What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2022-02-03 · 248 added, 178 removed, 892 unchanged (32% of the section changed)

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2022 2021 2022 2021

7 unchanged sentences

Restructuring and other charges

22 131 41 172

Goodwill impairment — — — 54

Impairment of other intangible assets — 27 — 27

Impairment of other intangible and long-lived assets 216 33 216 60

Total operating expenses

4 unchanged sentences

Other components of net periodic benefit cost ( 1 ) 2 ( 2 ) 12

( 2 ) 7 ( 1 ) 10

Other income — — 1 —

1 unchanged sentence

Provision for income taxes 130 122 630 421

298 153 500 299

Net earnings 573 458 2,358 1,860

Net earnings attributable to noncontrolling interests ( 3 ) ( 2 ) ( 8 ) ( 8 )

Net loss attributable to redeemable noncontrolling interest 2 — — —

Net earnings attributable to redeemable noncontrolling interest ( 12 ) — ( 12 ) —

Net earnings attributable to The Estée Lauder Companies Inc.

11 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

11 unchanged sentences

Total comprehensive income attributable to noncontrolling interests ( 2 ) ( 1 ) ( 5 ) ( 9 )

Comprehensive loss attributable to redeemable noncontrolling interest:

Net loss 2 — — —

Comprehensive income attributable to redeemable noncontrolling interest:

Net earnings ( 12 ) — ( 12 ) —

Translation adjustments ( 14 ) — 3 —

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

Total comprehensive income attributable to redeemable noncontrolling interest ( 26 ) — ( 9 ) —

Comprehensive income attributable to The Estée Lauder Companies Inc.

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) December 31

(In millions, except share data) March 31

Current assets

25 unchanged sentences

Class A shares authorized:

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

1,300,000,000 at March 31, 2022 and June 30, 2021;

shares issued:

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

467,516,898 at March 31, 2022 and 462,633,034 at June 30, 2021;

Class B shares authorized:

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

304,000,000 at March 31, 2022 and June 30, 2021;

shares issued and outstanding:

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

125,542,029 at March 31, 2022 and 128,242,029 at June 30, 2021

Paid-in capital

4 unchanged sentences

Treasury stock, at cost;

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

235,234,161 Class A shares at March 31, 2022 and 229,115,665 Class A shares at June 30, 2021

( 13,052 ) ( 11,058 )

5 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

(In millions) 2022 2021

9 unchanged sentences

Pension and post-retirement benefit contributions ( 30 ) ( 35 )

Goodwill and other intangible asset impairments — 81

Goodwill, other intangible and long-lived asset impairments 216 114

Changes in fair value of contingent consideration — ( 2 )

6 unchanged sentences

Increase (decrease) in accounts payable ( 199 ) 55

Increase in other accrued and noncurrent liabilities 213 750

Increase (decrease) in other accrued and noncurrent liabilities ( 132 ) 629

Decrease in operating lease assets and liabilities, net ( 38 ) ( 30 )

3 unchanged sentences

Proceeds from purchase price refund — 32

Payment for acquired business ( 3 ) ( 6 )

Payments for acquired businesses ( 3 ) ( 8 )

Purchases of investments ( 10 ) ( 40 )

3 unchanged sentences

Repayments of current debt, net ( 4 ) ( 746 )

Proceeds from issuance of long-term debt, net — 596

Debt issuance costs ( 1 ) ( 4 )

36 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 $( 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.

were $ 13 million and $( 143 ) million, net of tax, during the three months ended March 31, 2022 and 2021, respectively, and $( 182 ) million and $ 175 million, net of tax, during the nine months ended March 31, 2022 and 2021, 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 $ 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 accompanying consolidated statements of earnings include net exchange gains (losses) on foreign currency transactions of $ 3 million and $( 3 ) million during the three months ended March 31, 2022 and March 31, 2021, respectively, and $( 15 ) million and $( 5 ) million during the nine months ended March 31, 2022 and 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

2 unchanged sentences

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.

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

The Company grants credit to qualified customers.

1 unchanged sentence

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

The Company’s largest customer during the three and six months ended December 31, 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.

The Company’s largest customer during the three and nine months ended March 31, 2022 sells products primarily in China travel retail.

This customer accounted for $ 740 million or 17 %, and $ 690 million, or 18 %, of the Company's consolidated net sales for the three months ended March 31, 2022 and 2021, respectively, and $ 1,792 million, or 13 %, and $ 1,898 million, or 15 %, for the nine months ended March 31, 2022 and 2021, respectively.

This customer accounted for $ 457 million, or 20 %, and $ 179 million, or 10 %, of the Company's accounts receivable at March 31, 2022 and June 30, 2021, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

(In millions) December 31

(In millions) March 31, 2022 June 30, 2021

Raw materials

5 unchanged sentences

Property, plant and equipment consists of the following:

(In millions) December 31

(In millions) March 31, 2022 June 30, 2021

Assets (Useful Life)

8 unchanged sentences

$ 2,493 $ 2,280

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 of property, plant and equipment was $ 140 million and $ 129 million during the three months ended March 31, 2022 and 2021, respectively, and $ 406 million and $ 380 million during the nine months ended March 31, 2022 and 2021, 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 Company recognized $ 33 million of long-lived asset impairments, included in Impairments of other intangible and long-lived assets, in the accompanying consolidated statements of earnings for the three and nine months ended March 31, 2021.

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.

The impairments were due to the negative impacts of the COVID-19 pandemic.

For the three and nine months ended March 31, 2022, the Company did not recognize any long-lived asset impairments.

The effective rate for income taxes for the three and nine months ended March 31, 2022 and 2021 are as follows:

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

2022 2021 2022 2021

1 unchanged sentence

Basis-point change from the prior-year period ( 250 ) 260

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.

The effective tax rate for the three and nine months ended March 31, 2021 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.

The impact of the final issuance of GILTI tax regulations 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.

For the three months ended March 31, 2022, the decrease in the effective tax rate was primarily attributable to a lower effective tax rate on the Company's foreign operations, partially offset by a decrease in excess tax benefits associated with stock-based compensation arrangements.

For the nine months ended March 31, 2022, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company’s foreign operations, which includes the retroactive impact of the final GILTI tax regulations recognized in the prior period.

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

As of March 31, 2022 and June 30, 2021, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 63 million and $ 62 million, respectively.

The total amount of unrecognized tax benefits at March 31, 2022 that, if recognized, would affect the effective tax rate was $ 53 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three and nine months ended March 31, 2022 in the accompanying consolidated statements of earnings was $ 1 million and $ 5 million, respectively.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at March 31, 2022 and June 30, 2021, was $ 15 million and $ 14 million, respectively.

On the basis of the information available as of March 31, 2022, 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 and six months ended December 31, 2021.

Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”), which had no impact on the Company’s consolidated financial statements for the three and nine months ended March 31, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:

(In millions) December 31

(In millions) March 31, 2022 June 30, 2021

Advertising, merchandising and sampling $ 322 $ 294

3 unchanged sentences

Accrued income taxes 299 237

Sales return accrual 236 369

Other 1,450 1,313

$ 3,287 $ 3,195

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.

At March 31, 2022 and June 30, 2021, total Other noncurrent liabilities of $ 1,758 million and $ 2,037 million included $ 744 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.

1 unchanged sentence

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

Reference Rate Reform (ASC Topic 848 “ ASC 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”) and applies to lease and other contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that reference LIBOR or another rate that is expected to be discontinued as a result of reference rate reform.

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

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

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

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

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.

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, which includes assessing the impact to business processes and internal controls over financial reporting and the related disclosure requirements.

For treasury related arrangements, the Company references LIBOR in its interest rate swap agreements and LIBOR is also used for purposes of discounting certain foreign currency and interest rate forward contracts.

The Company is currently evaluating the potential impact of modifying treasury related arrangements and applying the relevant ASC 848 optional practical expedients, as needed.

For existing lease, debt arrangements and other contracts, the Company does not expect any qualifying contract modifications related to reference rate reform and therefore does not expect that the optional guidance in ASC 848 will need to be applied through December 31, 2022.

The Company will continue to monitor new contracts that could potentially be eligible for contract modification relief through December 31, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12 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 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

The accounting for the DECIEM business combination was finalized as of March 31, 2022.

A summary of the total consideration transferred, including immaterial measurement period adjustments as of March 31, 2022, is as follows:

(In millions) March 31, 2022

Cash paid $ 1,095

13 unchanged sentences

The remaining acquisition-date fair value of the redeemable noncontrolling interest of $ 647 million was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $ 2,992 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 December 31, 2021, has been recorded as follows:

(In millions) December 31, 2021

The final allocation of the total consideration transferred, including immaterial measurement period adjustments as of March 31, 2022, has been recorded as follows:

(In millions) March 31, 2022

Accounts receivable 64

14 unchanged sentences

Total consideration transferred $ 2,992

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.

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 nine months ended March 31, 2022.

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.

3 unchanged sentences

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 ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

9 unchanged sentences

( 19 ) — ( 6 ) — ( 25 )

Balance as of December 31, 2021

Balance as of March 31, 2022

1,765 1,214 256 355 3,590

4 unchanged sentences

Other intangible assets consist of the following:

December 31, 2021 June 30, 2021

March 31, 2022 June 30, 2021

(In millions) Gross

12 unchanged sentences

$ 3,638 $ 4,095

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 ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aggregate amortization expense related to amortizable intangible assets was $ 38 million and $ 25 million for the three months ended March 31, 2022 and 2021, respectively, and $ 122 million and $ 77 million for the nine months ended March 31, 2022 and 2021, 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 $ 39 $ 155 $ 154 $ 154 $ 154

Impairment Testing During the Nine Months Ended March 31, 2022

During the fiscal 2022 third quarter, given the lower-than-expected results from international expansion to areas that continue to be impacted by COVID-19, the Company made revisions to the internal forecasts relating to its GLAMGLOW reporting unit.

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

As of March 31, 2022, the remaining carrying value of the trademark intangible asset was not recoverable and the Company recorded an impairment charge of $ 11 million reducing the carrying value to zero .

During the fiscal 2022 third quarter, given the lower-than-expected growth within key geographic regions and channels for Dr.Jart+ that continue to be impacted by the spread of COVID-19 variants and resurgence in cases and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the brand, the lower than expected growth in key retail channels for DECIEM, and the lower than expected results from international expansion to areas that continue to be impacted by COVID-19 for Too Faced, the Company made revisions to the internal forecasts relating to its Dr.

Jart+, DECIEM and Too Faced reporting units.

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

These changes in circumstances were also an indicator that the carrying amounts of Dr.Jart+’s, DECIEM’s and Too Faced’s long-lived assets, including customer lists, may not be recoverable.

Accordingly, the Company performed interim impairment tests for the trademarks and a recoverability test for the long-lived assets as of February 28, 2022.

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

For the Dr.Jart+ reporting unit, the Company also concluded that the carrying value of the trademark intangible asset 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.

For the Too Faced and DECIEM reporting units, as the carrying values of the trademarks did not exceed their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, the Company did not record impairment charges.

As of March 31, 2022, the estimated fair values of Too Faced’s and DECIEM's trademarks exceeded their carrying values by 13 % and 3 %, respectively.

For the Too Faced and DECIEM trademark intangible assets, if all other assumptions are held constant, an increase of 100 basis points and 50 basis points, respectively, in the weighted average cost of capital would result in an impairment charge.

After adjusting the carrying values of the trademarks, the Company completed interim quantitative impairment tests for goodwill.

As the estimated fair value of the Dr.Jart+, DECIEM and Too Faced reporting units were in excess of their carrying values, the Company concluded that the carrying amounts of the goodwill were recoverable and did not record a goodwill impairment charge related to these reporting units.

The fair value of these reporting units were 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 units.

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 royalty rates for trademarks.

The most significant unobservable input used to estimate the fair value of the Dr.

Jart+ trademark intangible asset was the weighted-average cost of capital, which was 10.5 %.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment Testing During the Six Months Ended December 31, 2020

A summary of the impairment charges for the three and nine months ended March 31, 2022 and the remaining trademark and goodwill carrying values as of March 31, 2022, for each reporting unit, are as follows:

(In millions) Impairment Charge Carrying Value

Reporting Unit:

Geographic Region Trademarks Goodwill Trademarks Goodwill

GLAMGLOW The Americas $ 11 $ — $ — $ —

Jart+ Asia/Pacific 205 — 486 332

Total $ 216 $ — $ 486 $ 332

The impairment charges for the three and nine months ended March 31, 2022 were reflected in the skin care product category.

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.

7 unchanged sentences

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.

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.

NOTE 4 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

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

Charges associated with the Post-COVID Business Acceleration Program for the three and nine months ended March 31, 2022 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

1 unchanged sentence

Charges Other

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

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

Three months ended March 31, 2022 $ 1 $ — $ 17 $ 1 $ 19

Nine months ended March 31, 2022 $ 3 $ ( 2 ) $ 24 $ 6 $ 31

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 ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Post-COVID Business Acceleration Program

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

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.

As of March 31, 2022, 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.

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

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

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

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

PCBA Program Approvals

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

Total PCBA Program cumulative charges (adjustments) approved by the Company through March 31, 2022 were:

Net Sales) Cost of Sales Operating Expenses Total

3 unchanged sentences

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

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:

Nine months ended March 31, 2022 ( 19 ) 9 5 2 ( 3 )

Cumulative through March 31, 2022 $ 23 $ 3 $ 262 $ 23 $ 311

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through March 31, 2022 by major cost type were:

(In millions) Employee-

1 unchanged sentence

Terminations Other Exit

Restructuring Charges Approved

Restructuring Charges (Adjustments) Approved

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

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

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

Nine months ended March 31, 2022 3 4 ( 1 ) ( 1 ) 5

Cumulative through March 31, 2022 $ 135 $ 112 $ 12 $ 3 $ 262

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

11 unchanged sentences

Other Exit Costs – Other exit costs related to restructuring activities generally include costs to relocate facilities or employees, recruiting to fill positions as a result of relocation of operations, and employee outplacement for separated employees.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other charges associated with restructuring activities are comprised of the following:

3 unchanged sentences

• Temporary labor backfill;

• 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.

5 unchanged sentences

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

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

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

Nine months ended March 31, 2022 3 ( 2 ) 24 6 31

Cumulative through March 31, 2022 $ 17 $ — $ 225 $ 10 $ 252

(In millions) Employee-

3 unchanged sentences

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

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:

Nine months ended March 31, 2022 5 7 11 1 24

Cumulative through March 31, 2022 $ 124 $ 82 $ 17 $ 2 $ 225

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in accrued restructuring charges for the nine months ended March 31, 2022 relating to the PCBA Program were:

(In millions) Employee-

6 unchanged sentences

Translation and other adjustments ( 7 ) — — — ( 7 )

Balance at December 31, 2021

Balance at March 31, 2022

$ 60 $ — $ — $ — $ 60

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.

Accrued restructuring charges at March 31, 2022 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 23 million, $ 30 million and $ 7 million for the remainder of fiscal 2022 and for fiscal 2023 and 2024, respectively.

Between April 1, 2022 and April 26, 2022, the Company approved certain initiatives under the PCBA Program within areas of Optimize Distribution Network and Optimize Select Marketing, Brand and Global Functions.

These initiatives pertain primarily to asset write-offs to close an underperforming freestanding store and the optimization of where and how employees work and collaborate.

Once the relevant accounting criteria have been met, the Company expects to record restructuring and other charges of approximately $ 50 million (before tax) in connection with these initiatives.

The following presents the restructuring initiatives approved from April 1, 2022 to April 26, 2022 by major cost type:

Net Sales) Cost of Sales Operating Expenses Total

(In millions) Restructuring

Charges Other

Approval Period

April 1, 2022 - April 26, 2022 $ — $ — $ 50 $ — $ 50

Included in the above table, cumulative restructuring initiatives approved by the Company from April 1, 2022 to April 26, 2022 were:

(In millions) Employee-

Costs Contract

Terminations Other Exit

Approval Period

April 1, 2022 - April 26, 2022 $ — $ 34 $ 16 $ — $ 50

Leading Beauty Forward Program

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

At March 31, 2022, the notional amount of derivatives not designated as hedging instruments was $ 3,887 million.

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

9 unchanged sentences

(In millions) Balance Sheet

Location December 31

2021 Balance Sheet

Location December 31

Location March 31, 2022 June 30, 2021 Balance Sheet

Location March 31, 2022 June 30, 2021

Derivatives Designated as Hedging Instruments:

17 unchanged sentences

Three Months Ended

December 31 Three Months Ended

March 31 Three Months Ended

(In millions) 2022 2021 2022 2021

1 unchanged sentence

Foreign currency forward contracts $ ( 2 ) $ 22 Net sales

$ ( 2 ) $ ( 5 )

Interest rate-related derivatives 10 11 Interest expense

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

Derivatives in Net Investment Hedging Relationships (2) :

Foreign currency forward contracts (3)

34 ( 79 ) — —

Total derivatives $ 25 $ 158 $ 3 $ ( 8 )

(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.

(2) During the three months ended March 31, 2022 and 2021, 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.

5 unchanged sentences

Reclassified from AOCI into Earnings (1)

Six Months Ended

December 31 Six Months Ended

Nine Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

9 unchanged sentences

(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.

(2) During the nine months ended March 31, 2022 and 2021, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 8 million and $ 15 million, respectively.

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

6 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

11 unchanged sentences

Included in the Carrying Amount of the Hedged Liability

December 31, 2021 December 31, 2021

March 31, 2022 March 31, 2022

Current debt $ 251 $ 1

4 unchanged sentences

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

Three Months Ended December 31

Three Months Ended March 31

(In millions) Net Sales Interest

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31

Nine Months Ended March 31

(In millions) Net Sales Interest

14 unchanged sentences

Derivatives Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

7 unchanged sentences

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

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

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

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

At March 31, 2022, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,563 million.

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

2 unchanged sentences

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

As of December 31, 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.

As of March 31, 2022, 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 March 31, 2022 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 1 million.

The accumulated net gain (loss) on derivative instruments in AOCI was $ 20 million and $( 1 ) million as of March 31, 2022 and June 30, 2021, respectively.

Fair Value Hedges

6 unchanged sentences

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

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

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

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

At December 31, 2021, the Company had net investment hedges outstanding with a notional amount totaling $ 1,419 million.

At March 31, 2022, the Company had net investment hedges outstanding with a notional amount totaling $ 1,372 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 $ 90 million at December 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 $ 69 million at March 31, 2022.

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

13 unchanged sentences

The inputs are unobservable in the market and significant to the instrument’s valuation.

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 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 March 31, 2022:

(In millions) Level 1 Level 2 Level 3 Total

21 unchanged sentences

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

March 31, 2022 June 30, 2021

(In millions) Carrying

8 unchanged sentences

Interest rate-related derivatives – asset (liability), net ( 61 ) ( 61 ) 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:

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, 2022 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:

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

Goodwill $ 54 November 30, 2020 $ —

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

Other intangible assets, net (trademarks)

GLAMGLOW $ 11 March 31, 2022 $ —

Jart+ 205 February 28, 2022 486

Total 216 486

Total $ 216 $ 486

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

THE 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

(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 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.

10 unchanged sentences

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

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

Changes to the discount rates or volatilities would have a lesser effect.

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

1 unchanged sentence

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

Changes in the DECIEM stock option liability for the nine months ended March 31, 2022 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:

(In millions) Fair Value

DECIEM stock option liability as of June 30, 2021 $ 141

Changes in fair value, net of foreign currency remeasurements (1)

Translation adjustments and other, net ( 9 )

DECIEM stock option liability as of March 31, 2022 $ 74

(1) Amount includes expense attributable to graded vesting of stock options which is not material for the nine months ended March 31, 2022.

NOTE 7 – REVENUE RECOGNITION

1 unchanged sentence

Accounts Receivable

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.

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 36 million and $ 40 million as of March 31, 2022 and June 30, 2021, respectively.

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) December 31

(In millions) March 31, 2022

Balance at June 30, 2021 $ 20

1 unchanged sentence

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

Balance at March 31, 2022 $ 17

The remaining balance of the allowance for doubtful accounts of $ 19 million, as of March 31, 2022, relates to non-credit losses, which are primarily due to customer deductions.

Deferred Revenue

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

1 unchanged sentence

Revenue recognized that was included in the deferred revenue balance at the beginning of the period ( 40 ) ( 25 ) ( 288 ) ( 198 )

Revenue deferred during the period 75 92 298 308

Revenue deferred (released) during the period ( 13 ) ( 30 ) 285 278

Other ( 4 ) ( 4 ) ( 4 ) 2

1 unchanged sentence

Transaction Price Allocated to the Remaining Performance Obligations

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.

At March 31, 2022, 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 $ 313 million.

The remaining balance of deferred revenue at March 31, 2022 will be recognized beyond the next twelve months.

NOTE 8 – PENSION AND POST-RETIREMENT BENEFIT PLANS

3 unchanged sentences

Descriptions of these plans are included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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

The components of net periodic benefit cost for the three months ended March 31, 2022 and 2021 consisted of the following:

Pension Plans Other than

8 unchanged sentences

Prior service cost — — — — — —

Settlements — — — 1 — —

Special termination benefits — — 1 1 — —

2 unchanged sentences

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:

The components of net periodic benefit cost for the nine months ended March 31, 2022 and 2021 consisted of the following:

Pension Plans Other than

8 unchanged sentences

Prior service cost — — ( 1 ) — — —

Settlements — — — 1 — —

Special termination benefits — — 4 10 — —

Net periodic benefit cost $ 28 $ 32 $ 25 $ 38 $ 6 $ 5

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

During the nine months ended March 31, 2022, the Company made contributions to its international pension plans totaling $ 17 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) December 31

(In millions) March 31, 2022 June 30, 2021

Other assets $ 142 $ 162

16 unchanged sentences

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 $ 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.

Compensation expense attributable to net stock-based compensation was $ 91 million and $ 86 million for the three months ended March 31, 2022 and 2021, respectively, and was $ 283 million and $ 255 million for the nine months ended March 31, 2022 and 2021, respectively.

Stock Options

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 .

During the nine months ended March 31, 2022, 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 six months ended December 31, 2021 was $ 178 million.

The aggregate intrinsic value of stock options exercised during the nine months ended March 31, 2022 was $ 248 million.

Restricted Stock Units

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.

The Company granted RSUs in respect of approximately 0.7 million shares of Class A Common Stock during the nine months ended March 31, 2022 with a weighted-average grant date fair value per share of $ 340.18 that, at the time of grant, are scheduled to vest at 0.2 million, 0.2 million, and 0.3 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 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.

During the nine months ended March 31, 2022, 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.

4 unchanged sentences

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 and six months ended December 31, 2021 was not material.

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

Due to a reduction in the fair value of the DECIEM stock options, the total stock option expense for the three and nine months ended March 31, 2022 resulted in income of $ 60 million and $ 58 million, respectively, net of foreign currency remeasurements.

There were no DECIEM stock options exercised during the nine months ended March 31, 2022.

THE ESTÉE LAUDER COMPANIES INC.

2 unchanged sentences

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 $ 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 DECIEM stock options are reported as a stock option liability of $ 74 million and $ 141 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at March 31, 2022 and June 30, 2021, respectively.

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

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

March 31, 2022 June 30, 2021 May 18, 2021

Risk-free rate 1.80 % 0.50 % 0.50 %

14 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2022 2021 2022 2021

19 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

1 unchanged sentence

RSUs and PSUs — — 0.1 0.1

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 .

As of March 31, 2022 and 2021, 0.7 million and 0.9 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.

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

Common stock, beginning of the period $ 6 $ 6 $ 6 $ 6

$ 6 $ 6 $ 6 $ 6

Stock-based compensation — — — —

1 unchanged sentence

Paid-in capital, beginning of the period 5,605 5,068 5,335 4,790

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

Common stock dividends 2 1 3 2

Stock-based compensation 139 162 408 439

155 155 269 277

Paid-in capital, end of the period 5,746 5,231 5,746 5,231

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

Retained earnings, beginning of the period 13,735 11,159 12,244 10,134

12,864 10,480 12,244 10,134

Common stock dividends ( 217 ) ( 195 ) ( 627 ) ( 563 )

( 217 ) ( 194 ) ( 410 ) ( 368 )

Net earnings attributable to The Estée Lauder Companies Inc.

1 unchanged sentence

Cumulative effect of adoption of new accounting standards — — 121 ( 3 )

— — 121 ( 3 )

Retained earnings, end of the period 14,076 11,420 14,076 11,420

13,735 11,159 13,735 11,159

Accumulated other comprehensive loss, beginning of the period ( 646 ) ( 383 ) ( 470 ) ( 665 )

3 unchanged sentences

Treasury stock, beginning of the period ( 12,482 ) ( 10,429 ) ( 11,058 ) ( 10,330 )

( 11,614 ) ( 10,353 ) ( 11,058 ) ( 10,330 )

Acquisition of treasury stock ( 568 ) ( 212 ) ( 1,850 ) ( 212 )

( 763 ) — ( 1,282 ) —

Stock-based compensation ( 2 ) ( 1 ) ( 144 ) ( 100 )

( 105 ) ( 76 ) ( 142 ) ( 99 )

Treasury stock, end of the period ( 13,052 ) ( 10,642 ) ( 13,052 ) ( 10,642 )

( 12,482 ) ( 10,429 ) ( 12,482 ) ( 10,429 )

Total stockholders’ equity – The Estée Lauder Companies Inc.

2 unchanged sentences

Net earnings attributable to noncontrolling interests 3 2 8 8

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

Translation adjustments and other, net ( 1 ) ( 1 ) ( 6 ) 1

Noncontrolling interests, end of the period 36 30 36 30

$ 6,252 $ 5,456 $ 6,252 $ 5,456

Total equity $ 6,186 $ 5,558 $ 6,186 $ 5,558

Redeemable noncontrolling interest, beginning of the period $ 840 $ — $ 857 $ —

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

Net earnings attributable to redeemable noncontrolling interest 12 — 12 —

Translation adjustments 14 — ( 3 ) —

Adjustment of redeemable noncontrolling interest to redemption value ( 1 ) — ( 1 ) —

Redeemable noncontrolling interest, end of the period $ 865 $ — $ 865 $ —

2 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 six months ended December 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 nine months ended March 31, 2022:

Date Declared Record Date Payable Date Amount per Share

1 unchanged sentence

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.

February 2, 2022 February 28, 2022 March 15, 2022 $ .60

On May 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 June 15, 2022 to stockholders of record at the close of business on May 31, 2022.

During the nine months ended March 31, 2022, the Company purchased approximately 6.2 million shares of its Class A Common Stock for $ 1,998 million.

During the nine months ended March 31, 2022, 2.7 million shares of the Company’s Class B Common Stock were converted into the same amount of shares of the Company’s Class A Common Stock.

Accumulated Other Comprehensive Income

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

The following table represents changes in AOCI, net of tax, by component for the nine months ended March 31, 2022:

(In millions) Net Cash

6 unchanged sentences

Net current-period OCI 16 10 ( 182 ) ( 156 )

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

Balance at March 31, 2022 $ 14 $ ( 169 ) $ ( 471 ) $ ( 626 )

(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 and six months ended December 31, 2021 and 2020:

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three and nine months ended March 31, 2022 and 2021:

Amount Reclassified from AOCI Affected Line Item in

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

8 unchanged sentences

Amortization of actuarial loss ( 4 ) ( 6 ) ( 13 ) ( 18 ) Other components of net periodic benefit cost (1)

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

( 4 ) ( 7 ) ( 12 ) ( 19 )

4 unchanged sentences

NOTE 13 – STATEMENT OF CASH FLOWS

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

Supplemental cash flow information for the nine months ended March 31, 2022 and 2021 is as follows:

(In millions) 2022 2021

19 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

40 unchanged sentences

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