What changed in this filing

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Item 1. Financial Statements

2021-05-03 compared with 2021-02-05 · 333 added, 230 removed, 860 unchanged (40% of the section changed)

1 unchanged sentence

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2021 2020 2021 2020

8 unchanged sentences

Goodwill impairment — 275 54 786

Impairment of other intangible assets 27 266 27 266

Impairment of other intangible and long-lived assets 33 71 60 337

Total operating expenses 2,309 2,400 7,047 7,930

6 unchanged sentences

Provision for income taxes 122 84 421 496

Net earnings 877 561 1,402 1,159

Net earnings (loss) 458 ( 4 ) 1,860 1,155

Net earnings attributable to noncontrolling interests ( 2 ) ( 2 ) ( 8 ) ( 9 )

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

$ 456 $ ( 6 ) $ 1,852 $ 1,146

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

per common share

6 unchanged sentences

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

Net earnings $ 877 $ 561 $ 1,402 $ 1,159

Net earnings (loss) $ 458 $ ( 4 ) $ 1,860 $ 1,155

Other comprehensive income (loss):

Net cash flow hedge loss ( 26 ) ( 22 ) ( 57 ) ( 24 )

Net cash flow hedge gain (loss) 41 34 ( 16 ) 10

Retirement plan and other retiree benefit adjustments 7 6 19 16

Translation adjustments ( 121 ) ( 185 ) 170 ( 191 )

Benefit for deferred income taxes on components of other comprehensive income 20 10 38 13

Benefit (provision) for income taxes on components of other comprehensive income ( 32 ) 2 6 15

Total other comprehensive income (loss), net of tax ( 105 ) ( 143 ) 179 ( 150 )

Comprehensive income 1,090 618 1,686 1,152

Comprehensive income (loss) 353 ( 147 ) 2,039 1,005

Comprehensive income attributable to noncontrolling interests:

2 unchanged sentences

( 1 ) ( 2 ) ( 9 ) ( 8 )

Comprehensive income attributable to The Estée Lauder Companies Inc.

Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.

$ 352 $ ( 149 ) $ 2,030 $ 997

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) December 31

(In millions, except share data) March 31

Current assets

25 unchanged sentences

Class A shares authorized:

1,300,000,000 at December 31, 2020 and June 30, 2020;

1,300,000,000 at March 31, 2021 and June 30, 2020;

shares issued:

456,618,145 at December 31, 2020 and 451,927,441 at June 30, 2020;

459,687,905 at March 31, 2021 and 451,927,441 at June 30, 2020;

Class B shares authorized:

304,000,000 at December 31, 2020 and June 30, 2020;

304,000,000 at March 31, 2021 and June 30, 2020;

shares issued and outstanding:

133,023,029 at December 31, 2020 and 135,235,429 at June 30, 2020

130,617,029 at March 31, 2021 and 135,235,429 at June 30, 2020

Paid-in capital

5 unchanged sentences

Treasury stock, at cost;

227,008,228 Class A shares at December 31, 2020 and 226,637,238 Class A shares at June 30, 2020

227,738,087 Class A shares at March 31, 2021 and 226,637,238 Class A shares at June 30, 2020

( 10,642 ) ( 10,330 )

6 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

(In millions) 2021 2020

9 unchanged sentences

Pension and post-retirement benefit contributions ( 35 ) ( 54 )

Goodwill and other intangible asset impairments 81 777

Goodwill, other intangible and long-lived asset impairments 114 1,123

Changes in fair value of contingent consideration ( 2 ) ( 9 )

3 unchanged sentences

Increase in accounts receivable, net ( 506 ) ( 48 )

Decrease in inventory and promotional merchandise 67 31

Decrease (increase) in inventory and promotional merchandise 13 ( 41 )

Increase in other assets, net ( 122 ) ( 63 )

15 unchanged sentences

Repayments and redemptions of long-term debt ( 6 ) ( 511 )

Net proceeds from stock-based compensation transactions 104 71

Proceeds from stock-based compensation transactions 180 148

Payments to acquire treasury stock ( 316 ) ( 883 )

33 unchanged sentences

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at monthly average rates of exchange for the period.

Unrealized translation gains, net of tax, reported as translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc.

were $ 227 million and $ 75 million, net of tax, during the three months ended December 31, 2020 and 2019, respectively, and $ 318 million and $ 3 million, net of tax, during the six months ended December 31, 2020 and 2019, respectively.

Unrealized translation gains (losses), net of tax, reported as translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc.

were $( 143 ) million and $( 173 ) million, net of tax, during the three months ended March 31, 2021 and 2020, respectively, and $ 175 million and $( 170 ) million, net of tax, during the nine months ended March 31, 2021 and 2020, respectively.

For the Company’s subsidiaries operating in highly inflationary economies, the U.S.

dollar is the functional currency.

Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings.

Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings (loss).

These subsidiaries are not material to the Company’s consolidated financial statements or liquidity.

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The Company categorizes these instruments as entered into for purposes other than trading.

The accompanying consolidated statements of earnings include net exchange gains (losses) on foreign currency transactions of $ 27 million during the three months ended December 31, 2019, and $( 2 ) million and $ 24 million during the six months ended December 31, 2020 and 2019, respectively.

The net exchange loss on foreign currency transactions during the three months ended December 31, 2020 was not material.

The accompanying consolidated statements of earnings (loss) include net exchange gains (losses) on foreign currency transactions of $( 3 ) million and $ 15 million during the three months ended March 31, 2021 and 2020, respectively, and $( 5 ) million and $ 40 million during the nine months ended March 31, 2021 and 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

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While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor the extent of the impact of the COVID-19 pandemic on its customers' abilities, individually and collectively, to make timely payments.

The Company’s largest customer during the three and six months ended December 31, 2020 sells products primarily in China travel retail.

This customer accounted for $ 654 million or 13 %, and $ 296 million or 6 % for the three months ended December 31, 2020 and 2019, respectively, and $ 1,208 million or 14 % and $ 465 million or 5 % for the six months ended December 31, 2020 and 2019, respectively, of the Company's consolidated net sales.

This customer accounted for $ 404 million, or 20 %, and $ 297 million, or 24 %, of the Company's accounts receivable at December 31, 2020 and June 30, 2020, respectively.

The Company’s largest customer during the three and nine months ended March 31, 2021 sells products primarily in China travel retail.

This customer accounted for $ 690 million or 18 %, and $ 143 million or 4 % for the three months ended March 31, 2021 and 2020, respectively, and $ 1,898 million or 15 % and $ 608 million or 5 % for the nine months ended March 31, 2021 and 2020, respectively, of the Company's consolidated net sales.

This customer accounted for $ 366 million, or 21 %, and $ 297 million, or 24 %, of the Company's accounts receivable at March 31, 2021 and June 30, 2020, respectively.

Another major customer of the Company during the quarter sells products primarily within the United States and accounted for $ 179 million, or 10 %, and $ 87 million, or 7 %, of the Company’s accounts receivable at March 31, 2021 and June 30, 2020, respectively.

This customer accounted for $ 167 million, or 4 %, and $ 149 million, or 4 %, for the three months ended March 31, 2021 and 2020, respectively, and $ 510 million or 4 % and $ 589 million or 5 % for the nine months ended March 31, 2021 and 2020, respectively, of the Company’s consolidated net sales.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

(In millions) December 31

(In millions) March 31

Raw materials

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Property, plant and equipment consists of the following:

(In millions) December 31

(In millions) March 31

Assets (Useful Life)

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$ 2,106 $ 2,055

The cost of assets related to projects in progress of $ 601 million and $ 501 million as of December 31, 2020 and June 30, 2020, respectively, is included in their respective asset categories above.

Depreciation and amortization of property, plant and equipment was $ 126 million and $ 127 million during the three months ended December 31, 2020 and 2019, respectively, and $ 251 million and $ 252 million during the six months ended December 31, 2020 and 2019, 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.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective rate for income taxes for the three and six months ended December 31, 2020 and 2019 are as follows:

The cost of assets related to projects in progress of $ 581 million and $ 501 million as of March 31, 2021 and June 30, 2020, respectively, is included in their respective asset categories above.

Depreciation and amortization of property, plant and equipment was $ 129 million and $ 131 million during the three months ended March 31, 2021 and 2020, respectively, and $ 380 million and $ 383 million during the nine months ended March 31, 2021 and 2020, respectively.

The Company recognized $ 33 million and $ 13 million of long-lived asset impairments, included in Impairments of other intangible and long-lived assets, in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021 and 2020, respectively.

The fiscal 2021 impairments related to other assets (i.e.

rights associated with commercial operating leases), operating lease right-of-use assets and the related property, plant and equipment in certain freestanding stores primarily in Europe, and the fiscal 2020 impairments related to operating lease right-of-use assets and the related property, plant and equipment in certain freestanding stores primarily in North America.

In both periods, the impairments were due to the negative impacts of the COVID-19 pandemic.

The effective rate for income taxes for the three and nine months ended March 31, 2021 and 2020 are as follows:

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

2021 2020 2021 2020

1 unchanged sentence

Basis-point change from the prior-year period ( 8,400 ) ( 1,150 )

For the three and six months ended December 31, 2020, the decrease in the effective tax rate was primarily attributable to a lower effective tax rate on the Company's foreign operations and the impact of nondeductible goodwill charges recognized in the second quarter of fiscal 2020.

The effective tax rate for the three and six months ended December 31, 2020 included the impact of the U.S.

For the three and nine months ended March 31, 2021, the decrease in the effective tax rate was primarily attributable to the impact of nondeductible goodwill charges recognized in the three and nine months ended March 31, 2020 and a lower effective tax rate on the Company's foreign operations.

The lower amount of earnings before income taxes for the three and nine months ended March 31, 2020 increased the impact of the nondeductible charges.

The effective tax rate for the three and nine months ended March 31, 2021 included the impact of the U.S.

government issuance of final global intangible low-taxed income (“GILTI”) tax regulations in July 2020 under the Tax Cuts and Jobs Act that provide for a high-tax exception to the GILTI tax.

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The Company has elected to apply the GILTI high-tax exception to fiscal 2021, 2020 and 2019.

The election for fiscal 2021 resulted in reductions of 160 basis points and 150 basis points to the effective tax rates for the three and six months ended December 31, 2020, respectively.

The impact of the elections with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second quarter of fiscal 2021 and resulted in reductions of 470 basis points and 280 basis points to the effective tax rates for the three and six months ended December 31, 2020, respectively.

As of December 31, 2020 and June 30, 2020, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 70 million.

The total amount of unrecognized tax benefits at December 31, 2020 that, if recognized, would affect the effective tax rate was $ 55 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three and six months ended December 31, 2020 in the accompanying consolidated statements of earnings were not material.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at December 31, 2020 and June 30, 2020, was $ 14 million and $ 13 million, respectively.

On the basis of the information available as of December 31, 2020, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

The election for fiscal 2021 resulted in reductions of 100 basis points and 110 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively.

The impact of the elections with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second and third quarters of fiscal 2021 and resulted in reductions of 30 basis points and 220 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively.

As of March 31, 2021 and June 30, 2020, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 72 million and $ 70 million, respectively.

The total amount of unrecognized tax benefits at March 31, 2021 that, if recognized, would affect the effective tax rate was $ 57 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three and nine months ended March 31, 2021 in the accompanying consolidated statements of earnings (loss) was $ 2 million and $ 3 million, respectively.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at March 31, 2021 and June 30, 2020, was $ 16 million and $ 13 million, respectively.

On the basis of the information available as of March 31, 2021, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Accrued Liabilities

Other accrued liabilities consist of the following:

(In millions) December 31

(In millions) March 31

Advertising, merchandising and sampling $ 299 $ 256

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Sales return accrual 270 212

Accrued general and administrative expenses 295 233

Other 1,050 833

$ 3,077 $ 2,405

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2020, the Company repaid the remaining $ 750 million borrowed under its $ 1,500 million revolving credit facility that was outstanding as of June 30, 2020.

Recently Adopted Accounting Standards

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This guidance can be adopted either retrospectively, or prospectively to all implementation costs incurred after the date of adoption.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impact on consolidated financial statements – On July 1, 2020, the Company adopted this guidance prospectively to all implementation costs incurred after the date of adoption.

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In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2021, the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform.

The amendments clarify that all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC Topic 848.

The amendments clarify that for all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC Topic 848.

Effective for the Company – This guidance can be applied for a limited time through December 31, 2022.

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The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, depending on the specific change.

Impact on consolidated financial statements – The Company is currently evaluating the impact of applying this guidance and believes that it has transactions that may fall under the scope.

Impact on consolidated financial statements – The Company is in the process of finalizing its evaluation and currently expects to record a cumulative adjustment of approximately $ 120 million as an increase to its fiscal 2022 opening retained earnings balance for deferred taxes related to a previously held equity method investment that became a foreign subsidiary.

No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – ACQUISITION OF BUSINESS

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The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $ 4 million, which was reclassified from accumulated OCI.

The total gain on the Company’s previously held equity method investment of $ 553 million is included in Other income in the accompanying consolidated statements of earnings for the three and six months ended December 31, 2019.

The total gain on the Company’s previously held equity method investment of $ 553 million is included in Other income in the accompanying consolidated statements of earnings (loss) for the nine months ended March 31, 2020.

The fair value of the previously held equity method investment was determined based upon a valuation of the acquired business, as of the date of acquisition, using an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies.

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In anticipation of the closing, the Company transferred cash to a foreign subsidiary for purposes of making the closing payment.

As a result, the Company recognized a foreign currency gain of $ 23 million, which is also included in Other income in the accompanying consolidated statements of earnings for the three and six months ended December 31, 2019.

As a result, the Company recognized a foreign currency gain of $ 23 million, which is also included in Other income in the accompanying consolidated statements of earnings (loss) for the nine months ended March 31, 2020.

Further information is included in the notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

16 unchanged sentences

( 34 ) ( 7 ) 4 5 ( 32 )

Balance as of December 31, 2020

Balance as of March 31, 2021

540 1,216 258 396 2,410

2 unchanged sentences

$ 390 $ 386 $ 232 $ 361 $ 1,369

(1) A goodwill impairment charge of $ 13 million was recorded in connection with the exit of the global distribution of BECCA products and is included in Restructuring and other charges in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021.

See Note 4 – Charges Associated with Restructuring and Other Activities for further information relating to the Post-COVID Business Acceleration Program.

See “ Impairment Testing During the Nine Months Ended March 31, 2021 ” below for further information relating to fiscal 2021 impairment charges related to GLAMGLOW.

Other intangible assets consist of the following:

December 31, 2020 June 30, 2020

March 31, 2021 June 30, 2020

(In millions) Gross

12 unchanged sentences

$ 2,294 $ 2,338

The aggregate amortization expense related to amortizable intangible assets was $ 27 million and $ 11 million for the three months ended December 31, 2020 and 2019, respectively, and $ 52 million and $ 22 million for the six months ended December 31, 2020 and 2019, respectively.

The aggregate amortization expense related to amortizable intangible assets was $ 25 million and $ 23 million for the three months ended March 31, 2021 and 2020, respectively, and $ 77 million and $ 45 million for the nine months ended March 31, 2021 and 2020, respectively.

The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next four fiscal years is as follows:

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment Testing During the Six Months Ended December 31, 2020

Impairment Testing During the Nine Months Ended March 31, 2021

During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company and lower than expected results from geographic expansion, the Company made further revisions to the internal forecasts relating to its GLAMGLOW reporting unit.

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The fair value of the GLAMGLOW reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

The impairment charges for the three and six months ended December 31, 2020 were reflected in the skin care product category and in the Americas region.

As of December 31, 2020, the remaining carrying value of the trademark related to the GLAMGLOW reporting unit was $ 36 million.

Impairment Testing During the Six Months Ended December 31, 2019

The impairment charges for the nine months ended March 31, 2021 were reflected in the skin care product category and in the Americas region.

As of March 31, 2021, the remaining carrying value of the trademark related to the GLAMGLOW reporting unit was $ 36 million.

Impairment Testing During the Nine Months Ended March 31, 2020

During December 2019, given the continuing declines in prestige makeup, generally in North America, and the ongoing competitive activity, the Company’s Too Faced, BECCA and Smashbox reporting units made revisions to their internal forecasts concurrent with the Company's brand strategy review process.

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The Company concluded that the carrying amounts of the long-lived assets were recoverable.

The Company also concluded that the carrying values of the trademarks exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded impairment charges.

After adjusting the carrying value of the trademarks, the Company completed interim quantitative impairment tests for goodwill and recorded goodwill impairment charges for each of these reporting units.

The fair value of each reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

A summary of the impairment charges for the three and six months ended December 31, 2019 and the remaining trademark and goodwill carrying values as of December 31, 2019, for each reporting unit, are as follows:

(In millions) Impairment Charge Carrying Value

Reporting Unit:

Trademark Goodwill Trademark Goodwill

Too Faced $ 211 $ 430 $ 314 $ 175

BECCA 33 35 65 63

Smashbox 22 46 33 26

Total $ 266 $ 511 $ 412 $ 264

The impairment charges were recorded in the makeup product category and in the Americas region.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During March 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company, the Company made revisions to the internal forecasts relating to its Too Faced, BECCA, Smashbox and GLAMGLOW reporting units.

The Company concluded that the changes in circumstances in these reporting units triggered the need for an interim impairment review of their respective trademarks and goodwill.

These changes in circumstances were also an indicator that the carrying amounts of their respective long-lived assets, including customer lists, may not be recoverable.

Accordingly, the Company performed interim impairment tests for the trademarks and recoverability tests for the long-lived assets as of March 31, 2020.

The Company concluded that the carrying amounts of the long-lived assets were recoverable.

The fair value of each reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows, based on probability weighted undiscounted cash flows, and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

A summary of the impairment charges for the three and nine months ended March 31, 2020 and the remaining trademark and goodwill carrying values as of March 31, 2020, for each reporting unit, are as follows:

Impairment Charge

(In millions) Three Months Ended

March 31, 2020 Nine Months Ended

March 31, 2020 Carrying Value

Reporting Unit:

Product Category Region Trademark Goodwill Trademark Goodwill Trademark Goodwill

Too Faced Makeup The Americas $ 42 $ 162 $ 253 $ 592 $ 272 $ 13

BECCA Makeup The Americas 14 35 47 70 51 28

Smashbox Makeup The Americas 1 26 23 72 32 —

GLAMGLOW Skin care The Americas 1 52 1 52 62 62

Total $ 58 $ 275 $ 324 $ 786 $ 417 $ 103

NOTE 4 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

Charges associated with restructuring activities for the three months ended December 31, 2020 were as follows:

Charges associated with restructuring activities for the three months ended March 31, 2021 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

4 unchanged sentences

Total $ 10 $ 4 $ 124 $ 7 $ 145

Charges associated with restructuring activities for the six months ended December 31, 2020 were as follows:

Charges associated with restructuring activities for the nine months ended March 31, 2021 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

4 unchanged sentences

Total $ 10 $ 9 $ 160 $ 12 $ 191

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Charges associated with restructuring and other activities are not allocated to our product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business.

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Cumulative through June 30, 2020 $ 13 $ 85 $ 511 $ 358 $ 967

Six months ended December 31, 2020 1 — ( 7 ) 6 —

Cumulative through December 31, 2020 $ 14 $ 85 $ 504 $ 364 $ 967

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine months ended March 31, 2021 1 — ( 11 ) 10 —

Cumulative through March 31, 2021 $ 14 $ 85 $ 500 $ 368 $ 967

Included in the above table, cumulative LBF Program restructuring initiatives approved by the Company by major cost type were:

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Cumulative through June 30, 2020 $ 460 $ 28 $ 7 $ 16 $ 511

Six months ended December 31, 2020 ( 8 ) — 1 — ( 7 )

Cumulative through December 31, 2020 $ 452 $ 28 $ 8 $ 16 $ 504

Nine months ended March 31, 2021 ( 13 ) — 2 — ( 11 )

Cumulative through March 31, 2021 $ 447 $ 28 $ 9 $ 16 $ 500

The Company records approved charges associated with restructuring and other activities once the relevant accounting criteria have been met.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LBF Program Restructuring and Other Charges

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Cumulative through June 30, 2020 $ 14 $ 65 $ 491 $ 304 $ 874

Six months ended December 31, 2020 — 5 ( 10 ) 5 —

Cumulative through December 31, 2020 $ 14 $ 70 $ 481 $ 309 $ 874

Nine months ended March 31, 2021 — 4 ( 7 ) 9 6

Cumulative through March 31, 2021 $ 14 $ 69 $ 484 $ 313 $ 880

(In millions) Employee-

3 unchanged sentences

Cumulative through June 30, 2020 $ 451 $ 27 $ 6 $ 7 $ 491

Six months ended December 31, 2020 ( 12 ) 1 1 — ( 10 )

Cumulative through December 31, 2020 $ 439 $ 28 $ 7 $ 7 $ 481

Nine months ended March 31, 2021 ( 10 ) — 1 2 ( 7 )

Cumulative through March 31, 2021 $ 441 $ 27 $ 7 $ 9 $ 484

Employee-related costs reflect adjustments to the accrual estimate for certain employees who either resigned or transferred to other existing positions within the Company.

Changes in accrued restructuring charges for the six months ended December 31, 2020 relating to the LBF Program were:

Changes in accrued restructuring charges for the nine months ended March 31, 2021 relating to the LBF Program were:

(In millions) Employee-

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Translation adjustments 1 — — — 1

Balance at December 31, 2020 $ 66 $ 1 $ 1 $ — $ 68

Accrued restructuring charges at December 31, 2020 relating to the LBF Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 46 million, $ 17 million and $ 5 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance at March 31, 2021 $ 53 $ — $ — $ 2 $ 55

Accrued restructuring charges at March 31, 2021 relating to the LBF Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 37 million, $ 14 million and $ 4 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively.

Additional information about the LBF Program is included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

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It is expected to further strengthen the Company by building upon the foundational capabilities in which the Company has invested.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The PCBA Program’s main areas of focus include accelerating the shift to online with the realignment of the Company’s distribution network reflecting freestanding store and certain department store closures, with a focus on North America and Europe, the Middle East & Africa;

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This program is expected to position the Company to better execute its long-term strategy while strengthening its financial flexibility.

In connection with the PCBA Program, at this time the Company estimates a net reduction in the range of approximately 1,500 to 2,000 positions globally, which is approximately 3 % of its current workforce including temporary and part-time employees.

At this time the Company estimates a net reduction over the duration of the PCBA Program in the range of approximately 1,500 to 2,000 positions globally, including temporary and part-time employees.

This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas.

The Company also estimates the closure of approximately 10 % to 15 % of its freestanding stores globally, primarily in Europe, the Middle East & Africa and in North America.

The Company also estimates the closure over the duration of the PCBA Program of approximately 10 % to 15 % of its freestanding stores globally, primarily in Europe, the Middle East & Africa and in North America.

The Company plans to approve specific initiatives under the PCBA Program through fiscal 2022 and expects to complete those initiatives through fiscal 2023.

1 unchanged sentence

PCBA Program Approvals

The PCBA Program cumulative charges approved by the Company through December 31, 2020 were:

The PCBA Program cumulative charges approved by the Company through March 31, 2021 were:

Net Sales) Cost of Sales Operating Expenses Total

2 unchanged sentences

Total Charges (Adjustments) Approved

Six months ended December 31, 2020 $ 5 $ ( 1 ) $ 46 $ 16 $ 66

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through December 31, 2020 by major cost type were:

Nine months ended March 31, 2021 $ 39 $ ( 6 ) $ 180 $ 17 $ 230

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through March 31, 2021 by major cost type were:

(In millions) Employee-

1 unchanged sentence

Terminations Other Exit

Restructuring Charges (Adjustments) Approved

Six months ended December 31, 2020 $ 46 $ 4 $ ( 7 ) $ 3 $ 46

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring Charges Approved

Nine months ended March 31, 2021 $ 73 $ 99 $ 5 $ 3 $ 180

Specific actions taken since the PCBA Program inception include:

• Optimize Distribution Network – To help restore profitability to pre-COVID-19 pandemic levels and, as part of a broader initiative to be completed in phases, the Company has approved initiatives to close a number of underperforming freestanding stores and counters, mainly in the United Kingdom and certain affiliates in Europe, the Middle East & Africa.

• Optimize Distribution Network – To help restore profitability to pre-COVID-19 pandemic levels in certain areas of its distribution network and, as part of a broader initiative to be completed in phases, the Company has approved initiatives to close a number of underperforming freestanding stores, counters and other retail locations, mainly in certain affiliates in Europe, the Middle East & Africa and the United Kingdom, North America, Latin America and the Company's travel retail network.

These anticipated closures reflect changing consumer behavior including higher demand for online and omnichannel capabilities.

These activities will result in product returns, inventory write-offs, reduction of workforce, and termination of contracts.

• Optimize Digital Organization – The Company approved initiatives to enhance its go-to-market support structures and align more resources to support online and digital activities.

These initiatives are primarily intended to shift certain areas of focus from traditional brick-and-mortar to social and digital strategies to provide enhanced consumer experience, as well as to support expanded omnichannel opportunities.

These activities will result in a net reduction in workforce, inventory and other asset write-offs, product returns, and termination of contracts.

• Optimize Digital Organization and Other Go-To-Market Organizations – The Company approved initiatives to enhance its go-to-market capabilities and shift more resources to support online growth.

These actions will result in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities.

• Optimize Select Global Functions – The Company has started to reduce its corporate office footprint and is moving toward the future of work in a post-COVID environment, by restructuring where and how its employees work and collaborate.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Optimize Select Marketing, Brand and Global Functions – The Company has started to reduce its corporate office footprint and is moving toward the future of work in a post-COVID environment, by restructuring where and how its employees work and collaborate.

These actions will result primarily in lease termination fees.

• Exit of the Global Distribution of BECCA Products – In reviewing the Company's brand portfolio to improve efficiency and to ensure the sustainability of long-term investments, the decision was made to exit the global distribution of BECCA products due to its limited distribution, the ongoing decline in product demand and the challenging environment caused by the COVID-19 pandemic.

These activities resulted in charges for the impairment of goodwill and other intangible assets, product returns, termination of contracts, and employee severance.

The Company expects to substantially complete these initiatives during fiscal 2022.

PCBA Program Restructuring and Other Charges

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Employee-Related Costs – Employee-related costs are primarily comprised of severance and other post-employment benefit costs, calculated based on salary levels, prior service and other statutory minimum benefits, if applicable.

Asset-Related Costs – Asset-related costs primarily consist of asset write-offs or accelerated depreciation related to long-lived assets (including operating lease right-of-use assets) that will be taken out of service prior to their existing useful life as a direct result of a restructuring initiative.

Asset-Related Costs – Asset-related costs primarily consist of asset write-offs or accelerated depreciation related to long-lived assets in certain freestanding stores (including rights associated with commercial operating leases and operating lease right-of-use assets) that will be taken out of service prior to their existing useful life as a direct result of a restructuring initiative.

These costs also include goodwill and other intangible asset impairment charges relating to the exit of the global distribution of BECCA products.

Contract Terminations – Costs related to contract terminations include continuing payments to a third party after the Company has ceased benefiting from the rights conveyed in the contract, or a payment made to terminate a contract prior to its expiration.

15 unchanged sentences

Total Charges

Six months ended December 31, 2020 $ — $ — $ 46 $ — $ 46

Nine months ended March 31, 2021 $ 10 $ 5 $ 167 $ 3 $ 185

(In millions) Employee-

Costs Contract

Terminations Other Exit

Restructuring Charges

Six months ended December 31, 2020 $ 45 $ — $ 1 $ — $ 46

Changes in accrued restructuring charges for the six months ended December 31, 2020 relating to the PCBA Program were:

Nine months ended March 31, 2021 $ 70 $ 93 $ 4 $ — $ 167

(1) Asset-related costs include goodwill and other intangible asset impairment charges of $ 13 million and $ 34 million, respectively, relating to the exit of the global distribution of BECCA products.

Changes in accrued restructuring charges for the nine months ended March 31, 2021 relating to the PCBA Program were:

(In millions) Employee-

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Cash payments ( 8 ) — ( 4 ) — ( 12 )

Balance at December 31, 2020 $ 41 $ — $ — $ — $ 41

Accrued restructuring charges at December 31, 2020 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 35 million, $ 5 million, and $ 1 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively.

Noncash asset write-offs — ( 93 ) — — ( 93 )

Balance at March 31, 2021 $ 62 $ — $ — $ — $ 62

Accrued restructuring charges at March 31, 2021 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 37 million, $ 18 million, and $ 7 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively.

NOTE 5 – DEBT

In August 2020, the Company repaid the remaining $ 750 million borrowed under its $ 1,500 million revolving credit facility that was outstanding as of June 30, 2020.

In March 2021, the Company completed a public offering of $ 600 million aggregate principal amount of its 1.950 % Senior Notes due March 15, 2031 (the “2031 Senior Notes”).

The Company used some of the net proceeds from this offering for general corporate purposes, which included operating expenses, working capital and capital expenditures.

In addition, the Company intends to use the net proceeds from this offering to repay the 1.700 % Senior Notes due May 10, 2021 and fund a portion of the purchase price to increase the Company's investment in DECIEM Beauty Group Inc.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These recently issued notes are summarized as follows:

($ in millions) Issue Date Price Yield Unamortized

Discount Debt

Costs Semi-annual

2031 Senior Notes (1)

March 2021 99.340 % 2.023 % $ ( 4 ) $ ( 4 ) March 15/September 15

(1) In March 2020, in anticipation of the issuance of the 2031 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $ 200 million at a weighted-average all-in rate of 0.84 %.

The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $ 11 million that is being amortized to interest expense over the life of the 2031 Senior Notes.

As a result of the treasury lock agreements, as well as the debt discount and debt issuance costs, the effective interest rate on the 2031 Senior Notes will be 1.89 % over the life of the debt.

See Note 16 – Subsequent Events for further information relating to the debt repayment made subsequent to March 31, 2021.

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

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The Company also enters into foreign currency forward contracts, and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the consolidated balance sheets.

At December 31, 2020, the notional amount of derivatives not designated as hedging instruments was $ 4,118 million.

At March 31, 2021, the notional amount of derivatives not designated as hedging instruments was $ 4,404 million.

The Company does not utilize derivative financial instruments for trading or speculative purposes.

Costs associated with entering into derivative financial instruments have not been material to the Company’s consolidated financial results.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For each derivative contract entered into, where the Company looks to obtain hedge accounting treatment, the Company formally and contemporaneously documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, and how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively.

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If based on the qualitative assessment, it is determined that a derivative has ceased to be a highly effective hedge, the Company will perform a quantitative assessment to determine whether to discontinue hedge accounting with respect to that derivative prospectively.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of the Company’s derivative financial instruments included in the consolidated balance sheets are presented as follows:

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(In millions) Balance Sheet

Location December 31

Location March 31

2020 Balance Sheet

Location December 31

Location March 31

Derivatives Designated as Hedging Instruments

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The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments that are included in the assessment of effectiveness are as follows:

Amount of Gain or (Loss)

Amount of Gain (Loss)

Recognized in OCI on

Derivatives Location of Gain or

(Loss) Reclassified

from AOCI into

Earnings Amount of Gain or (Loss)

Reclassified from AOCI into Earnings (1)

Derivatives Location of Gain (Loss)

Reclassified from AOCI

into Earnings (Loss) Amount of Gain (Loss)

Reclassified from AOCI into Earnings (Loss) (1)

Three Months Ended

December 31 Three Months Ended

March 31 Three Months Ended

(In millions) 2021 2020 2021 2020

10 unchanged sentences

$ 158 $ 24 $ ( 8 ) $ 10

(1) The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material.

(2) During the three months ended December 31, 2020 and December 31, 2019, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 5 million and $ 13 million, respectively.

(1) The amount reclassified into earnings (loss) as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material.

(2) During the three months ended March 31, 2021 and 2020, the gain recognized in earnings (loss) from net investment hedges related to the amount excluded from effectiveness testing was $ 5 million and $ 12 million, respectively.

(3) Included within translation adjustments as a component of AOCI on the Company’s consolidated balance sheets.

Amount of Gain or (Loss)

Amount of Gain (Loss)

Recognized in OCI on

Derivatives Location of Gain or

(Loss) Reclassified

from AOCI into

Earnings Amount of Gain or (Loss)

Derivatives Location of Gain (Loss)

Reclassified from AOCI

into Earnings Amount of Gain (Loss)

Reclassified from AOCI into Earnings (1)

Six Months Ended

December 31 Six Months Ended

Nine Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

8 unchanged sentences

(2) During the six months ended December 31, 2020 and December 31, 2019, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 10 million and $ 25 million, respectively.

(2) During the nine months ended March 31, 2021 and 2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 15 million and $ 37 million, respectively.

(3) Included within translation adjustments as a component of AOCI on the Company’s consolidated balance sheets.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amount of Gain or (Loss)

Recognized in Earnings on Derivatives (1)

Location of Gain or (Loss) Recognized in Earnings on Derivatives

Amount of Gain (Loss)

Recognized in Earnings (Loss) on Derivatives (1)

Location of Gain (Loss) Recognized in Earnings (Loss) on Derivatives

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

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Included in the Carrying Amount of the Hedged Liability

December 31, 2020 December 31, 2020

March 31, 2021 March 31, 2021

Current debt $ 451 $ 1

4 unchanged sentences

Additional information regarding the effects of fair value and cash flow hedging relationships for derivatives designated and qualifying as hedging instruments is as follows:

Three Months Ended December 31

Three Months Ended March 31

(In millions) Net Sales Interest

Expense Net Sales Interest

Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded $ 4,853 $ 43 $ 4,624 $ 38

Total amounts of income and expense line items presented in the consolidated statements of earnings (loss) in which the effects of fair value and cash flow hedges are recorded $ 3,864 $ 43 $ 3,345 $ 42

The effects of fair value and cash flow hedging relationships:

4 unchanged sentences

Gain (loss) on cash flow hedge relationships – interest rate contracts:

Amount of loss reclassified from AOCI into earnings Not applicable — Not applicable —

Amount of loss reclassified from AOCI into earnings (loss) Not applicable ( 1 ) Not applicable —

Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:

Amount of gain reclassified from AOCI into earnings

( 5 ) Not applicable 6 Not applicable

Amount of gain reclassified from AOCI into earnings (loss) ( 7 ) Not applicable 10 Not applicable

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31

Nine Months Ended March 31

(In millions) Net Sales Interest

12 unchanged sentences

The amount of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are presented as follows:

Amount of Gain or (Loss)

Recognized in Earnings on Derivatives

Location of Gain or (Loss) Recognized in Earnings on

Derivatives Three Months Ended

December 31 Six Months Ended

Amount of Gain (Loss)

Recognized in Earnings (Loss) on Derivatives

Location of Gain (Loss) Recognized in Earnings (Loss) on Derivatives Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

8 unchanged sentences

The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the cash flows that the Company receives from foreign subsidiaries.

The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of September 2022.

The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of December 2022.

Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment.

At December 31, 2020, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,195 million.

At March 31, 2021, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,390 million.

The Company may enter into interest rate forward contracts to hedge anticipated issuance of debt for periods consistent with the Company’s identified exposures.

2 unchanged sentences

If it is probable that the forecasted transaction will no longer occur, then any gains or losses in AOCI are reclassified to current-period sales.

As of December 31, 2020, the Company’s foreign currency cash flow hedges were highly effective.

The estimated net loss on the Company’s derivative instruments designated as cash flow hedges as of December 31, 2020 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 25 million.

The accumulated net gain (loss) on derivative instruments in AOCI was $( 37 ) million and $ 20 million as of December 31, 2020 and June 30, 2020, respectively.

As of March 31, 2021, the Company’s foreign currency cash flow hedges were highly effective.

The estimated net loss on the Company’s derivative instruments designated as cash flow hedges as of March 31, 2021 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 8 million.

The accumulated net gain on derivative instruments in AOCI was $ 4 million and $ 20 million as of March 31, 2021 and June 30, 2020, respectively.

Fair Value Hedges

The Company enters into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness.

The Company has interest rate swap agreements, with notional amounts totaling $ 450 million and $ 250 million to effectively convert the fixed rate interest on its 2021 Senior Notes and 2022 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin.

The Company has interest rate swap agreements, with notional amounts totaling $ 450 million, $ 250 million and $ 700 million to effectively convert the fixed rate interest on its 2021 Senior Notes, 2022 Senior Notes and 2030 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin.

These interest rate swap agreements are designated as fair value hedges of the related long-term debt, and the changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.

See Note 16 – Subsequent Events for further information relating to the interest rate swap transactions that occurred subsequent to March 31, 2021.

Net Investment Hedges

2 unchanged sentences

The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the Company’s net investment in these foreign operations.

The net investment hedge contracts have varying maturities through the end of January 2021.

The net investment hedge contracts have varying maturities through the end of April 2021.

Hedge effectiveness of the net investment hedge contracts is based on the spot method.

At December 31, 2020, the Company had net investment hedges outstanding with a notional amount totaling $ 1,879 million.

At March 31, 2021, the Company had net investment hedges outstanding with a notional amount totaling $ 1,920 million.

As a matter of policy, the Company enters into derivative contracts only with counterparties that have a long-term credit rating of at least A- or higher by at least two nationally recognized rating agencies.

The counterparties to these contracts are major financial institutions.

Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $ 84 million at December 31, 2020.

Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $ 143 million at March 31, 2021.

To manage this risk, the Company has strict counterparty credit guidelines that are continually monitored.

13 unchanged sentences

The inputs are unobservable in the market and significant to the instrument’s 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 December 31, 2020:

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021:

(In millions) Level 1 Level 2 Level 3 Total

5 unchanged sentences

$ — $ 129 $ — $ 129

Interest rate-related derivatives

Contingent consideration

$ — $ 144 $ 2 $ 146

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020:

9 unchanged sentences

$ — $ 83 $ 4 $ 87

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair values of the Company’s financial instruments are as follows:

8 unchanged sentences

Foreign currency forward contracts – asset (liability), net

( 64 ) ( 64 ) 7 7

Interest rate-related derivatives – asset (liability), net

The following table presents the Company’s impairment charges for the three and six months ended December 31, 2020 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:

( 8 ) ( 8 ) 12 12

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s impairment charges for the nine months ended March 31, 2021 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:

(In millions) Impairment charges Date of Fair Value Measurement Fair Value (1)

Goodwill $ 54 November 30, 2020 $ —

Other intangible assets, net (trademark and customer lists) 27 November 30, 2020 36

GLAMGLOW $ 54 November 30, 2020 $ —

13 February 28, 2021 —

Other intangible assets, net (trademark and customer lists)

GLAMGLOW 27 November 30, 2020 36

34 February 28, 2021 —

Long-lived assets 33 March 31, 2021 35

Total $ 161 $ 71

(1) See Note 3 - Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.

The following table presents the Company’s impairment charges for the three and six months ended December 31, 2019 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:

(2) See Note 4 – Charges Associated with Restructuring and Other Activities for further information relating to goodwill and other intangible asset impairment charges recorded in connection with the exit of the global distribution of BECCA products.

The following table presents the Company’s impairment charges for the nine months ended March 31, 2020 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:

(In millions) Impairment charges Date of Fair Value Measurement Fair Value (1)

Goodwill $ 511 December 31, 2019 $ 264

Other intangible assets, net (trademark) 266 December 31, 2019 412

Goodwill $ 786 March 31, 2020 $ 103

Other intangible assets, net (trademark) 324 March 31, 2020 417

Long-lived assets 13 March 31, 2020 11

Total $ 1,123 $ 531

15 unchanged sentences

The amounts to be paid under these obligations are contingent upon the achievement of stipulated financial targets by the business subsequent to acquisition.

At December 31, 2020, the fair values of the contingent consideration related to certain acquisition earn-outs were based on the Company’s estimate of the applicable financial targets as per the terms of the agreements.

At March 31, 2021, the fair values of the contingent consideration related to certain acquisition earn-outs were based on the Company’s estimate of the applicable financial targets as per the terms of the agreements.

Significant changes in the projected future operating results would result in a significantly higher or lower fair value measurement.

As these are unobservable inputs, the Company’s contingent consideration is classified within Level 3 of the valuation hierarchy.

Changes in the fair value of the contingent consideration obligations for six months ended December 31, 2020 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:

Changes in the fair value of the contingent consideration obligations for nine months ended March 31, 2021 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings (loss) and were as follows:

(In millions)

1 unchanged sentence

Changes in fair value

Contingent consideration at December 31, 2020 $ 2

Contingent consideration at March 31, 2021 $ 2

NOTE 8 – REVENUE RECOGNITION

1 unchanged sentence

Accounts Receivable

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 66 million and $ 63 million as of December 31, 2020 and June 30, 2020, respectively.

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 50 million and $ 63 million as of March 31, 2021 and June 30, 2020, respectively.

During the first quarter of fiscal 2021, the Company adopted ASC 326 using the modified retrospective transition approach and, accordingly, the prior comparative period was not restated.

6 unchanged sentences

Changes in the allowance for credit losses are as follows:

(In millions) December 31

(In millions)

Balance at June 30, 2020 $ 36

ASC 326 cumulative effect adjustment (pre-tax) 4

Provision for expected credit losses 7

Adjustment for expected credit losses ( 5 )

Write-offs, net & other ( 10 )

Balance at December 31, 2020 $ 39

Balance at March 31, 2021 $ 25

As a result of the adoption of ASC 326, the Company recorded a cumulative adjustment of approximately $ 3 million, net of tax, as a reduction to its fiscal 2021 opening balance of retained earnings relating to its trade receivables.

The remaining balance of the allowance for doubtful accounts of $ 27 million, as of December 31, 2020, relates to non-credit losses, which are primarily due to customer deductions.

The remaining balance of the allowance for doubtful accounts of $ 25 million, as of March 31, 2021, relates to non-credit losses, which are primarily due to customer deductions.

Deferred Revenue

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

1 unchanged sentence

Revenue recognized that was included in the deferred revenue balance at the beginning of the period ( 25 ) ( 26 ) ( 198 ) ( 268 )

Revenue deferred during the period 92 112 308 307

Revenue deferred (released) during the period ( 30 ) ( 37 ) 278 269

Other ( 4 ) — 2 —

1 unchanged sentence

Transaction Price Allocated to the Remaining Performance Obligations

At December 31, 2020, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions and gift card liabilities that are unsatisfied (or partially unsatisfied) is $ 365 million, and the remaining balance will be recognized beyond the next twelve months.

At March 31, 2021, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions and gift card liabilities that are unsatisfied (or partially unsatisfied) is $ 310 million, and the remaining balance will be recognized beyond the next twelve months.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – PENSION AND POST-RETIREMENT BENEFIT PLANS

3 unchanged sentences

Descriptions of these plans are included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net periodic benefit cost for the three months ended December 31, 2020 and 2019 consisted of the following:

The components of net periodic benefit cost for the three months ended March 31, 2021 and 2020 consisted of the following:

Pension Plans Other than

7 unchanged sentences

Actuarial loss 5 5 1 1 — —

Settlements — — 1 — — —

Special termination benefits — — 1 1 — —

Net periodic benefit cost $ 11 $ 9 $ 10 $ 10 $ 2 $ 2

The components of net periodic benefit cost for the six months ended December 31, 2020 and 2019 consisted of the following:

The components of net periodic benefit cost for the nine months ended March 31, 2021 and 2020 consisted of the following:

Pension Plans Other than

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Actuarial loss 15 12 3 4 — —

Settlements — — 1 — — —

Special termination benefits — — 10 1 — —

Net periodic benefit cost $ 32 $ 27 $ 38 $ 29 $ 5 $ 6

During the six months ended December 31, 2020, the Company made contributions to its international pension plans totaling $ 18 million.

During the nine months ended March 31, 2021, the Company made contributions to its international pension plans totaling $ 22 million.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amounts recognized in the consolidated balance sheets related to the Company’s pension and post-retirement benefit plans consist of the following:

(In millions) December 31

(In millions) March 31

Other assets $ 137 $ 127

4 unchanged sentences

Net amount recognized $ ( 56 ) $ ( 16 )

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – CONTINGENCIES

NOTE 10 – COMMITMENTS AND CONTINGENCIES

In February 2021, the Company agreed to acquire additional shares in DECIEM Beauty Group Inc.

(“DECIEM”) that will increase its existing equity interest from approximately 29 % to approximately 76 %.

Upon closing, which is expected to occur in May 2021, the Company will pay approximately $ 1,000 million and will have the right to purchase, and will grant the remaining investors a right to sell to the Company, the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM.

Legal Proceedings

4 unchanged sentences

NOTE 11 – STOCK PROGRAMS

Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), long-term PSUs, and share units.

Compensation expense attributable to net stock-based compensation was $ 105 million and $ 83 million for the three months ended December 31, 2020 and 2019, respectively, and was $ 169 million and $ 139 million for the six months ended December 31, 2020 and 2019, respectively.

Compensation expense attributable to net stock-based compensation was $ 86 million and $ 71 million for the three months ended March 31, 2021 and 2020, respectively, and was $ 255 million and $ 210 million for the nine months ended March 31, 2021 and 2020, respectively.

Stock Options

During the six months ended December 31, 2020, the Company granted stock options in respect of approximately 1.5 million shares of Class A Common Stock with an exercise price per share of $ 218.40 and a weighted-average grant date fair value per share of $ 54.61 .

During the nine months ended March 31, 2021, the Company granted stock options in respect of approximately 1.5 million shares of Class A Common Stock with an exercise price per share of $ 218.40 and a weighted-average grant date fair value per share of $ 54.61 .

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model.

The aggregate intrinsic value of stock options exercised during the six months ended December 31, 2020 was $ 209 million.

The aggregate intrinsic value of stock options exercised during the nine months ended March 31, 2021 was $ 317 million.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

The Company granted RSUs in respect of approximately 0.9 million shares of Class A Common Stock during the six months ended December 31, 2020 with a weighted-average grant date fair value per share of $ 218.10 that, at the time of grant, are scheduled to vest at 0.3 million shares per year, in fiscal 2022, 2023 and 2024.

The Company granted RSUs in respect of approximately 1.0 million shares of Class A Common Stock during the nine months ended March 31, 2021 with a weighted-average grant date fair value per share of $ 219.01 that, at the time of grant, are scheduled to vest as follows:

0.3 million in fiscal 2022, 0.4 million in fiscal 2023 and 0.3 million in fiscal 2024.

Vesting of RSUs is generally subject to the continued employment or the retirement of the grantees.

1 unchanged sentence

Performance Share Units

During the six months ended December 31, 2020, the Company granted PSUs with a target payout of approximately 0.1 million shares of Class A Common Stock with a grant date fair value per share of $ 218.11 , which will be settled in stock subject to the achievement of the Company’s net sales and diluted net earnings per common share for the three fiscal years ending June 30, 2023, all subject to continued employment or the retirement of the grantees.

During the nine months ended March 31, 2021, the Company granted PSUs with a target payout of approximately 0.1 million shares of Class A Common Stock with a weighted-average grant date fair value per share of $ 218.11 , which will be settled in stock subject to the achievement of the Company’s net sales and diluted net earnings per common share for the three fiscal years ending June 30, 2023, all subject to continued employment or the retirement of the grantees.

For PSUs granted, no settlement will occur for results below the applicable minimum threshold.

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In September 2020, approximately 0.2 million 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 the issuance, in settlement of 0.5 million PSUs which vested as of June 30, 2020.

Long-term Performance Share Units

In March 2021, the Company granted to the Company’s Chief Executive Officer (“CEO”) PSUs with an aggregate payout of 68,578 shares of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024.

Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income, as defined in the performance share unit award agreement, during the relevant performance period, and delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025.

The PSUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock.

The aggregate grant date fair value of the PSUs of approximately $ 20 million was estimated using the closing stock price of the Company's Class A Common Stock on the date of grant.

As of March 31, 2021, the total unrecognized compensation cost related to unvested PSU awards was $ 20 million and the related period over which it is expected to be recognized is approximately 3.3 years, subject to the performance condition being met.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

Long-term Price-Vested Units

In March 2021, the Company granted to the Company’s CEO PVUs with an aggregate payout of 85,927 shares, divided into three tranches, of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024.

Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income, as defined in the price-vested unit award agreement, during the relevant performance period.

In addition, the vesting of each tranche is contingent upon the Company’s achievement of the respective stock price goal, which means that the average closing price per share of the Company’s Class A Common Stock traded on the New York Stock Exchange be at or above the applicable stock price goal (noted in the table below) for 20 consecutive trading days during the applicable performance period.

The number of shares subject to each tranche of the price-vested unit award, as well as the stock price goals, service periods, performance periods and share delivery dates for each tranche are as follows:

Tranche Stock Price Goal

(per Share) Service Period Performance Period for Stock Price Goal Performance Period for Cumulative Operating Income Goal Share Delivery Date

First tranche 27,457 $ 323.03 March 11, 2021 - June 30, 2024 March 11, 2021 - June 30, 2024 July 1, 2021 - June 30, 2025 September 2, 2025

Second tranche 28,598 $ 333.21 March 11, 2021 - June 30, 2024 March 11, 2021 - June 30, 2024 July 1, 2021 - June 30, 2025 September 2, 2025

Third tranche 29,872 $ 343.61 March 11, 2021 - June 30, 2024 March 11, 2021 - June 30, 2024 July 1, 2021 - June 30, 2025 September 2, 2025

Total shares 85,927

Generally, delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025.

The PVUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock.

The aggregate grant date fair value of the PVUs of approximately $ 20 million was estimated using the Monte Carlo Method, which requires certain assumptions.

The assumptions used for this award were as follows:

Expected volatility 31.8 %

Dividend yield 0.8 %

Risk-free interest rate 0.4 %

Expected term 3.3 years

As of March 31, 2021, the total unrecognized compensation cost related to unvested PVU awards was $ 20 million and the related period over which it is expected to be recognized is approximately 3.3 years, subject to the performance conditions and stock price goals being met.

NOTE 12 – NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

PER COMMON SHARE

Net earnings attributable to The Estée Lauder Companies Inc.

per common share (“basic EPS”) is computed by dividing net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

per common share (“basic EPS”) is computed by dividing net earnings (loss) attributable to The Estée Lauder Companies Inc.

by the weighted-average number of common shares outstanding and shares underlying PSUs and RSUs where the vesting conditions have been met.

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

per common share assuming dilution (“diluted EPS”) is computed by reflecting potential dilution from stock-based awards.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation between the numerator and denominator of the basic and diluted EPS computations is as follows:

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2021 2020 2021 2020

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

$ 456 $ ( 6 ) $ 1,852 $ 1,146

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369.0 360.2 368.1 367.1

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

per common share:

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$ 1.24 $ ( .02 ) $ 5.03 $ 3.12

As of December 31, 2020 and 2019, the number of shares of Class A Common Stock underlying options that were excluded in the computation of diluted EPS because their inclusion would be anti-dilutive was 1.5 million and 1.3 million shares, respectively.

As of December 31, 2020 and 2019, 0.8 million and 1.1 million shares, respectively, of Class A Common Stock underlying 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 10 – Stock Programs .

(1) For the three months ended March 31, 2020, the effects of potentially dilutive stock options, PSUs and RSUs were excluded from the computation of diluted EPS as they were anti-dilutive due to the net loss incurred during the period.

The shares of Class A Common Stock underlying stock options, RSUs and PSUs that were excluded in the computation of diluted EPS because their inclusion would be anti-dilutive were as follows:

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

Stock options (1)

RSUs and PSUs (1)

(1) Not applicable for the three months ended March 31, 2020, since the effects of potentially dilutive stock options, PSUs and RSUs were excluded from the computation of diluted EPS as they were anti-dilutive due to the net loss incurred during the period.

As of March 31, 2021 and 2020, 0.9 million and 1.2 million shares, respectively, of Class A Common Stock underlying 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 11 – Stock Programs .

THE ESTÉE LAUDER COMPANIES INC.

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Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

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( 195 ) ( 174 ) ( 563 ) ( 506 )

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

456 ( 6 ) 1,852 1,146

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the six months ended December 31, 2020:

The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the nine months ended March 31, 2021:

Date Declared Record Date Payable Date Amount per Share

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October 30, 2020 November 30, 2020 December 15, 2020 $ .53

On February 4, 2021, a dividend was declared in the amount of $ .53 per share on the Company’s Class A and Class B Common Stock.

The dividend is payable in cash on March 15, 2021 to stockholders of record at the close of business on February 26, 2021.

Beginning in early February 2020, the Company temporarily suspended its repurchase of shares of the Company's Class A Common Stock.

The Company may resume repurchases in the future.

During the six months ended December 31, 2020, approximately 2.2 million shares of the Company’s Class B Common Stock were converted into the same amount of shares of the Company’s Class A Common Stock.

February 4, 2021 February 26, 2021 March 15, 2021 $ .53

On April 30, 2021, a dividend was declared in the amount of $ .53 per share on the Company’s Class A and Class B Common Stock.

The dividend is payable in cash on June 15, 2021 to stockholders of record at the close of business on May 28, 2021.

During the nine months ended March 31, 2021, the Company purchased approximately 1.2 million shares of its Class A Common Stock for $ 316 million.

In March 2021, the Company resumed its repurchase of shares of the Company's Class A Common Stock.

During the nine months ended March 31, 2021, approximately 4.6 million shares of the Company’s Class B Common Stock were converted into the same amount of shares of the Company’s Class A Common Stock.

Accumulated Other Comprehensive Income

The following table represents changes in AOCI, net of tax, by component for the six months ended December 31, 2020:

The following table represents changes in AOCI, net of tax, by component for the nine months ended March 31, 2021:

(In millions) Net Cash

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OCI before reclassifications

( 48 ) ( 2 ) (1)

Amounts reclassified to Net earnings 10 14 — 24

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( 12 ) 15 175 178

Balance at December 31, 2020 $ ( 30 ) $ ( 236 ) $ ( 117 ) $ ( 383 )

(1) Consists of foreign currency translation losses.

Balance at March 31, 2021 $ 2 $ ( 229 ) $ ( 260 ) $ ( 487 )

(1) Consists of foreign currency translation gains.

(2) See Note 6 – Derivative Financial Instruments for gains (losses) relating to net investment hedges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three and six months ended December 31, 2020 and 2019:

The following table represents the effects of reclassification adjustments from AOCI into net earnings (loss) for the three and nine months ended March 31, 2021 and 2020:

Amount Reclassified from AOCI Affected Line Item in

Statements of Earnings

Statements of Earnings (Loss)

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

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Benefit (provision) for deferred taxes 2 ( 2 ) 3 ( 7 ) Provision for income taxes

$ ( 4 ) $ 4 ( 4 ) $ 14 Net earnings

$ ( 6 ) $ 8 ( 10 ) $ 22 Net earnings (loss)

Retirement Plan and Other Retiree Benefit Adjustments

Amortization of actuarial loss $ ( 6 ) $ ( 5 ) $ ( 12 ) $ ( 10 ) Earnings before income taxes (1)

Amortization of actuarial loss $ ( 6 ) $ ( 6 ) $ ( 18 ) $ ( 16 ) Other components of net periodic benefit cost (1)

Settlements ( 1 ) — ( 1 ) — Other components of net periodic benefit cost (1)

( 7 ) ( 6 ) ( 19 ) ( 16 ) Earnings before income taxes (1)

Benefit for deferred taxes 3 1 5 3 Provision for income taxes

$ ( 5 ) $ ( 4 ) $ ( 10 ) $ ( 8 ) Net earnings

$ ( 4 ) $ ( 5 ) $ ( 14 ) $ ( 13 ) Net earnings (loss)

Cumulative Translation Adjustments

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Loss on liquidation of an investment in a foreign subsidiary — — — ( 6 ) Restructuring and other charges

$ — $ 4 — $ ( 2 ) Net earnings

Total reclassification adjustments, net $ ( 9 ) $ 4 $ ( 14 ) $ 4 Net earnings

$ — $ — — $ ( 2 ) Net earnings (loss)

Total reclassification adjustments, net $ ( 10 ) $ 3 $ ( 24 ) $ 7 Net earnings (loss)

(1) See Note 9 – Pension and Post-Retirement Benefit Plans for additional information.

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NOTE 14 – STATEMENT OF CASH FLOWS

Supplemental cash flow information for the six months ended December 31, 2020 and 2019 is as follows:

Supplemental cash flow information for the nine months ended March 31, 2021 and 2020 is as follows:

(In millions) 2021 2020

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Non-cash investing and financing activities:

Capitalized interest and asset retirement obligations incurred $ 1 $ —

Property, plant and equipment accrued but unpaid

Right-of-use assets obtained in exchange for new finance lease liabilities $ 1 $ —

Right-of-use assets obtained in exchange for new operating lease liabilities $ 167 $ 216

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Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

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Other 15 8 37 36

3,874 3,345 12,289 11,864

Returns associated with restructuring and other activities ( 10 ) — ( 10 ) —

Net sales $ 3,864 $ 3,345 $ 12,279 $ 11,864

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Asia/Pacific 1,252 928 4,176 3,305

3,874 3,345 12,289 11,864

Returns associated with restructuring and other activities ( 10 ) — ( 10 ) —

Net sales $ 3,864 $ 3,345 $ 12,279 $ 11,864

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – SUBSEQUENT EVENTS

In April 2021, the Company repaid $ 450 million aggregate principal amount of its 1.70 % Senior Notes due May 10, 2021 in full, partially from proceeds from the 2031 Senior Notes issued in March 2021 and cash on hand, and the corresponding interest rate swaps were settled.

Derivative Financial Instruments

In April 2021, the Company entered into an interest rate swap agreement with a notional amount of $ 300 million to partially convert the fixed rate interest on its outstanding 2031 Senior Notes, to variable interest rates based on three-month LIBOR plus a margin.

This interest rate swap agreement was designated as a fair value hedge.

THE ESTÉE LAUDER COMPANIES INC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements