What changed in this filing

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Item 1. Financial Statements

2023-05-03 compared with 2023-02-02 · 255 added, 165 removed, 829 unchanged (34% of the section changed)

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2023 2022 2023 2022

33 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

2 unchanged sentences

Net cash flow hedge gain (loss) ( 43 ) 5 ( 50 ) 21

Cross-currency swap contract loss ( 11 ) — ( 11 ) —

Retirement plan and other retiree benefit adjustments — 4 — 12

16 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) December 31

(In millions, except share data) March 31

Current assets

12 unchanged sentences

Current liabilities

$ 2,243 $ 268

Accounts payable

11 unchanged sentences

Class A shares authorized:

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

1,300,000,000 at March 31, 2023 and June 30, 2022;

shares issued:

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

469,358,006 at March 31, 2023 and 467,949,351 at June 30, 2022;

Class B shares authorized:

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

304,000,000 at March 31, 2023 and June 30, 2022;

shares issued and outstanding:

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

125,542,029 at March 31, 2023 and 125,542,029 at June 30, 2022

Paid-in capital

4 unchanged sentences

Treasury stock, at cost;

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

237,532,271 Class A shares at March 31, 2023 and 236,435,830 Class A shares at June 30, 2022

( 13,618 ) ( 13,362 )

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

(In millions) 2023 2022

15 unchanged sentences

Increase in inventory and promotional merchandise ( 154 ) ( 398 )

Decrease (increase) in other assets, net 33 ( 57 )

Increase in other assets, net ( 69 ) ( 61 )

Decrease in accounts payable ( 313 ) ( 199 )

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

Decrease in other accrued and noncurrent liabilities ( 151 ) ( 132 )

Decrease in operating lease assets and liabilities, net ( 42 ) ( 38 )

3 unchanged sentences

Payment for acquired business — ( 3 )

Purchases of other intangible assets ( 8 ) —

Purchases of investments ( 5 ) ( 10 )

8 unchanged sentences

Dividends paid to stockholders ( 687 ) ( 624 )

Net cash flows used for financing activities ( 685 ) ( 1,775 )

Net cash flows provided by (used for) financing activities 1,090 ( 2,516 )

Effect of exchange rate changes on Cash and cash equivalents ( 6 ) ( 12 )

Net decrease in Cash and cash equivalents ( 232 ) ( 355 )

Net increase (decrease) in Cash and cash equivalents 1,574 ( 1,122 )

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

27 unchanged sentences

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

were $ 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.

were $( 5 ) million and $ 13 million, net of tax, during the three months ended March 31, 2023 and 2022, respectively, and $( 66 ) million and $( 182 ) million, net of tax, during the nine months ended March 31, 2023 and 2022, respectively.

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

3 unchanged sentences

The Company enters into foreign currency forward contracts and may enter into option contracts to hedge foreign currency transactions for periods consistent with its identified exposures.

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

The Company also uses cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt.

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

See Note 4 – Derivative Financial Instruments for further discussion .

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 $ 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 accompanying consolidated statements of earnings include net exchange gains (losses) on foreign currency transactions of $ 25 million and $ 3 million during the three months ended March 31, 2023 and 2022, respectively, and $ 59 million and $( 15 ) million during the nine months ended March 31, 2023 and 2022, respectively.

THE ESTÉE LAUDER COMPANIES INC.

5 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 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) December 31, 2022 June 30, 2022

(In millions) March 31, 2023 June 30, 2022

Raw materials

5 unchanged sentences

Property, plant and equipment consists of the following:

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

(In millions) March 31, 2023 June 30, 2022

Assets (Useful Life)

8 unchanged sentences

$ 3,026 $ 2,650

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 of property, plant and equipment was $ 147 million and $ 140 million during the three months ended March 31, 2023 and 2022, respectively, and $ 421 million and $ 406 million during the nine months ended March 31, 2023 and 2022, 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 for the three and six months ended December 31, 2022 and 2021 are as follows:

The effective rate for income taxes for the three and nine months ended March 31, 2023 and 2022 are as follows:

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

2023 2022 2023 2022

1 unchanged sentence

Basis-point change from the prior-year period 2,610 680

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.

For the three months ended March 31, 2023, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2023.

For the nine months ended March 31, 2023, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2023, and a decrease in excess tax benefits associated with stock-based compensation arrangements.

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 and is not expected to have a material impact on the Company’s results of operations or financial position.

The excise tax was effective beginning with the Company’s third quarter of fiscal 2023 and did not have an 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.

As of March 31, 2023 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 March 31, 2023 that, if recognized, would affect the effective tax rate was $ 50 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three and nine months ended March 31, 2023 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 March 31, 2023 and June 30, 2022, was $ 16 million and $ 14 million, respectively.

On the basis of the information available as of March 31, 2023, 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 six months ended December 31, 2022.

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, 2023.

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:

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

(In millions) March 31, 2023 June 30, 2022

Advertising, merchandising and sampling $ 240 $ 250

6 unchanged sentences

$ 3,580 $ 3,360

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.

At March 31, 2023 and June 30, 2022, total Other noncurrent liabilities of $ 1,457 million and $ 1,651 million included $ 625 million and $ 692 million of deferred tax liabilities, respectively.

THE ESTÉE LAUDER COMPANIES INC.

7 unchanged sentences

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.

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 annually which is effective prospectively for the Company beginning in fiscal 2025.

Early adoption is permitted.

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

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

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

24 unchanged sentences

( 57 ) — 4 — ( 53 )

Balance as of December 31, 2022

Balance as of March 31, 2023

1,646 1,116 254 353 3,369

4 unchanged sentences

Other intangible assets consist of the following:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

(In millions) Gross

6 unchanged sentences

Non-amortizable intangible assets:

Trademarks and other 1,742 1,992

Trademarks 1,743 1,992

Total intangible assets

$ 3,045 $ 3,428

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 aggregate amortization expense related to amortizable intangible assets was $ 36 million and $ 38 million for the three months ended March 31, 2023 and 2022, respectively, and $ 109 million and $ 122 million for the nine months ended March 31, 2023 and 2022, respectively.

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

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment Testing During the Six Months Ended December 31, 2022

Impairment Analysis During the Nine Months Ended March 31, 2023

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.

16 unchanged sentences

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

A summary of the impairment charges for the three and nine months ended March 31, 2023 and the remaining trademark and goodwill carrying values as of March 31, 2023, for each reporting unit, are as follows:

Impairment Charges Carrying Value

(In millions) Three Months Ended

March 31, 2023 Nine Months Ended

March 31, 2023 As of March 31, 2023

Reporting Unit Geographic Region Trademarks Goodwill Trademarks Goodwill Trademarks Goodwill

Smashbox The Americas $ — $ — $ 21 $ — $ — $ —

Jart+ Asia/Pacific 100 — 339 318

Dr.Jart+ Asia/Pacific — — 100 — 330 310

Too Faced The Americas — — 86 — 186 13

Total $ — $ — $ 207 $ — $ 516 $ 323

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 impairment charges for the nine months ended March 31, 2023 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

Impairment Analysis 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 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+ 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 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 %.

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 Charges Carrying Value

Three and Nine Months Ended March 31, 2022 As of March 31, 2022

Reporting Unit Geographic Region Trademarks Goodwill Trademarks Goodwill

GLAMGLOW The Americas $ 11 $ — $ — $ —

Dr.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.

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 and six months ended December 31, 2022 were as follows:

Charges associated with the Post-COVID Business Acceleration Program for the three and nine months ended March 31, 2023 were as follows:

Net Sales) Cost of Sales Operating Expenses Total

1 unchanged sentence

Charges Other

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

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

Three months ended March 31, 2023 $ 4 $ — $ 6 $ 4 $ 14

Nine months ended March 31, 2023 $ 10 $ ( 1 ) $ 12 $ 7 $ 28

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

8 unchanged sentences

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

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.

As of March 31, 2023, 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.

1 unchanged sentence

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.

Inclusive of approvals from inception through June 30, 2022, the Company estimates, as of March 31, 2023, that the PCBA Program may result in related restructuring and other charges totaling between $ 450 million and $ 480 million, before taxes.

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.

41 unchanged sentences

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

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

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

Nine months ended March 31, 2023 10 ( 1 ) 12 7 28

Cumulative through March 31, 2023 $ 28 $ 6 $ 322 $ 20 $ 376

(In millions) Employee-

3 unchanged sentences

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

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

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

Nine months ended March 31, 2023 ( 8 ) 20 ( 3 ) 3 12

Cumulative through March 31, 2023 $ 195 $ 106 $ 16 $ 5 $ 322

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:

Changes in accrued restructuring charges for the nine months ended March 31, 2023 relating to the PCBA Program were:

(In millions) Employee-

6 unchanged sentences

Translation and other adjustments ( 5 ) — 4 — ( 1 )

Balance at December 31, 2022

Balance at March 31, 2023

$ 85 $ — $ — $ — $ 85

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.

Accrued restructuring charges at March 31, 2023 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $ 31 million, $ 41 million and $ 13 million for the remainder of fiscal 2023 and for fiscal 2024 and 2025, respectively.

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

1 unchanged sentence

The Company enters into foreign currency forward contracts, and may enter into option contracts, to reduce the effects of fluctuating foreign currency exchange rates.

The Company also uses cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt.

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

5 unchanged sentences

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

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

At March 31, 2023, the notional amount of derivatives not designated as hedging instruments was $ 3,521 million.

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

11 unchanged sentences

(In millions) Balance Sheet

Location December 31, 2022 June 30, 2022 Balance Sheet

Location December 31, 2022 June 30, 2022

Location March 31, 2023 June 30, 2022 Balance Sheet

Location March 31, 2023 June 30, 2022

Derivatives Designated as Hedging Instruments:

Foreign currency cash flow hedges Prepaid expenses and other current assets $ 22 $ 57 Other accrued liabilities $ 22 $ 1

Cross-currency swap contracts Prepaid expenses and other current assets — — Other accrued liabilities 11 —

Net investment hedges Prepaid expenses and other current assets — 107 Other accrued liabilities 56 —

15 unchanged sentences

Three Months Ended

December 31 Three Months Ended

March 31 Three Months Ended

(In millions) 2023 2022 2023 2022

8 unchanged sentences

(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.

(2) During the three months ended March 31, 2023 and 2022, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 6 million and $ 3 million, respectively.

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

5 unchanged sentences

Reclassified from AOCI into Earnings (1)

Six Months Ended

December 31 Six Months Ended

Nine Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

8 unchanged sentences

(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.

(2) During the nine months ended March 31, 2023 and 2022, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 19 million and $ 8 million, respectively.

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

3 unchanged sentences

Recognized in Earnings on

Derivatives (1)

Location of Gain (Loss) Recognized in Earnings on Derivatives

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

Derivatives in Fair Value Hedging Relationships:

Cross-currency swap contracts (1)

Selling, general and administrative $ 1 $ — $ 1 $ —

Interest rate swap contracts (2)

Interest expense $ 18 $ ( 69 ) $ ( 17 ) $ ( 85 )

$ 4 $ ( 6 ) $ ( 35 ) $ ( 16 )

(1) Changes in the fair value representing hedge components included in the assessment of effectiveness of the cross-currency swap contracts are exactly offset by the change in the fair value of the underlying intercompany foreign currency denominated debt.

The gain recognized in earnings from cross-currency swap contracts related to the amount excluded from effectiveness testing was $ 4 million.

(2) 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.

5 unchanged sentences

Included in the Carrying Amount of the Hedged Liability

December 31, 2022 December 31, 2022

March 31, 2023 March 31, 2023

Long-term debt $ 862 $ ( 132 )

Intercompany debt — 1

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

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

Three Months Ended December 31

(In millions) Net Sales Interest

Expense Net Sales Interest

Three Months Ended March 31

(In millions) Net Sales Selling, General and Administrative Interest

Expense Net Sales Selling, General and Administrative 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 $ 3,751 $ 2,281 $ 58 $ 4,245 $ 2,275 $ 41

1 unchanged sentence

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

Hedged item Not applicable ( 4 ) Not applicable 6

Derivatives designated as hedging instruments Not applicable 4 Not applicable ( 6 )

Hedged item N/A N/A ( 18 ) N/A N/A 69

Derivatives designated as hedging instruments N/A N/A 18 N/A N/A ( 69 )

Gain (loss) on fair value hedge relationships – cross-currency swap contracts:

Hedged item N/A ( 1 ) N/A N/A — N/A

Derivatives designated as hedging instruments N/A 1 N/A N/A — N/A

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

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

Amount of loss reclassified from AOCI into earnings N/A N/A ( 1 ) N/A N/A —

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

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

Amount of gain (loss) reclassified from AOCI into earnings 22 N/A N/A 3 N/A N/A

N/A (Not applicable)

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended March 31

(In millions) Net Sales Selling, General and Administrative Interest

Expense Net Sales Selling, General and Administrative 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 $ 12,301 $ 7,155 $ 156 $ 14,176 $ 7,554 $ 125

1 unchanged sentence

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 )

Hedged item N/A N/A 17 N/A N/A 85

Derivatives designated as hedging instruments N/A N/A ( 17 ) N/A N/A ( 85 )

Gain (loss) on fair value hedge relationships – cross-currency swap contracts:

Hedged item N/A ( 1 ) N/A N/A — N/A

Derivatives designated as hedging instruments N/A 1 N/A N/A — N/A

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

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

Amount of loss reclassified from AOCI into earnings N/A N/A ( 1 ) N/A N/A ( 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

Amount of gain (loss) reclassified from AOCI into earnings 59 N/A N/A ( 5 ) N/A N/A

N/A (Not applicable)

THE ESTÉE LAUDER COMPANIES INC.

5 unchanged sentences

Derivatives Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

2 unchanged sentences

Selling, general and administrative $ 4 $ 17 $ 21 $ ( 32 )

The Company's derivative instruments are subject to enforceable master netting agreements.

These agreements permit the net settlement of these contracts on a per-institution basis;

however, the Company records the fair value on a gross basis on its consolidated balance sheets based on maturity dates, including those subject to master netting arrangements.

The following table provides information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default or termination as stipulated by the terms of netting arrangements with each of the counterparties:

As of March 31, 2023 As of June 30, 2022

(In millions) Gross Amounts of Assets / (Liabilities) Presented in Balance Sheet Contracts Subject to Netting Net Amounts of Assets / (Liabilities) Gross Amounts of Assets / (Liabilities) Presented in Balance Sheet Contracts Subject to Netting Net Amounts of Assets / (Liabilities)

Derivative Financial Contracts

Derivative assets $ 81 $ ( 73 ) $ 8 $ 215 $ ( 104 ) $ 111

Derivative liabilities ( 240 ) 73 ( 167 ) ( 220 ) 104 ( 116 )

Total $ ( 159 ) $ — $ ( 159 ) $ ( 5 ) $ — $ ( 5 )

Cash Flow Hedges

1 unchanged sentence

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

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

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

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

At March 31, 2023, the Company had cash flow hedges outstanding with a notional amount totaling $ 2,382 million.

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

2 unchanged sentences

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

As of March 31, 2023, the Company’s foreign currency cash flow hedges were highly effective.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated net gain on the Company’s derivative instruments designated as cash flow hedges as of March 31, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 5 million.

The accumulated net gain on derivative instruments designated as cash flow hedges in AOCI was $ 40 million and $ 90 million as of March 31, 2023 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 $ 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.

At March 31, 2023, 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

The Company enters into cross-currency swap contracts to manage the exposure of foreign exchange rate fluctuations on it’s intercompany foreign currency denominated debt.

At March 31, 2023, the Company has cross-currency swap contracts with notional amounts totaling $ 491 million, to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt.

The cross-currency swap contracts are designated as fair value hedges of the related intercompany debt, and the gains and losses representing hedge components included in the assessment of effectiveness are presented in the same income statement line item as the earnings effect of the hedged transaction.

Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis.

The earnings recognition of excluded components is presented in the same income statement line item as the earnings effect of the hedged transaction.

Any difference between the changes in the fair value of the excluded components and amounts recognized in earnings will be recognized in AOCI.

The estimated net gain on the Company’s derivative instruments designated as fair value hedges as of March 31, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 13 million.

The accumulated net loss on derivative instruments designated as fair value hedges in AOCI was $ 11 million as of March 31, 2023.

Net Investment Hedges

4 unchanged sentences

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

At December 31, 2022, the Company had net investment hedges outstanding with a notional amount totaling $ 1,037 million.

At March 31, 2023, 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 $ 84 million at December 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 $ 81 million at March 31, 2023.

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

9 unchanged sentences

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

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 December 31, 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 March 31, 2023:

(In millions) Level 1 Level 2 Level 3 Total

3 unchanged sentences

$ 3,485 $ 81 $ — $ 3,566

Cross-currency swap contracts $ — 11 $ — $ 11

Foreign currency forward contracts

$ — $ 63 $ — $ 63

Interest rate-related derivatives

1 unchanged sentence

$ — $ 240 $ 73 $ 313

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:

10 unchanged sentences

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

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

(In millions) Carrying

6 unchanged sentences

DECIEM stock options 73 73 74 74

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

Cross-currency swap contracts - liability, net ( 11 ) ( 11 ) — —

Foreign currency forward contracts – liability, net ( 11 ) ( 11 ) 86 86

Interest rate-related derivatives – liability, net ( 137 ) ( 137 ) ( 91 ) ( 91 )

1 unchanged sentence

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:

The following table presents the Company’s impairment charges for the nine months ended March 31, 2023 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 during the three months ended December 31, 2022:

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

5 unchanged sentences

(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 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 $ —

Dr.Jart+ 205 February 28, 2022 486

Total 216 486

Total $ 216 $ 486

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:

4 unchanged sentences

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.

Cross-currency swap contracts - The fair value of the Company’s cross-currency swap 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 yield curves and currency spot and forward rates, were obtained from independent pricing services.

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.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9 unchanged sentences

See Note 9 – Stock Programs for discussion .

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:

Changes in the DECIEM stock option liability for the nine months ended March 31, 2023 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 1

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.

DECIEM stock option liability as of March 31, 2023 $ 73

(1) Amount includes expense attributable to graded vesting of stock opti ons which is not material for the nine months ended March 31, 2023.

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 $ 26 million and $ 27 million as of December 31, 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 March 31, 2023 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) December 31, 2022

(In millions) March 31, 2023

Balance at June 30, 2022 $ 10

Provision for expected credit losses 1

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.

Write-offs, net & other 1

Balance at March 31, 2023 $ 12

The remaining balance of the allowance for doubtful accounts of $ 14 million and $ 17 million as of March 31, 2023 and June 30, 2022, respectively, relates to non-credit losses, which are primarily due to customer deductions.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Revenue

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

1 unchanged sentence

Revenue recognized that was included in the deferred revenue balance at the beginning of the period ( 50 ) ( 40 ) ( 330 ) ( 288 )

Revenue deferred during the period 119 75 276 298

Revenue deferred (released) during the period ( 15 ) ( 13 ) 261 285

Other 26 ( 4 ) 21 ( 4 )

Deferred revenue, end of period $ 314 $ 364 $ 314 $ 364

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transaction Price Allocated to the Remaining Performance Obligations

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.

At March 31, 2023, 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 $ 306 million.

The remaining balance of deferred revenue at March 31, 2023 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 components of net periodic benefit cost for the three months ended December 31, 2022 and 2021 consisted of the following:

The components of net periodic benefit cost for the three months ended March 31, 2023 and 2022 consisted of the following:

Pension Plans Other than

10 unchanged sentences

Net periodic benefit cost $ 6 $ 10 $ 6 $ 8 $ 2 $ 2

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net periodic benefit cost for the nine months ended March 31, 2023 and 2022 consisted of the following:

Pension Plans Other than

10 unchanged sentences

Net periodic benefit cost $ 18 $ 28 $ 16 $ 25 $ 6 $ 6

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

During the nine months ended March 31, 2023, the Company made contributions to its international pension plans totaling $ 12 million.

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

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

(In millions) March 31, 2023 June 30, 2022

Other assets $ 134 $ 151

5 unchanged sentences

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.

On April 28, 2023, the Company completed the acquisition of the TOM FORD brand.

The amount paid by the Company at closing was approximately $ 2,250 million.

This amount was funded by cash on hand and proceeds from the issuance of commercial paper, and approximately $ 250 million received at closing from Marcolin S.p.A.

(a continuing TOM FORD licensee).

An aggregate amount of $ 300 million, at 5 % interest per annum, to the sellers becomes due from the Company beginning in July 2025.

The completion of the acquisition of the brand resulted in the elimination of future license royalty payments on the Company's TOM FORD Beauty business.

In January 2023, the Company entered into a $ 2,000 million senior unsecured revolving credit facility that expires on January 2, 2024 (the “364-Day 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 364-Day Facility will be based on prevailing market interest rates in accordance with the agreement.

The costs incurred to establish the 364-Day Facility were not material.

The 364-Day Facility has an annual fee of approximately $ 0.6 million, payable quarterly, based on the Company’s current credit ratings.

The 364-Day Facility contains a cross-default provision whereby a failure to pay other material financial obligations in excess of $ 175 million (after grace periods and absent a waiver from the lenders) would result in an event of default and the acceleration of the maturity of any outstanding debt under this facility.

In January 2023, in connection with the 364-Day Facility, 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.

As of March 31, 2023 and April 26, 2023, the Company had $ 2,250 million and $ 3,410 million, respectively, outstanding under its commercial paper program.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Legal Proceedings

5 unchanged sentences

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 $ 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.

Compensation expense attributable to net stock-based compensation was $ 69 million and $ 91 million for the three months ended March 31, 2023 and 2022, respectively, and was $ 234 million and $ 283 million for the nine months ended March 31, 2023 and 2022, respectively.

Stock Options

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 .

During the nine months ended March 31, 2023, the Company granted stock options in respect of approximately 1.2 million shares of Class A Common Stock with an weighted-average 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 six months ended December 31, 2022 was $ 52 million.

The aggregate intrinsic value of stock options exercised during the nine months ended March 31, 2023 was $ 74 million.

Restricted Stock Units

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.

During the nine months ended March 31, 2023, 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 $ 246.34 that, at the time of grant, are scheduled to vest at 0.4 million, 0.3 million, and 0.4 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 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.

During the nine months ended March 31, 2023, 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.

1 unchanged sentence

In September 2022, approximately 0.2 million shares of the Company’s Class A Common Stock were issued, and related accrued dividends were paid, relative to the target goals set at the time of the issuance, in settlement of 0.1 million PSUs with a performance period ended June 30, 2022.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECIEM Stock Options

1 unchanged sentence

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

The total stock option expense for the three and six months ended December 31, 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 $ 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 total stock option expense for the three and nine months ended March 31, 2023 was not material.

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 and reflects a reduction in the fair value of the DECIEM stock options.

There were no DECIEM stock options exercised during the nine months ended March 31, 2023.

The DECIEM stock options are reported as a stock option liability of $ 73 million and $ 74 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at March 31, 2023 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

March 31, 2023 June 30, 2022

Risk-free rate 4.20 % 3.20 %

12 unchanged sentences

per common share assuming dilution (“diluted EPS”) is computed by reflecting potential dilution from stock-based awards.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation between the numerator and denominator of the basic and diluted EPS computations is as follows:

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions, except per share data) 2023 2022 2023 2022

15 unchanged sentences

$ 0.43 $ 1.53 $ 2.88 $ 6.39

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The shares of Class A Common Stock underlying stock options, RSUs and PSUs that were excluded in the computation of diluted EPS because their inclusion would be anti-dilutive were as follows:

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

1 unchanged sentence

RSUs and PSUs — — — 0.1

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 .

As of March 31, 2023 and 2022, 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

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

30 unchanged sentences

Translation adjustments 1 14 ( 26 ) ( 3 )

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

Redeemable noncontrolling interest, end of the period $ 819 $ 865 $ 819 $ 865

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the six months ended December 31, 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 nine months ended March 31, 2023:

Date Declared Record Date Payable Date Amount per Share

1 unchanged sentence

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.

February 1, 2023 February 28, 2023 March 15, 2023 $ .66

On May 2, 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 June 15, 2023 to stockholders of record at the close of business on May 31, 2023.

During the nine months ended March 31, 2023, the Company purchased approximately 1.2 million shares of its Class A Common Stock for $ 258 million.

Accumulated Other Comprehensive Income

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

The following table represents changes in AOCI, net of tax, by component for the nine months ended March 31, 2023:

(In millions) Net Cash

Gain (Loss) Amounts

Gain (Loss) Cross-Currency Swap Contracts (2)

Included in Net Periodic Benefit Cost Translation

4 unchanged sentences

Net current-period OCI ( 38 ) ( 9 ) — ( 66 ) ( 113 )

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

(1) Consists of foreign currency translation losses.

Balance at March 31, 2023 $ 30 $ ( 9 ) $ ( 114 ) $ ( 782 ) $ ( 875 )

(1) See Note 4 – Derivative Financial Instruments for gains (losses) relating to net investment hedges.

(2) The gain recognized in AOCI, net of tax from cross-currency swap contracts represents the amount excluded from effectiveness testing.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three and nine months ended March 31, 2023 and 2022:

Amount Reclassified from AOCI Affected Line Item in

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

5 unchanged sentences

16 3 44 ( 4 ) Net earnings

Cross-Currency Swap Contracts

Gain on cross-currency swap contracts 4 — 4 — Selling, general and administrative

Provision for deferred taxes ( 1 ) — ( 1 ) — Provision for income taxes

Retirement Plan and Other Retiree Benefit Adjustments

6 unchanged sentences

(1) See Note 7 – Pension and Post-Retirement Benefit Plans for additional information.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – STATEMENT OF CASH FLOWS

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

Supplemental cash flow information for the nine months ended March 31, 2023 and 2022 is as follows:

(In millions) 2023 2022

5 unchanged sentences

Right-of-use assets obtained in exchange for new/modified operating lease liabilities $ 197 $ 179

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – SEGMENT DATA AND RELATED INFORMATION

10 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

40 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements