What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-05 compared with 2023-11-01 · 400 added, 130 removed, 675 unchanged (44% of the section changed)

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

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

1 unchanged sentence

Cost of sales

1,154 1,219 2,224 2,242

3,125 3,401 5,573 6,308

Operating expenses

Selling, general and administrative

2,544 2,630 4,893 4,874

Restructuring and other charges

Impairment of other intangible assets — 207 — 207

Total operating expenses

2,551 2,845 4,901 5,091

Operating income 574 556 672 1,217

6 unchanged sentences

Net earnings attributable to redeemable noncontrolling interest

( 11 ) ( 3 ) ( 16 ) ( 4 )

Net earnings attributable to The Estée Lauder Companies Inc.

$ 313 $ 394 $ 344 $ 883

Net earnings attributable to The Estée Lauder Companies Inc.

3 unchanged sentences

Weighted average common shares outstanding

358.7 357.7 358.6 357.8

360.0 360.4 360.3 360.9

See notes to consolidated financial statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

December 31 Six Months Ended

(In millions) 2023 2022 2023 2022

1 unchanged sentence

Other comprehensive income (loss):

Net cash flow hedge gain

Net cash flow hedge loss

( 47 ) ( 56 ) ( 28 ) ( 7 )

Cross-currency swap contract gain

1 unchanged sentence

Translation adjustments 216 287 96 ( 94 )

Provision for income taxes on components of other comprehensive income

( 38 ) ( 19 )

Total other comprehensive loss, net of tax

( 140 ) ( 351 )

Comprehensive income (loss)

Benefit for income taxes on components of other comprehensive income

Total other comprehensive income (loss), net of tax 220 257 80 ( 94 )

Comprehensive income 544 654 440 793

Comprehensive loss (income) attributable to redeemable noncontrolling interest:

( 11 ) ( 3 ) ( 16 ) ( 4 )

Translation adjustments ( 13 ) ( 8 ) ( 2 ) 27

Total comprehensive loss attributable to redeemable noncontrolling interest

Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.

Total comprehensive loss (income) attributable to redeemable noncontrolling interest ( 24 ) ( 11 ) ( 18 ) 23

Comprehensive income attributable to The Estée Lauder Companies Inc.

$ 520 $ 643 $ 422 $ 816

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) September 30

(In millions, except share data) December 31

Current assets

28 unchanged sentences

Class A shares authorized:

1,300,000,000 at September 30, 2023 and June 30, 2023;

1,300,000,000 at December 31, 2023 and June 30, 2023;

shares issued:

469,905,435 at September 30, 2023 and 469,668,085 at June 30, 2023;

470,748,805 at December 31, 2023 and 469,668,085 at June 30, 2023;

Class B shares authorized:

304,000,000 at September 30, 2023 and June 30, 2023;

304,000,000 at December 31, 2023 and June 30, 2023;

shares issued and outstanding:

125,542,029 at September 30, 2023 and 125,542,029 at June 30, 2023

125,542,029 at December 31, 2023 and 125,542,029 at June 30, 2023

Paid-in capital

4 unchanged sentences

Treasury stock, at cost;

237,604,494 Class A shares at September 30, 2023 and 237,590,199 Class A shares at June 30, 2023

237,865,069 Class A shares at December 31, 2023 and 237,590,199 Class A shares at June 30, 2023

( 13,663 ) ( 13,631 )

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(In millions) 2023 2022

9 unchanged sentences

Pension and post-retirement benefit contributions ( 62 ) ( 12 )

Impairment of other intangible assets — 207

Other non-cash items 14 ( 5 )

2 unchanged sentences

Decrease (increase) in inventory and promotional merchandise

Decrease (increase) in other assets, net

Decrease in other assets, net

Decrease in accounts payable ( 251 ) ( 310 )

1 unchanged sentence

Decrease in operating lease assets and liabilities, net ( 16 ) ( 29 )

Net cash flows used for operating activities

( 408 ) ( 650 )

Net cash flows provided by operating activities 937 751

Cash flows from investing activities

Capital expenditures ( 527 ) ( 419 )

Purchases of investments ( 4 ) ( 4 )

Settlement of net investment hedges ( 26 ) 138

1 unchanged sentence

Cash flows from financing activities

Proceeds (repayments) of current debt, net

Proceeds of current debt, net

Repayments of commercial paper (maturities after three months)

Repayments and redemptions of long-term debt ( 5 ) ( 258 )

36 unchanged sentences

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

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

were $ 143 million and $ 352 million, during the three months ended September 30, 2023 and 2022, respectively.

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

were $ 232 million and $ 291 million, net of tax, during the three months ended December 31, 2023 and 2022, respectively, and $ 89 million and $( 61 ) million, net of tax, during the six months ended December 31, 2023 and 2022, respectively.

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

7 unchanged sentences

The Company categorizes these instruments as entered into for purposes other than trading.

The accompanying consolidated statements of earnings include net exchange gains on foreign currency transactions of $ 16 million and $ 14 million during the three months ended September 30, 2023 and 2022, respectively.

The accompanying consolidated statements of earnings include net exchange gains on foreign currency transactions of $ 13 million and $ 20 million during the three months ended December 31, 2023 and 2022, respectively, and $ 29 million and $ 34 million during the six months ended December 31, 2023 and 2022, respectively.

THE ESTÉE LAUDER COMPANIES INC.

5 unchanged sentences

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

The Company’s largest customer during the first quarter of fiscal 2024 sells products primarily within the United States and accounted for $ 194 million, or 10 %, and $ 93 million, or 6 %, of the Company's accounts receivable at September 30, 2023 and June 30, 2023, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

(In millions) September 30, 2023 June 30, 2023

(In millions) December 31, 2023 June 30, 2023

Raw materials

5 unchanged sentences

Property, plant and equipment consists of the following:

(In millions) September 30, 2023 June 30, 2023

(In millions) December 31, 2023 June 30, 2023

Assets (Useful Life)

10 unchanged sentences

(1) Land improvements are depreciated over a 10 year useful life.

Depreciation and amortization of property, plant and equipment was $ 162 million and $ 136 million during the three months ended September 30, 2023 and 2022, respectively.

Depreciation and amortization of property, plant and equipment was $ 163 million and $ 138 million during the three months ended December 31, 2023 and 2022, respectively, and $ 325 million and $ 274 million during the six months ended December 31, 2023 and 2022, respectively.

Depreciation and amortization related to the Company’s manufacturing process is included in Cost of sales, and all other depreciation and amortization is included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective rate for income taxes was 21.7 % and 22.6 % for the three months ended September 30, 2023 and 2022, respectively.

The decrease in the effective tax rate of 90 basis points was primarily attributable to a decrease in income tax reserve adjustments and an increase in the impact of excess tax benefits associated with stock-based compensation arrangements, offset by a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2024.

The lower amount of earnings before income taxes increased the impact of these tax adjustments in the first quarter of fiscal 2024.

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

Three Months Ended

Six Months Ended

2023 2022 2023 2022

Effective rate for income taxes 37.6 % 25.4 % 36.3 % 23.9 %

Basis-point change from the prior-year period 1,220 1,240

For the three months ended December 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 2024, and the unfavorable impact associated with previously issued stock-based compensation, partially offset by a decrease in state and local income taxes.

For the six months ended December 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 2024, and the unfavorable impact associated with previously issued stock-based compensation.

On August 16, 2022, the U.S.

federal government enacted the Inflation Reduction Act, including a tax provision implementing a 15% corporate alternative minimum tax based on global adjusted financial statement income.

The corporate alternative minimum tax became effective beginning with the Company’s first quarter of fiscal 2024 and did not have an impact on the Company’s consolidated financial statements for the three months ended September 30, 2023.

As of September 30, 2023 and June 30, 2023, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 61 million and $ 63 million, respectively.

The total amount of unrecognized tax benefits at September 30, 2023 that, if recognized, would affect the effective tax rate was $ 51 million.

There was no gross interest or penalties accrued related to unrecognized tax benefits during the three months ended September 30, 2023 in the accompanying consolidated statements of earnings.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at each of September 30, 2023 and June 30, 2023, was $ 15 million.

On the basis of the information available as of September 30, 2023, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

Subsequent to September 30, 2023, the Company formally concluded the compliance process with respect to its fiscal 2022 income tax return under the U.S.

Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”), which had no impact on the Company’s consolidated financial statements for the three months ended September 30, 2023.

The corporate alternative minimum tax became effective beginning with the Company's first quarter of fiscal 2024 and did not have an impact on the Company's consolidated financial statements for the three and six months ended December 31, 2023.

As of December 31, 2023 and June 30, 2023, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 63 million.

The total amount of unrecognized tax benefits at December 31, 2023 that, if recognized, would affect the effective tax rate was $ 53 million.

The total gross interest and penalties accrued related to unrecognized tax benefits during the three and six months ended December 31, 2023 in the accompanying consolidated statements of earnings was $ 2 million.

The total gross accrued interest and penalties in the accompanying consolidated balance sheets at each of December 31, 2023 and June 30, 2023, was $ 17 million and $ 15 million, respectively.

On the basis of the information available as of December 31, 2023, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

During the fiscal 2024 second quarter, the Company formally concluded the compliance process with respect to its fiscal 2022 income tax return under the U.S.

Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”), which had no impact on the Company’s consolidated financial statements for the three and six months ended December 31, 2023.

Supplier Finance Programs

2 unchanged sentences

The supplier invoices that have been confirmed as valid under the programs require payment in full within 90 days of the invoice date.

Outstanding obligations confirmed as valid totaling $ 40 million and $ 52 million as of September 30, 2023 and June 30, 2023, respectively, are included in accounts payable in the accompanying consolidated balance sheets.

Outstanding obligations confirmed as valid totaling $ 64 million and $ 52 million as of December 31, 2023 and June 30, 2023, respectively, are included in accounts payable in the accompanying consolidated balance sheets.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:

(In millions) September 30, 2023 June 30, 2023

(In millions) December 31, 2023 June 30, 2023

Employee compensation $ 475 $ 546

5 unchanged sentences

$ 3,456 $ 3,216

At September 30, 2023 and June 30, 2023, total Other noncurrent liabilities of $ 1,793 million and $ 1,943 million included $ 598 million and $ 620 million of deferred tax liabilities, respectively.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2023 and June 30, 2023, total Other noncurrent liabilities of $ 1,812 million and $ 1,943 million included $ 606 million and $ 620 million of deferred tax liabilities, respectively.

Recently Adopted Accounting Standards

9 unchanged sentences

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

In March 2020, t he FAS B issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”) and applies to lease and other contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that reference LIBOR or another rate that is expected to be discontinued as a result of reference rate reform.

In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”) and applies to lease and other contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that reference LIBOR or another rate that is expected to be discontinued as a result of reference rate reform.

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

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

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

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

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impact on consolidated financial statements – The Company completed its comprehensive evaluation of applying this guidance and adopted certain practical expedients for its interest rate swap agreements in the fiscal 2024 first quarter which did not have a significant impact on its consolidated financial statements.

3 unchanged sentences

Recently Issued Accounting Standards

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

2023-07 – Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued authoritative guidance to improve reportable segment disclosure requirements.

Companies are required to disclose significant segment expenses by reportable segment if they are regularly provided to the chief operating decision maker (CODM).

Companies are also required to disclose other segment items by reportable segment.

The guidance clarifies that companies may disclose more than one measure of segment profit or loss used by the CODM, provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with U.S.

GAAP measurement principles.

All existing annual disclosures about segment profit or loss, as well as the new requirements, must now be provided on an interim basis.

Additionally, on an annual basis, the CODM’s title and position is required, as well as an explanation of how the CODM uses the reported measure(s) and other disclosures.

The guidance does not change how companies identify their operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

Effective for the Company – The guidance is effective for the Company’s fiscal year ending June 30, 2025 Form 10-K and then in interim periods beginning in the Company’s first quarter of fiscal 2026.

Early adoption is permitted.

The guidance should be applied retrospectively unless impracticable.

Impact on consolidated financial statement s – The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures.

2023-09 – Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

In December 2023, the FASB issued authoritative guidance to amend and enhance existing annual in come tax disclosures primarily focusing on two reporting areas:

(1) greater disaggregation of information in the effective tax rate reconciliations and (2) disclosure of income taxes paid by the companies, disaggregated by applicable jurisdiction.

Companies are required to use specific categories to prepare and disclose a tabular rate reconciliation (using both percentages and reporting currency amounts) of:

• the reported income tax expense (or benefit) from continuing operations and the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal income tax rate of the jurisdiction of domicile.

• reconciling items within certain categories that are equal to or greater than a specified quantitative threshold, including the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items.

The guidance also requires companies to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign jurisdictions including individual jurisdictions with amounts paid equal to or greater than a specified quantitative threshold.

The guidance also requires companies to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign as well as income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign jurisdictions.

Effective for the Company – The guidance is effective for the Company’s fiscal year ending June 30, 2026 Form 10-K.

Early adoption is permitted.

The guidance should be applied on a prospective basis with the option to apply the standard retrospectively.

Impact on consolidated financial statement s – The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures.

THE ESTÉE LAUDER COMPANIES INC.

9 unchanged sentences

Translation adjustments, goodwill

( 30 ) — ( 3 ) — ( 33 )

Translation adjustments, accumulated impairments

( 29 ) — ( 2 ) — ( 31 )

Balance as of September 30, 2023

Balance as of December 31, 2023

1,674 1,116 255 353 3,398

4 unchanged sentences

Other intangible assets consist of the following:

September 30, 2023 June 30, 2023

December 31, 2023 June 30, 2023

(In millions) Gross

10 unchanged sentences

$ 5,554 $ 5,602

The aggregate amortization expense related to amortizable intangible assets was $ 36 million for the three months ended September 30, 2023 and 2022.

The aggregate amortization expense related to amortizable intangible assets was $ 37 million for the three months ended December 31, 2023 and 2022, and $ 73 million for the six months ended December 31, 2023 and 2022.

The estimated aggregate amortization expense for the remainder of fiscal 2024 and for each of the next four fiscal years is as follows:

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment Analysis During the Six Months Ended December 31, 2022

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

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

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

During the fiscal 2023 second quarter, the Dr.Jart+ reporting unit experienced lower-than-expected growth within key geographic regions and channels that continue to be impacted by the spread of COVID-19 variants, resurgence in cases, and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the reporting unit.

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

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

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

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

The Company concluded that the changes in circumstances in the reporting units, along with increases in the weighted average cost of capital, triggered the need for interim impairment reviews of their trademarks and goodwill.

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

Accordingly, the Company performed interim impairment tests for the trademarks and a recoverability test for the long-lived assets as of November 30, 2022.

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

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

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

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

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

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

The most significant unobservable input used to estimate the fair values of the Dr.Jart+ and Too Faced trademark intangible assets was the weighted average cost of capital, which was 11 % and 13 %, respectively.

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

Impairment Charges Carrying Value

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

Reporting Unit Geographic Region Trademarks Goodwill Trademarks Goodwill

The Americas $ 21 $ — $ — $ —

Asia/Pacific 100 — 339 318

The Americas 86 — 186 13

Total $ 207 $ — $ 525 $ 331

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

Post-COVID Business Acceleration Program

The Company approved specific initiatives under the Post-COVID Business Acceleration Program (the “PCBA Program”) through fiscal 2022 and has substantially completed those initiatives through fiscal 2023.

Additional information about the PCBA Program is included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

Restructuring Program Component of the Profit Recovery Plan

As previously communicated on November 1, 2023, the Company has launched a Profit Recovery Plan to help progressively rebuild its profit margins in fiscal years 2025 and 2026.

The Profit Recovery Plan is focused on rebuilding stronger, more sustainable profitability, supporting sales growth acceleration and increasing speed and agility.

The plan is designed to improve gross margin, lower the cost base and reduce overhead expenses, while increasing investments in key consumer-facing activities.

Upon completion of this plan, the Company expects to have improved its gross margin and expense base to drive greater operating leverage for the future.

As a component of the Profit Recovery Plan, on February 5, 2024, the Company announced a two-year restructuring program.

The restructuring program’s main focus includes the reorganization and rightsizing of certain areas of the Company as well as simplification and acceleration of processes.

The Company committed to this course of action on February 1, 2024.

The Company plans to substantially complete specific initiatives under the restructuring program through fiscal 2026.

The Company expects that the restructuring program will result in restructuring and other charges totaling between $ 500 million and $ 700 million, before taxes, consisting of employee-related costs, contract terminations, asset write-offs and other costs associated with implementing these initiatives.

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

9 unchanged sentences

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

At September 30, 2023, the notional amount of derivatives not designated as hedging instruments was $ 4,099 million.

At December 31, 2023, the notional amount of derivatives not designated as hedging instruments was $ 3,184 million.

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

Costs associated with entering into derivative financial instruments have not been material to the Company’s consolidated financial results.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For each derivative contract entered into, where the Company looks to obtain hedge accounting treatment, the Company formally and contemporaneously documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, and how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively.

2 unchanged sentences

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

(In millions) Balance Sheet

Location September 30, 2023 June 30, 2023 Balance Sheet

Location September 30, 2023 June 30, 2023

Location December 31, 2023 June 30, 2023 Balance Sheet

Location December 31, 2023 June 30, 2023

Derivatives Designated as Hedging Instruments:

11 unchanged sentences

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments that are included in the assessment of effectiveness are as follows:

Amount of Gain

Amount of Gain (Loss)

Recognized in OCI on

Location of Gain Reclassified

Derivatives Location of Gain (Loss) Reclassified

from AOCI into

Amount of Gain

Earnings Amount of Gain (Loss)

Reclassified from AOCI into Earnings (1)

Three Months Ended

September 30 Three Months Ended

December 31 Three Months Ended

(In millions) 2023 2022 2023 2022

2 unchanged sentences

Interest rate-related derivatives — 5 Interest expense

( 36 ) ( 34 ) 11 22

Derivatives in Net Investment Hedging Relationships (2) :

Foreign currency forward contracts (3)

( 47 ) ( 86 ) — —

Total derivatives ( 83 ) $ ( 120 ) $ 11 $ 22

(1) The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material.

(2) During the three months ended September 30, 2023 and 2022, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 5 million and $ 6 million, respectively.

(1) The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because it is probable that forecasted transactions will not occur by the end of the original time period was not material.

(2) During the three months ended December 31, 2023 and 2022, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 5 million and $ 7 million, respectively.

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

Amount of Gain (Loss)

Recognized in OCI on

Derivatives Location of Gain (Loss) Reclassified

from AOCI into

Earnings Amount of Gain (Loss)

Reclassified from AOCI into Earnings (1)

Six Months Ended

December 31 Six Months Ended

(In millions) 2023 2022 2023 2022

Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts $ ( 8 ) $ 18 Net sales

Interest rate-related derivatives — 12 Interest expense

( 8 ) 30 20 37

Derivatives in Net Investment Hedging Relationships (2) :

Foreign currency forward contracts (3)

( 17 ) ( 15 ) — —

Total derivatives ( 25 ) $ 15 $ 20 $ 37

(2) During the six months ended December 31, 2023 and 2022, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $ 10 million and $ 13 million, respectively.

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amount of Gain (Loss)

Recognized in Earnings on

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

(In millions) 2023 2022 2023 2022

5 unchanged sentences

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

The gain recognized in earnings from cross-currency swap contracts related to the amount excluded from effectiveness testing was $ 5 million during the three months ended September 30, 2023.

The gain recognized in earnings from cross-currency swap contracts related to the amount excluded from effectiveness testing during the three and six months ended December 31, 2023 was $ 4 million and $ 9 million, respectively.

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

5 unchanged sentences

Included in the Carrying Amount of the Hedged Liability

September 30, 2023 September 30, 2023

December 31, 2023 December 31, 2023

Long-term debt $ 862 $ ( 131 )

3 unchanged sentences

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

Three Months Ended September 30

Three Months Ended December 31

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

8 unchanged sentences

Derivatives designated as hedging instruments N/A ( 24 ) N/A N/A — N/A

Loss on cash flow hedge relationships – interest rate contracts:

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

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

2 unchanged sentences

N/A (Not applicable)

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31

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

Expense Net Sales Selling, General and Administrative Interest

Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded $ 7,797 $ 4,893 $ 193 $ 8,550 $ 4,874 $ 98

The effects of fair value and cash flow hedging relationships:

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

Hedged item N/A N/A ( 20 ) N/A N/A 35

Derivatives designated as hedging instruments N/A N/A 20 N/A N/A ( 35 )

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

Hedged item N/A 11 N/A N/A — N/A

Derivatives designated as hedging instruments N/A ( 11 ) N/A N/A — N/A

Loss on cash flow hedge relationships – interest rate contracts:

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

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

Amount of gain reclassified from AOCI into earnings

21 N/A N/A 37 N/A N/A

N/A (Not applicable)

The amount of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are presented as follows:

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions) 2023 2022 2023 2022

8 unchanged sentences

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

As of September 30, 2023 As of June 30, 2023

As of December 31, 2023

As of June 30, 2023

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

6 unchanged sentences

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

The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of March 2025.

The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of June 2025.

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

At September 30, 2023, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,560 million.

At December 31, 2023, the Company had cash flow hedges outstanding with a notional amount totaling $ 1,752 million.

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

2 unchanged sentences

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

As of September 30, 2023, the Company’s foreign currency cash flow hedges were highly effective.

The estimated net gain on the Company’s derivative instruments designated as cash flow hedges as of September 30, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 43 million.

The accumulated net gain on derivative instruments designated as cash flow hedges in AOCI was $ 99 million and $ 79 million as of September 30, 2023 and June 30, 2023, respectively.

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

The estimated net gain on the Company’s derivative instruments designated as cash flow hedges as of December 31, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 14 million.

The accumulated net gain on derivative instruments designated as cash flow hedges in AOCI was $ 51 million and $ 79 million as of December 31, 2023 and June 30, 2023, respectively.

Fair Value Hedges

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

At September 30, 2023, the Company has interest rate swap agreements, with notional amounts totaling $ 700 million and $ 300 million to effectively convert the fixed rate interest on its 2030 Senior Notes and 2031 Senior Notes, respectively, to variable interest rates based on the three-month fallback rate SOFR plus a margin.

At December 31, 2023, the Company has interest rate swap agreements, with notional amounts totaling $ 700 million and $ 300 million to effectively convert the fixed rate interest on its 2030 Senior Notes and 2031 Senior Notes, respectively, to variable interest rates based on the three-month fallback rate SOFR plus a margin.

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

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At September 30, 2023, the Company has cross-currency swap contracts with notional amounts totaling $ 491 million, to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt.

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

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

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

2 unchanged sentences

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

The estimated net gain on the Company’s derivative instruments designated as fair value hedges as of September 30, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 14 million.

The accumulated net loss on derivative instruments designated as fair value hedges in AOCI was $ 20 million as of September 30, 2023 and June 30, 2023.

The estimated net gain on the Company’s derivative instruments designated as fair value hedges as of December 31, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $ 14 million.

The accumulated net loss on derivative instruments designated as fair value hedges in AOCI was $ 6 million and $ 20 million as of December 31, 2023 and June 30, 2023, respectively.

Net Investment Hedges

2 unchanged sentences

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

The net investment hedge contracts have varying maturities through the end of September 2024.

The net investment hedge contracts have varying maturities through the end of October 2024.

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

At September 30, 2023, the Company had net investment hedges outstanding with a notional amount totaling $ 1,180 million.

At December 31, 2023, the Company had net investment hedges outstanding with a notional amount totaling $ 408 million.

As a matter of policy, the Company enters into derivative contracts only with counterparties that have a long-term credit rating of at least A- or higher by at least two nationally recognized rating agencies.

The counterparties to these contracts are major financial institutions.

Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $ 141 million at September 30, 2023.

Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $ 55 million at December 31, 2023.

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

13 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023:

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023:

(In millions) Level 1 Level 2 Level 3 Total

19 unchanged sentences

$ — $ 199 $ 99 $ 298

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2023 June 30, 2023

December 31, 2023 June 30, 2023

(In millions) Carrying

7 unchanged sentences

Deferred consideration payable

342 344 341 338

Cross-currency swap contracts - asset, net 25 25 22 22

Foreign currency forward contracts – asset, net

Interest rate-related derivatives – liability, net

Foreign currency forward contracts – asset (liability), net

( 15 ) ( 15 ) 27 27

Interest rate-related derivatives – liability, net ( 131 ) ( 131 ) ( 150 ) ( 150 )

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s impairment charges for the three and six months ended December 31, 2022 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test during the three months ended December 31, 2022:

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

Other intangible assets, net (trademarks)

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

Too Faced 86 November 30, 2022 186

Smashbox 21 December 31, 2022 —

Total $ 207 $ 525

(1) See Note 2 - Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.

The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments for which it is practicable to estimate that value:

14 unchanged sentences

The Company’s deferred consideration payable is classified within Level 2 of the valuation hierarchy.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECIEM stock options – The stock option liability represents the employee stock options issued by DECIEM in replacement and exchange for certain vested and unvested DECIEM employee stock options previously issued by DECIEM, in connection with the Company's acquisition of DECIEM.

4 unchanged sentences

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

The DECIEM stock options are remeasured to fair value at each reporting date through the period when the options are exercised or repurchased (i.e., when they are settled), with an offsetting entry to compensation expense.

The DECIEM stock options are remeasured to fair value at each reporting date through the period when the options are exercised or repurchased (i.e., when they are settled), which is expected in the fiscal 2024 fourth quarter, with an offsetting entry to compensation expense.

See Note 9 – Stock Programs for discussion .

Changes in the DECIEM stock option liability for the three months ended September 30, 2023 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the DECIEM stock option liability for the six months ended December 31, 2023 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:

(In millions) Fair Value

2 unchanged sentences

Translation adjustments and other, net 1

DECIEM stock option liability as of September 30, 2023 $ 103

DECIEM stock option liability as of December 31, 2023

NOTE 6 – REVENUE RECOGNITION

1 unchanged sentence

Accounts Receivable

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 31 million and $ 30 million as of September 30, 2023 and June 30, 2023, respectively.

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $ 30 million as of December 31, 2023 and June 30, 2023.

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

Changes in the allowance for credit losses are as follows:

(In millions) September 30, 2023

(In millions) December 31, 2023

Balance at June 30, 2023 $ 16

Provision for expected credit losses 1

Balance at September 30, 2023 $ 17

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Write-offs, net & other ( 1 )

Balance at December 31, 2023 $ 16

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

Deferred Revenue

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

(In millions) 2023 2022 2023 2022

2 unchanged sentences

Revenue deferred during the period

124 119 293 276

Other 1 3 ( 6 ) ( 5 )

Deferred revenue, end of period $ 610 $ 353 $ 610 $ 353

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transaction Price Allocated to the Remaining Performance Obligations

At September 30, 2023, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions, gift card liabilities and the Marcolin license arrangement related to TOM FORD that are unsatisfied (or partially unsatisfied) is $ 336 million.

The remaining balance of deferred revenue at September 30, 2023 will be recognized beyond the next twelve months, of which $ 232 million relates to the non-refundable upfront payment received as part of the Marcolin licensing arrangement that is being recognized on a straight-line basis over the estimated economic life of the license, which is 20 years.

At December 31, 2023, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions, gift card liabilities and the Marcolin license arrangement related to TOM FORD that are unsatisfied (or partially unsatisfied) is $ 370 million.

The remaining balance of deferred revenue at December 31, 2023 will be recognized beyond the next twelve months, of which $ 229 million relates to the non-refundable upfront payment received as part of the Marcolin licensing arrangement that is being recognized on a straight-line basis over the estimated economic life of the license, which is 20 years.

Royalty Revenue – License Arrangements

5 unchanged sentences

Descriptions of these plans are included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

The components of net periodic benefit cost for the three months ended September 30, 2023 and 2022 consisted of the following:

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

Pension Plans Other than

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Net periodic benefit cost $ 8 $ 6 $ 3 $ 5 $ 3 $ 2

During the three months ended September 30, 2023, the Company made contributions to its international pension plans totaling $ 3 million.

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

Pension Plans Other than

Pension Plans

International Post-retirement

(In millions) 2023 2022 2023 2022 2023 2022

Service cost $ 18 $ 18 $ 13 $ 13 $ 1 $ —

Interest cost 23 20 9 7 4 4

Expected return on plan assets ( 27 ) ( 28 ) ( 12 ) ( 8 ) — —

Amortization of:

Actuarial loss (gain)

2 2 ( 4 ) ( 2 ) — —

Net periodic benefit cost $ 16 $ 12 $ 6 $ 10 $ 5 $ 4

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

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

(In millions) September 30, 2023 June 30, 2023

(In millions) December 31, 2023 June 30, 2023

Other assets $ 117 $ 115

6 unchanged sentences

Legal Proceedings

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

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

However, management’s assessment of the Company’s current litigation and other legal proceedings could change in light of the discovery of facts with respect to legal actions or other proceedings pending against the Company not presently known to the Company or determinations by judges, juries or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or proceedings.

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

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

On December 7, 2023 and also on January 22, 2024, the Company and its Chief Executive Officer and Chief Financial Officer were named as defendants in separate purported securities class action complaints filed in the United States District Court for the Southern District of New York.

The first complaint alleges that defendants made materially false and misleading statements during the period August 18, 2022 to May 2, 2023 in press releases, the Company’s public filings and during conference calls with analysts that artificially inflated the price of the Company’s stock.

The second complaint alleges that defendants made materially false and misleading statements during the period February 3, 2022 to October 31, 2023 in press releases, the Company’s public filings and during conference calls with analysts that artificially inflated the price of the Company’s stock.

Both securities class action complaints allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

Motions for appointment as lead plaintiff and lead counsel are due on February 5, 2024.

Defendants intend to defend the actions vigorously.

On February 1, 2024, a shareholder derivative action complaint was filed against certain of the Company’s officers, all the Company’s directors as of that date and certain of the Company’s former directors as of that date (collectively the “Derivative Action Defendants”) in the United States District Court for the Southern District of New York.

The complaint alleges that the Derivative Action Defendants breached their fiduciary duties to the Company based on the same alleged course of conduct identified in the securities class action complaints described above.

The Derivative Action Defendants intend to defend the action vigorously.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – STOCK PROGRAMS

2 unchanged sentences

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

Compensation expense attributable to net stock-based compensation was $ 80 million and $ 53 million for the three months ended September 30, 2023 and 2022, respectively.

Compensation expense attributable to net stock-based compensation was $ 109 million and $ 112 million for the three months ended December 31, 2023 and 2022, respectively, and was $ 189 million and $ 165 million for the six months ended December 31, 2023 and 2022, respectively.

Stock Options

During the three months ended September 30, 2023, the Company granted stock options in respect of approximately 1.8 million shares of Class A Common Stock with an exercise price per share of $ 156.39 and a weighted-average grant date fair value per share of $ 52.98 .

During the six months ended December 31, 2023, the Company granted stock options in respect of approximately 1.8 million shares of Class A Common Stock with a weighted average exercise price per share of $ 155.92 and a weighted average grant date fair value per share of $ 52.83 .

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

The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2023 was $ 17 million.

The aggregate intrinsic value of stock options exercised during the six months ended December 31, 2023 was $ 20 million.

Restricted Stock Units

During the three months ended September 30, 2023, the Company granted RSUs in respect of approximately 1.5 million shares of Class A Common Stock with a weighted-average grant date fair value per share of $ 156.23 that, at the time of grant, are scheduled to vest at 0.6 million, 0.5 million, and 0.4 million shares per year, in fiscal 2025, fiscal 2026 and fiscal 2027, respectively.

During the six months ended December 31, 2023, the Company granted RSUs in respect of approximately 1.5 million shares of Class A Common Stock with a weighted average grant date fair value per share of $ 156.23 that, at the time of grant, are scheduled to vest at 0.6 million, 0.5 million, and 0.4 million shares per year, in fiscal 2025, fiscal 2026 and fiscal 2027, respectively.

Vesting of RSUs is generally subject to the continued employment or the retirement of the grantees.

The RSUs are generally accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were generally valued at the closing market price of the Company’s Class A Common Stock on the date of grant.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Performance Share Units

During the three months ended September 30, 2023, the Company granted PSUs with a target payout of approximately 0.2 million shares of Class A Common Stock with a grant date fair value per share of $ 156.39 , which will be settled in stock subject to the achievement of the Company’s net sales, diluted net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, 2026, all subject to continued employment or the retirement of the grantees.

During the six months ended December 31, 2023, the Company granted PSUs with a target payout of approximately 0.2 million shares of Class A Common Stock with a grant date fair value per share of $ 156.39 , which will be settled in stock subject to the achievement of the Company’s net sales, diluted net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, 2026, all subject to continued employment or the retirement of the grantees.

For PSUs granted, no settlement will occur for results below the applicable minimum threshold.

4 unchanged sentences

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

The total stock option expense, net of foreign currency remeasurements, for the three months ended September 30, 2023 and 2022 was $ 8 million and $ 1 million, respectively.

The total stock option expense (income), net of foreign currency remeasurements, for the three months ended December 31, 2023 and 2022 was $( 5 ) million and $( 4 ) million, respectively, and for the six months ended December 31, 2023 and 2022 was $ 3 million and $( 3 ) million, respectively.

There is no related income tax benefit on the DECIEM stock-based compensation expense.

There were no DECIEM stock options exercised during the three months ended September 30, 2023.

The DECIEM stock options are reported as a stock option liability of $ 103 million and $ 99 million in Other accrued liabilities in the accompanying consolidated balance sheets at September 30, 2023 and June 30, 2023, respectively.

There were no DECIEM stock options exercised during the six months ended December 31, 2023.

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The DECIEM stock options are reported as a stock option liability of $ 103 million and $ 99 million in Other accrued liabilities in the accompanying consolidated balance sheets at December 31, 2023 and June 30, 2023, respectively, as they are expected to be settled in the fiscal 2024 fourth quarter.

The fair value of the stock options were calculated by incorporating significant assumptions including the starting equity value, actual and projected net sales and EBITDA and the following key assumptions into the Monte Carlo Method:

September 30, 2023 June 30, 2023

December 31, 2023 June 30, 2023

Risk-free rate 4.90 % 4.90 %

12 unchanged sentences

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended

December 31 Six Months Ended

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

Net earnings attributable to The Estée Lauder Companies Inc.

$ 313 $ 394 $ 344 $ 883

Weighted average common shares outstanding – Basic

358.7 357.7 358.6 357.8

Effect of dilutive stock options

0.7 2.1 1.0 2.4

Effect of PSUs

0.1 0.1 0.1 0.1

Effect of RSUs

0.5 0.5 0.6 0.6

Weighted average common shares outstanding – Diluted

360.0 360.4 360.3 360.9

Net earnings attributable to The Estée Lauder Companies Inc.

per common share:

$ .87 $ 1.10 $ .96 $ 2.47

$ .87 $ 1.09 $ .95 $ 2.45

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended

Six Months Ended

(In millions) 2023 2022 2023 2022

1 unchanged sentence

RSUs and PSUs 1.3 0.1 0.7 0.1

As of September 30, 2023 and 2022, 0.4 million and 0.4 million shares, respectively, of Class A Common Stock underlying PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 9 – Stock Programs .

As of December 31, 2023 and 2022, 0.4 million and 0.4 million shares, respectively, of Class A Common Stock underlying PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 9 – Stock Programs .

THE ESTÉE LAUDER COMPANIES INC.

3 unchanged sentences

Three Months Ended

December 31 Six Months Ended

(In millions, except per share data)

2023 2022 2023 2022

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

8 unchanged sentences

Net earnings attributable to The Estée Lauder Companies Inc.

313 394 344 883

Retained earnings, end of the period 13,858 14,342 13,858 14,342

Accumulated other comprehensive loss, beginning of the period ( 1,063 ) ( 1,078 ) ( 934 ) ( 762 )

Other comprehensive loss attributable to The Estée Lauder Companies Inc.

Other comprehensive income (loss) attributable to The Estée Lauder Companies Inc.

207 249 78 ( 67 )

4 unchanged sentences

Treasury stock, end of the period ( 13,663 ) ( 13,617 ) ( 13,663 ) ( 13,617 )

Total equity $ 5,342 $ 5,517

5,712 5,902 5,712 5,902

Redeemable noncontrolling interest, beginning of the period $ 826 $ 808 $ 832 $ 842

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the three months ended September 30, 2023:

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

Date Declared Record Date Payable Date Amount per Share

August 17, 2023 August 31, 2023 September 15, 2023 $ .66

On October 31, 2023, a dividend was declared in the amount of $ .66 per share on the Company’s Class A and Class B Common Stock.

The dividend is payable in cash on December 15, 2023 to stockholders of record at the close of business on November 30, 2023.

October 31, 2023 November 30, 2023 December 15, 2023 $ .66

On February 2, 2024, a dividend was declared in the amount of $ .66 per share on the Company’s Class A and Class B Common Stock.

The dividend is payable in cash on March 15, 2024 to stockholders of record at the close of business on February 29, 2024.

Beginning in December 2022, we temporarily suspended the repurchase of shares of our Class A Common Stock.

1 unchanged sentence

Accumulated Other Comprehensive Income

The following table represents changes in AOCI, net of tax, by component for the three months ended September 30, 2023:

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

(In millions) Net Cash

6 unchanged sentences

Net current-period OCI ( 22 ) 11 — 89 78

Balance at September 30, 2023 $ 73 $ ( 15 ) $ ( 177 ) $ ( 944 ) $ ( 1,063 )

Balance at December 31, 2023 $ 37 $ ( 4 ) $ ( 177 ) $ ( 712 ) $ ( 856 )

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

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three months ended September 30, 2023 and 2022:

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

Amount Reclassified from AOCI Affected Line Item in

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

(In millions) 2023 2022 2023 2022

1 unchanged sentence

Foreign currency forward contracts $ 12 $ 22 $ 21 $ 37 Net sales

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

Provision for deferred taxes

4 unchanged sentences

Provision for deferred taxes ( 1 ) — ( 2 ) — Provision for income taxes

3 — 7 — Net earnings

Retirement Plan and Other Retiree Benefit Adjustments

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

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

Amortization of actuarial gain

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

Provision for deferred taxes

3 unchanged sentences

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – STATEMENT OF CASH FLOWS

Supplemental cash flow information for the three months ended September 30, 2023 and 2022 is as follows:

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

(In millions) 2023 2022

4 unchanged sentences

Right-of-use assets obtained in exchange for new/modified operating lease liabilities $ 210 $ 107

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – SEGMENT DATA AND RELATED INFORMATION

7 unchanged sentences

There has been no significant variance in the total or long-lived asset values associated with the Company’s segment data since June 30, 2023.

During the fiscal 2024 second quarter, the Company identified and corrected prior-period misclassifications of net sales and operating income between certain of the Company’s product categories in its segment footnote.

As a result, product category net sales and operating income have been adjusted from the amounts previously reported for the three and six months ended December 31, 2022 for comparability purposes.

Presentation of product category net sales and operating income for three and nine months ended March 31, 2023, and fiscal years ended June 30, 2023 and 2022, will also be adjusted to reflect the misclassifications arising in those periods for comparability purposes within the prospective filings.

The misclassifications had no impact on the current-period or prior-period consolidated statements of earnings, consolidated statements of comprehensive income, consolidated balance sheets, or the consolidated statements of cash flows, and the Company determined that the impact on the Company’s current-period and previously issued financial statements for the respective periods was not material.

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

(In millions) 2023 2022 2023 2022

4 unchanged sentences

Hair Care 173 183 321 340

Other 30 14 62 27

4,280 4,621 7,798 8,556

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

5 unchanged sentences

Hair Care ( 3 ) 4 ( 25 ) ( 8 )

Other 9 ( 1 ) 27 ( 2 )

582 565 682 1,232

Reconciliation:

3 unchanged sentences

Other components of net periodic benefit cost 3 2 5 5

Other income — —

Earnings before income taxes $ 519 $ 532 $ 565 $ 1,165

3 unchanged sentences

Asia/Pacific 1,449 1,570 2,507 2,700

4,280 4,621 7,798 8,556

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

4 unchanged sentences

Asia/Pacific 258 241 396 449

582 565 682 1,232

Charges associated with restructuring and other activities ( 8 ) ( 9 ) ( 10 ) ( 15 )

3 unchanged sentences

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tables below present the effect of the corrections for the three and six months ended December, 31, 2022, the three and nine months ended March 31, 2023, and fiscal years ended June 30, 2023 and 2022.

Three Months Ended

December 31, 2022

Six Months Ended

December 31, 2022

(In millions) As Previously Reported

As Previously Reported

PRODUCT CATEGORY DATA

Skin Care $ 2,382 $ 45 $ 2,427 $ 4,486 $ 53 $ 4,539

Makeup 1,268 ( 5 ) 1,263 2,320 $ — 2,320

Fragrance 775 ( 41 ) 734 1,382 ( 52 ) 1,330

Hair Care 182 1 183 340 $ — 340

Other 14 — 14 28 ( 1 ) 27

4,621 $ — 4,621 8,556 $ — 8,556

Returns associated with restructuring and other activities ( 1 ) $ — ( 1 ) ( 6 ) $ — ( 6 )

Net sales $ 4,620 $ — $ 4,620 $ 8,550 $ — $ 8,550

Operating income (loss):

Skin Care $ 421 $ 12 $ 433 $ 951 $ 18 $ 969

Makeup ( 37 ) 13 ( 24 ) ( 21 ) 17 ( 4 )

Fragrance 177 ( 24 ) 153 310 ( 33 ) 277

Hair Care 5 ( 1 ) 4 ( 7 ) ( 1 ) ( 8 )

Other ( 1 ) $ — ( 1 ) ( 1 ) ( 1 ) ( 2 )

565 $ — 565 1,232 $ — 1,232

Charges associated with restructuring and other activities ( 9 ) $ — ( 9 ) ( 15 ) $ — ( 15 )

Operating income $ 556 $ — $ 556 $ 1,217 $ — $ 1,217

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

March 31, 2023

Nine Months Ended

March 31, 2023

(In millions) As Previously Reported

As Previously Reported

PRODUCT CATEGORY DATA

Skin Care $ 1,922 $ ( 7 ) $ 1,915 $ 6,408 $ 46 $ 6,454

Makeup 1,088 16 1,104 3,408 16 3,424

Fragrance 585 ( 8 ) 577 1,967 ( 60 ) 1,907

Hair Care 149 ( 1 ) 148 489 ( 1 ) 488

Other 11 — 11 39 ( 1 ) 38

3,755 — 3,755 12,311 — 12,311

Returns associated with restructuring and other activities ( 4 ) — ( 4 ) ( 10 ) — ( 10 )

Net sales $ 3,751 $ — $ 3,751 $ 12,301 $ — $ 12,301

Operating income (loss):

Skin Care $ 256 $ 13 $ 269 $ 1,207 $ 31 $ 1,238

Makeup ( 15 ) 10 ( 5 ) ( 36 ) 27 ( 9 )

Fragrance 89 ( 23 ) 66 399 ( 56 ) 343

Hair Care ( 24 ) — ( 24 ) ( 31 ) ( 1 ) ( 32 )

Other 9 — 9 8 ( 1 ) 7

315 — 315 1,547 — 1,547

Charges associated with restructuring and other activities ( 18 ) — ( 18 ) ( 33 ) — ( 33 )

Operating income $ 297 $ — $ 297 $ 1,514 $ — $ 1,514

Year Ended June 30, 2023

Year Ended June 30, 2022

(In millions) As Previously Reported

As Previously Reported

PRODUCT CATEGORY DATA

Skin Care $ 8,202 $ 47 $ 8,249 $ 9,886 $ 16 $ 9,902

Makeup 4,516 16 4,532 4,667 3 4,670

Fragrance 2,512 ( 61 ) 2,451 2,508 ( 17 ) 2,491

Hair Care 653 ( 1 ) 652 631 — 631

Other 54 ( 1 ) 53 49 ( 2 ) 47

15,937 — 15,937 17,741 — 17,741

Returns associated with restructuring and other activities ( 27 ) — ( 27 ) ( 4 ) — ( 4 )

Net sales $ 15,910 $ — $ 15,910 $ 17,737 $ — $ 17,737

Operating income (loss):

Skin Care $ 1,204 $ 73 $ 1,277 $ 2,753 $ 23 $ 2,776

Makeup ( 22 ) 1 ( 21 ) 133 ( 7 ) 126

Fragrance 440 ( 70 ) 370 456 ( 15 ) 441

Hair Care ( 34 ) ( 2 ) ( 36 ) ( 28 ) — ( 28 )

Other 6 ( 2 ) 4 0 ( 1 ) ( 1 )

1,594 — 1,594 3,314 — 3,314

Charges associated with restructuring and other activities ( 85 ) — ( 85 ) ( 144 ) — ( 144 )

Operating income $ 1,509 $ — $ 1,509 $ 3,170 $ — $ 3,170

THE ESTÉE LAUDER COMPANIES INC.

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

What changed 10-Q

Item 1. Financial Statements