UNITED STATES

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, 2008

OR

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from to

		Commission file number: 1-14064

The Estée Lauder Companies Inc.

(Exact name of registrant as specified in its charter)

Delaware		11-2408943
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

767 Fifth Avenue, New York, New York		10153
(Address of principal executive offices)		(Zip Code)

212-572-4200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

At October 22, 2008, 118,304,468 shares of the registrant’s Class A Common Stock, $.01 par value, and 78,067,261 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.

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THE ESTÉE LAUDER COMPANIES INC.

INDEX

	Page

Part I. Financial Information

Item 1. Financial Statements

Consolidated Statements of Earnings — Three Months Ended September 30, 2008 and 2007	2

Consolidated Balance Sheets — September 30, 2008 and June 30, 2008	3

Consolidated Statements of Cash Flows — Three Months Ended September 30, 2008 and 2007	4

Notes to Consolidated Financial Statements	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3. Quantitative and Qualitative Disclosures About Market Risk	29

Item 4. Controls and Procedures	29

Part II. Other Information

Item 1. Legal Proceedings	30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 6. Exhibits	31

Signatures	32

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended September 30
	2008		2007
	(In millions, except per share data)

Net Sales	$	1,903.5	$	1,710.1
Cost of sales	500.1		455.8

Gross Profit	1,403.4		1,254.3

Operating expenses:
Selling, general and administrative	1,310.8		1,176.1
Special charges related to cost savings initiative	0.1		0.3
	1,310.9		1,176.4

Operating Income	92.5		77.9

Interest expense, net	15.3		18.4

Earnings before Income Taxes and Minority Interest	77.2		59.5

Provision for income taxes	27.6		21.1
Minority interest, net of tax	1.5		0.7
Net Earnings	$	51.1	$	39.1

Net earnings per common share:
Basic	$	.26	$	.20
Diluted	.26		.20

Weighted-average common shares outstanding:
Basic	195.3		194.0
Diluted	198.8		197.2

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS

	September 30			June 30
	2008			2008
	(Unaudited)
	($ in millions)
ASSETS
Current Assets
Cash and cash equivalents	$	328.8		$	401.7
Accounts receivable, net	1,164.9			1,038.8
Inventory and promotional merchandise, net	1,048.4			987.2
Prepaid expenses and other current assets	364.1			359.5
Total current assets	2,906.2			2,787.2

Property, Plant and Equipment, net	1,042.6			1,043.1

Other Assets
Investments, at cost or market value	22.5			24.1
Goodwill and other intangible assets, net	944.5			900.8
Other assets, net	265.9			256.0
Total other assets	1,232.9			1,180.9
Total assets	$	5,181.7		$	5,011.2

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Short-term debt	$	349.9		$	118.7
Accounts payable	331.5			361.7
Accrued income taxes	101.2			151.2
Other accrued liabilities	1,041.5			1,067.6
Total current liabilities	1,824.1			1,699.2

Noncurrent Liabilities
Long-term debt	1,082.0			1,078.2
Other noncurrent liabilities	536.1			554.0
Total noncurrent liabilities	1,618.1			1,632.2

Minority Interest	23.1			26.6

Stockholders’ Equity
Common stock, $.01 par value; 650,000,000 shares Class A authorized; shares issued: 183,452,573 at September 30, 2008 and 180,754,534 at June 30, 2008; 240,000,000 shares Class B authorized; shares issued and outstanding: 78,067,261 at September 30, 2008 and June 30, 2008	2.6			2.6
Paid-in capital	1,118.3			979.0
Retained earnings	3,136.2			3,085.1
Accumulated other comprehensive income	40.3			110.8
	4,297.4			4,177.5
Less: Treasury stock, at cost; 65,148,305 Class A shares at September 30, 2008 and 63,914,699 Class A shares at June 30, 2008	(2,581.0		)	(2,524.3		)
Total stockholders’ equity	1,716.4			1,653.2
Total liabilities and stockholders’ equity	$	5,181.7		$	5,011.2

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended September 30
	2008			2007
	(In millions)

Cash Flows from Operating Activities
Net earnings	$	51.1		$	39.1
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	62.6			59.0
Deferred income taxes	(7.1		)	(6.4		)
Minority interest, net of tax	(1.5		)	(0.7		)
Non-cash stock-based compensation	22.6			18.9
Excess tax benefits from stock-based compensation arrangements	(1.4		)	—
Loss on disposal of fixed assets	4.0			2.4
Other non-cash items	0.8			0.2
Changes in operating assets and liabilities:
Increase in accounts receivable, net	(177.6		)	(174.6		)
Increase in inventory and promotional merchandise, net	(96.8		)	(84.9		)
Increase in other assets, net	(23.0		)	(12.1		)
Decrease in accounts payable	(18.6		)	(11.5		)
Decrease in accrued income taxes	(25.2		)	(11.5		)
Increase in other liabilities	13.9			49.3
Net cash flows used for operating activities	(196.2		)	(132.8		)

Cash Flows from Investing Activities
Capital expenditures	(75.9		)	(78.5		)
Acquisition of businesses and other intangible assets, net of cash acquired	(63.5		)	(116.4		)
Proceeds from the disposition of long-term investments	0.9			—
Purchases of long-term investments	(0.4		)	(0.4		)
Net cash flows used for investing activities	(138.9		)	(195.3		)

Cash Flows from Financing Activities
Increase in short-term debt, net	220.3			335.5
Repayments and redemptions of long-term debt	(3.1		)	(1.3		)
Net proceeds from stock-based compensation transactions	109.3			2.7
Excess tax benefits from stock-based compensation arrangements	1.4			—
Payments to acquire treasury stock	(57.0		)	(54.4		)
Dividends paid to stockholders	(0.1		)	—
Net cash flows provided by financing activities	270.8			282.5

Effect of Exchange Rate Changes on Cash and Cash Equivalents	(8.6		)	3.3

Net Decrease in Cash and Cash Equivalents	(72.9		)	(42.3		)
Cash and Cash Equivalents at Beginning of Period	401.7			253.7
Cash and Cash Equivalents at End of Period	$	328.8		$	211.4

See notes to consolidated financial statements.

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THE ESTÉE 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 Estée 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 U.S. generally accepted accounting principles (“GAAP”) 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 GAAP for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation are of a normal and recurring nature and have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008.

Certain amounts in the consolidated financial statements of prior periods have been reclassified to conform to current period presentation for comparative purposes.

Management Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Actual results could differ from those estimates and assumptions. The Company’s most significant accounting policies relate to revenue recognition, concentration of credit risk, inventory, pension and other post-retirement benefit costs, goodwill and other intangible assets, income taxes and derivatives. Descriptions of these policies are discussed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008.

Currency Translation and Transactions

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at weighted average rates of exchange for the period. Unrealized translation gains or losses are reported as cumulative translation adjustments through other comprehensive income. Such adjustments amounted to $84.0 million of unrealized translation losses and $30.7 million of unrealized translation gains during the three months ended September 30, 2008 and 2007, respectively. The accompanying consolidated statements of earnings include net exchange (losses) gains on foreign currency transactions of $(19.9) million and $1.0 million during the three months ended September 30, 2008 and 2007, respectively.

Accounts Receivable

Accounts receivable is stated net of the allowance for doubtful accounts and customer deductions of $30.9 million and $26.3 million as of September 30, 2008 and June 30, 2008, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 fair-market value, with cost being determined on the first-in, first-out method. Cost components include raw materials, componentry, direct labor and overhead (e.g., indirect labor, utilities, depreciation, purchasing, receiving, inspection and warehousing) as well as inbound freight. Promotional merchandise is charged to expense at the time the merchandise is shipped to the Company’s customers. Included in inventory and promotional merchandise is an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated realizable value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends and requirements to support forecasted sales. In addition, and as necessary, specific reserves for future known or anticipated events may be established.

	September 30		June 30
	2008		2008
	(Unaudited)
	(In millions)
Inventory and promotional merchandise, net consists of:
Raw materials	$	212.7	$	205.4
Work in process	47.7		56.8
Finished goods	561.4		494.7
Promotional merchandise	226.6		230.3
	$	1,048.4	$	987.2

Property, Plant and Equipment

Property, plant and equipment, including leasehold and other improvements that extend an asset’s useful life or productive capabilities, are carried at cost less accumulated depreciation and amortization. The cost of assets related to projects in progress of $137.4 million and $129.0 million as of September 30, 2008 and June 30, 2008, respectively, is included in their respective asset categories in the table below. For financial statement purposes, depreciation is provided principally on the straight-line method over the estimated useful lives of the assets. 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
	2008		2008
	(Unaudited)
	(In millions)
Assets (Useful Life)
Land	$	14.6	$	14.9
Buildings and improvements (10 to 40 years)	180.0		183.5
Machinery and equipment (3 to 10 years)	1,017.7		1,008.9
Furniture and fixtures (5 to 10 years)	93.4		95.6
Leasehold improvements	1,096.0		1,090.7
	2,401.7		2,393.6
Less accumulated depreciation and amortization	1,359.1		1,350.5
	$	1,042.6	$	1,043.1

Depreciation and amortization of property, plant and equipment was $59.3 million and $54.0 million during the three months ended September 30 , 2008 and 2007, respectively. Depreciation and amortization related to the Company’s manufacturing process is included in cost of sales and all other depreciation and amortization is included in selling, general and administrative expenses in the accompanying consolidated statements of earnings.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Other Intangible Assets

During the first quarter of fiscal 2009, the Company acquired Applied Genetics Incorporated Dermatics (“AGI”), a manufacturer of cosmetics ingredients (see Note 2). The Company also acquired businesses engaged in the wholesale distribution and retail sale of Aveda products. These activities resulted in an increase to goodwill and other intangible assets of $53.8 million as of September 30, 2008.

Income Taxes

As of September 30, 2008 and June 30, 2008, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $196.8 million and $199.0 million, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $115.3 million. The total interest and penalties accrued related to unrecognized tax benefits during the three months ended September 30, 2008 in the accompanying consolidated statement of earnings was $2.7 million. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at September 30, 2008 and June 30, 2008 was $55.6 million and $54.0 million, respectively. On the basis of the information available as of September 30, 2008, it is reasonably possible that a reduction in a range of $30 million to $60 million of unrecognized tax benefits may occur within 12 months as a result of projected resolutions of global tax examinations and controversies.

Recently Adopted Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”), to clarify the definition of fair value, establish a framework for measuring fair value and expand the disclosures on fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13.” This FSP amends SFAS No. 157 to exclude certain leasing transactions accounted for under previously existing accounting guidance. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination, regardless of whether those assets and liabilities are related to leases.

In February 2008, the FASB issued FSP No. FAS 157-2, “Effective Date for FASB Statement No. 157” (“FSP No. FAS 157-2”). This FSP permits the delayed application of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, as defined in this FSP, except for those that are recognized or disclosed at fair value in the financial statements at least annually, until the beginning of the Company’s fiscal 2010. As of July 1, 2008, the Company adopted SFAS No. 157 (see Note 4), with the exception of its application to nonfinancial assets and nonfinancial liabilities, which the Company will defer in accordance with FSP No. FAS 157-2. The Company is currently evaluating the impact of adopting SFAS No. 157 at the beginning of fiscal 2010 for such nonfinancial assets and nonfinancial liabilities on its consolidated financial statements.

In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP No. FAS 157-3”), which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application should be accounted for as a change in accounting estimate following the guidance in SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). However, the disclosure provisions in SFAS No. 154 for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. The Company adopted SFAS No. 157 beginning in its fiscal 2009 first quarter. As part of this adoption, the Company evaluated the fair value measurements of its financial assets and liabilities and determined that these instruments are valued in active markets. As such, the guidance in this FSP did not impact the Company’s consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), to permit all entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair value. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 became effective for the Company as of July 1, 2008. As the Company did not elect the fair value option for its financial instruments (other than those already measured at fair value in accordance with SFAS No. 157), the adoption of this standard did not have an impact on its consolidated financial statements.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”).
SFAS No. 141(R) replaces SFAS No. 141, “Business Combinations,” however, it retains the fundamental requirements of the former Statement that the acquisition method of accounting (previously referred to as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Among other requirements, SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at their acquisition-date fair values, with limited exceptions; acquisition-related costs generally will be expensed as incurred. SFAS No. 141(R)
requires certain financial statement disclosures to enable users to evaluate and understand the nature and financial effects of the business combination. SFAS No. 141(R) must be applied prospectively to business combinations that are consummated on or after July 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS No. 160”) to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Among other requirements, SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is to be reported as a separate component of equity in the consolidated financial statements. SFAS No. 160 also requires consolidated net income to include the amounts attributable to both the parent and the noncontrolling interest and to disclose those amounts on the face of the consolidated statement of income. SFAS No. 160 must be applied prospectively for fiscal years, and interim periods within those fiscal years, beginning in the Company’s fiscal 2010, except for the presentation and disclosure requirements, which will be applied retrospectively for all periods presented.

In December 2007, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue No. 07-1, “Collaborative Arrangements,” (“EITF No. 07-1”). This EITF addresses accounting for collaborative arrangement activities that are conducted without the creation of a separate legal entity for the arrangement. Revenues and costs incurred with third parties in connection with the collaborative arrangement should be presented gross or net by the collaborators pursuant to the guidance in EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and other applicable accounting literature. Payments to or from collaborators should be presented in the income statement based on the nature of the arrangement, the nature of the company’s business and whether the payments are within the scope of other accounting literature. Other detailed information related to the collaborative arrangement is also required to be disclosed. The requirements under this EITF must be applied to collaborative arrangements in existence at the beginning of the Company’s fiscal 2010 using a modified version of retrospective application. The Company is currently not a party to collaborative arrangement activities, as defined by EITF No. 07-1.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide qualitative disclosures about their objectives and strategies for using derivative instruments, quantitative disclosures of the fair values and gains and losses of these derivative instruments in a tabular format, as well as more information about liquidity by requiring disclosure of a derivative contract’s credit-risk-related contingent features. SFAS No. 161 also requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. The Company is currently evaluating the disclosure requirements of SFAS No. 161. The adoption of this disclosure-only standard will not have an impact on the Company’s consolidated financial results. SFAS No. 161 becomes effective for the March 2009 interim consolidated financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. FAS 142-3”). This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). This FSP also adds certain disclosures to those already prescribed in SFAS No. 142. FSP No. FAS 142-3 becomes effective for fiscal years, and interim periods within those fiscal years, beginning in the Company’s fiscal 2010. The guidance for determining useful lives must be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements must be applied prospectively to all intangible assets recognized as of the effective date.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions in this FSP. Early application of this FSP is prohibited. The Company does not issue share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents.

NOTE 2 – ACQUISITION OF BUSINESSES

During the first quarter of fiscal 2009, the Company acquired AGI, a manufacturer of cosmetics ingredients. The initial purchase price, paid at closing, was funded by cash provided by operations. In addition, the Company acquired businesses engaged in the wholesale distribution and retail sale of Aveda products.

The aggregate purchase price for these transactions, which includes acquisition costs, was $57.7 million at September 30, 2008. The results of operations for each of the acquired businesses are included in the accompanying consolidated financial statements commencing with its date of original acquisition. Pro forma results of operations as if each of such businesses had been acquired as of the beginning of the year of acquisition and as of the prior-year period have not been presented as the impact on the Company’s consolidated financial results would not have been material.

NOTE 3 – DEBT

During the first quarter of fiscal 2009, the Company issued additional commercial paper, which is being used for general corporate purposes. As of September 30, 2008 and June 30, 2008, outstanding commercial paper was $299.7 million and $83.9 million, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – FAIR VALUE MEASUREMENTS

The Company adopted the provisions of SFAS No. 157 for financial assets and liabilities as of July 1, 2008. The adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial statements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires the entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

SFAS No. 157 describes three levels of inputs that may be used to measure fair value:

Level 1:	Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2:	Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:	Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2008:

	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In millions)	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Foreign currency forward and option contracts	$	—	$	14.2	$	—	$	14.2
Interest rate swap contracts	—		14.1		—		14.1
Available-for-sale securities	14.7		—		—		14.7
Total	14.7		28.3		—		43.0

Liabilities:
Foreign currency forward contracts	$	—	$	3.8	$	—	$	3.8

Foreign Currency Forward and Option Contracts - The fair values of the Company’s foreign currency forward and option contracts were valued using pricing models, with all significant inputs derived from or corroborated by observable market data such as yield curves, currency spot and forward rates and currency volatilities.

Interest Rate Swap Contracts - The fair values of the Company’s outstanding interest rate swap contracts were determined based on non-binding offers from the counterparties that are corroborated by observable market data.

Available-For-Sale Securities - Available-for-sale securities are generally comprised of mutual funds and are valued using quoted market prices on an active exchange.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – PENSION AND POST-RETIREMENT BENEFIT PLANS

The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. The Company also maintains a domestic post-retirement benefit plan which provides certain medical and dental benefits to eligible employees. Descriptions of these plans are discussed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008.

The components of net periodic benefit cost for the three months ended September 30, 2008 and 2007 consisted of the following:

													Other than
	Pension Plans												Pension Plans
	U.S.						International						Post-retirement
(Unaudited) (In millions)	2008			2007			2008			2007			2008		2007

Service cost	$	5.2		$	4.9		$	4.4		$	3.9		$	1.0	$	1.0
Interest cost	7.0			6.6			5.1			3.5			1.8		1.6
Expected return on plan assets	(8.3		)	(7.9		)	(5.3		)	(3.6		)	—		—
Amortization of:
Prior service cost	0.2			0.2			0.7			0.1			—		—
Actuarial loss	0.4			0.4			0.2			1.5			—		0.1
Net periodic benefit cost	$	4.5		$	4.2		$	5.1		$	5.4		$	2.8	$	2.7

The Company previously disclosed in its consolidated financial statements for the fiscal year ended June 30, 2008 that it expected to make cash contributions totaling approximately $15 million to its trust based, noncontributory qualified defined benefit pension plan (“U.S. Qualified Plan”) and approximately $46 million to its international defined benefit pension plans during the fiscal year ending June 30, 2009. During the first quarter of fiscal 2009, the Company made a discretionary contribution to the U.S. Qualified Plan of $5.0 million and does not currently anticipate further discretionary contributions for the remainder of the fiscal year. In addition, as of September 30, 2008, the expected contributions to the international defined benefit pension plans are currently anticipated to be approximately $44 million for the fiscal year ending June 30, 2009.

NOTE 6 – COMMON STOCK

During the three months ended September 30, 2008, the Company purchased approximately 1.2 million shares of its Class A Common Stock for $57.0 million.

NOTE 7 – STOCK PROGRAMS

As of September 30, 2008, the Company has three active equity compensation plans which include the Amended and Restated Fiscal 2002 Share Incentive Plan, the Fiscal 1999 Share Incentive Plan and the Non-Employee Director Share Incentive Plan (collectively, the “Plans”). These Plans currently provide for the issuance of 33,194,400 shares, which consist of shares originally provided for and shares transferred to the Plans from a previous plan and employment agreement, to be granted in the form of stock-based awards to key employees, consultants and non-employee directors of the Company. As of September 30, 2008, approximately 4,052,100 shares of Class A Common Stock were reserved and available to be granted pursuant to these Plans. The Company may satisfy the obligation of its stock-based compensation awards with either new or treasury shares. The Company’s stock compensation awards outstanding at September 30, 2008 include stock options, performance share units (“PSU”), restricted stock units (“RSU”) and share units.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of, stock options, PSUs, RSUs and share units. Compensation expense attributable to net stock-based compensation during the three months ended September 30, 2008 and 2007 was $22.6 million and $18.9 million, respectively. As of September 30, 2008, the total unrecognized compensation cost related to nonvested stock-based awards was $72.1 million and the related weighted-average period over which it is expected to be recognized is approximately 2.2 years.

Stock Options

A summary of the Company’s stock option programs as of September 30, 2008 and changes during the three months then ended, is presented below:

(Unaudited) (Shares in thousands)	Shares		Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value (1) (in millions)		Weighted- Average Contractual Life Remaining in Years

Outstanding at June 30, 2008	20,307.2		$	42.53
Granted at fair value	1,745.4		52.83
Exercised	(2,626.7	)	41.69
Expired	(28.5	)	46.54
Forfeited	(17.2	)	41.22
Outstanding at September 30, 2008	19,380.2		43.57		$	138.6	4.5

Exercisable at September 30, 2008	14,593.9		43.08		$	110.2	3.0

(1) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The exercise period for all stock options generally may not exceed ten years from the date of grant. Stock option grants to individuals generally become exercisable in three substantively equal tranches over a service period of up to four years. The Company attributes the value of option awards on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The per-share weighted-average grant date fair value of stock options granted during the three months ended September 30, 2008 and 2007 was $17.47 and $14.34, respectively. The total intrinsic value of stock options exercised during the three months ended September 30, 2008 and 2007 was $24.7 million and $0.7 million, respectively.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended September 30
(Unaudited)	2008	2007
Weighted-average expected stock-price volatility	28%	24%
Weighted-average expected option life	8 years	8 years
Average risk-free interest rate	3.4%	4.5%
Average dividend yield	1.2%	1.2%

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Performance Share Units

During the three months ended September 30, 2008, the Company granted 131,000 PSUs, which will be settled in stock subject to the achievement of the Company’s net sales and net earnings per share goals for the three years ending June 30, 2011 and subject to the continued employment of the grantees. Settlement will be made pursuant to a range of opportunities relative to the net sales and diluted net earnings per common share targets of the Company and, as such, the compensation cost of the PSU is subject to adjustment based upon the attainability of these target goals. No settlement will occur for results below the applicable minimum threshold and additional shares shall be issued if performance exceeds the targeted performance goals. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSU. These awards are subject to the provisions of the agreement under which the PSUs are granted. The PSUs were valued at the closing market value of the Company’s Class A Common Stock on the date of grant and generally vest at the end of the performance period. In September 2008, 78,400 shares of the Company’s Class A Common Stock were issued and related accrued dividends were paid, relative to the target goals set at the time of issuance, in settlement of 96,600 PSUs which vested as of June 30, 2008.

The following is a summary of the status of the Company’s PSUs as of September 30, 2008 and activity during the three months then ended:

		Weighted-Average
		Grant Date
(Unaudited) (Shares in thousands)	Shares	Fair Value Per Share
Nonvested at June 30, 2008	189.3	$	41.05
Granted	131.0	52.83
Vested	—	—
Forfeited	—	—
Nonvested at September 30, 2008	320.3	45.87

Restricted Stock Units

The Company granted approximately 617,200 RSUs during the three months ended September 30, 2008. At the time of grant, 343,500 were scheduled to vest on November 2, 2009, 178,700 on November 1, 2010 and 95,000 on October 31, 2011, all subject to the continued employment or retirement of the grantees. Certain RSUs granted in fiscal 2009 are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the RSU and, as such, were valued at the closing market value of the Company’s Class A Common Stock on the date of grant. Other RSUs granted in fiscal 2009 are not accompanied by dividend equivalent rights and, as such, were valued at the closing market value of the Company’s Class A Common Stock on the date of grant less the discounted present value of the dividends expected to be paid on the shares during the vesting period.

The following is a summary of the status of the Company’s RSUs as of September 30, 2008 and activity during the three months then ended:

			Weighted-Average
			Grant Date
(Unaudited) (Shares in thousands)	Shares		Fair Value Per Share
Nonvested at June 30, 2008	814.0		$	40.85
Granted	617.2		52.40
Vested	—		—
Forfeited	(10.9	)	40.94
Nonvested at September 30, 2008	1,420.3		45.87

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share Units

The Company grants share units to certain non-employee directors under the Non-Employee Director Share Incentive Plan. The share units are convertible into shares of Class A Common Stock as provided for in that plan. Share units are accompanied by dividend equivalent rights that are converted to additional share units when such dividends are declared. The following is a summary of the status of the Company’s share units as of September 30, 2008 and activity during the three months then ended:

		Weighted-Average
		Grant Date
(Unaudited) (Shares in thousands)	Shares	Fair Value Per Share
Outstanding at June 30, 2008	18.1	$	39.21
Granted	—	—
Dividend equivalents	—	—
Converted	—	—
Outstanding at September 30, 2008	18.1	39.21

Cash Units

Certain non-employee directors defer cash compensation in the form of cash payout share units, which are not subject to the Plans. These share units are classified as liabilities and, as such, their fair value is adjusted to reflect the current market value of the Company’s Class A Common Stock. The Company recorded $0.3 million and $0.1 million as compensation expense to reflect additional deferrals and the change in the market value for the three months ended September 30, 2008 and 2007, respectively.

NOTE 8 – NET EARNINGS PER COMMON SHARE

Net earnings per common share (“basic EPS”) is computed by dividing net earnings 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 stock-based awards.

A reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:

	Three Months Ended September 30
	2008		2007
	(Unaudited)
	(In millions, except per share data)
Numerator:
Net earnings	$	51.1	$	39.1

Denominator:
Weighted-average common shares outstanding – Basic	195.3		194.0
Effect of dilutive stock options	2.9		2.7
Effect of restricted stock units	0.6		0.5
Weighted-average common shares outstanding – Diluted	198.8		197.2

Net earnings per common share:
Basic	$	.26	$	.20
Diluted	.26		.20

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2008 and 2007, outstanding options to purchase 7.4 million and 10.1 million shares, respectively, of Class A Common Stock were not included in the computation of diluted EPS because their inclusion would be anti-dilutive. As of September 30, 2008 and 2007, 0.3 million of PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 7.

NOTE 9 – COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (“OCI”) included in the accompanying consolidated balance sheets consist of net unrealized investment gain (loss), net gain (loss) on derivative instruments designated and qualifying as cash-flow hedging instruments, net actuarial gain (loss) and prior service costs or credits associated with pension and other post-retirement benefits, and cumulative translation adjustments as of the end of each period.

Comprehensive income (loss) and its components, net of tax, are as follows:

	Three Months Ended September 30
	2008			2007
	(Unaudited)
	(In millions)
Net earnings	$	51.1		$	39.1
Other comprehensive income (loss):
Net unrealized investment gain (loss)	(0.1		)	(0.2		)
Net derivative instruments gain (loss)	8.7			(0.9		)
Amounts included in net periodic benefit cost, net	4.9			1.3
Translation adjustments	(84.0		)	30.7

Other comprehensive income (loss)	(70.5		)	30.9

Comprehensive income (loss)	$	(19.4	)	$	70.0

The accumulated net gain (loss) on derivative instruments consists of the following:

	Three Months Ended September 30
	2008			2007
	(Unaudited)
	(In millions)
OCI-derivative instruments, beginning of period	$	7.9		$	8.2
Gain (loss) on derivative instruments	13.1			(1.4		)
Reclassification to earnings of net (gain) loss during the period	0.3			—
Adjustment for deferred income taxes	(4.7		)	0.5

Net derivative instruments gain (loss)	8.7			(0.9		)

OCI-derivative instruments, end of period	$	16.6		$	7.3

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Of the $16.6 million, net of tax, derivative instrument gain recorded in OCI at September 30, 2008, $8.9 million, net of tax, related to the October 2003 gain from the settlement of the treasury lock agreements upon the issuance of the Company’s 5.75% Senior Notes due October 2033, which will be reclassified to earnings as an offset to interest expense over the life of the debt. Also included in the net derivative instrument gain recorded in OCI was $8.3 million in gains, net of tax, related to foreign currency forward and option contracts, which the Company will reclassify to earnings during the next nine months. Partially offsetting these gains was $0.6 million, net of tax, related to a loss from the settlement of a series of forward-starting interest rate swap agreements upon the issuance of the Company’s 6.00% Senior Notes due May 2037, which will be reclassified to earnings as an addition to interest expense over the life of the debt.

At the end of the prior period, the $7.3 million, net of tax, derivative instrument gain recorded in OCI included $9.0 million, net of tax, related to the October 2003 gain from the settlement of the treasury lock agreements upon the issuance of the Company’s 5.75% Senior Notes due October 2033, which will be reclassified to earnings as an offset to interest expense over the life of the debt. Partially offsetting this gain was $0.6 million, net of tax, related to a loss from the settlement of a series of forward-starting interest rate swap agreements upon the issuance of the Company’s 6.00% Senior Notes due May 2037, which will be reclassified to earnings as an addition to interest expense over the life of the debt. Also partially offsetting the net derivative instrument gain recorded in OCI was $1.1 million in losses, net of tax, related to foreign currency forward contracts, which were subsequently reclassified to earnings.

NOTE 10 – STATEMENT OF CASH FLOWS

Supplemental cash flow information for the three months ended September 30, 2008 and 2007 were as follows:

	2008			2007
	(Unaudited)
	(In millions)
Cash
Cash paid during the period for interest	$	11.9		$	10.9
Cash paid during the period for income taxes	$	59.8		$	38.1

Non-cash investing and financing activities
Long-term debt issued upon acquisition of business	$	—		$	23.8
Liabilities incurred for acquisitions	$	1.4		$	3.6
Incremental tax benefit from the exercise of stock options	$	(7.8	)	$	(0.2	)
Capital lease obligations incurred	$	14.0		$	0.2
Interest rate swap derivative mark to market	$	3.3		$	9.0

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – 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 does business in one operating 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, minority interest and net interest expense. The accounting policies for the Company’s reportable segment are substantially the same as those for the consolidated financial statements, as described in the segment data and related information footnote included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008. 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 the Company’s segment data since June 30, 2008.

	Three Months Ended September 30
	2008			2007
	(Unaudited) (In millions)
PRODUCT CATEGORY DATA
Net Sales:
Skin Care	$	716.8		$	619.5
Makeup	742.9			663.1
Fragrance	327.8			313.0
Hair Care	98.8			102.6
Other	17.2			11.9
	$	1,903.5		$	1,710.1
Operating Income (Loss):
Skin Care	$	43.5		$	35.8
Makeup	54.4			41.1
Fragrance	(5.5		)	(5.0		)
Hair Care	(1.0		)	7.4
Other	1.2			(1.1		)
Special charges related to cost savings initiative	(0.1		)	(0.3		)
	92.5			77.9
Reconciliation:
Interest expense, net	15.3			18.4
Earnings before income taxes and minority interest	$	77.2		$	59.5

GEOGRAPHIC DATA
Net Sales:
The Americas	$	939.0		$	898.9
Europe, the Middle East & Africa	641.5			551.2
Asia/Pacific	323.0			260.0
	$	1,903.5		$	1,710.1
Operating Income (Loss):
The Americas	$	56.5		$	52.4
Europe, the Middle East & Africa	7.6			9.0
Asia/Pacific	28.5			16.8
Special charges related to cost savings initiative	(0.1		)	(0.3		)
	$	92.5		$	77.9

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THE ESTÉE LAUDER COMPANIES INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories which are distributed in over 140 countries and territories. The following is a comparative summary of operating results for the three months ended September 30, 2008 and 2007, and reflects the basis of presentation described in Note 1 of Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies 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
	2008			2007
	(In millions)
NET SALES
By Region:
The Americas	$	939.0		$	898.9
Europe, the Middle East & Africa	641.5			551.2
Asia/Pacific	323.0			260.0
	$	1,903.5		$	1,710.1

By Product Category:
Skin Care	$	716.8		$	619.5
Makeup	742.9			663.1
Fragrance	327.8			313.0
Hair Care	98.8			102.6
Other	17.2			11.9
	$	1,903.5		$	1,710.1
OPERATING INCOME (LOSS)
By Region:
The Americas	$	56.5		$	52.4
Europe, the Middle East & Africa	7.6			9.0
Asia/Pacific	28.5			16.8
Special charges related to cost savings initiative	(0.1		)	(0.3		)
	$	92.5		$	77.9

By Product Category:
Skin Care	$	43.5		$	35.8
Makeup	54.4			41.1
Fragrance	(5.5		)	(5.0		)
Hair Care	(1.0		)	7.4
Other	1.2			(1.1		)
Special charges related to cost savings initiative	(0.1		)	(0.3		)
	$	92.5		$	77.9

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THE ESTÉE LAUDER COMPANIES INC.

The following table presents certain consolidated earnings data as a percentage of net sales:

	Three Months Ended September 30
	2008		2007

Net sales	100.0	%	100.0	%
Cost of sales	26.3		26.7
Gross profit	73.7		73.3

Operating expenses:
Selling, general and administrative	68.9		68.8
Special charges related to cost savings initiative	—		—
	68.9		68.8

Operating income	4.8		4.5
Interest expense, net	0.8		1.0

Earnings before income taxes and minority interest	4.0		3.5
Provision for income taxes	1.4		1.2
Minority interest, net of tax	0.1		—

Net earnings	2.7	%	2.3	%

In order to meet the demands of consumers, we continually introduce new products, support new and established products through advertising, sampling and merchandising and phase out existing products that no longer meet the needs of our consumers. The economics of developing, producing, launching and supporting products influence our sales and operating performance each period. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.

The recent challenges and uncertainties in the economies of certain key countries, including the United States, are likely to impact consumer demand, which may have an adverse impact on the financial strength of our customers that are retailers. These will likely affect our future net sales and operating results. We are reviewing our plans and taking actions to mitigate the impact of these conditions. Our future net sales and operating results may also be impacted by changes in foreign currency exchange rates. The dramatic strengthening of the U.S. dollar subsequent to September 30, 2008 will likely have a negative impact on our results during the fiscal second quarter. If the current exchange rates persist or the U.S. dollar continues to strengthen, there will be an adverse impact on our results for the full fiscal year.

First Quarter Fiscal 2009 as Compared with First Quarter Fiscal 2008

NET SALES

Net sales increased 11%, or $193.4 million, to $1,903.5 million, primarily led by net sales growth in our skin care and makeup product categories. Our fragrance product category experienced modest net sales growth while hair care net sales declined slightly. Net sales grew in every geographic region, led by Asia/Pacific and Europe, the Middle East & Africa. Excluding the impact of foreign currency translation, net sales increased 10%.

Product Categories

Skin Care

Net sales of skin care products increased 16%, or $97.3 million, to $716.8 million. The recent launches of Perfectionist [CP+] Wrinkle Lifting Serum and Cyber White EX from Estée Lauder and Moisture Surge Extended Thirst Relief, Superdefense SPF 25 Age Defense Moisturizer, Even Better Skin Tone Corrector and Redness Solutions from Clinique contributed incremental sales of approximately $68 million, combined. Net sales increases from products in Clinique’s 3-Step Skin Care System, as well as Advanced Night Repair and Resilience Lift Extreme Ultra Firming products from Estée Lauder, totaled approximately $28 million. These improvements were partially offset by approximately $22 million of lower sales from other existing products in the Perfectionist line from Estée Lauder and Moisture Surge and Superdefense lines from Clinique. Excluding the impact of foreign currency translation, skin care net sales increased 14%.

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THE ESTÉE LAUDER COMPANIES INC.

Makeup

Makeup net sales increased 12%, or $79.8 million, to $742.9 million reflecting increases from our makeup artist brands of approximately $38 million, particularly driven by strong growth internationally. The recent launches of High Impact Lip Colour SPF 15 and reformulated Superfit Makeup from Clinique and Estée Lauder Signature Blush and Sumptuous Bold Volume Lifting Mascara from Estée Lauder contributed incremental sales of approximately $44 million, combined. This growth was partially offset by approximately $15 million of lower sales of existing Superfit Makeup products and Superbalm Moisturizing Gloss from Clinique and Estée Lauder Signature Silky Eyeshadow Duo from Estée Lauder. Excluding the impact of foreign currency translation, makeup net sales increased 11%.

Fragrance

Net sales of fragrance products increased 5%, or $14.8 million, to $327.8 million. The recent launches of Estée Lauder Sensuous and DKNY Delicious Night collectively contributed approximately $31 million to the category. Higher net sales of approximately $8 million of various Tom Ford and Jo Malone fragrances also contributed to the increase. Partially offsetting the growth in this category were lower sales of Sean John Unforgivable, Estée Lauder pleasures , DKNY Be Delicious and DKNY Red Delicious Women of approximately $28 million, collectively. While current year sales levels compared favorably to the prior-year period, we anticipate continued challenges due to competitive pressures in this product category, primarily in the United States. Excluding the impact of foreign currency translation, fragrance net sales increased 3%.

Hair Care

Hair care net sales decreased 4%, or $3.8 million, to $98.8 million. Net sales from Bumble and bumble declined primarily as a result of the conclusion of its hotel amenities program in the third quarter of fiscal 2008 and, to a lesser extent, a softer salon retail environment in the United States. These declines were partially offset by higher sales from Aveda, primarily as a result of the launch of Dry Remedy Shampoo and Conditioner and the acquisition of an independent distributor in Australia. Excluding the impact of foreign currency translation, hair care net sales decreased 4%.

Geographic Regions

Net sales in the Americas increased 4%, or $40.1 million to $939.0 million. Higher net sales from certain of our core brands, as well as our makeup artist brands, in the United States contributed approximately $19 million to the increase. Net sales growth in Latin America and Canada contributed an additional $13 million to the increase. We believe that current economic conditions in this region, particularly in the department store channel, as well as competitive pressures, have negatively impacted certain of our businesses.

In Europe, the Middle East & Africa, net sales increased 16%, or $90.3 million, to $641.5 million. Net sales increases of approximately $61 million were driven by our travel retail business, Russia, the United Kingdom, Germany and Italy, as well as in the Middle East, which converted from a distributor market to an affiliate in the prior year. The performance in these countries primarily reflected net sales growth in our makeup artist brands and certain of our core brands. While net sales increased in virtually all countries in the region, net sales growth rates are anticipated to slow in certain key countries due to current economic conditions. Excluding the impact of foreign currency translation, net sales in Europe, the Middle East & Africa increased 14%.

Net sales in Asia/Pacific increased 24%, or $63.0 million, to $323.0 million, reflecting growth in all countries in the region. This increase reflected higher net sales of approximately $55 million in China, Japan, Hong Kong, Korea and Australia. Despite the softening of certain retail environments in this region, most brands delivered double-digit net sales growth. Excluding the impact of foreign currency translation, Asia/Pacific net sales increased 21%.

We believe the economic conditions that are currently having a negative impact on the global economy will likely have an adverse impact on our future financial performance. We cannot predict with certainty the magnitude of the impact or how it will vary across each of our geographic regions.

We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.

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COST OF SALES

Cost of sales as a percentage of total net sales decreased to 26.3% as compared with 26.7% in the prior-year period. Cost of sales as a percentage of net sales reflected a favorable change in the mix of our business of approximately 40 basis points, a decrease in the level and timing of promotional activities of approximately 30 basis points and a positive effect of exchange rates of approximately 20 basis points. Partially offsetting these improvements was an increase in obsolescence charges of approximately 50 basis points.

Since certain promotional activities are a component of sales or cost of sales and the timing and level of promotions vary with our promotional calendar, we have experienced, and expect to continue to experience, fluctuations in the cost of sales percentage. In addition, future cost of sales mix may be impacted by the inclusion of new brands which have margin and product cost structures different from those of our existing brands.

OPERATING EXPENSES

Operating expenses increased to 68.9% of net sales as compared with 68.8% of net sales in the prior-year period. Company-wide cost containment and contingency plan efforts to maintain expenses in line with our business needs resulted in an operating expense margin improvement of approximately 140 basis points. These initiatives were offset by net losses from foreign exchange transactions of approximately 110 basis points and incremental costs of global information technology systems and infrastructure of approximately 50 basis points.

Changes in advertising, sampling and merchandising spending result from the type, timing and level of activities related to product launches and rollouts, as well as the markets being emphasized.

OPERATING RESULTS

Operating income increased 19%, or $14.6 million, to $92.5 million as compared with the prior-year period. Operating margin improved to 4.8% of net sales as compared with 4.5% in the prior-year period, reflecting the increase in our gross margin partially offset by the increase in our operating expense margin, as previously discussed.

Product Categories

Makeup operating income increased 32%, or $13.3 million, to $54.4 million, primarily reflecting improved results from certain of our core brands and from our makeup artist brands. Skin care operating income increased 22%, or $7.7 million, to $43.5 million, primarily reflecting improved results from certain of our core brands driven by increased net sales from new launches. Fragrance operating results declined 10%, or $0.5 million, primarily reflecting lower net sales of designer fragrance products, partially offset by favorable results related to launches of new Estée Lauder fragrances. Hair care operating results declined over 100%, or $8.4 million, primarily reflecting lower sales of Bumble and bumble products due to the conclusion of its hotel amenities program and an increase in selling and marketing expenses related to the positioning of the Ojon brand for future growth.

Geographic Regions

Operating income in the Americas increased 8%, or $4.1 million, to $56.5 million, driven by higher sales from certain of our core brands and our makeup artist brands, coupled with cost containment and contingency plan efforts. These favorable results were partially offset by difficulties experienced by our hair care brands in the United States and incremental costs of information technology systems and infrastructure as previously discussed.

In Europe, the Middle East & Africa, operating income decreased 16%, or $1.4 million, to $7.6 million. This decrease reflected lower results of approximately $20 million in Russia, Spain and France, inclusive of additional provisions for receivables and inventory. Partially offsetting these decreases were improved results from our travel retail business, the United Kingdom and Germany of approximately $19 million, collectively.

In Asia/Pacific, operating income increased 70%, or $11.7 million, to $28.5 million, primarily reflecting improved results in Japan, Korea, Hong Kong and China of approximately $10 million, collectively. Partially offsetting these improvements were lower results in Taiwan and New Zealand of approximately $1 million, combined.

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THE ESTÉE LAUDER COMPANIES INC.

INTEREST EXPENSE, NET

Net interest expense was $15.3 million as compared with $18.4 million in the prior-year period. This decrease primarily resulted from lower average borrowing rates and lower average balances of outstanding commercial paper.

PROVISION FOR INCOME TAXES

The provision for income taxes represents Federal, foreign, state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax audit settlements and the interaction of various global tax strategies. In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

The effective rate for income taxes for the three months ended September 30, 2008 was 35.8% as compared with 35.5% in the prior-year period. The increase in the effective income tax rate of 30 basis points was primarily attributable to a net increase in the gross amount of unrecognized tax benefits and related interest accruals.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad. At September 30, 2008, we had cash and cash equivalents of $328.8 million compared with $401.7 million at June 30, 2008.

At September 30, 2008, our outstanding borrowings were as follows:

	Long-term Debt		Short-term Debt		Total Debt
	(In millions)

6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (1)	$	296.2	$	—	$	296.2
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (2)	197.5		—		197.5
5.55% Senior Notes, due May 15, 2017 (“2017 Senior Notes”) (3)	313.7		—		313.7
6.00% Senior Notes, due January 15, 2012 (“2012 Senior Notes”) (4)	242.5		—		242.5
$13.5 million promissory note due August 31, 2012 (5)	15.6		—		15.6
$7.0 million promissory note due July 31, 2009 (6)	—		8.0		8.0
Commercial paper maturing through November 2008 (2.16% average interest rate)	—		299.7		299.7
Turkish lira overdraft facility	—		17.7		17.7
Other borrowings	16.5		24.5		41.0
	$	1,082.0	$	349.9	$	1,431.9

(1)		Consists of $300.0 million principal and unamortized debt discount of $3.8 million.
(2)		Consists of $200.0 million principal and unamortized debt discount of $2.5 million.
(3)		Consists of $300.0 million principal, unamortized debt discount of $0.4 million and a $14.1 million adjustment to reflect the fair value of outstanding interest rate swaps.
(4)		Consists of $250.0 million principal, unamortized debt discount of $0.4 million and a $7.1 million adjustment to reflect the remaining termination value of an interest rate swap that is being amortized to interest expense over the life of the debt.
(5)		Consists of $13.5 million face value and unamortized premium of $2.1 million.
(6)		Consists of $7.0 million face value, capitalized interest of $0.7 million and unamortized premium of $0.3 million.

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We have a $750.0 million commercial paper program under which we may 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 with a stable outlook by Standard & Poor’s and A2 with a stable outlook by Moody’s. At September 30, 2008, we had $299.7 million of commercial paper outstanding, which we may refinance on a periodic basis as it matures at then-prevailing market interest rates. We also have $207.1 million in additional uncommitted credit facilities, of which $31.3 million was used as of September 30, 2008.

We have an undrawn $750.0 million senior unsecured revolving credit facility that expires on April 26, 2012. This facility may be used primarily to provide credit support for our commercial paper program, to repurchase shares of our common stock and for general corporate purposes. Up to the equivalent of $250 million of the credit facility is available for multi-currency loans. The interest rate on borrowings under the credit facility is based on LIBOR or on the higher of prime, which is the rate of interest publicly announced by the administrative agent, or ½% plus the Federal funds rate. We incurred costs of approximately $0.3 million to establish the facility which will be amortized over the term of the facility. The credit facility has an annual fee of $0.4 million, payable quarterly, based on our current credit ratings. As of September 30, 2008, we were in compliance with all related financial and other restrictive covenants, including limitations on indebtedness and liens.

As part of the purchase price related to the July 2007 acquisition of Ojon Corporation, we have (i) an outstanding promissory note due July 31, 2009 with a notional value of $7.0 million and capitalized interest of $0.7 million (present value of $8.0 million at September 30, 2008), bearing interest at 10.00% due at maturity and (ii) an outstanding promissory note due August 31, 2012 with a notional amount of $13.5 million (present value of $15.6 million at September 30, 2008), bearing interest at 10.00% payable annually on July 31. The notes due in 2009 and 2012 were recorded in the accompanying consolidated balance sheet at present value using effective rates of 5.11% and 5.42%, respectively.

We have a fixed rate promissory note agreement with a financial institution pursuant to which we may borrow up to $150.0 million in the form of loan participation notes through one of our subsidiaries in Europe. The interest rate on borrowings under this agreement is at an all-in fixed rate determined by the lender and agreed to by us at the date of each borrowing. At September 30, 2008, no borrowings were outstanding under this agreement. Debt issuance costs incurred related to this agreement were de minimis.

We have an overdraft borrowing agreement with a financial institution pursuant to which our subsidiary in Turkey may be credited to satisfy outstanding negative daily balances arising from its business operations. The total balance outstanding at any time shall not exceed 30.0 million Turkish lira. The interest rate applicable to each such credit shall be up to a maximum of 175 basis points per annum above the spot rate charged by the lender or the lender’s floating call rate agreed to by us at each borrowing. There were no debt issuance costs incurred related to this agreement. The outstanding balance at September 30, 2008 of 21.9 million Turkish lira ($17.7 million at the exchange rate at September 30, 2008) is classified as short-term debt in our consolidated balance sheet.

We have a 3.0 billion Japanese yen revolving credit facility that expires on March 24, 2009. The interest rate on borrowings under the credit facility is based on TIBOR (Tokyo Interbank Offered Rate) and a 10 basis point facility fee is incurred on the undrawn balance. The outstanding balance at September 30, 2008 of 200.0 million Japanese yen ($1.9 million at the exchange rate at September 30, 2008) is classified as short-term debt in our consolidated balance sheet.

Our business is seasonal in nature and, accordingly, our working capital needs vary. From time to time, we may enter into investing and financing transactions that require additional funding. To the extent that these needs exceed cash from operations, we could, subject to market conditions, issue commercial paper, issue long-term debt securities or borrow under our revolving credit facilities.

Total debt as a percent of total capitalization was 45% at September 30, 2008 and 42% at June 30, 2008.

The effects of inflation have not been significant to our overall operating results in recent years. Generally, we have been able to introduce new products at higher selling prices or increase selling prices sufficiently to offset cost increases, which have been moderate.

Based on past performance and current expectations, 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, information systems enhancements, capital expenditures, stock repurchases, commitments and other contractual obligations on both a near-term and long-term basis.

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Cash Flows

Net cash used for operating activities was $196.2 million during the three months ended September 30, 2008 as compared with net cash used of $132.8 million in the prior-year period. The change in operating cash outflows in the first quarter of this fiscal year, as compared with the first quarter of the prior fiscal year, was primarily impacted by the timing of payments and costs related to accrued advertising merchandising and sampling activities and employee compensation as well as an increase in pension contributions in support of required funding obligations of a particular affiliate related to a previously disclosed plan amendment. The increase in the use of cash also reflected higher payments for income taxes and higher global inventory levels to support our previously forecasted sales activity.

Net cash used for investing activities was $138.9 million during the three months ended September 30, 2008 compared with $195.3 million in the prior-year period. Investing activities during the fiscal 2009 quarter primarily reflected cash payments related to counters and leasehold improvements, global information technology systems and infrastructure, as well as the acquisitions of Applied Genetics Incorporated Dermatics and businesses engaged in the wholesale distribution and retail sale of Aveda products. Additional cash used for investing activities in the prior-year period was related to the purchases of Ojon Corporation and an Aveda distributor.

Net cash provided by financing activities was $270.8 million during the three months ended September 30, 2008 compared with $282.5 million in the prior-year period. This change primarily reflected less proceeds from the issuance of commercial paper, partially offset by an increase in proceeds from employee stock transactions.

Share Repurchase Program

We are authorized by the Board of Directors to repurchase up to 88.0 million shares of Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. As of September 30, 2008, the cumulative total of acquired shares pursuant to the authorization was 65.3 million, reducing the remaining authorized share repurchase balance to 22.7 million. During the three months ended September 30, 2008, we purchased approximately 1.2 million shares pursuant to the authorization for $55.3 million as outlined in the following table:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program (1)
July 2008	674,700		$	43.79	674,700	23,266,841
August 2008	198,700		$	44.50	198,700	23,068,141
September 2008	367,261	(2)	$	50.70	333,709	22,734,432
	1,240,661		$	45.95	1,207,109	22,734,432

(1) The initial program covering the repurchase of 8.0 million shares was announced in September 1998 and increased by 20.0 million shares each in November 2007, February 2007 and May 2005 and 10.0 million shares in both May 2004 and October 2002.

(2) Includes shares that were repurchased by the Company in connection with shares withheld to satisfy tax obligations upon the settlement of performance share units earned as of June 30, 2008.

Commitments, Contingencies and Contractual Obligations

Since June 30, 2008 we made additional commitments pursuant to employment agreements. These commitments will result in an increase to our contractual obligations previously disclosed in our Annual Report on Form 10-K for periods beyond fiscal 2009. Unconditional purchase obligations related to these agreements are expected to increase approximately $6 million in fiscal 2010 and 2011.

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Derivative Financial Instruments and Hedging Activities

There have been no significant changes to our derivative financial instruments and hedging activities as discussed in our Annual Report on Form 10-K for the year ended June 30, 2008.

Foreign Exchange Risk Management

We enter into foreign currency forward 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. The majority of foreign currency forward contracts is denominated in currencies of major industrial countries and is with large financial institutions rated as investment grade by a major rating agency. We also enter into foreign currency option contracts to hedge anticipated transactions where there is a high probability that anticipated exposures will materialize. The foreign currency forward and option contracts entered into to hedge anticipated transactions have been designated as cash-flow hedges. Hedge effectiveness of foreign currency forward contracts is based on a hypothetical derivative methodology and excludes the portion of fair value attributable to the spot-forward difference which is recorded in current-period earnings. Hedge effectiveness of foreign currency option contracts is based on a dollar offset methodology. The ineffective portion of both foreign currency forward and option contracts is recorded in current-period earnings. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses accumulated in other comprehensive income are reclassified to earnings when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive income are reclassified to current-period earnings. As of September 30, 2008, 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 default 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 June 2009. 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, 2008, we had foreign currency forward contracts and option contracts in the amount of $1,082.3 million and $51.9 million, respectively. The foreign currencies included in foreign currency forward contracts (notional value stated in U.S. dollars) are principally the Euro ($234.8 million), Swiss franc ($189.9 million), British pound ($170.8 million), Canadian dollar ($111.6 million), Australian dollar ($70.2 million), Russian ruble ($65.7 million) and Hong Kong dollar ($51.2 million). The foreign currencies included in foreign currency option contracts (notional value stated in U.S. dollars) are principally the Canadian dollar ($30.0 million) and the South Korean won ($17.9 million).

Interest Rate Risk Management

We enter into interest rate derivative contracts to manage the exposure to fluctuations of interest rates on our funded indebtedness and anticipated issuance of debt for periods consistent with the identified exposures. All interest rate derivative contracts are with large financial institutions rated as investment grade by a major rating agency.

We have interest rate swap agreements, with a notional amount totaling $250.0 million, to effectively convert the fixed rate interest on our 2017 Senior Notes to variable interest rates based on six-month LIBOR. The interest rate swaps were designated as fair-value hedges. As of September 30, 2008, these fair-value hedges were highly effective, in all material respects.

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, 2008, our average value-at-risk, calculated for the most recent twelve months, is $13.7 million related to our foreign currency forward and option contracts. As of September 30, 2008, our average value-at-risk related to our interest rate contracts for the twelve month period for which these contracts were outstanding was $23.4 million. There have been no significant changes in market risk since June 30, 2008 that would have a material effect on our calculated value-at-risk exposure, as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

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Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

CRITICAL ACCOUNTING POLICIES

As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008, 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 U.S. generally accepted accounting principles. 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 judgments can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. Our most critical accounting policies relate to revenue recognition, concentration of credit risk, inventory, pension and other post-retirement benefit costs, goodwill and other intangible assets, income taxes and derivatives. Since June 30, 2008, there have been no significant changes to the assumptions and estimates related to our critical accounting policies.

RECENTLY ADOPTED ACCOUNTING STANDARDS

In February 2008, the FASB issued FSP No. FAS 157-2, “Effective Date for FASB Statement No. 157” (“FSP No. FAS 157-2”). This FSP permits the delayed application of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, as defined in this FSP, except for those that are recognized or disclosed at fair value in the financial statements at least annually, until the beginning of our fiscal 2010. As of July 1, 2008, we adopted SFAS No. 157, with the exception of its application to nonfinancial assets and nonfinancial liabilities, which we will defer in accordance with FSP No. FAS 157-2. We are currently evaluating the impact of adopting SFAS No. 157 at the beginning of fiscal 2010 for such nonfinancial assets and nonfinancial liabilities on our consolidated financial statements.

In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP No. FAS 157-3”), which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application should be accounted for as a change in accounting estimate following the guidance in SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). However, the disclosure provisions in SFAS No. 154 for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. We adopted SFAS No. 157 beginning in our fiscal 2009 first quarter. As part of this adoption, we evaluated the fair value measurements of our financial assets and liabilities and determined that these instruments are valued in active markets. As such, the guidance in this FSP did not impact our consolidated financial statements.

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In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), to permit all entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair value. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 became effective for us as of July 1, 2008. As we did not elect the fair value option for our financial instruments (other than those already measured at fair value in accordance with SFAS No. 157) or other assets and liabilities, the adoption of this standard did not have an impact on our consolidated financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) replaces SFAS No. 141, “Business Combinations,” however, it retains the fundamental requirements of the former Statement that the acquisition method of accounting (previously referred to as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Among other requirements, SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at their acquisition-date fair values, with limited exceptions; acquisition-related costs generally will be expensed as incurred. SFAS No. 141(R) requires certain financial statement disclosures to enable users to evaluate and understand the nature and financial effects of the business combination. SFAS No. 141(R) must be applied prospectively to business combinations that are consummated on or after July 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS No. 160”) to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Among other requirements, SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is to be reported as a separate component of equity in the consolidated financial statements. SFAS No. 160 also requires consolidated net income to include the amounts attributable to both the parent and the noncontrolling interest and to disclose those amounts on the face of the consolidated statement of income. SFAS No. 160 must be applied prospectively for fiscal years, and interim periods within those fiscal years, beginning in our fiscal 2010, except for the presentation and disclosure requirements, which will be applied retrospectively for all periods presented.

In December 2007, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue No. 07-1, “Collaborative Arrangements,” (“EITF No. 07-1”). This EITF addresses accounting for collaborative arrangement activities that are conducted without the creation of a separate legal entity for the arrangement. Revenues and costs incurred with third parties in connection with the collaborative arrangement should be presented gross or net by the collaborators pursuant to the guidance in EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and other applicable accounting literature. Payments to or from collaborators should be presented in the income statement based on the nature of the arrangement, the nature of the company’s business and whether the payments are within the scope of other accounting literature. Other detailed information related to the collaborative arrangement is also required to be disclosed. The requirements under this EITF must be applied to collaborative arrangements in existence at the beginning of our fiscal 2010 using a modified version of retrospective application. We are currently not a party to collaborative arrangement activities, as defined by EITF No. 07-1.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide qualitative disclosures about their objectives and strategies for using derivative instruments, quantitative disclosures of the fair values and gains and losses of these derivative instruments in a tabular format, as well as more information about liquidity by requiring disclosure of a derivative contract’s credit-risk-related contingent features. SFAS No. 161 also requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. The adoption of this disclosure-only standard will not have an impact on our consolidated financial results. SFAS No. 161 becomes effective for the March 2009 interim consolidated financial statements.

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In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions in this FSP. Early application of this FSP is prohibited. We do not issue share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents.

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,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “intend,” “forecast” 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:

(1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than we do;

(2) our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our core brands, including gift with purchase, and in our fragrance business;

(3) 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 or ownership of competitors by our customers that are retailers;

(4) destocking by retailers;

(5) the success, or changes in timing or scope, of new product launches and the success, or changes in the timing or the scope, of advertising, sampling and merchandising programs;

(6) shifts in the preferences of consumers as to where and how they shop for the types of products and services we sell;

(7) 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;

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(8) changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, our business, including those relating to our products, changes in accounting standards, tax laws and regulations, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result;

(9) 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;

(10) changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase our products while traveling, the financial strength of our customers, suppliers or other contract counterparties, our operations, the cost and availability of capital which we may need for new equipment, facilities or acquisitions, the returns that we are able to generate on our pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying our critical accounting estimates;

(11) shipment delays, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture nearly all of our supply of a particular type of product (i.e., focus factories) or at our distribution or inventory centers, including disruptions that may be caused by the implementation of SAP as part of our Strategic Modernization Initiative;

(12) real estate rates and availability, which may affect our ability to increase or maintain the number of retail locations at which we sell our products and the costs associated with our other facilities;

(13) changes in product mix to products which are less profitable;

(14) our ability to acquire, develop or implement new information and distribution technologies on a timely basis and within our cost estimates;

(15) our ability to capitalize on opportunities for improved efficiency, such as publicly-announced cost-savings initiatives, and to integrate acquired businesses and realize value therefrom;

(16) consequences attributable to the events that are currently taking place in the Middle East, including terrorist attacks, retaliation and the threat of further attacks or retaliation;

(17) the timing and impact of acquisitions and divestitures, which depend on willing sellers and buyers, respectively; and

(18) additional factors as described in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

We assume no responsibility to update forward-looking statements made herein or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is set forth in Item 2 of this Quarterly Report on Form 10-Q under the caption “Liquidity and Capital Resources - Market Risk” and is incorporated herein by reference.

Item 4. Controls and Procedures.

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act 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, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2008 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

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As part of our Strategic Modernization Initiative, we anticipate the continued migration of our operations to SAP, with the majority of our business being implemented through fiscal 2012. Based on management’s evaluation, the necessary steps have been taken to monitor and maintain appropriate internal control over financial reporting during this period.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the first quarter of fiscal 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved, from time to time, in litigation and other legal proceedings incidental to our business. Management believes that the outcome of current litigation and legal proceedings will not have a material adverse effect upon our results of operations or financial condition. However, management’s assessment of our current litigation and other legal proceedings could change in light of the discovery of facts with respect to legal actions or other proceedings pending against us not presently known to us or determinations by judges, juries or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or proceedings.

In 1999, the Office of the Attorney General of the State of New York (the “State”) notified the Company and ten other entities that they had been identified as 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 estimated in 2006 to be approximately $19.7 million for all PRPs. In 2001, the State sued other PRPs (including Hickey’s Carting, Inc., Dennis C. Hickey and Maria Hickey, collectively the “Hickey Parties”), in the U.S. District Court for the Eastern District of New York to recover such costs in connection with the site, and in September 2002, the Hickey Parties brought contribution actions against the Company and other Blydenburgh PRPs. These contribution 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. In June 2004, the State added the Company and other PRPs as defendants in its pending case against the Hickey Parties. In April 2006, the Company and other defendants added numerous other parties to the case as third-party defendants. The Company and certain other PRPs have engaged in settlement discussions which to date have been unsuccessful. Settlement negotiations with the new third-party defendants, the State, the Company and other defendants began in July 2006. We have accrued an amount which we believe would be necessary to resolve our share of this matter. If settlement discussions are not successful, we intend to vigorously defend the pending claims. While no assurance can be given as to the ultimate outcome, management believes that the resolution of the Blydenburgh matters will not have a material adverse effect on our consolidated financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Sales of Unregistered Securities

Shares of Class B Common Stock may be converted immediately into Class A Common Stock on a one-for-one basis by the holder and are automatically converted into Class A Common Stock on a one-for-one basis upon transfer to a person or entity that is not a “Permitted Transferee” or soon after a record date for a meeting of stockholders where the outstanding Class B Common Stock constitutes less than 10% of the outstanding shares of Common Stock of the Company. There is no cash or other consideration paid by the holder converting the shares and, accordingly, there is no cash or other consideration received by the Company. The shares of Class A Common Stock issued by the Company in such conversions are exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) thereof.

During the three months ended September 30, 2008, no holders of Class B Common Stock converted such shares into Class A Common Stock.

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Share Repurchase Program

Information required by this item is set forth in Part I Item 2 of this Quarterly Report on Form 10-Q under the caption “Liquidity and Capital Resources – Share Repurchase Program” and is incorporated herein by reference.

Item 6. Exhibits.

Exhibit
Number		Description
10.1		Form of Stock Option Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant). †

10.2		Form of Performance Share Unit Award Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant). †

10.3		Form of Restricted Stock Unit Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan for Executive Officers (including Form of Notice of Grant). †

10.4		Form of Restricted Stock Unit Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan for Employees other than Executive Officers (including Form of Notice of Grant). †

10.5		Employment Agreement dated as of July 1, 2007 between the Company and John Demsey. †

10.6		Employment Agreement dated as of July 1, 2008 between the Company and Cedric Prouvé. †

31.1		Certification pursuant to Rule 13a-14(a) (CEO).

31.2		Certification pursuant to Rule 13a-14(a) (CFO).

32.1		Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO). (furnished)

32.2		Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO). (furnished)

† Exhibit is a management contract or compensatory plan or arrangement.

Table of Contents

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 ESTÉE LAUDER COMPANIES INC.


Date: October 28, 2008	By:	/s/RICHARD W. KUNES
		Richard W. Kunes
		Executive Vice President
		and Chief Financial Officer
		(Principal Financial and
		Accounting Officer)

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

INDEX TO EXHIBITS

Exhibit
Number		Description
10.1		Form of Stock Option Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant). †

10.2		Form of Performance Share Unit Award Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant). †

10.3		Form of Restricted Stock Unit Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan for Executive Officers (including Form of Notice of Grant). †

10.4		Form of Restricted Stock Unit Agreement under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan for Employees other than Executive Officers (including Form of Notice of Grant). †

10.5		Employment Agreement dated as of July 1, 2007 between the Company and John Demsey. †

10.6		Employment Agreement dated as of July 1, 2008 between the Company and Cedric Prouvé. †

31.1		Certification pursuant to Rule 13a-14(a) (CEO).

31.2		Certification pursuant to Rule 13a-14(a) (CFO).

32.1		Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO). (furnished)

32.2		Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO). (furnished)

† Exhibit is a management contract or compensatory plan or arrangement.

Exhibit 10.1

DOMESTIC

Stock Option Agreement

Under

The Estée Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (the “Plan”)

This STOCK OPTION AGREEMENT (the “Agreement”) provides for the granting of options by The Estée Lauder Companies Inc., a Delaware corporation (the “Company”), to the participant, an employee of the Company or one of its subsidiaries (the “Employee” or the “Participant”), to purchase shares of the Company’s Class A Common Stock, par value $0.01 (the “Shares”), subject to the terms below (the “Stock Options” or “Options”). The name of the “Participant,” the “Grant Date,” the aggregate number of Shares that may be purchased pursuant to this Agreement, and the “Exercise Price” per Shares are stated in the attached “Notice of Grant,” and are incorporated by reference. The other terms of the Options are stated in this Agreement and in the Plan. Terms not defined in this Agreement are defined in the Plan, as amended.

The Stock Options described in this Agreement are granted pursuant to the Company’s Amended and Restated Fiscal 2002 Share Incentive Plan, as may be amended from time to time (the “Plan”), and are subject in all respects to the provisions of the Plan. The Stock Options granted under this Agreement are not Incentive Stock Options (as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”)).

1. Payment of Exercise Price. The Company will provide and communicate to the Employee various methods of exercise. In all cases, upon exercise, the Employee must deliver or cause to be delivered to the Company (or its agent designated for the purpose) upon settlement of the exercise sufficient cash or sufficient number of Shares with value equal to or exceeding the Exercise Price per Share. The Employee also is required to deliver or cause to be delivered sufficient cash to cover the applicable tax withholding in accordance with Section 5 of this Agreement and fees in connection with the exercise. To facilitate exercise, the Company may enter into agreements for coordinated procedures with one or more brokerage firms or financial institutions.

2. Exercise Period.

a. General . Subject to other provisions contained in this Agreement and in the Plan, Stock Options granted under this Agreement will be exercisable in installments as specified under “Exercise Period” in the attached “Notice of Grant”.

Stock Options awarded under this Agreement are exercisable until the close of business on the tenth anniversary of the Grant Date; after this date, the Stock Options expire.

b. Death or Disability . If the Employee dies or becomes totally and permanently disabled (as determined under the Company’s long term disability program), each Stock Option awarded but not yet exercisable as of the Employee’s date of death or disability determination will become immediately exercisable. The period during which the Stock Option may be exercised will commence on the day after the Employee’s date of death or disability determination and end on the earlier of the close of business on the date of (i) the first anniversary of the Employee’s death or disability determination or (ii) the tenth anniversary of the Grant Date.

c. Retirement . Subject to Section 3, if the Employee formally retires under the terms of the Estée Lauder Inc. Retirement Growth Account Plan (or an affiliate or a successor plan or program of similar purpose), each Stock Option awarded but not yet exercisable as of the date of retirement will become immediately exercisable. Each Stock Option awarded may thereafter be exercised until the close of business on the date of the tenth anniversary of the Grant Date. If the Employee dies during active employment after the attainment of age 55 and the completion of 10 or more years of service, or after the attainment of age 65 and the completion of 5 or more years of service, without formally retiring under the terms of the Estée Lauder Inc. Retirement Growth Account Plan (or an affiliate or a successor plan or program of similar purpose), the Employee will have deemed to be retired as of the date of death and this

Section 2(c) will apply rather than Section 2(b). If the Employee dies or becomes disabled after retirement as contemplated by this Section 2(c), the provisions of this section shall apply.

d. Termination of Employment Without Cause .

(1) Subject to Section 3, if the Employee is terminated at the instance of the Employee (e.g., resigns voluntarily), each Stock Option exercisable but unexercised as of the effective date of such termination may be exercised until the close of business on the date first to occur of (i) ninety (90) days after the effective date of such termination and (ii) the tenth anniversary of the Grant Date. Each Stock Option awarded but unexercisable as of the date of such termination will be forfeited.

(2) Subject to Section 3, if the Employee is terminated at the instance of the Company or relevant subsidiary without Cause (as defined below), each Stock Option awarded but unexercisable as of the date of termination will become immediately exercisable. Each Stock Option awarded may be exercised until the close of business on the date first to occur of (i) ninety (90) days after the effective date of such termination and (ii) the tenth anniversary of the Grant Date. For this purpose, “Cause” is defined in the employment agreement in effect between the Employee and the Company or any subsidiary, including an employment agreement entered into after the Grant Date. In the absence of an employment agreement, “Cause” means any breach by the Employee of any of his or her material obligations under any Company policy or procedure, including, without limitation, the Code of Corporate Conduct and the Policy on Avoidance of Insider Trading.

3. Post-Employment Exercises. No Stock Option represented by this Agreement may be exercised after termination of the Employee’s employment with the Company (or any of its subsidiaries) unless as provided for in Section 2b, 2c or 2d hereof. The exercise of any Stock Option after termination of the Employee’s employment by reason of retirement in accordance with Section 2c, or due to termination by the Employee or termination by the Company or relevant subsidiary without Cause in accordance with Section 2d, is subject to satisfaction of the conditions precedent that the Employee neither (i) competes with, takes other employment with, or renders services to a competitor of the Company, its subsidiaries, or affiliates without the Company’s written consent, nor (ii) conducts herself or himself in a manner adversely affecting the Company. All Stock Options that cannot be exercised after termination of the Employee’s employment will be forfeited.

4. Adjustment Provisions; Change in Control.

a. If there shall be any change in the Class A Common Stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spin-off, combination of Shares, exchange of Shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to stockholders of the Company, the Company shall adjust, in a fair and equitable manner, the Plan and each outstanding Stock Option to prevent dilution or enlargement of Participant’s rights under the Plan. The Company will make this adjustment each time one of the changes identified above occurs by either adjusting the number of shares of Class A Common Stock and/or kind of shares of common stock of the Company or other securities that may be issued with respect to any Stock Option under the Plan, adjusting the number of Class A Common Stock and/or kind of shares of common stock of the Company or other securities that are subject to outstanding Stock Options, and/or where applicable, adjusting the exercise price or purchase price applicable to outstanding Stock Options. Appropriate adjustments may also be made by the Company to the terms of any Stock Options to reflect such changes or distributions (and any extraordinary dividend or distribution of cash or other assets) and to modify any other terms of outstanding Stock Options on an equitable basis. In addition, the Company is authorized to make adjustments to the terms and conditions of Stock Options, in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations, or accounting principles. However, no adjustment or change can be made to the terms of a Stock Option that will cause that Stock Option to fail to be exempt from Code Section 409A. For purposes of this Section 4, the Market Value of the Shares shall be equal to 100% of the closing price of the Class A Common Stock on the New York Stock Exchange (or, if not traded thereon, then on any other national securities exchange or other market system on which the Class A

Common Stock is then traded) as reported by the Wall Street Journal for the date on which such Market Value is being fixed, or, if there shall be no trading on such date, the date next preceding on which trading occurred.

b. Notwithstanding any other provision hereunder, in the event of a Change in Control (as defined below), the Committee, in its discretion, may take such actions as it deems appropriate with respect to outstanding Benefits, including, without limitation, accelerating the exercisability or vesting of such Benefits, or such other actions provided in an agreement approved by the Board in connection with a Change in Control and such Benefits shall be subject to the terms of such agreement as the Committee, in its discretion, shall determine. The Committee, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company each Stock Option outstanding hereunder shall terminate within a specified number of days after notice to the holder, and such holder shall receive, with respect to each share of Common Stock subject to such Stock Option an amount equal to the excess of the Market Value of such shares of Common Stock immediately prior to the occurrence of such Change in Control over the exercise price per share of such Stock Option such amount to be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine. For purposes of this Section 4b, a “Change in Control” of the Company shall be deemed to have occurred upon any of the following events:

(i) On or after the date there are no shares of Class B Common Stock, par value $.01 per share, of the Company outstanding, any person as such term is used in Section 13(d) of the Exchange Act or person(s) acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act (other than the Company, any subsidiary, any employee benefit plan sponsored by the Company or any member of the Lauder family or any family-controlled entities (collectively, the “Lauder Family”)) shall acquire (or shall have acquired during the 12-month period ending on the date of the most recent acquisition by such person(s)) and shall “beneficially own” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, at least 30% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; or

(ii) During any period of twelve consecutive months, either (A) the individuals who at the beginning of such period constitute the Board of Directors or any individuals who would be “Continuing Directors” (as hereinafter defined) cease for any reason to constitute at least a majority thereof (B) at any meeting of the shareholders of the Company called for the purpose of electing directors, a majority of the persons nominated by the Board for election as directors shall fail to be elected; or

(iii) Consummation of a sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company; or

(iv) Consummation of a merger or consolidation of the Company (A) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly-owned subsidiary of the Company in which all shares of the Company’s common stock outstanding immediately prior to the effectiveness thereof are changed into or exchanged for common stock of the subsidiary) or (B) pursuant to which all shares of the Company’s common stock are converted into cash, securities or other property, except in either case, a consolidation or merger of the Company in which the holders of the shares of Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the shares of Common Stock of the continuing or surviving corporation immediately after such consolidation or merger or in which the Board immediately prior to the merger or consolidation would, immediately after the merger or consolidation, constitute a majority of the board of directors of the continuing or surviving corporation.

Notwithstanding the foregoing, none of the following shall constitute a Change in Control of the Company: (A) changes in the relative beneficial ownership among members of the Lauder Family, without other changes that would constitute a Change in Control; or (B) any spin-off of a division or subsidiary of the Company to its stockholders.

For purposes of this Section 4(b), “Continuing Directors” shall mean (x) the directors of the Company in office on November 10, 2005 and (y) any successor to any such director and any additional director who after the Effective Date whose appointment or election is endorsed by a majority of the Continuing Directors at the time of his or her nomination or election.

5. Withholding. Regardless of any action the Company or the Participant’s employer (the “Employer”) takes with respect to any or all income tax, social security, payroll tax, or other tax-related withholding (“Tax-Related Items”), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by Participant is and remains his or her responsibility. Furthermore, Participant acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Stock Options, including the grant of the Stock Options, the exercise of the Stock Options, the subsequent sale of Shares acquired under the Plan and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant of the Stock Options or any aspect of Participant’s participation in the Plan to reduce or eliminate his or her liability for Tax-Related Items.

Prior to the relevant taxable event, Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding obligations of the Company and/or the Employer. In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from his or her wages or other cash compensation paid by the Company and/or the Employer or from proceeds of the sale of the Shares acquired under the Plan. Alternatively, or in addition, the Company may (i) sell or arrange for the sale of Shares that Participant acquires under the Plan to meet the withholding obligation for the Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. If the Company satisfies the Tax-Related Item withholding obligation by withholding a number of Shares as described herein, Participant will be deemed to have been issued the full number of Shares due to Participant at exercise, notwithstanding that a number of the Shares is held back solely for purposes of such Tax-Related Items.

Finally, Participant shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of his or her participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue Shares under the Plan and refuse to deliver the Shares if Participant fails to comply with his or her obligations in connection with the Tax-Related Items as described in this Section.

6. Transferability. Stock Options granted under this Agreement may be transferred under laws of descent and distribution or, during Employee’s lifetime, solely to the Employee’s spouse, siblings, parents, children and grandchildren or trusts for the benefits of such persons, or partnerships, corporations, limited liability companies, or other entities owned solely by such persons, including trusts for such persons. Any transfer of Stock Options will have no effect until written notice (providing sufficient details relating to the proposed transfer, as required by the Company at that time) is received and confirmed by the Company. The Employee will remain liable for all obligations of Employee and his or her transferee or transferees. Each transferee will also be subject the Employee’s obligations under this Agreement relating to the Stock Options transferred to him or her.

7. Limitations. The Employee’s right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, is not enlarged or otherwise affected by an award under this Agreement. Nothing in this Agreement or the Plan gives the Employee any right to continue in the employ of the Company or any of its subsidiaries or to interfere in any way with the right of the Company or any subsidiary to terminate his or her employment at any time. Stock Options are not secured by a trust, insurance contract or other funding medium, and the Employee does not have any interest in any fund or

specific asset of the Company by reason of this award or the account established on his or her behalf. A Stock Option award confers no rights as a shareholder of the Company until Shares are actually delivered to the Employee.

8. Specific Restrictions Upon Option Shares. The Employee and the Company agree to each of the following:

a. The Employee will acquire Shares hereunder for investment purposes only and not with a view to reselling or otherwise distributing the Shares to the public in violation of the United States Securities Act of 1933, as amended (the “1933 Act”), and will not dispose of any such Shares in transactions which, in the opinion of counsel to the Company, violate the 1933 Act or the rules and regulations thereunder, or any applicable state or national securities or “blue sky” laws.

b. If any Shares are registered under the 1933 Act, no public offering (other than on a national securities exchange, as defined in the United States Securities Exchange Act of 1934, as amended) of any Shares acquired under this Agreement will be made by the Employee (or any other person) under circumstances where he or she (or such person) may be deemed an underwriter, as defined in the 1933 Act.

c. The Employee agrees that the Company has the authority to endorse upon the certificate or certificates representing the Shares acquired under this Agreement any legends referring to the restrictions described under this Section 8 and any other application restrictions, as the Company may deem appropriate.

9. Notices. Any notice required or permitted under this Agreement is deemed to have been duly given if delivered, telecopied, mailed (certified or registered mail, return receipt requested) or sent by internationally-recognized courier guaranteeing next day delivery (a) to the Employee at the address on file in the Company’s (or relevant subsidiary’s) personnel records, or (b) to the Company, attention Stock Plan Administration at its principal executive offices, which are currently located at 767 Fifth Avenue, New York, NY 10153.

10. Disclosure and Use of Information .

a. By signing and returning the attached Notice of Grant, and as a condition of the grant of the Stock Options, the Employee hereby expressly and unambiguously consents to the collection, use, and transfer of personal data as described in this Section by and among, as necessary and applicable, the Employer, the Company and its subsidiaries and by any agent of the Company or its subsidiaries for the exclusive purpose of implementing, administering and managing Employee’s participation in the Plan.

b. The Employee understands that the Employer, the Company and/or its other subsidiaries holds, by means of an automated data file or otherwise, certain personal information about the Employee, including, but not limited to, name, home address and telephone number, date of birth, social insurance number, salary, nationality, job title, any shares or directorships held in the Company, details of all Stock Options or other entitlement to shares awarded, canceled, exercised, vested, unvested, or outstanding in the Employee’s favor, for purposes of managing and administering the Plan (“Data”).

c. The Employee also understands that part or all of his or her Data may be held by the Company or its subsidiaries in connection with managing and administering previous award or incentive plans or for other purposes, pursuant to a prior transfer made with the Employee’s consent in respect of any previous grant of stock options or other awards.

d. The Employee further understands that the Employer may transfer Data to the Company or its subsidiaries as necessary to implement, administer, and manage his or her participation in the Plan. The Company and its subsidiaries may transfer data among themselves, and each, in turn, may further transfer Data to any third parties assisting the Company in the implementation, administration, and management of the Plan (“Data Recipients”).

e. The Employee understands that the Company, its subsidiaries, and the Data Recipients are or may be located in his or her country of residence or elsewhere. The Employee authorizes the Employer, the Company, its subsidiaries, and Data Recipients to receive, possess, use, retain, and transfer Data in electronic or other form, to implement, administer, and manage his or her participation in the Plan, including any transfer of Data that the Administrator deems appropriate for the administration of the Plan and any transfer of Shares on his or her behalf to a broker or third party with whom the Shares may be deposited.

f. The Employee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative.

g. The Employee understands that Data will be held as long as is reasonably necessary to implement, administer and manage his or her participation in the Plan and he or she may oppose the processing and transfer of his or her Data and may, at any time, review the Data, request that any necessary amendments be made to it, or withdraw his or her consent by notifying the Company in writing. The Employee further understands that withdrawing consent may affect his or her ability to participate in the Plan.

11. Disc retionary Nature and Acceptance of Award . By accepting this Award, the Employee agrees to be bound by the terms of this Agreement and acknowledges that:

a. The Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended, or terminated by the Company at any time, unless otherwise provided in the Plan and this Agreement.

b. The award of the Stock Options is voluntary and occasional, and does not create any contractual or other right to receive future grants of Stock Options, or benefits in lieu of Stock Options, even if Stock Options have been granted repeatedly in the past;

c. All decisions with respect to future Stock Option grants, if any, will be at the sole discretion of the Company;

d. Employee’s participation in the Plan is voluntary;

e. Employee’s participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Company or the Employer to terminate Employee’s employment at any time;

f. The Stock Option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any subsidiary, and which is outside the scope of Participant’s employment or service contract, if any;

g. The Stock Option is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any subsidiary;

h. In the event the Participant is not an Employee of the Company, the Stock Option and Participant’s participation in the Plan will not be interpreted to form an employment or service contract or relationship with the Company; and furthermore, the Stock Option and Participant’s participation in the Plan will not be interpreted to form an employment or service contract with any subsidiary of the Company;

i. The future value of the Shares is unknown and cannot be predicted with certainty;

j. If the Shares decrease in value, the Stock Option will have no value;

k. If Participant exercises the Stock Option and obtains Shares, the value of the Shares obtained upon exercise may increase or decrease in value, even below the Exercise Price;

l. In consideration of the award of the Stock Option, no claim or entitlement to compensation or damages shall arise from termination of the Stock Option or diminution in value of the Stock Option, or Shares purchased through exercise of the Stock Option, resulting from termination of Participant’s employment by the Company or any subsidiary (for any reason whatsoever and whether or not in breach of local labor laws) and in consideration of the grant of the Stock Option, Participant irrevocably releases the Company and any subsidiary from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing the Notice of Grant, Participant shall be deemed irrevocably to have waived his or her right to pursue or seek remedy for any such claim or entitlement;

m. In the event of termination of Participant’s employment (whether or not in breach of local labor laws), Participant’s right to receive Stock Options under the Plan and to vest in such Stock Options, if any, will terminate effective as of the date that Participant is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of termination of Participant’s employment (whether or not in breach of local labor laws), Participant’s right to exercise the Stock Options after termination of employment, if any, will be measured by the date of termination of active employment and will not be extended by any notice period mandated under local law; the Administrator shall have the exclusive discretion to determine when Participant is no longer actively employed for purposes of this Agreement;

n. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan or Participant’s acquisition or sale of the underlying Shares; and

o. Participant is hereby advised to consult with Participant’s own personal tax, legal and financial advisors regarding Participant’s participation in the Plan before taking any action related to the Plan.

12. Failure to Enforce Not a Waiver. The Company’s failure to enforce at any time any provision of this Agreement does not constitute a waiver of that provision or of any other provision of this Agreement.

13. Governing Law. This Agreement is governed by and is to be construed according to the laws of the State of New York that apply to agreements made and performed in that state, without regard to its choice of law provisions. For purposes of litigating any dispute that arises under this Stock Option or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of New York, and agree that such litigation will be conducted in the courts of New York County, New York, or the federal courts for the United States for the Southern District of New York, and no other courts, where this Stock Option is made and/or to be performed.

14. Partial Invalidity. The invalidity or illegality of any provision of this Agreement will be deemed not to affect the validity of any other provision.

15. Section 409A. The Stock Options are intended to be exempt from Code Section 409A. The Company reserves the unilateral right to amend this Agreement upon written notice to the Participant to prevent taxation under Code Section 409A.

16. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Stock Options awarded under the Plan or future Stock Options that may be awarded

under the Plan by electronic means or request Employee’s consent to participate in the Plan by electronic means. Employee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.

	The Estée Lauder Companies Inc.

	By:	/s/ Amy DiGeso
		Amy DiGeso
		Executive Vice President,
		Global Human Resources

Notice of Grant Under

The Estee Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (The “Plan”)

This is to confirm that, upon the recommendation of your management, you were awarded options to purchase shares of Class A Common Stock of The Estee Lauder Companies Inc. (the “Shares”) at the most recent meeting of the Stock Plan Subcommittee of the Compensation Committee of the Board of Directors. This award was made in recognition of the significant contributions you have made as a key employee of the Company, and to motivate you to achieve future successes by aligning your interests more closely with those of our stockholders. These options are granted under and governed by the terms and conditions of the Plan and the Stock Option Agreement (the “Agreement”) made part hereof. The Agreement and Summary Plan Description are being sent to you in a separate email. Please read these documents and keep them for future reference. The specific terms of your award are as follows:

Participant: ( FIRST NAME _ LAST NAME )

Employee Identification Number: (*)

Grant Date: (*)

Type of Award: (*)

Exercise Price per Share: (*) (Closing trading price on NYSE of the Class A Common Stock on the date of grant)

Aggregate number of Shares subject to your options:

Exercise Period: Your options shall become exercisable on the following dates (or upon death, disability, retirement, or involuntary termination of employment if these occurrences are earlier), but are subject to termination or forfeiture as per Paragraphs 2 and 3 of the Agreement:

Number of Shares	Date Exercisable	Expiration Date
*()**	*()**	*()**
**()***	**()***	**()***
**()***	**()***	**()***

Questions regarding the stock option program can be directed to (*)

If you wish to accept this grant, please sign this Notice of Grant and return immediately to:

Compensation Department

767 Fifth Avenue, 43rd Floor

New York, New York 10153

Attention: (*)

The undersigned hereby accepts, and agrees to, all terms and provisions of the Agreement, including those contained in this Notice of Grant.

By		Date

Enclosure: Stock Option Q&A

Exhibit 10.2

Each of the Stock Plan Subcommittee of the Compensation Committee and the Compensation Committee of the Board of Directors of The Estée Lauder Companies Inc. reserves the right to change provisions of this Agreement to comply with the American Jobs Creation Act of 2004.

Performance Share Unit Award Agreement

Under

The Estée Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (the “Plan”)

This PERFORMANCE SHARE UNIT AWARD AGREEMENT (“Agreement”) provides for the granting of performance share unit awards by The Estée Lauder Companies Inc., a Delaware corporation (the “Company”), to the participant, an employee of the Company or one of its subsidiaries (the “Participant”), representing a notional account equal to a corresponding number of shares of the Company’s Class A Common Stock, par value $0.01 (the “Shares”), subject to the terms below (the “Performance Share Units”). The name of the “Participant,” the “Grant Date,” the aggregate number of Shares representing the Target Award, and the Plan Achievement (as defined below) goals are stated in the attached “Notice of Grant,” and are incorporated by reference. The other terms of this Performance Share Unit Award are stated in this Agreement and in the Plan. Terms not defined in this Agreement are defined in the Plan, as amended.

1. Award Grant . The Company hereby awards to the Participant a target award of Performance Share Units in respect of the number of Shares set forth in the Notice of Grant (the “Target Award”), representing a Stock Unit and Performance-Based Award under the terms of the Plan.

2. Right to Payment of Performance Share Units . It is understood that the percentage of the Target Award earned and paid will be established by the Committee based on the plan achievement (the “Plan Achievement”) during the period specified in the Notice of Grant (the “Award Period”). The Plan Achievement comprises, and is measured separately with respect to, the following two components:

(a) Net Sales Cumulative Annual Growth Rate (which shall represent 50% of the Target Award); and

(b) Earnings Per Share Cumulative Annual Growth Rate (which shall represent 50% of the Target Award).

For purposes of this Performance Share Unit Award Agreement, “Net Sales” has the meaning utilized by the Company in its consolidated financials in accordance with generally accepted accounting principles as in effect on the first day of the Award Period, excluding the impact of foreign currency fluctuations and “Earnings Per Share” means “diluted earnings per share” as utilized by the Company in its consolidated financials.

Actual payment of the Performance Share Units awarded will be determined for each component in accordance with the table attached hereto as Schedule “A.”

3. Payment of Awards . Payments under this Agreement will be made in the number of Shares that is equivalent to the number of Performance Share Units earned and payable to the Participant pursuant to paragraph 2 above. Except as otherwise provided in paragraph 4 below, payments will be made as soon as practicable after the Award Period ends, but in no event later than 2 and 1/2 months following the last day of the calendar year in which the Award Period ends. The form of payout will be in Shares. In addition, each Performance Share Unit that becomes earned and payable pursuant to paragraph 2 above carries a Dividend Equivalent Right, payable in cash at the same time as the payment of Shares in accordance with this paragraph 3 and paragraph 4.

Upon a Change in Control, each Performance Share Unit will become payable to the Participant with the total number of Shares to be paid equal to the Target Award. Payments upon a Change in Control will be made within two weeks following the Change in Control. If the Shares cease to be outstanding immediately after the Change in Control (e.g., due to a merger with and into another entity), then the consideration to be received per Share will equal the consideration paid to each stockholder per Share generally upon the Change in Control.

4. Termination of Employment . If the Participant’s employment terminates during the Award Period, payouts will be as follows:

(a) Death. If the Participant dies, the Performance Share Units will be paid as a pro rata Target Award for the number of full months employed during the Award Period (i.e., the proration of the Target Award equals a fraction, the numerator of which is the number of full calendar months of service completed during the Award Period through the Participant’s death and the denominator of which is the number of full calendar months in the Award Period). Payment will occur as soon as practicable following the Participant’s death and in accordance with any applicable laws or Company procedures regarding the payments.

(b) Retirement. If the Participant formally retires under the terms of The Estée Lauder Companies Retirement Growth Account Plan (or an affiliate or a successor plan or program of similar purpose), the Performance Share Unit Award will continue through the Award Period and the Participant will be paid based on actual Plan Achievement, at the same time the awards are paid to active employees. If the Participant dies during active employment after the attainment of age 55 and the completion of 10 or more years of service, or after the attainment of age 65 and the completion of 5 or more years of service, without formally retiring under the terms of the Estée Lauder Inc. Retirement Growth Account Plan (or an affiliate or a successor plan or program of similar purpose), the Participant will have deemed to be retired as of the date of death and this Section 4(b) will apply rather than Section

4(a). If the Participant dies or becomes disabled after retirement as contemplated by this Section 4(b), the provisions of this section shall apply.

(c) Disability. If the Participant becomes totally and permanently disabled (as determined under the Company’s long-term disability program), the Performance Share Unit Award will continue through the Award Period and the Participant will be paid a pro rata amount for the number of full months employed during the Award Period (determined under the proration methodology in paragraph 4(a)) based on actual Plan Achievement. Payment will occur at the same time the awards are paid to active employees.

(d) Termination of Employment Without Cause. If the Participant’s employment is terminated at the instance of the Company or relevant subsidiary without Cause (as defined below) on or prior to the end of the first year of the Award Period, the Performance Share Unit Award will be forfeited. If such termination occurs after the end of the first year of the Award Period, the Performance Share Unit Award will continue through the Award Period and the Participant will be paid a pro rata amount for the number of full months employed during the Award Period (determined under the proration methodology in paragraph 4(a)) based on actual Plan Achievement. Payment will occur at the same time the awards are paid to active employees.

(e) Termination of Employment By Employee. If the Participant terminates his or her employment ( e.g. , by voluntary resigning) other than by retirement, which is subject to paragraph 4(b) above, the Performance Share Unit Award will be forfeited.

(f) Termination of Employment With Cause. If the Participant is terminated for Cause, the Performance Share Unit Award will be forfeited. For this purpose, “Cause” is defined in the employment agreement in effect between the Participant and the Company or any subsidiary, including any employment agreement entered into after the Grant Date. In the absence of an employment agreement, “Cause” means any breach by the Participant of any of his or her material obligations under any Company policy or procedure, including, without limitation, the Code of Conduct.

(g) Post Employment Conduct. Payout of any Performance Share Unit Award after termination of employment is subject to satisfaction of the conditions precedent that the Participant neither (i) competes with, takes employment with, or renders services to a competitor of the Company, its subsidiaries, or affiliates without the Company’s written consent, nor (ii) conducts himself or herself in a manner adversely affecting the Company.

If the Participant’s employment terminates after the expiration of the Award Period but

prior to payout, payout will be subject to the above.

5. No Rights of Stock Ownership . This grant of Performance Share Units does not entitle the Participant to any interest in or to any voting or other rights normally attributable to Share ownership other than the Dividend Equivalent Rights granted under paragraph 3 above.

6. Withholding . Regardless of any action the Company or the Participant’s employer (the “Employer”) takes with respect to any or all income tax, social security, payroll tax, or other tax-related withholding (“Tax-Related Items”), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by Participant is and remains his or her responsibility. Furthermore, Participant acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Performance Share Units, including the grant of the Performance Share Units, the vesting of the Performance Share Units, the delivery of Shares, the subsequent sale of Shares acquired under the Plan and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant of the Performance Share Units or any aspect of Participant’s participation in the Plan to reduce or eliminate his or her liability for Tax-Related Items.

Prior to the relevant taxable event, Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding obligations of the Company and/or the Employer. In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from his or her wages or other cash compensation paid by the Company and/or the Employer or from proceeds of the sale of the Shares acquired under the Plan. Alternatively, or in addition, the Company may (i) sell or arrange for the sale of Shares that Participant acquires under the Plan to meet the withholding obligation for the Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. If the Company satisfies the Tax-Related Item withholding obligation by withholding a number of Shares as described herein, Participant will be deemed to have been issued the full number of Shares due to Participant at vesting, notwithstanding that a number of the Shares is held back solely for purposes of such Tax-Related Items.

7. Nonassignability . This award may not be assigned, pledged, or transferred except, if the Participant dies, to a designated beneficiary or by will or by the laws of descent and distribution. The foregoing restrictions do not apply to transfers under a court order, including, but not limited to, any domestic relations order.

8. Effect Upon Employment . The Participant’s right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, is not enlarged or otherwise affected by an award under this Agreement. Nothing in this Agreement or the Plan gives the Participant any right to continue in the employ of the Company or any of its subsidiaries or to interfere in any way with any right the Company or any subsidiary may have to terminate his or her employment at any time. Payment of Shares is not secured by a trust, insurance contract or other funding medium, and the Participant does not have any interest in any fund or specific asset of the Company by reason of this Award or the account established on his or her behalf. A Performance Share Unit confers no rights as a shareholder of the Company until Shares are actually delivered to the Participant.

9. Notices. Any notice required or permitted under this Performance Share Unit Award Agreement is deemed to have been duly given if delivered, telecopied, mailed (certified or registered mail, return receipt requested), or sent by internationally-recognized courier guaranteeing next day delivery (a) to the Participant at the address on file in the Company’s (or relevant subsidiary’s) personnel records or (b) to the Company, attention Stock Plan Administration at its principal executive offices, which are currently located at 767 Fifth Avenue, New York, NY 10153.

10. Disclosure and Use of Information.

a. By signing and returning the attached Notice of Grant, and as a condition of the grant of the Performance Share Units, the Participant hereby expressly and unambiguously consents to the collection, use, and transfer of personal data as described in this paragraph by and among, as necessary and applicable, the Employer, the Company and its subsidiaries and by any agent of the Company or its subsidiaries for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.

b. The Participant understands that the Employer, the Company and/or its other subsidiaries holds, by means of an automated data file or otherwise, certain personal information about the Participant, including, but not limited to, name, home address and telephone number, date of birth, social insurance number, salary, nationality, job title, any shares or directorships held in the Company, details of all Performance Share Units or other entitlement to shares awarded, canceled, exercised, vested, unvested, or outstanding in the Participant’s favor, for purposes of managing and administering the Plan (“Data”).

c. The Participant also understands that part or all of his or her Data may be held by the Company or its subsidiaries in connection with managing and administering previous award or incentive plans or for other purposes, pursuant to a prior transfer made with the Participant’s consent in respect of any previous grant of performance share units or other awards .

d. The Participant further understands that the Employer may transfer Data to the Company or its subsidiaries as necessary to implement, administer, and manage his or her participation in the Plan. The Company and its subsidiaries may transfer data among themselves, and each, in turn, may further transfer Data to any third parties assisting the Company in the implementation, administration, and management of the Plan (“Data Recipients”).

e. The Participant understands that the Company, its subsidiaries, and the Data Recipients are or may be located in his or her country of residence or elsewhere. The Participant authorizes the Employer, the Company, its subsidiaries, and the Data Recipients to receive, possess, use, retain, and transfer Data in electronic or other form to implement, administer, and manage his or her participation in the Plan, including any transfer of Data that the Administrator deems appropriate for the administration of the Plan and any transfer of Shares on his or her behalf to a broker or third party with whom the Shares may be deposited.

f. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative.

g. The Participant understands that Data will be held as long as is reasonably necessary to implement, administer and manage his or her participation in the Plan and he or she may oppose the processing and transfer of his or her Data and may, at any time, review the Data, request that any necessary amendments be made to it, or withdraw his or her consent by notifying the Company in writing. The Participant further understands that withdrawing consent may affect his or her ability to participate in the Plan.

11. Disc retionary Nature and Acceptance of Award . By accepting this Award, the Participant agrees to be bound by the terms of this Agreement and acknowledges that:

a. The Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Agreement;

b. The award of Performance Share Units is voluntary and occasional, and does not create any contractual or other right to receive future awards of Performance Share Units, or benefits in lieu of Performance Share Units, even if Performance Share Units have been awarded repeatedly in the past.

c. All decisions with respect to future awards, if any, will be at the sole discretion of the Company;

d. Participant’s participation in the Plan is voluntary;

e. Participant’s participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Company or the Employer to terminate Participant’s employment at any time;

f. Performance Share Units are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any subsidiary, and which is outside the scope of Participant’s employment or service contract, if any;

g. The Performance Share Units are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any subsidiary;

h. In the event the Participant is not an employee of the Company, the Performance Share Units and Participant’s participation in the Plan will not be interpreted to form an employment or service contract or relationship with the Company; and furthermore, the Performance Share Units and Participant’s participation in the Plan will not be interpreted to form an employment or service contract with any subsidiary of the Company;

i. The future value of the underlying Shares is unknown and cannot be predicted with certainty;

j. In consideration of the award of the Performance Share Units, no claim or entitlement to compensation or damages shall arise from termination of the Performance Share Units or diminution in value of the Performance Share Units, or Shares acquired upon vesting of the Performance Share Units, resulting from termination of Participant’s employment by the Company or any subsidiary (for any reason whatsoever and whether or not in breach of local labor laws) and in consideration of the award of the Performance Share Units, Participant irrevocably releases the Company and any subsidiary from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing the Notice of Grant, Participant shall be deemed irrevocably to have waived his or her right to pursue or seek remedy for any such claim or entitlement;

k. In the event of termination of Participant’s employment (whether or not in breach of local labor laws), Participant’s right to receive Performance Share Units under the Plan and to vest in such Performance Share Units, if any, will terminate effective as of the date that Participant is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); the Administrator shall have the exclusive discretion to determine when Participant is no longer actively employed for purposes of this Agreement;

l. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan or Participant’s acquisition or sale of the underlying Shares; and

m. Participant is hereby advised to consult with Participant’s own personal tax, legal and financial advisors regarding Participant’s participation in the Plan before taking any action related to the Plan.

12. Failure to Enforce Not a Waiver. The Company’s failure to enforce at any time any provision of this Agreement does not constitute a waiver of that provision or of any other provision of this Agreement.

13. Governing Law. The Performance Share Unit Award Agreement is governed by and is to be construed according to the laws of the State of New York that apply to agreements made and performed in that state, without regard to its choice of law provisions. For purposes of litigating any dispute that arises under the Performance Share Units or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of New York, and agree that such litigation will be conducted in the courts of New York County, New York, or the federal courts for the United States for the Southern District of New York, and no other courts, where the Performance Share Units are made and/or to be performed.

14. Partial Invalidity. The invalidity or illegality of any provision of the Agreement will be deemed not to affect the validity of any other provision.

15. Section 409A Compliance. This Agreement is intended to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and any regulations, rulings, or guidance provided thereunder. The Company reserves the unilateral right to amend this Agreement upon written notice to the Participant to prevent taxation under Code section 409A.

16. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Performance Share Units awarded under the Plan or future Performance Share Units that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.

	The Estée Lauder Companies Inc.


	By:	/s/ Amy DiGeso
		Amy DiGeso
		Executive Vice President,
		Global Human Resources

Schedule “A”

For Net Sales Cumulative Annual Growth Rate:

	Component Plan Achievement	Component Payout ( Percentage of Target Award )

High	(*)%	(*)%

	(*)%	(*)%

Low	(*)%	(*)%

For Net Earnings Per Share Cumulative Annual Growth Rate:

	Component Plan Achievement	Component Payout ( Percentage of Target Award )

High	(*)%	(*)%

	(*)%	(*)%

Low	(*)%	(*)%

Payout amount for levels of Plan Achievement between the high and low achievement shall be interpolated on a straight line basis (rounded up to the nearest integer). In no event shall the Participant receive a payout in excess of (*)% of the Target Award for any component. No payout shall be made in the event of component Plan Achievement less than low achievement. Notwithstanding anything to the contrary stated above, the Committee may reduce the payment based on other factors at the discretion of the Committee unless a Change of Control has occurred.

In measuring Plan Achievement, financial performance measures (e.g., “Earnings Per Share” and “Net Sales”) will be calculated without regard to the following:

· Changes in accounting principles (i.e., cumulative effect of GAAP changes)

· Extraordinary items as defined in accordance with US GAAP or which are the result of a change in the law or the Company’s response thereto

· Income/loss from discontinued operations and income/loss on sale of discontinued operations

· Non-recurring operating income/expenses (separately stated and disclosed in the financial statements — e.g., restructuring charges, legal settlement charges, goodwill write-off)

· Impairment of intangibles

In calculating net sales during the Award Period, net sales in currencies other than U.S. dollars shall be translated into U.S. dollars at the Company’s budget exchange rate at the beginning of the Award Period.

Earnings Per Share will be calculated based on the weighted average number of Shares outstanding as of the measurement date and will be adjusted to eliminate the effect of material changes in the number or type of outstanding Shares due to events such as:

· Stock splits

· Stock dividends

· Recapitalizations

· Acquisitions involving stock of the Company

No adjustment will be made for the impact of stock repurchases under any plans approved by the Board

Notice of Grant

Under

The Estée Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (The “Plan”)

This is to confirm that you were awarded a grant of Performance Share Units at the most recent meeting of the Stock Plan Subcommittee of the Compensation Committee of the Board of Directors representing the right to receive shares of Class A Common Stock of The Estée Lauder Companies Inc. (the “Shares”), subject to the terms of the Plan and the Performance Share Unit Award Agreement. This award was made in recognition of the significant contributions you have made as a key employee of the Company, and to motivate you to achieve future successes by aligning your interests more closely with those of our stockholders. This Performance Share Unit Award is granted under and governed by the terms and conditions of the Plan and the Performance Share Unit Award Agreement (the “Agreement”) made part hereof. The Agreement and Summary Plan Description are being sent to you in a separate e-mail. Please read these documents and keep them for future reference. The specific terms of your award are as follows:

Participant: (FIRST NAME _ LAST NAME)

Employee Number: (*)

Grant Date: (*)

Award Period: (*)

Type of Award: Stock Unit and Performance-Based Award (referred to herein as a “Performance Share Unit”)

Target Award: (*) shares of Class A Common Stock. See Schedule “A” to the Agreement for actual payouts depending upon level of performance.

Plan Achievement goal at 100% for Award Period:

Net Sales Cumulative Annual Growth Rate

(*)

Earnings Per Share Cumulative Annual Growth Rate

(*)

Questions regarding the award can be directed to (*)

If you wish to accept this grant, please sign this Notice of Grant and return immediately to:

Compensation Department

767 Fifth Avenue, 43rd Floor

New York, New York 10153

Attention: (*)

The undersigned hereby accepts, and agrees to, all terms and provisions of the Agreement, including those contained in this Notice of Grant.

Date

Exhibit 10.3

Restricted Stock Unit Agreement Under

The Estée Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (the “Plan”)

This RESTRICTED STOCK UNIT AGREEMENT (“ Agreement ”) provides for the granting by The Estée Lauder Companies Inc., a Delaware corporation (the “ Company ”), to the participant, an employee of the Company or one of its subsidiaries (the “ Participant ”), of Stock Units under the Plan representing a notional account equal to a corresponding number of shares of the Company’s Class A Common Stock, par value $0.01 (the “ Shares ”), subject to the terms below (the “ Restricted Stock Units ”). The name of the “Participant,” the “Grant Date,” the “Number of Restricted Stock Units,” the “Vesting Commencement Date,” the “Vesting Schedule,” and the “Vesting Period” are stated in the attached “Notice of Grant” and are incorporated by reference. The other terms of this award are stated in this Agreement and in the Plan. Terms not defined in this Agreement are defined in the Plan, as amended.

1. Award Grant . The Company hereby awards to the Participant an award of Restricted Stock Units in respect of the number of Shares set forth in the Notice of Grant.

2. Vesting . The Restricted Stock Units granted to the Participant will vest and become payable in accordance with the Vesting Schedule in the Notice of Grant. This schedule indicates the vesting date upon which the Participant will be entitled to receive Shares. Except as otherwise provided in this Agreement, any Restricted Stock Units that are unvested when the Participant terminates employment with the Company will be forfeited.

3. Payment of Awards . Each Restricted Stock Unit represents the right to receive one Share when the Restricted Stock Unit vests.

In addition, each Restricted Stock Unit carries a Dividend Equivalent Right, payable in cash at the same time as payment of Restricted Stock Units in Shares in accordance with this paragraph 3 and paragraph 4. Dividend Equivalent Rights are deemed part of the related Restricted Stock Units under this Agreement.

Upon a Change in Control, each Restricted Stock Unit will vest and become payable to the Participant. Payments upon a Change in Control will be made within two weeks following the Change in Control. If the Shares cease to be outstanding immediately after the Change in Control (e.g., due to a merger with and into another entity), then the consideration to be received per Share will equal the consideration paid to each stockholder per Share generally upon the Change in Control.

4. Termination of Employment . If the Participant’s employment terminates during the Vesting Period, all Restricted Stock Units will be forfeited except as follows:

(a) Death . If the Participant dies, the Restricted Stock Units will vest pro rata for the number of full months the Participant was employed during the Vesting Period (i.e., the proration equals a fraction, the numerator of which is the number of full calendar months of service completed during the Vesting Period through the Participant’s death and the denominator of which is the number of full calendar months in the Vesting Period). Payment of the Restricted Stock Units will occur as soon as practicable following the Participant’s death and in accordance with any applicable laws or Company procedures regarding the payments.

(c) Disability . If the Participant becomes totally and permanently disabled (as determined under the Company’s long-term disability program), the Restricted Stock Units will vest pro rata for full months employed during the Vesting Period (determined under the proration methodology in paragraph 4(a)). The Restricted Stock Units will be paid in accordance with the Vesting Schedule.

(d) Termination of Employment Without Cause . If the Participant’s employment is terminated at the instance of the Company or relevant subsidiary without Cause (as defined below), any unvested Restricted Stock Units will vest pro rata for full months employed during the Vesting Period (determined under the proration methodology in paragraph 4(a)) on the next vesting date during the Vesting Period. Restricted Stock Units will be paid in accordance with the Vesting Schedule.

(e) Termination of Employment By Employee . If the Participant voluntarily terminates his or her employment (e.g . , by voluntary resigning) other than by retirement, which is subject to paragraph 4(b) above, all Restricted Stock Units that are not vested as of the effective date of resignation will be forfeited.

(f) Termination of Employment With Cause . If the Participant is terminated for Cause, all Restricted Stock Units that are not vested as of the effective date of termination will be forfeited. For this purpose, “Cause” is defined in the employment agreement in effect between the Participant and the Company or any subsidiary, including an employment agreement entered into after the Grant Date. In the absence of an employment agreement, “Cause” means any breach by the Participant of any of his or her material obligations under

any Company policy or procedure, including, without limitation, the Code of Corporate Conduct.

(g) Post Employment Conduct . Payment in respect of any Restricted Stock Unit after termination of employment is subject to satisfaction of the conditions precedent that the Participant neither (i) competes with, takes employment with, or renders services to a competitor of the Company, its subsidiaries, or affiliates without the Company’s written consent, nor (ii) conducts himself or herself in a manner adversely affecting the Company.

5. No Rights of Stock Ownership . This grant of Restricted Stock Units does not entitle the Participant to any interest in or to any voting or other rights normally attributable to Share ownership other than the Dividend Equivalent Rights granted under paragraph 3 above.

6. Withholding . Regardless of any action the Company or the Participant’s employer (the “Employer”) takes with respect to any or all income tax, social security, payroll tax, or other tax-related withholding (“Tax-Related Items”), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by Participant is and remains his or her responsibility. Furthermore, Participant acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of Shares acquired under the Plan and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant of the Restricted Stock Units or any aspect of Participant’s participation in the Plan to reduce or eliminate his or her liability for Tax-Related Items.

Prior to the relevant taxable event, Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding obligations of the Company and/or the Employer. In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from his or her wages or other cash compensation paid by the Company and/or the Employer or from proceeds of the sale of the Shares acquired under the Plan. Alternatively, or in addition, the Company may (i) sell or arrange for the sale of Shares that Participant acquires under the Plan to meet the withholding obligation for the Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. If the Company satisfies the Tax-Related Item withholding obligation by withholding a number of Shares as described herein, Participant will be deemed to have been issued the full number of Shares due to Participant at vesting, notwithstanding that a number of the Shares is held back solely for purposes of such Tax-Related Items.

7. Nonassignability . This award may not be assigned, pledged, or transferred, except, if the Participant dies, to a designated beneficiary or by will or by the laws of descent and distribution. The foregoing restrictions do not apply to transfers under a court order, including, but not limited to, any domestic relations order.

8. Effect Upon Employment . The Participant’s right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, is not enlarged or otherwise affected by an award under this Agreement. Nothing in this Agreement or the Plan gives the Participant any right to continue in the employ of the Company or any of its subsidiaries or to interfere in any way with any right the Company or any subsidiary may have to terminate his or her employment at any time. Payment of Shares is not secured by a trust, insurance contract or other funding medium, and the Participant does not have any interest in any fund or specific asset of the Company by reason of this Award or the account established on his or her behalf. A Restricted Stock Unit award confers no rights as a shareholder of the Company until Shares are actually delivered to the Participant.

9. Notices. Any notice required or permitted under this Agreement is deemed to have been duly given if delivered, telecopied, or mailed (certified or registered mail, return receipt requested), or sent by internationally-recognized courier guaranteeing next day delivery (a) to the Participant at the address on file in the Company’s (or relevant subsidiary’s) personnel records, or (b) to the Company, attention Stock Plan Administration at its principal executive offices, which are currently located at 767 Fifth Avenue, New York, NY 10153.

10. Disclosure and Use of Information.

a. By signing and returning the attached Notice of Grant, and as a condition of the grant of the Restricted Stock Units, the Participant hereby expressly and unambiguously consents to the collection, use, and transfer of personal data as described in this paragraph by and among, as necessary and applicable, the Employer, the Company and its subsidiaries and by any agent of the Company or its subsidiaries for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.

b. The Participant understands that the Employer, the Company and/or its other subsidiaries holds, by means of an automated data file or otherwise, certain personal information about the Participant, including, but not limited to, name, home address and telephone number, date of birth, social insurance number, salary, nationality, job title, any shares or directorships held in the Company, details of all Restricted Stock Units or other entitlement to shares awarded, canceled, exercised, vested, unvested, or outstanding in the Participant’s favor, for purposes of managing and administering the Plan (“Data”).

retain, and transfer Data in electronic or other form to implement, administer, and manage his or her participation in the Plan, including any transfer of Data that the Administrator deems appropriate for the administration of the Plan and any transfer of Shares on his or her behalf to a broker or third party with whom the Shares may be deposited.

f. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative.

11. Disc retionary Nature and Acceptance of Award . By accepting this Award, the Participant agrees to be bound by the terms of this Agreement and acknowledges that:

b. The award of Restricted Stock Units is voluntary and occasional, and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past.

c. All decisions with respect to future awards, if any, will be at the sole discretion of the Company;

d. Participant’s participation in the Plan is voluntary;

f. Restricted Stock Units are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any subsidiary, and which is outside the scope of Participant’s employment or service contract, if any;

g. The Restricted Stock Units are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any subsidiary;

h. In the event the Participant is not an employee of the Company, the Restricted Stock Units and Participant’s participation in the Plan will not be interpreted to form an employment or service contract or relationship with the Company; and furthermore, the Restricted Stock Units and Participant’s

participation in the Plan will not be interpreted to form an employment or service contract with any subsidiary of the Company;

i. The future value of the underlying Shares is unknown and cannot be predicted with certainty;

j. In consideration of the award of the Restricted Stock Units, no claim or entitlement to compensation or damages shall arise from termination of the Restricted Stock Units or diminution in value of the Restricted Stock Units, or Shares acquired upon vesting of the Restricted Stock Units, resulting from termination of Participant’s employment by the Company or any subsidiary (for any reason whatsoever and whether or not in breach of local labor laws) and in consideration of the award of the Restricted Stock Units, Participant irrevocably releases the Company and any subsidiary from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing the Notice of Grant, Participant shall be deemed irrevocably to have waived his or her right to pursue or seek remedy for any such claim or entitlement;

k. In the event of termination of Participant’s employment (whether or not in breach of local labor laws), Participant’s right to receive Restricted Stock Units under the Plan and to vest in such Restricted Stock Units, if any, will terminate effective as of the date that Participant is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); the Administrator shall have the exclusive discretion to determine when Participant is no longer actively employed for purposes of this Agreement;

12. Failure to Enforce Not a Waiver. The Company’s failure to enforce at any time any provision of this Agreement does not constitute a waiver of that provision or of any other provision of this Agreement.

13. Governing Law. This Agreement is governed by and is to be construed according to the laws of the State of New York that apply to agreements made and performed in that state, without regard to its choice of law provisions. For purposes of litigating any dispute that arises under the Restricted Stock Units or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of New York, and agree that such litigation will be conducted in the courts of New York County, New York, or the federal courts for the United States for the Southern District of New York, and no other courts, where the Restricted Stock Units are made and/or to be performed.

14. Partial Invalidity. The invalidity or illegality of any provision of this Agreement will be deemed not to affect the validity of any other provision.

15. Section 409A Compliance . This Agreement is intended to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and any regulations, rulings, or guidance provided thereunder. The Company reserves the unilateral right to amend this Agreement upon written notice to the Participant to prevent taxation under Code section 409A.

16. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.

	The Estée Lauder Companies Inc.

	By:	/s/ Amy DiGeso
		Amy DiGeso
		Executive Vice President,
		Global Human Resources

Notice of Grant Under

The Estée Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (The “Plan”)

This is to confirm that you were awarded a grant of Restricted Stock Units at the most recent meeting of the Stock Plan Subcommittee of the Compensation Committee of the Board of Directors representing the right upon vesting of such units to receive shares of Class A Common Stock of The Estée Lauder Companies Inc. (the “Shares”), subject to the terms of the Plan and the Restricted Stock Unit Agreement. This award was made in recognition of the significant contributions you have made as a key employee of the Company, and to motivate you to achieve future successes by aligning your interests more closely with those of our stockholders. This Restricted Stock Unit award is granted under and governed by the terms and conditions of the Plan and the Restricted Stock Unit Agreement (the “Agreement”) made part hereof. The Agreement and Summary Plan Description are being sent to you in a separate email. Please read these documents and keep them for future reference. The specific terms of your award are as follows:

Participant: ( FIRST NAME _ LAST NAME )

Employee Number: (*)

Number of Restricted Stock Units: (*)

Grant Date: (*)

Vesting Commencement Date: (*)

Vesting Schedule: Subject to Participant’s continuous employment, this Restricted Stock Unit grant shall vest as to the number of Shares set forth below:

Shares		Vesting Date

(*)		(*)
(*)		(*)
(*)		(*)

Vesting Period: The Vesting Commencement Date through and including the applicable date set forth in the Vesting Schedule.

Questions regarding the award can be directed to (*)

If you wish to accept this grant, please sign this Notice of Grant and return immediately to:

Compensation Department

767 Fifth Avenue, 43rd Floor

New York, New York 10153

Attention: (*)

The undersigned hereby accepts, and agrees to, all terms and provisions of the Agreement, including those contained in this Notice of Grant.

Date

Enclosure:

Restricted Stock Unit Q&A

	Exhibit 10.4

	Domestic

Restricted Stock Unit Agreement Under

The Estée Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (the “Plan”)

1. Award Grant . The Company hereby awards to the Participant an award of Restricted Stock Units in respect of the number of Shares set forth in the Notice of Grant.

3. Payment of Awards . Each Restricted Stock Unit represents the right to receive one Share when the Restricted Stock Unit vests.

Upon a Change in Control, (a) each unvested Restricted Stock Unit will vest and become payable to the Participant in accordance with the Plan and this paragraph and (b) each vested Restricted Stock Unit not paid will become payable to the Participant in accordance with the Plan and this paragraph. Payments upon a Change in Control will be made within two weeks following the Change in Control. If the Shares cease to be outstanding immediately after the Change in Control (e.g., due to a merger with and into another entity), then the consideration to be received per Share will equal the consideration paid to each stockholder per Share generally upon the Change in Control. If the Participant dies before the Change in Control, vested Restricted Stock Units will become payable in accordance with this paragraph. If the Participant becomes disabled or is terminated without Cause before the Change in Control, the Restricted Stock Units that were to vest pro rata due to disability or termination without Cause will vest and become payable in accordance with this paragraph. All other unvested Restricted Stock Units will be forfeited.

4. Termination of Employment . If the Participant’s employment terminates during the Vesting Period, all unvested Restricted Stock Units will be forfeited except as follows, subject to Paragraph 3:

(a) Death . If the Participant dies, unvested Restricted Stock Units will vest on the date of death pro rata based on the number of full months the Participant was employed during the Vesting Period after the last vesting date (i.e., the proration equals a fraction, the numerator of which is the number of full calendar months of service completed during the Vesting Period after the last vesting date through the Participant’s death and the denominator of which is the number of full calendar months after the last vesting date that are remaining in the Vesting Period). For this purpose, “last vesting date” is the grant date if the first vesting date has not yet occurred. As an example, assume a grant to Participant X of Restricted Stock Units for 300 shares with a three-year Vesting Period and one-third of the units vesting at the end of each twelve-month period. If Participant X dies 18 months after the grant date and six months after the last vesting date, then the estate or beneficiary of Participant X would be entitled to payment of 50 Shares (before withholding). Participant X would have already received 100 Shares (before withholding) on the first anniversary of the grant date. Payment of the vested Restricted Stock Units will occur as soon as practicable following the Participant’s death and in accordance with any applicable laws or Company procedures regarding the payments.

(b) Retirement . If the Participant formally retires under the terms of The Estée Lauder Companies Retirement Growth Account Plan (or an affiliate or a successor plan or program of similar purpose), the unvested Restricted Stock Units will continue to vest and be paid in accordance with the Vesting Schedule. Vesting and payment in respect of any unvested Restricted Stock Unit after retirement will be subject to satisfaction of the conditions precedent that the Participant neither (i) competes with, takes employment with, or renders services to a competitor of the Company, its subsidiaries, or affiliates without the Company’s written consent, nor (ii) conducts himself or herself in a manner adversely affecting the Company. If the Participant dies during active employment after the attainment of age 55 and the completion of 10 or more years of service, or after the attainment of age 65 and the completion of 5 or more years of service, without formally retiring under the terms of the Estée Lauder Inc. Retirement Growth Account Plan (or an affiliate or a successor plan or program of similar purpose), the Participant will have deemed to be retired as of the date of death and this Section 4(b) will apply rather than Section 4(a). If the Participant dies or becomes disabled after retirement as contemplated by this Section 4(b), the provisions of this section shall apply.

(c) Disability . If the Participant becomes totally and permanently disabled (as determined under the Company’s long-term disability program), the unvested Restricted Stock Units will vest pro rata for full months employed during the Vesting Period (determined under the proration methodology in paragraph 4(a)) on the next vesting date during the Vesting Period. The vested Restricted Stock Units will be paid in accordance with the Vesting Schedule (i.e., on the next vesting date during the Vesting Period).

(d) Termination of Employment Without Cause . If the Participant’s employment is terminated at the instance of the Company or relevant subsidiary without Cause (as defined below), any unvested Restricted Stock Units will vest pro rata for full months employed during the Vesting Period (determined under the proration methodology in paragraph 4(a)) on the next

vesting date during the Vesting Period. Restricted Stock Units will be paid in accordance with the Vesting Schedule and payment in respect of any unvested Restricted Stock Unit after last day of active employment will be subject to satisfaction of the conditions precedent that the Participant neither (i) competes with, takes employment with, or renders services to a competitor of the Company, its subsidiaries, or affiliates without the Company’s written consent, nor (ii) conducts himself or herself in a manner adversely affecting the Company.

(e) Termination of Employment By Employee . If the Participant voluntarily terminates his or her employment (e.g., by voluntarily resigning) other than due to retirement or disability, which are subject to paragraphs 4(b) and 4(c) above, respectively, all Restricted Stock Units that are not vested as of the effective date of resignation will be forfeited.

(f) Termination of Employment With Cause . If the Participant is terminated for Cause, all Restricted Stock Units that are not vested as of the effective date of resignation will be forfeited. For this purpose, “Cause” is defined in the employment agreement in effect between the Participant and the Company or any subsidiary, including an employment agreement entered into after the Grant Date. In the absence of an employment agreement, “Cause” means any breach by the Participant of any of his or her material obligations under any Company policy or procedure, including, without limitation, the Code of Corporate Conduct.

deemed to have been issued the full number of Shares due to Participant at vesting, notwithstanding that a number of the Shares is held back solely for purposes of such Tax-Related Items.

8. Effect Upon Employment . The Participant’s right to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, is not enlarged or otherwise affected by an award hereunder. Nothing in this Agreement or the Plan gives the Participant any right to continue in the employ of the Company or any of its subsidiaries or to interfere in any way with any right the Company or any subsidiary may have to terminate his or her employment at any time. Payment of Shares is not secured by a trust, insurance contract or other funding medium, and the Participant does not have any interest in any fund or specific asset of the Company by reason of this Award or the account established on his or her behalf. A Restricted Stock Unit award confers no rights as a shareholder of the Company until Shares are actually delivered to the Participant.

9. Notices. Any notice required or permitted under this Agreement is deemed to have been duly given if delivered, telecopied, or mailed (certified or registered mail, return receipt requested) or sent by internationally-recognized courier guaranteeing next day delivery (a) to the Participant at the address on file in the Company’s (or relevant subsidiary’s) personnel records or (b) to the Company, attention Stock Plan Administration at its principal executive offices, which are currently located at 767 Fifth Avenue, New York, NY 10153.

10. Disclosure and Use of Information.

b. The Participant understands that the Employer, the Company and/or its other subsidiaries holds, by means of an automated data file or otherwise, certain personal information about the Participant, including, but not limited to, name, home address and telephone number, date of birth, social insurance number, salary, nationality, job title, any shares or directorships held in the Company, details of all Restricted Stock Units or other entitlement to shares awarded, canceled, exercised, vested, unvested, or outstanding in the Participant’s favor, for purposes of managing and administering the Plan (“Data”).

f. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative.

11. Disc retionary Nature and Acceptance of Award . By accepting this Award, the Participant agrees to be bound by the terms of this Agreement and acknowledges that:

c. All decisions with respect to future awards, if any, will be at the sole discretion of the Company;

d. Participant’s participation in the Plan is voluntary;

i. The future value of the underlying Shares is unknown and cannot be predicted with certainty;

13. Governing Law. This Agreement is governed by and is to be construed according to the laws of the State of New York, that apply to agreements made and performed in that state, without regard to its choice of law provisions. For purposes of litigating any dispute that arises under the Restricted Stock Units or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of New York, and agree that such litigation will be conducted in the courts of New York County, New York, or the federal courts for the United States for the Southern District of New York, and no other courts, where the Restricted Stock Units are made and/or to be performed.

14. Partial Invalidity. The invalidity or illegality of any provision of this Agreement will be deemed not to affect the validity of any other provision.

	The Estée Lauder Companies Inc.

	By:	/s/ Amy DiGeso
		Amy DiGeso
		Executive Vice President,
		Global Human Resources

Notice of Grant Under

The Estée Lauder Companies Inc.

Amended and Restated Fiscal 2002 Share Incentive Plan (The “Plan”)

Participant: (FIRST NAME _ LAST NAME)

Employee Number: (*)

Number of Restricted Stock Units: (*)

Grant Date: (*)

Vesting Commencement Date: (*)

Vesting Schedule: Subject to Participant’s continuous employment, this Restricted Stock Unit grant shall vest as to the number of Shares set forth below:

Shares		Vesting Date

(*)		(*)

Vesting Period: The Vesting Commencement Date through and including the applicable date set forth in the Vesting Schedule.

Questions regarding the award can be directed to (*)

If you wish to accept this grant, please sign this Notice of Grant and return immediately to:

Compensation Department

767 Fifth Avenue, 43rd Floor

New York, New York 10153

Attention: (*)

Any dividends earned on vested Shares, after applicable withholding, that are held in an account for Participant at BNY Mellon Shareowner Services (or its successor) engaged by The Estée Lauder Companies Inc. for the purposes of holding the Shares for Participant upon vesting (the “Agent”), will be automatically reinvested in accordance with Agent’s applicable procedures in additional whole and fractional shares Company Class A Common Stock unless you notify Patricia Zakrzewski or Thomas Fellenbaum in writing prior to the Vesting Date set forth above that you do not wish to have your dividends reinvested.

The undersigned hereby accepts, and agrees to, all terms and provisions of the Agreement, including those contained in this Notice of Grant.

Date

Enclosure:

Restricted Stock Unit Q&A

Exhibit 10.5

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”), dated as of July 1, 2007, between THE ESTÉE LAUDER COMPANIES INC., a Delaware corporation (the “Company”), and JOHN DEMSEY, a resident of [OMITTED] (the “Executive” or “you”),

W I T N E S S E T H:

WHEREAS, the Company and its subsidiaries are principally engaged in the business of manufacturing, marketing and selling skin care, makeup, fragrance and hair care products and related services (the “Business”); and

WHEREAS, the Company and the Executive are parties to an employment agreement dated as of November 1, 2004; and

WHEREAS, the Company desires to continue to retain the services of the Executive as Group President from July 1, 2007 through June 30, 2010, and the Executive desires to provide services in such capacities to the Company, upon the terms and subject to the conditions hereinafter set forth; and

WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) and the Stock Plan Subcommittee of the Compensation Committee have approved the terms of this Agreement; and

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment Term.

The Company hereby agrees to employ the Executive, and the Executive hereby agrees to enter into employment as Group President from July 1, 2007 through June 30, 2010, unless terminated sooner pursuant to Section 6 hereof (the “Term of Employment”). The twelve-month period commencing on July 1, 2007 and ending on June 30, 2008 shall be the “First Contract Year” hereunder, and subsequent twelve-month periods shall be subsequent Contract Years.

2. Duties and Extent of Services.

(a) During the Term of Employment, the Executive shall serve as Group President of the Company from July 1, 2007 through June 30, 2010, reporting to the Chief Operating Officer, (or such other direct supervisor as determined by the Chief Executive Officer from time to time) and, in such capacities, shall render such executive, managerial, administrative and other services as customarily are associated with and incident to such positions, and as the Company may, from time to time, reasonably require of him consistent with such positions.

(b) The Executive shall also hold such other positions and executive offices of the Company and/or of any of the Company’s subsidiaries or affiliates as may from time to

time be agreed by the Executive or assigned by the Chief Operating Officer ( or the Executive’s direct supervisor if not the Chief Operating Officer), the Chief Executive Officer or the Board of Directors. The Executive shall not be entitled to any compensation other than the compensation provided for herein for serving during the Term of Employment in any other office or position of the Company or any of its subsidiaries or affiliates, unless the Board of Directors of the Company or the appropriate committee thereof shall specifically approve such additional compensation.

(c) The Executive shall be a full-time employee of the Company and shall exclusively devote all his business time and efforts faithfully and competently to the Company and shall diligently perform to the best of his ability all of the duties required of him as Group President, and in the other positions or offices of the Company or its subsidiaries or affiliates assigned to him hereunder. Notwithstanding the foregoing provisions of this section, the Executive may serve as a non-management director of such business corporations (or in a like capacity in other for-profit or not-for-profit organizations) as the Chief Operating Officer (or the Executive’s direct supervisor if not the Chief Operating Officer), the Chief Executive Officer or the Board of Directors of the Company may approve, such approval not to be unreasonably withheld.

(d) The Executive shall comply with the Company’s stock ownership guidelines applicable to the Executive as they may be implemented and/or amended by the Board of Directors or the Compensation Committee of the Board of Directors.

3. Base Salary and Incentive Bonus Compensation .

(a) Base Salary. As compensation for all services to be rendered pursuant to this Agreement and as payment for the rights and interests granted by Executive hereunder, the Company shall pay or cause any of its subsidiaries to pay the Executive a base salary (the “Base Salary”) during the Term of Employment subject to the provisions of Section 3(c) below at the annualized rate of not less than $1,000,000.00. Subject to Section 6(l) of this Agreement, all amounts of Base Salary provided for hereunder shall be payable in accordance with the regular payroll policies of the Company in effect from time to time.

(b) Incentive Bonus Compensation. The Compensation Committee has established for the Executive the target bonus payout for the aggregate opportunities that may be awarded in respect of each fiscal year of the Company under the Company’s Executive Annual Incentive Plan or any subsequent Bonus Plan for executives that is approved by the stockholders of the Company (the “Bonus Plan”) in respect of each Contract Year under this Agreement. The target bonus payout for the aggregate opportunities in respect of each Contract Year shall be no less than $2,000,000.00. All such opportunities shall be subject to the terms and conditions of the Bonus Plan, which are incorporated herein by reference; provided , however , that except with respect to bonuses deferred in accordance with Section 3(c) hereof, and as otherwise indicated under Section 6, the bonus payout with respect to any fiscal year shall be paid to Executive no later than the 15th day of the third month following the end of such fiscal year.

calendar year before the Contract Year begins (or such earlier date as may be necessary to comply with the applicable tax laws and regulations).

(ii) Deferral Elections—Performance-Based Compensation . For any incentive bonus compensation that qualifies as performance-based compensation under Treas. Reg. Section 1.409A-1(e) and is based upon a performance period of at least 12 months, the Executive may make a deferral election at any time before the date that is six months before the applicable performance period ends, but only if (i) the incentive bonus compensation is not readily ascertainable when the election is made and (ii) the service provider has performed services continuously from the later of the beginning of the performance period or the date the performance criteria are established.

(iii) Amounts Subject to Section 162(m) . If any amount of Base Salary, any amount payable under the Bonus Plan, or any other amount payable to the Executive is not currently deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), or like or successor provisions (a “Non-Deductible Amount”), the Company will defer payment of the Non-Deductible Amount until section 162(m) no longer applies to the Executive. Any amounts so deferred will be credited to a bookkeeping account in the name of the Executive as of the date scheduled for payment (the “Deferred Compensation Account”). The Deferred Compensation Account will be credited with interest as of each June 30 during the term of deferral, compounded annually, at an annual rate equal to the annual rate of interest announced by Citibank N.A. in New York, New York as its base rate in effect on such June 30, but limited to a maximum annual rate of 9%.

(iv) Payment of Amounts Deferred And Vested On Or Before December 31, 2004 . Amounts credited to the Executive’s Deferred Compensation Account on or before December 31, 2004, and any subsequently credited interest, will be paid in cash to the Executive (or the Executive’s designated beneficiary if the Executive dies before payment,) subject to applicable withholding taxes. The Company will choose the payment date, which will be no later than ninety (90) days after Executive’s employment with the Company terminates, unless the Executive requests before terminating a later payment date or dates and the Company agrees to the request.

(v) Payment of Amounts Deferred and Vested After December 31, 2004 . Subject to Section 6(l), amounts credited to the Executive’s Deferred Compensation Account after December 31, 2004 will be paid to the Executive (or the Executive’s designated beneficiary if the Executive dies before payment), subject to applicable withholding taxes on, or as soon as practicable after, the date the Executive separates from service with the Company (as defined in Treas. Reg. Section 1.409A-1(h)). The Non-Deductible Amount will be paid at the earliest date at which the Company reasonably expects that the deduction will not be limited or eliminated by Code section 162(m). The Company, in its sole discretion, may provide an investment facility for all or a portion of such deferred amounts, but is not required to do so.

4. Equity-Based Compensation .

effect from time to time for its Executive Officers. The terms of such equity-based compensation awards shall be set forth in separate grant letters approved by the Stock Plan Subcommittee of the Compensation Committee. The recommended annual equity-based compensation awards shall be of an equivalent value to a grant of stock options with respect to 125,000 shares of the Company’s Class A Common Stock and determined in accordance with procedures generally utilized by the Company for its financial reporting at the time of grant.

(b) Certain Conditions . Executive acknowledges and agrees that any grant of equity-based compensation otherwise provided for in this Section 4 shall be effective as provided herein only to the extent permitted by the Share Incentive Plan, and this Agreement shall not obligate the Company to adopt any successor plan providing for the grant of equity-based compensation. If authority over the Company’s equity compensation programs is changed from the Stock Plan Subcommittee to the Compensation Committee (or other committee), then after such change, references herein to the Stock Plan Subcommittee shall be to the appropriate committee.

5. Benefits.

(a) Standard Benefits. During the Term of Employment, the Executive shall be entitled to participate in all pension and retirement savings, fringe benefit and welfare plans, including life insurance, medical, health and accident, disability, and vacation plans and programs maintained by the Company from time to time for senior executives at a level commensurate with his position. The Executive acknowledges that participation in such programs may result in the receipt by him of additional taxable income.

(b) Perquisite Reimbursement; Financial Counseling . During the Term of Employment, the Company shall reimburse the Executive for the actual expenses incurred by him in connection with his professional standing, in accordance with the guidelines set out in the Company’s Senior Executive Compensation Program Perquisite Plan and upon presentation of proper expense statements or vouchers or such other supporting information as the Company may reasonably require of the Executive. Such reimbursement shall generally occur within seventy-five (75) days after the end of the calendar year of presentment, provided that such presentment occurs within ninety (90) days after the date the related expense were incurred. Notwithstanding the above, to the extent that the expenses were incurred in one calendar year and presentment occurs in the following calendar year, such reimbursement shall occur by the end of the calendar year in which the presentment occurs. In no event shall the gross amount of such reimbursements be greater than $15,000.00 in respect of any calendar year during the Term of Employment, nor shall amounts that are not reimbursed in one calendar year up to the $15,000.00 per year limitation be able to be used in another calendar year or otherwise be made available to the Executive. Additionally, the Company will pay directly to the service provider following presentment of invoice(s) reasonably acceptable to the Company up to $5,000.00 per year for reasonable financial counseling services for the Executive, and in no event shall amounts up to the $5,000.00 per year limitation that are not paid in one calendar year be able to used in another calendar year or otherwise be made available to the executive. The Executive acknowledges that participation in such programs will result in the receipt by him of additional taxable income.

the gross monthly amount of $1,100.00. The Executive acknowledges that participation in this program will result in the receipt by him of additional taxable income.

(d) Expenses . The Company agrees to reimburse the Executive for all reasonable and necessary travel (inclusive of first class air travel), business entertainment and other business out-of-pocket expenses incurred or expended by him in connection with the performance of his duties hereunder upon presentation of proper expense statements or vouchers or such other supporting information as the Company may reasonably require of the Executive. The timing of payment of such reimbursements and presentation by the Executive of expenses incurred shall be in accordance with the rules described in Section 5(b).

(e) Spousal Travel . The Executive may upon prior approval of the Chief Executive Officer (or the Executive’s direct supervisor if not the Chief Executive Officer) or his or her designee arrange for his spouse or domestic partner to accompany him on up to two (2) business related travel itineraries per fiscal year, on a reasonable basis, at Company expense. Any reimbursement for such travel shall require presentation of proper expense statements or vouchers or such other supporting information as the Company may reasonably require of the Executive, in accordance with the timeframe described in Section 5(b). The Executive acknowledges that participation in this program will result in the receipt by him of additional taxable income.

(f) Executive Term Life Insurance . During the Term of Employment, the Company shall pay premiums on a term life insurance policy with a face amount of $5,000,000.00. Such obligation to pay premiums is subject to standard underwriting conditions. The Executive acknowledges that this coverage will result in the receipt by him of additional taxable income.

6. Termination.

(a) Permanent Disability . In the event of the “permanent disability” (as hereinafter defined) of the Executive during the Term of Employment, the Company shall have the right, upon written notice to the Executive, to terminate the Executive’s employment hereunder, effective upon the giving of such notice (or such later date as shall be specified in such notice). In the event of such termination, the Company shall have no further obligations hereunder, except that the Executive shall be entitled to receive (i) any accrued but unpaid salary and other amounts to which the Executive otherwise is entitled hereunder prior to the date of his termination of employment, such salary to be paid in accordance with Section 3(a) and such other amounts to be paid in accordance with applicable payment provisions herein; (ii) bonus compensation earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of his termination of employment, to be paid in accordance with Section 3(b) hereof; (iii) a pro-rata portion of the annual bonus payout that the Executive would have been entitled to receive had he remained in employment through the end of the Contract Year during which termination due to permanent disability occurred, based on the portion of the Contract Year that has elapsed prior to such termination, and paid in accordance with Section 3(b) hereof; (iv) reimbursement for financial counseling services specified under Section 5(b) hereof in the amount of $5,000.00 for a period of one (1) year from the date of termination, in accordance with Section 5(b) hereof; and (v) his Base Salary under Section 3(a) hereof for a period of one (1) year from the date of termination as a result of permanent disability (the “Disability Continuation Period”), paid in accordance with Section 6(l)(i) hereof; provided , however , that the Company shall only be required to pay that amount of the Executive’s Base Salary which shall not be covered by short-term disability payments or benefits or long-term

disability payments or benefits, if any, to the Executive under any Company plan or arrangement. In addition, upon termination for permanent disability, the Executive shall continue to participate, to the extent permitted by applicable law and regulations and the applicable benefit plan, program or arrangement, in any and all healthcare, life insurance and accidental death and dismemberment insurance benefit plans, programs or arrangements of the Company during the Disability Continuation Period (disregarding any required delay in payments under Section 6(l)). Thereafter, the Executive’s rights to participate in such programs and plans, or to receive similar coverage, if any, shall be as determined under such programs. Because continued participation in any qualified pension and qualified retirement savings plans of the Company is not permitted during the Disability Continuation Period, the Company shall provide to the Executive, subject to Section 6(l), cash payments, to be paid in accordance with Section 6(l)(i), equal to the sum of (x) the maximum qualified defined contribution retirement savings plan match for pre-tax and after-tax contributions allowable by the plan and by applicable laws and regulations for each year during the Disability Continuation Period (or other period as expressly provided herein), and (y) the excess of the benefit that would have been received by the Executive had he been credited with additional years of age and service equal to the Disability Continuation Period (or other period as expressly provided herein) over the actual benefit to which the Executive is entitled, in each case, under any and all qualified and non-qualified defined benefit pension plans and qualified defined contribution retirement savings plans in which the Executive participates as of the date of termination of employment, calculated as of and based upon the Executive’s date of termination (such sum, the “Pension Replacement Payment”). Notwithstanding the above, any amounts payable under this Section 6(a) that are separation pay as described under Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid no later than December 31 of the second calendar year following the year in which the Executive’s termination for permanent disability occurs; any amounts payable under this Section 6(a) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(a), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise. For purposes of this Section 6(a), “permanent disability” means any disability as defined under the Company’s applicable disability insurance policy or, if no such policy is available, any physical or mental disability or incapacity that renders the Executive incapable of performing the services required of him in accordance with his obligations under Section 2 hereof for a period of six (6) consecutive months or for shorter periods aggregating six (6) months during any twelve-month period.

(b) Death . In the event of the death of the Executive during the Term of Employment, Executive’s employment and this Agreement shall automatically terminate. In the event of such termination the Company shall have no further obligations hereunder, except to pay the Executive’s beneficiary or legal representative (i) any accrued but unpaid salary and other amounts to which the Executive otherwise is entitled hereunder prior to the date of his death, in accordance with Section 3(a) and other applicable payment provisions herein; (ii) bonus compensation earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of his death, in accordance with Section 3(b) hereof; (iii) a pro-rata portion of the annual bonus payout the Executive would have been entitled to receive had he remained in the employ of the Company through the end of the Contract Year during which termination due to his death occurred, based on the portion of the Contract Year that has elapsed prior to such termination, and paid in accordance with Section 3(b) hereof; (iv) reimbursement for financial counseling services specified under Section 5(b) hereof in the amount of $5,000.00 per year for a period of one (1) year from the date of termination, in accordance with Section 5(b) hereof; and (v) for a period of one (1) year from the date of his death, the Executive’s Base Salary as established under Section 3(a) hereof as of the date of

his death, paid in accordance with Section 3(a) hereof; provided , however , that, except as otherwise provided in this Section 6(b), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

(c) Termination Without Cause . The Company shall have the right, upon ninety (90) days’ prior written notice given to the Executive, to terminate the Executive’s employment for any reason whatsoever (excluding for Cause (as defined below)). In the event of such termination, the Company shall have no further obligations hereunder, except that the Executive shall be entitled to (i) receive any accrued but unpaid salary and other amounts to which the Executive otherwise is entitled hereunder prior to the date of his termination without Cause, such salary to be paid in accordance with Section 3(a) and such other amounts to be paid in accordance with applicable payment provisions herein; (ii) receive bonus compensation earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of his termination without Cause, to be paid in accordance with Section 3(b) hereof; (iii) receive a pro-rata portion of the annual bonus payout that the Executive would have been entitled to receive had he remained in employment through the end of the Contract Year during which the termination without Cause occurred, based on the portion of the Contract Year that has elapsed prior to such termination, and paid in accordance with Section 3(b) hereof; (iv) receive as damages (A) for a period ending on a date two (2) years from the date of termination without Cause, to be paid in accordance with Section 6(l)(i), his Base Salary as established under and in accordance with Section 3(a) hereof and (B) bonus compensation equal to fifty percent (50%) of the average of the actual annual bonuses paid or payable (with respect to completed Contract Years) to the Executive during the Term of Employment , or, if such termination occurs prior to the payment of any bonus hereunder, $1,000,000.00, to be paid in accordance with Section 6(l)(i) ; (v) receive reimbursement for financial counseling services specified under Section 5(b) hereof in the amount of $10,000.00 for a period of two (2) years from the date of termination, in accordance with Section 5(b) hereof; and (vi) participate for a period ending on a date two (2) years from the date of termination without Cause (the “Without Cause Continuation Period”), to the extent permitted by applicable law and regulations and the applicable benefit plan, program or arrangement, in any and all healthcare, life insurance and accidental death and dismemberment insurance benefit plans, programs or arrangements, on terms identical to those applicable to full-term senior officers of the Company. Because continued participation in any qualified pension and qualified retirement savings plans of the Company is not permitted during the Without Cause Continuation Period, the Company shall provide to the Executive, subject to Section 6(l), cash payments, to be paid in accordance with Section 6(l)(i), equal to the Pension Replacement Payment (as defined in Section 6(a)) with respect to the Without Cause Continuation Period. Notwithstanding the above, any amounts payable under this Section 6(c) that are separation pay as described under Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid no later than December 31 of the second calendar year following the year in which the Executive’s termination pursuant to this Section 6(c) occurs; any amounts payable under this Section 6(c) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(c), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise. In the event of termination pursuant to this Section 6(c), the Executive shall not be required to mitigate his damages hereunder.

the Executive with any benefit under the employee benefit programs and plans of the Company as determined under such programs and plans upon and as of such a termination for Cause. Except as otherwise provided in this Section 6(d), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

For purposes of this Agreement, “Cause” means:

(i) a material breach of, or the willful failure or refusal by the Executive to perform and discharge duties or obligations he has agreed to perform or assume under this Agreement (other than by reason of disability or death) that, if capable of correction, is not corrected within ten (10) business days following notice thereof to the Executive by the Company, such notice to state with specificity the nature of the breach, failure or refusal;

(ii) willful misconduct by the Executive, unrelated to the Company or any of its subsidiaries or affiliates, that could reasonably be anticipated to have a material adverse effect on the Company or any of its subsidiaries or affiliates (the determination of Cause to be made by the Chief Executive Officer in his or her reasonable judgment or the Company’s Board of Directors in its reasonable judgment);

(iii) the Executive’s gross negligence, whether related or unrelated to the business of the Company or any of its subsidiaries or affiliates which could reasonably be anticipated to have a material adverse effect on the Company or any of its subsidiaries or affiliates that, if capable of correction, is not corrected within ten (10) business days following notice thereof to the Executive by the Company, such notice to state with specificity the nature of the conduct complained of (the determination of Cause to be made by the Chief Executive Officer in his or her reasonable judgment or the Company’s Board of Directors in its reasonable judgment);

(iv) the Executive’s failure to follow a lawful directive of the Chief Operating Officer (or the Executive’s direct supervisor if not the Chief Operating Officer) or the Board of Directors of the Company that is within the scope of the Executive’s duties for a period of ten (10) business days after notice from Chief Operating Officer (or the Executive’s direct supervisor if not the Chief Operating Officer) or the Board of Directors of the Company specifying the performance required;

(v) any violation by the Executive of a policy contained in the Code of Conduct of the Company (the determination of Cause to be made by the Chief Executive Officer in his or her reasonable judgment or the Company’s Board of Directors in its reasonable judgment);

(vi) drug or alcohol abuse by the Executive that materially affects the Executive’s performance of his duties under this Agreement; or

(vii) conviction of, or the entry of a plea of guilty or nolo contendere by the Executive for, any felony.

compensation, if any, earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of such a termination by the Executive, in accordance with Section 3(b) hereof; and (iii) provide the Executive with any benefit under the employee benefit programs and plans of the Company as determined under such programs and plans upon and as of such a termination by the Executive to the extent that any such benefit is permitted by applicable law and regulations and provided that any such benefit shall not be provided beyond a period ending on a date two (2) years from the date of such termination by the Executive. Any amounts payable under this Section 6(e) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(e), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

(f) Termination by Executive for Material Breach. The Executive shall have the right, exercisable by notice to the Company, to terminate his employment effective ninety (90) days after the giving of such notice, if, at any time during the Term of Employment, the Company shall be in material breach of its obligations hereunder; provided , however, that such notice must be provided to the Company within thirty (30) days of the date on which the Executive obtains knowledge or reasonably should obtain knowledge of such material breach; and provided further , that such termination will not become effective if within thirty (30) days after receiving the notice the Company shall have cured all such material breaches of its obligations hereunder. For purposes of this Section 6(f), a material breach shall only be, (i) a material reduction in the Executive’s authority, functions, duties or responsibilities provided in Section 2 hereof, or (ii) the Company’s failure to pay any award that the Executive is entitled to receive pursuant to the terms of this Agreement. Such termination shall be deemed to be a termination without Cause and shall be controlled by the provisions of Section 6(c) hereof. Any amounts payable under this Section 6(f) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(f), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

(g) Change of Control.

(i) Definitions . For purposes of this Agreement,

(A) a “ Change of Control ” shall be deemed to have occurred upon any of the following events:

(1) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as amended; or

(2) during any period of two (2) consecutive years, the individuals who at the beginning of such period constitute the Company’s Board of Directors or any individuals who would be “Continuing Directors” (as defined below) cease for any reason to constitute a majority thereof; or

(3) the Company’s Class A Common Stock shall cease to be publicly traded; or

(4) the Company’s Board of Directors shall approve a sale of all or substantially all of the assets of the Company, and such transaction shall have been consummated; or

(5) the Company’s Board of Directors shall approve any merger, exchange, consolidation, or like business combination or reorganization of the Company, the consummation of which would result in the occurrence of any event described in Section 6(g)(i)(A)(2) or (3) above, and such transaction shall have been consummated.

Notwithstanding the foregoing, (X) changes in the relative beneficial ownership among members of the Lauder family and family-controlled entities shall not, by itself, constitute a Change of Control of the Company, (Y) any spin-off of a division or subsidiary of the Company to its stockholders shall not constitute a Change of Control of the Company.

(B) “Continuing Directors” shall mean (1) the directors in office on July 1, 2007 and (2) any successor to such directors and any additional director who after July 1, 2007 was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection.

(C) “Good Reason” means the occurrence of any of the following, without the express written consent of the Executive, within two (2) years after the occurrence of a Change in Control:

(1) (a) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive’s position, authority or responsibilities as contemplated by Section 2 hereof, or (b) any other material adverse change in such position, including title, authority or responsibilities;

(2) any failure by the Company to comply with any provisions of Sections 3, 4 or 5 hereof, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive, provided that the Executive provides such notice within ninety (90) days after the initial date of such failure by the Company and provided the Company has been provided at least thirty (30) days during which it may remedy such failure;

(3) the Company’s requiring the Executive to be based at any office or location more than fifty (50) miles from that location at which he performed his services specified under the provisions of Section 2 immediately prior to the Change in Control, except for travel reasonably required in the performance of the Executive’s responsibilities; or

(4) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 14, unless such assumption occurs by operation of law.

(ii) Termination for Good Reason . Within two (2) years after the occurrence of a Change of Control, the Executive may terminate his employment for Good Reason. Such termination shall be deemed to be a termination without Cause and shall be controlled by the provisions of Section 6(c) and Section 6(l) hereof, including the required delay in payment for the six-month period following the date of termination for any amounts determined to be subject to Code section 409A, as described in Section 6(l). Except as

otherwise provided in this Section 6(g)(ii), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

(h) Certain Limitations .

(i) Notwithstanding anything to the contrary contained herein, in the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the “Covered Payments”), are or become subject to the tax (the “Excise Tax”) imposed under Section 4999 of the Code, or any similar tax that may hereafter be imposed, the Covered Payments shall be reduced (but not below zero) until no portion of such payments would be subject to Excise Tax.

(ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax,

(A) such Covered Payments will be treated as “parachute payments” to the extent they exceed the “2.99 base amount threshold” within the meaning of Section 280G of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company’s independent certified public accountants appointed prior to the date of the change in ownership or control or tax counsel selected by such accountants (the “Accountants”), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute “parachute payments” or are otherwise not subject to such Excise Tax, and

(B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code.

(i) Non-Renewal. In the event the Company does not offer the Executive renewal of the Term of Employment on the basis of terms no less favorable, in the aggregate, than those pending at the time of the conclusion of the Term of Employment and, as a result, the Company terminates the Executive’s employment with the Company (“Non-Renewal”) , such termination shall be deemed to be a termination without Cause and shall be controlled by the provisions of Section 6(c) and Section 6(l) hereof, including the required delay in payment for the six-month period following the date of termination for any amounts determined to be subject to Code section 409A, as described in Section 6(l). Except as otherwise provided in this Section 6(i), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise. This provision shall not apply if at the time for renewal any of (x) the Board of Directors, (y) the Compensation Committee and/or the Stock Plan Subcommittee of the Board of Directors or (z) the stockholders of the Company have changed the Company’s policy regarding the use of written employment agreements for executives, the form of equity-based compensation, or the mix of cash and non-cash compensation.

(j) Continued Employment Beyond the Non-Renewal or Expiration of the Term of Employment . Unless the parties otherwise agree in writing, continuation of Executive’s employment with the Company beyond the non-renewal or expiration of the Term of Employment shall be deemed an employment-at-will and shall not be deemed to extend any of the provisions of this Agreement, and Executive’s employment may thereafter be terminated at will by either Executive or the Company.

(k) Effect of Termination. In addition to the foregoing, in the event that this Agreement shall be terminated pursuant to the provisions of subparagraphs 6(a), 6(b), 6(c), 6(f), 6(g) or 6(i) above, and the Executive is not considered to be retirement eligible under the terms and conditions of the Company’s qualified defined benefit pension plan, if any, notwithstanding anything to the contrary contained in the Company’s Share Incentive Plan or other similar equity plan, all stock options granted to the Executive during the Term of Employment shall become immediately exercisable and shall be exercisable until the earlier to occur of (A) the end of the stock option term as set forth in the applicable option agreement(s); or (B) the first anniversary of the date that Base Salary continuation payments end, after which all such option awards shall expire and be of no further force or effect. The vesting and exercisability provided for in the previous sentence shall be subject to all provisions relating to post-employment exercises set forth in the applicable Share Incentive Plan and option agreement(s). Subject to the preceding sentences, upon the termination of the Executive’s employment hereunder for any reason, the Company shall have no further obligations hereunder, except as otherwise provided herein. The Executive, however, shall continue to have the obligations provided for in Sections 7 and 8 hereof. Furthermore, upon any such termination, the Executive shall be deemed to have resigned immediately from all offices and directorships held by him in the Company or any of its subsidiaries.

(l) Section 409A of the Code . It is the intention of the parties to this Agreement that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including that issued after the date hereof (collectively, “Section 409A”). The Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company may unilaterally take any action it deems necessary or desirable to amend any provision herein to avoid the application of or excise tax under Section 409A. Further, no effect shall be given to any provision herein in a manner that reasonably could be expected to give rise to adverse tax consequences under that provision. The Company shall from time to time compile a list of “specified employees” as defined in, and pursuant to, Treas. Reg. Section 1.409A-1(i). Notwithstanding any other provision herein, if the Executive is a specified employee on the date of termination, no payment of compensation under this Agreement shall be made to the Executive during the period lasting six (6) months from the date of termination unless the Company determines that there is no reasonable basis for believing that making such payment would cause the Executive to suffer any adverse tax consequences pursuant to Section 409A of the Code. If any payment to the Executive is delayed pursuant to the foregoing sentence, such payment instead shall be made on the first business day following the expiration of the six-month period referred to in the prior sentence, unless specified otherwise in Section 6(l)(i) hereof. Although the Company shall consult with Executive in good faith regarding implementation of this Section 6(l), neither the Company nor its employees or representatives shall have liability to the Executive with respect to any additional taxes that the Executive may be subject to in the event that any amounts under this Agreement are determined to violate Code section 409A.

made in a single cash payment on the first business day following the expiration of such six-month period, and as of the first business day following the expiration of such six-month period all such payments shall resume in accordance with the regular payroll practices of the Company until the end of the specified period; any bonus payments under Section 6(c)(iv)(B) shall be paid in a single lump sum payment on the first business day following the expiration of such six-month period.

(m) Release of Claims. As a condition precedent to the receipt of payments and benefits pursuant to this Section, the Executive, or, in the case of his death or Disability that prevents the Executive from performing his obligation under this Section 6(m), his personal representative, and his beneficiary, if applicable, will execute an effective general release of claims against the Company and its subsidiaries and affiliates and their respective directors, officers, employees, attorneys and agents; provided , however , that such effective release will not affect any right that the Executive, or in the event of his death, his personal representative or beneficiary, otherwise has to any payment or benefit provided for in this Agreement or to any vested benefits the Executive may have in any employee benefit plan of Company or any of its subsidiaries or affiliates, or any right the Executive has under any other agreement between the Executive and the Company or any of its subsidiaries or affiliates that expressly states that the right survives the termination of the Executive’s employment.

7. Confidentiality; Ownership.

(a) The Executive agrees that he shall forever keep secret and retain in strictest confidence and not divulge, disclose, discuss, copy or otherwise use or suffer to be used in any manner, except in connection with the Business of the Company, its subsidiaries or affiliates and any other business or proposed business of the Company or any of its subsidiaries or affiliates, any “Protected Information” in any “Unauthorized” manner or for any “Unauthorized” purpose (as such terms are hereinafter defined).

(i) “Protected Information” means trade secrets, confidential or proprietary information and all other knowledge, know-how, information, documents or materials owned, developed or possessed by the Company or any of its subsidiaries or affiliates, whether in tangible or intangible form, pertaining to the Business or any other business or proposed business of the Company or any of its subsidiaries or affiliates, including, but not limited to, research and development, operations, systems, data bases, computer programs and software, designs, models, operating procedures, knowledge of the organization, products (including prices, costs, sales or content), processes, formulas, techniques, machinery, contracts, financial information or measures, business methods, business plans, details of consultant contracts, new personnel hiring plans, business acquisition plans, customer lists, business relationships and other information owned, developed or possessed by the Company or its subsidiaries or affiliates; provided that Protected Information shall not include information that becomes generally known to the public or the trade without violation of this Section 7.

decree or by the rules and regulations of a governmental agency or as otherwise required by law or to his legal counsel and, in connection with a determination under Section 6(h), to accounting experts; provided that the Executive shall provide the Company with prompt notice of such required disclosure in advance thereof so that the Company may seek an appropriate protective order in respect of such required disclosure.

(b) The Executive acknowledges that all developments, including, without limitation, inventions (patentable or otherwise), discoveries, formulas, improvements, patents, trade secrets, designs, reports, computer software, flow charts and diagrams, procedures, data, documentation, ideas and writings and applications thereof relating to the Business or any business or planned business of the Company or any of its subsidiaries or affiliates that, alone or jointly with others, the Executive may conceive, create, make, develop, reduce to practice or acquire during the Executive’s employment with the Company or any of its subsidiaries or affiliates (collectively, the “Developments”) are works made for hire and shall remain the sole and exclusive property of the Company. The Executive hereby assigns to the Company, in consideration of the payments set forth in Section 3(a) hereof, all of his right, title and interest in and to all such Developments. The Executive shall promptly and fully disclose all future material Developments to the Board of Directors of the Company and, at any time upon request and at the expense of the Company, shall execute, acknowledge and deliver to the Company all instruments that the Company shall prepare, give evidence and take all other actions that are necessary or desirable in the reasonable opinion of the Company to enable the Company to file and prosecute applications for and to acquire, maintain and enforce all letters patent and trademark registrations or copyrights covering the Developments in all countries in which the same are deemed necessary by the Company. All memoranda, notes, lists, drawings, records, files, computer tapes, programs, software, source and programming narratives and other documentation (and all copies thereof) made or compiled by the Executive or made available to the Executive concerning the Developments or otherwise concerning the Business or planned business of the Company or any of its subsidiaries or affiliates shall be the property of the Company or such subsidiaries or affiliates and shall be delivered to the Company or such subsidiaries or affiliates promptly upon the expiration or termination of the Term of Employment.

(c) During the Term of Employment, the Company, its subsidiaries and affiliates shall have the exclusive right to use the Executive’s name and image throughout the world in its advertising and promotional materials in connection with the advertising and promotion of the Company, its subsidiaries and affiliates, and their products. After the expiration of the Term of Employment, the Company, it subsidiaries and affiliates shall have the non-exclusive right in perpetuity to use the Executive’s name and image throughout the world solely in connection with promotional materials related to the history of the Company, it subsidiaries and affiliates, and their products. The consideration for such rights is the payments set forth in Section 3(a) hereof. The rights conveyed hereby may be assigned by the Company, its subsidiaries or affiliates to a successor in the interest of the Company or the relevant subsidiary or affiliate or their businesses or product lines.

(d) The provisions of this Section 7 shall, without any limitation as to time, survive the expiration or termination of the Executive’s employment hereunder, irrespective of the reason for any termination.

for any reason whatsoever (the “Non-Compete Period”), the Executive shall not, directly or indirectly, without the prior written consent of the Company:

(a) solicit, entice, persuade or induce any employee, consultant, agent or independent contractor of the Company or of any of its subsidiaries or affiliates to terminate his, her or its employment with the Company or such subsidiary or affiliate, to become employed by any person, firm or corporation other than the Company or such subsidiary or affiliate or approach any such employee, consultant, agent or independent contractor for any of the foregoing purposes, or authorize or assist in the taking of any such actions by any third party (for purposes of this Section 8 (a), the terms “employee,” “consultant,” “agent” and “independent contractor” shall include any persons with such status at any time during the six (6) months preceding any solicitation in question); or

(b) directly or indirectly engage, participate, or make any financial investment in, or become employed by or render consulting, advisory or other services to or for any person, firm, corporation or other business enterprise, wherever located, which is engaged, directly or indirectly, in competition with the Business or any business of the Company or any of its subsidiaries or affiliates as conducted or any business proposed to be conducted at the time of the expiration or termination of the Executive’s employment with the Company and its subsidiaries and affiliates; provided , however , that nothing in this Section 8(b) shall be construed to preclude the Executive from making any investments in the securities of any business enterprise whether or not engaged in competition with the Company or any of its subsidiaries or affiliates, to the extent that such securities are actively traded on a national securities exchange or in the over-the-counter market in the United States or on any foreign securities exchange and represent, at the time of acquisition, not more than 3% of the aggregate voting power of such business enterprise.

To ensure that the Company is able to enforce these provisions in Sections 8(a) and (b) above, the Executive and the Company further agree that if such noncompetition and nonsolicitation requirements should be violated during this additional two-year period after the Executive’s termination of employment, the remedy (determined at the Company’s option) shall be either equitable relief (in the form of an injunction to stop the violation), or liquidated damages payable by the Executive to the Company in an amount equal to (a) (i) (A) twenty-four (24) minus (B) the number of full months between the date of Executive’s termination and the date of breach (“Months Complied”) divided by (ii) 12, times (b) one year’s Base Salary in effect at the time of termination. In other words:

	Twenty-four (24) – Months Complied	x One Year’s Base Salary
	12	x One Year’s Base Salary

If equitable relief is elected by the Company as an alternative to liquidated damages, any equitable relief shall not include any forfeiture or cash refund of monies or benefits. If liquidated damages is elected by the Company, the Company may elect not to pay amounts that would otherwise be payable but for the breach; provided that, the Executive would remain liable to the Company to the extent that the liquidated damages exceeded the amounts not paid by the Company. The foregoing shall have no impact on the operation of the provisions of any other compensation program of the Company or its subsidiaries, including without limitation the Amended and Restated Fiscal 2002 Share Incentive Plan.

9. Specific Performance. The Executive acknowledges that the services to be rendered by the Executive are of a special, unique and extraordinary character and, in connection with such services, the Executive will have access to confidential information vital to the Company’s Business and the other current or planned businesses of it and its subsidiaries and affiliates. By reason of this, the Executive consents and agrees that if the Executive violates any of the provisions of Sections 7 or 8 hereof, the Company and its subsidiaries and affiliates would sustain irreparable injury and that monetary damages would not provide adequate remedy to the Company and that the Company shall be entitled to have Section 7 or 8 hereof specifically enforced by any court having equity jurisdiction. Nothing contained herein shall be construed as prohibiting the Company or any of its subsidiaries or affiliates from pursuing any other remedies available to it or them for such breach or threatened breach, including the recovery of damages from the Executive. This provision shall, without any limitation as to time, survive the expiration or termination of the Executive’s employment hereunder, irrespective of the reason for any termination.

10. Deductions and Withholding. The Executive agrees that the Company or its subsidiaries or affiliates, as applicable, shall withhold from any and all compensation paid to and required to be paid to the Executive pursuant to this Agreement, all Federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes or regulations from time to time in effect and all amounts required to be deducted in respect of the Executive’s coverage under applicable employee benefit plans. For purposes of this Agreement and calculations hereunder, all such deductions and withholdings shall be deemed to have been paid to and received by the Executive.

11. Entire Agreement. Except for the Amended and Restated Fiscal 2002 Share Incentive Plan, the Executive’s outstanding stock option and other equity-compensation agreements, the Executive Annual Incentive Plan, the Executive Perquisites Program, the Executive Automobile Program, the term life insurance arrangement between the Company and the Executive, the Company’s qualified and non-qualified defined benefit pension plans, the Company’s qualified defined contribution retirement savings plan and applicable successor plans or agreements, this Agreement embodies the entire agreement of the parties with respect to the Executive’s employment, compensation, perquisites and related items and supersedes any other prior oral or written agreements, arrangements or understandings between the Executive and the Company or any of its subsidiaries or affiliates, and any such prior agreements, arrangements or understandings are hereby terminated and of no further effect. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto.

12. Waiver. The waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any subsequent breach by him. The waiver by the Executive of a breach of any provision of this Agreement by the Company shall not operate or be construed as a waiver of any subsequent breach by the Company.

13. Governing Law; Jurisdiction.

(a) This Agreement shall be subject to, and governed by, the laws of the State of New York applicable to contracts made and to be performed therein, without regard to conflict of laws principles.

(b) Any action to enforce any of the provisions of this Agreement shall be brought in a court of the State of New York located in the Borough of Manhattan of the City of New York or in a Federal court located within the Southern District of New York. The parties consent to the jurisdiction of such courts and to the service of process in any manner provided by New York law. Each party irrevocably waives any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such court and any claim that such suit, action or proceeding brought in such court has been brought in an inconvenient forum and agrees that service of process in accordance with the foregoing sentences shall be deemed in every respect effective and valid personal service of process upon such party.

14. Assignability. The obligations of the Executive may not be delegated and, except with respect to the designation of beneficiaries in connection with any of the benefits payable to the Executive hereunder, the Executive may not, without the Company’s written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest herein. Any such attempted delegation or disposition shall be null and void and without effect. The Company and the Executive agree that this Agreement and all of the Company’s rights and obligations hereunder may be assigned or transferred by the Company to and shall be assumed by and be binding upon any successor to the Company. Unless assumption occurs by operation of law, the Company shall require any successor by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. The term “successor” means, with respect to the Company or any of its subsidiaries, any corporation or other business entity which, by merger, consolidation, purchase of the assets or otherwise acquires all or a majority of the operating assets or business of the Company.

15. Severability. If any provision of this Agreement or any part thereof, including, without limitation, Sections 7 and 8 hereof, as applied to either party or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any other provision of this Agreement or remaining part thereof, or the validity or enforceability of this Agreement, which shall be given full effect without regard to the invalid or unenforceable part thereof.

If any court construes any of the provisions of Section 7 or 8 hereof, or any part thereof, to be unreasonable because of the duration of such provision or the geographic scope thereof, such court may reduce the duration or restrict or redefine the geographic scope of such provision and enforce such provision as so reduced, restricted or redefined.

16. Notices. All notices to the Company or the Executive permitted or required hereunder shall be in writing and shall be delivered personally, by telecopier or by courier service providing for next-day or two-day delivery or sent by registered or certified mail, return receipt requested, to the following addresses:

The Company:

The Estée Lauder Companies Inc.

767 Fifth Avenue

New York, New York 10153

Attn:		General Counsel
Tel:		(212) 572-3980
Fax:		(212) 572-3989

The Executive:

John Demsey

c/o The Estée Lauder Companies Inc.

767 Fifth Avenue

New York, New York 10153

Tel:		(212) 572-3737
Fax:		(212) 572-3724

Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. Any such notice shall be deemed given, if delivered personally, upon receipt; if telecopied, when telecopied; if sent by courier service providing for next-day or two-day delivery, the next business day or two business days, as applicable, following deposit with such courier service; and if sent by certified or registered mail, three days after deposit (postage prepaid) with the U.S. mail service.

17. No Conflicts. The Executive hereby represents and warrants to the Company that his execution, delivery and performance of this Agreement and any other agreement to be delivered pursuant to this Agreement will not (i) require the consent, approval or action of any other person or (ii) violate, conflict with or result in the breach of any of the terms of, or constitute (or with notice or lapse of time or both, constitute) a default under, any agreement, arrangement or understanding with respect to the Executive’s employment to which the Executive is a party or by which the Executive is bound or subject. The Executive hereby agrees to indemnify and hold harmless the Company and its directors, officers, employees, agents, representatives and affiliates (and such affiliates’ directors, officers, employees, agents and representatives) from and against any and all losses, liabilities or claims (including interest, penalties and reasonable attorneys’ fees, disbursements and related charges) based upon or arising out of the Executive’s breach of any of the foregoing representations and warranties.

18. Legal Fees . Following a Change of Control, the Company shall reimburse the Executive up to $20,000.00, in the aggregate, for all legal fees and related expenses (including the costs of experts, evidence and counsel) reasonably and in good faith incurred by the Executive in an action (i) by the Executive to obtain or enforce any right or benefit to which the Executive is entitled under this Agreement or (ii) by the Company to enforce a post-termination covenant referred to in Section 7 or 8 against the Executive, in each case, provided that the Executive substantially prevails in such action. Such amount shall be reimbursed to the Executive by the end of the calendar year in which the Executive substantially prevails in such action, based on the date of any settlement, judgment, or other official document evidencing same.

19. Cooperation . During the Term of Employment and thereafter, Executive shall provide reasonable cooperation in connection with any action or proceeding (or any appeal therefrom) that relates to events occurring during Executive’s employment with the Company.

20. Paragraph Headings. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.

THE ESTÉE LAUDER COMPANIES INC.


By:	/s/ Amy DiGeso
Name:		Amy DiGeso
Title:		Executive Vice President, Global Human Resources


/s/ John Demsey
John Demsey

Exhibit 10.6

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”), dated as of July 1, 2008, between THE ESTÉE LAUDER COMPANIES INC., a Delaware corporation (the “Company”), and MARC CEDRIC YANN PROUVE, a resident of [OMITTED] (the “Executive” or “you”),

W I T N E S S E T H:

WHEREAS, the Company and the Executive are parties to an employment agreement dated as of February 23, 1994 and as superseded by agreements dated March 1, 1997, September 1, 2000, January 1, 2003 and July 1, 2005 ; and

WHEREAS, the Company desires to continue to retain the services of the Executive as Group President from July 1, 2008 through June 30, 2011, and the Executive desires to provide services in such capacities to the Company, upon the terms and subject to the conditions hereinafter set forth; and

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment Term.

The Company hereby agrees to employ the Executive, and the Executive hereby agrees to enter into employment as Group President from July 1, 2008 through June 30, 2011, unless terminated sooner pursuant to Section 6 hereof (the “Term of Employment”). The twelve (12) month period commencing on July 1, 2008 and ending on June 30, 2009 shall be the “First Contract Year” hereunder, and subsequent twelve-month periods shall be subsequent Contract Years.

2. Duties and Extent of Services.

(a) During the Term of Employment, the Executive shall serve as Group President of the Company from July 1, 2008 through June 30, 2011 , reporting to the President and Chief Operating Officer(or such other direct supervisor as determined by the Chief Executive Officer from time to time) and, in such capacity, the Executive shall be responsible for the Company’s International Division, which includes sales and marketing conducted by the Company’s subsidiaries and affiliates outside of the United Sates and Canada and in the travel retail channel globally and shall render such executive, managerial, administrative and other services as customarily are associated with and incident to such position , and as the Company may, from time to time, reasonably require of him consistent with such position.

(b) The Executive shall also hold such other positions and executive offices of the Company and/or of any of the Company’s subsidiaries or affiliates as may from time to time be agreed by the Executive or assigned by the President and Chief Operating Officer ( or the Executive’s direct supervisor if not the President and Chief Operating Officer) or the Board of Directors. The Executive shall not be entitled to any compensation other than the compensation provided for herein for serving during the Term of Employment in any other office or position of the Company or any of its subsidiaries or affiliates, unless the Board of Directors of the Company or the appropriate committee thereof shall specifically approve such additional compensation.

(c) The Executive shall be a full-time employee of the Company and shall exclusively devote all his business time and efforts faithfully and competently to the Company and shall diligently perform to the best of his ability all of the duties required of him as Group President and in the other positions or offices of the Company or its subsidiaries or affiliates assigned to him hereunder. Notwithstanding the foregoing provisions of this section, the Executive may serve as a non-management director of such business corporations (or in a like capacity in other for-profit or not-for-profit organizations) as the President and Chief Operating Officer (or the Executive’s direct supervisor if not the President and Chief Operating Officer) or the Board of Directors of the Company may approve, such approval not to be unreasonably withheld.

3. Base Salary and Incentive Bonus Compensation .

For The First Contract Year	$	1,500,000.00

For The Second Contract Year	$	1,750,000.00

For The Third Contract Year	$	2,000,000.00

All such opportunities shall be subject to the terms and conditions of the Bonus Plan, which are incorporated herein by reference; provided , however , that except with respect to bonuses deferred in accordance with Section 3(c) hereof, and as otherwise indicated under Section 6, the bonus payout with respect to any fiscal year shall be paid to Executive no later than the 15th day of the third month following the end of such fiscal year.

(i) Deferral Elections—In General . The Executive may elect to defer payment of all or any part of any incentive bonus compensation payable under Section 3(b) by making an election, in a manner prescribed by the Company, on or before December 31 of the calendar year before the Contract Year begins (or such earlier date as may be necessary to comply with the applicable tax laws and regulations).

(ii) Deferral Elections—Performance-Based Compensation . For any incentive bonus compensation that qualifies as performance-based compensation under Treas. Reg. Section 1.409A-1(e) and is based upon a performance period of at least twelve (12) months, the Executive may make a deferral election at any time before the date that is six months before the applicable performance period ends, but only if (i) the incentive bonus compensation is not readily ascertainable when the election is made and (ii) the Executive has performed services continuously from the later of the beginning of the performance period or the date the performance criteria are established.

(iii) Amounts Subject to Section 162(m) . If any amount of Base Salary, any amount payable under the Bonus Plan, or any other amount payable to the Executive is not currently deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), or like or successor provisions (a “Non-Deductible Amount”), the Company will defer payment of the Non-Deductible Amount until Section 162(m) no longer applies to the Executive. Any amounts so deferred will be credited to a bookkeeping account in the name of the Executive as of the date scheduled for payment (the “Deferred Compensation Account”). The Deferred Compensation Account will be credited with interest as of each June 30 during the term of deferral, compounded annually, at an annual rate equal to the annual rate of interest announced by Citibank N.A. in New York, New York as its base rate in effect on such June 30, but limited to a maximum annual rate of 9%.

(iv) Subject to Section 6(l), amounts credited to the Executive’s Deferred Compensation Account (with the exception of the Non-Deductible Amount as provided in Section 3(c)(iii) herein) will be paid to the Executive (or the Executive’s designated beneficiary if the Executive dies before payment), subject to applicable withholding taxes on, or as soon as practicable after, the date the Executive separates from service with the Company (as defined in Treas. Reg. section 1.409A-1(h)). The Non-Deductible Amount will be paid at the earliest date at which the Company reasonably expects that the deduction will not be limited or eliminated by Code Section 162(m). The Company, in its sole discretion, may provide an investment facility for all or a portion of such deferred amounts, but is not required to do so.

(d) Expatriate Allowance Transition Payment . In lieu of any expatriate allowances (e.g., home leave trips, children’s secondary school tuition and contributions to the Association Francaise d’Epargne et de Retraite (“AFER”)), the Company shall pay to the Executive the gross amount of $317,300.00 at the beginning of each of the First, Second and Third Contract Years, so long as the Executive remains in the employ of the Company at the time of the relevant payment. The Executive hereby agrees that this transition payment is in satisfaction of any and all obligations of the Company in respect of these allowances.

4. Equity-Based Compensation .

(a) General. In respect of each Contract Year, the Company shall recommend to the Stock Plan Subcommittee of the Compensation Committee that the Executive be awarded under the terms and conditions of the Amended and Restated Fiscal 2002 Share Incentive Plan (the “Share Incentive Plan”), which are incorporated herein by reference, or successor plan and subject to the provisions of Section 6(k) below, equity-based compensation awards in accordance with the policies and procedures of the Company as in effect from time to time for its Executive Officers. The terms of such equity-based compensation awards shall be set forth in separate grant letters approved by the Stock Plan Subcommittee of the Compensation Committee. The recommended annual equity-based compensation awards shall be of an equivalent value to a grant of stock options with respect to 125,000 shares of the Company’s Class A Common Stock and determined in accordance with procedures generally utilized by the Company for its financial reporting at the time of grant.

5. Benefits.

Notwithstanding the above, to the extent that the expenses were incurred in one calendar year and presentment occurs in the following calendar year, such reimbursement shall occur by the end of the calendar year in which the presentment occurs. In no event shall the gross amount of such reimbursements be greater than $15,000.00 in respect of any calendar year during the Term of Employment, nor shall amounts that are not reimbursed in one calendar year up to the $15,000.00 per year limitation be able to be used in another calendar year or otherwise be made available to the Executive. Additionally, the Company will pay directly to the service provider following presentment of invoice(s) reasonably acceptable to the Company up to $5,000.00 per year for reasonable financial counseling services for the Executive, and in no event shall amounts up to the $5,000.00 per year limitation that are not paid in one calendar year be able to be used in another calendar year or otherwise be made available to the Executive. The Executive acknowledges that participation in such programs will result in the receipt by him of additional taxable income.

(c) Executive Auto. The Executive will participate in the Executive Automobile Program of the Company, and may elect to be provided an automobile having an acquisition value of up to $50,000.00. Alternatively, the Executive may receive an automobile allowance in the gross monthly amount of $1,100.00. The Executive acknowledges that participation in this program will result in the receipt by him of additional taxable income.

(e) Spousal Travel . The Executive may upon prior approval of the President and Chief Operating Officer (or the Executive’s direct supervisor if not the President and Chief Operating Officer) or his or her designee arrange for his spouse or domestic partner to accompany him on up to two (2) business related travel itineraries per fiscal year, on a reasonable basis, at Company expense. Any reimbursement for such travel shall require presentation of proper expense statements or vouchers or such other supporting information as the Company may reasonably require of the Executive, in accordance with the timeframe described in Section 5(b). The Executive acknowledges that participation in this program will result in the receipt by him of additional taxable income.

6. Termination.

hereunder, except that the Executive shall be entitled to receive (i) any accrued but unpaid salary and other amounts to which the Executive otherwise is entitled hereunder prior to the date of his termination of employment, such salary to be paid in accordance with Section 3(a) and such other amounts to be paid in accordance with applicable payment provisions herein; (ii) bonus compensation earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of his termination of employment, to be paid in accordance with Section 3(b) hereof; (iii) a pro-rata portion of the annual bonus payout that the Executive would have been entitled to receive had he remained in employment through the end of the Contract Year during which termination due to permanent disability occurred, based on the portion of the Contract Year that has elapsed prior to such termination, and paid in accordance with Section 3(b) hereof; (iv) reimbursement for financial counseling services specified under Section 5(b) hereof in the amount of $5,000.00 for a period of one (1) year from the date of termination, in accordance with Section 5(b) hereof; and (v) his Base Salary under Section 3(a) hereof for a period of one (1) year from the date of termination as a result of permanent disability (the “Disability Continuation Period”), paid in accordance with Section 6(l)(i) hereof; provided , however , that the Company shall only be required to pay that amount of the Executive’s Base Salary which shall not be covered by short-term disability payments or benefits or long-term disability payments or benefits, if any, to the Executive under any Company plan or arrangement. In addition, upon termination for permanent disability, the Executive shall continue to participate, to the extent permitted by applicable law and regulations and the applicable benefit plan, program or arrangement, in any and all healthcare, life insurance and accidental death and dismemberment insurance benefit plans, programs or arrangements of the Company during the Disability Continuation Period (disregarding any required delay in payments under Section 6(l)). Thereafter, the Executive’s rights to participate in such programs and plans, or to receive similar coverage, if any, shall be as determined under such programs. Because continued participation in any qualified pension and qualified retirement savings plans of the Company is not permitted during the Disability Continuation Period, the Company shall provide to the Executive, subject to Section 6(l), cash payments, to be paid in accordance with Section 6(l)(i), equal to the sum of (x) the maximum qualified defined contribution retirement savings plan match for pre-tax and after-tax contributions allowable by the plan and by applicable laws and regulations for each year during the Disability Continuation Period (or other period as expressly provided herein), and (y) the excess of the benefit that would have been received by the Executive had he been credited with additional years of age and service equal to the Disability Continuation Period (or other period as expressly provided herein) over the actual benefit to which the Executive is entitled, in each case, under any and all qualified and non-qualified defined benefit pension plans and qualified defined contribution retirement savings plans in which the Executive participates as of the date of termination of employment, calculated as of and based upon the Executive’s date of termination (such sum, the “Pension Replacement Payment”). Notwithstanding the above, any amounts payable under this Section 6(a) that are separation pay as described under Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid no later than December 31 of the second calendar year following the year in which the Executive’s termination for permanent disability occurs; any amounts payable under this Section 6(a) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(a), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise. For purposes of this Section 6(a), “permanent disability” means any disability as defined under the Company’s applicable disability insurance policy or, if no such policy is available, any physical or mental disability or incapacity that renders the Executive incapable of performing the services required of him in accordance with his obligations under Section 2 hereof for a period of six (6) consecutive months or for shorter periods aggregating six (6) months during any twelve-month period.

(b) Death . In the event of the death of the Executive during the Term of Employment, Executive’s employment and this Agreement shall automatically terminate. In the event of such termination the Company shall have no further obligations hereunder, except to pay the Executive’s beneficiary or legal representative (i) any accrued but unpaid salary and other amounts to which the Executive otherwise is entitled hereunder prior to the date of his death, in accordance with Section 3(a) and other applicable payment provisions herein; (ii) bonus compensation earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of his death, in accordance with Section 3(b) hereof; (iii) a pro-rata portion of the annual bonus payout the Executive would have been entitled to receive had he remained in the employ of the Company through the end of the Contract Year during which termination due to his death occurred , based on the portion of the Contract Year that has elapsed prior to such termination, and paid in accordance with Section 3(b) hereof; (iv) reimbursement for financial counseling services specified under Section 5(b) hereof in the amount of $5,000.00 per year for a period of one (1) year from the date of termination, in accordance with Section 5(b) hereof; and (v) for a period of one (1) year from the date of his death, the Executive’s Base Salary as established under Section 3(a) hereof as of the date of his death, paid in accordance with Section 3(a) hereof; provided , however , that, except as otherwise provided in this Section 6(b), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

(c) Termination Without Cause . The Company shall have the right, upon ninety (90) days’ prior written notice given to the Executive, to terminate the Executive’s employment for any reason whatsoever (excluding for Cause (as defined below)). In the event of such termination, the Company shall have no further obligations hereunder, except that the Executive shall be entitled to (i) receive any accrued but unpaid salary and other amounts to which the Executive otherwise is entitled hereunder prior to the date of his termination without Cause, such salary to be paid in accordance with Section 3(a) and such other amounts to be paid in accordance with applicable payment provisions herein; (ii) receive bonus compensation earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of his termination without Cause, to be paid in accordance with Section 3(b) hereof; (iii) receive a pro-rata portion of the annual bonus payout that the Executive would have been entitled to receive had he remained in employment through the end of the Contract Year during which the termination without Cause occurred, based on the portion of the Contract Year that has elapsed prior to such termination, and paid in accordance with Section 3(b) hereof; (iv) receive as damages (A) for a period ending on a date two (2) years from the date of termination without Cause, to be paid in accordance with Section 6(l)(i), his Base Salary as established under and in accordance with Section 3(a) hereof and (B) a payment equal to fifty percent (50%) of the average of the actual annual bonuses paid or payable (with respect to completed Contract Years) to the Executive during the Term of Employment , or, if such termination occurs prior to the payment of any bonus hereunder , $750,000.00, to be paid in accordance with Section 6(l)(i) ; (v) receive reimbursement for financial counseling services specified under Section 5(b) hereof in the amount of $5,000.00 for each year during a period of two (2) years from the date of termination, in accordance with Section 5(b) hereof; and (vi) participate for a period ending on a date two (2) years from the date of termination without Cause (the “Without Cause Continuation Period”), to the extent permitted by applicable law and regulations and the applicable benefit plan, program or arrangement, in any and all healthcare, life insurance and accidental death and dismemberment insurance benefit plans, programs or arrangements, on terms identical to those applicable to full-term senior officers of the Company. Because continued participation in any qualified pension and qualified retirement savings plans of the Company is not permitted during the Without Cause Continuation Period, the Company shall

provide to the Executive, subject to Section 6(l), cash payments, to be paid in accordance with Section 6(l)(i), equal to the Pension Replacement Payment (as defined in Section 6(a)) with respect to the Without Cause Continuation Period. Notwithstanding the above, any amounts payable under this Section 6(c) that are separation pay as described under Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid no later than December 31 of the second calendar year following the year in which the Executive’s termination pursuant to this Section 6(c) occurs; any amounts payable under this Section 6(c) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(c), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise. In the event of termination pursuant to this Section 6(c), the Executive shall not be required to mitigate his damages hereunder.

(d) Cause. The Company shall have the right, upon notice to the Executive, to terminate the Executive’s employment under this Agreement for “Cause” (as defined below), effective upon the Executive’s receipt of such notice (or such later date as shall be specified in such notice), and the Company shall have no further obligations hereunder, except to pay the Executive his accrued but unpaid salary, in accordance with Section 3(a) hereof, and provide the Executive with any benefit under the employee benefit programs and plans of the Company as determined under such programs and plans upon and as of such a termination for Cause. Except as otherwise provided in this Section 6(d), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

For purposes of this Agreement, “Cause” means:

(iv) the Executive’s failure to follow a lawful directive of the President and Chief Operating Officer (or the Executive’s direct supervisor if not the President and Chief Operating Officer) or the Board of Directors of the Company that is within the scope of the Executive’s duties for a period of ten (10) business days after notice from the President and Chief Operating Officer (or the Executive’s direct supervisor if not the President and Chief

Operating Officer ) or the Board of Directors of the Company specifying the performance required;

(vi) drug or alcohol abuse by the Executive that materially affects the Executive’s performance of his duties under this Agreement; or

(vii) conviction of, or the entry of a plea of guilty or nolo contendere by the Executive for, any felony.

(e) Termination by Executive. The Executive shall have the right, exercisable at any time during the Term of Employment, to terminate his employment for any reason whatsoever, upon ninety (90) days’ prior written notice to the Company. Upon such termination, the Company shall have no further obligations hereunder other than to (i) pay the Executive his accrued but unpaid salary , in accordance with Section 3(a) hereof; (ii) provide bonus compensation, if any, earned but not paid under Section 3(b) hereof that relates to any Contract Year ended prior to the date of such a termination by the Executive, in accordance with Section 3(b) hereof; and (iii) provide the Executive with any benefit under the employee benefit programs and plans of the Company as determined under such programs and plans upon and as of such a termination by the Executive to the extent that any such benefit is permitted by applicable law and regulations and provided that any such benefit shall not be provided beyond a period ending on a date two (2) years from the date of such termination by the Executive . Any amounts payable under this Section 6(e) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(e), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

(f) Termination by Executive for Material Breach. The Executive shall have the right, exercisable by notice to the Company, to terminate his employment effective ninety (90) days after the giving of such notice, if, at any time during the Term of Employment, the Company shall be in material breach of its obligations hereunder; provided , however, that such notice must be provided to the Company within thirty (30) days of the date on which the Executive obtains knowledge or reasonably should obtain knowledge of such material breach; and provided further , that such termination will not become effective if within thirty (30) days after receiving the notice the Company shall have cured all such material breaches of its obligations hereunder. For purposes of this Section 6(f), a material breach shall only be, (i) a material reduction in the Executive’s authority, functions, duties or responsibilities provided in Section 2 hereof, or (ii) the Company’s failure to pay any item of compensation provided in Sections 3, 4 or 5 hereunder that the Executive is entitled to receive pursuant to the terms of this Agreement. Such termination shall be deemed to be a termination without Cause and shall be controlled by the provisions of Section 6(c) hereof. Any amounts payable under this Section 6(f) that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement. Except as otherwise provided in this Section 6(f), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise.

(g) Change of Control.

(i) Definitions . For purposes of this Agreement,

(A) a “ Change of Control ” shall be deemed to have occurred upon any of the following events:

(3) the Company’s Class A Common Stock shall cease to be publicly traded; or

(4) the Company’s Board of Directors shall approve a sale of all or substantially all of the assets of the Company, and such transaction shall have been consummated; or

(B) “Continuing Directors” shall mean (1) the directors in office on July 1, 2008 and (2) any successor to such directors and any additional director who after July 1, 2008 was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection.

(C) “Good Reason” means the occurrence of any of the following, without the express written consent of the Executive, within two (2) years after the occurrence of a Change in Control:

provided that the Executive provides such notice within ninety (90) days after the initial date of such failure by the Company and provided the Company has been provided at least thirty (30) days during which it may remedy such failure;

(4) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 14, unless such assumption occurs by operation of law.

(h) Certain Limitations .

(i) Notwithstanding anything to the contrary contained herein, in the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company, are or become subject to the tax (the “Excise Tax”) imposed under Section 4999 of the Code, or any similar tax that may hereafter be imposed, (collectively, the “Covered Payments”), the Covered Payments shall be reduced (but not below zero) until no portion of such payments would be subject to Excise Tax.

(ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax,

(B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code.

(i) Non-Renewal. In the event the Company does not offer the Executiverenewal of the Term of Employment on the basis of terms no less favorable, in the aggregate, than those pending at the time of the conclusion of the Term of Employment and, as a result, the Company terminates the Executive’s employment with the Company (“Non-Renewal”) , such termination shall be deemed to be a termination without Cause and shall be controlled by the provisions of Section 6(c) and Section 6(l) hereof, including the required delay in payment for the six-month period following the date of termination for any amounts determined to be subject to Code section 409A, as described in Section 6(l). Except as otherwise provided in this Section 6(i), the Company will have no further obligations under Sections 3, 4 and 5 hereof or otherwise. This provision shall not apply if at the time for renewal any of (x) the Board of Directors, (y) the Compensation Committee and/or the Stock Plan Subcommittee of the Board of Directors or (z) the stockholders of the Company have changed the Company’s policy regarding the use of written employment agreements for executives, the form of equity-based compensation, or the mix of cash and non-cash compensation.

compile a list of “specified employees” as defined in, and pursuant to, Treas. Reg. Section 1.409A-1(i). Notwithstanding any other provision herein, if the Executive is a specified employee on the date of termination, no payment of compensation under this Agreement shall be made to the Executive during the period lasting six (6) months from the date of termination unless the Company determines that there is no reasonable basis for believing that making such payment would cause the Executive to suffer any adverse tax consequences pursuant to Section 409A of the Code. If any payment to the Executive is delayed pursuant to the foregoing sentence, such payment instead shall be made on the first business day following the expiration of the six-month period referred to in the prior sentence, unless specified otherwise in Section 6(l)(i) hereof. Although the Company shall consult with Executive in good faith regarding implementation of this Section 6(l), neither the Company nor its employees or representatives shall have liability to the Executive with respect to any additional taxes that the Executive may be subject to in the event that any amounts under this Agreement are determined to violate Code section 409A.

(i) Notwithstanding the above, amounts described as being subject to payment in accordance with the provisions of this Section 6(l)(i) shall be subject to a delay in payment for a six-month period following the date of termination and shall be paid as follows: For any Base Salary under Section 6(a)(v) or Section 6(c)(iv)(A) to be continued beyond the date of termination and for any Pension Replacement Payment, all payments that would have been made during the six-month period immediately following the date of termination shall be made in a single cash payment on the first business day following the expiration of such six-month period, and as of the first business day following the expiration of such six-month period all such payments shall resume in accordance with the regular payroll practices of the Company until the end of the specified period; any bonus payments under Section 6(c)(iv)(B) shall be paid in a single lump sum payment on the first business day following the expiration of such six-month period.

7. Confidentiality; Ownership.

(ii) “Unauthorized” means: (A) in contravention of the policies or procedures of the Company or any of its subsidiaries or affiliates; (B) otherwise inconsistent with the measures taken by the Company or any of its subsidiaries or affiliates to protect their interests in any Protected Information; (C) in contravention of any lawful instruction or directive, either written or oral, of an employee of the Company or any of its subsidiaries or affiliates empowered to issue such instruction or directive; or (D) in contravention of any duty existing under law or contract. Notwithstanding anything to the contrary contained in this Section 7, the Executive may disclose any Protected Information to the extent required by court order or decree or by the rules and regulations of a governmental agency or as otherwise required by law or to his legal counsel and, in connection with a determination under Section 6(h), to accounting experts; provided that the Executive shall provide the Company with prompt notice of such required disclosure in advance thereof so that the Company may seek an appropriate protective order in respect of such required disclosure.

Company or such subsidiaries or affiliates and shall be delivered to the Company or such subsidiaries or affiliates promptly upon the expiration or termination of the Term of Employment.

(c) During the Term of Employment, the Company, its subsidiaries and affiliates shall have the exclusive right to use the Executive’s name and image throughout the world in its advertising and promotional materials in connection with the advertising and promotion of the Company, its subsidiaries and affiliates, and their products. After the expiration of the Term of Employment, the Company, its subsidiaries and affiliates shall have the non-exclusive right in perpetuity to use the Executive’s name and image throughout the world solely in connection with promotional materials related to the history of the Company, its subsidiaries and affiliates, and their products to the extent that the image was produced prior to his departure provided the particular image was used while the Executive was employed by the Company. The consideration for such rights is the payments set forth in Section 3(a) hereof. The rights conveyed hereby may be assigned by the Company, its subsidiaries or affiliates to a successor in the interest of the Company or the relevant subsidiary or affiliate or their businesses or product lines.

(d) The provisions of this Section 7 shall, without any limitation as to time, survive the expiration or termination of this Agreement or of the Executive’s employment with the Company or any of its subsidiaries or affiliates, irrespective of the reason for any expiration or termination.

8. Covenant Not to Compete. The Executive agrees that during the Executive’s employment with the Company or any of its subsidiaries or affiliates and for a period of two (2) years commencing upon the expiration or termination of the Executive’s employment for any reason whatsoever (the “Non-Compete Period”), the Executive shall not, directly or indirectly, without the prior written consent of the Company:

To ensure that the Company is able to enforce these provisions in Sections 8(a) and (b) above, the Executive and the Company further agree that if such noncompetition and nonsolicitation requirements should be violated during this additional two-year period after the Executive’s termination of employment, the remedy (determined at the Company’s option) shall be either equitable relief (in the form of an injunction to stop the violation), and any damages recoverable, or liquidated damages payable by the Executive to the Company in an amount equal to (a) (i) (A) twenty-four (24) minus (B) the number of full months between the date of Executive’s termination and the date of breach (“Months Complied”) divided by (ii) 12, times (b) one year’s Base Salary in effect at the time of termination. In other words:

Twenty-four (24) – Months Complied	X One Year’s Base Salary
12

(c) During the Non-Compete Period, to the extent that the Executive is not receiving termination payments pursuant to Section 6 hereof, the Company shall pay or cause to be paid to the Executive his Base Salary under Section 3(a) hereof and continue to provide the Executive with benefits hereunder to the extent permitted by applicable law and regulations and the applicable benefit plan, program or arrangement, in any and all healthcare, life insurance and accidental death and dismemberment insurance benefit plans, programs or arrangements, on terms identical to those applicable to full-time senior officers of the Company for that portion of the Non-Compete Period during which the Executive is required to comply and does comply with the provisions of this Section 8 (“the Non-Compete Period”). Notwithstanding the above, any amounts payable under this Section 8 that are separation pay as described under Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid no later than December 31 of the second calendar year following the year in which the Executive’s termination pursuant to this Section 6 occurs; any amounts payable under this Section 8 that are not otherwise exempt from Code section 409A are subject to, and payable in accordance with, Section 6(l) of this Agreement.

(d) The provisions of this Section 8 shall, without any limitation as to time, survive the expiration or termination of this Agreement or of the Executive’s employment with the Company or any of its subsidiaries or affiliates, regardless of the reason for such expiration or termination.

adequate remedy to the Company and that the Company shall be entitled to have Section 7 or 8 hereof specifically enforced by any court having equity jurisdiction. Nothing contained herein shall be construed as prohibiting the Company or any of its subsidiaries or affiliates from pursuing any other remedies available to it or them for such breach or threatened breach, including the recovery of damages from the Executive. This provision shall, without any limitation as to time, survive the expiration or termination of the Executive’s employment hereunder, irrespective of the reason for any termination.

13. Governing Law; Jurisdiction.

(a) This Agreement shall be subject to, and governed by, the laws of the State of New York applicable to contracts made and to be performed therein, without regard to conflict of laws principles.

sentences shall be deemed in every respect effective and valid personal service of process upon such party.

The Company:

The Estée Lauder Companies Inc.

767 Fifth Avenue

New York, New York 10153

Attn:		General Counsel
Tel:		(212) 572-3980
Fax:		(212) 572-3989

The Executive:

Marc Cedric Yann Prouve

[OMITTED]

20. Paragraph Headings. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.

THE ESTÉE LAUDER COMPANIES INC.


By:	/s/ Amy DiGeso
Name:		Amy DiGeso
Title:		Executive Vice President, Global Human Resources


/s/ Marc Cedric Yann Prouve
Marc Cedric Yann Prouve

EXHIBIT 31.1

Certification

I, William P. Lauder certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Estée 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

d) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2008

	/s/ WILLIAM P. LAUDER
	William P. Lauder
	Chief Executive Officer

EXHIBIT 31.2

Certification

I, Richard W. Kunes certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Estée Lauder Companies Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2008

	/s/ RICHARD W. KUNES
	Richard W. Kunes
	Executive Vice President and Chief Financial
	Officer

EXHIBIT 32.1

Certification

Pursuant to Rule 13a-14(b) or

Rule 15d-14(b) and 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002)

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), the undersigned officer of The Estée Lauder Companies Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (the “10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)), and the information contained in the 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 28, 2008

	/s/ WILLIAM P. LAUDER
	William P. Lauder
	Chief Executive Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) and for no other purpose.

EXHIBIT 32.2

Certification

Pursuant to Rule 13a-14(b) or

Rule 15d-14(b) and 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002)

Date: October 28, 2008

	/s/ RICHARD W. KUNES
	Richard W. Kunes
	Executive Vice President and Chief Financial
	Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) and for no other purpose.

Item 1. Financial Statements.

First Quarter Fiscal 2009 as Compared with First Quarter Fiscal 2008

NET SALES

Product Categories

COST OF SALES

OPERATING EXPENSES

OPERATING RESULTS

INTEREST EXPENSE, NET

PROVISION FOR INCOME TAXES

Foreign Exchange Risk Management

CRITICAL ACCOUNTING POLICIES

RECENTLY ADOPTED ACCOUNTING STANDARDS

RECENTLY ISSUED ACCOUNTING STANDARDS

FORWARD-LOOKING INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Item 4. Controls and Procedures.

Item 6. Exhibits.

Exhibit 10.1

DOMESTIC

Stock Option Agreement

Notice of Grant Under

***(*)***

***(*)***

***(*)***

***(*)***

***(*)***

***(*)***

Notice of Grant

Notice of Grant Under

Notice of Grant Under