What changed in this filing

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Item 1. Financial Statements

2023-02-02 compared with 2022-11-02 · 280 added, 154 removed, 714 unchanged (38% of the section changed)

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

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

1 unchanged sentence

Cost of sales

1,219 1,223 2,242 2,280

3,401 4,316 6,308 7,651

Operating expenses

Selling, general and administrative

2,630 2,885 4,874 5,279

Restructuring and other charges

Impairment of other intangible assets 207 — 207 —

Total operating expenses

2,845 2,898 5,091 5,298

Operating income 556 1,418 1,217 2,353

7 unchanged sentences

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

Net earnings attributable to redeemable noncontrolling interest ( 1 ) ( 2 )

Net loss (earnings) attributable to redeemable noncontrolling interest ( 3 ) 2 ( 4 ) —

Net earnings attributable to The Estée Lauder Companies Inc.

$ 394 $ 1,088 $ 883 $ 1,780

Net earnings attributable to The Estée Lauder Companies Inc.

3 unchanged sentences

Weighted-average common shares outstanding

357.7 360.6 357.8 361.4

360.4 366.0 360.9 367.0

See notes to consolidated financial statements.

2 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2022 2021 2022 2021

1 unchanged sentence

Other comprehensive income (loss):

Net cash flow hedge gain 49 21

Net cash flow hedge gain (loss) ( 56 ) ( 5 ) ( 7 ) 16

Retirement plan and other retiree benefit adjustments — 4 — 8

7 unchanged sentences

Total comprehensive income attributable to noncontrolling interests — ( 3 ) — ( 3 )

Comprehensive income attributable to redeemable noncontrolling interest:

Net earnings ( 1 ) ( 2 )

Comprehensive loss (income) attributable to redeemable noncontrolling interest:

Net loss (earnings) ( 3 ) 2 ( 4 ) —

Translation adjustments ( 8 ) — 27 17

Total comprehensive income attributable to redeemable noncontrolling interest 34 15

Total comprehensive loss (income) attributable to redeemable noncontrolling interest ( 11 ) 2 23 17

Comprehensive income attributable to The Estée Lauder Companies Inc.

$ 643 $ 1,067 $ 816 $ 1,604

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) September 30

(In millions, except share data) December 31

Current assets

21 unchanged sentences

Total noncurrent liabilities

Contingencies

Commitments and Contingencies

Redeemable Noncontrolling Interest 819 842

1 unchanged sentence

Class A shares authorized:

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

1,300,000,000 at December 31, 2022 and June 30, 2022;

shares issued:

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

469,124,426 at December 31, 2022 and 467,949,351 at June 30, 2022;

Class B shares authorized:

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

304,000,000 at December 31, 2022 and June 30, 2022;

shares issued and outstanding:

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

125,542,029 at December 31, 2022 and 125,542,029 at June 30, 2022

Paid-in capital

4 unchanged sentences

Treasury stock, at cost;

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

237,534,951 Class A shares at December 31, 2022 and 236,435,830 Class A shares at June 30, 2022

( 13,617 ) ( 13,362 )

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(In millions) 2022 2021

9 unchanged sentences

Pension and post-retirement benefit contributions ( 12 ) ( 18 )

Impairment of other intangible assets 207 —

Gain on previously held equity method investment — ( 1 )

5 unchanged sentences

Decrease in accounts payable ( 310 ) ( 40 )

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

Increase (decrease) in other accrued and noncurrent liabilities ( 106 ) 213

Decrease in operating lease assets and liabilities, net ( 29 ) ( 17 )

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

Net cash flows provided by operating activities 751 1,846

Cash flows from investing activities

Capital expenditures ( 419 ) ( 459 )

Payment for acquired business — ( 3 )

Purchases of investments ( 4 ) ( 10 )

2 unchanged sentences

Cash flows from financing activities

Proceeds from current debt, net 249 3

Proceeds (repayments) of current debt, net 244 ( 4 )

Debt issuance costs — ( 1 )

Repayments and redemptions of long-term debt ( 258 ) ( 10 )

20 unchanged sentences

GAAP for complete financial statements.

The unaudited interim consolidated financial statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

The unaudited interim consolidated financial statements furnished reflect all normal and recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.

10 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 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.

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 $ 291 million and $( 20 ) million, net of tax, during the three months ended December 31, 2022 and 2021, respectively, and $( 61 ) million and $( 195 ) million, net of tax, during the six months ended December 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 gains (losses) on foreign currency transactions of $ 14 million and $( 12 ) million during the three months ended September 30, 2022 and 2021, respectively.

The accompanying consolidated statements of earnings include net exchange gains (losses) on foreign currency transactions of $ 20 million and $( 6 ) million during the three months ended December 31, 2022 and 2021, respectively, and $ 34 million and $( 18 ) million during the six months ended December 31, 2022 and 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

4 unchanged sentences

The Company grants credit to qualified customers.

As a result of the COVID-19 pandemic, the Company has enhanced its assessment of its customers' abilities to pay with a greater focus on factors affecting their liquidity and less on historical payment performance.

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

The Company’s largest customer during the quarter sells products primarily in China travel retail and accounted for $ 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.

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

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

This customer accounted for $ 242 million, or 12 %, and $ 399 million, or 24 %, of the Company's accounts receivable at December 31, 2022 and June 30, 2022, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

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

(In millions) December 31, 2022 June 30, 2022

Raw materials

5 unchanged sentences

Property, plant and equipment consists of the following:

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

(In millions) December 31, 2022 June 30, 2022

Assets (Useful Life)

8 unchanged sentences

$ 2,908 $ 2,650

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 of property, plant and equipment was $ 138 million and $ 136 million during the three months ended December 31, 2022 and 2021, respectively, and $ 274 million and $ 266 million during the six months ended December 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 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.

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

Three Months Ended

December 31 Six Months Ended

2022 2021 2022 2021

Effective rate for income taxes 25.4 % 21.5 % 23.9 % 21.9 %

Basis-point change from the prior-year period 390 200

For the three and six months ended December 31, 2022, the increase in the effective tax rate was primarily attributable to a decrease in excess tax benefits associated with stock-based compensation arrangements and a higher effective tax rate on the Company's foreign operations, 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.

The excise tax is effective beginning with the Company’s third quarter of fiscal 2023 and is not expected to have a material impact on the Company’s results of operations or financial position.

The corporate alternative minimum tax will be effective beginning with the Company's first quarter of fiscal 2024.

The Company continues to monitor developments and evaluate projected impacts, if any, of this provision to its consolidated financial statements.

As of December 31, 2022 and June 30, 2022, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 58 million and $ 61 million, respectively.

The total amount of unrecognized tax benefits at December 31, 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 and six months ended December 31, 2022 in the accompanying consolidated statements of earnings was $ 1 million and $ 2 million, respectively.

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

On the basis of the information available as of December 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 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 months ended September 30, 2022.

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, 2022.

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:

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

(In millions) December 31, 2022 June 30, 2022

Advertising, merchandising and sampling $ 284 $ 250

Employee compensation 473 693

5 unchanged sentences

$ 3,539 $ 3,360

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.

At December 31, 2022 and June 30, 2022, total Other noncurrent liabilities of $ 1,487 million and $ 1,651 million included $ 636 million and $ 692 million of deferred tax liabilities, respectively.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently Issued Accounting Standards

8 unchanged sentences

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.

Impact on consolidated financial statements – The Company has a supplier financing arrangement and will apply the disclosure requirements as required by the amendments.

Reference Rate Reform (ASC Topic 848 “ ASC 848 ” )

1 unchanged sentence

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

The amendments clar ify 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 848.

In December 2022, the FASB issued authoritative guidance to defer the sunset date of ASC 848 from December 31, 2022 to December 31, 2024.

Effective for the Company – This guidance can only be applied for a limited time through December 31, 2024.

Impact on consolidated financial statements – The Company currently has an implementation team in place that has performed a comprehensive evaluation and is 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.

3 unchanged sentences

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – GOODWILL AND OTHER INTANGIBLE ASSETS

9 unchanged sentences

( 50 ) — 2 — ( 48 )

Balance as of September 30, 2022

Balance as of December 31, 2022

1,652 1,116 252 353 3,373

2 unchanged sentences

$ 1,514 $ 384 $ 222 $ 353 $ 2,473

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Intangible Assets

Other intangible assets consist of the following:

September 30, 2022 June 30, 2022

December 31, 2022 June 30, 2022

(In millions) Gross

4 unchanged sentences

Amortizable intangible assets:

Customer lists and other

$ 1,945 $ 640 $ 1,305 $ 2,061 $ 625 $ 1,436

License agreements 3 3 — 3 3 —

$ 1,948 $ 643 1,305 $ 2,064 $ 628 1,436

Customer lists, license agreements and other $ 2,057 $ 702 $ 1,355 $ 2,064 $ 628 $ 1,436

Non-amortizable intangible assets:

2 unchanged sentences

$ 3,097 $ 3,428

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 aggregate amortization expense related to amortizable intangible assets was $ 37 million and $ 39 million for the three months ended December 31, 2022 and 2021, respectively, and $ 73 million and $ 84 million for the six months ended December 31, 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 $ 75 $ 147 $ 147 $ 147 $ 130

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment Testing During the Six Months Ended December 31, 2022

During the fiscal 2023 second quarter, given the lower-than-expected results in the overall business, the Company made revisions to the internal forecasts relating to its Smashbox 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.

The remaining carrying value of the trademark intangible asset was not recoverable and the Company recorded an impairment charge of $ 21 million reducing the carrying value to zero .

During the fiscal 2023 second quarter, the Dr.Jart+ reporting unit experienced lower-than-expected growth within key geographic regions and channels that continue to be impacted by the spread of COVID-19 variants, 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 reporting unit.

In addition, due to macro-economic factors, Dr.Jart+ has experienced lower-than-expected growth within key geographic regions.

The Too Faced reporting unit experienced lower-than-expected results in key geographic regions and channels coupled with delays in future international expansion to areas that continue to be impacted by COVID-19.

As a result, the Company made revisions to the internal forecasts relating to its Dr.Jart+ and Too Faced reporting units.

Additionally, there were increases in the weighted average cost of capital for both reporting units as compared to the prior year annual goodwill and other indefinite-lived intangible asset impairment testing as of April 1, 2022.

The Company concluded that the changes in circumstances in the reporting units, along with increases in the weighted average cost of capital, 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 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 November 30, 2022.

The Company concluded that the carrying value of the trademark intangible assets exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows and recorded an impairment charge of $ 100 million for Dr.Jart+ and $ 86 million for Too Faced.

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

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+ 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 values 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 values of the Dr.Jart+ and Too Faced trademark intangible assets was the weighted-average cost of capital, which was 11 % and 13 %, respectively.

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

Impairment Charge Carrying Value

(In millions) Three and Six Months Ended December 31, 2022 As of December 31, 2022

Reporting Unit:

Geographic Region Trademarks Goodwill Trademarks Goodwill

Smashbox The Americas $ 21 $ — $ — $ —

Jart+ Asia/Pacific 100 — 339 318

Too Faced The Americas 86 — 186 13

Total $ 207 $ — $ 525 $ 331

The impairment charges for the three and six months ended December 31, 2022 were reflected in the skin care product category for Dr.Jart+ and the makeup product category for Smashbox and Too Faced.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

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

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

Net Sales) Cost of Sales Operating Expenses Total

1 unchanged sentence

Charges Other

Total $ 5 $ ( 1 ) $ 2 $ — $ 6

Three months ended December 31, 2022 $ 1 $ — $ 4 $ 3 $ 8

Six months ended December 31, 2022 $ 6 $ ( 1 ) $ 6 $ 3 $ 14

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

4 unchanged sentences

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

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

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.

As of December 31, 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.

2 unchanged sentences

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 September 30, 2022 were:

Net Sales) Cost of Sales Operating Expenses Total

(In millions) Restructuring

Charges Other

Total Charges (Adjustments) Approved

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

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-

Costs Contract

Terminations Other Exit

Restructuring Charges (Adjustments) Approved

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

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

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

Additional information about the PCBA Program approvals 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, 2022.

Specific actions taken since the PCBA Program inception include:

1 unchanged sentence

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Optimize Select Marketing, Brand and Global Functions – The Company has started to reduce its corporate 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.

1 unchanged sentence

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

• 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.

16 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.

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 associated with restructuring activities are comprised of the following:

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

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

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

Six months ended December 31, 2022 6 ( 1 ) 6 3 14

Cumulative through December 31, 2022 $ 24 $ 6 $ 316 $ 16 $ 362

(In millions) Employee-

3 unchanged sentences

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

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:

Six months ended December 31, 2022 ( 3 ) 14 ( 6 ) 1 6

Cumulative through December 31, 2022 $ 200 $ 100 $ 13 $ 3 $ 316

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(In millions) Employee-

6 unchanged sentences

Translation and other adjustments ( 6 ) — 7 — 1

Balance at September 30, 2022

Balance at December 31, 2022

$ 99 $ — $ — $ — $ 99

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrued restructuring charges at December 31, 2022 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 51 million, $ 36 million and $ 12 million for the remainder of fiscal 2023 and for fiscal 2024 and 2025, respectively.

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

8 unchanged sentences

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

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

At December 31, 2022, the notional amount of derivatives not designated as hedging instruments was $ 4,005 million.

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

11 unchanged sentences

(In millions) Balance Sheet

Location September 30, 2022 June 30, 2022 Balance Sheet

Location September 30, 2022 June 30, 2022

Location December 31, 2022 June 30, 2022 Balance Sheet

Location December 31, 2022 June 30, 2022

Derivatives Designated as Hedging Instruments:

17 unchanged sentences

Three Months Ended

September 30 Three Months Ended

December 31 Three Months Ended

(In millions) 2022 2021 2022 2021

5 unchanged sentences

Foreign currency forward contracts (3)

( 86 ) 34 — —

Total derivatives $ ( 120 ) $ 26 $ 22 $ ( 3 )

(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.

(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, 2022 and 2021, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 7 million and $ 3 million, respectively.

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

Amount of Gain (Loss)

Recognized in OCI on

Derivatives Location of Gain (Loss) Reclassified

from AOCI into

Earnings Amount of Gain (Loss)

Reclassified from AOCI into Earnings (1)

Six Months Ended

December 31 Six Months Ended

(In millions) 2022 2021 2022 2021

Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts $ 18 $ 7 Net sales

Interest rate-related derivatives 12 — Interest expense

30 7 37 ( 9 )

Derivatives in Net Investment Hedging Relationships (2) :

Foreign currency forward contracts (3)

( 15 ) 70 — —

Total derivatives $ 15 $ 77 $ 37 $ ( 9 )

(2) During the six months ended December 31, 2022 and 2021, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 13 million and $ 5 million, respectively.

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amount of Gain (Loss)

Recognized in Earnings on

2 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2022 2021 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:

4 unchanged sentences

Included in the Carrying Amount of the Hedged Liability

September 30, 2022 September 30, 2022

Current debt $ — $ —

December 31, 2022 December 31, 2022

Long-term debt $ 842 $ ( 150 )

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 September 30

Three Months Ended December 31

(In millions) Net Sales Interest

9 unchanged sentences

Amount of gain (loss) reclassified from AOCI into earnings 22 Not applicable ( 2 ) Not applicable

Six Months Ended December 31

(In millions) Net Sales Interest

Expense Net Sales Interest

Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded $ 8,550 $ 98 $ 9,931 $ 84

The effects of fair value and cash flow hedging relationships:

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

Hedged item Not applicable 35 Not applicable 16

Derivatives designated as hedging instruments Not applicable ( 35 ) Not applicable ( 16 )

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

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

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

Amount of gain (loss) reclassified from AOCI into earnings 37 Not applicable ( 8 ) Not applicable

THE ESTÉE LAUDER COMPANIES INC.

5 unchanged sentences

Derivatives Three Months Ended

December 31 Six Months Ended

(In millions) 2022 2021 2022 2021

5 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 June 2024.

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 2024.

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

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

At December 31, 2022, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,774 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 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 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.

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 Net 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 Net sales.

As of December 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 December 31, 2022 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 28 million.

The accumulated net gain on derivative instruments in AOCI was $ 83 million and $ 90 million as of December 31, 2022 and June 30, 2022, respectively.

Fair Value Hedges

10 unchanged sentences

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

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

At December 31, 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 $ 167 million at September 30, 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 $ 84 million at December 31, 2022.

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

13 unchanged sentences

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:

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, 2022:

(In millions) Level 1 Level 2 Level 3 Total

1 unchanged sentence

Foreign currency forward contracts

Interest rate-related derivatives

$ 989 $ 84 $ — $ 1,073

16 unchanged sentences

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

September 30, 2022 June 30, 2022

December 31, 2022 June 30, 2022

(In millions) Carrying

6 unchanged sentences

DECIEM stock options 71 71 74 74

Foreign currency forward contracts – asset (liability), net 113 113 86 86

Interest rate-related derivatives – asset (liability), net ( 154 ) ( 154 ) ( 91 ) ( 91 )

Foreign currency forward contracts – asset, net 16 16 86 86

Interest rate-related derivatives – liability, net ( 145 ) ( 145 ) ( 91 ) ( 91 )

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s impairment charges for the three and six months ended December 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)

Dr.Jart+ $ 100 November 30, 2022 $ 339

Too Faced 86 November 30, 2022 186

Smashbox 21 December 31, 2022 —

Total $ 207 $ 525

(1) See Note 2 - 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 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:

17 unchanged sentences

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:

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the DECIEM stock option liability for the six months ended December 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

2 unchanged sentences

Translation adjustments and other, net —

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

DECIEM stock option liability as of December 31, 2022 $ 71

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

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 $ 28 million and $ 27 million as of September 30, 2022 and June 30, 2022, respectively.

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 26 million and $ 27 million as of December 31, 2022 and June 30, 2022, respectively.

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

Changes in the allowance for credit losses are as follows:

(In millions) September 30, 2022

(In millions) December 31, 2022

Balance at June 30, 2022 $ 10

Provision for expected credit losses 2

Write-offs, net & other ( 1 )

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.

Balance at December 31, 2022 $ 12

The remaining balance of the allowance for doubtful accounts of $ 14 million and $ 17 million as of December 31, 2022 and June 30, 2022, respectively, 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

(In millions) 2022 2021 2022 2021

4 unchanged sentences

Deferred revenue, end of period $ 353 $ 421 $ 353 $ 421

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transaction Price Allocated to the Remaining Performance Obligations

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.

At December 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 $ 344 million.

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

NOTE 7 – 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, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Pension Plans Other than

7 unchanged sentences

Actuarial loss 1 3 ( 1 ) 1 — 1

Prior service cost — — — ( 1 ) — —

Special termination benefits — — — 1 — —

Net periodic benefit cost $ 6 $ 8 $ 5 $ 8 $ 2 $ 2

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

The components of net periodic benefit cost for the six months ended December 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 $ 18 $ 23 $ 13 $ 16 $ — $ 1

Interest cost 20 15 7 5 4 3

Expected return on plan assets ( 28 ) ( 27 ) ( 8 ) ( 7 ) — ( 1 )

Amortization of:

Actuarial loss 2 7 ( 2 ) 1 — 1

Prior service cost — — — ( 1 ) — —

Special termination benefits — — — 3 — —

Net periodic benefit cost $ 12 $ 18 $ 10 $ 17 $ 4 $ 4

During the six months ended December 31, 2022, the Company made contributions to its international pension plans totaling $ 7 million.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

(In millions) December 31, 2022 June 30, 2022

Other assets $ 137 $ 151

4 unchanged sentences

Net amount recognized $ ( 89 ) $ ( 75 )

NOTE 8 – CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

In November 2022, the Company signed an agreement to acquire the TOM FORD brand.

The amount to be paid by the Company for the acquisition is approximately $ 2,300 million, net of a $ 250 million payment to the Company at closing from Marcolin S.p.A.

and expects to close in the second half of fiscal 2023.

The Company expects to fund this transaction through a combination of cash, debt and $ 300 million in deferred payments to the sellers that become due beginning in July 2025.

In addition, the acquisition will result in the elimination of the existing license royalty payments on the Company's beauty business upon closing.

In January 2023, the Company entered into a $ 2,000 million senior unsecured revolving credit facility that expires on January 2, 2024 (the “New Facility”) for liquidity support for the Company's commercial paper program and general corporate purposes, of which the entire amount is currently undrawn and available.

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

In January 2023, the Company increased its commercial paper program under which it may issue commercial paper in the United States from $ 2,500 million to $ 4,500 million.

Legal Proceedings

9 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 $ 53 million and $ 79 million for the three months ended September 30, 2022 and 2021, respectively.

Compensation expense attributable to net stock-based compensation was $ 112 million and $ 113 million for the three months ended December 31, 2022 and 2021, respectively, and was $ 165 million and $ 192 million for the six months ended December 31, 2022 and 2021, respectively.

Stock Options

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 .

During the six months ended December 31, 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 $ 246.01 and a weighted-average grant date fair value per share of $ 79.09 .

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

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

The aggregate intrinsic value of stock options exercised during the six months ended December 31, 2022 was $ 52 million.

Restricted Stock Units

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.

During the six months ended December 31, 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.

1 unchanged sentence

Performance Share Units

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.

During the six months ended December 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 $ 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.

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 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 total stock option expense for the three and six months ended December 31, 2022 and 2021 was not material.

There were no DECIEM stock options exercised during the six months ended December 31, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

September 30, 2022 June 30, 2022

The DECIEM stock options are reported as a stock option liability of $ 71 million and $ 74 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at December 31, 2022 and June 30, 2022, respectively.

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

December 31, 2022 June 30, 2022

Risk-free rate 4.40 % 3.20 %

14 unchanged sentences

Three Months Ended

December 31 Six Months Ended

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

Net earnings attributable to The Estée Lauder Companies Inc.

$ 394 $ 1,088 $ 883 $ 1,780

Weighted-average common shares outstanding – Basic

357.7 360.6 357.8 361.4

Effect of dilutive stock options

2.1 4.1 2.4 4.2

Effect of PSUs

0.1 0.2 0.1 0.2

Effect of RSUs

0.5 1.1 0.6 1.2

Weighted-average common shares outstanding – Diluted

360.4 366.0 360.9 367.0

Net earnings attributable to The Estée Lauder Companies Inc.

6 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2022 2021 2022 2021

1 unchanged sentence

RSUs and PSUs 0.1 — 0.1 0.1

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 .

As of December 31, 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

December 31 Six Months Ended

(In millions) 2022 2021 2022 2021

9 unchanged sentences

Net earnings attributable to The Estée Lauder Companies Inc.

394 1,088 883 1,780

Cumulative effect of adoption of new accounting standards — — — 121

9 unchanged sentences

Total stockholders’ equity – The Estée Lauder Companies Inc.

5,902 6,218 5,902 6,218

Noncontrolling interests, beginning of the period — 34 — 34

4 unchanged sentences

Redeemable noncontrolling interest, beginning of the period $ 808 $ 842 $ 842 $ 857

Net earnings attributable to redeemable noncontrolling interest 1 2

Net earnings (loss) attributable to redeemable noncontrolling interest 3 ( 2 ) 4 —

Translation adjustments 8 — ( 27 ) ( 17 )

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the three months ended September 30, 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 six months ended December 31, 2022:

Date Declared Record Date Payable Date Amount per Share

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

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.

November 1, 2022 November 30, 2022 December 15, 2022 $ .66

On February 1, 2023, 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 March 15, 2023 to stockholders of record at the close of business on February 28, 2023.

During the six months ended December 31, 2022, the Company purchased approximately 1.1 million shares of its Class A Common Stock for $ 257 million.

Accumulated Other Comprehensive Income

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

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

(In millions) Net Cash

6 unchanged sentences

Net current-period OCI ( 5 ) ( 1 ) ( 61 ) ( 67 )

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

Balance at December 31, 2022 $ 63 $ ( 115 ) $ ( 777 ) $ ( 829 )

(1) Consists of foreign currency translation losses.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Amount Reclassified from AOCI Affected Line Item in

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

(In millions) 2022 2021 2022 2021

2 unchanged sentences

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

22 ( 3 ) 37 ( 9 )

Benefit (provision) for deferred taxes ( 5 ) — ( 9 ) 2 Provision for income taxes

1 unchanged sentence

Retirement Plan and Other Retiree Benefit Adjustments

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

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

— ( 4 ) — ( 8 )

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

3 unchanged sentences

NOTE 12 – STATEMENT OF CASH FLOWS

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

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

(In millions) 2022 2021

3 unchanged sentences

Property, plant and equipment accrued but unpaid $ 216 $ 108

Financing lease modifications $ — $ ( 14 )

Right-of-use assets obtained in exchange for new/modified operating lease liabilities $ 107 $ 139

13 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2022 2021 2022 2021

4 unchanged sentences

Hair Care 182 180 340 328

Other 14 16 28 29

4,621 5,540 8,556 9,933

Returns associated with restructuring and other activities ( 1 ) ( 1 ) ( 6 ) ( 2 )

2 unchanged sentences

Skin Care $ 421 $ 1,082 $ 951 $ 1,799

Makeup ( 37 ) 130 ( 21 ) 221

Fragrance 177 210 310 341

Hair Care 5 8 ( 7 ) 10

Other ( 1 ) 3 ( 1 ) 3

565 1,433 1,232 2,374

Reconciliation:

9 unchanged sentences

Asia/Pacific 1,570 1,902 2,700 3,228

4,621 5,540 8,556 9,933

Returns associated with restructuring and other activities ( 1 ) ( 1 ) ( 6 ) ( 2 )

Net sales $ 4,620 $ 5,539 $ 8,550 $ 9,931

Operating income:

Operating income (loss):

The Americas $ ( 85 ) $ 382 $ 40 $ 636

1 unchanged sentence

Asia/Pacific 241 431 449 653

565 1,433 1,232 2,374

Charges associated with restructuring and other activities ( 9 ) ( 15 ) ( 15 ) ( 21 )

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