UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-14064

The Estée Lauder Companies Inc.

(Exact name of registrant as specified in its charter)

Delaware

11-2408943

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

767 Fifth Avenue, New York, New York

10153

(Address of principal executive offices)

(Zip Code)

212-572-4200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $.01 par value	EL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~January 29,~~April 26, 2021, ~~229,736,467~~231,894,845 shares of the registrant’s Class A Common Stock, $.01 par value, and ~~133,023,029~~130,617,029 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

INDEX


			Page

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Earnings (Loss)— Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020			2

Consolidated Statements of Comprehensive Incom e (Loss)— Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020			3

Consolidated Balance Sheets — ~~December~~March 31, ~~2020~~2021 and June 30, 2020 (Audited)			4

Consolidated Statements of Cash Flows — ~~Six~~Nine Months Ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3643

Item 3. Quantitative and Qualitative Disclosures About Market Risk			6573

Item 4. Controls and Procedures			6573

Part II. Other Information

Item 1. Legal Proceedings			6674

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6674

Item 6. Exhibits			6675

Signatures			6776

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions, except per share data)	(In millions, except per share data)	2020		2019		2020		2019		(In millions, except per share data)	2021		2020		2021		2020

Net sales	Net sales	$	4,853	$	4,624	$	8,415	$	8,519	Net sales	$	3,864	$	3,345	$	12,279	$	11,864
Cost of sales	Cost of sales	1,084		1,041		1,909		1,949		Cost of sales	939		836		2,848		2,785

Gross profit	Gross profit	3,769		3,583		6,506		6,570		Gross profit	2,925		2,509		9,431		9,079

Operating expenses	Operating expenses									Operating expenses
Selling, general and administrative	Selling, general and administrative	2,590		2,538		4,616		4,723		Selling, general and administrative	2,145		2,030		6,761		6,753
Restructuring and other charges	Restructuring and other charges	35		7		41		30		Restructuring and other charges	131		24		172		54
Goodwill impairment	Goodwill impairment	54		511		54		511		Goodwill impairment	0		275		54		786
Impairment of other intangible assets		27		266		27		266
Impairment of other intangible and long-lived assets										Impairment of other intangible and long-lived assets	33		71		60		337
Total operating expenses	Total operating expenses	2,706		3,322		4,738		5,530		Total operating expenses	2,309		2,400		7,047		7,930

Operating income	Operating income	1,063		261		1,768		1,040		Operating income	616		109		2,384		1,149

Interest expense	Interest expense	43		38		88		70		Interest expense	43		42		131		112
Interest income and investment income, net	Interest income and investment income, net	17		13		31		27		Interest income and investment income, net	9		14		40		41
Other components of net periodic benefit cost	Other components of net periodic benefit cost	7		1		10		2		Other components of net periodic benefit cost	2		1		12		3
Other income	Other income	0		576		0		576		Other income	0		0		0		576
Earnings before income taxes	Earnings before income taxes	1,030		811		1,701		1,571		Earnings before income taxes	580		80		2,281		1,651

Provision for income taxes	Provision for income taxes	153		250		299		412		Provision for income taxes	122		84		421		496
Net earnings		877		561		1,402		1,159
Net earnings (loss)										Net earnings (loss)	458		(4)		1,860		1,155

Net earnings attributable to noncontrolling interests	Net earnings attributable to noncontrolling interests	(4)		(4)		(6)		(7)		Net earnings attributable to noncontrolling interests	(2)		(2)		(8)		(9)
Net earnings attributable to The Estée Lauder Companies Inc.		$	873	$	557	$	1,396	$	1,152
Net earnings (loss) attributable to The Estée Lauder Companies Inc.										Net earnings (loss) attributable to The Estée Lauder Companies Inc.	$	456	$	(6)	$	1,852	$	1,146

Net earnings attributable to The Estée Lauder Companies Inc. per common share
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share										Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share
Basic	Basic	$	2.40	$	1.55	$	3.84	$	3.19	Basic	$	1.25	$	(.02)	$	5.10	$	3.18
Diluted	Diluted	$	2.37	$	1.52	$	3.79	$	3.13	Diluted	$	1.24	$	(.02)	$	5.03	$	3.12

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Basic	Basic	363.0		360.2		363.4		360.8		Basic	363.6		360.2		362.9		360.6
Diluted	Diluted	368.0		366.7		368.5		367.7		Diluted	369.0		360.2		368.1		367.1

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020

Net earnings		$	877	$	561	$	1,402	$	1,159
Net earnings (loss)										Net earnings (loss)	$	458	$	(4)	$	1,860	$	1,155

Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):

Net cash flow hedge loss		(26)		(22)		(57)		(24)
Net cash flow hedge gain (loss)										Net cash flow hedge gain (loss)	41		34		(16)		10
Retirement plan and other retiree benefit adjustments	Retirement plan and other retiree benefit adjustments	6		5		12		10		Retirement plan and other retiree benefit adjustments	7		6		19		16
Translation adjustments	Translation adjustments	213		64		291		(6)		Translation adjustments	(121)		(185)		170		(191)
Benefit for deferred income taxes on components of other comprehensive income		20		10		38		13
Benefit (provision) for income taxes on components of other comprehensive income										Benefit (provision) for income taxes on components of other comprehensive income	(32)		2		6		15
Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	213		57		284		(7)		Total other comprehensive income (loss), net of tax	(105)		(143)		179		(150)
Comprehensive income		1,090		618		1,686		1,152
Comprehensive income (loss)										Comprehensive income (loss)	353		(147)		2,039		1,005

Comprehensive income attributable to noncontrolling interests:	Comprehensive income attributable to noncontrolling interests:									Comprehensive income attributable to noncontrolling interests:
Net earnings	Net earnings	(4)		(4)		(6)		(7)		Net earnings	(2)		(2)		(8)		(9)
Translation adjustments	Translation adjustments	(2)		1		(2)		1		Translation adjustments	1		0		(1)		1
		(6)		(3)		(8)		(6)			(1)		(2)		(9)		(8)
Comprehensive income attributable to The Estée Lauder Companies Inc.		$	1,084	$	615	$	1,678	$	1,146
Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.										Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.	$	352	$	(149)	$	2,030	$	997

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS


(In millions, except share data)	(In millions, except share data)	December 31 2020		June 30 2020		(In millions, except share data)	March 31 2021		June 30 2020
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	5,545	$	5,022	Cash and cash equivalents	$	6,399	$	5,022
Accounts receivable, net	Accounts receivable, net	1,972		1,194		Accounts receivable, net	1,735		1,194
Inventory and promotional merchandise	Inventory and promotional merchandise	2,116		2,062		Inventory and promotional merchandise	2,134		2,062
Prepaid expenses and other current assets	Prepaid expenses and other current assets	658		614		Prepaid expenses and other current assets	729		614
Total current assets	Total current assets	10,291		8,892		Total current assets	10,997		8,892

Property, plant and equipment, net	Property, plant and equipment, net	2,142		2,055		Property, plant and equipment, net	2,106		2,055

Other assets	Other assets					Other assets
Operating lease right-of-use assets	Operating lease right-of-use assets	2,325		2,282		Operating lease right-of-use assets	2,212		2,282
Goodwill	Goodwill	1,401		1,401		Goodwill	1,369		1,401
Other intangible assets, net	Other intangible assets, net	2,424		2,338		Other intangible assets, net	2,294		2,338
Other assets	Other assets	1,012		813		Other assets	922		813
Total other assets	Total other assets	7,162		6,834		Total other assets	6,797		6,834
Total assets	Total assets	$	19,595	$	17,781	Total assets	$	19,900	$	17,781

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Current debt	Current debt	$	470	$	1,222	Current debt	$	471	$	1,222
Accounts payable	Accounts payable	1,299		1,177		Accounts payable	1,277		1,177
Operating lease liabilities	Operating lease liabilities	387		375		Operating lease liabilities	372		375
Other accrued liabilities	Other accrued liabilities	3,264		2,405		Other accrued liabilities	3,077		2,405
Total current liabilities	Total current liabilities	5,420		5,179		Total current liabilities	5,197		5,179

Noncurrent liabilities	Noncurrent liabilities					Noncurrent liabilities
Long-term debt	Long-term debt	4,913		4,914		Long-term debt	5,487		4,914
Long-term operating lease liabilities	Long-term operating lease liabilities	2,314		2,278		Long-term operating lease liabilities	2,198		2,278
Other noncurrent liabilities	Other noncurrent liabilities	1,492		1,448		Other noncurrent liabilities	1,460		1,448
Total noncurrent liabilities	Total noncurrent liabilities	8,719		8,640		Total noncurrent liabilities	9,145		8,640

Contingencies	Contingencies			0		Contingencies			0
		0					0
Equity	Equity					Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at December 31, 2020 and June 30, 2020; shares issued: 456,618,145 at December 31, 2020 and 451,927,441 at June 30, 2020; Class B shares authorized: 304,000,000 at December 31, 2020 and June 30, 2020; shares issued and outstanding: 133,023,029 at December 31, 2020 and 135,235,429 at June 30, 2020		6		6
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2021 and June 30, 2020; shares issued: 459,687,905 at March 31, 2021 and 451,927,441 at June 30, 2020; Class B shares authorized: 304,000,000 at March 31, 2021 and June 30, 2020; shares issued and outstanding: 130,617,029 at March 31, 2021 and 135,235,429 at June 30, 2020						Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2021 and June 30, 2020; shares issued: 459,687,905 at March 31, 2021 and 451,927,441 at June 30, 2020; Class B shares authorized: 304,000,000 at March 31, 2021 and June 30, 2020; shares issued and outstanding: 130,617,029 at March 31, 2021 and 135,235,429 at June 30, 2020	6		6
Paid-in capital	Paid-in capital	5,068		4,790		Paid-in capital	5,231		4,790
Retained earnings	Retained earnings	11,159		10,134		Retained earnings	11,420		10,134
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(383)		(665)		Accumulated other comprehensive loss	(487)		(665)
		15,850		14,265			16,170		14,265
Less: Treasury stock, at cost; 227,008,228 Class A shares at December 31, 2020 and 226,637,238 Class A shares at June 30, 2020		(10,429)		(10,330)
Less: Treasury stock, at cost; 227,738,087 Class A shares at March 31, 2021 and 226,637,238 Class A shares at June 30, 2020						Less: Treasury stock, at cost; 227,738,087 Class A shares at March 31, 2021 and 226,637,238 Class A shares at June 30, 2020	(10,642)		(10,330)
Total stockholders’ equity – The Estée Lauder Companies Inc.	Total stockholders’ equity – The Estée Lauder Companies Inc.	5,421		3,935		Total stockholders’ equity – The Estée Lauder Companies Inc.	5,528		3,935
Noncontrolling interests	Noncontrolling interests	35		27		Noncontrolling interests	30		27
Total equity	Total equity	5,456		3,962		Total equity	5,558		3,962
Total liabilities and equity	Total liabilities and equity	$	19,595	$	17,781	Total liabilities and equity	$	19,900	$	17,781

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended December 31					Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		(In millions)	2021		2020

Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net earnings	Net earnings	$	1,402	$	1,159	Net earnings	$	1,860	$	1,155
Adjustments to reconcile net earnings to net cash flows from operating activities:	Adjustments to reconcile net earnings to net cash flows from operating activities:					Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	Depreciation and amortization	316		287		Depreciation and amortization	475		447
Deferred income taxes	Deferred income taxes	(49)		7		Deferred income taxes	(103)		(65)
Non-cash stock-based compensation	Non-cash stock-based compensation	169		139		Non-cash stock-based compensation	255		210
Net loss on disposal of property, plant and equipment	Net loss on disposal of property, plant and equipment	13		5		Net loss on disposal of property, plant and equipment	19		6
Non-cash restructuring and other charges	Non-cash restructuring and other charges	1		0		Non-cash restructuring and other charges	97		19
Pension and post-retirement benefit expense	Pension and post-retirement benefit expense	52		41		Pension and post-retirement benefit expense	75		62
Pension and post-retirement benefit contributions	Pension and post-retirement benefit contributions	(25)		(33)		Pension and post-retirement benefit contributions	(35)		(54)
Goodwill and other intangible asset impairments		81		777
Goodwill, other intangible and long-lived asset impairments						Goodwill, other intangible and long-lived asset impairments	114		1,123
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(2)		(7)		Changes in fair value of contingent consideration	(2)		(9)

Gain on previously held equity method investment	Gain on previously held equity method investment	0		(553)		Gain on previously held equity method investment	0		(553)
Other non-cash items	Other non-cash items	(23)		(10)		Other non-cash items	(17)		(11)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Increase in accounts receivable, net	Increase in accounts receivable, net	(720)		(347)		Increase in accounts receivable, net	(506)		(48)
Decrease in inventory and promotional merchandise		67		31
Decrease (increase) in inventory and promotional merchandise						Decrease (increase) in inventory and promotional merchandise	13		(41)
Increase in other assets, net	Increase in other assets, net	(110)		(120)		Increase in other assets, net	(122)		(63)
Increase (decrease) in accounts payable	Increase (decrease) in accounts payable	63		(375)		Increase (decrease) in accounts payable	55		(317)
Increase in other accrued and noncurrent liabilities	Increase in other accrued and noncurrent liabilities	750		252		Increase in other accrued and noncurrent liabilities	629		62
Increase (decrease) in operating lease assets and liabilities, net	Increase (decrease) in operating lease assets and liabilities, net	(7)		2		Increase (decrease) in operating lease assets and liabilities, net	(30)		22
Net cash flows provided by operating activities	Net cash flows provided by operating activities	1,978		1,255		Net cash flows provided by operating activities	2,777		1,945

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(250)		(291)		Capital expenditures	(386)		(468)
Proceeds from purchase price refund	Proceeds from purchase price refund	32		0		Proceeds from purchase price refund	32		0
Payments for acquired businesses, net of cash acquired	Payments for acquired businesses, net of cash acquired	(6)		(1,040)		Payments for acquired businesses, net of cash acquired	(8)		(1,047)

Purchases of investments	Purchases of investments	(40)		(5)		Purchases of investments	(40)		(5)
Settlement of net investment hedges	Settlement of net investment hedges	(133)		(14)		Settlement of net investment hedges	(175)		(37)
Net cash flows used for investing activities	Net cash flows used for investing activities	(397)		(1,350)		Net cash flows used for investing activities	(577)		(1,557)

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds (repayments) of current debt, net	Proceeds (repayments) of current debt, net	(747)		8		Proceeds (repayments) of current debt, net	(746)		1,514
Proceeds from issuance of long-term debt, net	Proceeds from issuance of long-term debt, net	0		1,783		Proceeds from issuance of long-term debt, net	596		1,783
Debt issuance costs	Debt issuance costs	0		(14)		Debt issuance costs	(4)		(14)
Repayments and redemptions of long-term debt	Repayments and redemptions of long-term debt	(4)		(8)		Repayments and redemptions of long-term debt	(6)		(511)
Net proceeds from stock-based compensation transactions		104		71
Proceeds from stock-based compensation transactions						Proceeds from stock-based compensation transactions	180		148
Payments to acquire treasury stock	Payments to acquire treasury stock	(102)		(813)		Payments to acquire treasury stock	(316)		(883)
Payments of contingent consideration	Payments of contingent consideration	0		(3)		Payments of contingent consideration	0		(3)
Dividends paid to stockholders	Dividends paid to stockholders	(368)		(330)		Dividends paid to stockholders	(561)		(502)
Payments to noncontrolling interest holders for dividends	Payments to noncontrolling interest holders for dividends	(2)		(7)		Payments to noncontrolling interest holders for dividends	(5)		(7)
Net cash flows provided by (used for) financing activities	Net cash flows provided by (used for) financing activities	(1,119)		687		Net cash flows provided by (used for) financing activities	(862)		1,525

Effect of exchange rate changes on Cash and cash equivalents	Effect of exchange rate changes on Cash and cash equivalents	61		17		Effect of exchange rate changes on Cash and cash equivalents	39		(24)
Net increase in Cash and cash equivalents	Net increase in Cash and cash equivalents	523		609		Net increase in Cash and cash equivalents	1,377		1,889
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	5,022		2,987		Cash and cash equivalents at beginning of period	5,022		2,987
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	5,545	$	3,596	Cash and cash equivalents at end of period	$	6,399	$	4,876

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the accounts of The Estée Lauder Companies Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.

The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation.

Management Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Descriptions of the Company’s significant accounting policies are discussed in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment, including those related to the impacts of the COVID-19 pandemic, will be reflected in the consolidated financial statements in future periods.

Currency Translation and Transactions

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at monthly average rates of exchange for the period. Unrealized translation gains (losses), net of tax, reported as translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were ~~$227~~$(143) million and ~~$75~~$(173) million, net of tax, during the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$318~~$175 million and $3$(170) million, net of tax, during the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in ~~earnings.~~earnings (loss). These subsidiaries are not material to the Company’s consolidated financial statements or liquidity.

The Company enters into foreign currency forward contracts and may enter into option contracts to hedge foreign currency transactions for periods consistent with its identified exposures. The Company also enters into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. See Note 56 – Derivative Financial Instruments for further discussion. The Company categorizes these instruments as entered into for purposes other than trading.

The accompanying consolidated statements of earnings (loss) include net exchange gains (losses) on foreign currency transactions of ~~$27~~$(3) million and $15 million during the three months ended ~~December~~March 31, ~~2019,~~2021 and ~~$(2)~~2020, respectively, and $(5) million and ~~$24~~$40 million during the ~~six~~nine months ended ~~December~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~The net exchange loss on foreign currency transactions during the three months ended December 31, 2020 was not material.~~

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk

The Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products. The Company’s sales subject to credit risk are made primarily to department stores, perfumeries, specialty multi-brand retailers and retailers in its travel retail business. The Company grants credit to qualified customers. As a result of the COVID-19 pandemic, the Company has enhanced its assessment of its customers' abilities to pay with a greater focus on factors affecting their liquidity and less on historical payment performance. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor the extent of the impact of the COVID-19 pandemic on its customers' abilities, individually and collectively, to make timely payments.

The Company’s largest customer during the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 sells products primarily in China travel retail. This customer accounted for ~~$654~~$690 million or ~~13%~~18%, and ~~$296~~$143 million or 6%4% for the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$1,208~~$1,898 million or ~~14%~~15% and ~~$465~~$608 million or 5% for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, of the Company's consolidated net sales. This customer accounted for ~~$404~~$366 million, or ~~20%~~21%, and $297 million, or 24%, of the Company's accounts receivable at ~~December~~March 31, ~~2020~~2021 and June 30, 2020, respectively.

Another major customer of the Company during the quarter sells products primarily within the United States and accounted for $179 million, or 10%, and $87 million, or 7%, of the Company’s accounts receivable at March 31, 2021 and June 30, 2020, respectively. This customer accounted for $167 million, or 4%, and $149 million, or 4%, for the three months ended March 31, 2021 and 2020, respectively, and $510 million or 4% and $589 million or 5% for the nine months ended March 31, 2021 and 2020, respectively, of the Company’s consolidated net sales.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:


(In millions)	(In millions)	December 31 2020		June 30 2020		(In millions)	March 31 2021		June 30 2020
Raw materials	Raw materials	$	550	$	542	Raw materials	$	551	$	542
Work in process	Work in process	258		305		Work in process	282		305
Finished goods	Finished goods	1,072		995		Finished goods	1,078		995
Promotional merchandise	Promotional merchandise	236		220		Promotional merchandise	223		220
		$	2,116	$	2,062		$	2,134	$	2,062

Property, Plant and Equipment

Property, plant and equipment consists of the following:


(In millions)	(In millions)	December 31 2020		June 30 2020		(In millions)	March 31 2021		June 30 2020
Assets (Useful Life)	Assets (Useful Life)					Assets (Useful Life)
Land	Land	$	57	$	33	Land	$	56	$	33
Buildings and improvements (10 to 40 years)	Buildings and improvements (10 to 40 years)	457		400		Buildings and improvements (10 to 40 years)	467		400
Machinery and equipment (3 to 10 years)	Machinery and equipment (3 to 10 years)	969		865		Machinery and equipment (3 to 10 years)	946		865
Computer hardware and software (4 to 10 years)	Computer hardware and software (4 to 10 years)	1,417		1,335		Computer hardware and software (4 to 10 years)	1,374		1,335
Furniture and fixtures (5 to 10 years)	Furniture and fixtures (5 to 10 years)	126		120		Furniture and fixtures (5 to 10 years)	121		120
Leasehold improvements	Leasehold improvements	2,471		2,381		Leasehold improvements	2,397		2,381
		5,497		5,134			5,361		5,134
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(3,355)		(3,079)		Less accumulated depreciation and amortization	(3,255)		(3,079)
		$	2,142	$	2,055		$	2,106	$	2,055

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The cost of assets related to projects in progress of ~~$601~~$581 million and $501 million as of ~~December~~March 31, ~~2020~~2021 and June 30, 2020, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was ~~$126~~$129 million and ~~$127~~$131 million during the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$251~~$380 million and ~~$252~~$383 million during the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, 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.~~earnings (loss).

7Leases

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~The Company recognized $33 million and $13 million of long-lived asset impairments, included in Impairments of other intangible and long-lived assets, in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021 and 2020, respectively. The fiscal 2021 impairments related to other assets (i.e. rights associated with commercial operating leases), operating lease right-of-use assets and the related property, plant and equipment in certain freestanding stores primarily in Europe, and the fiscal 2020 impairments related to operating lease right-of-use assets and the related property, plant and equipment in certain freestanding stores primarily in North America. In both periods, the impairments were due to the negative impacts of the COVID-19 pandemic.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Income Taxes

The effective rate for income taxes for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020 are as follows:


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
		2020		2019		2020		2019			2021		2020		2021		2020
Effective rate for income taxes	Effective rate for income taxes	14.9	%	30.8	%	17.6	%	26.2	%	Effective rate for income taxes	21.0	%	105.0	%	18.5	%	30.0	%
Basis-point change from the prior-year period	Basis-point change from the prior-year period	(1,590)				(860)				Basis-point change from the prior-year period	(8,400)				(1,150)

For the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, the decrease in the effective tax rate was primarily attributable to the impact of nondeductible goodwill charges recognized in the three and nine months ended March 31, 2020 and a lower effective tax rate on the Company's foreign ~~operations~~operations. The lower amount of earnings before income taxes for the three and nine months ended March 31, 2020 increased the impact of the nondeductible ~~goodwill charges recognized in the second quarter of fiscal 2020.~~charges.

The effective tax rate for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 included the impact of the U.S. government issuance of final global intangible low-taxed income (“GILTI”) tax regulations in July 2020 under the Tax Cuts and Jobs Act that provide for a high-tax exception to the GILTI tax. These regulations are retroactive to the original enactment of the GILTI tax provision, which includes the Company's 2019 and 2020 fiscal years. The Company has elected to apply the GILTI high-tax exception to fiscal 2021, 2020 and 2019. The election for fiscal 2021 resulted in reductions of ~~160~~100 basis points and ~~150~~110 basis points to the effective tax rates for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively. The impact of the elections with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second ~~quarter~~and third quarters of fiscal 2021 and resulted in reductions of ~~470~~30 basis points and ~~280~~220 basis points to the effective tax rates for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

As of ~~December~~March 31, ~~2020~~2021 and June 30, 2020, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $72 million and $70 ~~million.~~million, respectively. The total amount of unrecognized tax benefits at ~~December~~March 31, ~~2020~~2021 that, if recognized, would affect the effective tax rate was ~~$55~~$57 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 in the accompanying consolidated statements of earnings ~~were not material.~~(loss) was $2 million and $3 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at ~~December~~March 31, ~~2020~~2021 and June 30, 2020, was ~~$14~~$16 million and $13 million, respectively. On the basis of the information available as of ~~December~~March 31, ~~2020,~~2021, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

~~Other Accrued Liabilities~~

~~Other accrued liabilities consist of the following:~~

(In millions) December 31
2020 June 30
2020
Advertising, merchandising and sampling $ 353 $ 256
Employee compensation 494 424
Deferred revenue 365 222
Payroll and other taxes 392 250
Accrued income taxes 319 208
Sales return accrual 285 212
Accrued general and administrative expenses 295 233
Other 761 600
$ 3,264 $ 2,405

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Debt~~Other Accrued Liabilities

Other accrued liabilities consist of the following:


(In millions)	March 31 2021		June 30 2020
Advertising, merchandising and sampling	$	299	$	256
Employee compensation	534		424
Deferred revenue	310		222
Payroll and other taxes	287		250
Accrued income taxes	327		208
Sales return accrual	270		212

Other	1,050		833
	$	3,077	$	2,405

~~In August 2020, the Company repaid the remaining $750 million borrowed under its $1,500 million revolving credit facility that was outstanding as of June 30, 2020.~~

Recently Adopted Accounting Standards

Measurement of Credit Losses on Financial Instruments (ASC Topic 326 – Financial Instruments – Credit Losses) (“ASC 326”)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires companies to utilize an impairment model for most financial assets measured at amortized cost and certain other financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses. In addition, this guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, and requires additional disclosures. In general, modified retrospective adoption will be required for all outstanding instruments that fall under this guidance.

In November 2019, the FASB issued authoritative guidance (ASU 2019-11 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses) that amends ASC Topic 326 to clarify, improve and amend certain aspects of this guidance, such as disclosures related to accrued interest receivables and the estimation of credit losses associated with financial assets secured by collateral.

In February 2020, the FASB issued authoritative guidance (ASU 2020-02 – Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842)) that amends and clarifies Topic 326 and Topic 842. For Topic 326, the codification was updated to include the Securities and Exchange Commission staff interpretations associated with registrants engaged in lending activities.

Effective for the Company – Fiscal 2021 first quarter.

Impact on consolidated financial statements – On July 1, 2020, the Company adopted ASC 326. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. See Note 78 – Revenue Recognition for further discussion.

Goodwill and Other – Internal-Use Software (ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract)

In August 2018, the FASB issued authoritative guidance that permits companies to capitalize the costs incurred for setting up business systems that operate on cloud technology. The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance does not affect the accounting for the service element of a hosting arrangement that is a service contract. Capitalized costs associated with a hosting arrangement that is a service contract must be amortized over the term of the hosting arrangement to the same line item in the income statement as the expense for fees for the hosting arrangement.

Effective for the Company – Fiscal 2021 first quarter, with early adoption permitted in any interim period. This guidance can be adopted either retrospectively, or prospectively to all implementation costs incurred after the date of adoption.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impact on consolidated financial statements – On July 1, 2020, the Company adopted this guidance prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Standards

Reference Rate Reform (ASC Topic 848)

In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In January 2021, the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform. The amendments clarify that for all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC Topic 848.

Effective for the Company – This guidance can be applied for a limited time through December 31, 2022. The guidance will no longer be available to apply after December 31, 2022.

Impact on consolidated financial statements – The Company is currently assessing the impact of applying this guidance on its existing derivative contracts, leases and other arrangements, as well as when to adopt this guidance.

Income Taxes (ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes)

In December 2019, the FASB issued authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas.

Effective for the Company – Fiscal 2022 first quarter, with early adoption permitted in any interim period. If adopted early, the Company must adopt all the amendments in the same period. The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, depending on the specific change.

Impact on consolidated financial statements – The Company is in the process of finalizing its evaluation and currently ~~evaluating the impact~~expects to record a cumulative adjustment of ~~applying this guidance and believes~~approximately $120 million as an increase to its fiscal 2022 opening retained earnings balance for deferred taxes related to a previously held equity method investment that ~~it has transactions that may fall under the scope.~~became a foreign subsidiary.

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

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – ACQUISITION OF BUSINESS

On December 18, 2019, the Company acquired the remaining 66.66% equity interest in Have&Be Co. Ltd. (“Have & Be”), the global skin care company behind Dr. Jart+ and men’s grooming brand Do The Right Thing, for $1,268 million in cash. Based on the final purchase price and working capital adjustments, the Company estimated a refund receivable of $32 million that was outstanding as of June 30, 2020 and was received in the first quarter of fiscal 2021. The Company originally acquired a minority interest in Have & Be in December 2015, and that investment structure included a formula-based call option for the remaining equity interest. The original minority interest was accounted for as an equity method investment, which had a carrying value of $133 million at the acquisition date. The acquisition of the remaining equity interest in Have & Be was considered a step acquisition, whereby the Company remeasured the previously held equity method investment to its fair value of $682 million, resulting in the recognition of a gain of $549 million. The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated OCI. The total gain on the Company’s previously held equity method investment of $553 million is included in Other income in the accompanying consolidated statements of earnings (loss) for the ~~three and six~~nine months ended ~~December~~March 31, ~~2019.~~2020. The fair value of the previously held equity method investment was determined based upon a valuation of the acquired business, as of the date of acquisition, using 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. The accounting for the Have & Be business combination was finalized as of June 30, 2020.

The amount paid at closing was funded by cash on hand including the proceeds from the issuance of debt. In anticipation of the closing, the Company transferred cash to a foreign subsidiary for purposes of making the closing payment. As a result, the Company recognized a foreign currency gain of $23 million, which is also included in Other income in the accompanying consolidated statements of earnings (loss) for the ~~three and six~~nine months ended ~~December~~March 31, ~~2019.~~2020.

Further information 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, 2020.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

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


(In millions)	(In millions)	Skin Care		Makeup		Fragrance		Hair Care		Total		(In millions)	Skin Care		Makeup		Fragrance		Hair Care		Total
Balance as of June 30, 2020	Balance as of June 30, 2020											Balance as of June 30, 2020
Goodwill	Goodwill	$	519	$	1,210	$	254	$	389	$	2,372	Goodwill	$	519	$	1,210	$	254	$	389	$	2,372
Accumulated impairments	Accumulated impairments	(95)		(817)		(26)		(33)		(971)		Accumulated impairments	(95)		(817)		(26)		(33)		(971)
		424		393		228		356		1,401			424		393		228		356		1,401

Goodwill acquired during the period	Goodwill acquired during the period	0		6		0		4		10		Goodwill acquired during the period	0		6		0		4		10
Impairment charges(1)	Impairment charges(1)	(54)		0		0		0		(54)		Impairment charges(1)	(54)		(13)		0		0		(67)
Translation adjustments, goodwill	Translation adjustments, goodwill	36		0		9		3		48		Translation adjustments, goodwill	21		0		4		3		28
Translation adjustments, accumulated impairments	Translation adjustments, accumulated impairments	(2)		0		0		(2)		(4)		Translation adjustments, accumulated impairments	(1)		0		0		(2)		(3)
		(20)		6		9		5		0			(34)		(7)		4		5		(32)

Balance as of December 31, 2020
Balance as of March 31, 2021												Balance as of March 31, 2021
Goodwill	Goodwill	555		1,216		263		396		2,430		Goodwill	540		1,216		258		396		2,410
Accumulated impairments	Accumulated impairments	(151)		(817)		(26)		(35)		(1,029)		Accumulated impairments	(150)		(830)		(26)		(35)		(1,041)
		$	404	$	399	$	237	$	361	$	1,401		$	390	$	386	$	232	$	361	$	1,369

(1)A goodwill impairment charge of $13 million was recorded in connection with the exit of the global distribution of BECCA products and is included in Restructuring and other charges in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021. See Note 4 – Charges Associated with Restructuring and Other Activities for further information relating to the Post-COVID Business Acceleration Program. See “Impairment Testing During the Nine Months Ended March 31, 2021” below for further information relating to fiscal 2021 impairment charges related to GLAMGLOW.

Other intangible assets consist of the following:


		December 31, 2020						June 30, 2020							March 31, 2021						June 30, 2020
(In millions)	(In millions)	Gross Carrying Value		Accumulated Amortization		Total Net Book Value		Gross Carrying Value		Accumulated Amortization		Total Net Book Value		(In millions)	Gross Carrying Value		Accumulated Amortization		Total Net Book Value		Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Amortizable intangible assets:	Amortizable intangible assets:													Amortizable intangible assets:
Customer lists and other	Customer lists and other	$	1,684	$	537	$	1,147	$	1,590	$	475	$	1,115	Customer lists and other	$	1,641	$	564	$	1,077	$	1,590	$	475	$	1,115
License agreements	License agreements	43		43		0		43		43		0		License agreements	43		43		0		43		43		0
		$	1,727	$	580	1,147		$	1,633	$	518	1,115			$	1,684	$	607	1,077		$	1,633	$	518	1,115
Non-amortizable intangible assets:	Non-amortizable intangible assets:													Non-amortizable intangible assets:
Trademarks and other	Trademarks and other					1,277						1,223		Trademarks and other					1,217						1,223
Total intangible assets	Total intangible assets					$	2,424					$	2,338	Total intangible assets					$	2,294					$	2,338

The aggregate amortization expense related to amortizable intangible assets was ~~$27~~$25 million and ~~$11~~$23 million for the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$52~~$77 million and ~~$22~~$45 million for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next four fiscal years is as follows:

Fiscal
(In millions) 2021 2022 2023 2024 2025
Estimated aggregate amortization expense $ 52 $ 105 $ 104 $ 104 $ 104


	Fiscal
(In millions)	2021		2022		2023		2024		2025
Estimated aggregate amortization expense	$	24	$	101	$	100	$	100	$	100

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment Testing During the ~~Six~~Nine Months Ended ~~December~~March 31, ~~2020~~2021

During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company and lower than expected results from geographic expansion, the Company made further revisions to the internal forecasts relating to its GLAMGLOW reporting unit. The Company concluded that the changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill. These changes in circumstances were also an indicator that the carrying amounts of GLAMGLOW's long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed an interim impairment test for the trademark and a recoverability test for the long-lived assets as of November 30, 2020. The Company concluded that the carrying value of the trademark for GLAMGLOW exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $21 million. In addition, the Company concluded that the carrying value of the GLAMGLOW customer lists intangible asset was fully impaired and recorded an impairment charge of $6 million. The fair value of all other long-lived assets of GLAMGLOW exceeded their carrying values and were not impaired as of November 30, 2020. After adjusting the carrying values of the trademark and customer lists intangible assets, the Company completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge of $54 million, reducing the carrying value of goodwill for the GLAMGLOW reporting unit to ~~zero.~~0. The fair value of the GLAMGLOW reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. The impairment charges for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020~~2021 were reflected in the skin care product category and in the Americas region. As of ~~December~~March 31, ~~2020,~~2021, the remaining carrying value of the trademark related to the GLAMGLOW reporting unit was $36 million.

Impairment Testing During the ~~Six~~Nine Months Ended ~~December~~March 31, ~~2019~~2020

During December 2019, given the continuing declines in prestige makeup, generally in North America, and the ongoing competitive activity, the Company’s Too Faced, BECCA and Smashbox reporting units made revisions to their internal forecasts concurrent with the Company's brand strategy review process. The Company concluded that the changes in circumstances in these reporting units triggered the need for an interim impairment review of their respective trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of their respective long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and recoverability tests for the long-lived assets as of December 31, 2019. The Company concluded that the carrying amounts of the long-lived assets were recoverable. The Company also concluded that the carrying values of the trademarks exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded impairment ~~charges.~~charges totaling $266 million for trademarks during the three months ended December 31, 2019. After adjusting the carrying value of the trademarks, the Company completed interim quantitative impairment tests for goodwill and recorded goodwill impairment charges for each of these reporting ~~units.~~units, totaling $511 million during the three months ended December 31, 2019. The fair value of each reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. A summary of the impairment charges for the three and six months ended December 31, 2019 and the remaining trademark and goodwill carrying values as of December 31, 2019, for each reporting unit, are as follows:

(In millions) Impairment Charge Carrying Value
Reporting Unit: Trademark Goodwill Trademark Goodwill
Too Faced $ 211 $ 430 $ 314 $ 175
BECCA 33 35 65 63
Smashbox 22 46 33 26
Total $ 266 $ 511 $ 412 $ 264

~~The impairment charges were recorded in the makeup product category and in the Americas region.~~

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During March 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company, the Company made revisions to the internal forecasts relating to its Too Faced, BECCA, Smashbox and GLAMGLOW reporting units. The Company concluded that the changes in circumstances in these reporting units triggered the need for an interim impairment review of their respective trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of their respective long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and recoverability tests for the long-lived assets as of March 31, 2020. The Company concluded that the carrying amounts of the long-lived assets were recoverable. The Company also concluded that the carrying values of the trademarks exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows based on probability weighted cash flows, and recorded impairment charges. After adjusting the carrying value of the trademarks, the Company completed interim quantitative impairment tests for goodwill and recorded goodwill impairment charges for each of these reporting units. The fair value of each reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows, based on probability weighted undiscounted cash flows, and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

A summary of the impairment charges for the three and nine months ended March 31, 2020 and the remaining trademark and goodwill carrying values as of March 31, 2020, for each reporting unit, are as follows:


			Impairment Charge
(In millions)			Three Months Ended March 31, 2020				Nine Months Ended March 31, 2020				Carrying Value
Reporting Unit:	Product Category	Region	Trademark		Goodwill		Trademark		Goodwill		Trademark		Goodwill
Too Faced	Makeup	The Americas	$	42	$	162	$	253	$	592	$	272	$	13
BECCA	Makeup	The Americas	14		35		47		70		51		28
Smashbox	Makeup	The Americas	1		26		23		72		32		0
GLAMGLOW	Skin care	The Americas	1		52		1		52		62		62
Total			$	58	$	275	$	324	$	786	$	417	$	103

NOTE 4 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

Charges associated with restructuring activities for the three months ended ~~December~~March 31, ~~2020~~2021 were as follows:


		Sales Returns (included in Net Sales)				Cost of Sales				Operating Expenses								Total					Sales Returns (included in Net Sales)			Cost of Sales		Operating Expenses				Total
(In millions)	(In millions)							Restructuring Charges				Other Charges				(In millions)									Restructuring Charges			Other Charges
Leading Beauty Forward Program	Leading Beauty Forward Program			$	0			$	2			$	(2)			$	3				$	3		Leading Beauty Forward Program		$	0	$	(1)	$	3	$	4	$	6
Post-COVID Business Acceleration Program	Post-COVID Business Acceleration Program	0				0				34				0				34		Post-COVID Business Acceleration Program			10			5		121		3		139
Total	Total	$	0			$	2			$	32			$	3			$	37	Total			$	10		$	4	$	124	$	7	$	145

Charges associated with restructuring activities for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 were as follows:


		Sales Returns (included in Net Sales)				Cost of Sales				Operating Expenses								Total					Sales Returns (included in Net Sales)			Cost of Sales		Operating Expenses				Total
(In millions)	(In millions)							Restructuring Charges				Other Charges				(In millions)									Restructuring Charges			Other Charges
Leading Beauty Forward Program	Leading Beauty Forward Program			$	0			$	5			$	(10)			$	5				$	0		Leading Beauty Forward Program		$	0	$	4	$	(7)	$	9	$	6
Post-COVID Business Acceleration Program	Post-COVID Business Acceleration Program	0				0				46				0				46		Post-COVID Business Acceleration Program			10			5		167		3		185
Total	Total	$	0			$	5			$	36			$	5			$	46	Total			$	10		$	9	$	160	$	12	$	191

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leading Beauty Forward Program

In May 2016, the Company announced a multi-year initiative (“Leading Beauty Forward Program” or “LBF Program”) to build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum. The LBF Program is designed to enhance the Company’s go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value. As of June 30, 2019, the Company concluded the approvals of all major initiatives under the LBF Program related to the optimization of select corporate functions, supply chain activities, and corporate and regional market support structures, as well as the exit of underperforming businesses, and expects to substantially complete those initiatives through fiscal 2021.

LBF Program Approvals

The LBF Program approved restructuring and other charges expected to be incurred were:


		Sales Returns (included in Net Sales)		Cost of Sales			Operating Expenses						Total			Sales Returns (included in Net Sales)			Cost of Sales		Operating Expenses				Total
(In millions)	(In millions)					Restructuring Charges			Other Charges			(In millions)						Restructuring Charges			Other Charges
Total Charges (Adjustments) Approved	Total Charges (Adjustments) Approved																Total Charges (Adjustments) Approved
Cumulative through June 30, 2020	Cumulative through June 30, 2020	$	13	$	85		$	511		$	358		$	967	Cumulative through June 30, 2020	$	13		$	85	$	511	$	358	$	967
Six months ended December 31, 2020		1		0			(7)			6			0
Cumulative through December 31, 2020		$	14	$	85		$	504		$	364		$	967
Nine months ended March 31, 2021															Nine months ended March 31, 2021	1			0		(11)		10		0
Cumulative through March 31, 2021															Cumulative through March 31, 2021	$	14		$	85	$	500	$	368	$	967

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Included in the above table, cumulative LBF Program restructuring initiatives approved by the Company by major cost type were:


(In millions)	(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total		(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges (Adjustments) Approved	Restructuring Charges (Adjustments) Approved											Restructuring Charges (Adjustments) Approved
Cumulative through June 30, 2020	Cumulative through June 30, 2020	$	460	$	28	$	7	$	16	$	511	Cumulative through June 30, 2020	$	460	$	28	$	7	$	16	$	511
Six months ended December 31, 2020		(8)		0		1		0		(7)
Cumulative through December 31, 2020		$	452	$	28	$	8	$	16	$	504
Nine months ended March 31, 2021												Nine months ended March 31, 2021	(13)		0		2		0		(11)
Cumulative through March 31, 2021												Cumulative through March 31, 2021	$	447	$	28	$	9	$	16	$	500

The Company records approved charges associated with restructuring and other activities once the relevant accounting criteria have been met.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LBF Program Restructuring and Other Charges

Total cumulative charges recorded associated with restructuring and other activities for the LBF Program were:


(In millions)	(In millions)	Sales Returns (included in Net Sales)		Cost of Sales			Operating Expenses					Total		(In millions)		Sales Returns (included in Net Sales)			Cost of Sales			Operating Expenses				Total
						Restructuring Charges			Other Charges						Restructuring Charges						Other Charges
Total Charges (Adjustments)	Total Charges (Adjustments)																	Total Charges (Adjustments)
Cumulative through June 30, 2020	Cumulative through June 30, 2020	$	14	$	65		$	491		$	304	$	874	Cumulative through June 30, 2020		$	14		$	65		$	491	$	304	$	874
Six months ended December 31, 2020		0		5			(10)			5		0
Cumulative through December 31, 2020		$	14	$	70		$	481		$	309	$	874
Nine months ended March 31, 2021														Nine months ended March 31, 2021		0			4			(7)		9		6
Cumulative through March 31, 2021														Cumulative through March 31, 2021		$	14		$	69		$	484	$	313	$	880


(In millions)	(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total		(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges (Adjustments)	Restructuring Charges (Adjustments)											Restructuring Charges (Adjustments)
Cumulative through June 30, 2020	Cumulative through June 30, 2020	$	451	$	27	$	6	$	7	$	491	Cumulative through June 30, 2020	$	451	$	27	$	6	$	7	$	491
Six months ended December 31, 2020		(12)		1		1		0		(10)
Cumulative through December 31, 2020		$	439	$	28	$	7	$	7	$	481
Nine months ended March 31, 2021												Nine months ended March 31, 2021	(10)		0		1		2		(7)
Cumulative through March 31, 2021												Cumulative through March 31, 2021	$	441	$	27	$	7	$	9	$	484

Employee-related costs reflect adjustments to the accrual estimate for certain employees who either resigned or transferred to other existing positions within the Company.

Changes in accrued restructuring charges for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 relating to the LBF Program were:


(In millions)	(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total		(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Balance at June 30, 2020	Balance at June 30, 2020	$	112	$	0	$	0	$	0	$	112	Balance at June 30, 2020	$	112	$	0	$	0	$	0	$	112
Charges (adjustments)	Charges (adjustments)	(12)		1		1		0		(10)		Charges (adjustments)	(10)		0		1		2		(7)
Cash payments	Cash payments	(36)		0		0		0		(36)		Cash payments	(50)		0		(1)		0		(51)
Translation adjustments	Translation adjustments	2		0		0		0		2		Translation adjustments	1		0		0		0		1
Balance at December 31, 2020		$	66	$	1	$	1	$	0	$	68
Balance at March 31, 2021												Balance at March 31, 2021	$	53	$	0	$	0	$	2	$	55

Accrued restructuring charges at ~~December~~March 31, ~~2020~~2021 relating to the LBF Program are expected to result in cash expenditures funded from cash provided by operations of approximately ~~$46~~$37 million, ~~$17~~$14 million and $5$4 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Additional information about the LBF Program is included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Post-COVID Business Acceleration Program

On August 20, 2020, the Company announced a two-year restructuring program, Post-COVID Business Acceleration Program (the “PCBA Program”), designed to resize the Company's business against the dramatic shifts to its distribution landscape and consumer behaviors in the wake of the COVID-19 pandemic. The PCBA Program is designed to help improve efficiency and effectiveness by rebalancing resources to growth areas of prestige beauty. It is expected to further strengthen the Company by building upon the foundational capabilities in which the Company has invested.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The PCBA Program’s main areas of focus include accelerating the shift to online with the realignment of the Company’s distribution network reflecting freestanding store and certain department store closures, with a focus on North America and Europe, the Middle East & Africa; the reduction in brick-and-mortar point of sale employees and related support staff; and the redesign of the Company’s regional branded marketing organizations, plus select opportunities in global brands and functions. This program is expected to position the Company to better execute its long-term strategy while strengthening its financial flexibility.

~~In connection with the PCBA Program, at~~At this time the Company estimates a net reduction over the duration of the PCBA Program in the range of approximately 1,500 to 2,000 positions globally, ~~which is approximately 3% of its current workforce~~ including temporary and part-time employees. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. The Company also estimates the closure over the duration of the PCBA Program of approximately 10% to 15% of its freestanding stores globally, primarily in Europe, the Middle East & Africa and in North America.

The Company plans to approve specific initiatives under the PCBA Program through fiscal 2022 and expects to complete those initiatives through fiscal 2023. The Company expects that the PCBA Program will result in related restructuring and other charges totaling between $400 million and $500 million, before taxes.

PCBA Program Approvals

The PCBA Program cumulative charges approved by the Company through ~~December~~March 31, ~~2020~~2021 were:


		Sales Returns (included in Net Sales)		Cost of Sales			Operating Expenses						Total			Sales Returns (included in Net Sales)			Cost of Sales		Operating Expenses				Total
(In millions)	(In millions)					Restructuring Charges			Other Charges			(In millions)						Restructuring Charges			Other Charges
Total Charges (Adjustments) Approved	Total Charges (Adjustments) Approved																Total Charges (Adjustments) Approved
Six months ended December 31, 2020		$	5	$	(1)		$	46		$	16		$	66
Nine months ended March 31, 2021															Nine months ended March 31, 2021	$	39		$	(6)	$	180	$	17	$	230

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through ~~December~~March 31, ~~2020~~2021 by major cost type were:

(In millions) Employee-
Related
Costs Asset-
Related
Costs Contract
Terminations Other Exit
Costs Total
Restructuring Charges (Adjustments) Approved
Six months ended December 31, 2020 $ 46 $ 4 $ (7) $ 3 $ 46


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges Approved
Nine months ended March 31, 2021	$	73	$	99	$	5	$	3	$	180

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Specific actions taken since the PCBA Program inception include:

•Optimize Distribution Network – To help restore profitability to pre-COVID-19 pandemic levels in certain areas of its distribution network and, as part of a broader initiative to be completed in phases, the Company has approved initiatives to close a number of underperforming freestanding stores, counters and ~~counters,~~other retail locations, mainly in ~~the United Kingdom and~~ certain affiliates in Europe, the Middle East & ~~Africa.~~Africa and the United Kingdom, North America, Latin America and the Company's travel retail network. These anticipated closures reflect changing consumer behavior including higher demand for online and omnichannel capabilities. These activities will result in a net reduction in workforce, inventory and other asset write-offs, product returns, ~~inventory write-offs, reduction of workforce,~~ and termination of contracts.

•Optimize Digital Organization and Other Go-To-Market Organizations – The Company approved initiatives to enhance its go-to-market ~~support structures~~capabilities and ~~align~~shift more resources to support online and digital activities. These initiatives are primarily intended to shift certain areas of focus from traditional brick-and-mortar to social and digital strategies to provide enhanced consumer experience, as well as to support expanded omnichannel opportunities.growth. These actions will result in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

•Exit of the Global Distribution of BECCA Products – In reviewing the Company's brand portfolio to improve efficiency and to ensure the sustainability of long-term investments, the decision was made to exit the global distribution of BECCA products due to its limited distribution, the ongoing decline in product demand and the challenging environment caused by the COVID-19 pandemic. These activities resulted in charges for the impairment of goodwill and other intangible assets, product returns, termination of contracts, and employee severance. The Company expects to substantially complete these initiatives during fiscal 2022.

PCBA Program Restructuring and Other Charges

Restructuring charges are comprised of the following:

Employee-Related Costs – Employee-related costs are primarily comprised of severance and other post-employment benefit costs, calculated based on salary levels, prior service and other statutory minimum benefits, if applicable.

Asset-Related Costs – Asset-related costs primarily consist of asset write-offs or accelerated depreciation related to long-lived assets in certain freestanding stores (including rights associated with commercial operating leases and operating lease right-of-use assets) that will be taken out of service prior to their existing useful life as a direct result of a restructuring initiative. These costs also include goodwill and other intangible asset impairment charges relating to the exit of the global distribution of BECCA products.

Contract Terminations – Costs related to contract terminations include continuing payments to a third party after the Company has ceased benefiting from the rights conveyed in the contract, or a payment made to terminate a contract prior to its expiration.

Other Exit Costs – Other exit costs related to restructuring activities generally include costs to relocate facilities or employees, recruiting to fill positions as a result of relocation of operations, and employee outplacement for separated employees.

Other charges associated with restructuring activities are comprised of the following:

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

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

•Consulting and other professional services for organizational design of the future structures and processes as well as the implementation thereof,

•Temporary labor backfill,

•Costs to establish and maintain a Project Management Office (“PMO”) for the duration of the PCBA Program, including internal costs for employees dedicated solely to project management activities, and other PMO-related expenses incremental to the Company’s ongoing operations (e.g., rent and utilities), and

•Recruitment and training costs for new and reskilled employees to acquire and apply the capabilities needed to perform responsibilities as a direct result of an approved restructuring initiative.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company records approved charges associated with restructuring and other activities once the relevant accounting criteria have been met. Total cumulative charges recorded associated with restructuring and other activities for the PCBA Program were:


		Sales Returns (included in Net Sales)		Cost of Sales			Operating Expenses						Total			Sales Returns (included in Net Sales)			Cost of Sales		Operating Expenses				Total
(In millions)	(In millions)					Restructuring Charges			Other Charges			(In millions)						Restructuring Charges			Other Charges
Total Charges	Total Charges																Total Charges
Six months ended December 31, 2020		$	0	$	0		$	46		$	0		$	46
Nine months ended March 31, 2021															Nine months ended March 31, 2021	$	10		$	5	$	167	$	3	$	185


(In millions)	(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total		(In millions)	Employee- Related Costs		Asset- Related Costs(1)		Contract Terminations		Other Exit Costs		Total
Restructuring Charges	Restructuring Charges											Restructuring Charges
Six months ended December 31, 2020		$	45	$	0	$	1	$	0	$	46
Nine months ended March 31, 2021												Nine months ended March 31, 2021	$	70	$	93	$	4	$	0	$	167

(1)Asset-related costs include goodwill and other intangible asset impairment charges of $13 million and $34 million, respectively, relating to the exit of the global distribution of BECCA products.

Changes in accrued restructuring charges for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 relating to the PCBA Program were:


(In millions)	(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total		(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Charges	Charges	$	45	$	0	$	1	$	0	$	46	Charges	$	70	$	93	$	4	$	0	$	167
Cash payments	Cash payments	(4)		0		(1)		0		(5)		Cash payments	(8)		0		(4)		0		(12)

Balance at December 31, 2020		$	41	$	0	$	0	$	0	$	41
Noncash asset write-offs												Noncash asset write-offs	0		(93)		0		0		(93)
Balance at March 31, 2021												Balance at March 31, 2021	$	62	$	0	$	0	$	0	$	62

Accrued restructuring charges at ~~December~~March 31, ~~2020~~2021 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately ~~$35~~$37 million, $5$18 million, and $1$7 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively.

NOTE 5 – DEBT

In August 2020, the Company repaid the remaining $750 million borrowed under its $1,500 million revolving credit facility that was outstanding as of June 30, 2020.

In March 2021, the Company completed a public offering of $600 million aggregate principal amount of its 1.950% Senior Notes due March 15, 2031 (the “2031 Senior Notes”). The Company used some of the net proceeds from this offering for general corporate purposes, which included operating expenses, working capital and capital expenditures. In addition, the Company intends to use the net proceeds from this offering to repay the 1.700% Senior Notes due May 10, 2021 and fund a portion of the purchase price to increase the Company's investment in DECIEM Beauty Group Inc.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These recently issued notes are summarized as follows:


($ in millions)	Issue Date	Price		Yield		Unamortized Debt Discount		Debt Issuance Costs		Semi-annual interest payments
2031 Senior Notes (1)	March 2021	99.340	%	2.023	%	$	(4)	$	(4)	March 15/September 15

(1)In March 2020, in anticipation of the issuance of the 2031 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $200 million at a weighted-average all-in rate of 0.84%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $11 million that is being amortized to interest expense over the life of the 2031 Senior Notes. As a result of the treasury lock agreements, as well as the debt discount and debt issuance costs, the effective interest rate on the 2031 Senior Notes will be 1.89% over the life of the debt.

See Note 16 – Subsequent Events for further information relating to the debt repayment made subsequent to March 31, 2021.

NOTE 56 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. The Company enters into foreign currency forward contracts, and may enter into option contracts, to reduce the effects of fluctuating foreign currency exchange rates. In addition, the Company enters into interest rate derivatives to manage the effects of interest rate movements on the Company’s aggregate liability portfolio, including potential future debt issuances. The Company enters into the net investment hedges to offset the risk of changes in the U.S. dollar value of the Company’s investment in these foreign operations due to fluctuating foreign exchange rates. Time value is excluded from the effectiveness assessment and is recognized under a systematic and rational method over the life of the hedging instrument in Selling, general and administrative expenses. The net gain or loss on net investment hedges is recorded within translation adjustments, as a component of accumulated OCI (“AOCI”) on the Company’s consolidated balance sheets, until the sale or substantially complete liquidation of the underlying assets of the Company’s investment. The Company also enters into foreign currency forward contracts, and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the consolidated balance sheets. At ~~December~~March 31, ~~2020,~~2021, the notional amount of derivatives not designated as hedging instruments was ~~$4,118~~$4,404 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.

~~Table of Contents~~

~~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. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. At inception, the Company evaluates the effectiveness of hedge relationships quantitatively, and has elected to perform, after initial evaluation, qualitative effectiveness assessments of certain hedge relationships to support an ongoing expectation of high effectiveness, if effectiveness testing is required. 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.

Table of Contents

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:


		Asset Derivatives					Liability Derivatives						Asset Derivatives					Liability Derivatives
			Fair Value (1)					Fair Value (1)						Fair Value (1)					Fair Value (1)
(In millions)	(In millions)	Balance Sheet Location	December 31 2020		June 30 2020		Balance Sheet Location	December 31 2020		June 30 2020		(In millions)	Balance Sheet Location	March 31 2021		June 30 2020		Balance Sheet Location	March 31 2021		June 30 2020
Derivatives Designated as Hedging Instruments	Derivatives Designated as Hedging Instruments											Derivatives Designated as Hedging Instruments
Foreign currency cash flow hedges	Foreign currency cash flow hedges	Prepaid expenses and other current assets	$	0	$	26	Other accrued liabilities	$	37	$	3	Foreign currency cash flow hedges	Prepaid expenses and other current assets	$	16	$	26	Other accrued liabilities	$	21	$	3
Net investment hedges	Net investment hedges	Prepaid expenses and other current assets	21		21		Other accrued liabilities	71		62		Net investment hedges	Prepaid expenses and other current assets	115		21		Other accrued liabilities	0		62
Interest rate-related derivatives	Interest rate-related derivatives	Prepaid expenses and other current assets	11		15		Other accrued liabilities	0		3		Interest rate-related derivatives	Prepaid expenses and other current assets	7		15		Other accrued liabilities	15		3

Total Derivatives Designated as Hedging Instruments	Total Derivatives Designated as Hedging Instruments		32		62			108		68		Total Derivatives Designated as Hedging Instruments		138		62			36		68

Derivatives Not Designated as Hedging Instruments	Derivatives Not Designated as Hedging Instruments											Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts	Foreign currency forward contracts	Prepaid expenses and other current assets	52		40		Other accrued liabilities	29		15		Foreign currency forward contracts	Prepaid expenses and other current assets	5		40		Other accrued liabilities	108		15

Total derivatives	Total derivatives		$	84	$	102		$	137	$	83	Total derivatives		$	143	$	102		$	144	$	83

(1)See Note 67 – Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined.

1821

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 or (Loss) Recognized in OCI on Derivatives				Location of Gain or (Loss) Reclassified from AOCI into Earnings		Amount of Gain or (Loss) Reclassified from AOCI into Earnings(1)										Amount of Gain (Loss) Recognized in OCI on Derivatives								Location of Gain (Loss) Reclassified from AOCI into Earnings (Loss)		Amount of Gain (Loss) Reclassified from AOCI into Earnings (Loss)(1)
		Three Months Ended December 31					Three Months Ended December 31									Three Months Ended March 31											Three Months Ended March 31
(In millions)	(In millions)	2020		2019			2020			2019		(In millions)				2021				2020							2021			2020
Derivatives in Cash Flow Hedging Relationships:	Derivatives in Cash Flow Hedging Relationships:																Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts	Foreign currency forward contracts	$	(34)	$	(21)		Net sales			$	(5)			$	6		Foreign currency forward contracts			$	22			$	46		Net sales			$	(7)			$	10
Interest rate-related derivatives	Interest rate-related derivatives	3		5		Interest expense		0				0		Interest rate-related derivatives				11				(2)				Interest expense		(1)				0
		(31)		(16)				(5)				6						33				44						(8)				10
Derivatives in Net Investment Hedging Relationships(2):	Derivatives in Net Investment Hedging Relationships(2):													Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)	Foreign currency forward contracts(3)	(79)		(37)				0				0		Foreign currency forward contracts(3)				125				(20)						0				0
Total derivatives	Total derivatives	$	(110)	$	(53)			$	(5)			$	6	Total derivatives				$	158			$	24					$	(8)			$	10

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

(2)During the three months ended March 31, 2021 and 2020, the gain recognized in earnings (loss) from net investment hedges related to the amount excluded from effectiveness testing was $5 million and $12 million, respectively.

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


	Amount of Gain (Loss) Recognized in OCI on Derivatives				Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of Gain (Loss) Reclassified from AOCI into Earnings(1)
	Nine Months Ended March 31					Nine Months Ended March 31
(In millions)	2021		2020			2021		2020
Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts	$	(43)	$	50	Net sales	$	(11)	$	29
Interest rate-related derivatives	14		(11)		Interest expense	(2)		0
	(29)		39			(13)		29
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)	(17)		(54)			0		0
Total derivatives	$	(46)	$	(15)		$	(13)	$	29

(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~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~December 31, 2019,~~2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $5$15 million and ~~$13 million, respectively.~~

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

Amount of Gain or (Loss)
Recognized in OCI on
Derivatives Location of Gain or
(Loss) Reclassified
from AOCI into
Earnings
Amount of Gain or (Loss)
Reclassified from AOCI into Earnings(1)
Six Months Ended
December 31 Six Months Ended
December 31
(In millions) 2020 2019 2020 2019
Derivatives in Cash Flow Hedging Relationships:
Foreign currency forward contracts $ (65) $ 4 Net sales $ (4) $ 19
Interest rate-related derivatives 3 (9) Interest expense (1) 0
(62) (5) (5) 19
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)
(142) (34) 0 0
Total derivatives $ (204) $ (39) $ (5) $ 19

~~(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 six months ended December 31, 2020 and December 31, 2019, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $10 million and $25$37 million, respectively.

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

1922

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


				Amount of Gain or (Loss) Recognized in Earnings on Derivatives (1)													Amount of Gain (Loss) Recognized in Earnings (Loss) on Derivatives (1)
		Location of Gain or (Loss) Recognized in Earnings on Derivatives													Location of Gain (Loss) Recognized in Earnings (Loss) on Derivatives
			Three Months Ended December 31				Six Months Ended December 31									Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)		2020		2019		2020		2019		(In millions)					2021		2020		2021		2020
Derivatives in Fair Value Hedging Relationships:	Derivatives in Fair Value Hedging Relationships:													Derivatives in Fair Value Hedging Relationships:

Interest rate swap contracts	Interest rate swap contracts		Interest expense		$	(3)	$	(1)	$	(5)		$	1	Interest rate swap contracts		Interest expense		$	(18)	$	12	$	(23)	$	13

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

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


(In millions)	(In millions)					(In millions)
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Carrying Amount of the Hedged Liabilities		Cumulative Amount of Fair Value Hedging Gain/(Loss) Included in the Carrying Amount of the Hedged Liability		Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Carrying Amount of the Hedged Liabilities		Cumulative Amount of Fair Value Hedging Gain (Loss) Included in the Carrying Amount of the Hedged Liability
		December 31, 2020		December 31, 2020			March 31, 2021		March 31, 2021
Current debt	Current debt	$	452	$	2	Current debt	$	451	$	1
Long-term debt	Long-term debt	258		8		Long-term debt	936		(9)
Total debt	Total debt	$	710	$	10	Total debt	$	1,387	$	(8)

2023

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended December 31

Three Months Ended March 31

2020

2019

2021

2020

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

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

4,853

4,624

Total amounts of income and expense line items presented in the consolidated statements of earnings (loss) in which the effects of fair value and cash flow hedges are recorded

3,864

3,345

The effects of fair value and cash flow hedging relationships:

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

Hedged item

Not applicable

Hedged item

Not applicable

(12)

Derivatives designated as hedging instruments

Not applicable

(3)

Not applicable

(1)

Derivatives designated as hedging instruments

Not applicable

(18)

Not applicable

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

Amount of loss reclassified from AOCI into earnings

Not applicable

Amount of loss reclassified from AOCI into earnings (loss)

Not applicable

(1)

Not applicable

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

Amount of gain reclassified from AOCI into earnings

(5)

Not applicable

Amount of gain reclassified from AOCI into earnings (loss)

(7)

Not applicable

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31

Nine Months Ended March 31

2020

2019

2021

2020

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded

8,415

8,519

Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded

12,279

131

11,864

112

The effects of fair value and cash flow hedging relationships:

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

Hedged item

Not applicable

(1)

Hedged item

Not applicable

(13)

Derivatives designated as hedging instruments

Not applicable

(5)

Not applicable

Derivatives designated as hedging instruments

Not applicable

(23)

Not applicable

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

Amount of loss reclassified from AOCI into earnings

Not applicable

(1)

Not applicable

Amount of loss reclassified from AOCI into earnings

Not applicable

(2)

Not applicable

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

Amount of gain reclassified from AOCI into earnings

(4)

Not applicable

Amount of gain reclassified from AOCI into earnings

(11)

Not applicable

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


				Amount of Gain or (Loss) Recognized in Earnings on Derivatives															Amount of Gain (Loss) Recognized in Earnings (Loss) on Derivatives
		Location of Gain or (Loss) Recognized in Earnings on Derivatives		Three Months Ended December 31						Six Months Ended December 31							Location of Gain (Loss) Recognized in Earnings (Loss) on Derivatives		Three Months Ended March 31						Nine Months Ended March 31
(In millions)	(In millions)		2020			2019			2020			2019	(In millions)					2021			2020			2021			2020
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:															Derivatives Not Designated as Hedging Instruments:

Foreign currency forward contracts	Foreign currency forward contracts	Selling, general and administrative		$	42		$	30		$	63		$	3	Foreign currency forward contracts		Selling, general and administrative		$	(97)		$	49		$	(34)		$	52

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedges

The Company enters into foreign currency forward contracts, and may enter into foreign currency option contracts, to hedge anticipated transactions and receivables and payables denominated in foreign currencies, for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the cash flows that the Company receives from foreign subsidiaries. The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of ~~September~~December 2022. Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment. At ~~December~~March 31, ~~2020,~~2021, the Company had cash flow hedges outstanding with a notional amount totaling ~~$1,195~~$1,390 million.

The Company may enter into interest rate forward contracts to hedge anticipated issuance of debt for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of interest rate movements on the cost of debt issuance.

For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued, and gains and losses in AOCI are reclassified to sales when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses in AOCI are reclassified to current-period sales. As of ~~December~~March 31, ~~2020,~~2021, the Company’s foreign currency cash flow hedges were highly effective.

The estimated net loss on the Company’s derivative instruments designated as cash flow hedges as of ~~December~~March 31, ~~2020~~2021 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is ~~$25~~$8 million. The accumulated net gain ~~(loss)~~ on derivative instruments in AOCI was ~~$(37)~~$4 million and $20 million as of ~~December~~March 31, ~~2020~~2021 and June 30, 2020, respectively.

Fair Value Hedges

The Company enters into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness. The Company has interest rate swap agreements, with notional amounts totaling $450 million, $250 million and ~~$250~~$700 million to effectively convert the fixed rate interest on its 2021 Senior Notes, 2022 Senior Notes and ~~2022~~2030 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin. These interest rate swap agreements are designated as fair value hedges of the related long-term debt, and the changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.

See Note 16 – Subsequent Events for further information relating to the interest rate swap transactions that occurred subsequent to March 31, 2021.

Net Investment Hedges

The Company enters into foreign currency forward contracts, designated as net investment hedges, to hedge a portion of its net investment in certain foreign operations. The net gain or loss on these contracts is recorded within translation adjustments, as a component of AOCI on the Company’s consolidated balance sheets. 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 ~~January~~April 2021. Hedge effectiveness of the net investment hedge contracts is based on the spot method. At ~~December~~March 31, ~~2020,~~2021, the Company had net investment hedges outstanding with a notional amount totaling ~~$1,879~~$1,920 million.

Credit Risk

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 2 nationally recognized rating agencies. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled ~~$84~~$143 million at ~~December~~March 31, ~~2020.~~2021. To manage this risk, the Company has strict counterparty credit guidelines that are continually monitored. Accordingly, management believes risk of loss under these hedging contracts is remote.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 67 – FAIR VALUE MEASUREMENTS

The Company records certain of its financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The accounting for fair value measurements must be applied to nonfinancial assets and nonfinancial liabilities that require initial measurement or remeasurement at fair value, which principally consist of assets and liabilities acquired through business combinations and goodwill, indefinite-lived intangible assets and long-lived assets for the purposes of calculating potential impairment. The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of ~~December~~March 31, ~~2020:~~2021:


(In millions)	(In millions)	Level 1		Level 2		Level 3		Total		(In millions)	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	2,549	$	0	$	0	$	2,549	Money market funds	$	3,518	$	0	$	—	$	3,518
Foreign currency forward contracts	Foreign currency forward contracts	0		73		0		73		Foreign currency forward contracts	0		136		0		136
Interest rate-related derivatives	Interest rate-related derivatives	0		11		0		11		Interest rate-related derivatives	0		7		0		7
Total	Total	$	2,549	$	84	$	0	$	2,633	Total	$	3,518	$	143	$	0	$	3,661

Liabilities:	Liabilities:									Liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	$	0	$	137	$	0	$	137	Foreign currency forward contracts	$	0	$	129	$	0	$	129

Interest rate-related derivatives										Interest rate-related derivatives	0		15		0		15
Contingent consideration	Contingent consideration	0		0		2		2		Contingent consideration	0		0		2		2
Total	Total	$	0	$	137	$	2	$	139	Total	$	0	$	144	$	2	$	146

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020:


(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	2,810	$	0	$	0	$	2,810
Foreign currency forward contracts	0		87		0		87
Interest rate-related derivatives	0		15		0		15
Total	$	2,810	$	102	$	0	$	2,912

Liabilities:
Foreign currency forward contracts	$	0	$	80	$	0	$	80
Interest rate-related derivatives	0		3		0		3
Contingent consideration	0		0		4		4
Total	$	0	$	83	$	4	$	87

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


	March 31 2021				June 30 2020
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Nonderivatives
Cash and cash equivalents	$	6,399	$	6,399	$	5,022	$	5,022
Current and long-term debt	5,958		6,465		6,136		6,902
Contingent consideration	2		2		4		4

Derivatives
Foreign currency forward contracts – asset (liability), net	7		7		7		7
Interest rate-related derivatives – asset (liability), net	(8)		(8)		12		12

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31
2020 June 30
2020
(In millions) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Nonderivatives
Cash and cash equivalents $ 5,545 $ 5,545 $ 5,022 $ 5,022
Current and long-term debt 5,383 6,315 6,136 6,902
Contingent consideration 2 2 4 4
Derivatives
Foreign currency forward contracts – asset (liability), net (64) (64) 7 7
Interest rate-related derivatives – asset (liability), net 11 11 12 12

~~The~~ following table presents the Company’s impairment charges for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020~~2021 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:


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

Goodwill	Goodwill	$	54	November 30, 2020	$	—	Goodwill
Other intangible assets, net (trademark and customer lists)		27		November 30, 2020	36
GLAMGLOW							GLAMGLOW	$	54	November 30, 2020	$	0
BECCA(2)							BECCA(2)	13		February 28, 2021	0
Total	Total	$	81		$	36	Total	67			0

Other intangible assets, net (trademark and customer lists)							Other intangible assets, net (trademark and customer lists)
GLAMGLOW							GLAMGLOW	27		November 30, 2020	36
BECCA(2)							BECCA(2)	34		February 28, 2021	0
Total							Total	61			36

Long-lived assets							Long-lived assets	33		March 31, 2021	35
Total							Total	$	161		$	71

(1)See Note 3 - Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.

(2)See Note 4 – Charges Associated with Restructuring and Other Activities for further information relating to goodwill and other intangible asset impairment charges recorded in connection with the exit of the global distribution of BECCA products.

The following table presents the Company’s impairment charges for the ~~three and six~~nine months ended ~~December~~March 31, ~~2019~~2020 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:


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

Goodwill	Goodwill	$	511	December 31, 2019	$	264	Goodwill	$	786	March 31, 2020	$	103
Other intangible assets, net (trademark)	Other intangible assets, net (trademark)	266		December 31, 2019	412		Other intangible assets, net (trademark)	324		March 31, 2020	417
Long-lived assets							Long-lived assets	13		March 31, 2020	11
Total	Total	$	777		$	676	Total	$	1,123		$	531

(1)See Note 3 - Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.

The following 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:

Cash and cash equivalents – Cash and all highly-liquid securities with original maturities of three months or less are classified as cash and cash equivalents, primarily consisting of cash deposits in interest bearing accounts, time deposits and money market funds (classified within Level 1 of the valuation hierarchy). Cash deposits in interest bearing accounts and time deposits are carried at cost, which approximates fair value due to the short maturity of cash equivalent instruments.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign currency forward contracts – The fair values of the Company’s foreign currency forward contracts were determined using an industry-standard valuation model, which is based on an income approach. The significant observable inputs to the model, such as swap yield curves and currency spot and forward rates, were obtained from an independent pricing service. To determine the fair value of contracts under the model, the difference between the contract price and the current forward rate was discounted using LIBOR for contracts with maturities up to 12 months, and swap yield curves for contracts with maturities greater than 12 months.

Interest rate contracts – The fair values of the Company’s interest rate contracts were determined using an industry-standard valuation model, which is based on the income approach. The significant observable inputs to the model, such as treasury yield curves, swap yield curves and LIBOR forward rates, were obtained from independent pricing services.

Current and long-term debt – The fair value of the Company’s debt was estimated based on the current rates offered to the Company for debt with the same remaining maturities. To a lesser extent, debt also includes finance lease obligations for which the carrying amount approximates the fair value. The Company’s debt is classified within Level 2 of the valuation hierarchy.

Contingent consideration – Contingent consideration obligations consist of potential obligations related to the Company’s acquisitions in previous years. The amounts to be paid under these obligations are contingent upon the achievement of stipulated financial targets by the business subsequent to acquisition. At ~~December~~March 31, ~~2020,~~2021, the fair values of the contingent consideration related to certain acquisition earn-outs were based on the Company’s estimate of the applicable financial targets as per the terms of the agreements. Significant changes in the projected future operating results would result in a significantly higher or lower fair value measurement. As these are unobservable inputs, the Company’s contingent consideration is classified within Level 3 of the valuation hierarchy.

Changes in the fair value of the contingent consideration obligations for ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings (loss) and were as follows:


(In millions)	Fair Value
Contingent consideration at June 30, 2020	$	4
Changes in fair value	(2)
Contingent consideration at ~~December~~March 31, ~~2020~~2021	$	2

NOTE 78 – REVENUE RECOGNITION

The Company’s revenue recognition accounting policies are described in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Accounts Receivable

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling ~~$66~~$50 million and $63 million as of ~~December~~March 31, ~~2020~~2021 and June 30, 2020, respectively. During the first quarter of fiscal 2021, the Company adopted ASC 326 using the modified retrospective transition approach and, accordingly, the prior comparative period was not restated. Under this new standard, the Company is required to measure credit losses based on the Company’s estimate of expected losses rather than incurred losses, which generally results in earlier recognition of allowances for credit losses. In accordance with ASC 326, the Company evaluated certain criteria, including aging and historical write-offs, current economic condition of specific customers and future economic conditions of countries utilizing a consumption index to determine the appropriate allowance for credit losses. The Company writes-off receivables once it is determined that the receivables are no longer collectible and as allowed by local laws. Payment terms are short-term in nature and are generally less than one year.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the allowance for credit losses are as follows:


(In millions)	December 31 2020
Balance at June 30, 2020	$	36
ASC 326 cumulative effect adjustment (pre-tax)	4
~~Provision~~Adjustment for expected credit losses	7 (5)
Write-offs, net & other	~~(8)~~(10)
Balance at ~~December~~March 31, ~~2020~~2021	$	3925

As a result of the adoption of ASC 326, the Company recorded a cumulative adjustment of approximately $3 million, net of tax, as a reduction to its fiscal 2021 opening balance of retained earnings relating to its trade receivables.

The remaining balance of the allowance for doubtful accounts of ~~$27~~$25 million, as of ~~December~~March 31, ~~2020,~~2021, relates to non-credit losses, which are primarily due to customer deductions.

Deferred Revenue

Changes in deferred revenue during the period are as follows:


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
Deferred revenue, beginning of period	Deferred revenue, beginning of period	$	409	$	392	$	279	$	361	Deferred revenue, beginning of period	$	420	$	425	$	279	$	361
Revenue recognized that was included in the deferred revenue balance at the beginning of the period	Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(83)		(83)		(173)		(243)		Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(25)		(26)		(198)		(268)
Revenue deferred during the period		92		112		308		307
Revenue deferred (released) during the period										Revenue deferred (released) during the period	(30)		(37)		278		269
Other	Other	2		4		6		0		Other	(4)		0		2		0
Deferred revenue, end of period	Deferred revenue, end of period	$	420	$	425	$	420	$	425	Deferred revenue, end of period	$	361	$	362	$	361	$	362

Transaction Price Allocated to the Remaining Performance Obligations

At ~~December~~March 31, ~~2020,~~2021, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions and gift card liabilities that are unsatisfied (or partially unsatisfied) is ~~$365~~$310 million, and the remaining balance will be recognized beyond the next twelve months.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 89 – PENSION AND POST-RETIREMENT BENEFIT PLANS

The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. The Company also maintains post-retirement benefit plans that provide certain medical and dental benefits to eligible employees. 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, 2020.

The components of net periodic benefit cost for the three months ended March 31, 2021 and 2020 consisted of the following:


	Pension Plans								Other than Pension Plans
	U.S.				International				Post-retirement
(In millions)	2021		2020		2021		2020		2021		2020
Service cost	$	12	$	9	$	9	$	9	$	2	$	0
Interest cost	8		9		2		3		1		2
Expected return on plan assets	(14)		(14)		(4)		(4)		(1)		0
Amortization of:
Actuarial loss	5		5		1		1		0		0

Settlements	0		0		1		0		0		0
Special termination benefits	0		0		1		1		0		0
Net periodic benefit cost	$	11	$	9	$	10	$	10	$	2	$	2

The components of net periodic benefit cost for the nine months ended March 31, 2021 and 2020 consisted of the following:


	Pension Plans								Other than Pension Plans
	U.S.				International				Post-retirement
(In millions)	2021		2020		2021		2020		2021		2020
Service cost	$	34	$	29	$	27	$	27	$	2	$	2
Interest cost	23		26		7		8		4		5
Expected return on plan assets	(40)		(40)		(10)		(11)		(1)		(1)
Amortization of:
Actuarial loss	15		12		3		4		0		0

Settlements	0		0		1		0		0		0
Special termination benefits	0		0		10		1		0		0
Net periodic benefit cost	$	32	$	27	$	38	$	29	$	5	$	6

During the nine months ended March 31, 2021, the Company made contributions to its international pension plans totaling $22 million.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~The components of net periodic benefit cost for the three months ended December 31, 2020 and 2019 consisted of the following:~~

Pension Plans Other than
Pension Plans
U.S. International Post-retirement
(In millions) 2020 2019 2020 2019 2020 2019
Service cost $ 11 $ 10 $ 9 $ 9 $ 0 $ 1
Interest cost 7 9 3 2 2 1
Expected return on plan assets (13) (13) (3) (4) 0 0
Amortization of:
Actuarial loss 5 3 1 2 0 0
Special termination benefits 0 0 7 0 0 0
Net periodic benefit cost $ 10 $ 9 $ 17 $ 9 $ 2 $ 2

~~The components of net periodic benefit cost for the six months ended December 31, 2020 and 2019 consisted of the following:~~

Pension Plans Other than
Pension Plans
U.S. International Post-retirement
(In millions) 2020 2019 2020 2019 2020 2019
Service cost $ 22 $ 20 $ 18 $ 18 $ 0 $ 2
Interest cost 15 17 5 5 3 3
Expected return on plan assets (26) (26) (6) (7) 0 (1)
Amortization of:
Actuarial loss 10 7 2 3 0 0
Special termination benefits 0 0 9 0 0 0
Net periodic benefit cost $ 21 $ 18 $ 28 $ 19 $ 3 $ 4

~~During the six months ended December 31, 2020, the Company made contributions to its international pension plans totaling $18 million.~~

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


(In millions)	(In millions)	December 31 2020		June 30 2020		(In millions)	March 31 2021		June 30 2020
Other assets	Other assets	$	138	$	127	Other assets	$	137	$	127
Other accrued liabilities	Other accrued liabilities	(27)		(27)		Other accrued liabilities	(27)		(27)
Other noncurrent liabilities	Other noncurrent liabilities	(472)		(440)		Other noncurrent liabilities	(470)		(440)
Funded status	Funded status	(361)		(340)		Funded status	(360)		(340)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	314		324		Accumulated other comprehensive loss	304		324
Net amount recognized	Net amount recognized	$	(47)	$	(16)	Net amount recognized	$	(56)	$	(16)

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 910 – COMMITMENTS AND CONTINGENCIES

Commitments

In February 2021, the Company agreed to acquire additional shares in DECIEM Beauty Group Inc. (“DECIEM”) that will increase its existing equity interest from approximately 29% to approximately 76%. Upon closing, which is expected to occur in May 2021, the Company will pay approximately $1,000 million and will have the right to purchase, and will grant the remaining investors a right to sell to the Company, the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM.

Legal Proceedings

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

NOTE 1011 – STOCK PROGRAMS

Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), long-term PSUs, long-term price-vested units (“PVUs”) and share units. Compensation expense attributable to net stock-based compensation was ~~$105~~$86 million and ~~$83~~$71 million for the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and was ~~$169~~$255 million and ~~$139~~$210 million for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Stock Options

During the ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, the Company granted stock options in respect of approximately 1.5 million shares of Class A Common Stock with an exercise price per share of $218.40 and a weighted-average grant date fair value per share of $54.61. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The aggregate intrinsic value of stock options exercised during the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 was ~~$209~~$317 million.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

The Company granted RSUs in respect of approximately ~~0.9~~1.0 million shares of Class A Common Stock during the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 with a weighted-average grant date fair value per share of ~~$218.10~~$219.01 that, at the time of grant, are scheduled to vest atas follows: 0.3 million ~~shares per year,~~ in fiscal 2022, 0.4 million in fiscal 2023 and 0.3 million in fiscal 2024. Vesting of RSUs is generally subject to the continued employment or the retirement of the grantees. The RSUs are accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were valued at the closing market price of the Company’s Class A Common Stock on the date of grant.

Performance Share Units

During the ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, the Company granted PSUs with a target payout of approximately 0.1 million shares of Class A Common Stock with a weighted-average grant date fair value per share of $218.11, which will be settled in stock subject to the achievement of the Company’s net sales and diluted net earnings per common share for the three fiscal years ending June 30, 2023, 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. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSUs and, as such, were valued at the closing market value of the Company’s Class A Common Stock on the date of grant.

In September 2020, approximately 0.2 million shares of the Company’s Class A Common Stock were issued, and related accrued dividends were paid, relative to the target goals set at the time of the issuance, in settlement of 0.5 million PSUs which vested as of June 30, 2020.

Long-term Performance Share Units

In March 2021, the Company granted to the Company’s Chief Executive Officer (“CEO”) PSUs with an aggregate payout of 68,578 shares of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024. Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income, as defined in the performance share unit award agreement, during the relevant performance period, and delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025. The PSUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant date fair value of the PSUs of approximately $20 million was estimated using the closing stock price of the Company's Class A Common Stock on the date of grant. As of March 31, 2021, the total unrecognized compensation cost related to unvested PSU awards was $20 million and the related period over which it is expected to be recognized is approximately 3.3 years, subject to the performance condition being met.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term Price-Vested Units

In March 2021, the Company granted to the Company’s CEO PVUs with an aggregate payout of 85,927 shares, divided into three tranches, of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024. Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income, as defined in the price-vested unit award agreement, during the relevant performance period. In addition, the vesting of each tranche is contingent upon the Company’s achievement of the respective stock price goal, which means that the average closing price per share of the Company’s Class A Common Stock traded on the New York Stock Exchange be at or above the applicable stock price goal (noted in the table below) for 20 consecutive trading days during the applicable performance period. The number of shares subject to each tranche of the price-vested unit award, as well as the stock price goals, service periods, performance periods and share delivery dates for each tranche are as follows:

Number
of
Shares
per
Tranche

Stock Price Goal
(per Share)

Service Period

Performance Period for Stock Price Goal

Performance Period for Cumulative Operating Income Goal

Share Delivery Date

First tranche

27,457

323.03

March 11, 2021 - June 30, 2024

July 1, 2021 - June 30, 2025

September 2, 2025

Second tranche

28,598

333.21

March 11, 2021 - June 30, 2024

July 1, 2021 - June 30, 2025

September 2, 2025

Third tranche

29,872

343.61

March 11, 2021 - June 30, 2024

July 1, 2021 - June 30, 2025

September 2, 2025

Total shares

85,927

Generally, delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025. The PVUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant date fair value of the PVUs of approximately $20 million was estimated using the Monte Carlo Method, which requires certain assumptions. The assumptions used for this award were as follows:


Expected volatility	31.8	%
Dividend yield	0.8	%
Risk-free interest rate	0.4	%
Expected term	3.3 years

As of March 31, 2021, the total unrecognized compensation cost related to unvested PVU awards was $20 million and the related period over which it is expected to be recognized is approximately 3.3 years, subject to the performance conditions and stock price goals being met.

NOTE 1112 – NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. PER COMMON SHARE

Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share (“basic EPS”) is computed by dividing net earnings (loss) attributable to The Estée Lauder Companies Inc. by the weighted-average number of common shares outstanding and shares underlying PSUs and RSUs where the vesting conditions have been met. Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share assuming dilution (“diluted EPS”) is computed by reflecting potential dilution from stock-based awards.

Table of Contents

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 December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions, except per share data)	(In millions, except per share data)	2020		2019		2020		2019		(In millions, except per share data)	2021		2020		2021		2020
Numerator:	Numerator:									Numerator:
Net earnings attributable to The Estée Lauder Companies Inc.		$	873	$	557	$	1,396	$	1,152
Net earnings (loss) attributable to The Estée Lauder Companies Inc.										Net earnings (loss) attributable to The Estée Lauder Companies Inc.	$	456	$	(6)	$	1,852	$	1,146

Denominator:	Denominator:									Denominator:
Weighted-average common shares outstanding – Basic	Weighted-average common shares outstanding – Basic	363.0		360.2		363.4		360.8		Weighted-average common shares outstanding – Basic	363.6		360.2		362.9		360.6
Effect of dilutive stock options(1)	Effect of dilutive stock options(1)	3.8		4.7		3.8		4.8		Effect of dilutive stock options(1)	4.1		0		3.9		4.6
Effect of PSUs(1)	Effect of PSUs(1)	0.2		0.3		0.2		0.2		Effect of PSUs(1)	0.2		0		0.2		0.3
Effect of RSUs(1)	Effect of RSUs(1)	1.0		1.5		1.1		1.9		Effect of RSUs(1)	1.1		0		1.1		1.6
Weighted-average common shares outstanding – Diluted	Weighted-average common shares outstanding – Diluted	368.0		366.7		368.5		367.7		Weighted-average common shares outstanding – Diluted	369.0		360.2		368.1		367.1

Net earnings attributable to The Estée Lauder Companies Inc. per common share:
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share:										Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share:
Basic	Basic	$	2.40	$	1.55	$	3.84	$	3.19	Basic	$	1.25	$	(.02)	$	5.10	$	3.18
Diluted	Diluted	$	2.37	$	1.52	$	3.79	$	3.13	Diluted	$	1.24	$	(.02)	$	5.03	$	3.12

(1)For the three months ended March 31, 2020, the effects of potentially dilutive stock options, PSUs and RSUs were excluded from the computation of diluted EPS as they were anti-dilutive due to the net loss incurred during the period.

~~As of December 31, 2020 and 2019, the number of~~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 ~~was 1.5~~were as follows:


	Three Months Ended March 31		Nine Months Ended March 31
(In millions)	2021	2020	2021	2020
Stock options(1)	0	0	0.9	1.3
RSUs and PSUs(1)	0	0	0.1	0

(1)Not applicable for the three months ended March 31, 2020, since the effects of potentially dilutive stock options, PSUs and RSUs were excluded from the computation of diluted EPS as they were anti-dilutive due to the net loss incurred during the period.

As of March 31, 2021 and 2020, 0.9 million and ~~1.3 million shares, respectively. As of December 31, 2020 and 2019, 0.8 million and 1.1~~1.2 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 1011 – Stock Programs.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1213 – EQUITY

Total Stockholders’ Equity – The Estée Lauder Companies Inc.


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
Common stock, beginning of the period	Common stock, beginning of the period	$	6	$	6	$	6	$	6	Common stock, beginning of the period	$	6	$	6	$	6	$	6
Stock-based compensation	Stock-based compensation	0		0		0		0		Stock-based compensation	0		0		0		0
Common stock, end of the period	Common stock, end of the period	6		6		6		6		Common stock, end of the period	6		6		6		6

Paid-in capital, beginning of the period	Paid-in capital, beginning of the period	4,913		4,514		4,790		4,403		Paid-in capital, beginning of the period	5,068		4,615		4,790		4,403
Common stock dividends	Common stock dividends	0		1		1		2		Common stock dividends	1		1		2		3
Stock-based compensation	Stock-based compensation	155		100		277		210		Stock-based compensation	162		144		439		354
Paid-in capital, end of the period	Paid-in capital, end of the period	5,068		4,615		5,068		4,615		Paid-in capital, end of the period	5,231		4,760		5,231		4,760

Retained earnings, beginning of the period	Retained earnings, beginning of the period	10,480		10,393		10,134		9,984		Retained earnings, beginning of the period	11,159		10,775		10,134		9,984
Common stock dividends	Common stock dividends	(194)		(175)		(368)		(332)		Common stock dividends	(195)		(174)		(563)		(506)
Net earnings attributable to The Estée Lauder Companies Inc.		873		557		1,396		1,152
Net earnings (loss) attributable to The Estée Lauder Companies Inc.										Net earnings (loss) attributable to The Estée Lauder Companies Inc.	456		(6)		1,852		1,146
Cumulative effect of adoption of new accounting standards	Cumulative effect of adoption of new accounting standards	0		0		(3)		(29)		Cumulative effect of adoption of new accounting standards	0		0		(3)		(29)
Retained earnings, end of the period	Retained earnings, end of the period	11,159		10,775		11,159		10,775		Retained earnings, end of the period	11,420		10,595		11,420		10,595

Accumulated other comprehensive loss, beginning of the period	Accumulated other comprehensive loss, beginning of the period	(594)		(627)		(665)		(563)		Accumulated other comprehensive loss, beginning of the period	(383)		(569)		(665)		(563)
Other comprehensive income (loss)	Other comprehensive income (loss)	211		58		282		(6)		Other comprehensive income (loss)	(104)		(143)		178		(149)
Accumulated other comprehensive loss, end of the period	Accumulated other comprehensive loss, end of the period	(383)		(569)		(383)		(569)		Accumulated other comprehensive loss, end of the period	(487)		(712)		(487)		(712)

Treasury stock, beginning of the period	Treasury stock, beginning of the period	(10,353)		(9,756)		(10,330)		(9,444)		Treasury stock, beginning of the period	(10,429)		(10,253)		(10,330)		(9,444)
Acquisition of treasury stock	Acquisition of treasury stock	0		(426)		0		(703)		Acquisition of treasury stock	(212)		(65)		(212)		(768)
Stock-based compensation	Stock-based compensation	(76)		(71)		(99)		(106)		Stock-based compensation	(1)		(2)		(100)		(108)
Treasury stock, end of the period	Treasury stock, end of the period	(10,429)		(10,253)		(10,429)		(10,253)		Treasury stock, end of the period	(10,642)		(10,320)		(10,642)		(10,320)

Total stockholders’ equity – The Estée Lauder Companies Inc.	Total stockholders’ equity – The Estée Lauder Companies Inc.	5,421		4,574		5,421		4,574		Total stockholders’ equity – The Estée Lauder Companies Inc.	5,528		4,329		5,528		4,329

Noncontrolling interests, beginning of the period	Noncontrolling interests, beginning of the period	29		28		27		25		Noncontrolling interests, beginning of the period	35		27		27		25
Net earnings attributable to noncontrolling interests	Net earnings attributable to noncontrolling interests	4		4		6		7		Net earnings attributable to noncontrolling interests	2		2		8		9
Distribution to noncontrolling interest holders	Distribution to noncontrolling interest holders	0		(4)		0		(4)		Distribution to noncontrolling interest holders	(6)		0		(6)		(4)
Other comprehensive (income) loss	Other comprehensive (income) loss	2		(1)		2		(1)		Other comprehensive (income) loss	(1)		0		1		(1)
Noncontrolling interests, end of the period	Noncontrolling interests, end of the period	35		27		35		27		Noncontrolling interests, end of the period	30		29		30		29

Total equity	Total equity	$	5,456	$	4,601	$	5,456	$	4,601	Total equity	$	5,558	$	4,358	$	5,558	$	4,358

Cash dividends declared per common share	Cash dividends declared per common share	$	.53	$	.48	$	1.01	$	.91	Cash dividends declared per common share	$	.53	$	.48	$	1.54	$	1.39

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the ~~six~~nine months ended ~~December~~March 31, ~~2020:~~2021:

Date Declared

Record Date

Payable Date

Amount per Share

August 19, 2020

August 31, 2020

September 15, 2020

.48

October 30, 2020

November 30, 2020

December 15, 2020

.53

February 4, 2021

February 26, 2021

March 15, 2021

.53

On ~~February 4,~~April 30, 2021, a dividend was declared in the amount of $.53 per share on the Company’s Class A and Class B Common Stock. The dividend is payable in cash on ~~March~~June 15, 2021 to stockholders of record at the close of business on ~~February 26,~~May 28, 2021.

Common Stock

~~Beginning in early February 2020,~~During the nine months ended March 31, 2021, the Company ~~temporarily suspended~~purchased approximately 1.2 million shares of its Class A Common Stock for $316 million. In March 2021, the Company resumed its repurchase of shares of the Company's Class A Common Stock. ~~The Company may resume repurchases in the future.~~

During the ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, approximately ~~2.2~~4.6 million shares of the Company’s Class B Common Stock were converted into the same amount of shares of the Company’s Class A Common Stock.

Accumulated Other Comprehensive Income

The following table represents changes in AOCI, net of tax, by component for the ~~six~~nine months ended ~~December~~March 31, ~~2020:~~2021:


(In millions)	(In millions)	Net Cash Flow Hedge Gain (Loss)		Retirement Plan and Other Retiree Benefit Adjustments			Translation Adjustments			Total		(In millions)	Net Cash Flow Hedge Gain (Loss)		Retirement Plan and Other Retiree Benefit Adjustments			Translation Adjustments			Total
Balance at June 30, 2020	Balance at June 30, 2020	$	14	$	(244)		$	(435)		$	(665)	Balance at June 30, 2020	$	14	$	(244)		$	(435)		$	(665)
OCI before reclassifications	OCI before reclassifications	(48)		(2)		(1)	318		(2)	268		OCI before reclassifications	(22)		1		(1)	175		(2)	154
Amounts reclassified to Net earnings	Amounts reclassified to Net earnings	4		10			0			14		Amounts reclassified to Net earnings	10		14			0			24
Net current-period OCI	Net current-period OCI	(44)		8			318			282		Net current-period OCI	(12)		15			175			178
Balance at December 31, 2020		$	(30)	$	(236)		$	(117)		$	(383)
Balance at March 31, 2021												Balance at March 31, 2021	$	2	$	(229)		$	(260)		$	(487)

(1)Consists of foreign currency translation ~~losses.~~gains.

(2)See Note 56 – Derivative Financial Instruments for gains (losses) relating to net investment hedges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the effects of reclassification adjustments from AOCI into net earnings (loss) for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019:~~2020:


		Amount Reclassified from AOCI								Affected Line Item in Consolidated Statements of Earnings		Amount Reclassified from AOCI								Affected Line Item in Consolidated Statements of Earnings (Loss)
		Three Months Ended December 31				Six Months Ended December 31						Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		2020		2019			(In millions)	2021		2020		2021		2020

Gain (Loss) on Cash Flow Hedges	Gain (Loss) on Cash Flow Hedges										Gain (Loss) on Cash Flow Hedges
Foreign currency forward contracts	Foreign currency forward contracts	$	(5)	$	6	$	(4)	$	19	Net sales	Foreign currency forward contracts	$	(7)	$	10	$	(11)	$	29	Net sales
Interest rate-related derivatives	Interest rate-related derivatives	0		0		(1)		0		Interest expense	Interest rate-related derivatives	(1)		0		(2)		0		Interest expense
		(5)		6		(5)		19				(8)		10		(13)		29
Benefit (provision) for deferred taxes	Benefit (provision) for deferred taxes	1		(2)		1		(5)		Provision for income taxes	Benefit (provision) for deferred taxes	2		(2)		3		(7)		Provision for income taxes
		$	(4)	$	4	(4)		$	14	Net earnings		$	(6)	$	8	(10)		$	22	Net earnings (loss)

Retirement Plan and Other Retiree Benefit Adjustments	Retirement Plan and Other Retiree Benefit Adjustments										Retirement Plan and Other Retiree Benefit Adjustments
Amortization of actuarial loss	Amortization of actuarial loss	$	(6)	$	(5)	$	(12)	$	(10)	Earnings before income taxes (1)	Amortization of actuarial loss	$	(6)	$	(6)	$	(18)	$	(16)	Other components of net periodic benefit cost (1)
Settlements											Settlements	(1)		0		(1)		0		Other components of net periodic benefit cost (1)
												(7)		(6)		(19)		(16)		Earnings before income taxes (1)
Benefit for deferred taxes	Benefit for deferred taxes	1		1		2		2		Provision for income taxes	Benefit for deferred taxes	3		1		5		3		Provision for income taxes
		$	(5)	$	(4)	$	(10)	$	(8)	Net earnings		$	(4)	$	(5)	$	(14)	$	(13)	Net earnings (loss)

Cumulative Translation Adjustments	Cumulative Translation Adjustments										Cumulative Translation Adjustments
Gain on previously held equity method investment	Gain on previously held equity method investment	$	0	$	4	$	0	$	4	Other income	Gain on previously held equity method investment	$	0	$	0	$	0	$	4	Other income
Loss on liquidation of an investment in a foreign subsidiary	Loss on liquidation of an investment in a foreign subsidiary	0		0		0		(6)		Restructuring and other charges	Loss on liquidation of an investment in a foreign subsidiary	0		0		0		(6)		Restructuring and other charges

		$	0	$	4	0		$	(2)	Net earnings		$	0	$	0	0		$	(2)	Net earnings (loss)
Total reclassification adjustments, net	Total reclassification adjustments, net	$	(9)	$	4	$	(14)	$	4	Net earnings	Total reclassification adjustments, net	$	(10)	$	3	$	(24)	$	7	Net earnings (loss)

(1)See Note 89 – Pension and Post-Retirement Benefit Plans for additional information.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1314 – STATEMENT OF CASH FLOWS

Supplemental cash flow information for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020 is as follows:


(In millions)	(In millions)	2020		2019		(In millions)	2021		2020
Cash:	Cash:					Cash:
Cash paid during the period for interest	Cash paid during the period for interest	$	84	$	63	Cash paid during the period for interest	$	108	$	94
Cash paid during the period for income taxes	Cash paid during the period for income taxes	$	320	$	314	Cash paid during the period for income taxes	$	435	$	472

Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Capitalized interest and asset retirement obligations incurred		$	1	$	0

Property, plant and equipment accrued but unpaid	Property, plant and equipment accrued but unpaid	$	63	$	53	Property, plant and equipment accrued but unpaid	$	68	$	47
Right-of-use assets obtained in exchange for new finance lease liabilities		$	1	$	0

Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	148	$	110	Right-of-use assets obtained in exchange for new operating lease liabilities	$	167	$	216

NOTE 1415 – SEGMENT DATA AND RELATED INFORMATION

Reportable operating segments include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the “Chief Executive”) in deciding how to allocate resources and in assessing performance. Although the Company operates in 1 business segment, beauty products, management also evaluates performance on a product category basis. Product category performance is measured based upon net sales before returns associated with restructuring and other activities, and earnings before income taxes, other components of net periodic benefit cost, interest expense, interest income and investment income, net, other income, net, and charges associated with restructuring and other activities. Returns and 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.

The accounting policies for the Company’s reportable segments are substantially the same as those for the consolidated financial statements, as described in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information is produced for the Chief Executive or included herein. There has been no significant variance in the total or long-lived asset values associated with the Company’s segment data since June 30, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
PRODUCT CATEGORY DATA	PRODUCT CATEGORY DATA									PRODUCT CATEGORY DATA
Net sales:	Net sales:									Net sales:
Skin Care	Skin Care	$	2,819	$	2,205	$	4,854	$	4,047	Skin Care	$	2,259	$	1,723	$	7,113	$	5,770
Makeup	Makeup	1,247		1,660		2,225		3,103		Makeup	1,018		1,146		3,243		4,249
Fragrance	Fragrance	618		581		1,024		1,043		Fragrance	454		349		1,478		1,392
Hair Care	Hair Care	154		162		290		298		Hair Care	128		119		418		417
Other	Other	15		16		22		28		Other	15		8		37		36
											3,874		3,345		12,289		11,864

Returns associated with restructuring and other activities										Returns associated with restructuring and other activities	(10)		0		(10)		0
Net sales	Net sales	$	4,853	$	4,624	$	8,415	$	8,519	Net sales	$	3,864	$	3,345	$	12,279	$	11,864

Operating income (loss) before charges associated with restructuring and other activities:	Operating income (loss) before charges associated with restructuring and other activities:									Operating income (loss) before charges associated with restructuring and other activities:
Skin Care	Skin Care	$	928	$	772	$	1,649	$	1,404	Skin Care	$	804	$	418	$	2,453	$	1,822
Makeup	Makeup	28		(611)		(43)		(507)		Makeup	(72)		(283)		(115)		(790)
Fragrance	Fragrance	141		97		201		163		Fragrance	47		0		248		163
Hair Care	Hair Care	4		12		7		12		Hair Care	(17)		(2)		(10)		10
Other	Other	(1)		4		0		6		Other	(1)		1		(1)		7
		1,100		274		1,814		1,078			761		134		2,575		1,212
Reconciliation:	Reconciliation:									Reconciliation:
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(37)		(13)		(46)		(38)		Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)
Interest expense	Interest expense	(43)		(38)		(88)		(70)		Interest expense	(43)		(42)		(131)		(112)
Interest income and investment income, net	Interest income and investment income, net	17		13		31		27		Interest income and investment income, net	9		14		40		41
Other components of net periodic benefit cost	Other components of net periodic benefit cost	(7)		(1)		(10)		(2)		Other components of net periodic benefit cost	(2)		(1)		(12)		(3)
Other income	Other income	0		576		0		576		Other income	0		0		0		576
Earnings before income taxes	Earnings before income taxes	$	1,030	$	811	$	1,701	$	1,571	Earnings before income taxes	$	580	$	80	$	2,281	$	1,651

GEOGRAPHIC DATA(1)	GEOGRAPHIC DATA(1)									GEOGRAPHIC DATA(1)
Net sales:	Net sales:									Net sales:
The Americas	The Americas	$	1,048	$	1,226	$	1,921	$	2,386	The Americas	$	916	$	892	$	2,837	$	3,278
Europe, the Middle East & Africa	Europe, the Middle East & Africa	2,030		2,079		3,570		3,756		Europe, the Middle East & Africa	1,706		1,525		5,276		5,281
Asia/Pacific	Asia/Pacific	1,775		1,319		2,924		2,377		Asia/Pacific	1,252		928		4,176		3,305
											3,874		3,345		12,289		11,864

Returns associated with restructuring and other activities										Returns associated with restructuring and other activities	(10)		0		(10)		0
Net sales	Net sales	$	4,853	$	4,624	$	8,415	$	8,519	Net sales	$	3,864	$	3,345	$	12,279	$	11,864

Operating income (loss):	Operating income (loss):									Operating income (loss):
The Americas	The Americas	$	36	$	(529)	$	101	$	(354)	The Americas	$	155	$	(217)	$	256	$	(571)
Europe, the Middle East & Africa	Europe, the Middle East & Africa	657		505		1,068		882		Europe, the Middle East & Africa	361		202		1,429		1,084
Asia/Pacific	Asia/Pacific	407		298		645		550		Asia/Pacific	245		149		890		699
		1,100		274		1,814		1,078			761		134		2,575		1,212
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(37)		(13)		(46)		(38)		Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)
Operating income	Operating income	$	1,063	$	261	$	1,768	$	1,040	Operating income	$	616	$	109	$	2,384	$	1,149

(1) The net sales from the Company’s travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr. Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region. Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – SUBSEQUENT EVENTS

Debt

In April 2021, the Company repaid $450 million aggregate principal amount of its 1.70% Senior Notes due May 10, 2021 in full, partially from proceeds from the 2031 Senior Notes issued in March 2021 and cash on hand, and the corresponding interest rate swaps were settled.

Derivative Financial Instruments

In April 2021, the Company entered into an interest rate swap agreement with a notional amount of $300 million to partially convert the fixed rate interest on its outstanding 2031 Senior Notes, to variable interest rates based on three-month LIBOR plus a margin. This interest rate swap agreement was designated as a fair value hedge.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

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~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, 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.


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
NET SALES	NET SALES									NET SALES
By Product Category:	By Product Category:									By Product Category:
Skin Care	Skin Care	$	2,819	$	2,205	$	4,854	$	4,047	Skin Care	$	2,259	$	1,723	$	7,113	$	5,770
Makeup	Makeup	1,247		1,660		2,225		3,103		Makeup	1,018		1,146		3,243		4,249
Fragrance	Fragrance	618		581		1,024		1,043		Fragrance	454		349		1,478		1,392
Hair Care	Hair Care	154		162		290		298		Hair Care	128		119		418		417
Other	Other	15		16		22		28		Other	15		8		37		36
											3,874		3,345		12,289		11,864

Returns associated with restructuring and other activities										Returns associated with restructuring and other activities	(10)		—		(10)		—
Net sales	Net sales	$	4,853	$	4,624	$	8,415	$	8,519	Net sales	$	3,864	$	3,345	$	12,279	$	11,864

By Region(1):	By Region(1):									By Region(1):
The Americas	The Americas	$	1,048	$	1,226	$	1,921	$	2,386	The Americas	$	916	$	892	$	2,837	$	3,278
Europe, the Middle East & Africa	Europe, the Middle East & Africa	2,030		2,079		3,570		3,756		Europe, the Middle East & Africa	1,706		1,525		5,276		5,281
Asia/Pacific	Asia/Pacific	1,775		1,319		2,924		2,377		Asia/Pacific	1,252		928		4,176		3,305
											3,874		3,345		12,289		11,864

Returns associated with restructuring and other activities										Returns associated with restructuring and other activities	(10)		—		(10)		—
Net sales	Net sales	$	4,853	$	4,624	$	8,415	$	8,519	Net sales	$	3,864	$	3,345	$	12,279	$	11,864

OPERATING INCOME (LOSS)	OPERATING INCOME (LOSS)									OPERATING INCOME (LOSS)
By Product Category:	By Product Category:									By Product Category:
Skin Care	Skin Care	$	928	$	772	$	1,649	$	1,404	Skin Care	$	804	$	418	$	2,453	$	1,822
Makeup	Makeup	28		(611)		(43)		(507)		Makeup	(72)		(283)		(115)		(790)
Fragrance	Fragrance	141		97		201		163		Fragrance	47		—		248		163
Hair Care	Hair Care	4		12		7		12		Hair Care	(17)		(2)		(10)		10
Other	Other	(1)		4		—		6		Other	(1)		1		(1)		7
		1,100		274		1,814		1,078			761		134		2,575		1,212
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(37)		(13)		(46)		(38)		Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)
Operating income	Operating income	$	1,063	$	261	$	1,768	$	1,040	Operating income	$	616	$	109	$	2,384	$	1,149

By Region(1):	By Region(1):									By Region(1):
The Americas	The Americas	$	36	$	(529)	$	101	$	(354)	The Americas	$	155	$	(217)	$	256	$	(571)
Europe, the Middle East & Africa	Europe, the Middle East & Africa	657		505		1,068		882		Europe, the Middle East & Africa	361		202		1,429		1,084
Asia/Pacific	Asia/Pacific	407		298		645		550		Asia/Pacific	245		149		890		699
		1,100		274		1,814		1,078			761		134		2,575		1,212
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(37)		(13)		(46)		(38)		Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)
Operating income	Operating income	$	1,063	$	261	$	1,768	$	1,040	Operating income	$	616	$	109	$	2,384	$	1,149

(1) The net sales from our travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr. Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region. Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.

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The following table presents certain consolidated earnings data as a percentage of net sales:


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
		2020		2019		2020		2019			2021		2020		2021		2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	Cost of sales	22.3		22.5		22.7		22.9		Cost of sales	24.3		25.0		23.2		23.5
Gross profit	Gross profit	77.7		77.5		77.3		77.1		Gross profit	75.7		75.0		76.8		76.5

Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	53.4		54.9		54.9		55.4		Selling, general and administrative	55.5		60.7		55.1		56.9
Restructuring and other charges	Restructuring and other charges	0.7		0.1		0.5		0.4		Restructuring and other charges	3.4		0.7		1.4		0.5
Goodwill impairment	Goodwill impairment	1.1		11.0		0.6		6.0		Goodwill impairment	—		8.2		0.4		6.6
Impairment of other intangible assets		0.6		5.8		0.3		3.1
Impairment of other intangible and long-lived assets										Impairment of other intangible and long-lived assets	0.9		2.1		0.5		2.8
Total operating expenses	Total operating expenses	55.8		71.8		56.3		64.9		Total operating expenses	59.8		71.7		57.4		66.8

Operating income	Operating income	21.9		5.6		21.0		12.2		Operating income	15.9		3.3		19.4		9.7
Interest expense	Interest expense	0.9		0.8		1.0		0.8		Interest expense	1.1		1.3		1.1		1.0
Interest income and investment income, net	Interest income and investment income, net	0.4		0.3		0.4		0.3		Interest income and investment income, net	0.2		0.4		0.3		0.3
Other components of net periodic benefit cost	Other components of net periodic benefit cost	0.1		—		0.1		—		Other components of net periodic benefit cost	0.1		—		0.1		—
Other income	Other income	—		12.5		—		6.8		Other income	—		—		—		4.9

Earnings before income taxes	Earnings before income taxes	21.2		17.5		20.2		18.4		Earnings before income taxes	15.0		2.4		18.6		13.9
Provision for income taxes	Provision for income taxes	(3.2)		(5.4)		(3.6)		(4.8)		Provision for income taxes	(3.2)		(2.5)		(3.4)		(4.2)

Net earnings		18.1		12.1		16.7		13.6
Net earnings (loss)										Net earnings (loss)	11.9		(0.1)		15.1		9.7
Net earnings attributable to noncontrolling interests	Net earnings attributable to noncontrolling interests	(0.1)		(0.1)		(0.1)		(0.1)		Net earnings attributable to noncontrolling interests	(0.1)		(0.1)		(0.1)		—

Net earnings attributable to The Estée Lauder Companies Inc.		18.0	%	12.0	%	16.6	%	13.5	%
Net earnings (loss) attributable to The Estée Lauder Companies Inc.										Net earnings (loss) attributable to The Estée Lauder Companies Inc.	11.8	%	(0.2)	%	15.1	%	9.7	%

Not adjusted for differences caused by rounding

We continually introduce new products, support new and established products through advertising, merchandising and sampling and phase out existing products that no longer meet the needs of our consumers or our objectives. The economics of developing, producing, launching, supporting and discontinuing products impact our sales and operating performance each period. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.

Non-GAAP Financial Measures

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We operate on a global basis, with the majority of our net sales generated outside the United States. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Therefore, we present certain net sales, operating results and diluted net earnings per common share information excluding the effect of foreign currency rate fluctuations to provide a framework for assessing the performance of our underlying business outside the United States. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We calculate constant currency information by translating current-period results using prior-year period weighted-average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities.

Overview

COVID-19 Business Update

The COVID-19 pandemic continues to ~~cause significant disruption to~~disrupt our operating environment, temporarily impacting retail traffic and certain consumer preferences. During the three months ended ~~December~~March 31, ~~2020,~~2021, the resurgence of COVID-19 cases in several countries, ~~around~~particularly in Western Europe and Latin America, led to government restrictions to prevent further spread of the ~~world continued to be challenged by the pandemic with different levels of recovery from~~virus. These restrictions included temporary business closures, curtailment of travel, social distancing and ~~other restrictions.~~quarantines.

Retail impact

~~Most~~While most brick-and-mortar retail stores globally that sell our products, whether operated by us or our customers, were open during the ~~second~~third quarter of fiscal 2021, ~~although~~most notably in China and the United States, there were intermittent closures throughout the rest of the world. In the United Kingdom, Japan, Canada, Italy, Spain, France, Mexico and Brazil, in particular, many retail stores were temporarily closed for some period during the third quarter of fiscal 2021 due to the resurgence of COVID-19 cases. Globally, in areas where stores were open, consumer traffic was significantly reduced as compared to the ~~prior-year period~~pre-COVID-19 pandemic period. In addition, while domestic travel in China, especially in Hainan, and some ~~retail stores~~other travel corridors in Asia/Pacific, most notably Korea, were ~~temporarily closed due to the resurgence of COVID-19 cases. In addition,~~open, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer traffic in most travel retail locations.

Somewhat offsetting the significant declines in brick-and-mortar channels, net sales growth of our products online (through our own websites, third-party platforms and websites of our retailers) has remained strong in every region during the ~~second~~third quarter of fiscal 2021.

The resurgence of COVID-19 cases in various parts of the world, including the United States, the United Kingdom and other countries in Europe, and Japan, has caused the reimplementation of government restrictions to prevent further spread of the virus. These restrictions included the temporary closure of businesses deemed “non-essential,” travel bans and restrictions, social distancing and quarantines. We will continue to monitor the impacts of the COVID-19 pandemic and adjust our action plans accordingly as the situation progresses.

Consumer Preferences

The COVID-19 ~~pandemic related~~pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have ~~also~~ influenced consumer preferences and practices. ~~Demand for skin care, fragrance and hair care products has generally been more resilient than~~Specifically, the demand for ~~makeup.~~

~~Manufacturing and Distribution~~

~~By the end of the first quarter of fiscal 2021, and throughout the second quarter of fiscal 2021, all of our manufacturing and distribution facilities were operating at sufficient levels.~~makeup continues to be weak given fewer makeup usage occasions while other categories have been more resilient.

Cost Controls

In response to the ongoing impacts from the COVID-19 pandemic, we ~~continued~~continue to implement cost control actions in certain areas of the business to effectively manage the changing business environment. Areas where we took actions included advertising and promotion activities, travel, meetings, consulting, and certain employee costs, including implementing furloughs and similar unpaid temporary leaves of absence for many point of sale employees, temporary salary reductions for senior executives and other management employees, and a temporary elimination of cash retainers for the Board of Directors. Some of these cost control actions were lifted during the second quarter of fiscal 2021.

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~~THE ESTÉE LAUDER COMPANIES INC.~~

Business Update

We are a leader in prestige beauty, which combines the repeat purchase and relative affordability of consumer goods with the high quality products and services of luxury goods. Within prestige beauty, we are well diversified by brand, product category, product sub-category, geography, channel, consumer segment and price point. This diversity allows us to 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 28-31 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, as well as below.

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THE ESTÉE LAUDER COMPANIES INC.

During the ~~second~~third quarter of fiscal 2021, net sales increased 5%approximately 16% from the prior-year period, reflecting ~~growth~~an easier comparison against the outbreak of COVID-19 in ~~our skin care~~early calendar 2020. We saw increases across most product ~~category~~categories and ~~in our Asia/Pacific region,~~all regions, as well as strong growth ~~online and the incremental net sales from our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter.~~online.

•Our skin care net sales benefited from the launch of the new Estée Lauder Advanced Night Repair Synchronized Multi-Recovery Complex, the launch of the new The Concentrate from La Mer and strength in basic skin care from Clinique. ~~The~~Dr. Jart+ and Origins also contributed to skin care growth. These new products support high-loyalty hero franchises. ~~Skin care net sales grew internationally, reflecting the renewed consumer focus on self-care during the COVID-19 pandemic.~~

•The COVID-19 pandemic limited social and business activities and consumers wore less makeup. Demand for lipstick and foundation were most acutely impacted, contributing to lower makeup net sales across the portfolio. Our brands continued to generate interest in makeup through virtual marketing efforts such as classes, virtual try on technology and greater emphasis on social media platforms, as well as a focus on ~~subcategories~~sub-categories that continue to resonate with consumers.

•Our fragrance net sales increased in the ~~second~~third quarter of fiscal 2021, reflecting ~~holiday gifting and continued~~ strength in ~~bath, body~~luxury and ~~home fragrances.~~artisanal scents. Fragrance net sales growth was led by Jo Malone London, Tom Ford Beauty, ~~Jo Malone London~~Kilian Paris and Le Labo. The category also benefited from the launch of Beautiful Magnolia from Estée Lauder.

•Our hair care net sales ~~declined,~~increased, reflecting ~~pandemic related salon closures and limited capacity re-openings, partially offset by strong double-digit online growth and~~ Aveda's launch of Botanical Repair in ~~August 2020.~~the first quarter of fiscal 2021.

Our net sales growth by geographic region in the ~~second~~third quarter of fiscal 2021 reflects, in part, the cadence of COVID-19 recovery and resurgence around the world.

•Net sales ~~declined~~increased in The Americas, reflecting some recovery in North America compared to the prior year where ~~COVID-19 cases continue to rise across much~~brick-and-mortar retail locations were shut down toward the end of the ~~region~~fiscal 2020 third quarter as COVID-19 spread globally. This was partially offset by declines in Latin America where many retail locations closed as the resurgence of COVID-19 led to increased government restrictions and ~~strong online net sales were not enough to offset~~store closures during the ~~decline~~third quarter of ~~brick-and-mortar distribution.~~fiscal 2021.

•The Europe, the Middle East & Africa region net sales ~~declined overall, as the resurgence~~returned to growth, led by our travel retail business, direct-to-consumer online and retailer restocking in advance of ~~COVID-19 cases led to the reimplementation of government restrictions and temporary store closures, while robust online net sales growth continued.~~further recovery.

•The Asia/Pacific region grew, reflecting ~~good momentum~~increases in mainland China, Australia, Korea, and several smaller markets.

Outlook

~~While we continue to face strong competition and economic challenges globally, the~~The COVID-19 pandemic has ~~caused a more significant disruption to~~disrupted business both for our ~~business~~Company and for the ~~retail industry generally.~~retailers who sell our products. There have been restructurings and bankruptcies in the retail industry, including among our ~~customers; destocking and tighter working capital management by retailers; challenges for suppliers;~~customers and an acceleration in the shifts in ~~consumer~~ preferences as to where and how ~~they~~consumers shop, as well as changes in their preferences for certain products. We are mindful that these trends may continue to impact the pace of recovery. The ~~severe decline~~continued curtailment in international travel is also affecting our travel retail business in most of the world, which had been historically one of our ~~most profitable channels.~~fastest growth areas. In addition to impacting net sales and profitability, these and other challenges may impact our ability to collect receivables and our operating cash flows generally, and may adversely impact the goodwill and other ~~intangibles and long-lived~~intangible assets associated with our ~~acquired brands.~~brands and the long-lived assets in certain of our freestanding stores (i.e. resulting in impairments).

~~Table~~We continue to monitor the effects of ~~Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

Wethe global macroeconomic environment; social and political issues; regulatory matters, including the imposition of tariffs; geopolitical tensions; and global security issues. For example, we continue to monitor the geopolitical tensions between the United States and China and the uncertainties caused by the evolving trade policy dispute, which could increase our cost of sales and negatively impact our overall net sales, or otherwise have a material adverse effect on our business. ~~The~~We also note that the United Kingdom reached a trade agreement and completed its transition out of the European Union (“EU”) in December 2020 (i.e. “Brexit”). The trade agreement is being provisionally applied from January 1, 2021 until ratification by the EU, which is expected later in 2021. To date, there has been minimal interruption to our business relating to the end of the Brexit transition period. We will, and we continue to monitor the potential political and economic uncertainties from Brexit for which we have developed risk mitigation strategies. These strategies include changes related to regulatory and legislative compliance, assessing alternatives to supply chain routing, revising customer arrangements and analyzing inventory levels. Additionally, we continue to monitor the effects of the global macroeconomic environment; social and political issues; regulatory matters, including the imposition of tariffs; geopolitical tensions; and global security issues.Brexit.

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THE ESTÉE LAUDER COMPANIES INC.

The uncertainty around the timing, speed and duration of the recovery from the adverse impacts of the COVID-19 pandemic 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, and by implementing our Post-COVID Business Acceleration Program. As the current situation progresses, 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. We are continuing to monitor these and other risks that may affect our business.

Leading Beauty Forward Program and Post-COVID Business Acceleration Program

Information about our restructuring initiatives, the Leading Beauty Forward Program and the Post-COVID Business Acceleration Program, are described in Notes to Consolidated Financial Statements, Note 4 – Charges Associated with Restructuring and Other Activities herein, as well as, in Notes to Consolidated Financial Statements, Note 910 – Charges Associated with Restructuring and Other Activities and in the Overview on page 30 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Goodwill and Other Intangible Asset Impairments

During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting us and lower than expected results from geographic expansion, we made further revisions to the internal forecasts relating to our GLAMGLOW reporting unit. We concluded that the changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill. These changes in circumstances were also an indicator that the carrying amounts of GLAMGLOW's long-lived assets, including customer lists, may not be recoverable. Accordingly, we performed an interim impairment test for the trademark and a recoverability test for the long-lived assets as of November 30, 2020. We concluded that the carrying value of the trademark for GLAMGLOW exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $21 million. In addition, we concluded that the carrying value of the GLAMGLOW customer lists intangible asset was fully impaired and recorded an impairment charge of $6 million. The fair value of all other long-lived assets of GLAMGLOW exceeded their carrying values and were not impaired as of November 30, 2020. After adjusting the carrying values of the trademark and customer lists intangible assets, we completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge of $54 million, reducing the carrying value of goodwill for the GLAMGLOW reporting unit to zero. The fair value of the GLAMGLOW reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. The impairment charges for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020~~2021 were reflected in the skin care product category and in the Americas region. As of ~~December~~March 31, ~~2020,~~2021, the remaining carrying value of the trademark related to the GLAMGLOW reporting unit ~~were~~was $36 million.

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~~THE ESTÉE LAUDER COMPANIES INC.~~

NET SALES


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	4,853		$	4,624	$	8,415		$	8,519	Net sales	$	3,864		$	3,345	$	12,279		$	11,864
$ Change from prior-year period	$ Change from prior-year period	229					(104)					$ Change from prior-year period	519					415
% Change from prior-year period	% Change from prior-year period	5		%			(1)		%			% Change from prior-year period	16		%			3		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	% Change from prior-year period in constant currency	3		%			(3)		%			% Change from prior-year period in constant currency	13		%			2		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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Reported net sales increased for the three months ended ~~December~~March 31, ~~2020,~~2021, primarily reflecting higher net sales in our skin care and fragrance product categories and in all geographic regions. The net sales growth in our skin care product category reflected higher net sales from Estée Lauder, La Mer and Clinique, as well as net sales growth from Dr. Jart+ and Origins. Fragrance net sales increased, primarily benefiting from higher net sales from Jo Malone London and Tom Ford Beauty. The net sales growth in the skin care and fragrance product categories reflected the success of hero product franchises, new product offerings and successful holiday events. Net sales grew internationally, led by higher net sales in mainland China and in our travel retail business, as well as net sales growth in Australia, Korea and and Hong Kong. Direct-to-consumer online net sales grew double-digits, representing approximately 15% of net sales for the three months ended March 31, 2021 compared to approximately 12% in the prior-year period.

Reported net sales increased for the nine months ended March 31, 2021, primarily reflecting higher net sales in our skin care and fragrance product categories and in our Asia/Pacific region. The net sales increase in our skin care product category was primarily driven by higher net sales from Estée Lauder, ~~and~~ La Mer, ~~reflecting the success of hero product franchises, new product launches~~Dr. Jart+ and ~~successful holiday and promotional events.~~Clinique. Fragrance net sales increased, primarily benefiting from higher net sales from Jo Malone London and Tom Ford ~~Beauty and Jo Malone London.~~Beauty. Net sales in Asia/Pacific increased, primarily due to higher net sales in mainland China and Korea. ~~The incremental~~Despite the net sales ~~attributable to~~growth in our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter benefited our skin care category and Asia/Pacific. Direct-to-consumer online net sales continued to have strong growth, representing approximately 23% of fiscal 2021 second quarter net sales compared to approximately 15%travel retail business (primarily in ~~the prior-year period and benefiting from successful holiday and promotional events.~~

~~Reported net sales decreased for the six months ended December 31, 2020, primarily reflecting lower~~Hainan), net sales in ~~all product categories, except skin care, and all geographic regions, except for Asia/Pacific,~~our Europe, the Middle East & Africa region declined due to the continued challenges of the COVID-19 pandemic, including temporary retail store closures and reduced consumer foot traffic in brick-and-mortar retail locations, the continued curtailment of international travel, and continued social distancing and quarantines. Despite the overall decrease, net sales continued to grow in our skin care category and in our Asia/Pacific region, both reflecting double-digit growth and the incremental net sales attributable to our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter. Direct-to-consumer online net sales continued to have strong growth, representing approximately ~~19%~~18% of net sales for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to approximately 12% in the prior-year period.

The total net sales changes were impacted by approximately ~~$102~~$95 million and ~~$117~~$212 million of favorable foreign currency translation for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, 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 fiscal 2021 third quarter impact of returns associated with restructuring and other activities of approximately $10 million.

Product Categories

Skin Care


	Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	2,259		$	1,723	$	7,113		$	5,770
$ Change from prior-year period	536					1,343
% Change from prior-year period	31		%			23		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	28		%			21		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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~~Product Categories~~

~~Skin Care~~

Three Months Ended
December 31 Six Months Ended
December 31
($ in millions) 2020 2019 2020 2019
As Reported:
Net sales $ 2,819 $ 2,205 $ 4,854 $ 4,047
$ Change from prior-year period 614 807
% Change from prior-year period 28 % 20 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 25 % 18 %

~~(1)See “Reconciliations~~Reported skin care net sales increased for the three months ended March 31, 2021, reflecting higher net sales from Estée Lauder, La Mer and Clinique of ~~Non-GAAP Financial Measures”~~ ~~beginning on page 53 for reconciliations between non-GAAP financial measures~~approximately $502 million, combined. Net sales increased from Estée Lauder and La Mer, led by our travel retail business (primarily in Hainan) and mainland China, reflecting strong growth from direct-to-consumer online net sales of products from these brands primarily due to the successful holiday and promotional events. Net sales increased from Estée Lauder, reflecting the continued success of hero product franchises, such as Advanced Night Repair, Revitalizing Supreme+ and Daywear, as well as fiscal 2021 product launches, such as Advanced Night Repair Synchronized Multi-Recovery Complex, Revitalizing Supreme+ Bright, and the ~~most directly comparable U.S. GAAP measures.~~relaunch of Perfectionist Pro. The increase in net sales from La Mer also benefited from the continued success of hero products, such as Crème de la Mer, The Concentrate, The Treatment Lotion and The Eye Concentrate, as well as the fiscal 2021 launch of the Genaissance de la Mer The Concentrated Night Balm and targeted expanded consumer reach. Net sales increased from Clinique for the three months ended March 31, 2021, primarily due to higher net sales in our travel retail business (primarily in Hainan) and in North America, reflecting the continued success of existing products, such as Dramatically Different products and Even Better Clinical Radical Dark Spot Corrector + Interrupter, and new product launches, such as Moisture Surge 100H Auto-Replenishing Hydrator.

Reported skin care net sales increased for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020,~~2021, reflecting higher net sales from Estée Lauder, ~~and~~ La Mer, and Clinique, as well as incremental net sales attributable to our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter, ~~combined,~~ of approximately ~~$609~~$1,452 million, ~~and $944 million, respectively. For the three and six months ended December 31, 2020, net~~combined. Net sales increased from Estée Lauder, ~~and~~ La Mer ~~led by mainland China~~ and our travel retail business (primarily in Hainan), reflecting high double-digit growth from direct-to-consumer online net sales of products from these brands primarily due to the successful holiday and promotional events. The continued success of existing product franchises, suchClinique, as Advanced Night Repair, Nutritious, Micro Essence and Perfectionist, and new product launches, such as the new Advanced Night Repair Synchronized Multi-Recovery Complex, contributed to the increase in net sales from Estée Lauder in both periods. Net sales from La Mer increased for the three and six months ended December 31, 2020, benefiting from the continued success of existing product franchises, such as Créme de la Mer and Treatment Lotion, new product launches, such as the Genaissance de la Mer The Concentrated Night Balm and the fiscal 2021 first quarter launch of the new The Concentrate, and targeted expanded consumer reach.noted above.

The skin care net sales increases were impacted by approximately ~~$70~~$58 million and ~~$81~~$139 million of favorable foreign currency translation for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

Makeup


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	1,247		$	1,660	$	2,225		$	3,103	Net sales	$	1,018		$	1,146	$	3,243		$	4,249
$ Change from prior-year period	$ Change from prior-year period	(413)					(878)					$ Change from prior-year period	(128)					(1,006)
% Change from prior-year period	% Change from prior-year period	(25)		%			(28)		%			% Change from prior-year period	(11)		%			(24)		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	% Change from prior-year period in constant currency	(26)		%			(29)		%			% Change from prior-year period in constant currency	(13)		%			(25)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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Reported makeup net sales decreased for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020, primarily driven by~~2021, due to lower net sales from virtually all brands, led by M·A·C, Estée Lauder ~~Bobbi Brown~~ and Clinique, combined, of approximately ~~$342~~$115 million and ~~$706~~$766 million, respectively. ~~For~~The makeup product category continues to be more negatively impacted by the ~~three and six months ended December 31, 2020, net sales decreased from these brands, reflecting~~effects of the COVID-19 pandemic, especially the challenging environment ~~especially~~ in brick-and-mortar retail locations, ~~and~~ the continued consumer preference for skin care products, ~~due to~~and the ~~COVID-19 pandemic.~~limited use of makeup. The continued decline in prestige makeup and ongoing competitive activity in North America also contributed to the decline in net sales from these brands in both periods.

~~For the three and six months ended December 31, 2020, our direct-to-consumer online net sales of products from these brands grew double digits.~~

The makeup net sales decreases were impacted by approximately ~~$20~~$24 million and ~~$22~~$46 million of favorable foreign currency translation for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

Fragrance


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	618		$	581	$	1,024		$	1,043	Net sales	$	454		$	349	$	1,478		$	1,392
$ Change from prior-year period	$ Change from prior-year period	37					(19)					$ Change from prior-year period	105					86
% Change from prior-year period	% Change from prior-year period	6		%			(2)		%			% Change from prior-year period	30		%			6		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	% Change from prior-year period in constant currency	5		%			(3)		%			% Change from prior-year period in constant currency	27		%			5		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported fragrance net sales increased for the three months ended ~~December~~March 31, ~~2020, reflecting~~2021, primarily due to higher net sales ~~primarily~~ from Jo Malone London and Tom Ford Beauty of approximately $86 million, combined, and net sales of products from these brands increased in all geographic regions. Jo Malone London ~~of approximately $38 million, combined. Net~~benefited from successful holiday and promotional events and new product launches, such as the Blossoms Collection and Scarlet Poppy Cologne Intense. The increase in net sales from Tom Ford Beauty ~~increased,~~was primarily due to the continued success of hero product franchises, such as Oud Wood and ~~Ombre Leather,~~Black Orchid, the continued success of the fiscal 2021 second quarter launch of Bitter Peach, and new product launches in the third quarter of fiscal 2021, such as ~~Bitter Peach.~~Tubereuse Nue and Costa Azzurra.

Reported fragrance net sales increased for the nine months ended March 31, 2021, primarily due to higher net sales from Jo Malone London and Tom Ford Beauty of approximately $110 million, combined. The increase in net sales from Jo Malone London, led by mainland China ~~benefited from~~and North America, was primarily due to successful holiday and promotional events, the success of certain hero product franchises and new product launches, such as Scents for the ~~Season.~~Season, the Blossoms Collection and Scarlet Poppy. Net sales from Tom Ford Beauty increased for the nine months ended March 31, 2021, reflecting growth in all geographic regions, benefiting from the continued success of hero product franchises and new product launches, such as Bitter Peach, Tubereuse Nue and Costa Azzurra.

Partially offsetting these increases in net sales for the ~~three~~nine months ended ~~December~~March 31, ~~2020,~~2021, were lower net sales from certain of our designer fragrances, led by our travel retail business, ~~and the United Kingdom,~~ primarily due to the continued challenging environment as a result of the COVID-19 ~~pandemic, including the continued curtailment of international travel and the resurgence of COVID-19 cases that caused the reimplementation of government restrictions.~~

Reported fragrance net sales decreased for the six months ended December 31, 2020, reflecting lower net sales primarily from certain of our designer fragrances and Estée Lauder of approximately $41 million, combined. Net sales declined from these brands, led by our travel retail business and the United Kingdom, primarily due to the continued challenging environment as a result of the COVID-19 pandemic, including the continued curtailment of international travel and the resurgence of COVID-19 cases that caused the reimplementation of government restrictions.

Partially offsetting these decreases for the six months ended December 31, 2020, were higher net sales from Tom Ford Beauty, primarily due to the success of hero product franchises and new product launches.pandemic.

The ~~changes in~~ fragrance net sales increases were impacted by approximately $9$10 million and ~~$11~~$21 million of favorable foreign currency translation for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

Hair Care


	Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	128		$	119	$	418		$	417
$ Change from prior-year period	9					1
% Change from prior-year period	8		%			—		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	6		%			(1)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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~~Hair Care~~

Three Months Ended
December 31 Six Months Ended
December 31
($ in millions) 2020 2019 2020 2019
As Reported:
Net sales $ 154 $ 162 $ 290 $ 298
$ Change from prior-year period (8) (8)
% Change from prior-year period (5) % (3) %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency (6) % (3) %

~~(1)See “Reconciliations~~Reported hair care net sales increased for the three months ended March 31, 2021, primarily due to higher net sales from Aveda driven by the success of ~~Non-GAAP Financial Measures”~~ ~~beginning on page 53 for reconciliations between non-GAAP financial measures~~existing product franchises, such as Nutriplenish, and the ~~most directly comparable U.S. GAAP measures.~~continued success of the fiscal 2021 first quarter launch of Botanical Repair, which led to growth in all geographic regions.

Reported hair care net sales ~~decreased~~ for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020,~~2021 were virtually flat, reflecting ~~lower~~higher net sales primarily from Aveda, as noted above, partially offset by lower net sales from Bumble and bumble, ~~driven by~~reflecting the net sales decline in North America primarily due to temporary salon and freestanding store closures as a result of the COVID-19 ~~pandemic and the shift~~pandemic.

The increases in ~~consumer preferences.~~

~~Partially offsetting the decreases in reported hair care~~ net sales for the ~~six~~three and nine months ended ~~December~~March 31, ~~2020, were higher net sales from Aveda. The increase in net sales~~2021 from Aveda ~~was driven by the success of existing product franchises, such as Nutriplenish, the launch of Botanical Repair, and successful holiday events, which led to~~also reflected strong growth ~~in all geographic regions.~~from direct-to-consumer online net sales.

Geographic Regions

The Americas


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	1,048		$	1,226	$	1,921		$	2,386	Net sales	$	916		$	892	$	2,837		$	3,278
$ Change from prior-year period	$ Change from prior-year period	(178)					(465)					$ Change from prior-year period	24					(441)
% Change from prior-year period	% Change from prior-year period	(15)		%			(19)		%			% Change from prior-year period	3		%			(13)		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	% Change from prior-year period in constant currency	(13)		%			(18)		%			% Change from prior-year period in constant currency	4		%			(12)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported net sales in The Americas increased for the three months ended March 31, 2021, led by the United States of approximately $26 million, and in all product categories, except makeup. The increase in the United States partially reflected a recovery compared to the prior-year challenges stemming from the outbreak of COVID-19.

Partially offsetting this increase in net sales for the three months ended March 31, 2021, were lower net sales in Latin America due to the resurgence of COVID-19 cases in certain countries that led to government restrictions, as well as the continued decline in North America prestige makeup and the ongoing competitive activity.

Reported net sales in The Americas decreased in virtually all countries for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020,~~2021, led by the United States of approximately ~~$157~~$387 million, and ~~$415 million, respectively. Net~~in all product categories, led by makeup. The net sales ~~decreased~~decrease in the ~~United States for the three and six months ended December 31, 2020, reflecting lower net sales from~~region was led by M·A·C and Estée Lauder (primarily due to the declines in the makeup category), as a result of the continued challenging environment caused by the COVID-19 pandemic, including the resurgence of COVID-19 cases, reduced consumer traffic in brick-and-mortar retail locations, ~~the continued consumer preference for skin care products,~~ and continued social distancing. The decline in North America prestige beauty, primarily makeup, and the ongoing competitive activity also contributed to the decline in net sales. ~~Despite the overall decrease in net sales, direct-to-consumer~~

Direct-to-consumer online net sales in The Americas grew double digits for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020, with growth from virtually all brands,~~2021, and represented approximately ~~27%~~19% and ~~23%~~22% of total net sales in the region compared to approximately ~~18%~~15% and 14% in the prior-year periods, respectively.

Net sales in The Americas were impacted by approximately ~~$15~~$10 million and ~~$29~~$39 million of unfavorable foreign currency translation for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

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Europe, the Middle East & Africa


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	2,030		$	2,079	$	3,570		$	3,756	Net sales	$	1,706		$	1,525	$	5,276		$	5,281
$ Change from prior-year period	$ Change from prior-year period	(49)					(186)					$ Change from prior-year period	181					(5)
% Change from prior-year period	% Change from prior-year period	(2)		%			(5)		%			% Change from prior-year period	12		%			—		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	% Change from prior-year period in constant currency	(3)		%			(6)		%			% Change from prior-year period in constant currency	10		%			(1)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported net sales for the three ~~and six~~ months ended ~~December~~March 31, ~~2020 decreased in most markets~~2021 increased in Europe, the Middle East & Africa, reflecting higher net sales in our travel retail business and Russia of approximately $221 million, combined. Despite the continued curtailment of international travel as a result of the COVID-19 pandemic, the increase in net sales from our travel retail business was led by the continued success of hero product franchises from Estée Lauder, La Mer and Origins, reflecting the increase in China travel retail (primarily Hainan) due, in part, to increased duty-free purchase limits and the acceleration of new digital selling models. The net sales increase from Russia primarily ~~driven~~reflects the timing of shipments related to retailer restocking and the shift in sales orders from some retailers in the prior-year period related to a system implementation.

Partially offsetting these increases in net sales for the three months ended March 31, 2021, were lower net sales from the United Kingdom, reflecting the continued challenges from the resurgence of COVID-19 cases that led to government restrictions, such as quarantines and temporary closures of businesses deemed non-essential.

Reported net sales for the nine months ended March 31, 2021 decreased in Europe, the Middle East & Africa, reflecting lower net sales in most markets across the region, led by the United Kingdom, France and Iberia ~~reflecting~~of approximately $159 million, combined. The decrease in net sales from these markets reflects the continued challenges ~~across the region~~ from the COVID-19 pandemic, including the resurgence of COVID-19 cases that ~~caused the reimplementation of~~led to government restrictions, such as temporary store closures and quarantines, and reduced consumer traffic in brick-and-mortar retail. The adverse macroeconomic conditions and the liquidation of a key retailer in the fiscal 2021 second quarter also contributed to the decrease in net sales in the United Kingdom.

Partially offsetting these decreases for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020,~~2021, were higher net sales from our travel retail business, led by the continued success of hero product franchises from Estée Lauder and La Mer, primarily driven by the increases in net sales in China travel retail (primarily Hainan)~~. These increases were led by Estée Lauder and La Mer, reflecting the continued success of certain hero franchises, such~~, as ~~the Advanced Night Repair line of products from Estée Lauder and La Mer Treatment Lotion, and the continued consumer preference for skin care products.~~noted above.

For the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, despite the challenges in brick-and-mortar retail locations, direct-to-consumer online net sales in Europe, the Middle East & Africa more than doubled, representing approximately 7%4% and 5%, respectively, of total net sales in the region compared to approximately ~~3% and~~ 2% in ~~the~~both prior-year ~~periods, respectively.~~periods.

Net sales in Europe, the Middle East & Africa were impacted by approximately ~~$20~~$24 million and ~~$30~~$54 million of favorable foreign currency translation for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

Asia/Pacific


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	1,775		$	1,319	$	2,924		$	2,377	Net sales	$	1,252		$	928	$	4,176		$	3,305
$ Change from prior-year period	$ Change from prior-year period	456					547					$ Change from prior-year period	324					871
% Change from prior-year period	% Change from prior-year period	35		%			23		%			% Change from prior-year period	35		%			26		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	% Change from prior-year period in constant currency	27		%			18		%			% Change from prior-year period in constant currency	26		%			20		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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Reported net sales in Asia/Pacific increased for the three ~~and six~~ months ended ~~December~~March 31, ~~2020,~~2021, reflecting higher net sales primarily in mainland China, Australia, Korea and Hong Kong of approximately $334 million, combined, and in all product categories. The increase in net sales in mainland China and Korea, which included incremental net sales from our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter, combined, of approximately $490 million and $672 million, respectively. For the three and six months ended December 31, 2020,reflected higher net sales in ~~mainland China increased primarily due to growth in our skin care~~all product ~~category, driven by Estée Lauder, La Mer and incremental net sales attributable to our acquisition of Dr. Jart+, and in our fragrance product category,~~categories, led by ~~Jo Malone London and Tom Ford Beauty.~~skin care. The success of holiday and promotional events in mainland China contributed to growth in virtually all brands and all channels, ~~in both periods,~~ led by Estée Lauder and La Mer and department stores and third-party platforms, respectively. Net sales in Australia increased in all product categories and ~~department stores. For~~from all brands, led by Estée Lauder and Clinique, driven by a recovery compared to the ~~three and six months ended December 31, 2020 net~~prior-year challenges stemming from the outbreak of COVID-19. Net sales increased in Korea, reflecting growth in all product categories, except makeup, and benefited from the increase in net sales from Dr. Jart+ and Jo Malone ~~London,~~London. Net sales in Hong Kong increased for the three months ended March 31, 2021, in all product categories, except makeup, and from most brands, led by La Mer and Estée Lauder, ~~and La Mer,~~reflecting an easy comparison to the prior-year period as ~~well as incremental net sales from our acquisition~~a result of ~~Dr. Jart+. For~~ the ~~three and six month ended December 31, 2020, direct-to-consumer online net sales~~outbreak of ~~our products in Korea grew high double digits.~~COVID-19. Direct-to-consumer online net sales in Asia/Pacific for the three ~~and six~~ months ended ~~December~~March 31, 2021 grew double digits.

Partially offsetting these increases in net sales for the three months ended March 31, 2021 were lower net sales in Japan primarily due to the ongoing challenges stemming from the COVID-19 pandemic, including reduced consumer traffic in brick-and-mortar retail locations, the continued curtailment of international travel, and social distancing and quarantines.

Reported net sales in Asia/Pacific increased for the nine months ended March 31, 2021, reflecting higher net sales primarily in mainland China and Korea of approximately $984 million, combined, and in our skin care product category. The increase in net sales in mainland China reflected higher net sales primarily in our skin care product category, led by Estée Lauder, La Mer and Dr. Jart+, as well as third-party platforms and department stores. Net sales increased in Korea, primarily benefiting from incremental net sales from our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter and higher net sales from Jo Malone London. Direct-to-consumer online net sales in Asia/Pacific for the nine months ended March 31, 2021 grew ~~high~~ double digits, representing approximately ~~41% and 33%~~31% of total net sales in the region compared to approximately ~~31% and~~ 25% in the prior-year ~~periods, respectively.~~period.

Partially offsetting these increases for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020~~2021, were lower net sales in Japan and Hong Kong ~~and Japan, combined,~~ of approximately ~~$39~~$122 million, ~~and $116 million, respectively. In both periods, the decline in net sales were~~combined, primarily due to the ongoing challenges stemming from the COVID-19 pandemic, including reduced consumer traffic in brick-and-mortar retail locations, the continued curtailment of international travel, social distancing and quarantines, and border closures in Hong Kong.

Net sales in Asia/Pacific were impacted by approximately ~~$97~~$80 million and ~~$116~~$196 million of favorable foreign currency translation for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

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

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THE ESTÉE LAUDER COMPANIES INC.

GROSS MARGIN

Gross margin increased to ~~77.7%~~75.7% and ~~77.3%~~76.8% for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively, as compared with ~~77.5%~~75.0% and ~~77.1%~~76.5% in the prior-year periods.


		Favorable (Unfavorable) Basis Points			Favorable (Unfavorable) Basis Points
		December 31, 2020			March 31, 2021
		Three Months Ended	Six Months Ended		Three Months Ended	Nine Months Ended
Mix of business	Mix of business	105	100	Mix of business	235	100
Obsolescence charges	Obsolescence charges	(50)	(15)	Obsolescence charges	(65)	(30)
Manufacturing costs and other	Manufacturing costs and other	(10)	(20)	Manufacturing costs and other	(30)	—
Foreign exchange transactions	Foreign exchange transactions	(35)	(45)	Foreign exchange transactions	(50)	(40)
Subtotal	Subtotal	10	20	Subtotal	90	30
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	10	—	Charges associated with restructuring and other activities	(20)	—
Total	Total	20	20	Total	70	30

The favorable impact from our mix of business for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 was primarily due to ~~lower costs of testers as a result of reduced consumer traffic in brick-and-mortar retail locations, the favorable change in channel mix (i.e. from department stores to online),~~ the favorable change in product category mix (i.e. a decline in net sales of our lower margin makeup category, ~~primarily in~~led by North America and ~~our travel retail business, and an increase in our higher margin skin care category, primarily within Asia/Pacific and~~Europe, the Middle East & Africa (primarily our travel retail business)), ~~and~~ favorable changes in strategic ~~pricing. The favorable impact from our mix of business for the six months ended December 31, 2020 also reflected~~pricing, lower costs from product ~~sets.~~

sets, and lower costs of promotional items as a result of reduced consumer traffic in brick-and-mortar retail locations. For the three ~~and six~~ months ended ~~December~~March 31, 2020, the factors causing favorability due to changes in our mix of business were partially offset by the impact of lower margin sales of Dr. Jart+, which we acquired at the end of the fiscal 2020 second quarter.

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~~Partially offsetting~~2021, the favorable impact from our mix of business ~~for the three months ended December 31, 2020, were increases in obsolescence charges,~~was also driven by ~~lower demand due to the impacts~~an increase in net sales of ~~the COVID-19 pandemic, that led to~~our higher ~~provisions for excess inventory.~~margin luxury and artisanal fragrance brands.

OPERATING EXPENSES

Operating expenses as a percentage of net sales was ~~55.8%~~59.8% and ~~56.3%~~57.4% for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively, as compared with ~~71.8%~~71.7% and ~~64.9%~~66.8% in the prior-year periods.


		Favorable (Unfavorable) Basis Points			Favorable (Unfavorable) Basis Points
		December 31, 2020			March 31, 2021
		Three Months Ended	Six Months Ended		Three Months Ended	Nine Months Ended
General and administrative expenses	General and administrative expenses	(60)	(160)	General and administrative expenses	(230)	(180)
Advertising, merchandising, sampling and product development	Advertising, merchandising, sampling and product development	10	—	Advertising, merchandising, sampling and product development	200	60
Selling	Selling	230	240	Selling	520	320
Stock-based compensation	Stock-based compensation	(50)	(40)	Stock-based compensation	(20)	(40)
Store operating costs	Store operating costs	30	20	Store operating costs	70	30
Shipping	Shipping	(10)	(20)	Shipping	—	(10)
Foreign exchange transactions	Foreign exchange transactions	10	20	Foreign exchange transactions	(10)	20
Subtotal	Subtotal	160	60	Subtotal	530	200
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(60)	(10)	Charges associated with restructuring and other activities	(270)	(90)
Goodwill and other intangible asset impairments		1,510	820
Goodwill, other intangible and long-lived asset impairments				Goodwill, other intangible and long-lived asset impairments	940	850
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(10)	(10)	Changes in fair value of contingent consideration	(10)	(20)
Total	Total	1,600	860	Total	1,190	940

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THE ESTÉE LAUDER COMPANIES INC.

For the three ~~and six~~ months ended ~~December~~March 31, ~~2020,~~2021, the ~~decreases~~decrease in operating expense margin ~~were~~was driven by higher net sales compared to the prior-year period that reflected the negative impact of the outbreak of COVID-19; the year-over-year impact of goodwill, ~~and~~ other intangible and long-lived asset impairments of ~~$696 million~~$313 million; and a decrease in selling expense, due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, ~~temporary~~ store closures, and the continued shift in consumer preference to online. The advertising, merchandising, sampling and product development favorability was driven by the increase in net sales, partially offset by the increase in advertising and promotional expense, primarily due to continued strategic investments and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.

For the nine months ended March 31, 2021, the decrease in operating expense margin was driven by the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $1,009 million, as well as favorability from selling expense and advertising and promotional expense, as noted above.

Partially offsetting these favorable impacts for the three and nine months ended March 31, 2021 were increases in general and administrative expenses, primarily due to an increase in employee incentive compensation ~~and amortization expense relating to~~from the ~~acquired intangible assets~~prior-year period, which reflected lower accrued employee incentive compensation as a result of ~~Dr. Jart+.~~the anticipated impacts of the COVID-19 pandemic.

OPERATING RESULTS


		Three Months Ended December 31						Six Months Ended December 31							Three Months Ended March 31						Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019			2020			2019			($ in millions)	2021			2020			2021			2020
As Reported:	As Reported:													As Reported:
Operating income	Operating income	$	1,063		$	261		$	1,768		$	1,040		Operating income	$	616		$	109		$	2,384		$	1,149
$ Change from prior-year period	$ Change from prior-year period	802						728						$ Change from prior-year period	507						1,235
% Change from prior-year period	% Change from prior-year period	100+%						70		%				% Change from prior-year period	100+%						100+%

Operating margin	Operating margin	21.9		%	5.6		%	21.0		%	12.2		%	Operating margin	15.9		%	3.3		%	19.4		%	9.7		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):													Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments and changes in fair value of contingent consideration		13		%				2		%
% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration														% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration	66		%				16		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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The reported operating margin for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 increased from the prior-year periods driven by the year-over-year impact of goodwill, ~~and~~ other intangible and long-lived asset impairments of ~~$696~~$313 million and $1,009 million for the three and nine months end March 31, 2021, respectively, the decrease in ~~selling~~operating expenses as ~~discussed above.~~a percentage of net sales and the increase in gross margin, as previously noted.

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.~~activities of $145 million, or 4% of net sales and $25 million, or 1% of net sales for the three months ended March 31, 2021 and 2020, respectively, and $191 million, or 2% of net sales and $63 million, or 1% of net sales for the nine months ended March 31, 2021 and 2020, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

Product Categories

Skin Care


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Operating income	Operating income	$	928		$	772	$	1,649		$	1,404	Operating income	$	804		$	418	$	2,453		$	1,822
$ Change from prior-year period	$ Change from prior-year period	156					245					$ Change from prior-year period	386					631
% Change from prior-year period	% Change from prior-year period	20		%			17		%			% Change from prior-year period	92		%			35		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and changes in fair value of contingent consideration		31		%			23		%
% Change in operating income from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration												% Change in operating income from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration	70		%			35		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported skin care operating income increased for the three ~~and six~~ months ended ~~December~~March 31, ~~2020,~~2021, primarily driven by higher results from Estée Lauder, ~~and~~ La Mer, ~~combined,~~GLAMGLOW and Clinique of approximately ~~$306~~$454 million, ~~and $465 million, respectively. For the three and six month ended December 31, 2020, the~~combined. The increases in operating income from Estée Lauder, ~~and~~ La Mer and Clinique were primarily driven by the increases in net sales. The higher results from La Mer were partially offset by the increase in advertising and promotional expense, primarily due to investments to support holiday and promotional events and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic. Operating income from GLAMGLOW increased for the three months ended March 31, 2021, driven by the favorable year-over-year impact of goodwill and other intangible asset impairments of $53 million.

Partially offsetting the increase in operating income for the three months ended March 31, 2021, were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.

Reported skin care operating income increased for the nine months ended March 31, 2021, primarily driven by higher results from Estée Lauder, La Mer and Clinique of approximately $888 million, combined. The increases in operating income from these brands primarily reflected higher net sales, as well as lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online. ~~In both periods, these changes from Estée Lauder and La Mer~~These increases were partially offset by increased advertising and promotional activities primarily to support holiday and promotional events and new product launches.

Partially offsetting the ~~increases~~increase in operating income for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020~~2021, were higher general and administrative expenses, primarily due to increased employee incentive compensation and lower results from GLAMGLOW ~~due to~~driven by the ~~current year~~unfavorable year-over-year impact of goodwill and other intangible asset ~~impairment charges~~impairments of ~~$81 million, as well as increases in general and administrative expenses, including employee incentive compensation.~~$28 million.

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Makeup


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Operating income (loss)		$	28		$	(611)	$	(43)		$	(507)
Operating loss												Operating loss	$	(72)		$	(283)	$	(115)		$	(790)
$ Change from prior-year period	$ Change from prior-year period	639					464					$ Change from prior-year period	211					675
% Change from prior-year period	% Change from prior-year period	100+%					92		%			% Change from prior-year period	75		%			85		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments		(83)		%			(100+)%
% Change in operating loss from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments												% Change in operating loss from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments	(100+)%					(100+)%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported makeup operating results increased for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, driven by the favorable year-over-year impact of goodwill and other intangible asset impairments related to Too Faced, BECCA and Smashbox, combined, of approximately ~~$777~~$280 million ~~combined.~~and $1,057 million for the three and nine months, respectively.

Partially offsetting the ~~increases~~decreases in operating ~~income~~loss for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, were lower results from M·A·C primarily due to the decrease in net sales, offset by lower selling expense and store operating costs, due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online, as well as disciplined expense management. Also offsetting the decreases in operating loss for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic, as well as the unfavorable year-over-year impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $14 million.

Fragrance


	Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	2021			2020		2021			2020
As Reported:
Operating income	$	47		$	—	$	248		$	163
$ Change from prior-year period	47					85
% Change from prior-year period	—		%			52		%

Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration	—		%			60		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported fragrance operating income increased for the three and nine months ended March 31, 2021, primarily reflecting higher results from Tom Ford Beauty and Jo Malone London, combined, of approximately $62 million and $110 million, respectively. In both periods, the increases in operating income from these brands reflected higher net sales and lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, ~~temporary~~ store closures, and the continued shift in consumer preference to online, and disciplined expense management. For the six months ended December 31, 2020, the higher results were also partially offset by an increase in general and administrative expenses, including employee incentive compensation.

~~Fragrance~~

Three Months Ended
December 31 Six Months Ended
December 31
($ in millions) 2020 2019 2020 2019
As Reported:
Operating income $ 141 $ 97 $ 201 $ 163
$ Change from prior-year period 44 38
% Change from prior-year period 45 % 23 %

Reported fragrance operating income increased for the three and six months ended December 31, 2020, reflecting higher results from Tom Ford Beauty and Jo Malone London primarily driven by the increase in net sales and disciplined expense management. Partially offsetting these increases for the three and six months ended December 31, 2020 were increases in general and administrative expenses, including employee incentive compensation.

~~Reported fragrance operating income for the six months ended December 31, 2020, also reflected higher results from certain of our designer fragrances due to disciplined expense management.~~

online.

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Partially offsetting the increases in operating income for the three and nine months ended March 31, 2021, were increases from Jo Malone London in advertising and promotional activities primarily driven by increased spend for digital advertising and to support new product launches and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.

Also offsetting the increases in fragrance operating income for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic, as well as the unfavorable year-over-year impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $8 million.

Hair Care


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31				Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021		2020		2021		2020
As Reported:	As Reported:											As Reported:
Operating income		$	4		$	12	$	7		$	12
Operating income (loss)												Operating income (loss)	$	(17)	$	(2)	$	(10)	$	10
$ Change from prior-year period	$ Change from prior-year period	(8)					(5)					$ Change from prior-year period	(15)				(20)
% Change from prior-year period	% Change from prior-year period	(67)		%			(42)		%			% Change from prior-year period	(100+)%				(100+)%

Reported hair care operating results decreased for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, primarily driven by ~~an increase in~~higher general and administrative expenses, ~~including~~primarily due to increased employee incentive ~~compensation.~~compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.

Partially offsetting the ~~decreases~~decrease in operating ~~income~~results for the ~~three and six~~nine months ended ~~December~~March 31, ~~2020,~~2021, were higher results from Aveda ~~primarily due to disciplined expense management. The increase in operating income from Aveda for the six months ended December 31, 2020 also benefited from the increase in net sales~~ driven by the ~~success~~successes of existing product franchises, ~~such as Nutriplenish, the~~a new launch ~~of Botanical Repair,~~ and ~~successful~~ holiday events, as discussed above.

Geographic Regions

The Americas


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Operating income (loss)	Operating income (loss)	$	36		$	(529)	$	101		$	(354)	Operating income (loss)	$	155		$	(217)	$	256		$	(571)
$ Change from prior-year period	$ Change from prior-year period	565					455					$ Change from prior-year period	372					827
% Change from prior-year period	% Change from prior-year period	100+%					100+%					% Change from prior-year period	100+%					100+%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and changes in fair value of contingent consideration		(52)		%			(57)		%
% Change in operating income (loss) from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration												% Change in operating income (loss) from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration	20		%			(39)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5361 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported operating results increased in The Americas for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020, primarily due to~~2021, driven by the favorable year-over-year impact of goodwill, ~~and~~ other intangible and long-lived asset impairments of ~~$696~~approximately $346 million and $1,042 million, for the three and nine months, respectively, and lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, as discussed above.

~~Partially offsetting the increases in operating results for the three and six months ended December 31, 2020 were lower net sales, primarily in the United States.~~

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Partially offsetting the increases in operating results for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.

Europe, the Middle East & Africa


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Operating income	Operating income	$	657		$	505	$	1,068		$	882	Operating income	$	361		$	202	$	1,429		$	1,084
$ Change from prior-year period	$ Change from prior-year period	152					186					$ Change from prior-year period	159					345
% Change from prior-year period	% Change from prior-year period	30		%			21		%			% Change from prior-year period	79		%			32		%

Non-GAAP Financial Measure(1):												Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration												% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration	97		%			35		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported operating income increased in Europe, the Middle East & Africa for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, primarily driven by higher results from our travel retail business and Russia, combined, of approximately $194 million and $458 million, respectively, reflecting the ~~increases~~increase in net sales and disciplined expense management.

Partially offsetting the increases in operating ~~results~~income for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 is the impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $33 million. Also offsetting the increase in operating results for the nine months ended March 31, 2021 were lower results from most markets across the ~~United Kingdom,~~region, primarily driven by the declines in net sales.

Asia/Pacific


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions)	($ in millions)	2020			2019		2020			2019		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Operating income	Operating income	$	407		$	298	$	645		$	550	Operating income	$	245		$	149	$	890		$	699
$ Change from prior-year period	$ Change from prior-year period	109					95					$ Change from prior-year period	96					191
% Change from prior-year period	% Change from prior-year period	37		%			17		%			% Change from prior-year period	64		%			27		%

Reported operating income increased in Asia/Pacific for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, primarily reflecting higher results from mainland China. In both periods, the increase in operating income from mainland China was ~~primarily~~ driven by the increase in net sales, partially offset by the increase in advertising and promotional ~~activities~~expense, primarily due to investments to support holiday events and campaigns and new product launches and ~~digital advertising and social media spending.~~a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.

Partially offsetting the increases in operating income for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 were lower results from Japan, reflecting the decrease in net sales.

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THE ESTÉE LAUDER COMPANIES INC.

INTEREST AND INVESTMENT INCOME


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
Interest expense	Interest expense	$	43	$	38	$	88	$	70	Interest expense	$	43	$	42	$	131	$	112
Interest income and investment income, net	Interest income and investment income, net	$	17	$	13	$	31	$	27	Interest income and investment income, net	$	9	$	14	$	40	$	41

Interest expense increased for ~~both periods,~~the nine months ended March 31, 2021, primarily due to the issuance of additional long-term debt in November 2019 and April 2020.

Interest income and investment income, net ~~increased~~decreased for ~~both periods,~~the three and nine months ended March 31, 2021, reflecting decreases in investment income due to lower interest rates, partially offset by higher equity method investment income from our minority ~~investments, partially offset by decreases in investment income due to lower interest rates.~~investments.

~~THE ESTÉE LAUDER COMPANIES INC.~~

OTHER INCOME

On December 18, 2019, we acquired the remaining equity interest in Have&Be Co. Ltd. (“Have & Be”), the global skin care company behind Dr. Jart+ and men’s grooming brand Do The Right Thing, for $1,268 million in cash. Based on the final purchase price and working capital adjustments, we estimated a refund receivable of $32 million that was outstanding as of June 30, 2020 and was received in the first quarter of fiscal 2021. We originally acquired a minority interest in Have & Be in December 2015, which included a formula-based call option for the remaining equity interest. The original minority interest was accounted for as an equity method investment, which had a carrying value of $133 million at the acquisition date. The acquisition of the remaining equity interest in Have & Be was considered a step acquisition, whereby we remeasured the previously held equity method investment to its fair value of $682 million, resulting in the recognition of a gain of $549 million. The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated other comprehensive income. The total gain on our previously held equity method investment of $553 million is included in Other income in the accompanying consolidated statements of earnings for the ~~three and six~~nine months ended ~~December~~March 31, ~~2019.~~2020.

The amount paid at closing was funded by cash on hand including the proceeds from the issuance of debt. In anticipation of the closing, we transferred cash to a foreign subsidiary for purposes of making the closing payment. As a result, we recognized a foreign currency gain of $23 million, which is also included in Other income in the accompanying consolidated statements of earnings for the ~~three and six~~nine months ended ~~December~~March 31, ~~2019.~~2020. See Notes to Consolidated Financial Statements, Note 2 – Acquisition of Business for additional information.

PROVISION FOR INCOME TAXES

The provision for income taxes represents U.S. federal, foreign, state and local income taxes. The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the tax impact of share-based compensation, the taxation of foreign income and income tax reserve adjustments, which represent changes in our net liability for unrecognized tax benefits including tax settlements and lapses of the applicable statutes of limitations. Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the tax impact of share-based compensation and the interaction of various global tax strategies. 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.


		Three Months Ended December 31				Six Months Ended December 31					Three Months Ended March 31				Nine Months Ended March 31
		2020		2019		2020		2019			2021		2020		2021		2020
Effective rate for income taxes	Effective rate for income taxes	14.9	%	30.8	%	17.6	%	26.2	%	Effective rate for income taxes	21.0	%	105.0	%	18.5	%	30.0	%
Basis-point change from the prior-year period	Basis-point change from the prior-year period	(1,590)				(860)				Basis-point change from the prior-year period	(8,400)				(1,150)

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THE ESTÉE LAUDER COMPANIES INC.

For the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, the decrease in the effective tax rate was primarily attributable to ~~a lower effective tax rate on our foreign operations and~~ the impact of nondeductible goodwill charges recognized in the ~~second quarter~~three and nine months ended March 31, 2020 and a lower effective tax rate on our foreign operations. The lower amount of ~~fiscal 2020.~~earnings before income taxes for the three and nine months ended March 31, 2020 increased the impact of the nondeductible charges.

The effective tax rate for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 included the impact of the U.S. government issuance of final global intangible low-taxed income (“GILTI”) tax regulations in July 2020 under the Tax Cuts and Jobs Act (the “TCJA”) that provide for a high-tax exception to the GILTI tax. These regulations are retroactive to the original enactment of the GILTI tax provision, which includes our 2019 and 2020 fiscal years. We have elected to apply the GILTI high-tax exception to fiscal 2021, 2020 and 2019. The election for fiscal 2021 resulted in reductions of ~~160~~100 basis points and ~~150~~110 basis points to the effective tax rates for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively. The impact of the elections with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second ~~quarter~~and third quarters of fiscal 2021 and resulted in reductions of ~~470~~30 basis points and ~~280~~220 basis points to the effective tax rates for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, respectively.

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~~THE ESTÉE LAUDER COMPANIES INC.~~

NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.


		Three Months Ended December 31					Six Months Ended December 31						Three Months Ended March 31					Nine Months Ended March 31
($ in millions, except per share data)	($ in millions, except per share data)	2020			2019		2020			2019		($ in millions, except per share data)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net earnings attributable to The Estée Lauder Companies Inc.		$	873		$	557	$	1,396		$	1,152
Net earnings (loss) attributable to The Estée Lauder Companies Inc.												Net earnings (loss) attributable to The Estée Lauder Companies Inc.	$	456		$	(6)	$	1,852		$	1,146
$ Change from prior-year period	$ Change from prior-year period	316					244					$ Change from prior-year period	462					706
% Change from prior-year period	% Change from prior-year period	57		%			21		%			% Change from prior-year period	100+%					62		%
Diluted net earnings per common share		$	2.37		$	1.52	$	3.79		$	3.13
Diluted net earnings (loss) per common share												Diluted net earnings (loss) per common share	$	1.24		$	(.02)	$	5.03		$	3.12
% Change from prior-year period	% Change from prior-year period	56		%			21		%			% Change from prior-year period	100+%					61		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change in diluted net earnings per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments, other income and changes in fair value of contingent consideration		24		%			7		%
% Change in diluted net earnings (loss) per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments, other income and changes in fair value of contingent consideration												% Change in diluted net earnings (loss) per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments, other income and changes in fair value of contingent consideration	92		%			23		%

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

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

We use certain non-GAAP financial measures, among other financial measures, to evaluate our operating performance, which represent the manner in which we conduct and view our business. Management believes that excluding certain items that are not comparable from period to period, or do not reflect the Company’s underlying ongoing business, provides transparency for such items and helps investors and others compare and analyze our operating performance from period to period. In the future, we expect to incur charges or adjustments similar in nature to those presented below; however, the impact to the Company’s results in a given period may be highly variable and difficult to predict. Our non-GAAP financial measures may not be comparable to similarly titled measures used by, or determined in a manner consistent with, other companies. While we consider the non-GAAP measures useful in analyzing our results, they are not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with U.S. GAAP. The following tables present Net sales, Operating income and Diluted net earnings (loss) per common share adjusted to exclude the impact of charges associated with restructuring and other activities; goodwill, ~~and~~ other intangible ~~assets impairments;~~and long-lived asset impairments relating to COVID-19; other income; the changes in the fair value of contingent consideration.

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The following tables provide reconciliations between these non-GAAP financial measures and the most directly comparable U.S. GAAP measures.


		Three Months Ended December 31				Variance				% Change				% Change in Constant Currency					Three Months Ended March 31						Variance		% Change			% Change in Constant Currency
($ in millions, except per share data)	($ in millions, except per share data)	2020		2019								($ in millions, except per share data)				2021				2020
Net sales, as reported	Net sales, as reported	$	4,853	$	4,624			$	229			5	%				3	%	Net sales, as reported		$	3,864		$		3,345	$	519		16	%	13	%
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	—		—		—										Returns associated with restructuring and other activities			10			—			10
Net sales, as adjusted	Net sales, as adjusted	$	4,853	$	4,624	$	229			5	%			3	%	Net sales, as adjusted			$	3,874		$	3,345		$	529	16		%	13	%

Operating income, as reported	Operating income, as reported	$	1,063	$	261	$	802			100+%				100+%		Operating income, as reported			$	616		$	109		$	507	100+%			100+%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	37		13		24										Charges associated with restructuring and other activities			145			25			120
Goodwill and other intangible asset impairments		81		777		(696)
Goodwill, other intangible and long-lived asset impairments																Goodwill, other intangible and long-lived asset impairments			33			346			(313)
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(2)		(7)		5										Changes in fair value of contingent consideration			—			(2)			2
Operating income, as adjusted	Operating income, as adjusted	$	1,179	$	1,044	$	135			13	%			10	%	Operating income, as adjusted			$	794		$	478		$	316	66		%	64	%

Diluted net earnings per common share, as reported		$	2.37	$	1.52	$	.85			56	%			52	%
Diluted net earnings (loss) per common share, as reported																Diluted net earnings (loss) per common share, as reported			$	1.24		$	(.02)		$	1.26	100+%			100+%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	.08		.03		.05										Charges associated with restructuring and other activities			.31			.05			.26
Goodwill and other intangible asset impairments	Goodwill and other intangible asset impairments	.17		1.81		(1.64)										Goodwill and other intangible asset impairments			.07			.83			(.76)
Other income		—		(1.23)		1.23

Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(.01)		(.02)		.01										Changes in fair value of contingent consideration			—			(.01)			.01
Diluted net earnings per common share, as adjusted		$	2.61	$	2.11	$	.50			24	%			21	%
Diluted net earnings (loss) per common share, as adjusted																Diluted net earnings (loss) per common share, as adjusted			$	1.62		$	0.85		$	.77	92		%	88	%

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($ in millions, except per share data)	($ in millions, except per share data)	Six Months Ended December 31				Variance				% Change				% Change in constant currency		($ in millions, except per share data)			Nine Months Ended March 31								Variance		% Change			% Change in constant currency
		2020		2019													2021				2020
Net sales, as reported	Net sales, as reported	$	8,415	$	8,519			$	(104)			(1)	%			(3)	%	Net sales, as reported			$	12,279			$	11,864			$	415		3	%	2	%
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	—		—		—										Returns associated with restructuring and other activities			10				—				10
Net sales, as adjusted	Net sales, as adjusted	$	8,415	$	8,519	$	(104)			(1)	%			(3)	%	Net sales, as adjusted			$	12,289			$	11,864			$	425	4		%	2	%

Operating income, as reported	Operating income, as reported	$	1,768	$	1,040	$	728			70	%			67	%	Operating income, as reported			$	2,384			$	1,149			$	1,235	100+%			100+%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	46		38		8										Charges associated with restructuring and other activities			191				63				128
Goodwill and other intangible asset impairments		81		777		(696)
Goodwill, other intangible and long-lived asset impairments																Goodwill, other intangible and long-lived asset impairments			114				1,123				(1,009)
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(2)		(7)		5										Changes in fair value of contingent consideration			(2)				(9)				7
Operating income, as adjusted	Operating income, as adjusted	$	1,893	$	1,848	$	45			2	%			1	%	Operating income, as adjusted			$	2,687			$	2,326			$	361	16		%	14	%

Diluted net earnings per common share, as reported		$	3.79	$	3.13	$	.66			21	%			19	%
Diluted net earnings (loss) per common share, as reported																Diluted net earnings (loss) per common share, as reported			$	5.03			$	3.12			$	1.91	61		%	59	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	.09		.09		—										Charges associated with restructuring and other activities			.41				.14				.27
Goodwill and other intangible asset impairments		.17		1.80		(1.63)
Goodwill, other intangible and long-lived asset impairments																Goodwill, other intangible and long-lived asset impairments			.25				2.62				(2.37)
Other income	Other income	—		(1.22)		1.22										Other income			—				(1.23)				1.23
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(.01)		(.02)		.01										Changes in fair value of contingent consideration			(.01)				(.02)				.01

Diluted net earnings per common share, as adjusted		$	4.04	$	3.78	$	.26			7	%			5	%
Diluted net earnings (loss) per common share, as adjusted																Diluted net earnings (loss) per common share, as adjusted			$	5.68			$	4.63			$	1.05	23		%	20	%

As diluted net earnings (loss) per common share, as adjusted, is used as a measure of the Company’s performance, we consider the impact of current and deferred income taxes when calculating the per-share impact of each of the reconciling items.

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The following tables reconcile the change in net sales by product category and geographic region, as reported, to the change in net sales excluding the effects of foreign currency translation:


		As Reported						Impact of foreign currency translation		Variance, in constant currency			% Change, as reported			% Change, in constant currency				As Reported								Impact of foreign currency translation			Variance, in constant currency			% Change, as reported				% Change, in constant currency
($ in millions)	($ in millions)	Three Months Ended December 31, 2020		Three Months Ended December 31, 2019		Variance						($ in millions)			Three Months Ended March 31, 2021				Three Months Ended March 31, 2020				Variance
By Product Category:	By Product Category:																					By Product Category:
Skin Care	Skin Care	$	2,819	$	2,205	$	614	$	(70)	$	544		28	%		25	%	Skin Care		$	2,259			$	1,723	$	536		$	(58)		$	478		31		%		28		%
Makeup	Makeup	1,247		1,660		(413)		(20)		(433)			(25)			(26)		Makeup		1,018				1,146		(128)		(24)			(152)			(11)				(13)
Fragrance	Fragrance	618		581		37		(9)		28			6			5		Fragrance		454				349		105		(10)			95			30				27
Hair Care	Hair Care	154		162		(8)		(1)		(9)			(5)			(6)		Hair Care		128				119		9		(2)			7			8				6
Other	Other	15		16		(1)		(2)		(3)			(6)			(19)		Other		15				8		7		—			7			88				88
		4,853		4,624		229		(102)		127			5			3				3,874				3,345		529		(94)			435			16				13
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	—		—		—		—		—								Returns associated with restructuring and other activities		(10)				—		(10)		(1)			(11)
Total	Total	$	4,853	$	4,624	$	229	$	(102)	$	127		5	%		3	%	Total		$	3,864			$	3,345	$	519	$	(95)		$	424		16		%		13		%

By Region:	By Region:																	By Region:
The Americas	The Americas	$	1,048	$	1,226	$	(178)	$	15	$	(163)		(15)	%		(13)	%	The Americas		$	916			$	892	$	24	$	10		$	34		3		%		4		%
Europe, the Middle East & Africa	Europe, the Middle East & Africa	2,030		2,079		(49)		(20)		(69)			(2)			(3)		Europe, the Middle East & Africa		1,706				1,525		181		(24)			157			12				10
Asia/Pacific	Asia/Pacific	1,775		1,319		456		(97)		359			35			27		Asia/Pacific		1,252				928		324		(80)			244			35				26
		4,853		4,624		229		(102)		127			5			3				3,874				3,345		529		(94)			435			16				13
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	—		—		—		—		—								Returns associated with restructuring and other activities		(10)				—		(10)		(1)			(11)
Total	Total	$	4,853	$	4,624	$	229	$	(102)	$	127		5	%		3	%	Total		$	3,864			$	3,345	$	519	$	(95)		$	424		16		%		13		%

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		As Reported						Impact of foreign currency translation		Variance, in constant currency			% Change, as reported			% Change, in constant currency				As Reported								Impact of foreign currency translation			Variance, in constant currency			% Change, as reported				% Change, in constant currency
($ in millions)	($ in millions)	Six Months Ended December 31, 2020		Six Months Ended December 31, 2019		Variance						($ in millions)			Nine Months Ended March 31, 2021				Nine Months Ended March 31, 2020				Variance
By Product Category:	By Product Category:																					By Product Category:
Skin Care	Skin Care	$	4,854	$	4,047	$	807	$	(81)	$	726		20	%		18	%	Skin Care		$	7,113			$	5,770	$	1,343		$	(139)		$	1,204		23		%		21		%
Makeup	Makeup	2,225		3,103		(878)		(22)		(900)			(28)			(29)		Makeup		3,243				4,249		(1,006)		(46)			(1,052)			(24)				(25)
Fragrance	Fragrance	1,024		1,043		(19)		(11)		(30)			(2)			(3)		Fragrance		1,478				1,392		86		(21)			65			6				5
Hair Care	Hair Care	290		298		(8)		(2)		(10)			(3)			(3)		Hair Care		418				417		1		(4)			(3)			—				(1)
Other	Other	22		28		(6)		(1)		(7)			(21)			(25)		Other		37				36		1		(1)			—			3				—
		8,415		8,519		(104)		(117)		(221)			(1)			(3)				12,289				11,864		425		(211)			214			4				2
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	—		—		—		—		—								Returns associated with restructuring and other activities		(10)				—		(10)		(1)			(11)
Total	Total	$	8,415	$	8,519	$	(104)	$	(117)	$	(221)		(1)	%		(3)	%	Total		$	12,279			$	11,864	$	415	$	(212)		$	203		3		%		2		%

By Region:	By Region:																	By Region:
The Americas	The Americas	$	1,921	$	2,386	$	(465)	$	29	$	(436)		(19)	%		(18)	%	The Americas		$	2,837			$	3,278	$	(441)	$	39		$	(402)		(13)		%		(12)		%
Europe, the Middle East & Africa	Europe, the Middle East & Africa	3,570		3,756		(186)		(30)		(216)			(5)			(6)		Europe, the Middle East & Africa		5,276				5,281		(5)		(54)			(59)			—				(1)
Asia/Pacific	Asia/Pacific	2,924		2,377		547		(116)		431			23			18		Asia/Pacific		4,176				3,305		871		(196)			675			26				20
		8,415		8,519		(104)		(117)		(221)			(1)			(3)				12,289				11,864		425		(211)			214			4				2
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	—		—		—		—		—								Returns associated with restructuring and other activities		(10)				—		(10)		(1)			(11)
Total	Total	$	8,415	$	8,519	$	(104)	$	(117)	$	(221)		(1)	%		(3)	%	Total		$	12,279			$	11,864	$	415	$	(212)		$	203		3		%		2		%

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The following table reconciles the change in operating results by product category and geographic region, as reported, to the change in operating income excluding the impact of goodwill, ~~and~~ other intangible and long-lived asset impairments and changes in fair value of contingent consideration:


		As Reported																	As Reported
($ in millions)	($ in millions)	Three Months Ended December 31, 2020		Three Months Ended December 31, 2019		Variance		Add: Changes in Goodwill and other intangible asset impairments		Add: Changes in fair value of contingent consideration		Variance, as adjusted		% Change, as reported		% Change, as adjusted		($ in millions)	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020		Variance		Add: Changes in Goodwill, other intangible and long-lived asset impairments		Add: Changes in fair value of contingent consideration		Variance, as adjusted		% Change, as reported		% Change, as adjusted
By Product Category:	By Product Category:																	By Product Category:
Skin Care	Skin Care	$	928	$	772	$	156	$	81	$	3	$	240	20	%	31	%	Skin Care	$	804	$	418	$	386	$	(54)	$	—	$	332	92	%	70	%
Makeup	Makeup	28		(611)		639		(777)		—		(138)		100+		(83)		Makeup	(72)		(283)		211		(265)		—		(54)		75		(100+)
Fragrance	Fragrance	141		97		44		—		2		46		45		49		Fragrance	47		—		47		7		2		56		—		—
Hair Care	Hair Care	4		12		(8)		—		—		(8)		(67)		(67)		Hair Care	(17)		(2)		(15)		(1)		—		(16)		(100+)		(100+)
Other	Other	(1)		4		(5)		—		—		(5)		(100+)		(100+)%		Other	(1)		1		(2)		—		—		(2)		(100+)		(100+)
		1,100		274		826		$	(696)	$	5	$	135	100+%		13	%		761		134		627		$	(313)	$	2	$	316	100+%		66	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(37)		(13)		(24)												Charges associated with restructuring and other activities	(145)		(25)		(120)
Total	Total	$	1,063	$	261	$	802											Total	$	616	$	109	$	507

By Region:	By Region:																	By Region:
The Americas	The Americas	$	36	$	(529)	$	565	$	(696)	$	3	$	(128)	100+%		(52)	%	The Americas	$	155	$	(217)	$	372	$	(346)	$	—	$	26	100+%		20	%
Europe, the Middle East & Africa	Europe, the Middle East & Africa	657		505		152		—		2		154		30		31		Europe, the Middle East & Africa	361		202		159		33		2		194		79		97
Asia/Pacific	Asia/Pacific	407		298		109		—		—		109		37		37		Asia/Pacific	245		149		96		—		—		96		64		64
		1,100		274		826		$	(696)	$	5	$	135	100+%		13	%		761		134		627		$	(313)	$	2	$	316	100+%		66	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(37)		(13)		(24)												Charges associated with restructuring and other activities	(145)		(25)		(120)
Total	Total	$	1,063	$	261	$	802											Total	$	616	$	109	$	507

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		As Reported						Add: Changes in Goodwill and other intangible asset impairments		Add: Changes in fair value of contingent consideration		Variance, as adjusted			% Change, as reported			% Change, as adjusted				As Reported								Add: Changes in Goodwill, other intangible and long-lived asset impairments				Add: Changes in fair value of contingent consideration				Variance, as adjusted				% Change, as reported			% Change, as adjusted
($ in millions)	($ in millions)	Six Months Ended December 31, 2020		Six Months Ended December 31, 2019		Variance								($ in millions)			Nine Months Ended March 31, 2021				Nine Months Ended March 31, 2020				Variance
By Product Category:	By Product Category:																							By Product Category:
Skin Care	Skin Care	$	1,649	$	1,404	$	245	$	81	$	3	$	329		17	%		23	%	Skin Care		$	2,453			$	1,822	$	631			$	27			$	3			$	661		35	%		35	%
Makeup	Makeup	(43)		(507)		464		(777)		—		(313)			92			(100+)%		Makeup		(115)				(790)		675		(1,042)				—				(367)				85			(100+)
Fragrance	Fragrance	201		163		38		—		2		40			23			25		Fragrance		248				163		85		7				4				96				52			60
Hair Care	Hair Care	7		12		(5)		—		—		(5)			(42)			(42)		Hair Care		(10)				10		(20)		(1)				—				(21)				(100+)			(100+)
Other	Other	—		6		(6)		—		—		(6)			(100)			(100)		Other		(1)				7		(8)		—				—				(8)				(100+)			(100+)
		1,814		1,078		736		$	(696)	$	5	$	45		68	%		2	%			2,575				1,212		1,363		$	(1,009)			$	7			$	361			100+%			16	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(46)		(38)		(8)														Charges associated with restructuring and other activities		(191)				(63)		(128)
Total	Total	$	1,768	$	1,040	$	728													Total		$	2,384			$	1,149	$	1,235

By Region:	By Region:																			By Region:
The Americas	The Americas	$	101	$	(354)	$	455	$	(696)	$	3	$	(238)		100+%			(57)	%	The Americas		$	256			$	(571)	$	827	$	(1,042)			$	3			$	(212)			100+%			(39)	%
Europe, the Middle East & Africa	Europe, the Middle East & Africa	1,068		882		186		—		2		188			21			21		Europe, the Middle East & Africa		1,429				1,084		345		33				4				382				32			35
Asia/Pacific	Asia/Pacific	645		550		95		—		—		95			17			17		Asia/Pacific		890				699		191		—				—				191				27			27
		1,814		1,078		736		$	(696)	$	5	$	45		68	%		2	%			2,575				1,212		1,363		$	(1,009)			$	7			$	361			100+%			16	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(46)		(38)		(8)														Charges associated with restructuring and other activities		(191)				(63)		(128)
Total	Total	$	1,768	$	1,040	$	728													Total		$	2,384			$	1,149	$	1,235

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Overview

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~~March 31, ~~2020,~~2021, we had cash and cash equivalents of ~~$5,545~~$6,399 million compared with $5,022 million at June 30, 2020. Our cash and cash equivalents are maintained at a number of financial institutions. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure.

Based on past performance and current expectations, we believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support seasonal working capital needs, currently planned business operations, information technology enhancements, capital expenditures, acquisitions, dividends, stock repurchases, restructuring initiatives, commitments and other contractual obligations on both a near-term and long-term basis. ~~See~~ ~~Overview – COVID-19 Business Update~~ ~~for actions taken by us, in response to the impact of the COVID-19 pandemic on our business.~~

The TCJA resulted in the Transition Tax on unrepatriated earnings of our foreign subsidiaries and changed the tax law in ways that present opportunities to repatriate cash without additional U.S. federal income tax. As a result, we changed our indefinite reinvestment assertion related to certain foreign earnings, and we continue to analyze the indefinite reinvestment assertion on our remaining applicable foreign earnings. The issuance of guidance subsequent to the enactment of the TCJA has enabled us to access a substantial portion of the cash in offshore jurisdictions associated with our permanently reinvested earnings without significant cost. We do not believe that continuing to reinvest our foreign earnings impairs our ability to meet our domestic debt or working capital obligations. 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.

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The effects of inflation have not been significant to our overall operating results in recent years. Generally, we have been able to introduce new products at higher prices, increase prices and implement other operating efficiencies to sufficiently offset cost increases, which have been moderate.

Credit Ratings

Changes in our credit ratings will likely result in changes in our borrowing costs. Our credit ratings also impact the cost of our revolving credit facility. Downgrades in our credit ratings may reduce our ability to issue commercial paper and/or long-term debt and would likely increase the relative costs of borrowing. 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 29,~~April 26, 2021, our long-term debt is rated A+ with a ~~negative~~stable outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.

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Debt

At ~~December~~March 31, ~~2020,~~2021, our outstanding borrowings were as follows:

($ in millions) Long-term
Debt Current
Debt Total Debt
3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (1), (13)
$ 635 $ — $ 635
4.15% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (2), (13)
494 — 494
4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (3), (13)
456 — 456
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (13)
247 — 247
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (13)
294 — 294
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6)
197 — 197
2.600% Senior Notes, due April 15, 2030 (“2030 Senior Notes”) (7)
694 — 694
2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (8), (13)
640 — 640
3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (9), (13)
498 — 498
2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (10), (13)
496 — 496
2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (11), (13)
258 — 258
1.70% Senior Notes, due May 10, 2021 (“2021 Senior Notes”) (12), (13)
— 452 452
Other long-term borrowings 4 — 4
Other current borrowings — 18 18
$ 4,913 $ 470 $ 5,383


($ in millions)	Long-term Debt		Current Debt		Total Debt
3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (1), (14)	$	635	$	—	$	635
4.15% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (2), (14)	494		—		494
4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (3), (14)	455		—		455
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (14)	247		—		247
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (14)	294		—		294
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6)	197		—		197
1.950% Senior Notes, due March 15, 2031 (“2031 Senior Notes”) (7), (14),(15)	592		—		592
2.600% Senior Notes, due April 15, 2030 (“2030 Senior Notes”) (8), (14)	680		—		680
2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (9), (14)	641		—		641
3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (10), (14)	498		—		498
2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (11), (14)	496		—		496
2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (12), (14)	256		—		256
1.70% Senior Notes, due May 10, 2021 (“2021 Senior Notes”) (13), (14), (15)	—		451		451

Other long-term borrowings	2		—		2
Other current borrowings	—		20		20

	$	5,487	$	471	$	5,958

(1)Consists of $650 million principal, unamortized debt discount of $8 million and debt issuance costs of $7 million.

(2)Consists of $500 million principal, unamortized debt discount of $1 million and debt issuance costs of $5 million.

(3)Consists of $450 million principal, net unamortized debt premium of ~~$10~~$9 million and debt issuance costs of $4 million.

(4)Consists of $250 million principal, unamortized debt discount of $1 million and debt issuance costs of $2 million.

(5)Consists of $300 million principal, unamortized debt discount of $3 million and debt issuance costs of $3 million.

(6)Consists of $200 million principal, unamortized debt discount of $2 million and debt issuance costs of $1 million.

(7)Consists of $600 million principal, unamortized debt discount of $4 million and debt issuance costs of $4 million.

(8)Consists of $700 million principal, unamortized debt discount of $1 million, ~~and~~ debt issuance costs of ~~$5 million.~~$4 million and a $15 million adjustment to reflect the fair value of interest rate swaps.

~~(8)~~(9)Consists of $650 million principal, unamortized debt discount of $6$5 million and debt issuance costs of $4 million.

~~(9)~~(10)Consists of $500 million principal and debt issuance costs of $2 million.

~~(10)~~(11)Consists of $500 million principal, unamortized debt discount of $2 million and debt issuance costs of $2 million.

~~(11)~~(12)Consists of $250 million principal and a ~~$8 million adjustment to reflect the fair value of interest rate swaps.~~

~~(12)Consists of $450 million principal and a $2~~$6 million adjustment to reflect the fair value of interest rate swaps.

(13)Consists of $450 million principal and a $1 million adjustment to reflect the fair value of interest rate swaps.

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

(15)See Note 16 – Subsequent Events for further information relating to the repayment of the $450 million principal amount made and the interest rate swap agreement relating to the 2031 Senior Notes entered into subsequent to March 31, 2021.

In August 2020, we repaid the remaining $750 million borrowed under our $1,500 million revolving credit facility that was outstanding as of June 30, 2020.

Total debt as a percent of total capitalization (excluding noncontrolling interests) was ~~50%~~52% and 61% at ~~December~~March 31, ~~2020~~2021 and June 30, 2020, respectively.

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Cash Flows


		Six Months Ended December 31					Nine Months Ended March 31
(In millions)	(In millions)	2020		2019		(In millions)	2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	1,978	$	1,255	Net cash provided by operating activities	$	2,777	$	1,945
Net cash used for investing activities	Net cash used for investing activities	$	(397)	$	(1,350)	Net cash used for investing activities	$	(577)	$	(1,557)
Net cash provided by (used for) financing activities	Net cash provided by (used for) financing activities	$	(1,119)	$	687	Net cash provided by (used for) financing activities	$	(862)	$	1,525

The change in net cash flows from operations ~~primarily~~ reflected the improvement in working capital, primarily due to other accrued liabilities, ~~including~~driven by an increase in accrued employee incentive compensation, ~~and higher advertising and promotional accruals,~~as previously discussed, and accounts payable, partially offset by the unfavorable change in accounts receivable due to the increase in net sales. The change in net cash flows from operations also reflects higher earnings before taxes, excluding non-cash items.

The change in net cash flows used for investing activities primarily reflected cash paid in fiscal 2020 relating to the second quarter acquisition of Have&Be Co. Ltd., partially offset by the settlement of net investment hedges.

The change in net cash flows from financing activities primarily reflected lower proceeds relating to the issuance of long-term debt (the November 2019 and April 2020 issuances in fiscal 2020, ~~from~~compared to the ~~November 2019~~March 2021 issuance ~~of long term-debt,~~in fiscal 2021), the fiscal 2021 repayment of borrowings under our revolving credit facility, partially offset by lower treasury stock repurchases.

Dividends

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the ~~six~~nine months ended ~~December~~March 31, ~~2020,~~2021, see Notes to Consolidated Financial Statements, Note 1213 – Equity.

Pension and Post-retirement Plan Funding

There have been no significant changes to our pension and post-retirement funding as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Commitments, Contractual Obligations and Contingencies

In February 2021, we agreed to acquire additional shares in DECIEM Beauty Group Inc. (“DECIEM”) that will increase our existing equity interest from approximately 29% to approximately 76%. Upon closing, which is expected to occur in May 2021, we will pay approximately $1,000 million and will also have the right to purchase, and will grant the remaining investors a right to sell to us, the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM. There have been no other significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 910 – Contingencies.

Derivative Financial Instruments and Hedging Activities

For a discussion of our derivative financial instruments and hedging activities, see Notes to Consolidated Financial Statements, Note 56 – Derivative Financial Instruments.

Foreign Exchange Risk Management

For a discussion of foreign exchange risk management, see Notes to Consolidated Financial Statements, Note 56 – Derivative Financial Instruments (Cash Flow Hedges, Net Investment Hedges).

Credit Risk

For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 56 – Derivative Financial Instruments (Credit Risk).

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Market Risk

We address certain financial exposures through a controlled program of market risk management that includes the use of foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates and to mitigate the change in fair value of specific assets and liabilities on the balance sheet. To perform a sensitivity analysis of our foreign currency forward contracts, we assess the change in fair values from the impact of hypothetical changes in foreign currency exchange rates. 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 ~~$184~~$198 million and $222 million as of ~~December~~March 31, ~~2020~~2021 and June 30, 2020, respectively. This potential change does not consider our underlying foreign currency exposures.

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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 increase (decrease) by approximately ~~$13~~$(58) million and $9 million as of ~~December~~March 31, ~~2020~~2021 and June 30, 2020, 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. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year. We believe, however, that any such loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the derivative financial instrument was intended.

OFF-BALANCE SHEET ARRANGEMENTS

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

CRITICAL ACCOUNTING POLICIES

As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These estimates and assumptions can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies relate to goodwill, other intangible assets and long-lived assets, income taxes and business combinations. Since June 30, 2020, there have been no significant changes to the assumptions and estimates related to our critical accounting policies.

RECENTLY ISSUED ACCOUNTING STANDARDS

For a discussion regarding the impact of accounting standards that were recently issued but not yet effective, on the Company’s consolidated financial statements, see Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

We and our representatives from time to time make written or oral forward-looking statements, including in this and other filings with the Securities and Exchange Commission, in our press releases and in our reports to stockholders, which may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like “expect,” “will,” “will likely result,” “would,” “believe,” “estimate,” “planned,” “plans,” “intends,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “projected,” “forecast,” and “forecasted” or similar expressions. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation:

(1)increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses;

(2)our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our business;

(3)consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry, ownership of retailers by our competitors or ownership of competitors by our customers that are retailers and our inability to collect receivables;

(4)destocking and tighter working capital management by retailers;

(5)the success, or changes in timing or scope, of new product launches and the success, or changes in timing or scope, of advertising, sampling and merchandising programs;

(6)shifts in the preferences of consumers as to where and how they shop;

(7)social, political and economic risks to our foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;

(8)changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, our business, including those relating to our products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result;

(9)foreign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell products in the same markets and our operating and manufacturing costs outside of the United States;

(10)changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase our products while traveling, the financial strength of our customers, suppliers or other contract counterparties, our operations, the cost and availability of capital which we may need for new equipment, facilities or acquisitions, the returns that we are able to generate on our pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying our critical accounting estimates;

(11)impacts attributable to the COVID-19 pandemic, including disruptions to our global business;

(12)shipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture our products or at our distribution or inventory centers, including disruptions that may be caused by the implementation of information technology initiatives, or by restructurings;

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(13)real estate rates and availability, which may affect our ability to increase or maintain the number of retail locations at which we sell our products and the costs associated with our other facilities;

(14)changes in product mix to products which are less profitable;

(15)our ability to acquire, develop or implement new information and distribution technologies and initiatives on a timely basis and within our cost estimates and our ability to maintain continuous operations of such systems and the security of data and other information that may be stored in such systems or other systems or media;

(16)our ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom;

(17)consequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation;

(18)the timing and impact of acquisitions, investments and divestitures; and

(19)additional factors as described in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

We assume no responsibility to update forward-looking statements made herein or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is set forth in Item 2 of this Quarterly Report on Form 10-Q under the caption Liquidity and Capital Resources - Market Risk and is incorporated herein by reference.

Item 4. Controls and Procedures.

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures, including impacts of COVID-19, as of ~~December~~March 31, ~~2020~~2021 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

As part of our review of internal control over financial reporting, we make changes to systems and processes to improve such controls and increase efficiencies, while ensuring that we maintain an effective internal control environment. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the ~~second~~third quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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THE ESTÉE LAUDER COMPANIES INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For a discussion of legal proceedings, see Notes to Consolidated Financial Statements, Note 910 – Contingencies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Share Repurchase Program

We are authorized by the Board of Directors to repurchase shares of our Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. The following table provides information relating to our repurchase of Class A Common Stock during the referenced periods:

Period
Total Number
of Shares
Purchased(1)
Average Price
Paid Per
Share Total Number of
Shares Purchased as
Part of Publicly
Announced
Program
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Program(2)
October 2020 — $ — — 34,741,624
November 2020 335,124 229.12 — 34,741,624
December 2020 9 229.12 — 34,741,624
335,133 229.12 —


Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program(2)
January 2021	8,164	$	239.71	—	34,741,624
February 2021	—	—		—	34,741,624
March 2021	738,279	287.71		737,783	34,003,841
	746,443	287.19		737,783

(1)~~Relates to~~Includes shares that were repurchased by the Company to satisfy tax withholding obligations upon the payout of certain stock-based compensation arrangements.

(2)The Board of Directors has authorized the current repurchase program for up to 80.0 million shares. The total amount was last increased by the Board on October 31, 2018. Our repurchase program does not have an expiration date.

~~Beginning in early February 2020,~~In March 2021, we ~~temporarily suspended~~resumed the repurchase of shares of our Class A Common ~~Stock. We may resume repurchases in the future.~~Stock pursuant to our share repurchase program. Subsequent to March 31, 2021 and as of April 26, 2021, we purchased approximately 0.2 million additional shares for $66 million.

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THE ESTÉE LAUDER COMPANIES INC.

Item 6. Exhibits.


Exhibit Number						Description


4.1						Officers’ Certificate, dated March 4, 2021 , defining certain terms of the 1.950% Senior Notes due 2031 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on March 4, 2021) (SEC File No. 1-1 4064).*

4.2						Form of Global Note for the 1.950% Senior Notes due 2031 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on March 4, 2021) (SEC File No. 1-1 4064 ).*

10.1						Price-Vested Unit Award Agreement with Fabrizio Freda under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on March 16, 2021) (SEC File No. 1-1 4064).*†

10.2						Performance Share Unit Award Agreement with Fabrizio Freda under The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit 10.2 to our Current Report on Form 8-K filed on March 16, 2021) (SEC File No. 1-14064).*†

31.1						Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO).

31.2						Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO).

32.1						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO). (furnished)

32.2						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO). (furnished)

101.1						The following materials from The Estée Lauder Companies Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~December~~March 31, ~~2020~~2021 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings (Loss), (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements

104						The cover page from The Estée Lauder Companies Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~December~~March 31, ~~2020~~2021 is formatted in iXBRL

* Incorporated herein by reference.

† Exhibit is a management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	THE ESTÉE LAUDER COMPANIES INC.

	By:	/s/TRACEY T. TRAVIS
Date: ~~February 5,~~May 3, 2021		Tracey T. Travis
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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