What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2023-02-02 · 250 added, 215 removed, 600 unchanged (44% of the section changed)

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We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories, which are distributed in approximately 150 countries and territories.

The following table is a comparative summary of operating results for the three and six months ended December 31, 2022 and 2021, and reflects the basis of presentation described in Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies for all periods presented.

The following table is a comparative summary of operating results for the three and nine months ended March 31, 2023 and 2022, and reflects the basis of presentation described in Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies for all periods presented.

Products and services that do not meet our definition of skin care, makeup, fragrance and hair care have been included in the “other” category.

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(In millions) 2023 2022 2023 2022

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2023 2022 2023 2022

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Other components of net periodic benefit cost (0.1) — (0.1) —

Other income — — — —

Earnings before income taxes 7.5 16.6 11.7 21.1

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Within prestige beauty, we are well diversified by product category, geography, brand, product sub-category, channel, consumer segment and price point.

This diversification allows us to leverage consumer analytics and insights with agility by deploying our brands to fast growing and profitable opportunities.

We also leverage consumer analytics and insights with agility by deploying our brands to fast growing and profitable opportunities.

These analytics and insights, combined with our creativity, inform our innovation to provide a broad, locally-relevant and inclusive range of prestige products allowing us to compete effectively for a greater share of a consumer's beauty routine.

Elements of our strategy are described in the Overview on pages 30-32 of our Annual Report on Form 10-K for the year ended June 30, 2022, as well as below.

The COVID-19 pandemic continued to disrupt our operating environment through the first half of fiscal 2023, including the evolution of the COVID-19 environment, including restrictions in mainland China and the rising number of COVID cases (collectively "COVID-related impacts") affecting Asia travel retail, particularly Hainan, and retail traffic in mainland China.

In Asia travel retail, these challenges led to prolonged store closures as well as the curtailment of travel and caused the tightening of inventory by certain of our retailers who had previously placed orders in anticipation of the return of travel that was since delayed.

During the first half of fiscal 2023, our business was also negatively impacted by the strong U.S.

dollar, along with inflationary pressures and recession concerns that caused certain of our retailers in the United States to tighten inventory.

While our monthly retail trends improved sequentially during the fiscal 2023 second quarter in the United States, the pace was slower than anticipated resulting in lower replenishment orders compared to the prior-year period.

During the second quarter of fiscal 2023, net sales decreased 17%, reflecting the impacts of the challenges noted above.

• Our skin care net sales declined 25%, including the unfavorable impact of foreign currency translation of 5%.

The category continues to be pressured by the COVID-related impacts affecting Asia travel retail, including the tightening of inventory by certain of our retailers, retail traffic in mainland China and the Dr.Jart+ travel retail business in Korea.

Lower replenishment orders in the United States also negatively impacted the category's growth.

Despite these pressures, net sales benefited from higher net sales from The Ordinary and Bobbi Brown.

• Our makeup net sales declined 9%, including the unfavorable impact of foreign currency translation of 6%.

The decline in makeup net sales reflects the COVID-related impacts affecting Asia travel retail and retail traffic in mainland China, partially offset by the continued progression towards recovery in parts of Asia/Pacific and Europe, Middle East & Africa.

• Our fragrance net sales decreased 3%, primarily due to the impact of the license terminations related to certain of our designer fragrances of 9% and the unfavorable impact of foreign currency translation of 6%.

Overall the category benefited from increases in Estée Lauder and Clinique due to strong holiday performance, as well as the shift in consumer demand toward our luxury and artisanal offerings, including Le Labo and Tom Ford Beauty.

• Our hair care net sales remained virtually flat, benefiting from the fiscal 2022 third quarter launch of The Ordinary’s hair care products, offset by lower net sales from Aveda, driven by the unfavorable impact of foreign currency translation.

During the fiscal 2023 third quarter, the phase and pace of recovery from the COVID-19 pandemic continued to vary across markets globally.

In the West, in both developed and emerging markets, the momentum of post-COVID-19 recovery growth continued with net sales growth in The Americas and markets in Europe, the Middle East & Africa, excluding travel retail.

In Asia/Pacific, markets emerged from COVID-19 restrictions more gradually and over a longer period of time, compared to the pace of recovery experienced in the West.

These markets continued to evolve in recovery during the fiscal 2023 third quarter, evidenced by strong net sales growth in many Asia/Pacific markets.

While we saw recovery in many markets globally, our Asia travel retail business continued to be pressured by the slower than anticipated recovery from the COVID-19 pandemic.

Specifically, in Hainan, while traffic into the island exceeded prior year levels, conversion of travelers to consumers in prestige beauty lagged.

This led to the slower than anticipated depletion of elevated levels of retailer inventory and, therefore, lower replenishment orders.

In Korea, the shipments to duty free retailers were pressured owing to the transition to post-COVID-19 regulations as traveling consumers gradually return.

In Korea, as well as in Asia more broadly, the travel retail recovery was challenged by slower than anticipated resumption of international flights, granting of visas, and organized group tours.

Our business also continued to be pressured by the strong U.S.

dollar, historically high inflation and recession concerns.

During the third quarter of fiscal 2023, net sales decreased 12%, reflecting the impacts noted above.

• Our skin care net sales declined 20%, including the unfavorable impact of foreign currency translation of 3%, driven by lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory.

• Our makeup net sales decreased 2%, including the unfavorable impact of foreign currency translation of 2%, driven by lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory.

Partially offsetting these challenges were higher net sales from M·A·C, primarily driven by the recognition of the previously deferred revenue due to changes to the BACK-To-M·A·C take back program, and Clinique.

• Our fragrance net sales increased slightly, primarily driven by growth from Le Labo, TOM FORD Beauty, Estée Lauder, Kilian Paris and Editions de Parfums Frédéric Malle, partially offset by the impact of the license terminations related to certain of our designer fragrances of 10% and the unfavorable impact of foreign currency translation of 3%.

THE ESTÉE LAUDER COMPANIES INC.

• Our hair care net sales increased slightly, driven by higher net sales from The Ordinary reflecting growth due to the recent launch of hair care products, offset by lower net sales from Aveda driven by a decline in the salon business and lower online net sales in North America.

Our global distribution capability and operations allow us to focus on targeted expanded consumer reach wherever consumer demographics and trends are the most attractive.

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We continuously strengthen our presence in large, image-building core markets, while broadening our presence in emerging markets.

• Net sales in The Americas decreased 5%, primarily reflecting the license terminations related to certain of our designer fragrances, and the unfavorable impacts of lower replenishment orders in the United States.

Offsetting the net sales decrease in The Americas was continued growth in Latin America, primarily led by our makeup category and successful performance during holiday and key shopping moments.

• Net sales in Europe, the Middle East & Africa decreased 22%, including the unfavorable impact of foreign currency translation of 4%, primarily due to continued COVID-related impacts affecting Asia travel retail.

Partially offsetting this decrease was an increase in net sales in Turkey, driven by growth in our makeup category, and India, driven by growth in our skin care category.

Net sales in Russia declined period-over-period, and, during the fiscal 2023 second quarter, we sold a limited selection of products to a reduced number of authorized retailers and completed the closure of all of our freestanding stores.

Net sales in the United Kingdom declined period-over-period, driven by the unfavorable impact of foreign currency translation, partially offset by the continued recovery in the makeup product category.

• The continued COVID-related impacts affected our business in Greater China and the Dr.Jart+ travel retail business in Korea drove the net sales decline in Asia/Pacific of 17%, including the unfavorable impact of foreign currency translation of 9%.

Net sales in Asia/Pacific benefited from growth in southeast Asia, led by the Philippines, Malaysia, and Vietnam, driven by our makeup and fragrance product categories.

The COVID-19 pandemic continues to disrupt business for us, retailers and other companies with which we do business.

There have been, and are likely to continue to be, intermittent store closures and supply chain challenges.

We are mindful that these trends may continue to impact the pace of recovery.

We are seeing a continued and prolonged curtailment in international travel which is also affecting our travel retail business, particularly in Asia, which historically has been one of our fastest growth areas.

The rising number of COVID cases that started in December continues to negatively impact the pace of recovery.

In addition to impacting net sales and profitability, these and other challenges may adversely impact the goodwill and other intangible assets associated with our brands, as well as long-lived assets (i.e.

• Net sales in The Americas increased 3%, primarily driven by an increase in the United States, led by higher net sales from The Ordinary, partially offset by the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022.

Also contributing to the net sales increase in The Americas was an increase in net sales in Latin America, led by Mexico and Brazil, reflecting the continued recovery in makeup.

• Net sales in Europe, the Middle East & Africa decreased 26% driven by lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory.

• Net sales in Asia/Pacific remained virtually flat, driven by the unfavorable impact of foreign currency translation of 7%, partially offset by growth in Hong Kong, Australia and Southeast Asia as the region recovers from the COVID-19 pandemic.

We are experiencing a more gradual and prolonged recovery from the COVID-19 pandemic, particularly in our Asia travel retail business.

In Asia travel retail, there have been, and are likely to continue to be, impacts on our business in the near-term, from the slower than anticipated depletion of elevated levels of retailer inventory and, therefore, lower replenishment orders, as well as the slower than anticipated resumption of international flights, granting of visas, and organized group tours.

Additionally, in Korea, the shipments to duty free retailers were pressured owing to the transition to post-COVID-19 regulations as traveling consumers gradually return.

In addition to impacting net sales and profitability, including any unfavorable impacts to our effective tax rate from changes to our geographical mix of earnings, these and other challenges may adversely impact the goodwill and other intangible assets associated with our brands, as well as long-lived assets (i.e.

potentially resulting in impairments).

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currency volatility;

increasing inflationary pressures;

inflationary pressures;

supply chain challenges;

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THE ESTÉE LAUDER COMPANIES INC.

As the invasion of Ukraine continues and international sanctions evolve, our business and ability to operate in Russia and Ukraine continue to be negatively impacted.

As we responsibly scale-down our operations, we expect to sell a limited selection of products to authorized retailers in Russia.

As the invasion of Ukraine continues and international sanctions evolve, we have substantially scaled down our operations in Russia based on our current plans.

We expect to continue selling a limited selection of products to retailers in Russia.

We will continue to monitor the risks and evolving situation that may further affect our business and will adjust our plans accordingly.

In fiscal 2022, our operations in Ukraine and Russia accounted for approximately 1% of consolidated net sales.

In fiscal 2022, our net sales in Ukraine and Russia accounted for approximately 1% of consolidated net sales.

There are uncertainties related to the future impacts on our business, including possible new sanctions that are difficult to predict due to the high level of geopolitical volatility.

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Please refer to Risk Factors in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022, for a more complete discussion of the risks we encounter in our business and industry.

The uncertainty around the timing, speed and duration of the recovery from the adverse impacts of the COVID-19 pandemic, including the impacts on our business in China and the other macro challenges we are facing, will continue to affect our ability to grow sales profitably.

We believe we can, to some extent, offset the impact of more ordinary challenges by continually developing and pursuing a diversified strategy with multiple engines of growth and by accelerating initiatives focused on areas of strength, discipline and agility, including continuing to execute upon and benefit from efficiencies attributable to previously approved initiatives under the Post-COVID Business Acceleration Program.

The uncertainty around the timing, speed and duration of the recovery from the adverse impacts of the COVID-19 pandemic, including the impacts on our business in Asia travel retail and China and the other macro challenges we are facing, will continue to affect our ability to grow sales profitably.

We believe we can, to some extent, offset the impact of some of these challenges by continually developing and pursuing a diversified strategy with multiple engines of growth and by accelerating initiatives focused on areas of strength, discipline and agility, including continuing to execute upon and benefit from efficiencies attributable to previously approved initiatives under the Post-COVID Business Acceleration Program.

As the current situation continues to progress, if economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions previously described are further prolonged, there could be a further negative effect on consumer confidence, demand, spending and willingness or ability to travel and, as a result, on our business.

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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

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

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 fair value of the Dr.Jart+ and Too Faced trademarks were equal to their carrying values subsequent to the impairment charges taken as of December 31, 2022.

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GAAP measures.

Reported net sales decreased for the three and six months ended December 31, 2022, driven by lower net sales from the skin care, makeup and fragrance product categories and from all geographic regions.

In both periods, the net sales decrease is primarily due to the COVID-related impacts, affecting Asia travel retail, mainland China, and the Dr.Jart+ travel retail business in Korea, as well as the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022.

Skin care net sales declined for the three and six months ended December 31, 2022, primarily driven by Estée Lauder, La Mer, Dr.Jart+ and Clinique, partially offset by higher net sales from The Ordinary and Bobbi Brown.

Makeup net sales decreased in both periods due to lower net sales from Estée Lauder and Tom Ford Beauty, partially offset by an increase in net sales from M·A·C driven by the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter.

Fragrance net sales declined in both periods primarily due to the impact of the license terminations related to the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna product lines ("certain of our designer fragrances") effective June 30, 2022 and lower net sales from Jo Malone London, partially offset by higher net sales from Estée Lauder, Le Labo, Tom Ford Beauty and Clinique.

Net sales in Europe, the Middle East & Africa declined for the three and six months ended December 31, 2022, primarily driven by the COVID-related impacts affecting Asia travel retail, as well as lower net sales from Russia, and the United Kingdom, driven by the unfavorable impact of foreign currency translation.

Net sales decreased in Asia/Pacific in both periods, primarily due to the COVID-related impacts affecting Greater China and the Dr.Jart+ travel retail business in Korea, partially offset by higher net sales from southeast Asia, led by the Philippines, Malaysia, and Vietnam.

Net sales in The Americas decreased in both periods, driven by the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022, and the impact in the United States from the tightening of inventory from certain of our retailers and lower replenishment orders in the fiscal 2023 second quarter.

Partially offsetting the decrease in net sales in The Americas for the three and six months ended December 31, 2022 was an increase in net sales in Latin America.

The total net sales decrease was impacted by approximately $282 million and $458 million of unfavorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

Reported net sales decreased for the three months ended March 31, 2023, driven by lower net sales from the skin care and makeup product categories, partially offset by slightly higher net sales in the fragrance and hair care product categories.

For the nine months ended March 31, 2023, reported net sales decreased due to lower net sales from the skin care, makeup and fragrance product categories, partially offset by higher net sales in the hair care product category.

For the three months ended March 31, 2023, reported net sales decreased due to lower net sales in Europe, the Middle East & Africa, from our travel retail business, and in Asia/Pacific, partially offset by higher net sales in The Americas.

For the nine months ended March 31, 2023, reported net sales decreased due to lower net sales from all geographic regions.

The total net sales decrease was impacted by approximately $106 million and $564 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Returns associated with restructuring and other activities are not allocated to our product categories or geographic regions because they result from activities that are deemed a Company-wide initiative to redesign, resize and reorganize select corporate functions and go-to-market structures.

Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the impact of returns associated with restructuring and other activities for the three and six months ended December 31, 2022 of $1 million and $6 million, respectively, and for the three and six months ended December 31, 2021 of $1 million and $2 million, respectively.

Reported net sales decreased 17% for the three months ended December 31, 2022, driven by the decrease from volume of 11%, the unfavorable impact from foreign currency translation of 5%, and the impact from the license terminations of certain of our designer fragrances of 1%.

The impact from pricing was virtually flat period-over-period, due to the favorable impact from strategic pricing actions offset by changes in mix.

Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the impact of returns associated with restructuring and other activities for the three and nine months ended March 31, 2023 of $4 million and $10 million, respectively, and for the three and nine months ended March 31, 2022 of $1 million and $3 million, respectively.

Reported net sales decreased 12% for the three months ended March 31, 2023, driven by the decrease from volume of 7%, the unfavorable impact from foreign currency translation of 3%, the impact from the license terminations of certain of our designer fragrances of 1% and a decrease from pricing of 1%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions.

Reported net sales decreased 13% for the nine months ended March 31, 2023, driven by the decrease from volume of 9%, the unfavorable impact from foreign currency translation of 4% and the impact from the license terminations of certain of our designer fragrances of 1%.

Partially offsetting these decreases was an increase from pricing of 1%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

Reported net sales decreased 14% for the six months ended December 31, 2022, driven by the decrease from volume of 10%, the unfavorable impact from foreign currency translation of 5%, and the impact from the license terminations of certain of our designer fragrances of 1%.

Partially offsetting these decreases was the increase from pricing of 2%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Product Categories

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($ in millions) 2023 2022 2023 2022

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GAAP measures.

Reported skin care net sales decreased for the three and six months ended December 31, 2022, reflecting lower net sales from Estée Lauder, La Mer, Clinique and Dr.Jart+, combined, of approximately $762 million and $1,068 million, respectively, primarily driven by the COVID-related impacts affecting Asia travel retail, including the tightening of inventory by certain of our retailers, retail traffic in mainland China and the Dr.Jart+ travel retail business in Korea.

Also contributing to the decrease in net sales from Estée Lauder for the three and six months ended December 31, 2022 in the United States was the tightening of inventory from certain of our retailers and lower replenishment orders in the fiscal 2023 second quarter.

Partially offsetting these decreases in skin care net sales for the three and six months ended December 31, 2022 were higher net sales from The Ordinary and Bobbi Brown, combined, of approximately $34 million and $38 million, respectively.

Reported skin care net sales decreased for the three months ended March 31, 2023, reflecting lower net sales from La Mer, Estée Lauder, Dr.Jart+, Origins and Clinique, combined, of approximately $538 million, primarily driven by lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory.

Reported skin care net sales decreased for the nine months ended March 31, 2023, reflecting lower net sales from Estée Lauder, La Mer, Dr.Jart+, Clinique and Origins, combined, of approximately $1,701 million, primarily driven by the evolution of the COVID-19 environment, including restrictions in mainland China and the rising number of COVID-19 cases (collectively the "COVID-19-Related Impacts") affecting Asia travel, including the tightening of inventory by certain of our retailers, retail traffic in mainland China and the Dr.Jart+ travel retail business in Korea during the first half of fiscal 2023.

In addition, contributing to the decrease for the nine months ended March 31, 2023 was the lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory for the three months ended March 31, 2023.

Partially offsetting these decreases in skin care net sales for the three and nine months ended March 31, 2023 were higher net sales from The Ordinary and M·A·C, combined, of approximately $78 million and $104 million, respectively.

The increase in net sales from The Ordinary in both periods was driven by success of hero products, new product launches and expanded distribution.

In both periods, the increase in net sales from Bobbi Brown reflected the continued success of hero products.

The skin care net sales decrease was impacted by approximately $152 million and $237 million of unfavorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

Reported skin care net sales decreased 25% for the three months ended December 31, 2022, driven by the decrease from volume of 18%, the unfavorable impact from foreign currency translation of 5%, and a decrease from pricing of 2%, due to the unfavorable impact from changes in mix, partially offset from strategic pricing actions.

Reported skin care net sales decreased 20% for the six months ended December 31, 2022, driven by the decrease from volume of 16% and the unfavorable impact from foreign currency translation of 4%.

The impact from pricing was virtually flat period-over-period, due to the favorable impact from strategic pricing actions offset by changes in mix.

The increase in net sales from M·A·C for the three and nine months ended March 31, 2023 was primarily driven by the fiscal 2023 third quarter launch of the Hyper Real franchise line of products.

The skin care net sales decrease was impacted by approximately $61 million and $298 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Reported skin care net sales decreased 20% for the three months ended March 31, 2023, driven by the decrease from volume of 14%, the unfavorable impact from foreign currency translation of 3% and a decrease from pricing of 3%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions.

Reported skin care net sales decreased 20% for the nine months ended March 31, 2023, driven by the decrease from volume of 15%, the unfavorable impact from foreign currency translation of 4% and a decrease from pricing of 1%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions.

THE ESTÉE LAUDER COMPANIES INC.

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GAAP measures.

Reported makeup net sales decreased for the three and six months ended December 31, 2022, reflecting lower net sales from Estée Lauder and Tom Ford Beauty, combined, of approximately $119 million and $233 million, respectively, primarily driven by COVID-related impacts, affecting Asia travel retail and retail traffic in mainland China.

Partially offsetting these decreases in net sales for the three and six months ended December 31, 2022 was an increase in net sales from M·A·C in both periods, driven by the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter.

The makeup net sales decrease was impacted by approximately $73 million and $123 million of unfavorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

Reported makeup net sales decreased 9% for the three months ended December 31, 2022, driven by the decrease from volume of 9% and the unfavorable impact from foreign currency translation of 5%.

Partially offsetting these decreases was the increase from pricing of 5% due to the favorable impact from strategic pricing actions.

Reported makeup net sales decreased 9% for the six months ended December 31, 2022, driven by the decrease from volume of 6% and the unfavorable impact from foreign currency translation of 5%.

Partially offsetting these decrease was an increase from pricing of 2% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported makeup net sales decreased for the three months ended March 31, 2023, reflecting lower net sales from Estée Lauder and La Mer, combined, of approximately $89 million, primarily driven by lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory.

Reported makeup net sales decreased for the nine months ended March 31, 2023, reflecting lower net sales from Estée Lauder, TOM FORD Beauty and La Mer, combined, of approximately $339 million, primarily driven by COVID-19-Related Impacts affecting Asia travel retail, and retail traffic in mainland China, during the first half of fiscal 2023.

In addition, contributing to the decrease for the nine months ended March 31, 2023 was lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory during the three months ended March 31, 2023.

Partially offsetting these decreases in makeup net sales for the three and nine months ended March 31, 2023 was an increase in net sales from M·A·C and Clinique, combined, of approximately $37 million and $79 million, respectively.

The increase in net sales from M·A·C in both periods was driven by the recognition of previously deferred revenue due to changes to the BACK-To-M·A·C take back program.

Net sales from Clinique increased in both periods, benefiting from solid performance in the lip, concealer and eye subcategories.

Also partially offsetting the decreases in makeup net sales for the three months ended March 31, 2023, were increases in net sales from TOM FORD Beauty due to strength from products in the lip subcategory and increases in net sales from Too Faced driven by hero products, combined, of approximately $16 million.

The makeup net sales decrease was impacted by approximately $28 million and $151 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Reported makeup net sales decreased 2% for the three months ended March 31, 2023, driven by the decrease from volume of 3% and the unfavorable impact from foreign currency translation of 2%.

Partially offsetting these decreases was an increase from pricing of 3% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported makeup net sales decreased 7% for the nine months ended March 31, 2023, driven by the decrease from volume of 5% and the unfavorable impact from foreign currency translation of 4%.

Partially offsetting these decreases was an increase from pricing of 2% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

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GAAP measures.

Reported fragrance net sales increased for the three months ended March 31, 2023, primarily reflecting higher net sales from Le Labo, TOM FORD Beauty, Estée Lauder, Kilian Paris and Editions de Parfums Frédéric Malle combined, of approximately $74 million.

The increase in net sales from Le Labo reflected the continued success of hero product franchises and targeted expanded consumer reach.

Net sales from Estée Lauder increased, reflecting a favorable year-over-year impact due to incremental sales of fragrance sets during the three months ended March 31, 2023, and success of the Beautiful and Estée Lauder Pleasures franchise line of products.

The increase in net sales from TOM FORD Beauty reflected the continued success of Signature and Private Blend fragrances, expanded distribution and new product launches.

Net sales from Kilian Paris increased, primarily driven by continued success of hero product franchises and new product launches.

The increase in net sales from Editions de Parfums Frederic Malle reflected success of hero products and expanded distribution.

Partially offsetting the increase in fragrance net sales for the three months ended March 31, 2023 was the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022 and lower net sales from Jo Malone London, combined, of approximately $70 million.

Net sales from Jo Malone London decreased driven by lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory.

Reported fragrance net sales decreased for the nine months ended March 31, 2023, primarily reflecting the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022 and lower net sales from Jo Malone London, combined, of approximately $233 million.

The decrease in net sales from Jo Malone London primarily reflected COVID-19-Related Impacts affecting Asia travel retail, and retail traffic in mainland China, during the first half of fiscal 2023.

Partially offsetting the decrease in fragrance net sales for the nine months ended March 31, 2023 were higher net sales from Estée Lauder, TOM FORD Beauty, Le Labo and Clinique, combined, of approximately $201 million.

Net sales from Estée Lauder increased, reflecting the continued success from the Beautiful franchise line of products and successful performance during holiday and key shopping moments.

Net sales from Le Labo increased, reflecting the continued success of hero product franchises, targeted expanded consumer reach and successful performance during holiday and key shopping moments.

The increase in net sales from TOM FORD Beauty reflected the continued success of Signature and Private Blend fragrances, expanded distribution, new product launches and successful performance during holiday and key shopping moments.

Net sales from Clinique increased, primarily reflecting growth in the Clinique Happy franchise line of products.

Fragrance net sales were impacted by approximately $16 million and $100 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Reported fragrance net sales increased 1% for the three months ended March 31, 2023, driven by the increase from volume of 9% and the increase from pricing of 5%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Partially offsetting these increases was the impact from the license terminations of certain of our designer fragrances of 10% and the unfavorable impact from foreign currency translation of 3%.

Reported fragrance net sales decreased 1% for the nine months ended March 31, 2023, driven by the impact from the license terminations of certain of our designer fragrances of 10% and the unfavorable impact from foreign currency translation of 5%.

THE ESTÉE LAUDER COMPANIES INC.

Reported fragrance net sales decreased for the three and six months ended December 31, 2022, primarily reflecting the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022 and lower net sales from Jo Malone London, combined, of approximately $102 million and $163 million, respectively.

The decrease in net sales from Jo Malone London for the three and six months ended December 31, 2022 primarily reflected COVID-related impacts affecting Asia travel retail and retail traffic in mainland China.

Also contributing to the net sales decline for the three months ended December 31, 2022 for Jo Malone London was an unfavorable impact relating to the timing of holiday shipments compared to the prior-year period.

Partially offsetting the decrease in fragrance net sales for the three and six months ended December 31, 2022 were higher net sales from Estée Lauder, Le Labo, Tom Ford Beauty, and Clinique, combined, of approximately $74 million and $135 million, respectively.

Net sales from Estée Lauder increased in both periods, primarily reflecting successful performance during holiday and key shopping moments driven by continued success from the Beautiful franchise line of products.

Also contributing to the increase in net sales from Estée Lauder for the three months ended December 31, 2022 was a favorable impact due to timing of holiday shipments compared to the prior-year period.

Net sales from Le Labo increased in both periods, reflecting the continued success of hero product franchises, successful performance during holiday and targeted expanded consumer reach.

The increase in net sales from Tom Ford Beauty in both periods reflected the continued success of Private Blend and Signature fragrances, new product launches and successful performance during holiday and key shopping moments.

Net sales from Clinique increased in both periods, primarily reflecting growth in the Clinique Happy franchise line of products.

The fragrance net sales decrease was impacted by approximately $49 million and $84 million of unfavorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

Reported fragrance net sales decreased 3% for the three months ended December 31, 2022, driven by the impact from the license terminations of certain of our designer fragrances of 9% and the unfavorable impact from foreign currency translation of 6%.

Partially offsetting these decreases was the increase from volume of 10% and the increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported fragrance net sales decreased 2% for the six months ended December 31, 2022, driven by the impact from the license terminations of certain of our designer fragrances of 10% and the unfavorable impact from foreign currency translation of 6%.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

6 unchanged sentences

GAAP measures.

Reported hair care net sales increased for the three and six months ended December 31, 2022, led by The Ordinary, benefiting from the fiscal 2022 third quarter launch of hair care products, partially offset by a decrease in net sales from Aveda.

The decrease in net sales from Aveda in both periods reflects an unfavorable impact of foreign currency translation, partially offset by the fiscal 2023 first quarter distribution expansion into mainland China and successful performance during holiday and key shopping moments.

The hair care net sales increase was impacted by approximately $6 million and $12 million of unfavorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Reported hair care net sales increased 1% for the three months ended December 31, 2022, driven by the increase from pricing of 7%, due to the favorable impact from strategic pricing actions.

Partially offsetting this increase was the decrease from volume of 3%, partially offset by new product innovation, and the unfavorable impact from foreign currency translation of 3%.

Reported hair care net sales increased 4% for the six months ended December 31, 2022, driven by the increase from pricing of 10%, due to the favorable impact from strategic pricing actions and changes in mix.

Partially offsetting this increase was the decrease from volume of 2%, partially offset by new product innovation, and the unfavorable impact from foreign currency translation of 4%.

Reported hair care net sales increased for the three and nine months ended March 31, 2023, driven by higher net sales from The Ordinary reflecting growth due to the recent launch of hair care products, partially offset by a decrease in net sales from Aveda.

For the three months ended March 31, 2023, Aveda net sales decreased, due to a decline in the salon business and lower online net sales in North America.

Net sales from Aveda decreased for the nine months ended March 31, 2023, primarily driven by an unfavorable impact of foreign currency translation, partially offset by the fiscal 2023 first quarter distribution expansion into mainland China, new product launches and successful performance during holiday and key shopping moments.

The hair care net sales increase was impacted by approximately $2 million and $14 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Reported hair care net sales increased 1% for the three months ended March 31, 2023, driven by the increase from volume of 4%, partially offset by the unfavorable impact from foreign currency translation of 2% and the decrease from pricing of 1%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions.

Reported hair care net sales increased 3% for the nine months ended March 31, 2023, driven by an increase from pricing of 7%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Partially offsetting this increase was the decrease from volume of 1% and the unfavorable impact from foreign currency translation of 3%.

Geographic Regions

We strategically time our new product launches by geographic market, which may account for differences in regional sales growth.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

6 unchanged sentences

GAAP measures.

Reported net sales in The Americas decreased for the three and six months ended December 31, 2022, reflecting the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022 of 2% and 3%, respectively.

In the United States, net sales decreased $66 million and $138 million for the three and six months ended December 31, 2022, respectively, driven by the tightening of inventory from certain of our retailers, lower shipments of replenishment orders in the fiscal 2023 second quarter and the aforementioned impact of the license terminations related to certain of our designer fragrances.

Partially offsetting the decrease in The Americas for the three and six months ended December 31, 2022 was an increase in net sales in Latin America of approximately $7 million and $20 million, respectively, reflecting continued recovery in makeup.

Net sales in The Americas were impacted by approximately $7 million and $14 million of favorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

Reported net sales in The Americas decreased 5% for the three months ended December 31, 2022, driven by the decrease from volume of 8% and the impact from the license terminations related to certain of our designer fragrances of 2%.

Partially offsetting this decrease was the increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix, and the favorable impact from foreign currency translation of 1%.

Reported net sales in The Americas decreased 5% for the six months ended December 31, 2022, driven by the decrease from volume of 8% and the impact from the license terminations related to certain of our designer fragrances of 3%.

Partially offsetting this decrease was the increase from pricing of 5%, due to the favorable impact from strategic pricing actions, and the favorable impact from foreign currency translation of 1%.

Reported net sales in The Americas increased for the three months ended March 31, 2023, primarily driven by an increase in the United States and Latin America, combined of approximately $38 million.

The increase in net sales in the United States for the three months ended March 31, 2023 was led by higher net sales from The Ordinary, partially offset by the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022.

Net sales in Latin America increased, led by Mexico and Brazil, reflecting continued recovery in makeup.

Reported net sales in The Americas decreased for the nine months ended March 31, 2023, primarily driven by a decrease in net sales in the United States of approximately $108 million, reflecting the tightening of inventory from certain of our retailers, lower shipments of replenishment orders in the fiscal 2023 second quarter and the impact of the license terminations related to certain of our designer fragrances.

Partially offsetting the decrease in The Americas for the nine months ended March 31, 2023 was an increase in net sales in Latin America of approximately $28 million, led by Brazil and Mexico, reflecting continued recovery in makeup.

Net sales in The Americas were impacted by approximately $1 million of unfavorable and $13 million of favorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Reported net sales in The Americas increased 3% for the three months ended March 31, 2023, driven by the increase from volume of 6%, partially offset by the impact from the license terminations related to certain of our designer fragrances of 2% and the unfavorable impact from foreign currency translation of 1%.

The impact from pricing was flat period-over-period, due to the favorable impact from strategic pricing actions offset by changes in mix.

Reported net sales in The Americas decreased 3% for the nine months ended March 31, 2023, driven by the decrease from volume of 4% and the impact from the license terminations related to certain of our designer fragrances of 3%.

Partially offsetting this decrease was an increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

6 unchanged sentences

GAAP measures.

Reported net sales decreased in Europe, the Middle East & Africa for the three and six months ended December 31, 2022, primarily driven by lower net sales from our travel retail business, Russia and the United Kingdom, combined, of approximately $529 million and $703 million, respectively.

The decrease in net sales from our travel retail business for the three and six months ended December 31, 2022 reflects the COVID-related impacts affecting Asia travel retail, including the tightening of inventory from certain of our retailers.

Net sales from Russia decreased for the three and six months ended December 31, 2022, as we sold a limited selection of products to a reduced number of authorized retailers and completed the closure of all of our freestanding stores.

The decrease in net sales from the United Kingdom for the three and six months ended December 31, 2022 is driven by the unfavorable impact of foreign currency translation, partially offset by the continued recovery in the makeup product category.

Partially offsetting the decreases in net sales in Europe, the Middle East & Africa for the three and six months ended December 31, 2022 were increases in net sales from Turkey and India, combined, of approximately $17 million and $31 million.

The net sales increase in Turkey in both periods was driven by growth in makeup.

Net sales in India increased for the three and six months ended December 31, 2022 led by growth in skin care and makeup, respectively.

Net sales in Europe, the Middle East & Africa were impacted by approximately $102 million and $185 million of unfavorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

Reported net sales in Europe, the Middle East & Africa decreased 22% for the three months ended December 31, 2022, driven by the decrease from volume of 16%, the unfavorable impact from foreign currency translation of 4%, and the impact from the license terminations related to certain of our designer fragrances of 1%, and a decrease from pricing of 1%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions.

Reported net sales in Europe, the Middle East & Africa decreased 17% for the six months ended December 31, 2022, driven by the decrease from volume of 12%, the unfavorable impact from foreign currency translation of 4%, and the impact from the license terminations related to certain of our designer fragrances of 1%.

The impact from pricing was virtually flat period-over-period, due to the favorable impact from strategic pricing actions offset by changes in mix.

Reported net sales decreased in Europe, the Middle East & Africa for the three months ended March 31, 2023, primarily driven by lower net sales from our travel retail business of approximately $589 million, driven by lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory.

Partially offsetting the decrease in net sales in Europe, the Middle East & Africa for the three months ended March 31, 2023 was higher net sales from the United Kingdom and Germany combined, of approximately $31 million.

The increase in net sales in the United Kingdom for the three months ended March 31, 2023 reflected higher net sales primarily in skin care, led by The Ordinary.

Net sales in Germany increased for the three months ended March 31, 2023, primarily driven by brick-and-mortar recovery.

Reported net sales decreased in Europe, the Middle East & Africa for the nine months ended March 31, 2023, primarily driven by lower net sales from our travel retail business, Russia and the United Kingdom, combined, of approximately $1,273 million.

The decrease in net sales from our travel retail business for the nine months ended March 31, 2023 reflects the COVID-19-Related Impacts affecting Asia travel retail, including the tightening of inventory by certain of our retailers during the first half of fiscal 2023.

In addition, contributing to the decrease in our travel retail business for the nine months ended March 31, 2023 was lower demand in our Asia travel retail business that resulted in lower product shipments as retailers reduced inventory during the three months ended March 31, 2023.

N et sales from Russia decreased for the nine months ended March 31, 2023, as we sold a limited selection of products to certain retailers, and completed the closure of all of our freestanding stores during the first half of fiscal 2023 .

The decrease in net sales from the United Kingdom for the nine months ended March 31, 2023 is driven by the unfavorable impact of foreign currency translation, partially offset by brick-and-mortar recovery, reflecting an increase in traffic, compared to the prior-year period.

Partially offsetting the decreases in net sales in Europe, the Middle East & Africa for the nine months ended March 31, 2023 were increases in net sales from Turkey and India, combined, of approximately $37 million.

The net sales increase in Turkey was driven by growth in makeup and skin care.

Net sales in India increased for the nine months ended March 31, 2023 led by growth in makeup.

Net sales in Europe, the Middle East & Africa were impacted by approximately $20 million and $205 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Reported net sales in Europe, the Middle East & Africa decreased 26% for the three months ended March 31, 2023, driven by the decrease from volume of 21%, a decrease from pricing of 3%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions, the unfavorable impact from foreign currency translation of 1% and the impact from the license terminations related to certain of our designer fragrances of 1%.

Reported net sales in Europe, the Middle East & Africa decreased 20% for the nine months ended March 31, 2023, driven by the decrease from volume of 15%, the unfavorable impact from foreign currency translation of 3%, a decrease from pricing of 1%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions, and the impact from the license terminations related to certain of our designer fragrances of 1%.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

6 unchanged sentences

GAAP measures.

Reported net sales decreased in Asia/Pacific for the three and six months ended December 31, 2022, primarily driven by a decrease in net sales in Greater China and Korea, led by the Dr.Jart+ travel retail business in Korea, combined, of approximately $321 million and $538 million, respectively, due to the COVID-related impacts.

Partially offsetting the net sales decrease for the three and six months ended December 31, 2022 were increases across southeast Asia, led by increases in net sales from the Philippines, Malaysia and Vietnam, combined, of approximately $5 million and $30 million, respectively, driven by growth in our makeup and fragrance product categories.

Net sales in Asia/Pacific were impacted by approximately $187 million and $287 million of unfavorable foreign currency translation for the three and six months ended December 31, 2022, respectively.

Reported net sales in Asia/Pacific decreased 17% for the three months ended December 31, 2022, driven by the decrease from the unfavorable impact from foreign currency translation of 10% and the decrease from volume of 8%.

Partially offsetting these decreases was the increase from pricing of 1%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported net sales in Asia/Pacific decreased 16% for the six months ended December 31, 2022, driven by the unfavorable impact from foreign currency translation of 9% and the decrease from volume of 8%.

Partially offsetting these decreases was the increase from pricing of 1%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Gross margin decreased to 73.6% and 73.8% for the three and six months ended December 31, 2022, respectively, as compared with 77.9% and 77.0% in the prior-year periods.

Reported net sales decreased in Asia/Pacific for the three months ended March 31, 2023, primarily driven by the unfavorable impact of foreign currency translation of 7%, resulting in a decrease in net sales in mainland China, and lower net sales in Korea, led by the Dr.Jart+ travel retail business in Korea, combined, of approximately $68 million.

The decrease in Asia/Pacific net sales for the three months ended March 31, 2023 reflected lower demand in our Dr.Jart+ travel retail business that resulted in lower product shipments as retailers reduced inventory.

Reported net sales decreased in Asia/Pacific for the nine months ended March 31, 2023 was primarily driven by a decrease in net sales in mainland China and Korea, led by the Dr.Jart+ travel retail business in Korea, combined, of approximately $559 million, reflecting COVID-19-Related Impacts during the first half of fiscal 2023, combined with lower demand in our Dr.Jart+ travel retail business that resulted in lower product shipments as retailers reduced inventory.

Partially offsetting the net sales decrease in Asia/Pacific for the three and nine months ended March 31, 2023 were increases in Hong Kong, Australia and Southeast Asia, combined, of approximately $67 million, and increases in Southeast Asia, combined of $46 million, respectively, driven by the continued progression towards COVID-19 recovery.

Net sales in Asia/Pacific were impacted by approximately $86 million and $373 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2023, respectively.

Reported net sales in Asia/Pacific decreased 1% for the three months ended March 31, 2023, driven by the unfavorable impact from foreign currency translation of 7% and the negative impact from the license terminations related to certain of our designer fragrances of 1%.

Partially offsetting these decreases was the increase from volume of 6% and the increase from pricing of 1%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported net sales in Asia/Pacific decreased 12% for the nine months ended March 31, 2023, driven by the unfavorable impact from foreign currency translation of 8%, the decrease from volume of 4% and the impact from the license terminations related to certain of our designer fragrances of 1%.

Partially offsetting these decreases was an increase from pricing of 1%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

Gross margin decreased to 69.1% and 72.4% for the three and nine months ended March 31, 2023, respectively, as compared with 76.6% and 76.9% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2022

Three Months Ended Six Months Ended

March 31, 2023

Three Months Ended Nine Months Ended

Mix of business (400) (295)

3 unchanged sentences

Total (750) (450)

THE ESTÉE LAUDER COMPANIES INC.

The decrease in gross margin for the three and six months ended December 31, 2022 reflected unfavorable impacts from our mix of business and higher manufacturing costs due to continued inflationary pressures.

The unfavorable impact from our mix of business in both periods is primarily due to the change in geographic region and category mix, driven by the decrease in skin care net sales and higher costs associated with promotional items.

The decrease in gross margin for the three and nine months ended March 31, 2023 reflected unfavorable impacts from our mix of business, higher obsolescence charges and higher manufacturing costs and other.

The unfavorable impact from our mix of business in both periods is primarily driven by brand mix, reflecting the lower gross margin of The Ordinary products, and category mix, driven by the decrease in skin care net sales, as well as higher costs associated with promotional items.

The unfavorable impact from obsolescence charges is primarily due to excess inventory on hand and increased levels of inventory destruction driven by lower demand that resulted in lower product shipments.

In both periods, manufacturing costs and other increased, driven by higher costs within our inventory deferrals recognized during the current-year periods for freight and material commodities.

OPERATING EXPENSES

Operating expenses as a percentage of net sales was 61.6% and 59.5% for the three and six months ended December 31, 2022, respectively, as compared with 52.3% and 53.3% in the prior-year periods.

Operating expenses as a percentage of net sales was 61.2% and 60.0% for the three and nine months ended March 31, 2023, respectively, as compared with 59.2% and 55.1% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2022

Three Months Ended Six Months Ended

March 31, 2023

Three Months Ended Nine Months Ended

General and administrative expenses (160) (50)

4 unchanged sentences

Shipping (40) (70)

Foreign exchange transactions 10 10

Subtotal (570) (440)

3 unchanged sentences

Total (200) (490)

The unfavorable change in operating expense margin for the three and six months ended December 31, 2022, was primarily due to the decrease in net sales and the fiscal 2023 second quarter impact of other intangible asset impairments of $207 million.

The unfavorable impact of store operating costs in both periods was due to the brick-and-mortar recovery, including more stores being open compared to the prior-year period.

Partially mitigating the unfavorable impact in both periods was disciplined expense management.

THE ESTÉE LAUDER COMPANIES INC.

The unfavorable change in operating expense margin for the three months ended March 31, 2023, reflected unfavorable impacts relating to advertising, merchandising, sampling and product development, general and administrative expenses and selling expenses primarily driven by the decrease in net sales, as well as the unfavorable year-over-year impact for the change in fair value of acquisition-related stock options of $61 million relating to the fiscal 2021 increase in our investment in DECIEM, partially offset by the fiscal 2022 third quarter impact of other intangible asset impairments of $216 million.

The unfavorable change in operating expense margin for the nine months ended March 31,2023 reflected unfavorable impacts relating to advertising, merchandising, sampling and product development, selling expenses, shipping expenses, and general and administrative expenses, driven by the decrease in net sales, as well as an unfavorable impact relating to store operating costs due to the brick-and-mortar recovery.

OPERATING RESULTS

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

7 unchanged sentences

GAAP measures.

The decrease in reported operating margin for the three and six months ended December 31, 2022 was primarily driven by a decrease in net sales, decrease in gross margin and the decrease in operating expense margin, discussed above.

The decrease in reported operating margin for the three and nine months ended March 31, 2023 was primarily driven by a decrease in net sales, decrease in gross margin and the decrease in operating expense margin, discussed above.

Charges associated with restructuring and other activities are not allocated to our product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business.

Accordingly, the following discussions of Operating income by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other activities.

THE ESTÉE LAUDER COMPANIES INC.

Product Categories

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

6 unchanged sentences

GAAP measures.

Reported skin care operating income decreased for the three months ended March 31, 2023 reflecting lower operating results from Estée Lauder, La Mer and Clinique, combined, of approximately $529 million and decreased for the nine months ended March 31, 2023, reflecting lower operating results from Estée Lauder, La Mer, Clinique and Origins, combined, of approximately $1,321 million, primarily driven by decreases in net sales.

Skin care operating income also decreased for the three and nine months ended March 31, 2023, reflecting the unfavorable year-over-year impact for the change in fair value of acquisition-related stock options of $59 million and $54 million, respectively, relating to the fiscal 2021 increase in our investment in DECIEM.

Also contributing to the decrease in operating income from Clinique for the three months ended March 31, 2023 was higher cost of sales due to higher costs for promotional items.

The decrease in operating results from Estée Lauder for the nine months ended March 31, 2023 also reflected a higher cost of sales, due, in part to an increase related to promotional items.

Partially offsetting the decrease in operating results from La Mer for the nine months ended March 31, 2023 was disciplined advertising and promotional expense management.

Partially offsetting the decrease in operating results from Origins for the nine months ended March 31, 2023 was disciplined advertising and promotional expense management, lower cost of sales due to the net sales decrease and lower selling expenses due to the closure of freestanding stores during fiscal 2023.

Partially offsetting the decrease in skin care operating income for the three and nine months ended March 31, 2023 was the favorable year-over-year impact of other intangible asset impairments related to Dr.Jart+ of $205 million and $105 million, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Reported skin care operating income decreased for the three and six months ended December 31, 2022, reflecting lower operating results from Estée Lauder and La Mer, combined, of approximately $476 million and $641 million, respectively, primarily driven by decreases in net sales, as well as the fiscal 2023 second quarter other intangible asset impairment related to Dr.Jart+ of $100 million.

Partially offsetting the decrease in skin care operating income for the three and six months ended December 31, 2022 was higher operating results from The Ordinary, primarily driven by an increase in net sales.

Also benefiting skin care operating income in both periods was disciplined expense management.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

3 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of other intangible asset impairments (46) % (61) %

% Change in operating income from the prior-year period adjusting for the impact of other intangible asset impairments and the change in fair value of acquisition-related stock options (100+)% (69) %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 59 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported makeup operating income decreased for the three and six months ended December 31, 2022, reflecting the fiscal 2023 second quarter other intangible asset impairments related to Too Faced and Smashbox of $107 million, combined, and lower results from Estée Lauder and Tom Ford Beauty, combined, of approximately $103 million and $231 million, respectively.

In both periods, the decrease in operating income from Estée Lauder and Tom Ford Beauty is driven by decreases in net sales.

Also contributing to the decrease in operating results from Estée Lauder in both periods were higher cost of sales due to impacts associated with inflationary pressures, partially offset by a decrease in advertising and promotional activities.

Partially offsetting the decrease in makeup operating income for the three and six months ended December 31, 2022 were higher results from M·A·C, primarily driven by the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter and disciplined advertising and promotional expense management.

Also benefiting makeup operating income in both periods was lower general and administrative expenses.

Reported makeup operating income decreased for the three and nine months ended March 31, 2023, reflecting lower results from Estée Lauder and La Mer, combined, of approximately $54 million and $213 million, respectively, primarily driven by a decrease in net sales.

For the three and nine months ended March 31, 2023, the decrease in operating income from Estée Lauder was partially offset by disciplined advertising and promotional expense management.

For the three and nine months ended March 31, 2023, the decrease in operating income from La Mer was partially offset by a decrease in cost of sales due to lower net sales compared to the prior-year period.

Also contributing to the decrease in makeup operating income for the nine months ended March 31, 2023 was the fiscal 2023 second quarter other intangible asset impairments related to Too Faced and Smashbox of $107 million, combined, and lower results from TOM FORD Beauty, driven by a decrease in net sales.

Partially offsetting the decreases in makeup operating income for the three months ended March 31, 2023 were higher results from Clinique and TOM FORD Beauty, combined, of approximately $16 million, driven by increases in net sales, partially offset by higher cost of sales, due, in part to an increase in promotional items.

Partially offsetting the decrease in makeup operating income for the nine months ended March 31, 2023 were higher results from M·A·C, primarily driven by the recognition of previously deferred revenue due to changes to the BACK-To-M·A·C take back program and disciplined advertising and promotional expense management, partially offset by an increase in cost of sales.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

2 unchanged sentences

% Change from prior-year period (15) % (11) %

Reported fragrance operating income decreased for the three and six months ended December 31, 2022, reflecting lower results from Jo Malone London and the impact of license terminations related to certain of our designer fragrances effective June 30, 2022, combined, of approximately $61 million and $93 million, respectively.

Operating income from Jo Malone London decreased in both periods, primarily driven by a decrease in net sales, higher advertising and promotional activities to support holiday and key shopping moments, and higher selling expenses due to increased staffing costs compared to the prior-year period.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting the decrease in fragrance operating income for the three and six months ended December 31, 2022, were higher results from Estée Lauder, driven by an increase in net sales.

Also benefiting fragrance operating income for the six months ended December 31, 2022, were higher results from Tom Ford Beauty, reflecting an increase in net sales, partially offset by higher selling expenses due to increased staffing costs compared to the prior-year period, and higher advertising and promotional activities to support hero franchises and holiday and key shopping moments.

Also benefiting fragrance operating income in both periods was lower general and administrative expenses.

Reported fragrance operating income decreased for the three and nine months ended March 31, 2023, reflecting lower results from Jo Malone London, driven by a decrease in net sales and higher cost of sales, due, in part to an increase in promotional items, as well and the impact of license terminations related to certain of our designer fragrances effective June 30, 2022, combined, of approximately $34 million and $127 million, respectively.

Partially offsetting these decreases in both periods were higher results from Estée Lauder and Le Labo, combined, of approximately $34 million and $62 million, respectively, driven by increases in net sales.

Contributing to the increase in operating income from Estée Lauder for the three months ended March 31, 2023 was disciplined advertising and promotional expense management.

Contributing to the decrease in operating income from Jo Malone London for the nine months ended March 31, 2023 was higher selling expenses due to increased staffing costs compared to the prior-year period.

Also contributing to the decrease in fragrance operating income for the three months ended March 31, 2023 was lower results from TOM FORD Beauty, driven by higher advertising and promotional activities to support hero products and new product launches, and higher cost of sales due to the increase in net sales and selling expenses to support recovery, partially offset by an increase in net sales.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

2 unchanged sentences

% Change from prior-year period (33) % (100+)%

Reported hair care operating results decreased for the three and six months ended December 31, 2022, primarily driven by lower results from Aveda and Bumble and bumble, combined, of approximately $9 million and $34 million, respectively.

In both periods, the lower results from Aveda were primarily driven by a decrease in net sales, higher advertising and promotional activities to support the brand's expansion into mainland China during fiscal 2023 and holiday and key shopping moments and higher cost of sales.

Operating results from Bumble and bumble decreased for the three and six months ended December 31, 2022, primarily driven by higher cost of sales.

Partially offsetting the decrease in hair care operating income for the three and six months ended December 31, 2022 was lower general and administrative expenses.

Reported hair care operating results decreased for the three and nine months ended March 31, 2023, primarily driven by lower results from Aveda and Bumble and bumble, combined, of approximately $20 million and $54 million, respectively.

In both periods, the lower results from Aveda were primarily driven by a decrease in net sales, higher cost of sales and higher advertising and promotional activities to support the brand's expansion into mainland China during fiscal 2023.

Also contributing to the higher advertising and promotional activities for Aveda for the nine months ended March 31, 2023 were higher advertising and promotional activities to support holiday and key shopping moments.

Operating results from Bumble and bumble decreased for the three and nine months ended March 31, 2023, primarily driven by higher cost of sales.

Geographic Regions

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

6 unchanged sentences

GAAP measures.

Reported operating results decreased in The Americas for the three and six months ended December 31, 2022, primarily reflecting lower operating results from North America of approximately $468 million and $602 million, respectively.

The decrease in operating results in North America is driven by the United States, primarily due to lower intercompany royalty income driven by a decrease in net sales in our travel retail business, fiscal 2023 second quarter other intangible asset impairments relating to Too Faced and Smashbox of $107 million and a decrease in net sales.

Also contributing to the decrease in operating results in the United States for the six months ended December 31, 2022 was an increase in selling expenses due to higher staffing costs compared to the prior-year period.

THE ESTÉE LAUDER COMPANIES INC.

Reported operating results decreased in The Americas for the three months ended March 31, 2023, primarily reflecting lower operating results from North America of approximately $501 million.

The decrease in operating results in North America is driven by the United States, primarily due to lower intercompany royalty income of $338 million compared to the prior-year-period, driven by a decrease in net sales in our travel retail business and higher cost of sales, partially offset by an increase in net sales.

Also contributing to the decrease in operating income in North America was the unfavorable year-over-year impact for the change in fair value of acquisition-related stock options of $61 million relating to the fiscal 2021 increase in our investment in DECIEM.

Reported operating results decreased in The Americas for the nine months ended March 31, 2023, primarily reflecting lower operating results from North America of approximately $1,103 million.

The decrease in operating results in North America is driven by the United States, primarily due to lower intercompany royalty income of $547 million compared to the prior-year period, driven by a decrease in net sales in our travel retail business, a decrease in net sales, and the unfavorable year-over-year impact of other intangible asset impairments of $96 million.

Also contributing to the decrease in operating income in North America was the unfavorable year-over-year impact for the change in fair value of acquisition-related stock options of $56 million relating to the fiscal 2021 increase in our investment in DECIEM.

Europe, the Middle East & Africa

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

2 unchanged sentences

% Change from prior-year period (37) % (33) %

Reported operating income decreased in Europe, the Middle East & Africa for the three and six months ended December 31, 2022, primarily driven by lower results from our travel retail business of approximately $236 million and $384 million, respectively.

In both periods, operating income decreased in our travel retail business reflecting the decrease in net sales and higher advertising and promotional activity primarily to support investments in key markets and increased digital media campaigns.

Also contributing to the decrease in operating income in our travel retail business was an increase in cost of sales reflecting higher costs due to inflationary pressures.

Partially offsetting the decrease in operating income in our travel retail business in both periods was a decrease in intercompany royalty expense to The Americas due to the net sales decrease.

Reported operating income decreased in Europe, the Middle East & Africa for the three and nine months ended March 31, 2023, primarily driven by lower results from our travel retail business of approximately $130 million and $514 million, respectively.

For the three and nine months ended March 31, 2023, operating income decreased in our travel retail business reflecting the decrease in net sales, partially offset by the decrease in intercompany royalty expense to The Americas of $338 million and $547 million, respectively, due to the net sales decrease.

Partially offsetting the operating income decrease in Europe, the Middle East & Africa for the nine months ended March 31, 2023 was an increase in operating income in the United Kingdom, led by The Ordinary, driven by an increase in net sales.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2023 2022 2023 2022

6 unchanged sentences

GAAP measures.

Reported operating income decreased in Asia/Pacific for the three and six months ended December 31, 2022, primarily reflecting the fiscal 2023 second quarter other intangible asset impairment relating to Dr.

Jart+ of $100 million and a decrease in operating results in Greater China of approximately $76 million and $106 million, respectively.

The decrease in operating results in Greater China in both periods was driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management.

Partially offsetting the decrease in operating income in Asia/Pacific for the three and six months ended December 31, 2022 were higher results from southeast Asia, led by Singapore, Malaysia, and the Philippines, combined, of approximately $2 million and $23 million, respectively, primarily driven by an increase in net sales.

Reported operating income increased in Asia/Pacific for the three months ended March 31, 2023, primarily reflecting the favorable year-over-year impact of other intangible asset impairments of $205 million, partially offset by lower operating results in Korea.

Operating results in Korea decreased for the three months ended March 31, 2023, led by Dr.Jart+, driven by a decrease in net sales.

Reported operating income decreased in Asia/Pacific for the nine months ended March 31, 2023, primarily reflecting decreases in operating results in mainland China, Korea and Japan, combined, of approximately $174 million, partially offset by the favorable year-over-year impact of other intangible asset impairments of $105 million and higher results from Southeast Asia due to increases in net sales, combined, of approximately $19 million.

The lower operating results in mainland China for the nine months ended March 31, 2023 was driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management and lower selling costs compared to the prior-year period.

Operating results in Korea decreased for the nine months ended March 31, 2023, led by Dr.Jart+, due to decreases in net sales, partially offset by lower selling expenses and cost of sales.

For the nine months ended March 31, 2023, operating results in Japan decreased, driven by the decrease in net sales.

INTEREST AND INVESTMENT INCOME

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2023 2022 2023 2022

1 unchanged sentence

Interest income and investment income, net $ 37 $ 5 $ 78 $ 19

Interest expense and interest income and investment income, net, increased primarily reflecting higher interest rates compared to the prior-year period.

THE ESTÉE LAUDER COMPANIES INC.

Interest expense increased in both periods, reflecting a higher debt balance due to the issuance of commercial paper during the fiscal 2023 third quarter and higher interest rates compared to the prior-year period.

Interest income and investment income, net increased, primarily reflecting higher interest rates compared to the prior-year period.

PROVISION FOR INCOME TAXES

4 unchanged sentences

In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of change.

THE ESTÉE LAUDER COMPANIES INC.

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 our 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.

NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions, except per share data) 2023 2022 2023 2022

9 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

11 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

($ in millions, except per share data) Three Months Ended

December 31 Variance % Change

March 31 Variance % Change

constant currency

13 unchanged sentences

THE ESTÉE LAUDER COMPANIES INC.

($ in millions, except per share data) Six Months Ended

December 31 Variance % Change

($ in millions, except per share data) Nine Months Ended

March 31 Variance % Change

constant currency

43 unchanged sentences

in constant currency

Six Months Ended

Nine Months Ended

($ in millions) 2023 2022 Variance

40 unchanged sentences

Change in fair value of acquisition-related stock options Variance, as adjusted % Change, as reported % Change, as adjusted

Six Months Ended

Nine Months Ended

($ in millions) 2023 2022 Variance

17 unchanged sentences

Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad.

At December 31, 2022, we had cash and cash equivalents of $3,725 million compared with $3,957 million at June 30, 2022.

At March 31, 2023, we had cash and cash equivalents of $5,531 million compared with $3,957 million at June 30, 2022.

Our cash and cash equivalents are maintained at a number of financial institutions.

6 unchanged sentences

If these reinvested earnings were repatriated into the United States as dividends, we would be subject to state income taxes and applicable foreign taxes in certain jurisdictions.

The effects of inflation have not been significant to our overall operating results in recent years, however we are mindful of increasing inflationary pressures.

Generally, we have been able to introduce new products at higher prices, increase prices and implement other operating efficiencies to sufficiently offset cost increases.

The effects of inflation have not been significant to our overall operating results in recent years;

however, we have experienced inflationary pressures during the current year.

Generally, we have been able to introduce new products at higher prices, increase prices and implement other operating efficiencies to offset some of these cost increases.

THE ESTÉE LAUDER COMPANIES INC.

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

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

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

We expect 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 our beauty business upon closing.

On April 28, 2023, we completed the acquisition of the TOM FORD brand that we announced in November 2022.

The amount paid by us 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 in deferred payments, at 5% interest per annum, to the sellers becomes due from us beginning in July 2025.

The completion of the acquisition of the brand resulted in the elimination of the existing license royalty payments on our TOM FORD Beauty business.

Credit Ratings

3 unchanged sentences

A credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time by the assigning rating organization, and should be evaluated independently of any other rating.

As of January 26, 2023, our long-term debt is rated A+ with a stable outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.

At December 31, 2022, our outstanding borrowings were as follows:

As of April 26, 2023, our long-term debt is rated A+ with a stable outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.

At March 31, 2023, our outstanding borrowings were as follows:

($ in millions) Long-term

13 unchanged sentences

Commercial paper (13)

— 2,233 2,233

Other long-term borrowings 7 — 7

13 unchanged sentences

(12) The Senior Notes contain certain customary incurrence–based covenants, including limitations on indebtedness secured by liens.

Total debt as a percent of total capitalization was 48% and 49% at December 31, 2022 and June 30, 2022, respectively.

(13) Consists of $2,250 million principal and unamortized debt discount of $17 million.

Total debt as a percent of total capitalization was 56% and 49% at March 31, 2023 and June 30, 2022, respectively.

THE ESTÉE LAUDER COMPANIES INC.

In January 2023, we entered into a $2,000 million senior unsecured revolving credit facility that expires on January 2, 2024 (the “New Facility”) for liquidity support for our 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, we increased our commercial paper program under which we may issue commercial paper in the United States from $2,500 million to $4,500 million.

Six Months Ended

In January 2023, we 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 our 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.

In January 2023, in connection with the 364-Day Facility, we increased our commercial paper program under which we may issue commercial paper in the United States from $2,500 million to $4,500 million.

As of April 26, 2023, we had $3,410 million outstanding under our commercial paper program.

Nine Months Ended

(In millions) 2023 2022

1 unchanged sentence

Net cash flows used for investing activities $ (527) $ (563)

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

The change in net cash flows provided by operating activities primarily reflected lower earnings before tax, excluding non-cash items, and the unfavorable change in working capital, reflecting lower other accrued liabilities, which includes the settlement of net investment hedges, lower accounts payable due to timing of payments, partially offset by a favorable change in accounts receivable.

The change in net cash flows used for investing activities primarily reflected a favorable impact from the settlement of net investment hedges, which is offset by the unfavorable change in other accrued liabilities as discussed above, and a decrease in capital expenditures compared to the prior-year period.

The change in net cash flows used for financing activities primarily reflected a decrease relating to lower treasury stock repurchases compared to the prior-year period.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the six months ended December 31, 2022, see Notes to Consolidated Financial Statements, Note 11 – Equity and Redeemable Noncontrolling Interest .

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

The change in net cash flows provided by operating activities primarily reflected lower earnings before tax, excluding non-cash items, partially offset by the favorable change in working capital, reflecting a favorable change in accounts receivable and inventory and promotional merchandise, partially offset by lower other accrued and noncurrent liabilities, which includes the settlement of net investment hedges and lower accounts payable due to timing of payments.

The change in net cash flows provided by (used for) financing activities primarily reflected an increase in current debt due to the increase in proceeds from commercial paper and lower treasury stock repurchases compared to the prior-year period, partially offset by an increase in repayments of long-term debt.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the nine months ended March 31, 2023, see Notes to Consolidated Financial Statements, Note 11 – Equity and Redeemable Noncontrolling Interest .

Pension and Post-retirement Plan Funding

12 unchanged sentences

A hypothetical 10% weakening of the U.S.

dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $267 million and $259 million as of December 31, 2022 and June 30, 2022, respectively.

dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $301 million and $259 million as of March 31, 2023 and June 30, 2022, respectively.

This potential change does not consider our underlying foreign currency exposures.

We also enter into cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt.

A hypothetical 10% weakening of the U.S.

dollar against the foreign exchange rates for the currencies in our cross-currency swap contracts would have resulted in a net decrease in the fair value of our cross-currency swap contracts of approximately $49 million as of March 31, 2023.

In addition, we enter into interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio, including future debt issuances.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $33 million and $41 million as of December 31, 2022 and June 30, 2022, respectively.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $11 million and $41 million as of March 31, 2023 and June 30, 2022, respectively.

Our sensitivity analysis represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results, which may or may not occur.

44 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 2. Management’s Discussion and Analysis