What changed in this filing

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Item 1. Financial Statements

2022-02-03 compared with 2021-11-02 · 281 added, 165 removed, 789 unchanged (36% of the section changed)

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

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

1 unchanged sentence

Cost of sales

1,223 1,084 2,280 1,909

4,316 3,769 7,651 6,506

Operating expenses

Selling, general and administrative

2,885 2,590 5,279 4,616

Restructuring and other charges

Goodwill impairment — 54 — 54

Impairment of other intangible assets — 27 — 27

Total operating expenses

2,898 2,706 5,298 4,738

Operating income 1,418 1,063 2,353 1,768

2 unchanged sentences

Other components of net periodic benefit cost

( 2 ) 7 ( 1 ) 10

Other income — — 1 —

1 unchanged sentence

Provision for income taxes

298 153 500 299

Net earnings 1,090 877 1,785 1,402

Net earnings attributable to noncontrolling interests ( 4 ) ( 4 ) ( 5 ) ( 6 )

Net earnings attributable to redeemable noncontrolling interest ( 2 ) —

Net loss attributable to redeemable noncontrolling interest 2 — — —

Net earnings attributable to The Estée Lauder Companies Inc.

$ 1,088 $ 873 $ 1,780 $ 1,396

Net earnings attributable to The Estée Lauder Companies Inc.

3 unchanged sentences

Weighted-average common shares outstanding

360.6 363.0 361.4 363.4

366.0 368.0 367.0 368.5

See notes to consolidated financial statements.

2 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

11 unchanged sentences

Total comprehensive income attributable to noncontrolling interests ( 3 ) ( 6 ) ( 3 ) ( 8 )

Comprehensive income attributable to redeemable noncontrolling interest:

Net earnings ( 2 ) —

Comprehensive loss attributable to redeemable noncontrolling interest:

Net loss 2 — — —

Translation adjustments — — 17 —

Total comprehensive income attributable to redeemable noncontrolling interest 15 —

Total comprehensive loss attributable to redeemable noncontrolling interest 2 — 17 —

Comprehensive income attributable to The Estée Lauder Companies Inc.

$ 1,067 $ 1,084 $ 1,604 $ 1,678

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) September 30

(In millions, except share data) December 31

Current assets

25 unchanged sentences

Class A shares authorized:

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

1,300,000,000 at December 31, 2021 and June 30, 2021;

shares issued:

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

466,381,223 at December 31, 2021 and 462,633,034 at June 30, 2021;

Class B shares authorized:

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

304,000,000 at December 31, 2021 and June 30, 2021;

shares issued and outstanding:

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

126,242,029 at December 31, 2021 and 128,242,029 at June 30, 2021

Paid-in capital

3 unchanged sentences

18,700 17,115

17,695 17,115

Treasury stock, at cost;

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

233,353,672 Class A shares at December 31, 2021 and 229,115,665 Class A shares at June 30, 2021

( 12,482 ) ( 11,058 )

5 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(In millions) 2021 2020

9 unchanged sentences

Pension and post-retirement benefit contributions ( 18 ) ( 25 )

Goodwill and other intangible asset impairments — 81

Changes in fair value of contingent consideration — ( 2 )

Gain on previously held equity method investment ( 1 ) —

2 unchanged sentences

Increase in accounts receivable, net ( 407 ) ( 720 )

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 (used for) operating activities ( 81 ) 358

Decrease (increase) in inventory and promotional merchandise ( 164 ) 67

Increase in other assets, net ( 57 ) ( 110 )

Increase (decrease) in accounts payable ( 40 ) 63

Increase in other accrued and noncurrent liabilities 213 750

Decrease in operating lease assets and liabilities, net ( 17 ) ( 7 )

Net cash flows provided by operating activities 1,846 1,978

Cash flows from investing activities

6 unchanged sentences

Cash flows from financing activities

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

Repayments of current debt, net ( 4 ) ( 747 )

Debt issuance costs ( 1 ) —

Repayments and redemptions of long-term debt ( 10 ) ( 4 )

2 unchanged sentences

Dividends paid to stockholders ( 409 ) ( 368 )

Payments to noncontrolling interest holders for dividends — ( 2 )

Net cash flows used for financing activities ( 1,775 ) ( 1,119 )

Effect of exchange rate changes on Cash and cash equivalents ( 12 ) 61

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

Net increase (decrease) in Cash and cash equivalents ( 355 ) 523

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

27 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 $( 175 ) million and $ 91 million, net of tax, during the three months ended September 30, 2021 and 2020, respectively.

were $( 20 ) million and $ 227 million, net of tax, during the three months ended December 31, 2021 and 2020, respectively, and $( 195 ) million and $ 318 million, net of tax, during the six months ended December 31, 2021 and 2020, respectively.

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

6 unchanged sentences

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

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 accompanying consolidated statements of earnings include net exchange losses on foreign currency transactions of $ 6 million during the three months ended December 31, 2021 and $ 18 million and $ 2 million during the six months ended December 31, 2021 and 2020, respectively.

The net exchange loss on foreign currency transactions during the three months ended December 31, 2020 was no t material.

THE ESTÉE LAUDER COMPANIES INC.

6 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 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.

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

This customer accounted for $ 596 million or 11 %, and $ 654 million, or 13 %, of the Company's consolidated net sales for the three months ended December 31, 2021 and 2020, respectively, and $ 1,052 million, or 11 %, and $ 1,208 million, or 14 %, for the six months ended December 31, 2021 and 2020, respectively.

This customer accounted for $ 442 million, or 21 %, and $ 179 million, or 10 %, of the Company's accounts receivable at December 31, 2021 and June 30, 2021, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

(In millions) September 30

(In millions) December 31

Raw materials

5 unchanged sentences

Property, plant and equipment consists of the following:

(In millions) September 30

(In millions) December 31

Assets (Useful Life)

8 unchanged sentences

$ 2,451 $ 2,280

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.

Depreciation and amortization of property, plant and equipment was $ 136 million and $ 126 million during the three months ended December 31, 2021 and 2020, respectively, and $ 266 million and $ 251 million during the six months ended December 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.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Three Months Ended

December 31 Six Months Ended

2021 2020 2021 2020

Effective rate for income taxes 21.5 % 14.9 % 21.9 % 17.6 %

Basis-point change from the prior-year period 660 430

For the three and six months ended December 31, 2021, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations.

Also contributing to the increase in the effective tax rate for both periods was a decrease in excess tax benefits associated with stock-based compensation arrangements.

The effective tax rate for the three and six months ended December 31, 2020 included the retroactive impact relating to fiscal 2020 and 2019 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.

The impact of the final issuance of GILTI tax regulations, with respect to such prior periods, was recognized as a discrete item in the provision for income taxes in the second quarter of fiscal 2021 and resulted in 470 and 280 basis point reductions to the effective tax rates for the three and six months ended December 31, 2020, respectively.

As of December 31, 2021 and June 30, 2021, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 62 million.

The total amount of unrecognized tax benefits at December 31, 2021 that, if recognized, would affect the effective tax rate was $ 52 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three and six months ended December 31, 2021 in the accompanying consolidated statements of earnings was $ 1 million and $ 4 million, respectively.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at December 31, 2021 and June 30, 2021, was $ 15 million and $ 14 million, respectively.

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

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.

Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”), which had no impact on the Company’s consolidated financial statements for the three and six months ended December 31, 2021.

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:

(In millions) September 30

(In millions) December 31

Advertising, merchandising and sampling $ 375 $ 294

6 unchanged sentences

$ 3,454 $ 3,195

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

At December 31, 2021 and June 30, 2021, total Other noncurrent liabilities of $ 1,937 million and $ 2,037 million included $ 797 million and $ 849 million of deferred tax liabilities, respectively.

Recently Adopted Accounting Standards

2 unchanged sentences

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.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective for the Company – Fiscal 2022 first quarter.

9 unchanged sentences

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – ACQUISITION OF BUSINESS

11 unchanged sentences

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

As of December 31, 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.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the total consideration transferred, including immaterial measurement period adjustments as of December 31, 2021, is as follows:

(In millions) December 31, 2021

Cash paid $ 1,095

Fair value of DECIEM stock options liability 104

12 unchanged sentences

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:

6 unchanged sentences

Net sales volatility 17.20 %

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

3 unchanged sentences

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

The preliminary allocation of the total consideration transferred, including immaterial measurement period adjustments as of December 31, 2021, has been recorded as follows:

(In millions) December 31, 2021

Accounts receivable 64

5 unchanged sentences

Goodwill 1,295

Deferred income taxes 7

Total assets acquired 3,623

6 unchanged sentences

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

The results of operations for DECIEM and acquisition-related costs were not material to the Company's consolidated statements of earnings for the three and six months ended December 31, 2021.

Pro forma results of operations for the fiscal 2021 periods reflecting the acquisition of DECIEM are not presented, as the impact on the Company’s consolidated financial results would not have been material.

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

4 unchanged sentences

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

Goodwill measurement period adjustment 12 — — — 12

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

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

Translation adjustments, goodwill ( 52 ) — ( 5 ) — ( 57 )

Translation adjustments, accumulated impairments 1 — — — 1

( 39 ) — ( 5 ) — ( 44 )

Balance as of September 30, 2021

Balance as of December 31, 2021

1,746 1,214 257 355 3,572

4 unchanged sentences

Other intangible assets consist of the following:

September 30, 2021 June 30, 2021

December 31, 2021 June 30, 2021

(In millions) Gross

12 unchanged sentences

$ 3,883 $ 4,095

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 aggregate amortization expense related to amortizable intangible assets was $ 39 million and $ 27 million for the three months ended December 31, 2021 and 2020, respectively, and $ 84 million and $ 52 million for the six months ended December 31, 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:

1 unchanged sentence

Estimated aggregate amortization expense $ 77 $ 155 $ 154 $ 154 $ 154

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment Testing During the Six Months Ended December 31, 2020

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

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

NOTE 4 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

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

Charges associated with the Post-COVID Business Acceleration Program for the three and six months ended December 31, 2021 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

1 unchanged sentence

Charges Other

Total $ 1 $ ( 1 ) $ — $ 2 $ 2

Three months ended December 31, 2021 $ 1 $ ( 1 ) $ 7 $ 3 $ 10

Six months ended December 31, 2021 $ 2 $ ( 2 ) $ 7 $ 5 $ 12

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.

7 unchanged sentences

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

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.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 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.

2 unchanged sentences

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

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

Total PCBA Program cumulative charges (adjustments) approved by the Company through December 31, 2021 were:

Net Sales) Cost of Sales Operating Expenses Total

3 unchanged sentences

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:

Six months ended December 31, 2021 ( 19 ) 9 ( 13 ) — ( 23 )

Cumulative through December 31, 2021 $ 23 $ 3 $ 244 $ 21 $ 291

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

(In millions) Employee-

3 unchanged sentences

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

Six months ended December 31, 2021 ( 11 ) 2 ( 3 ) ( 1 ) ( 13 )

Cumulative through December 31, 2021 $ 121 $ 110 $ 10 $ 3 $ 244

Specific actions taken since the PCBA Program inception include:

6 unchanged sentences

These actions will result primarily in lease termination fees.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• 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.

4 unchanged sentences

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

12 unchanged sentences

• 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.

5 unchanged sentences

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

Six months ended December 31, 2021 2 ( 2 ) 7 5 12

Cumulative through December 31, 2021 $ 16 $ — $ 208 $ 9 $ 233

(In millions) Employee-

3 unchanged sentences

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:

Six months ended December 31, 2021 ( 8 ) 5 10 — 7

Cumulative through December 31, 2021 $ 111 $ 80 $ 16 $ 1 $ 208

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

(In millions) Employee-

4 unchanged sentences

Cash payments ( 28 ) — ( 10 ) — ( 38 )

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

Translation adjustment — — — — —

Balance at September 30, 2021

Non-cash asset write-offs — ( 5 ) — — ( 5 )

Translation and other adjustments ( 6 ) — — — ( 6 )

Balance at December 31, 2021

$ 59 $ — $ — $ — $ 59

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.

Accrued restructuring charges at December 31, 2021 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 31 million, $ 24 million and $ 4 million for the remainder of fiscal 2022 and for fiscal 2023 and 2024, respectively.

Leading Beauty Forward Program

1 unchanged sentence

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.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – DERIVATIVE FINANCIAL INSTRUMENTS

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

At December 31, 2021, the notional amount of derivatives not designated as hedging instruments was $ 3,656 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.

7 unchanged sentences

(In millions) Balance Sheet

Location September 30

Location December 31

2021 Balance Sheet

Location September 30

Location December 31

Derivatives Designated as Hedging Instruments:

17 unchanged sentences

Three Months Ended

September 30 Three Months Ended

December 31 Three Months Ended

(In millions) 2021 2020 2021 2020

Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts $ ( 8 ) $ ( 34 ) Net sales

$ ( 2 ) $ ( 5 )

Interest rate-related derivatives — 3 Interest expense

( 8 ) ( 31 ) ( 3 ) ( 5 )

Derivatives in Net Investment Hedging Relationships (2) :

Foreign currency forward contracts (3)

$ 15 $ ( 31 ) Net sales

Interest rate-related derivatives

— — Interest expense

34 ( 79 ) — —

Total derivatives $ 26 $ ( 110 ) $ ( 3 ) $ ( 5 )

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

(2) During the three months ended December 31, 2021 and 2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 3 million and $ 5 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)

Six Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts $ 7 $ ( 65 ) Net sales $ ( 8 ) $ ( 4 )

Interest rate-related derivatives — 3 Interest expense ( 1 ) ( 1 )

7 ( 62 ) ( 9 ) ( 5 )

Derivatives in Net Investment Hedging Relationships (2) :

4 unchanged sentences

(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.

(2) During the six months ended December 31, 2021 and 2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 5 million and $ 10 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)

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

11 unchanged sentences

Included in the Carrying Amount of the Hedged Liability

September 30, 2021 September 30, 2021

December 31, 2021 December 31, 2021

Current debt $ 253 $ 3

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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 September 30

Three Months Ended December 31

(In millions) Net Sales Interest

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

Not applicable 10 Not applicable 2

Derivatives designated as hedging instruments

Not applicable ( 10 ) Not applicable ( 2 )

Hedged item Not applicable 6 Not applicable 3

Derivatives designated as hedging instruments Not applicable ( 6 ) Not applicable ( 3 )

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

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Amount of gain reclassified from AOCI into earnings ( 2 ) Not applicable ( 5 ) Not applicable

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31

(In millions) Net Sales Interest

Expense Net Sales Interest

Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded $ 9,931 $ 84 $ 8,415 $ 88

The effects of fair value and cash flow hedging relationships:

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

Hedged item Not applicable 16 Not applicable 5

Derivatives designated as hedging instruments Not applicable ( 16 ) Not applicable ( 5 )

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

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

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

Amount of gain reclassified from AOCI into earnings ( 8 ) Not applicable ( 4 ) 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:

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Derivatives Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

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Selling, general and administrative $ ( 38 ) $ 42 $ ( 49 ) $ 63

$ ( 11 ) $ 21

THE ESTÉE LAUDER COMPANIES INC.

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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 June 2023.

The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of September 2023.

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

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

At December 31, 2021, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,422 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.

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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 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.

As of December 31, 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 December 31, 2021 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 3 million.

The accumulated net gain (loss) on derivative instruments in AOCI was $ 15 million and $( 1 ) million as of December 31, 2021 and June 30, 2021, respectively.

Fair Value Hedges

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

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

At December 31, 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 $ 70 million at September 30, 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 $ 90 million at December 31, 2021.

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

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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 September 30, 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 December 31, 2021:

(In millions) Level 1 Level 2 Level 3 Total

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Foreign currency forward contracts – asset (liability), net 21 21 ( 4 ) ( 4 )

31 31 ( 4 ) ( 4 )

Interest rate-related derivatives – asset (liability), net ( 1 ) ( 1 ) 15 15

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

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

Goodwill $ 54 November 30, 2020 $ —

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

Total $ 81 $ 36

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

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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.

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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.

The DECIEM stock options are remeasured to fair value at each reporting date through the period when the options are exercised or repurchased (i.e., when they are settled), with an offsetting entry to compensation expense.

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

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Accounts Receivable

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.

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 36 million and $ 40 million as of December 31, 2021 and June 30, 2021, respectively.

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

Changes in the allowance for credit losses are as follows:

(In millions) September 30

(In millions) December 31

Balance at June 30, 2021 $ 20

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.

Adjustment for expected credit losses ( 2 )

Write-offs, net & other ( 1 )

Balance at December 31, 2021 $ 17

The remaining balance of the allowance for doubtful accounts of $ 19 million, as of December 31, 2021, relates to non-credit losses, which are primarily due to customer deductions.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Revenue

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Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

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Revenue deferred during the period 75 92 298 308

Other ( 2 ) 2 — 6

Deferred revenue, end of period $ 421 $ 420 $ 421 $ 420

Transaction Price Allocated to the Remaining Performance Obligations

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 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 $ 377 million.

The remaining balance of deferred revenue at December 31, 2021 will be recognized beyond the next twelve months.

NOTE 8 – PENSION AND POST-RETIREMENT BENEFIT PLANS

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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 September 30, 2021 and 2020 consisted of the following:

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

Pension Plans Other than

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Actuarial loss 3 5 1 1 1 —

Prior service cost — — ( 1 ) — — —

Special termination benefits — — 1 7 — —

Net periodic benefit cost $ 8 $ 10 $ 8 $ 17 $ 2 $ 2

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net periodic benefit cost for the six months ended December 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 $ 23 $ 22 $ 16 $ 18 $ 1 $ —

Interest cost 15 15 5 5 3 3

Expected return on plan assets ( 27 ) ( 26 ) ( 7 ) ( 6 ) ( 1 ) —

Amortization of:

Actuarial loss 7 10 1 2 1 —

Prior service cost — — ( 1 ) — — —

Special termination benefits — — 3 9 — —

Net periodic benefit cost $ 18 $ 21 $ 17 $ 28 $ 4 $ 3

During the six months ended December 31, 2021, the Company made contributions to its international pension plans totaling $ 11 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) September 30

(In millions) December 31

Other assets $ 150 $ 162

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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.

Compensation expense attributable to net stock-based compensation was $ 113 million and $ 105 million for the three months ended December 31, 2021 and 2020, respectively, and was $ 192 million and $ 169 million for the six months ended December 31, 2021 and 2020, respectively.

Stock Options

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 .

During the six months ended December 31, 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 $ 344.09 and a weighted-average grant date fair value per share of $ 85.56 .

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 three months ended September 30, 2021 was $ 89 million.

The aggregate intrinsic value of stock options exercised during the six months ended December 31, 2021 was $ 178 million.

Restricted Stock Units

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.

The Company granted RSUs in respect of approximately 0.7 million shares of Class A Common Stock during the six months ended December 31, 2021 with a weighted-average grant date fair value per share of $ 343.71 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.

The RSUs are accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were valued at the closing market price of the Company’s Class A Common Stock on the date of grant.

The RSUs are accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were generally valued at the closing market price of the Company’s Class A Common Stock on the date of grant.

Performance Share Units

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.

During the six months ended December 31, 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.

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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.

The DECIEM stock options are liability-classified awards as they are expected to be settled in cash and are 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 total stock option expense for the three and six months ended December 31, 2021 was not material.

There were no stock options exercised during the six months ended December 31, 2021.

THE ESTÉE LAUDER COMPANIES INC.

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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 DECIEM stock options are reported as a stock option liability of $ 138 million and $ 141 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at December 31, 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

December 31, 2021 June 30, 2021 May 18, 2021

Risk-free rate 1.00 % 0.50 % 0.50 %

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Three Months Ended

December 31 Six Months Ended

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

Net earnings attributable to The Estée Lauder Companies Inc.

$ 1,088 $ 873 $ 1,780 $ 1,396

Weighted-average common shares outstanding – Basic

360.6 363.0 361.4 363.4

Effect of dilutive stock options

4.1 3.8 4.2 3.8

Effect of PSUs

0.2 0.2 0.2 0.2

Effect of RSUs

1.1 1.0 1.2 1.1

Weighted-average common shares outstanding – Diluted

366.0 368.0 367.0 368.5

Net earnings attributable to The Estée Lauder Companies Inc.

6 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

1 unchanged sentence

RSUs and PSUs — — 0.1 0.1

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 .

As of December 31, 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.

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Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 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

5,450 4,913 5,335 4,790

Common stock dividends

Stock-based compensation

155 155 269 277

Paid-in capital, end of the period

5,605 5,068 5,605 5,068

Retained earnings, beginning of the period

3 unchanged sentences

Net earnings attributable to The Estée Lauder Companies Inc.

1,088 873 1,780 1,396

Cumulative effect of adoption of new accounting standards

— — 121 ( 3 )

Retained earnings, end of the period

1 unchanged sentence

Accumulated other comprehensive loss, beginning of the period ( 625 ) ( 594 ) ( 470 ) ( 665 )

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

( 21 ) 211 ( 176 ) 282

Other comprehensive income (loss) ( 155 ) 71

Accumulated other comprehensive loss, end of the period ( 646 ) ( 383 ) ( 646 ) ( 383 )

( 625 ) ( 594 )

Treasury stock, beginning of the period

1 unchanged sentence

Acquisition of treasury stock

( 763 ) — ( 1,282 ) —

Stock-based compensation

3 unchanged sentences

Total stockholders’ equity – The Estée Lauder Companies Inc.

6,218 5,421 6,218 5,421

Noncontrolling interests, beginning of the period

Net earnings attributable to noncontrolling interests 4 4 5 6

Translation adjustments, net ( 1 ) —

Translation adjustments and other, net ( 4 ) 2 ( 5 ) 2

Noncontrolling interests, end of the period 34 35 34 35

1 unchanged sentence

Redeemable noncontrolling interest, beginning of the period $ 842 $ — $ 857 $ —

Net earnings attributable to redeemable noncontrolling interest 2 —

Net loss attributable to redeemable noncontrolling interest ( 2 ) — — —

Translation adjustments — — ( 17 ) —

3 unchanged sentences

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 three months ended September 30, 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 six months ended December 31, 2021:

Date Declared Record Date Payable Date Amount per Share

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

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.

November 1, 2021 November 30, 2021 December 15, 2021 $ .60

On February 2, 2022, 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 March 15, 2022 to stockholders of record at the close of business on February 28, 2022.

During the six months ended December 31, 2021, the Company purchased approximately 4.3 million shares of its Class A Common Stock for $ 1,428 million.

During the six months ended December 31, 2021, 2.0 million shares of the Company’s Class B Common Stock were converted into the same amount of shares of the Company’s Class A Common Stock.

Accumulated Other Comprehensive Income

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

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

(In millions) Net Cash

6 unchanged sentences

Net current-period OCI 12 7 ( 195 ) ( 176 )

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

Balance at December 31, 2021 $ 10 $ ( 172 ) $ ( 484 ) $ ( 646 )

(1) Consists of foreign currency translation losses.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three and six months ended December 31, 2021 and 2020:

Amount Reclassified from AOCI Affected Line Item in

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

2 unchanged sentences

Interest rate-related derivatives ( 1 ) — ( 1 ) ( 1 ) Interest expense

( 3 ) ( 5 ) ( 9 ) ( 5 )

Benefit for deferred taxes — 1 2 1 Provision for income taxes

( 3 ) ( 4 ) ( 7 ) ( 4 ) Net earnings

Amounts Included in Net Periodic Benefit Cost

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

Retirement Plan and Other Retiree Benefit Adjustments

Amortization of prior service cost 1 — 1 — Other components of net periodic benefit cost (1)

Amortization of actuarial loss ( 5 ) ( 6 ) ( 9 ) ( 12 ) Other components of net periodic benefit cost (1)

( 4 ) ( 6 ) ( 8 ) ( 12 )

Benefit for deferred taxes 1 1 2 2 Provision for income taxes

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NOTE 13 – STATEMENT OF CASH FLOWS

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

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

(In millions) 2021 2020

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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, and charges associated with restructuring and other activities.

Product category performance is measured based upon net sales before returns associated with restructuring and other activities, and operating income (loss) before 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.

6 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

4 unchanged sentences

Hair Care 180 154 328 290

Other 16 15 29 22

5,540 4,853 9,933 8,415

Returns associated with restructuring and other activities ( 1 ) — ( 2 ) —

5 unchanged sentences

Hair Care 8 4 10 7

Other 3 ( 1 ) 3 —

1,433 1,100 2,374 1,814

Reconciliation:

9 unchanged sentences

Asia/Pacific 1,902 1,775 3,228 2,924

5,540 4,853 9,933 8,415

Returns associated with restructuring and other activities ( 1 ) — ( 2 ) —

4 unchanged sentences

Asia/Pacific 431 407 653 645

1,433 1,100 2,374 1,814

Charges associated with restructuring and other activities ( 15 ) ( 37 ) ( 21 ) ( 46 )

Operating income $ 1,418 $ 1,063 $ 2,353 $ 1,768

(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 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.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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