What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-05-03 · 170 added, 442 removed, 698 unchanged (47% of the section changed)

3 unchanged sentences

Three Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2022 2021

1 unchanged sentence

Cost of sales

994 939 3,274 2,848

3,251 2,925 10,902 9,431

Operating expenses

Selling, general and administrative

2,275 2,145 7,554 6,761

Restructuring and other charges

22 131 41 172

Goodwill impairment — — — 54

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

Total operating expenses

2,513 2,309 7,811 7,047

Operating income 661 935

9 unchanged sentences

Net earnings attributable to The Estée Lauder Companies Inc.

$ 558 $ 456 $ 2,338 $ 1,852

Net earnings attributable to The Estée Lauder Companies Inc.

3 unchanged sentences

Weighted-average common shares outstanding

359.2 363.6 360.7 362.9

363.6 369.0 365.8 368.1

See notes to consolidated financial statements.

2 unchanged sentences

Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

1 unchanged sentence

Other comprehensive income (loss):

Net cash flow hedge gain (loss) 5 41 21 ( 16 )

Net cash flow hedge gain 49 21

Retirement plan and other retiree benefit adjustments — 4

12 unchanged sentences

Comprehensive income attributable to The Estée Lauder Companies Inc.

$ 578 $ 352 $ 2,182 $ 2,030

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) March 31

(In millions, except share data) September 30

Current assets

25 unchanged sentences

Class A shares authorized:

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

1,300,000,000 at September 30, 2022 and June 30, 2022;

shares issued:

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

468,356,871 at September 30, 2022 and 467,949,351 at June 30, 2022;

Class B shares authorized:

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

304,000,000 at September 30, 2022 and June 30, 2022;

shares issued and outstanding:

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

125,542,029 at September 30, 2022 and 125,542,029 at June 30, 2022

Paid-in capital

4 unchanged sentences

Treasury stock, at cost;

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

236,867,993 Class A shares at September 30, 2022 and 236,435,830 Class A shares at June 30, 2022

( 13,471 ) ( 13,362 )

Total stockholders’ equity – The Estée Lauder Companies Inc.

Noncontrolling interests

Total liabilities, redeemable noncontrolling interest and equity $ 19,989 $ 20,910

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

(In millions) 2022 2021

9 unchanged sentences

Pension and post-retirement benefit contributions ( 5 ) ( 11 )

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

Changes in fair value of contingent consideration — ( 2 )

Gain on previously held equity method investment — ( 1 )

2 unchanged sentences

Increase in accounts receivable, net ( 579 ) ( 583 )

Decrease (increase) in inventory and promotional merchandise ( 398 ) 13

Increase in other assets, net ( 61 ) ( 122 )

Increase (decrease) in accounts payable ( 199 ) 55

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

Increase in inventory and promotional merchandise ( 229 ) ( 178 )

Decrease (increase) in other assets, net 3 ( 19 )

Decrease in accounts payable ( 375 ) ( 191 )

Decrease in other accrued and noncurrent liabilities ( 135 ) ( 15 )

Decrease in operating lease assets and liabilities, net ( 19 ) ( 10 )

Net cash flows provided by operating activities 1,969 2,777

Net cash flows used for operating activities ( 650 ) ( 81 )

Cash flows from investing activities

Capital expenditures ( 152 ) ( 205 )

Proceeds from purchase price refund — 32

Payments for acquired businesses ( 3 ) ( 8 )

Purchases of investments — ( 6 )

2 unchanged sentences

Cash flows from financing activities

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

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

Debt issuance costs ( 1 ) ( 4 )

Proceeds from current debt, net 249 3

Repayments and redemptions of long-term debt ( 254 ) ( 4 )

2 unchanged sentences

Dividends paid to stockholders ( 215 ) ( 192 )

Payments to noncontrolling interest holders for dividends — ( 5 )

Net cash flows used for financing activities ( 304 ) ( 714 )

Effect of exchange rate changes on Cash and cash equivalents ( 51 ) ( 15 )

Net increase (decrease) in Cash and cash equivalents ( 1,122 ) 1,377

Net decrease in Cash and cash equivalents ( 1,019 ) ( 963 )

Cash and cash equivalents at beginning of period 3,957 4,958

26 unchanged sentences

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

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

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.

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

were $ 352 million and $ 175 million, net of tax, during the three months ended September 30, 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 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 accompanying consolidated statements of earnings include net exchange gains (losses) on foreign currency transactions of $ 14 million and $( 12 ) million during the three months ended September 30, 2022 and 2021, respectively.

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 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.

The Company’s largest customer during the quarter sells products primarily in China travel retail and accounted for $ 413 million or 11 %, and $ 456 million, or 10 %, of the Company's consolidated net sales for the three months ended September 30, 2022 and 2021, respectively.

This customer accounted for $ 355 million, or 16 %, and $ 399 million, or 24 %, of the Company's accounts receivable at September 30, 2022 and June 30, 2022, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

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

(In millions) September 30, 2022 June 30, 2022

Raw materials

5 unchanged sentences

Property, plant and equipment consists of the following:

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

(In millions) September 30, 2022 June 30, 2022

Assets (Useful Life)

8 unchanged sentences

$ 2,654 $ 2,650

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 of property, plant and equipment was $ 136 million and $ 130 million during the three months ended September 30, 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

March 31 Nine Months Ended

2022 2021 2022 2021

Effective rate for income taxes 18.5 % 21.0 % 21.1 % 18.5 %

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

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 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.

The effective rate for income taxes was 22.6 % and 22.5 % for the three months ended September 30, 2022 and 2021, respectively.

The increase in the effective tax rate of 10 basis points was primarily attributable to a higher effective tax rate on the Company's foreign operations and a decrease in excess tax benefits associated with stock-based compensation arrangements, partially offset by a reduction in income tax reserve adjustments.

On August 16, 2022, the U.S.

federal government enacted the Inflation Reduction Act, with tax provisions primarily focused on implementing a 1% excise tax on share repurchases and a 15% corporate alternative minimum tax based on global adjusted financial statement income.

The excise tax is effective beginning with the Company’s third quarter of fiscal 2023, while the corporate alternative minimum tax will be effective beginning with the Company’s first quarter of fiscal 2024.

The Company is currently evaluating the effect of the new law on its consolidated financial statements.

As of September 30, 2022 and June 30, 2022, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 59 million and $ 61 million, respectively.

The total amount of unrecognized tax benefits at September 30, 2022 that, if recognized, would affect the effective tax rate was $ 49 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three months ended September 30, 2022 in the accompanying consolidated statements of earnings was $ 1 million.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at each of September 30, 2022 and June 30, 2022, was $ 14 million.

On the basis of the information available as of September 30, 2022, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

During the fiscal 2023 first quarter, the Company formally concluded the compliance process with respect to its fiscal 2021 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 nine months ended March 31, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022.

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:

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

Advertising, merchandising and sampling $ 322 $ 294

(In millions) September 30, 2022 June 30, 2022

Employee compensation $ 430 $ 693

2 unchanged sentences

Accrued income taxes 332 267

Sales return accrual 307 252

Other 1,566 1,491

$ 3,273 $ 3,360

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

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

Simplifying the Accounting for Income Taxes)

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

Effective for the Company – Fiscal 2022 first quarter.

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

At September 30, 2022 and June 30, 2022, total Other noncurrent liabilities of $ 1,505 million and $ 1,651 million included $ 633 million and $ 692 million of deferred tax liabilities, respectively.

Recently Issued Accounting Standards

2022-04 – Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations

In September 2022, the FASB issued authoritative guidance which is intended to enhance the transparency surrounding the use of supplier finance programs.

The guidance requires companies that use supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information.

Only the amount outstanding at the end of the period must be disclosed in interim periods.

The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.

Effective for the Company – The guidance becomes effective for the Company’s first quarter fiscal 2024 and is applied on a retrospective basis, except for the requirement to disclose rollforward information which is effective prospectively for the Company’s first quarter fiscal 2025.

Early adoption is permitted.

Annual disclosures need to be provided in interim periods within the initial year of adoption.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impact on consolidated financial statements – The Company has a supplier financing arrangement and is currently evaluating the impact that this guidance will have on its financial statement disclosures.

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 March 2020, t he FAS B 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.

5 unchanged sentences

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.

For existing lease, debt arrangements and other contracts, the Company will not adopt any ASC 848 optional practical expedients as it relates to these arrangements.

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.

NOTE 2 – ACQUISITION OF BUSINESS

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

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

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

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

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

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

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

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

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

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

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

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

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

Fair value of DECIEM stock options liability 104

Fair value of net Put (Call) Option 233

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

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

Fair value of redeemable noncontrolling interest (approximately 21.6 %)

Total consideration transferred ( 100 %)

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

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

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

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

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

The acquisition-date fair value of the previously held equity method investment was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $ 2,992 million by the related effective previously held equity interest of approximately 30.5 %.

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

The remaining acquisition-date fair value of the redeemable noncontrolling interest of $ 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:

Risk-free rate 0.50 %

Term to mid of last twelve-month period 2.54 years

Operating leverage adjustment 0.45

Net sales discount rate 3.30 %

EBITDA discount rate 6.80 %

EBITDA volatility 38.30 %

Net sales volatility 17.20 %

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

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

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

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

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

The 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

Inventory 190

Other current assets 33

Property, plant and equipment 40

Operating lease right-of-use assets 40

Intangible assets 1,917

Goodwill 1,296

Deferred income taxes 8

Total assets acquired 3,623

Accounts payable 21

Operating lease liabilities 8

Other accrued liabilities 78

Deferred income taxes 479

Long-term operating lease liabilities 45

Total liabilities assumed 631

Total consideration transferred $ 2,992

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.

NOTE 2 – GOODWILL AND OTHER INTANGIBLE ASSETS

As previously discussed in Note 2 – Acquisition of Business , in May 2021 the Company increased its investment in DECIEM, which resulted in the inclusion of additional goodwill of $ 1,296 million, amortizable intangible assets (customer lists) of $ 701 million with amortization periods of 7 years to 14 years, and non-amortizable intangible assets (trademarks) of $ 1,216 million.

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

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

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

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

5 unchanged sentences

1,564 384 220 353 2,521

Goodwill measurement period adjustment 13 — — — 13

Translation adjustments, goodwill ( 34 ) — ( 6 ) — ( 40 )

Translation adjustments, accumulated impairments 2 — — — 2

Translation and other adjustments, goodwill ( 101 ) — ( 5 ) ( 1 ) ( 107 )

Translation and other adjustments, accumulated impairments 1 — — — 1

( 100 ) — ( 5 ) ( 1 ) ( 106 )

Balance as of March 31, 2022

Balance as of September 30, 2022

1,601 1,116 244 352 3,313

2 unchanged sentences

$ 1,464 $ 384 $ 215 $ 352 $ 2,415

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Intangible Assets

Other intangible assets consist of the following:

March 31, 2022 June 30, 2021

September 30, 2022 June 30, 2022

(In millions) Gross

12 unchanged sentences

$ 3,190 $ 3,428

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 aggregate amortization expense related to amortizable intangible assets was $ 36 million and $ 45 million for the three months ended September 30, 2022 and 2021, respectively.

The estimated aggregate amortization expense for the remainder of fiscal 2023 and for each of the next four fiscal years is as follows:

1 unchanged sentence

Estimated aggregate amortization expense $ 105 $ 140 $ 140 $ 140 $ 123

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

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.

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

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

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

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

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

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

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

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

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

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

NOTE 3 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

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

Charges associated with the Post-COVID Business Acceleration Program for the three months ended September 30, 2022 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

1 unchanged sentence

Charges Other

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

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

Total $ 5 $ ( 1 ) $ 2 $ — $ 6

The types of activities included in restructuring and other charges, and the related accounting criteria, are described below.

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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.

As of September 30, 2022, the Company estimated a net reduction over the duration of the PCBA Program in the range of 2,500 to 3,000 positions globally, including temporary and part-time employees.

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

The Company also estimates the closure 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 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.

The Company also estimated 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.

As of June 30, 2022, the Company approved specific initiatives under the PCBA Program and expects to substantially complete those initiatives through fiscal 2023.

Inclusive of approvals from inception through June 30, 2022, the Company estimates that the PCBA Program may result in related restructuring and other charges totaling between $ 500 million and $ 515 million, before taxes.

PCBA Program Approvals

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

Total PCBA Program cumulative charges (adjustments) approved by the Company through September 30, 2022 were:

Net Sales) Cost of Sales Operating Expenses Total

3 unchanged sentences

Cumulative through June 30, 2022 $ 43 $ 9 $ 424 $ 39 $ 515

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:

Three months ended September 30, 2022 — — — — —

Cumulative through September 30, 2022 $ 43 $ 9 $ 424 $ 39 $ 515

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through September 30, 2022 by major cost type were:

(In millions) Employee-

3 unchanged sentences

Cumulative through June 30, 2022 $ 215 $ 161 $ 43 $ 5 $ 424

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

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

Three months ended September 30, 2022 — — — — —

Cumulative through September 30, 2022 $ 215 $ 161 $ 43 $ 5 $ 424

Specific actions taken since the PCBA Program inception include:

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

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

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

In addition, the Company has approved initiatives to reduce organizational complexity and leverage scale across various Global functions.

These actions will result in asset write-offs, employee severance, lease termination fees, and consulting and other professional services for the design and implementation of the future structures and processes.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Specific actions taken since the PCBA Program inception include:

• Optimize Distribution Network – To help restore profitability to pre-COVID-19 pandemic levels in certain areas of its distribution network and, as part of a broader initiative to be completed in phases, the Company has approved initiatives to close a number of underperforming freestanding stores, counters and other retail locations, mainly in certain affiliates across all geographic regions, including the Company's travel retail network.

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

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

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

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

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

These actions will result primarily in lease termination fees.

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

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

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

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

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

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

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

The Company completed these initiatives during fiscal 2022.

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

The Company has since negotiated early termination agreements with each of the licensors effective June 30, 2022 and continued to sell products under these licenses until such time.

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

• Brand Transformation – In reviewing the Company’s brand portfolio to accelerate growth within the makeup product category and to support long-term investments, the decision was made to strategically reposition Smashbox to capitalize on changing consumer preferences and to mitigate the impact caused by the COVID-19 pandemic on the brand.

These actions will result primarily in product returns and inventory write-offs.

PCBA Program Restructuring and Other Charges

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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:

Sales Returns and Cost of Sales – Product returns (offset by the related cost of sales) and inventory write-offs or write-downs as a direct result of an approved restructuring initiative to exit certain businesses or locations will be recorded as a component of Net sales and/or Cost of sales when estimable and reasonably assured.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Charges – The Company approved other charges related to the design and implementation of approved initiatives, which are charged to Operating expenses as incurred and primarily include the following:

10 unchanged sentences

Cumulative through June 30, 2022 $ 18 $ 7 $ 310 $ 13 $ 348

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

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

Three months ended September 30, 2022 5 ( 1 ) 2 — 6

Cumulative through September 30, 2022 $ 23 $ 6 $ 312 $ 13 $ 354

(In millions) Employee-

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Cumulative through June 30, 2022 $ 203 $ 86 $ 19 $ 2 $ 310

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:

Three months ended September 30, 2022 ( 1 ) 9 ( 6 ) — 2

Cumulative through September 30, 2022 $ 202 $ 95 $ 13 $ 2 $ 312

Changes in accrued restructuring charges for the three months ended September 30, 2022 relating to the PCBA Program were:

(In millions) Employee-

6 unchanged sentences

Translation and other adjustments ( 8 ) — 7 — ( 1 )

Balance at March 31, 2022

Balance at September 30, 2022

$ 106 $ — $ 1 $ — $ 107

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

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

Additional information about the LBF Program is included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Accrued restructuring charges at September 30, 2022 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 64 million, $ 34 million and $ 9 million for the remainder of fiscal 2023 and for fiscal 2024 and 2025, respectively.

THE ESTÉE LAUDER COMPANIES INC.

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

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

At September 30, 2022, the notional amount of derivatives not designated as hedging instruments was $ 3,389 million.

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

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

(In millions) Balance Sheet

Location March 31, 2022 June 30, 2021 Balance Sheet

Location March 31, 2022 June 30, 2021

Location September 30, 2022 June 30, 2022 Balance Sheet

Location September 30, 2022 June 30, 2022

Derivatives Designated as Hedging Instruments:

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Three Months Ended

March 31 Three Months Ended

(In millions) 2022 2021 2022 2021

Derivatives in Cash Flow Hedging Relationships:

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

Interest rate-related derivatives 10 11 Interest expense

Derivatives in Net Investment Hedging Relationships (2) :

Foreign currency forward contracts (3)

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 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.

Amount of Gain (Loss)

Recognized in OCI on

Derivatives Location of Gain (Loss) Reclassified

from AOCI into

Earnings Amount of Gain (Loss)

Reclassified from AOCI into Earnings (1)

Nine Months Ended

March 31 Nine Months Ended

September 30 Three Months Ended

(In millions) 2022 2021 2022 2021

5 unchanged sentences

Foreign currency forward contracts (3)

87 ( 17 ) — —

Total derivatives $ 135 $ 51 $ 15 $ ( 6 )

$ 102 $ ( 46 ) $ ( 6 ) $ ( 13 )

(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.

(1) There was no 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.

(2) During the three months ended September 30, 2022 and 2021, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 6 million and $ 2 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)

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Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

4 unchanged sentences

(1) Changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additional information regarding the cumulative amount of fair value hedging gain (loss) recognized in earnings for items designated and qualifying as hedged items in fair value hedges is as follows:

(In millions)

Line Item in the Consolidated Balance Sheets in

Which the Hedged Item is Included Carrying Amount of the

Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included Carrying Amount of the

Hedged Liabilities Cumulative Amount of Fair

1 unchanged sentence

Included in the Carrying Amount of the Hedged Liability

March 31, 2022 March 31, 2022

September 30, 2022 September 30, 2022

Current debt $ — $ —

1 unchanged sentence

Total debt $ 838 $ ( 154 )

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended March 31

Three Months Ended September 30

(In millions) Net Sales Interest

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

Amount of gain reclassified from AOCI into earnings 3 Not applicable ( 7 ) Not applicable

Amount of gain (loss) reclassified from AOCI into earnings 15 Not applicable ( 6 ) Not applicable

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended March 31

(In millions) Net Sales Interest

Expense Net Sales Interest

Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded $ 14,176 $ 125 $ 12,279 $ 131

The effects of fair value and cash flow hedging relationships:

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

Hedged item Not applicable 85 Not applicable 23

Derivatives designated as hedging instruments Not applicable ( 85 ) Not applicable ( 23 )

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

Amount of loss reclassified from AOCI into earnings Not applicable ( 1 ) Not applicable ( 2 )

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

Amount of gain reclassified from AOCI into earnings ( 5 ) Not applicable ( 11 ) 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:

3 unchanged sentences

Derivatives Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

2 unchanged sentences

Selling, general and administrative $ 11 $ ( 11 )

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedges

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

The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of December 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 June 2024.

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

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

At September 30, 2022, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,588 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.

The purpose of the hedging activities is to minimize the effect of interest rate movements on the cost of debt issuance.

For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses in AOCI are reclassified to sales when the underlying forecasted transaction occurs.

For foreign currency hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses in AOCI are reclassified to sales when the underlying forecasted transaction occurs.

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

As of March 31, 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.

As of September 30, 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 September 30, 2022 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 68 million.

The accumulated net gain on derivative instruments in AOCI was $ 139 million and $ 90 million as of September 30, 2022 and June 30, 2022, respectively.

Fair Value Hedges

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

The Company has interest rate swap agreements, with notional amounts totaling $ 250 million, $ 700 million and $ 300 million to effectively convert the fixed rate interest on its 2022 Senior Notes, 2030 Senior Notes and 2031 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin.

The Company has interest rate swap agreements, with notional amounts totaling $ 700 million and $ 300 million to effectively convert the fixed rate interest on its 2030 Senior Notes and 2031 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin.

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Investment Hedges

2 unchanged sentences

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

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

The net investment hedge contracts have varying maturities through the end of May 2023.

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

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

At September 30, 2022, the Company had net investment hedges outstanding with a notional amount totaling $ 1,037 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 $ 69 million at March 31, 2022.

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 $ 167 million at September 30, 2022.

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

Accordingly, management believes risk of loss under these hedging contracts is remote.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – FAIR VALUE MEASUREMENTS

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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 March 31, 2022:

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022:

(In millions) Level 1 Level 2 Level 3 Total

1 unchanged sentence

Foreign currency forward contracts

Interest rate-related derivatives

$ 329 $ 167 $ — $ 496

4 unchanged sentences

$ — $ 208 $ 69 $ 277

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022:

6 unchanged sentences

$ — $ 105 $ — $ 105

Interest rate-related derivatives — 115 — 115

DECIEM stock options — — 74 74

1 unchanged sentence

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

March 31, 2022 June 30, 2021

September 30, 2022 June 30, 2022

(In millions) Carrying

10 unchanged sentences

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)

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 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.

1 unchanged sentence

To determine the fair value of contracts under the model, the difference between the contract price and the current forward rate was discounted using LIBOR for contracts with maturities up to 12 months, and swap yield curves for contracts with maturities greater than 12 months.

Interest rate contracts – The fair values of the Company’s interest rate contracts were determined using an industry-standard valuation model, which is based on the income approach.

Interest rate - related derivatives – The fair values of the Company’s interest rate contracts were determined using an industry-standard valuation model, which is based on the income approach.

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.

4 unchanged sentences

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

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

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

The DECIEM stock option liability is measured 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.

2 unchanged sentences

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 .

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:

See Note 9 – Stock Programs for discussion .

Changes in the DECIEM stock option liability for the three months ended September 30, 2022 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:

(In millions) Fair Value

2 unchanged sentences

Translation adjustments and other, net ( 6 )

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.

DECIEM stock option liability as of September 30, 2022 $ 69

(1) Amount includes expense attributable to graded vesting of stock options which is not material fo r the three months ended September 30, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – 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 March 31, 2022 and June 30, 2021, respectively.

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 28 million and $ 27 million as of September 30, 2022 and June 30, 2022, 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) March 31, 2022

(In millions) September 30, 2022

Balance at June 30, 2022 $ 10

Adjustment for expected credit losses ( 2 )

Provision for expected credit losses 3

Write-offs, net & other ( 1 )

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.

Balance at September 30, 2022 $ 12

The remaining balance of the allowance for doubtful accounts of $ 16 million and $ 17 million as of September 30, 2022 and June 30, 2022, respectively, relates to non-credit losses, which are primarily due to customer deductions.

Deferred Revenue

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Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

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Revenue recognized that was included in the deferred revenue balance at the beginning of the period ( 149 ) ( 170 )

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

Revenue deferred during the period 157 223

Other ( 8 ) 2

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Transaction Price Allocated to the Remaining Performance Obligations

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.

At September 30, 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 September 30, 2022 will be recognized beyond the next twelve months.

NOTE 7 – 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, 2022.

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

Pension Plans

International Post-retirement

(In millions) 2022 2021 2022 2021 2022 2021

Service cost $ 12 $ 12 $ 8 $ 9 $ 1 $ 2

Interest cost 8 8 3 2 1 1

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

Amortization of:

Actuarial loss 4 5 — 1 — —

Prior service cost — — — — — —

Settlements — — — 1 — —

Special termination benefits — — 1 1 — —

Net periodic benefit cost $ 10 $ 11 $ 8 $ 10 $ 2 $ 2

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The components of net periodic benefit cost for the three months ended September 30, 2022 and 2021 consisted of the following:

Pension Plans Other than

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Actuarial loss 1 4 ( 1 ) — — —

Prior service cost — — ( 1 ) — — —

Settlements — — — 1 — —

Special termination benefits — — — 2 — —

Net periodic benefit cost $ 6 $ 10 $ 5 $ 9 $ 2 $ 2

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

During the three months ended September 30, 2022, the Company made contributions to its international pension plans totaling $ 3 million.

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

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

(In millions) September 30, 2022 June 30, 2022

Other assets $ 132 $ 151

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Legal Proceedings

The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business, including employment, intellectual property, real estate, environmental, regulatory, advertising, trade relations, tax, privacy, and product liability matters (including asbestos-related claims).

The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business, including product liability matters (including asbestos-related claims), advertising, regulatory, employment, intellectual property, real estate, environmental, trade relations, tax, and privacy.

Management believes that the outcome of current litigation and legal proceedings will not have a material adverse effect upon the Company’s business, results of operations, financial condition or cash flows.

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – STOCK PROGRAMS

Additional information relating to the Company's stock programs and the DECIEM stock options are included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's Stock Programs

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

Compensation expense attributable to net stock-based compensation was $ 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.

Compensation expense attributable to net stock-based compensation was $ 53 million and $ 79 million for the three months ended September 30, 2022 and 2021, respectively.

Stock Options

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 .

During the three months ended September 30, 2022, the Company granted stock options in respect of approximately 1.2 million shares of Class A Common Stock with an exercise price per share of $ 246.15 and a weighted-average grant date fair value per share of $ 79.07 .

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

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

The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2022 was $ 44 million.

Restricted Stock Units

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.

During the three months ended September 30, 2022, the Company granted RSUs in respect of approximately 1.1 million shares of Class A Common Stock with a weighted-average grant date fair value per share of $ 246.16 that, at the time of grant, are scheduled to vest at 0.4 million, 0.4 million, and 0.3 million shares per year, in fiscal 2024, fiscal 2025 and fiscal 2026, 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 generally valued at the closing market price of the Company’s Class A Common Stock on the date of grant.

The RSUs are generally 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 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.

During the three months ended September 30, 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 $ 246.15 , which will be settled in stock subject to the achievement of the Company’s net sales, diluted net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, 2025, 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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Total stock-based compensation expense is attributable to the exchange or replacement of and the remaining requisite service period of stock options.

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 total stock option expense for the three months ended September 30, 2022 and 2021 was not material.

There were no DECIEM stock options exercised during the three months ended September 30, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $ 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 DECIEM stock options are reported as a stock option liability of $ 69 million and $ 74 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at September 30, 2022 and June 30, 2022, respectively.

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

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

September 30, 2022 June 30, 2022

Risk-free rate 3.90 % 3.20 %

Term to mid of last twelve-month period 1.67 years 2.42 years 2.54 years

Term to mid of last twelve-month period 1.17 years 1.42 years

Operating leverage adjustment 0.45 0.45

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Three Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2022 2021

Net earnings attributable to The Estée Lauder Companies Inc.

$ 558 $ 456 $ 2,338 $ 1,852

Weighted-average common shares outstanding – Basic

359.2 363.6 360.7 362.9

Effect of dilutive stock options

3.5 4.1 3.9 3.9

Effect of PSUs

0.2 0.2 0.2 0.2

Effect of RSUs

0.7 1.1 1.0 1.1

Weighted-average common shares outstanding – Diluted

363.6 369.0 365.8 368.1

Net earnings attributable to The Estée Lauder Companies Inc.

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Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

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RSUs and PSUs — 0.2

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 .

As of September 30, 2022 and 2021, 0.4 million and 0.7 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 9 – Stock Programs .

THE ESTÉE LAUDER COMPANIES INC.

3 unchanged sentences

Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

9 unchanged sentences

Net earnings attributable to The Estée Lauder Companies Inc.

558 456 2,338 1,852

Cumulative effect of adoption of new accounting standards — 121

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Total stockholders’ equity – The Estée Lauder Companies Inc.

6,150 5,528 6,150 5,528

Noncontrolling interests, beginning of the period — 34

Net earnings attributable to noncontrolling interests — 1

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

Translation adjustments and other, net — ( 1 )

4 unchanged sentences

Translation adjustments ( 35 ) ( 17 )

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

Redeemable noncontrolling interest, end of the period $ 808 $ 842

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the nine months ended March 31, 2022:

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, 2022:

Date Declared Record Date Payable Date Amount per Share

August 17, 2022 August 31, 2022 September 15, 2022 $ .60

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

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.

On November 1, 2022, a dividend was declared in the amount of $ .66 per share on the Company’s Class A and Class B Common Stock.

The dividend is payable in cash on December 15, 2022 to stockholders of record at the close of business on November 30, 2022.

During the three months ended September 30, 2022, the Company purchased approximately 0.4 million shares of its Class A Common Stock for $ 110 million.

Accumulated Other Comprehensive Income

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

The following table represents changes in AOCI, net of tax, by component for the three months ended September 30, 2022:

(In millions) Net Cash

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Net current-period OCI 38 ( 2 ) ( 352 ) ( 316 )

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

Balance at September 30, 2022 $ 106 $ ( 116 ) $ ( 1,068 ) $ ( 1,078 )

(1) Consists of foreign currency translation losses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three months ended September 30, 2022 and 2021:

Amount Reclassified from AOCI Affected Line Item in

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Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

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Interest rate-related derivatives — — Interest expense

3 ( 8 ) ( 6 ) ( 13 )

Benefit for deferred taxes — 2 2 3 Provision for income taxes

Benefit (provision) for deferred taxes ( 4 ) 2 Provision for income taxes

11 ( 4 ) Net earnings

Retirement Plan and Other Retiree Benefit Adjustments

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

Amortization of actuarial loss — ( 4 ) Other components of net periodic benefit cost (1)

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

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

Benefit for deferred taxes — 1 Provision for income taxes

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NOTE 12 – STATEMENT OF CASH FLOWS

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

Supplemental cash flow information for the three months ended September 30, 2022 and 2021 is as follows:

(In millions) 2022 2021

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Property, plant and equipment accrued but unpaid $ 171 $ 126

Financing lease modifications $ ( 13 ) $ —

Right-of-use assets obtained in exchange for new/modified operating lease liabilities $ 70 $ 44

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Three Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021

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Hair Care 158 148

Other 11 15 40 37

4,246 3,874 14,179 12,289

Returns associated with restructuring and other activities ( 5 ) ( 1 )

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Skin Care $ 530 $ 717

Makeup 7 ( 72 ) 228 ( 115 )

Fragrance 133 131

Hair Care ( 12 ) 2

Other — ( 1 ) 3 ( 1 )

761 761 3,135 2,575

Reconciliation:

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Asia/Pacific 1,130 1,326

4,246 3,874 14,179 12,289

Returns associated with restructuring and other activities ( 5 ) ( 1 )

4 unchanged sentences

Asia/Pacific 208 222

761 761 3,135 2,575

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

4 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