fever Aramis launches "tommy" the first fragrance under license from Tommy Hilfiger 1996 -- Origins launches store-with-a-store at Isetan in Tokyo. its first worldwide. Czech Republic Clinique launches Cyberface care and makeup an interactive software program on skin Clinique On Campus launches at Yale University Clinique launches its first assisted-sell counter at Foley's Memorial City Origins opens lOth freestanding store in Tampa. Estee Lauder is honored by the American Society of Perfumers with their first Living Legend Award The Skin Cancer Foundation presents the first annual Skin Sense A ward to the Lauder family Clinique opens a freestanding store. and Canada Aramis introduces Havana in the United States 1995 Origins introduces its first fragrance. Japan The Estee Lauder Companies establish a partnership.S. Denmark Clinique's Turnaround Cream is the first face cream with salicylic acid 1994 l\1rs. celebrating forty years of popularity Estee Lauder opens its first freestanding store in Prague. Hungary Clinique launches Good" Campaign ~'Beauty Isn't About Looking Young But Looking Youth Dew receives the Fragrance Foundation's Fifi Award for Perennial Success.

.... Czech Republic . is launched in select international markets ..... "Best National Print Campaign for a Men's Fragrance Introduction. ....." "Bes~ Women's Fragrance in Broad Distribution... . -..... ... Clinique opens its first U. Clinique launches All About Eyes.." "Best Men's Fragrance Introduction of the Year in Limited Distribution. 1998 Clinique launches Weather Everything SPF 15 Environmental Cream 'WI ...." "Best Package of the Year for a Men's Fragrance in ExclusivelLimited Distribution". ..... Clinique's Moisture On-Call wins the German Cosmopolitan Prix de Beaute and the Belgian Marie Claire Prix d'Excellence . freestanding store at the Pittsburgh International Airport 'WI ....... Clinique International opens its first store in Prague..... Clinique launches Quickliner for Eyes and Blushwear Estee Lauder Re-Nutriv Intensive Lifting Creme is awarded the Prix de Beaute for Face Care by Cosmopolitan in Germany and Annabelle in Switzerland . "W .." and "Best Women's Fragrance Package in Broad/MassiAlternate Distribution" . Clinique launches Website on the Internet...." and "Best National TV Campaign for a Men's 1995 Fragrance Introduction" (first time ever that one fragrance won 5 Fifi Awards) ' WI WI' . ... Kiton.. a cream eyeshadow packed in a retractable tube . an eye gel-cream . . .... First MAC store opens in Paris . . Clinique launches Smudgesicles. . ...S... The Fragrance Foundation awards "tommy" America's "Men's Fragrance Star of the Year." ... The Fragrance Foundation awards the newly launched Estee Lauder Pleasures "Fragrance Star of the Year... . ... a fragrance for men.. Estee Lauder Day Wear is awarded Best New Skincare Product by the Austrailian New Woman Beauty A wards ...- - Clinique introduces All About Lips and City Base Compact Foundation SPF 15 ... .. ..

bobbi Prescriptives introduces two new fast-acting makeup removers . a new reformulation of best-selling Advanced Night Repair. Estee Lauder introduces Advanced Night Repair Whitening Recovery Complex. three limited-edition fragrances based on the original best-selling Estee Lauder pleasures fragrance. acquires the remaining equity interest in Make-Up Art Cosmetics (MAC) (2/98) Bobbi Brown launches her first fragrance. Flirt Tommy Hilfiger Toiletries launches Hilfiger Athletics Tommy Hilfiger Toiletries open "tommy's shops" with the launch of 14 new body. sold exclusively in international markets Estee Lauder introduces a skin care line for oily skin exclusively in international markets: Clear Difference Purifying Cleansing Gel.. Clear Difference Purifying Oil-Control Lotion and Clear Difference Pore Cleansing Mask join Clear Difference Oil-Control Hydrator (launched 1997) The Estee Lauder Companies Inc.Estee Lauder Body Smoother Exfoliating Cream is Best New Body Product by the UK N ew Woman Beauty A wards Estee Lauder introduces Re-Nutriv Intensive Lifting Series and Re-Nutriv Intensive Lifting Eye Cream . hair and face products." "tommy girl" and Hilfiger Athletics fragrances Lab Series for Men introduces Lift Off! Power Wash Lab Series for men introduces U-Turn Age Defying Formula For the first time in its history. Dazzling GOLD and .Quick Remover for Face Makeup and Quick Remover For Eye Makeup Prescriptives launches a new women's fragrance. Estee Lauder launches two completely different fragrances under one brand concept. exclusively in Asia-Pacific markets Estee Lauder introduces a garden of pleasures. The store-within-a-store concept allows the new products to be sold alongside leading "tommy.

Spots and Wrinkles Origins introduces Never A Dull Moment age-erasing skin polisher with fruit enzymes. which became Origins number one product during the first three months of the launch Origins introduces Clearance Time to see less oil each day Origins introduces Let's Circulate Salt rub soap. respectively Prescriptives launches Anywhere SPF 1S. the new age of sunscreen lightweight enough to wear on bare skin. a creamier. Clinique launches Sheer Matteness T -Zone Shine Control . over moisturizer. the first line extension of their highly successful Salt Rub franchise Origins introduces Night-A-Mins Cream. Retinol for visible improvement of Lines.. more emollient version of Night-A-Mins Lotion Clinique launches in Brazil at Iguatemi Mall in Sao Paulo Clinique wins "Top Brand" category in the UK Marie Claire Health & Beauty Magazine Awards Clinique's Dramatically Different Moisturizing Lotion wins "Top Product" category in the UK Marie Claire Health & Beauty Magazine Awards Clinique launches City Cover Compact Concealer SPF 1S Clinique Happy Fragrance expands with Body Wash and Body Smoother Clinique launches Superlast Cream Lipstick Clinique launches Smooth Delivery Body Treatment.SILVER capture the feeling of celebration and spending time with the people you love According to the 1998 NPD Report. Estee Lauder pleasures and Beautiful were the number one and two prestige fragrances for calendar year 1997. even over makeup Prescriptives launches LSW. a body moisturizer and exfoliator in one .

Clinique launches e-commerce site at www.clinique. a leading Englishlanguage beauty magazine Estee Lauder Futurist Makeup won German Cosmopolitan's Prix de Beaute and in AustrailiaClear Difference Oil Control Hydrator won the New Women Beauty Award for "Best Skincare Product" Lauder introduces Pure Color Nail Lacquer. In addition to being presented with 10 other "Best of Beauty Awards". becoming the first prestige cosmetic brand to sell its entire line of cosmetics over the Internet The Fragrance Foundation awards Clinique Happy "Fragrance Star of the Year" "Best Women's Fragrance in Specialty or Department Stores" Allure Magazine awards Clinique top "Best of Beauty Award" for 1998. in France Estee Lauder launches 1000/0 Time Release Moisture Cream and Lotion . Spain's Telva Beauty Award for "Best Facial Skincare Product". Clinique's 3-Step System was inducted into the 1st Annual Allure Hall of Fame. Norway's Tique magazine nomination for "Best Skincare Product of-1998". Diminish also wins Australia's distinguished New Woman Beauty Award for "Best AntiAging Product of the Year". which honors beauty's '"Gold Standards" Clinique conducts global landmark study on the relationship between mothers and daughters Clinique launches in Bulgaria Estee Lauder International opens freestanding stores in Morocco and Bulgaria Estee Lauder Diminish Anti-wrinkle Retinol Treatment is awarded the French Marie Claire Prix d'Excellence award for Best New Skincare Product.ircles was named "1998 Product of the Year" in Hong Kong by B-lnternational.com. an improved nail formula in a ~"jewel" of a bottle. and placed first in the "'Face Care and Treatment Category" in Switzerland's Annabelle magazine's Prix de Beaute Estee Lauder Uncircle Eye Treatment for Dark Circles and Self-Action Sunless SuperTan recognized as best beauty products at 1998 CEW Beauty Awards Luncheon Estee LauderU ncircle Eye Treatment for Dark C. the first time a company won two years in a row.

The Oil Absorbing Tonic and The Tonic Tommy Hilfiger Toiletries introduces the tommy home fragrm1ce collection. Country Place and Summer . This is the first time Estee Lauder targets an ad campaign to a more mature customer. Also. first transfer-resistant. long-wearing lipstick in traditional lipstick case In connection with an I8-month independent study on the impact of antioxidants when applied to skin. new skin care product for women in their 40s.MAX blend. treatment mascara in gold case Estee Lauder launches Resilience Lift Face and Throat Creme and Lotion SPF 15. The SU. Estee Lauder launches DayWear Protective Anti-Oxidant Creme and Lotion SPF 15 with exclusive SU. a sensual fragrance that is offered exclusively at Bergdorf Goodman and Neiman Marcus La Mer introduces The Cleansing Lotion. Finelining Brush and Buff Brush Prescriptives introduces 'Lavish Lipsticks' in 40 shades . . The collection of scented candles and fragrance room sprays is available in three scents: Townhouse.Estee Lauder launches Indelible Lipstick Classic. after hours compact with mood cover Estee Lauder launches DoubleWear Stay-in-Place Concealer Estee Lauder opens full-service.VI. Soft Shadow Brush. Prescriptives introduces four new makeup brushes: Foundation Brush. state-of-the-art day spa at Bloomingdale's 59 th Street Estee Lauder introduces pleasures Body Smoothing Spray Estee Lauder introduces Soft Clean Rinse-Off Cleanser Estee Lauder introduces Lash Luxe Conditioning Mascara. Former Estee Lauder model Karen Graham is featured in Resilience Lift advertising. In a new campaign Aramis introduces Aramis Gold.. 50s and beyond. The Cleansing Gel.VLMAX blend was found to reduce the appearance of new lines and wrinkles by 23 % Estee Lauder introduces Attitude Compact. it is the only time a former model is featured .

600 people attended the opening party. Earth Goddess MAC introduces three new mascara formulas Sheer..Prescriptives reafflmls their reign as ~'The Foundation Authority" by introducing Photochrome Compact Makeup. Both RuPaul and k.a store for makeup artists only City launches in New York MAC introduces new packaging with the launch of the Fall 1999 color story.in London Heathrow's Terminal 3 MAC adds three additional DFS locations in Asia DFS Sun Plaza in Hong Kong. Peace of Mind MAC launches its first partnered store location at Le Printemps in Paris MAC adds an additional door in Germany at Beck in Munich MAC launches its first door in Spain at EI Corte Ingles Castellana in Madrid Approximately 1. lang traveled to Austrailia for the opening events MAC opens its first sh9P in an airport . Origins launches Original Skin Pressed makeup with you-control-it coverage.putting merchandise on tables and out of caseline . lackluster skin Prescriptives develops new "2001" selling concept at retail. hosted by RuPaul MAC enters the Austrailian market at Grace Bros in Sydney and Myer in Melbourne. an edible form of the nUInber one Sensory Therapy product.d. a compact foundation that sweeps on like a second skin and stays fresh-faced all day Origins launches Peace of Mind Gumballs. stressed skinbrightens overtired. DFS Saipan. full coverage. Natural and Xtra MAC introduces four Brow Pencils and Brow Set . the light-adjusting. and DFS Millennia in Singapore MAC PRO Store . transfer-resistant cream foundation in the industry and the fIrst patent pending Ergonomic Sponge Prescriptives introduces Vibrant-Vitamin Infuser for dull.

.. an ingenious blend of featherlight....Intensive Conditioner.. .. a tinted version of its top-selling Lipglass lip gloss MAC opens first partnered store location in Austria in Vienna's Steffl Estee Lauder launches Futurist Full Treatment Lipstick SPF 15 Estee Lauder launches SunCare line.... featuring new Face SPF 15 and 30 and Body SPF 15 and 25 . NfAC launches Creme Colour Base... Clinique launches Superfit Makeup... hair........ lips and eyes ......... "tommy's shops" grows the face.... . . ..Stop Signs Visible AntiAging Serum ......... After-Shave Balm and Pure-Fume Body Tonic . ...... Pure-Fume Brilliant Conditioner.. Aveda's Volumizing Tonic is awarded Allure's Reader's Choice for Best Volumizer ... A veda launches Hand Relief A veda launches Cuticle Control Aveda launches Pure-Fume Brilliant Extensions: Pure-Fume Brilliant Shampoo. high performance fibers never before used in the cosmetics industry .......... --.. conditioners and hair gels) and five body products (including shower gel and body hydrators) . Hair Gel.. .... body care lines with the addition of seven face care products... .. ... ....- Aveda's Elixer is chosen as Allure's Editors' Choice for Best Conditioner 1999 MAC opens its fITst door in New Zealand at Smith & Caughey in Auckland MAC introduces additional hair products . ... Anti-Perspirant.. Clinique launches its first anti-aging product .... . .. .... .. ... Shave Cream. .... Estee Lauder introduces ReNutriv Intensive Lifting Body Creme . an emollient-based color product that can be used on cheeks.. 'W . . Pure':'Fume Brilliant Retexturing Gel and Pure-Fume Brilliant Thermal Styling Creme Aveda introduces a Men's Line: Shampoo Body Bar..... Hair Gloss.... . seven hair care products (including the introduction of shampoos. Clarifying Shampoo MAC launches 5 Sins of Lipglass.

luxurious hydrating spray Clinique's All About Eyes is awarded "Best Skin Care 'Product in Limited Distribution" by Cosmetic Executive Women (CEW) Clinique Happy is awarded the American Marketing Association's "Edison Best New Products Award" as one of the best new products of 1998 in the Women's Fragrance Category Origins expands its strategy of creating a General Store by introducing two products designed for the home. as well as shop on-line Origins unveils its newest concept for total well-being at the NorthPark Center in Dallas. Isetan on Scotts Road Estee Lauder launches Pure Color Nail Lacquer in international markets . a Tea Room and outdoor Garden in the same location Origins opens its first freestanding stores in Brighton. shopping experience that also features a Feel-Good Spa with a unique spa-experience called "100 Minutes of Pure Heaven".600 square foot. Beach Blanket SPF 15 with no chemical sunscreen and Cover Your Mouth Lip protector with SPF 8 Origins introduces Origins For the Bath. Taiwan Origins opens the Singapore market at one of the country's premier retailers. England and Tienmu. The key product in the line is Bare Hugs Baby massage cream Origins introduces As Good As It Gets Foundation/concealer/finishing powder in one Origins launches two new sun products. a lightly fragranced. child-safe essential oils to soothe and comfort babies. The new flagship store is a 2. ' multi-dimensional. Texas.that absorb sebum and draw excess moisture away from skin for immediate evaporation Clinique Happy Fragrance expands with the introduction of Happy Hydrating Mist. a line of 36 bath and body products that deal with emotional as well as physical well-being Origins launches its own Website with interactive activities designed to cope with and reduce stress. Knock on Wood Wood Therapy cream and Cleaning Service Nature's Household Cleaner Origins launches its Baby line with seven products formulated with calming.

Estee Lauder introduces Swiss Whitening Protectective Foundation With Advanced Whitening Formula SPF 15+. Border Line Eye Pencil.the first luxuriously comfortable. Front Row Nail Polish and Get Lost Makeup Remover Tommy Hilfiger Freedom for her and Freedom for him fragrances are launched Bobbi Brown introduces baby essentials with 5 pampering and gently formulated products for babies Estee Lauder Companies creates a new division. All Talk Lip Crayon. Retro Liner Liquid Eyeliner. Double Feature wet/dry Eye Color. transfer-resistant lipstick in the preferred traditional bullet form Prescriptives introduces Super Line Preventor. The Body Serum and The Body Lotion Tommy Hilfiger Toiletries introduces Tommy Hilfiger Color. ELC Online. Under the agreement. smart stress-sensitive skin care Prescriptives introduces Vibrant Instant Eye Brightener for Dark Circles and Puffmess Estee Lauder launches Perfectly Clean Cleansers Estee Lauder launches Unline Total E yecare Estee Lauder launches dazzling touch-on perfume sticks La Mer introduces The Face Mist. markets Prescriptives introduces Potent . The Estee Lauder Companies acquires Jo Malone Limited The Estee Lauder Companies signs a licensing agreement with Kate Spade LLC. . in Asian . Glow For It Cheek Color. The Eye Balm. Big Deal Volumizing Lash Color. Fast Talk Lip Shine. responsible for all online strategies and activities for all brands in Spring 1999 The Estee Lauder Companies acquires Stila Cosmetics Inc. a wet/dry foundation. owner of the Kate Spade trademark. a comprehensive color cosmetics line (186 sku's) that includes: Fresh Talk Conditioning Lip Color. Small Talk Lip Pencil.

swivel-up foundation stick that does double-duty as a concealer Clinique Happy is honored by Marie Claire in the magazine's Fashion and Beauty Awards as "Best Fragrance" Clinique launches Longstemmed Lashes. Clinique takes home the most Readers' Choice Awards for the "Best of Beauty" As a way to reach new customers and better service current customers.Prescriptives Inc. Liquid Powder. cosmetics. toiletries and beauty-related accessories Clinique launches in Poland Clinique launches City Stick SPF 15 . antibacterial and anti-irritation action and oil control . including fragrances. Virginia . The products work synergistically to gently provide four crucial anti-acne benefits: exfoliation. obtains exclusive worldwide rights to the Kate Spade trademark and related trademarks for the manufacture. Allure's October issue spotlights the "Best of Beauty" with 122 beauty products chosen by the magazine's editors and readers. a unique men's fragrance that takes freshness beyond the initial impression Clinique launches Acne Solutions. Cooling Wand and Invisible Line Smoother Estee Lauder introduces Spotlight Skin Tone Perfector Estee Lauder opens full-service state-of-the-art day spa at Bloomingdale's. an innovative lengthening mascara that applies the latest in hair technology to the lashes Clinique introduces Happy for Men. skin care products. a super-efficacious system of medicated over-the-counter anti -acne products. Tysons Comer.. For the fourth consecutive year. Illuminating Cream Potion. distribution and sale of beauty and beauty-related products. Lab Series introduces Frequent Flier Daily Face Lotion Prescriptives introduces *magic by Prescriptives . marketing. Cooling Globe..S.a versatile. Clinique opens six open-service "Kiosks" in malls throughout the U. The collection includes illuminating Liquid Potion.a collection of first-oftheir kind products that manipulate light and shadow and obscure imperfections to create the illusion of flawless skin.

Seoul. Stockholm. seven products to help combat sleep depri vation . hair and body care lines by adding Tommy's Lip Calm. Luscious Jackson. Sweden.six flavored lipsticks "tommy's shops" further expands the face.five lipsticks named after current recording artists: Dido. Kuwait City. Copenhagen. These scents have a very high concentration of perfume in an oil base MAC continues to expand internationally.Estee Lauder Resilience Lift Creme recognized as one often healthiest beauty products for 1999 by Health Magazine Estee Lauder extends its Resilience Lift Franchise with the launch of Resilience Lift Eye Cream Estee Lauder extends its popular Re-Nutriv Line with Re-Nutriv Intensive Lifting Creme Estee Lauder introduces Airiness Long Last Makeup in Asia Elizabeth Hurley appears as part of the 25 th Anniversary Celebration of the the brand in Greece Estee Lauder continues the success of its Solid Perfume Compact Museum exhibitions in Italy. Vitamin C. Denmark.musically named lipstick wall of 100 shades launched in the Pacific Northwest. Includes 'Tommy's Top Five' . Argentina. Tri Gel Extra Shave Formula Tommy Hilfiger Color introduces 'Tommy's Top 100' . Buenos Aires. Mya and Kendall Payne Tommy Hilfiger Color launches 'Sweet Stix' . Mexico. Synthetic Nirvana and Asphalt Flower potions. Razor Bum Relief Plus. six new hair products. Spain and Austrailia Lab Series for Men introduces four products (two new formulas) to the Lab Series Shave Series: Mega Foam Shave Formula. eight new flavored shower gels. Amsterdam. Close Call Shave Solution. Kuwait Origins continues to offer alternative solutions to everyday problems by introducing Sensory Therapy Sleep. Korea. The Netherlands. eight flavored moisturizing body creams and eight flavored bath fizz balls MAC introduces the Essences of MAC: Hyper Souk. entering several new markets: Mexico City.

opening a store-within-a-store in Isetan Kuala Lumpur in Malaysia Talk show host Oprah Winfrey declares Origins Ginger Souffle Whipped Body Cream one of her "favorite" products on her annual holiday gift show... ....... ...... ... ... as part of the strategy...... -- . four botanically-based products to help relieve symptoms associated with a cold.......... ..... Salt Butter Skin Softening Bath Soak and Ginger Body Scrub Smoothing Body Buffer 1iW ..... ..-.... ~ ... Sales of the product increase 10000/0 in the weeks following the mention ..... . "Ir Origins further expands the Sensory Therapy category launching a line of Cold Care products... . flu or allergies .. England Origins expands into Northern Europe and opens a store-within-a-store in NK department store in Stockholm...-- Origins opens a freestanding store in Bath.. . A veda launches Rosemary Mint Shampoo .. ..... Origins expands in Asia... Bobbi Brown launches in Spain at El Corte Ingles in Barcelona .. W' Origins expands the successful Salt Rub franchise and introduces Salt Suds Foaming Body Wash.. Lauder remains Chairman Estee Lauder Companies signs a licensing agreement with Toni Gard Fashion GmbH... Estee Lauder Companies Leonard A.. Langhammer assumes position of Chief Executive Officer...com Aramis introduces Surface . A veda launches Shampure Conditioner Aveda launches Tourmaline Charged Hydrating Creme ~ .. . Aveda's Lip Saver wins Allure's Editors' Choice for Best Lip Balm Health Magazine chooses All-Sensitive Shampoo... Fred H. . Estee Lauder Companies acquires gloss... ...as Healthiest Shampoo 2000 On January 1.. .. Sweden . '-" . . ... .. . owner of the Toni Gard trademark The Estee Lauder Companies announces a comprehensive Internet strategy..a new collection of seven grooming products for men that work In-An-Instant ..

a new fragrance available in the United States . ..... Estee Lauder extends its Futurist franchise with the launch of Futurist Full Treatment Eye Makeup and Futurist Lash-Extending Mascara ...S... Estee Lauder unveils Idealist w ... . Neiman Marcus and Holt Renfrew Bobbi Brown launches in the Middle East th ... Russia and Athens. '- .. . .. . ... ... flagship store in New York City's Flatiron Building DKNY For Men launches in all international markets Creme de la Mer launches in Benelux. .. ~ a first of its kind non-acid skin refmisher Estee Lauder introduces the WhiteLight Brightening System in Asia ... .. 'tIr .. So 2001 MAC opens its first locations in Moscow.a five-product collection which combines skin care benefits with aromachology .. So Moist and So Clean .... th Estee Lauder celebrates Beautiful's 15 Anniversary with three new body products and new print and television advertisements . Estee Lauder makes its first foray into the European body line market with Body Power . Estee Lauder introduces three new fonnulas in the mask category Polished....... Estee Lauder launches Go Pout Lipcolor .......... .ten new shades offering dimensional color in a blue enamel case .... .......... Jo Malone opens U..... ...... a skin care collection in Bergdorf Goodman... . ... . European and American Research & Development . Greece Bobbi Brown launches Extra. . Nordic and Argentina Prescriptives launches Luxe Soft Glow Moisture Makeup in all international markets . --. . .......a five-product line created by a collaboration between Asian...... Bobbi Brown celebrates the 10 anniversary of her business ~ Jo Malone introduces Red Roses..

eyes and cheeks. United State Balancing Tonic and Balanced Diet Lightweight moisture cream - Origins initiates phase II of the re-launch of its color collection with 42 new shades for lips. as well as ten new blush shades and 22 new eyeshadow shades (7) . The Century City location is the largest Origins store in the world and boasts a Zen Garden Origins updates its skin care collection with five new products for all skin types: Grin from Year to Year Brightening face firmer. Calm Balm Sensitive skin eye cream. Look Alive Vitality moisture cream. Checks and Balances Frothy face wash.Origins adds two key retail stores: one in the historic Flatiron Building in New York City and another in Century City. California. The second phase introduces Liquid Lip Color (nine shades) and Transforming Lip Glaze.

Inc.Appendix B (5) Charities • The Breast Cancer Foundation • The Coalition for the Homeless' First Step Job Readiness Program (which in 1997. for their corporate philanthropy) • New York Cares • Pencil.1999 and 2001 honored The Estee Lauder Companies Inc. • Materials for the Arts • American Cancer Society • March of Dimes • City of Hope • Lighthouse International • Mount Sinai Medical Center • Memorial Sloan-Kettering Cancer Center • The Momentum AIDS Project • Kips Bay Boys & Girls Club • Girl Scout Counsel of Greater New York • The Museum of Modem Art • Whitney Museum of American Art • American Museum of Natural History .

many others .• The Metropolitan Museum of Art • Natural Resources Defense Council • Central Park Conservancy • Citymeals-on-Wheels • New York City Outward Bound Center • Action Against Hunger • The University of Pennsylvania • OHEL Children's Homes and Family Services • Fresh Air Fund • Institute of International Education • Scholarship Fund • Vassar College • Parsons School of Design • Versailles Foundation (for Monet's gardens) • Many.