What changed in this filing

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Item 1. Financial Statements

2021-11-02 compared with 2021-05-03 · 327 added, 566 removed, 627 unchanged (59% of the section changed)

1 unchanged sentence

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2021 2020

1 unchanged sentence

Cost of sales

939 836 2,848 2,785

2,925 2,509 9,431 9,079

Operating expenses

Selling, general and administrative

2,145 2,030 6,761 6,753

Restructuring and other charges

Goodwill impairment — 275 54 786

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

Total operating expenses

6 unchanged sentences

Provision for income taxes

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

Net earnings 695 525

Net earnings attributable to noncontrolling interests ( 1 ) ( 2 )

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

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

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

Net earnings attributable to redeemable noncontrolling interest ( 2 ) —

Net earnings attributable to The Estée Lauder Companies Inc.

per common share

Basic $ 1.25 $ ( .02 ) $ 5.10 $ 3.18

Diluted $ 1.24 $ ( .02 ) $ 5.03 $ 3.12

$ 1.91 $ 1.44

$ 1.88 $ 1.42

Weighted-average common shares outstanding

Basic 363.6 360.2 362.9 360.6

Diluted 369.0 360.2 368.1 367.1

See notes to consolidated financial statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

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

Net earnings $ 695 $ 525

Other comprehensive income (loss):

4 unchanged sentences

Total other comprehensive income (loss), net of tax ( 173 ) 71

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

Comprehensive income 522 596

Comprehensive income attributable to noncontrolling interests:

1 unchanged sentence

Translation adjustments 1 —

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

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

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

Total comprehensive income attributable to noncontrolling interests — ( 2 )

Comprehensive income attributable to redeemable noncontrolling interest:

Net earnings ( 2 ) —

Translation adjustments 17 —

Total comprehensive income attributable to redeemable noncontrolling interest 15 —

Comprehensive income attributable to The Estée Lauder Companies Inc.

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) March 31

(In millions, except share data) September 30

Current assets

12 unchanged sentences

Current liabilities

$ 471 $ 1,222

Accounts payable

8 unchanged sentences

Contingencies

Redeemable Noncontrolling Interest 842 857

Common stock, $ .01 par value;

Class A shares authorized:

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

1,300,000,000 at September 30, 2021 and June 30, 2021;

shares issued:

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

463,201,084 at September 30, 2021 and 462,633,034 at June 30, 2021;

Class B shares authorized:

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

304,000,000 at September 30, 2021 and June 30, 2021;

shares issued and outstanding:

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

128,242,029 at September 30, 2021 and 128,242,029 at June 30, 2021

Paid-in capital

5 unchanged sentences

Treasury stock, at cost;

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

230,791,699 Class A shares at September 30, 2021 and 229,115,665 Class A shares at June 30, 2021

( 11,614 ) ( 11,058 )

1 unchanged sentence

Noncontrolling interests

Total liabilities and equity

$ 19,900 $ 17,781

Total liabilities, redeemable noncontrolling interest and equity $ 21,580 $ 21,971

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

(In millions) 2021 2020

9 unchanged sentences

Pension and post-retirement benefit contributions ( 11 ) ( 7 )

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

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

Gain on previously held equity method investment ( 1 ) —

2 unchanged sentences

Increase in accounts receivable, net ( 583 ) ( 607 )

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

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

Increase (decrease) in accounts payable 55 ( 317 )

Increase in other accrued and noncurrent liabilities 629 62

Increase in inventory and promotional merchandise ( 178 ) ( 94 )

Decrease (increase) in other assets, net ( 19 ) 39

Decrease in accounts payable ( 191 ) ( 21 )

Increase (decrease) in other accrued and noncurrent liabilities ( 15 ) 316

Increase (decrease) in operating lease assets and liabilities, net ( 10 ) 11

Net cash flows provided by operating activities 2,777 1,945

Net cash flows provided by (used for) operating activities ( 81 ) 358

Cash flows from investing activities

1 unchanged sentence

Proceeds from purchase price refund — 32

Payments for acquired businesses, net of cash acquired ( 8 ) ( 1,047 )

Payment for acquired business — ( 6 )

Purchases of investments ( 6 ) ( 40 )

3 unchanged sentences

Proceeds (repayments) of current debt, net 3 ( 747 )

Proceeds from issuance of long-term debt, net 596 1,783

Debt issuance costs ( 4 ) ( 14 )

Repayments and redemptions of long-term debt ( 4 ) ( 2 )

Proceeds from stock-based compensation transactions 180 148

Net proceeds from stock-based compensation transactions 36 58

Payments to acquire treasury stock ( 557 ) ( 25 )

Payments of contingent consideration — ( 3 )

Dividends paid to stockholders ( 192 ) ( 174 )

Payments to noncontrolling interest holders for dividends ( 5 ) ( 7 )

Net cash flows provided by (used for) financing activities ( 862 ) 1,525

Net cash flows used for financing activities ( 714 ) ( 890 )

Effect of exchange rate changes on Cash and cash equivalents ( 15 ) 19

Net increase in Cash and cash equivalents 1,377 1,889

Net decrease in Cash and cash equivalents ( 963 ) ( 755 )

Cash and cash equivalents at beginning of period 4,958 5,022

16 unchanged sentences

The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation.

Certain prior year amounts in the notes to the consolidated financial statements have been reclassified to conform to current year presentation.

Management Estimates

8 unchanged sentences

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.

were $( 175 ) million and $ 91 million, net of tax, during the three months ended September 30, 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 (loss).

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

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

3 unchanged sentences

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

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 accompanying consolidated statements of earnings include net exchange losses on foreign currency transactions of $ 12 million and $ 1 million during the three months ended September 30, 2021 and 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

Concentration of Credit Risk

The Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products.

The Company is a worldwide manufacturer, marketer and seller of skin care, makeup, fragrance and hair care products.

The Company’s sales subject to credit risk are made primarily to department stores, perfumeries, specialty multi-brand retailers and retailers in its travel retail business.

2 unchanged sentences

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 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.

The Company’s largest customer during the quarter sells products primarily in China travel retail and accounted for $ 456 million, or 10 %, and $ 554 million, or 16 %, of the Company's consolidated net sales for the three months ended September 30, 2021 and 2020, respectively.

This customer accounted for $ 301 million , or 13 % , and $ 179 million, or 10 %, of the Company's accounts receivable at September 30, 2021 and June 30, 2021, respectively.

Another major customer of the Company during the quarter sells products primarily within the United States and accounted for $ 239 million, or 10 %, and $ 133 million, or 8 %, of the Company’s accounts receivable at September 30, 2021 and June 30, 2021, respectively.

This customer accounted for $ 253 million, or 6 %, and $ 181 million, or 5 %, of the Company’s consolidated net sales for the three months ended September 30, 2021 and 2020, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

(In millions) March 31

(In millions) September 30

Raw materials

5 unchanged sentences

Property, plant and equipment consists of the following:

(In millions) March 31

(In millions) September 30

Assets (Useful Life)

4 unchanged sentences

Leasehold improvements

Construction in progress 744 647

Less accumulated depreciation and amortization

1 unchanged sentence

$ 2,358 $ 2,280

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 (loss).

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

March 31 Nine Months Ended

2021 2020 2021 2020

Effective rate for income taxes 21.0 % 105.0 % 18.5 % 30.0 %

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

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.

These regulations are retroactive to the original enactment of the GILTI tax provision, which includes the Company's 2019 and 2020 fiscal years.

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 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.

Depreciation and amortization of property, plant and equipment was $ 130 million and $ 125 million during the three months ended September 30, 2021 and 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Accrued Liabilities

The effective rate for income taxes was 22.5 % and 21.8 % for the three months ended September 30, 2021 and 2020, respectively.

The increase in the effective tax rate of 70 basis points was primarily attributable to a decrease in excess tax benefits associated with stock-based compensation arrangements and an increase in income tax reserve adjustments, partially offset by a lower effective tax rate on the Company's foreign operations.

As of September 30, 2021 and June 30, 2021, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 71 million and $ 62 million, respectively.

The total amount of unrecognized tax benefits at September 30, 2021 that, if recognized, would affect the effective tax rate was $ 62 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three months ended September 30, 2021 in the accompanying consolidated statements of earnings was $ 3 million.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at September 30, 2021 and June 30, 2021, was $ 16 million and $ 14 million, respectively.

On the basis of the information available as of September 30, 2021, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in a range of $ 5 million to $ 10 million within the next twelve months as a result of projected resolutions of global tax examinations and controversies and a potential lapse of the applicable statutes of limitations.

During the fiscal 2022 first quarter, the Company formally concluded the compliance process with respect to its fiscal 2020 income tax return under the U.S.

Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”), which had no impact on the Company’s consolidated financial statements for the three months ended September 30, 2021.

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:

(In millions) March 31

(In millions) September 30

Advertising, merchandising and sampling $ 348 $ 294

1 unchanged sentence

Deferred revenue 379 322

Payroll and other taxes 287 250

Payroll and other non-income taxes 311 359

Accrued income taxes 336 237

2 unchanged sentences

$ 3,182 $ 3,195

Recently Adopted Accounting Standards

Measurement of Credit Losses on Financial Instruments (ASC Topic 326 – Financial Instruments – Credit Losses) (“ASC 326”)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires companies to utilize an impairment model for most financial assets measured at amortized cost and certain other financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses.

In addition, this guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, and requires additional disclosures.

In general, modified retrospective adoption will be required for all outstanding instruments that fall under this guidance.

In November 2019, the FASB issued authoritative guidance (ASU 2019-11 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses) that amends ASC Topic 326 to clarify, improve and amend certain aspects of this guidance, such as disclosures related to accrued interest receivables and the estimation of credit losses associated with financial assets secured by collateral.

In February 2020, the FASB issued authoritative guidance (ASU 2020-02 – Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842)) that amends and clarifies Topic 326 and Topic 842.

For Topic 326, the codification was updated to include the Securities and Exchange Commission staff interpretations associated with registrants engaged in lending activities.

Effective for the Company – Fiscal 2021 first quarter.

Impact on consolidated financial statements – On July 1, 2020, the Company adopted ASC 326.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

See Note 8 – Revenue Recognition for further discussion.

Goodwill and Other – Internal-Use Software (ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract)

In August 2018, the FASB issued authoritative guidance that permits companies to capitalize the costs incurred for setting up business systems that operate on cloud technology.

The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The guidance does not affect the accounting for the service element of a hosting arrangement that is a service contract.

Capitalized costs associated with a hosting arrangement that is a service contract must be amortized over the term of the hosting arrangement to the same line item in the income statement as the expense for fees for the hosting arrangement.

Effective for the Company – Fiscal 2021 first quarter, with early adoption permitted in any interim period.

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

At September 30, 2021 and June 30, 2021, total Other noncurrent liabilities of $ 1,964 million and $ 2,037 million included $ 805 million and $ 849 million of deferred tax liabilities, respectively.

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.

The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Recently Adopted Accounting Standards

Income Taxes (ASU 2019-12 – Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes)

In December 2019, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas.

Effective for the Company – Fiscal 2022 first quarter.

Impact on consolidated financial statements – On July 1, 2021, the Company adopted this standard and recorded a cumulative adjustment of $ 121 million as an increase to its fiscal 2022 opening retained earnings balance to derecognize a deferred tax liability related to a previously held equity method investment that became a foreign subsidiary.

Recently Issued Accounting Standards

Reference Rate Reform (ASC Topic 848)

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.

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”) and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

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

2 unchanged sentences

The guidance will no longer be available to apply after December 31, 2022.

Impact on consolidated financial statements – The Company is currently assessing the impact of applying this guidance on its existing derivative contracts, leases and other arrangements, as well as when to adopt this guidance.

Income Taxes (ASU 2019-12 – Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes)

In December 2019, the FASB issued authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas.

Effective for the Company – Fiscal 2022 first quarter, with early adoption permitted in any interim period.

If adopted early, the Company must adopt all the amendments in the same period.

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 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.

Impact on consolidated financial statements – The Company currently has an implementation team in place that is performing a comprehensive evaluation and assessing the impact of applying this guidance on its existing derivative contracts, leases and other arrangements, as well as when to adopt this guidance.

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

2 unchanged sentences

NOTE 2 – ACQUISITION OF BUSINESS

On December 18, 2019, the Company acquired the remaining 66.66 % equity interest in Have&Be Co.

(“Have & Be”), the global skin care company behind Dr.

Jart+ and men’s grooming brand Do The Right Thing, for $ 1,268 million in cash.

Based on the final purchase price and working capital adjustments, the Company estimated a refund receivable of $ 32 million that was outstanding as of June 30, 2020 and was received in the first quarter of fiscal 2021.

The Company originally acquired a minority interest in Have & Be in December 2015, and that investment structure included a formula-based call option for the remaining equity interest.

The original minority interest was accounted for as an equity method investment, which had a carrying value of $ 133 million at the acquisition date.

The acquisition of the remaining equity interest in Have & Be was considered a step acquisition, whereby the Company remeasured the previously held equity method investment to its fair value of $ 682 million, resulting in the recognition of a gain of $ 549 million.

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 (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.

The accounting for the Have & Be business combination was finalized as of June 30, 2020.

The amount paid at closing was funded by cash on hand including the proceeds from the issuance of debt.

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 (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.

On May 18, 2021, the Company acquired additional shares in Deciem Beauty Group Inc.

( “ DECIEM ”) , a Toronto-based skin care company, for $ 1,092 million in cash, including proceeds from the issuance of debt.

DECIEM is a multi-brand beauty company with a brand portfolio that includes The Ordinary and NIOD.

This acquisition is expected to further strengthen the Company’s leadership position in prestige skin care, expand its global consumer reach and complement its business in the online and specialty-multi channels.

The Company originally acquired a minority interest in DECIEM in June 2017.

The minority interest was accounted for as an equity method investment, which had a carrying value of $ 65 million at the acquisition date.

The acquisition of additional shares increased the Company's fully diluted equity interest from approximately 29 % to approximately 76 % and was considered a step acquisition.

On a fully diluted basis, the DECIEM stock options, discussed below, approximated 4 % of the total capital structure.

Accordingly, for purposes of determining the consideration transferred, the Company excluded the DECIEM stock options, which resulted in an increase in the Company’s post-acquisition undiluted equity interest from approximately 30 % to approximately 78 % and the post-acquisition undiluted equity interest of the remaining noncontrolling interest holders of approximately 22 %.

The Company remeasured the previously held equity method investment to its fair value of $ 913 million, resulting in the recognition of a gain of $ 848 million.

As part of the increase in the Company's investment, the Company was granted the right to purchase (“Call Option”), and granted the remaining investors a right to sell to the Company (“Put Option”), the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM (the “net Put (Call) Option”).

As a result of this redemption feature, the Company recorded redeemable noncontrolling interest, at its acquisition‑date fair value, that is classified as mezzanine equity in the consolidated balance sheets at June 30, 2021.

As of September 30, 2021, the accounting for the DECIEM business combination is provisional pending the finalization of the opening balance sheet, the final valuation report, and allocation of the total consideration transferred.

A summary of the total consideration transferred, including immaterial measurement period adjustments as of September 30, 2021, is as follows:

(In millions) September 30, 2021

Cash paid/payable $ 1,095

Fair value of DECIEM stock options liability 104

Fair value of net Put (Call) Option 233

Total consideration for the acquired ownership interest (approximately 47.9 %)

Fair value of previously held equity method investment (approximately 30.5 %)

Fair value of redeemable noncontrolling interest (approximately 21.6 %)

Total consideration transferred ( 100 %)

As part of the acquisition of additional shares, DECIEM stock options were issued in replacement of and exchange for certain vested and unvested stock options previously issued by DECIEM.

The total fair value of the DECIEM stock options of $ 295 million was recorded as part of the total consideration transferred, comprising of $ 191 million of Cash paid for vested options settled as of the acquisition date and $ 104 million reported as a stock options liability on the Company's consolidated balance sheet as it is not an assumed liability of DECIEM and is expected to be settled in cash upon completion of the exercise of the Put (Call).

The acquisition-date fair value of the DECIEM stock options liability was calculated by multiplying the acquisition-date fair value by the number of DECIEM stock options replaced the day after the acquisition date.

The stock options replaced consist of vested and partially vested stock options.

See Note 10 – Stock Programs for information relating to the DECIEM stock options.

The acquisition-date fair value of the previously held equity method investment was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $ 2,993 million by the related effective previously held equity interest of approximately 30.5 %.

The acquisition-date fair value of the redeemable noncontrolling interest includes the acquisition-date fair value of the net Put (Call) Option of $ 233 million.

The remaining acquisition-date fair value of the redeemable noncontrolling interest of $ 648 million was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $ 2,993 million by the related noncontrolling interest of approximately 21.6 %.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The acquisition-date fair values of the DECIEM stock options and the net Put (Call) Option were calculated by incorporating significant assumptions including the starting equity value, revenue growth rates and EBITDA and the following key assumptions into the Monte Carlo Method:

Risk-free rate 0.50 %

Term to mid of last twelve-month period 2.54 years

Operating leverage adjustment 0.45

Net sales discount rate 3.30 %

EBITDA discount rate 6.80 %

EBITDA volatility 38.30 %

Net sales volatility 17.20 %

The Company recorded a preliminary allocation of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date.

The total consideration transferred includes the cash paid at closing, the fair value of its previously held equity method investment, the fair value of the redeemable noncontrolling interest, including the fair value of the net Put (Call) Option, and the fair value of the DECIEM stock options liability.

The excess of the total consideration transferred over the fair value of the net tangible and intangible assets acquired was recorded as goodwill.

To determine the acquisition date estimated fair value of intangible assets acquired, the Company applied the income approach, specifically the multi-period excess earnings method for customer relationships and the relief-from-royalty method for trademarks.

The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted-average cost of capital used to discount future cash flows, and a customer attrition rate for customer relationships and royalty rates for trademarks.

The preliminary allocation of the total consideration transferred, including immaterial measurement period adjustments as of September 30, 2021, has been recorded as follows:

(In millions) September 30, 2021

Accounts receivable 64

Inventory 192

Other current assets 33

Property, plant and equipment 40

Operating lease right-of-use assets 40

Intangible assets 1,917

Goodwill 1,297

Total assets acquired 3,618

Accounts payable 21

Operating lease liabilities 8

Other accrued liabilities 67

Deferred income taxes 485

Long-term operating lease liabilities 44

Total liabilities assumed 625

Total consideration transferred $ 2,993

The results of operations for DECIEM and acquisition-related costs were not material to the Company's consolidated statements of earnings for the three months ended September 30, 2021.

Pro forma results of operations reflecting the acquisition of DECIEM are not presented, as the impact on the Company’s consolidated financial results would not have been material.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

As previously discussed in Note 2 – Acquisition of Business , in May 2021 the Company increased its investment in DECIEM, which resulted in the inclusion of additional goodwill of $ 1,297 million, amortizable intangible assets (customer lists) of $ 701 million with amortization periods of 7 years to 14 years, and non-amortizable intangible assets (trademarks) of $ 1,216 million.

Goodwill associated with the acquisition is primarily attributable to the future revenue growth opportunities associated with sales growth in the skin care category, as well as the value associated with DECIEM's assembled workforce.

As such, the goodwill has been allocated to the Company’s skin care product category.

The goodwill recorded in connection with this acquisition will not be deductible for tax purposes.

These amounts are provisional pending finalization of the opening balance sheet, the final valuation report, and allocation of the total consideration transferred.

The following table presents goodwill by product category and the related change in the carrying amount:

5 unchanged sentences

1,645 384 232 355 2,616

Goodwill acquired during the period

Impairment charges (1)

( 54 ) ( 13 ) — — ( 67 )

Translation adjustments, goodwill

Translation adjustments, accumulated impairments

( 1 ) — — ( 2 ) ( 3 )

Goodwill measurement period adjustment 14 — — — 14

Translation adjustments and write-offs, goodwill ( 53 ) — ( 3 ) — ( 56 )

Translation adjustments and write-offs, accumulated impairments 1 — — — 1

( 38 ) — ( 3 ) — ( 41 )

Balance as of March 31, 2021

Balance as of September 30, 2021

1,747 1,214 259 355 3,575

2 unchanged sentences

$ 1,607 $ 384 $ 229 $ 355 $ 2,575

(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

Other intangible assets consist of the following:

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

(In millions) Gross

12 unchanged sentences

$ 3,923 $ 4,095

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 ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aggregate amortization expense related to amortizable intangible assets was $ 45 million and $ 25 million for the three months ended September 30, 2021 and 2020, respectively.

The estimated aggregate amortization expense for the remainder of fiscal 2022 and for each of the next four fiscal years is as follows:

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Estimated aggregate amortization expense $ 116 $ 155 $ 154 $ 154 $ 154

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Company concluded that the changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill.

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

Accordingly, the Company performed an interim impairment test for the trademark and a recoverability test for the long-lived assets as of November 30, 2020.

The Company concluded that the carrying value of the trademark for GLAMGLOW exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $ 21 million.

In addition, the Company concluded that the carrying value of the GLAMGLOW customer lists intangible asset was fully impaired and recorded an impairment charge of $ 6 million.

The fair value of all other long-lived assets of GLAMGLOW exceeded their carrying values and were not impaired as of November 30, 2020.

After adjusting the carrying values of the trademark and customer lists intangible assets, the Company completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge of $ 54 million, reducing the carrying value of goodwill for the GLAMGLOW reporting unit to zero .

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 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.

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 December 31, 2019.

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 totaling $ 266 million for trademarks during the three months ended December 31, 2019.

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, totaling $ 511 million during the three months ended December 31, 2019.

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.

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 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 based on probability weighted cash flows, and recorded impairment charges.

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 March 31, 2021 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

(In millions) Restructuring

Charges Other

Leading Beauty Forward Program $ — $ ( 1 ) $ 3 $ 4 $ 6

Post-COVID Business Acceleration Program 10 5 121 3 139

Total $ 10 $ 4 $ 124 $ 7 $ 145

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

Charges associated with the Post-COVID Business Acceleration Program for the three months ended September 30, 2021 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

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Charges Other

Leading Beauty Forward Program $ — $ 4 $ ( 7 ) $ 9 $ 6

Post-COVID Business Acceleration Program 10 5 167 3 185

Total $ 1 $ ( 1 ) $ — $ 2 $ 2

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.

Leading Beauty Forward Program

In May 2016, the Company announced a multi-year initiative (“Leading Beauty Forward Program” or “LBF Program”) to build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum.

The LBF Program is designed to enhance the Company’s go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value.

As of June 30, 2019, the Company concluded the approvals of all major initiatives under the LBF Program related to the optimization of select corporate functions, supply chain activities, and corporate and regional market support structures, as well as the exit of underperforming businesses, and expects to substantially complete those initiatives through fiscal 2021.

LBF Program Approvals

The LBF Program approved restructuring and other charges expected to be incurred were:

Net Sales) Cost of Sales Operating Expenses Total

(In millions) Restructuring

Charges Other

Total Charges (Adjustments) Approved

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

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:

(In millions) Employee-

Costs Contract

Terminations Other Exit

Restructuring Charges (Adjustments) Approved

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

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

Total cumulative charges recorded associated with restructuring and other activities for the LBF Program were:

(In millions) Sales

Net Sales) Cost of Sales Operating Expenses Total

Restructuring

Charges Other

Total Charges (Adjustments)

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

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

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

(In millions) Employee-

Costs Contract

Terminations Other Exit

Restructuring Charges (Adjustments)

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

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 nine months ended March 31, 2021 relating to the LBF Program were:

(In millions) Employee-

Costs Contract

Terminations Other Exit

Balance at June 30, 2020 $ 112 $ — $ — $ — $ 112

Charges (adjustments) ( 10 ) — 1 2 ( 7 )

Cash payments ( 50 ) — ( 1 ) — ( 51 )

Translation adjustments 1 — — — 1

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.

Charges associated with restructuring and other activities are not allocated to the Company's 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.

Post-COVID Business Acceleration Program

On August 20, 2020, the Company announced a two-year restructuring program, Post-COVID Business Acceleration Program (the “PCBA Program”), designed to resize the Company's business against the dramatic shifts to its distribution landscape and consumer behaviors in the wake of the COVID-19 pandemic.

On August 20, 2020, the Company announced a two-year restructuring program, Post-COVID Business Acceleration Program (the “PCBA Program”), designed to realign the Company's business to address the dramatic shifts to its distribution landscape and consumer behaviors in the wake of the COVID-19 pandemic.

The PCBA Program is designed to help improve efficiency and effectiveness by rebalancing resources to growth areas of prestige beauty.

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;

2 unchanged sentences

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

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.

As of September 30, 2021, the Company estimates a net reduction over the duration of the PCBA Program in the range of 2,000 to 2,500 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.

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The Company expects that the PCBA Program will result in related restructuring and other charges totaling between $ 400 million and $ 500 million, before taxes.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PCBA Program Approvals

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

Total PCBA Program cumulative charges (adjustments) approved by the Company through September 30, 2021 were:

Net Sales) Cost of Sales Operating Expenses Total

2 unchanged sentences

Total Charges (Adjustments) Approved

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:

Cumulative through June 30, 2021 $ 42 $ ( 6 ) $ 257 $ 21 $ 314

Three months ended September 30, 2021 ( 20 ) 9 ( 8 ) 1 ( 18 )

Cumulative through September 30, 2021 $ 22 $ 3 $ 249 $ 22 $ 296

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through September 30, 2021 by major cost type were:

(In millions) Employee-

2 unchanged sentences

Restructuring Charges Approved

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

Cumulative through June 30, 2021 $ 132 $ 108 $ 13 $ 4 $ 257

Three months ended September 30, 2021 ( 8 ) 2 ( 2 ) — ( 8 )

Cumulative through September 30, 2021 $ 124 $ 110 $ 11 $ 4 $ 249

Specific actions taken since the PCBA Program inception include:

• 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.

• 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 across all geographic regions, including the Company's travel retail network.

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

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

1 unchanged sentence

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.

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.

• Exit of the Global Distribution of BECCA Products – In reviewing the Company's brand portfolio to improve efficiency and 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.

• Exit of Certain Designer Fragrance Licenses – In reviewing the Company’s brand portfolio of fragrances and to focus on investing its resources on alternative opportunities for long-term growth and value creation globally, the Company announced that it is not renewing its existing license agreements for Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna when they expire in June 2023.

The Company expects to continue to sell products under these licenses through June 30, 2022.

These actions resulted in, or are expected to result in, employee-related costs, asset write-offs, including charges for the impairment of goodwill, and consulting and legal fees.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PCBA Program Restructuring and Other Charges

10 unchanged sentences

• Temporary labor backfill,

• Costs to establish and maintain a Project Management Office (“PMO”) for the duration of the PCBA Program, including internal costs for employees dedicated solely to project management activities, and other PMO-related expenses incremental to the Company’s ongoing operations (e.g., rent and utilities), and

• Costs to establish and maintain a PMO for the duration of the PCBA Program, including internal costs for employees dedicated solely to project management activities, and other PMO-related expenses incremental to the Company’s ongoing operations (e.g., rent and utilities), and

• Recruitment and training costs for new and reskilled employees to acquire and apply the capabilities needed to perform responsibilities as a direct result of an approved restructuring initiative.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

Charges Other

Total Charges

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

Total Charges (Adjustments)

Cumulative through June 30, 2021 $ 14 $ 2 $ 201 $ 4 $ 221

Three months ended September 30, 2021 1 ( 1 ) — 2 2

Cumulative through September 30, 2021 $ 15 $ 1 $ 201 $ 6 $ 223

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions) Employee-

Costs Contract

Terminations Other Exit

Restructuring Charges

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:

Restructuring Charges (Adjustments)

Cumulative through June 30, 2021 $ 119 $ 75 $ 6 $ 1 $ 201

Three months ended September 30, 2021 ( 6 ) 4 2 — —

Cumulative through September 30, 2021 $ 113 $ 79 $ 8 $ 1 $ 201

Changes in accrued restructuring charges for the three months ended September 30, 2021 relating to the PCBA Program were:

(In millions) Employee-

1 unchanged sentence

Terminations Other Exit

Balance at June 30, 2021 $ 101 $ — $ — $ — $ 101

Charges ( 6 ) 4 2 — —

1 unchanged sentence

Noncash asset write-offs — ( 4 ) — — ( 4 )

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.

Translation adjustment — — — — —

Balance at September 30, 2021

$ 68 $ — $ 1 $ — $ 69

Accrued restructuring charges at September 30, 2021 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 46 million, $ 20 million and $ 3 million for the remainder of fiscal 2022 and for fiscal 2023 and 2024, respectively.

Leading Beauty Forward Program

The Company substantially completed initiatives approved under the Leading Beauty Program (the “LBF Program”) through fiscal 2021.

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, 2021.

NOTE 5 – DERIVATIVE FINANCIAL INSTRUMENTS

2 unchanged sentences

In addition, the Company enters into interest rate derivatives to manage the effects of interest rate movements on the Company’s aggregate liability portfolio, including potential future debt issuances.

The Company also enters into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges.

The Company enters into the net investment hedges to offset the risk of changes in the U.S.

3 unchanged sentences

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

At September 30, 2021, the notional amount of derivatives not designated as hedging instruments was $ 3,946 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.

2 unchanged sentences

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:

3 unchanged sentences

(In millions) Balance Sheet

Location March 31

Location September 30

2021 Balance Sheet

Location March 31

Location September 30

Derivatives Designated as Hedging Instruments:

12 unchanged sentences

Recognized in OCI on

Derivatives Location of Gain (Loss)

Reclassified from AOCI

into Earnings (Loss) Amount of Gain (Loss)

Reclassified from AOCI into Earnings (Loss) (1)

Derivatives Location of Gain (Loss) Reclassified

from AOCI into

Earnings Amount of Gain (Loss)

Reclassified from AOCI into Earnings (1)

Three Months Ended

March 31 Three Months Ended

September 30 Three Months Ended

(In millions) 2021 2020 2021 2020

10 unchanged sentences

$ 51 $ ( 94 ) $ ( 6 ) $ —

(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 (Loss)

Recognized in OCI on

Derivatives Location of Gain (Loss)

Reclassified from AOCI

into Earnings Amount of Gain (Loss)

Reclassified from AOCI into Earnings (1)

Nine Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts $ ( 43 ) $ 50 Net sales $ ( 11 ) $ 29

Interest rate-related derivatives 14 ( 11 ) Interest expense ( 2 ) —

( 29 ) 39 ( 13 ) 29

Derivatives in Net Investment Hedging Relationships (2) :

Foreign currency forward contracts (3)

( 17 ) ( 54 ) — —

Total derivatives $ ( 46 ) $ ( 15 ) $ ( 13 ) $ 29

(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 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.

(2) During the three months ended September 30, 2021 and 2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 2 million and $ 5 million, respectively.

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amount of Gain (Loss)

Recognized in Earnings (Loss) on Derivatives (1)

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

Recognized in Earnings on

Derivatives (1)

Location of Gain (Loss) Recognized in Earnings on Derivatives

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

11 unchanged sentences

Included in the Carrying Amount of the Hedged Liability

March 31, 2021 March 31, 2021

September 30, 2021 September 30, 2021

Current debt $ 254 $ 4

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 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 (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:

Gain (loss) on fair value hedge relationships – interest rate contracts:

Not applicable 18 Not applicable ( 12 )

Derivatives designated as hedging instruments

Not applicable ( 18 ) Not applicable 12

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

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 (loss) ( 7 ) Not applicable 10 Not applicable

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended March 31

Three Months Ended September 30

(In millions) Net Sales Interest

9 unchanged sentences

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

Amount of gain reclassified from AOCI into earnings

( 11 ) Not applicable 29 Not applicable

Amount of gain reclassified from AOCI into earnings ( 6 ) Not applicable 1 Not applicable

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 (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

Recognized in Earnings on Derivatives

Location of Gain (Loss) Recognized in Earnings on

Derivatives Three Months Ended

(In millions) 2021 2020

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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 December 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 June 2023.

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

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

At September 30, 2021, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,066 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 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.

As of September 30, 2021, the Company’s foreign currency cash flow hedges were highly effective.

The estimated net gain on the Company’s derivative instruments designated as cash flow hedges as of September 30, 2021 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 5 million.

The accumulated net gain (loss) on derivative instruments in AOCI was $ 20 million and $( 1 ) million as of September 30, 2021 and June 30, 2021, respectively.

Fair Value Hedges

2 unchanged sentences

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 April 2021.

The net investment hedge contracts have varying maturities through the end of January 2022.

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

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

At September 30, 2021, the Company had net investment hedges outstanding with a notional amount totaling $ 1,419 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 $ 143 million at March 31, 2021.

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 $ 70 million at September 30, 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 March 31, 2021:

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, 2021:

(In millions) Level 1 Level 2 Level 3 Total

6 unchanged sentences

Interest rate-related derivatives

Contingent consideration

DECIEM stock options — — 137 137

$ — $ 34 $ 137 $ 171

9 unchanged sentences

$ — $ 56 $ — $ 56

Interest rate-related derivatives

Contingent consideration

DECIEM stock options — — 141 141

$ — $ 56 $ 141 $ 197

7 unchanged sentences

5,548 6,206 5,569 6,262

Contingent consideration

DECIEM stock options 137 137 141 141

Foreign currency forward contracts – asset (liability), net

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

31 31 ( 4 ) ( 4 )

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)

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.

(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 $ 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

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

The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments for which it is practicable to estimate that value:

1 unchanged sentence

Cash deposits in interest bearing accounts and time deposits are carried at cost, which approximates fair value due to the short maturity of cash equivalent instruments.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign currency forward contracts – The fair values of the Company’s foreign currency forward contracts were determined using an industry-standard valuation model, which is based on an income approach.

3 unchanged sentences

The significant observable inputs to the model, such as treasury yield curves, swap yield curves and LIBOR forward rates, were obtained from independent pricing services.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Current and long-term debt – The fair value of the Company’s debt was estimated based on the current rates offered to the Company for debt with the same remaining maturities.

1 unchanged sentence

The Company’s debt is classified within Level 2 of the valuation hierarchy.

Contingent consideration – Contingent consideration obligations consist of potential obligations related to the Company’s acquisitions in previous years.

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

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 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)

Contingent consideration at June 30, 2020 $ 4

Changes in fair value

Contingent consideration at March 31, 2021 $ 2

DECIEM stock options – The stock option liability represents the employee stock options issued by DECIEM in replacement and exchange for certain vested and unvested DECIEM employee stock options previously issued by DECIEM, in connection with the Company's acquisition of DECIEM.

The DECIEM stock options are subject to the terms and conditions of DECIEM's 2021 Stock Option Plan.

The initial fair value of the DECIEM stock option liability was calculated using the acquisition date fair value multiplied by the number of options replaced (consisting of vested and partially vested stock options) on the day following the acquisition date.

The acquisition date fair value was calculated using the Monte Carlo Method, which requires certain assumptions.

These inputs are categorized as Level 3 of the valuation hierarchy.

The DECIEM stock options will be remeasured to fair value at each reporting date through settlement, with the offsetting entry to compensation expense, through the period when the options are exercised or repurchased.

See Note 2 – Acquisition of Business and Note 10 – Stock Programs for discussion .

NOTE 7 – REVENUE RECOGNITION

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Accounts Receivable

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.

Under this new standard, the Company is required to measure credit losses based on the Company’s estimate of expected losses rather than incurred losses, which generally results in earlier recognition of allowances for credit losses.

In accordance with ASC 326, the Company evaluated certain criteria, including aging and historical write-offs, current economic condition of specific customers and future economic conditions of countries utilizing a consumption index to determine the appropriate allowance for credit losses.

The Company writes-off receivables once it is determined that the receivables are no longer collectible and as allowed by local laws.

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 40 million as of September 30, 2021 and June 30, 2021.

Payment terms are short-term in nature and are generally less than one year.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the allowance for credit losses are as follows:

(In millions)

(In millions) September 30

Balance at June 30, 2021 $ 20

ASC 326 cumulative effect adjustment (pre-tax) 4

Adjustment for expected credit losses ( 5 )

Write-offs, net & other ( 10 )

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 $ 25 million, as of March 31, 2021, relates to non-credit losses, which are primarily due to customer deductions.

Provision for expected credit losses 1

Balance at September 30, 2021 $ 21

The remaining balance of the allowance for doubtful accounts of $ 19 million , as of September 30, 2021, relates to non-credit losses, which are primarily due to customer deductions.

Deferred Revenue

1 unchanged sentence

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

1 unchanged sentence

Revenue recognized that was included in the deferred revenue balance at the beginning of the period ( 170 ) ( 90 )

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

Other ( 4 ) — 2 —

Revenue deferred during the period 223 216

Deferred revenue, end of period $ 426 $ 409

Transaction Price Allocated to the Remaining Performance Obligations

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.

At September 30, 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 $ 379 million.

The remaining balance of deferred revenue at September 30, 2021 will be recognized beyond the next twelve months.

THE ESTÉE LAUDER COMPANIES INC.

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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, 2021.

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

Pension Plans

International Post-retirement

(In millions) 2021 2020 2021 2020 2021 2020

Service cost $ 12 $ 9 $ 9 $ 9 $ 2 $ —

Interest cost 8 9 2 3 1 2

Expected return on plan assets ( 14 ) ( 14 ) ( 4 ) ( 4 ) ( 1 ) —

Amortization of:

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 nine months ended March 31, 2021 and 2020 consisted of the following:

The components of net periodic benefit cost for the three months ended September 30, 2021 and 2020 consisted of the following:

Pension Plans Other than

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Actuarial loss 4 5 — 1 — —

Settlements — — 1 — — —

Special termination benefits — — 2 2 — —

Net periodic benefit cost $ 10 $ 11 $ 9 $ 11 $ 2 $ 1

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

During the three months ended September 30, 2021, the Company made contributions to its international pension plans totaling $ 6 million.

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) March 31

(In millions) September 30

Other assets $ 152 $ 162

4 unchanged sentences

Net amount recognized $ ( 63 ) $ ( 56 )

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.

NOTE 9 – CONTINGENCIES

Legal Proceedings

3 unchanged sentences

Reasonably possible losses in addition to the amounts accrued for such litigation and legal proceedings are not material to the Company’s consolidated financial statements.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – 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, long-term price-vested units (“PVUs”) and share units.

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.

Additional information relating to the Company's stock programs and the DECIEM stock options 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, 2021.

The Company's 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, including long-term price-vested units and share units.

Compensation expense attributable to net stock-based compensation was $ 79 million and $ 64 million for the three months ended September 30, 2021 and 2020, respectively.

Stock Options

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 .

During the three months ended September 30, 2021, the Company granted stock options in respect of approximately 1.1 million shares of Class A Common Stock with an exercise price per share of $ 344.06 and a weighted-average grant date fair value per share of $ 85.49 .

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 nine months ended March 31, 2021 was $ 317 million.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2021 was $ 89 million.

Restricted Stock Units

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.

The Company granted RSUs in respect of approximately 0.7 million shares of Class A Common Stock during the three months ended September 30, 2021 with a weighted-average grant date fair value per share of $ 343.90 that, at the time of grant, are scheduled to vest at 0.3 million, 0.2 million, and 0.2 million shares per year, in fiscal 2023, fiscal 2024 and fiscal 2025, respectively.

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

1 unchanged sentence

Performance Share Units

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.

During the three months ended September 30, 2021, 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 $ 344.06 , 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, 2024, 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.

PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSUs and, as such, were valued at the closing market value of the Company’s Class A Common Stock on the date of grant.

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.

In September 2021, 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 0.2 million PSUs with a performance period ended June 30, 2021.

DECIEM Stock Options

The DECIEM stock options are liability-classified awards as they are expected to be settled in cash and will be remeasured to fair value at each reporting date through date of settlement.

Total stock-based compensation expense is attributable to the exchange or replacement of and the remaining requisite service period of stock options.

The total stock option expense for the three months ended September 30, 2021 was not material.

There were no stock options exercised during the three months ended September 30, 2021.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

As discussed in Note 2 – Acquisition of Business, DECIEM stock options, with total fair value of $ 295 million, were reported as part of the total consideration transferred.

The DECIEM stock options are reported as a stock option liability of $ 137 million and $ 141 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at September 30, 2021 and June 30, 2021, respectively.

The fair value of the stock options were calculated using the following key assumptions into the Monte Carlo Method:

September 30, 2021 June 30, 2021 May 18, 2021

Risk-free rate 0.40 % 0.50 % 0.50 %

Term to mid of last twelve-month period 2.17 years 2.42 years 2.54 years

Operating leverage adjustment 0.45 0.45 0.45

Net sales discount rate 3.30 % 3.40 % 3.30 %

EBITDA discount rate 6.90 % 6.90 % 6.80 %

EBITDA volatility 39.10 % 37.70 % 38.30 %

Net sales volatility 17.60 % 17.00 % 17.20 %

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

PER COMMON SHARE

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.

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.

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

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

Net earnings 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

March 31 Nine Months Ended

(In millions, except per share data) 2021 2020

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.

Weighted-average common shares outstanding – Basic

363.6 360.2 362.9 360.6

Effect of dilutive stock options

4.1 — 3.9 4.6

Effect of PSUs

0.2 — 0.2 0.3

Effect of RSUs

1.1 — 1.1 1.6

Weighted-average common shares outstanding – Diluted

369.0 360.2 368.1 367.1

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

Net earnings attributable to The Estée Lauder Companies Inc.

per common share:

1 unchanged sentence

$ 1.88 $ 1.42

(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 ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1 unchanged sentence

RSUs and PSUs 0.2 0.2

(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 .

As of September 30, 2021 and 2020, 0.7 million and 0.8 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 .

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – EQUITY

NOTE 12 – EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

Total Stockholders’ Equity – The Estée Lauder Companies Inc.

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

Common stock, beginning of the period

$ 6 $ 6 $ 6 $ 6

Stock-based compensation

1 unchanged sentence

Paid-in capital, beginning of the period

5,068 4,615 4,790 4,403

Common stock dividends

Stock-based compensation

162 144 439 354

Paid-in capital, end of the period

5,231 4,760 5,231 4,760

Retained earnings, beginning of the period

2 unchanged sentences

( 193 ) ( 174 )

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.

Cumulative effect of adoption of new accounting standards

— — ( 3 ) ( 29 )

Retained earnings, end of the period

1 unchanged sentence

Accumulated other comprehensive loss, beginning of the period

( 470 ) ( 665 )

Other comprehensive income (loss) ( 155 ) 71

Accumulated other comprehensive loss, end of the period

( 625 ) ( 594 )

Treasury stock, beginning of the period

1 unchanged sentence

Acquisition of treasury stock

( 212 ) ( 65 ) ( 212 ) ( 768 )

Stock-based compensation

3 unchanged sentences

Total stockholders’ equity – The Estée Lauder Companies Inc.

5,528 4,329 5,528 4,329

Noncontrolling interests, beginning of the period

Net earnings attributable to noncontrolling interests

Distribution to noncontrolling interest holders ( 6 ) — ( 6 ) ( 4 )

Other comprehensive (income) loss ( 1 ) — 1 ( 1 )

Translation adjustments, net ( 1 ) —

Noncontrolling interests, end of the period 34 29

Total equity $ 5,558 $ 4,358 $ 5,558 $ 4,358

Cash dividends declared per common share

$ 6,115 $ 4,481

Redeemable noncontrolling interest, beginning of the period $ 857 $ —

Net earnings attributable to redeemable noncontrolling interest 2 —

Translation adjustments ( 17 ) —

Redeemable noncontrolling interest, end of the period $ 842 $ —

Cash dividends declared per common share $ .53 $ .48

THE ESTÉE LAUDER COMPANIES INC.

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 nine months ended March 31, 2021:

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 three months ended September 30, 2021:

Date Declared Record Date Payable Date Amount per Share

August 18, 2021 August 31, 2021 September 15, 2021 $ .53

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

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.

On November 1, 2021, a dividend was declared in the amount of $ .60 per share on the Company’s Class A and Class B Common Stock.

The dividend is payable in cash on December 15, 2021 to stockholders of record at the close of business on November 30, 2021.

During the three months ended September 30, 2021, the Company purchased approximately 1.7 million shares of its Class A Common Stock for $ 557 million.

Accumulated Other Comprehensive Income

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

The following table represents changes in AOCI, net of tax, by component for the three months ended September 30, 2021:

(In millions) Net Cash

Gain (Loss) Retirement Plan and Other Retiree Benefit Adjustments Translation

Gain (Loss) Amounts

Included in Net Periodic Benefit Cost Translation

Adjustments Total

3 unchanged sentences

Net current-period OCI 16 4 ( 175 ) ( 155 )

( 12 ) 15 175 178

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

(1) Consists of foreign currency translation gains.

Balance at September 30, 2021 $ 14 $ ( 175 ) $ ( 464 ) $ ( 625 )

(1) Consists of foreign currency translation losses.

(2) See Note 5 – Derivative Financial Instruments for gains (losses) relating to net investment hedges.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three months ended September 30, 2021 and 2020:

Amount Reclassified from AOCI Affected Line Item in

Statements of Earnings (Loss)

Statements of Earnings

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

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Interest rate-related derivatives — ( 1 ) Interest expense

( 8 ) 10 ( 13 ) 29

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

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

Retirement Plan and Other Retiree Benefit Adjustments

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 2 — Provision for income taxes

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

Cumulative Translation Adjustments

Gain on previously held equity method investment $ — $ — $ — $ 4 Other income

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

$ — $ — — $ ( 2 ) Net earnings (loss)

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

( 4 ) — Net earnings

Amounts Included in Net Periodic Benefit Cost

Amortization of actuarial loss ( 4 ) ( 6 ) Earnings before income taxes (1)

Benefit for deferred taxes 1 1 Provision for income taxes

( 3 ) ( 5 ) Net earnings

Total reclassification adjustments, net $ ( 7 ) $ ( 5 ) Net earnings

(1) See Note 8 – Pension and Post-Retirement Benefit Plans for additional information.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – STATEMENT OF CASH FLOWS

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

Supplemental cash flow information for the three months ended September 30, 2021 and 2020 is as follows:

(In millions) 2021 2020

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Property, plant and equipment accrued but unpaid $ 126 $ 42

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

Financing lease modifications $ ( 17 ) $ —

Right-of-use assets obtained in exchange for new/modified operating lease liabilities $ 44 $ 101

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – SEGMENT DATA AND RELATED INFORMATION

1 unchanged sentence

Although the Company operates in one business segment, beauty products, management also evaluates performance on a product category basis.

Product category performance is measured based upon net sales before returns associated with restructuring and other activities, and earnings before income taxes, other components of net periodic benefit cost, interest expense, interest income and investment income, net, other income, net, and charges associated with restructuring and other activities.

Returns and 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.

Product category performance is measured based upon net sales before returns associated with restructuring and other activities, and earnings before income taxes, other components of net periodic benefit cost, interest expense, interest income and investment income, net, other income, and charges associated with restructuring and other activities.

Returns and charges associated with restructuring and other activities are not allocated to the Company's 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.

The accounting policies for the Company’s reportable segments are substantially the same as those for the consolidated financial statements, as described in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

5 unchanged sentences

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

4 unchanged sentences

Hair Care 148 136

Other 15 8 37 36

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

Returns associated with restructuring and other activities ( 1 ) —

5 unchanged sentences

Hair Care 2 3

Other ( 1 ) 1 ( 1 ) 7

761 134 2,575 1,212

Reconciliation:

9 unchanged sentences

Asia/Pacific 1,326 1,149

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

Returns associated with restructuring and other activities ( 1 ) —

Net sales $ 4,392 $ 3,562

Operating income (loss):

Operating income:

The Americas $ 254 $ 65

1 unchanged sentence

Asia/Pacific 222 238

761 134 2,575 1,212

Charges associated with restructuring and other activities ( 6 ) ( 9 )

Operating income $ 935 $ 705

(1) The net sales from the Company’s travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr.

Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region.

(1) The net sales from the Company’s travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr.Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region.

Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.

1 unchanged sentence

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.

NOTE 15 – SUBSEQUENT EVENT

On October 22, 2021, the Company replaced its $ 1.5 billion senior unsecured revolving credit facility that was set to expire on October 26, 2023 (the “Prior Facility”) with a new $ 2.5 billion senior unsecured revolving credit facility that expires on October 22, 2026 (the “New Facility”) unless extended for up to two additional years in accordance with the terms set forth in the agreement.

Up to the equivalent of $ 750 million of the New Facility is available for multi-currency loans.

At September 30, 2021 and through October 22, 2021, no borrowings were outstanding under the Prior Facility.

The New Facility may be used for general corporate purposes.

Interest rates on borrowings under the New Facility will be based on prevailing market interest rates in accordance with the agreement.

The costs incurred to establish the New Facility were not material.

The New Facility has an annual fee of approximately $ 1 million, payable quarterly, based on the Company’s current credit ratings.

The New Facility contains a cross-default provision whereby a failure to pay other material financial obligations in excess of $ 175 million (after grace periods and absent a waiver from the lenders) would result in an event of default and the acceleration of the maturity of any outstanding debt under this facility.

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