FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Inc. 767 Fifth Avenue, Trading Symbol(s) Name of each exchange on which registered Class A Common Stock, $.01 par value EL New York Stock Exchange ☒ Non-accelerated filer ☐ 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. ☐ Page Consolidated Statements of Earnings (Loss) — Consolidated Statements of Comprehensive Income (Loss) — Consolidated Balance Sheets — Consolidated Statements of Cash Flows —For the quarterly period ended December 31, 2019or☐For the transition period from toCommission file number 1-14064Inc.Delaware 11-2408943 11-2408943(I.R.S. Employer Identification No.) , New York,, New York(Address of principal executive offices) 10153(Zip Code) 212-572-4200Title of each class ⌧☒ No ◻☐⌧☒ No ◻☐Large accelerated filer ⌧Accelerated filer ☐ ☐Smaller reporting company ☐ Emerging growth company ☐ ⌧☒January 30,April 24, 2020, 222,319,332224,763,197 shares of the registrant’s Class A Common Stock, $.01 par value, and 137,220,914135,235,429 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.SixNine Months Ended DecemberMarch 31, 20192020 and 2018SixNine Months Ended DecemberMarch 31, 20192020 and 2018
December20192020 and June 30, 2019 (Audited)
SixDecemberMarch 31, 20192020 and 201833555556565758
(LOSS) Three Months Ended Six Months Ended December 31 December 31 (In millions, except per share data) 2019 2018 2019 2018 Net sales $ 4,624 $ 4,005 $ 8,519 $ 7,529 Cost of sales 1,041 910 1,949 1,733 Gross profit 3,583 3,095 6,570 5,796 Operating expenses Selling, general and administrative 2,538 2,257 4,723 4,265 Restructuring and other charges 7 29 30 70 Goodwill impairment 511 20 511 20 Impairment of other intangible assets 266 18 266 18 Total operating expenses 3,322 2,324 5,530 4,373 Operating income 261 771 1,040 1,423 Interest expense 38 35 70 69 Interest income and investment income, net 13 12 27 27 Other components of net periodic benefit cost 1 — 2 — Other income 576 — 576 — Earnings before income taxes 811 748 1,571 1,381 Provision for income taxes 250 171 412 302 Net earnings 561 577 1,159 1,079 Net earnings attributable to noncontrolling interests (4) (4) (7) (6) Net earnings attributable to The Estée Lauder Companies Inc. $ 557 $ 573 $ 1,152 $ 1,073 Net earnings attributable to The Estée Lauder Companies Inc. per common share Basic $ 1.55 $ 1.58 $ 3.19 $ 2.94 Diluted $ 1.52 $ 1.55 $ 3.13 $ 2.88 Weighted-average common shares outstanding Basic 360.2 363.3 360.8 365.1 Diluted 366.7 369.9 367.7 372.1 Three Months Ended Six Months Ended December 31 December 31 (In millions) 2019 2018 2019 2018 Net earnings $ 561 $ 577 $ 1,159 $ 1,079 Other comprehensive income (loss): Net unrealized investment gain — 3 — 5 Net cash flow hedge gain (loss) (22) 9 (24) 9 Amounts included in net periodic benefit cost 5 4 10 7 Translation adjustments 64 (38) (6) (15) Benefit (provision) for deferred income taxes on components of other comprehensive income 10 — 13 (3) Total other comprehensive income (loss) 57 (22) (7) 3 Comprehensive income 618 555 1,152 1,082 Comprehensive income attributable to noncontrolling interests: Net earnings (4) (4) (7) (6) Translation adjustments 1 1 1 1 (3) (3) (6) (5) Comprehensive income attributable to The Estée Lauder Companies Inc. $ 615 $ 552 $ 1,146 $ 1,077 December 31 June 30 (In millions, except share data) 2019 2019 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 3,596 $ 2,987 Accounts receivable, net 2,225 1,831 Inventory and promotional merchandise 2,058 2,006 Prepaid expenses and other current assets 469 388 Total current assets 8,348 7,212 Property, plant and equipment, net 2,086 2,068 Other assets Operating lease right-of-use assets 2,517 — Goodwill 1,920 1,868 Other intangible assets, net 2,342 1,203 Other assets 724 805 Total other assets 7,503 3,876 Total assets $ 17,937 $ 13,156 LIABILITIES AND EQUITY Current liabilities Current debt $ 522 $ 516 Accounts payable 1,137 1,490 Operating lease liabilities 369 — Other accrued liabilities 2,925 2,599 Total current liabilities 4,953 4,605 Noncurrent liabilities Long-term debt 4,662 2,896 Long-term operating lease liabilities 2,318 — Other noncurrent liabilities 1,403 1,244 Total noncurrent liabilities 8,383 4,140 Contingencies Equity Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at December 31, 2019 and June 30, 2019; shares issued: 448,452,843 at December 31, 2019 and 443,685,124 at June 30, 2019; Class B shares authorized: 304,000,000 at December 31, 2019 and June 30, 2019; shares issued and outstanding: 137,220,914 at December 31, 2019 and 139,537,814 at June 30, 2019 6 6 Paid-in capital 4,615 4,403 Retained earnings 10,775 9,984 Accumulated other comprehensive loss (569) (563) 14,827 13,830 Less: Treasury stock, at cost; 226,278,070 Class A shares at December 31, 2019 and 222,120,630 Class A shares at June 30, 2019 (10,253) (9,444) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,574 4,386 Noncontrolling interests 27 25 Total equity 4,601 4,411 Total liabilities and equity $ 17,937 $ 13,156 Six Months Ended December 31 (In millions) 2019 2018 Cash flows from operating activities Net earnings $ 1,159 $ 1,079 Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 287 269 Deferred income taxes 7 (46) Non-cash stock-based compensation 139 131 Net loss on disposal of property, plant and equipment 5 5 Pension and post-retirement benefit expense 41 35 Pension and post-retirement benefit contributions (33) (12) Goodwill and other intangible asset impairments 777 38 Changes in fair value of contingent consideration (7) (9) Gain on previously held equity method investment (553) — Other non-cash items (10) (13) Changes in operating assets and liabilities: Increase in accounts receivable, net (347) (343) Decrease (increase) in inventory and promotional merchandise 31 (21) Increase in other assets, net (120) (53) Decrease in accounts payable (375) (174) Increase in other accrued and noncurrent liabilities 252 387 Increase in operating lease assets and liabilities, net 2 — Net cash flows provided by operating activities 1,255 1,273 Cash flows from investing activities Capital expenditures (291) (292) Payments for acquired businesses, net of cash acquired (1,040) — Proceeds from the disposition of investments — 271 Purchases of investments (5) (14) Settlement of net investment hedges (14) — Net cash flows used for investing activities (1,350) (35) Cash flows from financing activities Proceeds (repayments) of current debt, net 8 (169) Proceeds from issuance of long-term debt, net 1,783 — Debt issuance costs (14) — Repayments and redemptions of long-term debt (8) — Net proceeds from stock-based compensation transactions 71 59 Payments to acquire treasury stock (813) (1,126) Payments of contingent consideration (3) — Dividends paid to stockholders (330) (297) Payments to noncontrolling interest holders for dividends (7) (3) Net cash flows provided by (used for) financing activities 687 (1,536) Effect of exchange rate changes on Cash and cash equivalents 17 (7) Net increase (decrease) in Cash and cash equivalents 609 (305) Cash and cash equivalents at beginning of period 2,987 2,181 Cash and cash equivalents at end of period $ 3,596 $ 1,876 Three Months Ended
March 31Nine Months Ended
March 31(In millions, except per share data) 2020 2019 2020 2019 Net sales $ 3,345 $ 3,744 $ 11,864 $ 11,273 Cost of sales 836 819 2,785 2,552 Gross profit 2,509 2,925 9,079 8,721 Operating expenses Selling, general and administrative 2,030 2,170 6,753 6,435 Restructuring and other charges 24 29 54 99 Goodwill impairment 275 48 786 68 Impairments of other intangible and long-lived assets 71 4 337 22 Total operating expenses 2,400 2,251 7,930 6,624 Operating income 109 674 1,149 2,097 Interest expense 42 32 112 101 Interest income and investment income, net 14 15 41 42 Other components of net periodic benefit cost 1 1 3 1 Other income, net — 71 576 71 Earnings before income taxes 80 727 1,651 2,108 Provision for income taxes 84 170 496 472 Net earnings (loss) (4) 557 1,155 1,636 Net earnings attributable to noncontrolling interests (2) (2) (9) (8) Net earnings (loss) attributable to The Estée Lauder Companies Inc. $ (6) $ 555 $ 1,146 $ 1,628 Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share Basic $ (.02) $ 1.53 $ 3.18 $ 4.47 Diluted $ (.02) $ 1.51 $ 3.12 $ 4.39 Weighted-average common shares outstanding Basic 360.2 361.9 360.6 364.0 Diluted 360.2 368.3 367.1 370.9 Three Months Ended
March 31Nine Months Ended
March 31(In millions) 2020 2019 2020 2019 Net earnings (loss) $ (4) $ 557 $ 1,155 $ 1,636 Other comprehensive income (loss): Net unrealized investment gain — 9 — 14 Net cash flow hedge gain (loss) 34 (7) 10 2 Amounts included in net periodic benefit cost 6 3 16 10 Translation adjustments (185) (72) (191) (87) Benefit (provision) for deferred income taxes on components of other comprehensive income 2 (1) 15 (4) Total other comprehensive loss (143) (68) (150) (65) Comprehensive income (loss) (147) 489 1,005 1,571 Comprehensive income attributable to noncontrolling interests: Net earnings (2) (2) (9) (8) Translation adjustments — — 1 1 (2) (2) (8) (7) Comprehensive income (loss) attributable to The Estée Lauder Companies Inc. $ (149) $ 487 $ 997 $ 1,564 (In millions, except share data) March 31
2020June 30
2019(Unaudited) ASSETS Current assets Cash and cash equivalents $ 4,876 $ 2,987 Accounts receivable, net 1,846 1,831 Inventory and promotional merchandise 2,087 2,006 Prepaid expenses and other current assets 424 388 Total current assets 9,233 7,212 Property, plant and equipment, net 2,092 2,068 Other assets Operating lease right-of-use assets 2,446 — Goodwill 1,633 1,868 Other intangible assets, net 2,190 1,203 Other assets 769 805 Total other assets 7,038 3,876 Total assets $ 18,363 $ 13,156 LIABILITIES AND EQUITY Current liabilities Current debt $ 1,527 $ 516 Accounts payable 1,162 1,490 Operating lease liabilities 371 — Other accrued liabilities 2,621 2,599 Total current liabilities 5,681 4,605 Noncurrent liabilities Long-term debt 4,674 2,896 Long-term operating lease liabilities 2,288 — Other noncurrent liabilities 1,362 1,244 Total noncurrent liabilities 8,324 4,140 Contingencies Equity Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2020 and June 30, 2019; shares issued: 451,339,096 at March 31, 2020 and 443,685,124 at June 30, 2019; Class B shares authorized: 304,000,000 at March 31, 2020 and June 30, 2019; shares issued and outstanding: 135,235,429 at March 31, 2020 and 139,537,814 at June 30, 2019 6 6 Paid-in capital 4,760 4,403 Retained earnings 10,595 9,984 Accumulated other comprehensive loss (712) (563) 14,649 13,830 Less: Treasury stock, at cost; 226,588,577 Class A shares at March 31, 2020 and 222,120,630 Class A shares at June 30, 2019 (10,320) (9,444) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,329 4,386 Noncontrolling interests 29 25 Total equity 4,358 4,411 Total liabilities and equity $ 18,363 $ 13,156 Nine Months Ended
March 31(In millions) 2020 2019 Cash flows from operating activities Net earnings $ 1,155 $ 1,636 Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 447 404 Deferred income taxes (65) (46) Non-cash stock-based compensation 210 201 Net loss on disposal of property, plant and equipment 6 6 Non-cash restructuring and other charges 19 — Pension and post-retirement benefit expense 62 53 Pension and post-retirement benefit contributions (54) (23) Goodwill, other intangible and long-lived asset impairments 1,123 90 Changes in fair value of contingent consideration (9) (18) Gain on liquidation of an investment in a foreign subsidiary, net — (71) Gain on previously held equity method investment (553) — Other non-cash items (11) (17) Changes in operating assets and liabilities: Increase in accounts receivable, net (48) (377) Increase in inventory and promotional merchandise (41) (184) Increase in other assets, net (63) (73) Decrease in accounts payable (317) (105) Increase in other accrued and noncurrent liabilities 62 280 Increase in operating lease assets and liabilities, net 22 — Net cash flows provided by operating activities 1,945 1,756 Cash flows from investing activities Capital expenditures (468) (441) Payments for acquired businesses, net of cash acquired (1,047) — Proceeds from the disposition of investments — 1,229 Purchases of investments (5) (14) Settlement of net investment hedges (37) — Net cash flows provided by (used for) investing activities (1,557) 774 Cash flows from financing activities Proceeds (repayments) of current debt, net 1,514 (167) Proceeds from issuance of long-term debt, net 1,783 — Debt issuance costs (14) — Repayments and redemptions of long-term debt (511) (1) Net proceeds from stock-based compensation transactions 148 154 Payments to acquire treasury stock (883) (1,344) Payments of contingent consideration (3) — Dividends paid to stockholders (502) (453) Payments to noncontrolling interest holders for dividends (7) (3) Net cash flows provided by (used for) financing activities 1,525 (1,814) Effect of exchange rate changes on Cash and cash equivalents (24) 5 Net increase in Cash and cash equivalents 1,889 721 Cash and cash equivalents at beginning of period 2,987 2,181 Cash and cash equivalents at end of period $ 4,876 $ 2,902
December 31 June 30 (In millions) 2019 2019 Raw materials $ 519 $ 541 Work in process 237 268 Finished goods 1,101 981 Promotional merchandise 201 216 $ 2,058 $ 2,006 December 31 June 30 (In millions) 2019 2019 Assets (Useful Life) Land $ 29 $ 29 Buildings and improvements (10 to 40 years) 367 337 Machinery and equipment (3 to 10 years) 836 811 Computer hardware and software (4 to 10 years) 1,308 1,264 Furniture and fixtures (5 to 10 years) 117 116 Leasehold improvements 2,385 2,274 5,042 4,831 Less accumulated depreciation and amortization (2,956) (2,763) $ 2,086 $ 2,068 earnings (loss). operations and the lower amount of earnings before income taxes, which increases the impact of the nondeductible charges. December 31 June 30 (In millions) 2019 2019 Advertising, merchandising and sampling $ 416 $ 352 Employee compensation 437 574 Deferred revenue 378 314 Payroll and other taxes 325 221 Accrued general and administrative expenses 256 195 Other 1,113 943 $ 2,925 $ 2,599 Leases (Accounting Standards Codification Effective for the Company – Fiscal 2020 first quarter. An entity is permitted to apply the foregoing guidance using either of the modified retrospective transition approaches described in the standard, with certain practical expedients. Impact on consolidated financial statements In November 2019, the FASB issued authoritative guidance Impact on consolidated financial statements – The Company is currently evaluating the impact of applying this guidance on its financial instruments, such as accounts receivable. While the Company’s evaluation is ongoing, we are also assessing the impact that COVID-19 will have on the adoption of this standard Goodwill and Other – Internal-Use Software (ASU 2018-15 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. Impact on consolidated financial statements – The Company has determined that it will adopt this guidance on a prospective basis to all implementation costs incurred after the date of adoption and is currently evaluating the impact of applying this guidance to its business systems that operate on cloud technology. While the Company’s evaluation is ongoing, the adoption of this standard is not expected to have a material impact on its consolidated financial statements. 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 currently evaluating the impact of applying this guidance and believes that it has transactions that may fall under the scope.$75$(173) million and $(34)$2 million, net of tax, during the three months ended DecemberMarch 31, 20192020 and 2018,2019, respectively, and $3$(170) million and $(13)$(11) million, net of tax, during the sixnine months ended DecemberMarch 31, 20192020 and 2018,2019, 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. These subsidiaries are not material to the Company’s consolidated financial statements or liquidity.-– Derivative Financial Instruments for further discussion. The Company categorizes these instruments as entered into for purposes other than trading. (losses) on foreign currency transactions of $27$15 million and $(7)$73 million during the three months ended DecemberMarch 31, 20192020 and 2018,2019, respectively, and $24$40 million and $(21)$52 million during the sixnine months ended DecemberMarch 31, 2020 and 2019, and 2018, respectively.customerscustomers. As a result of COVID-19, 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.6(In millions) March 31
2020June 30
2019Raw materials $ 540 $ 541 Work in process 261 268 Finished goods 1,106 981 Promotional merchandise 180 216 $ 2,087 $ 2,006 (In millions) March 31
2020June 30
2019Assets (Useful Life) Land $ 33 $ 29 Buildings and improvements (10 to 40 years) 385 337 Machinery and equipment (3 to 10 years) 840 811 Computer hardware and software (4 to 10 years) 1,297 1,264 Furniture and fixtures (5 to 10 years) 117 116 Leasehold improvements 2,370 2,274 5,042 4,831 Less accumulated depreciation and amortization (2,950) (2,763) $ 2,092 $ 2,068 Table of Contents$503$509 million and $474 million as of DecemberMarch 31, 20192020 and June 30, 2019, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $127$131 million and $121 million during the three months ended DecemberMarch 31, 20192020 and 2018,2019, respectively, and $252$383 million and $237$358 million during the sixnine months ended DecemberMarch 31, 20192020 and 2018,2019, 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.30.8%105.0% and 22.9%23.4% for the three months ended DecemberMarch 31, 20192020 and 2018,2019, respectively, and 26.2%30.0% and 21.9%22.4% for the sixnine months ended DecemberMarch 31, 20192020 and 2018,2019, respectively. The increase in the effective tax rate in both periods was primarily attributable to the impact of nondeductible goodwill impairment charges associated with the Company'sCompany’s Too Faced, BECCA and Smashbox reporting units, and to a higher effective tax rate on the Company'sCompany’s foreign operations.DecemberMarch 31, 20192020 and June 30, 2019, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $69 million and $67 million.million, respectively. The total amount of unrecognized tax benefits at DecemberMarch 31, 20192020 that, if recognized, would affect the effective tax rate was $50$52 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and sixnine months ended DecemberMarch 31, 20192020 in the accompanying consolidated statements of earnings (loss) was $1 million and $2$3 million, respectively. At DecemberMarch 31, 20192020 and June 30, 2019, the total gross accrued interest and penalties in the accompanying consolidated balance sheets was $13 million and $12 million.million, respectively. On the basis of the information available as of DecemberMarch 31, 2019,2020, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.7(In millions) March 31
2020June 30
2019Advertising, merchandising and sampling $ 405 $ 352 Employee compensation 379 574 Deferred revenue 306 314 Other 1,531 1,359 $ 2,621 $ 2,599 ("ASC"(“ASC”) Topic 842 - – Leases ("(“ASC 842"842”))- – On July 1, 2019, the Company adopted ASC 842, see Note 4 -– Leases for further discussion. - – Financial Instruments - – Credit Losses)(Accounting Standards Update (“ASU”)(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.- – Fiscal 2021 first quarter.is not expected to have a material impact on its consolidated financial statements.8 - – Intangibles -– Goodwill and Other - – Internal-Use Software (Subtopic 350-40): Customer'sCustomer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract)
The Company recorded a preliminary allocation of the total consideration transferred, which includes the cash paid at closing and the fair value of its previously held equity method investment, to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The excess of the total consideration transferred over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. The preliminary allocation of the total consideration transferred, including immaterial measurement period adjustments as of March 31, 2020, has been recorded as follows: (In millions, unaudited) Cash $ 228 Accounts receivable 48 Inventory 83 Other current assets 5 Property, plant and equipment 3 Right-of-use assets 3 Intangible assets 1,427 Goodwill 556 Other long-term assets 3 Total assets acquired 2,356 Accounts payable 27 Other accrued liabilities 22 Deferred income taxes 352 Lease liability 1 Total liabilities assumed 402 Total consideration transferred $ 1,954 As previously discussed in Note 2 – Acquisition of Business, in December 2019, the Company acquired Have & Be, which included the addition of goodwill of The intangible assets acquired in connection with the acquisition of Have & Be are classified as level 3 in the fair value hierarchy. The estimate of the fair values of the acquired amortizable intangible assets were determined using a multi-period excess earnings income approach by discounting the incremental after-tax cash flows over multiple periods. Fair value was determined under this approach by estimating future cash flows over multiple periods, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows. The estimate of the fair values of the acquired intangible assets not subject to amortization were determined using an income approach, specifically the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. (In millions) Skin Care Makeup Fragrance Hair Care Total Balance as of June 30, 2019 Goodwill $ 185 $ 1,199 $ 254 $ 390 $ 2,028 Accumulated impairments (36) (68) (22) (34) (160) 149 1,131 232 356 1,868 Goodwill acquired during the period 556 7 — — 563 Impairment charges — (511) — — (511) Translation adjustments, goodwill (1) — — — (1) Translation adjustments, accumulated impairments 1 — — — 1 556 (504) — — 52 Balance as of December 31, 2019 Goodwill 740 1,206 254 390 2,590 Accumulated impairments (35) (579) (22) (34) (670) $ 705 $ 627 $ 232 $ 356 $ 1,920 December 31, 2019 June 30, 2019 Gross Total Net Gross Total Net Carrying Accumulated Book Carrying Accumulated Book (In millions) Value Amortization Value Value Amortization Value Amortizable intangible assets: Customer lists and other $ 1,524 $ 389 $ 1,135 $ 684 $ 369 $ 315 License agreements 43 43 — 43 43 — $ 1,567 $ 432 1,135 $ 727 $ 412 315 Non-amortizable intangible assets: Trademarks 1,207 888 Total intangible assets $ 2,342 $ 1,203 Fiscal (In millions) 2020 2021 2022 2023 2024 Estimated aggregate amortization expense $ 53 $ 104 $ 103 $ 103 $ 101 (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 2019 The adoption of this standard impacted the Certain of the As a result of the adoption of ASC 842, the Company recorded a cumulative adjustment of $29 million, net of tax, as a reduction to its fiscal 2020 opening balance of retained earnings, primarily to reflect the fair value of operating lease ROU assets that were impaired at, or prior to, the adoption date. In addition, the Company recognized operating lease ROU assets and liabilities of $2,598 million and $2,764 million, respectively, as of July 1, 2019. Finance lease ROU assets and liabilities are not material. Three Months Ended Six Months Ended (In millions) December 31, 2019 December 31, 2019 Total lease cost Finance lease cost: Amortization of right-of-use assets $ 3 $ 6 Interest on lease liabilities — — Operating lease cost 115 233 Short-term lease cost 9 15 Variable lease cost 49 92 Total $ 176 $ 346 Other information Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 242 Financing cash flows from finance leases $ 8 Right-of-use assets obtained in exchange for new operating lease liabilities $ 110 Weighted-average remaining lease term – finance leases 2 years Weighted-average remaining lease term – operating leases 11 years Weighted-average discount rate – finance leases 2.7 % Weighted-average discount rate – operating leases 2.5 % (In millions) Operating Leases Finance Leases Remainder of fiscal 2020 $ 219 $ 6 Fiscal 2021 393 7 Fiscal 2022 347 3 Fiscal 2023 310 1 Fiscal 2024 286 — Thereafter 1,559 — Total future minimum lease payments 3,114 17 Less imputed interest (427) — Total $ 2,687 $ 17 Operating lease and finance lease liabilities included in the consolidated balance sheet are as follows: December 31, 2019 (In millions) Operating Leases Finance Leases Total current liabilities $ 369 $ 10 Total noncurrent liabilities 2,318 7 Total $ 2,687 $ 17 (In millions) Payments Due in Fiscal Year(1) Fiscal 2020 $ 421 Fiscal 2021 383 Fiscal 2022 348 Fiscal 2023 316 Fiscal 2024 289 Thereafter 1,625 Total contractual obligations $ 3,382–ACQUISITION– ACQUISITION OF BUSINESSthree and sixnine months ended DecemberMarch 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. TheAs of March 31, 2020, the accounting for the Have & Be business combination is provisional pending the calculation of the final purchase price, finalization of the Have & Be calendar 2019 audited financial statements, workingopening balance sheet (working capital adjustments,adjustments), the final valuation report, and allocation of the total consideration transferred.three and sixnine months ended DecemberMarch 31, 2019.9(In millions, unaudited) Cash $ 228 Accounts receivable 13 Inventory 91 Other current assets 5 Property, plant and equipment 3 Right-of-use assets 3 Intangible assets 1,427 Goodwill 573 Other long-term assets 4 Total assets acquired 2,347 Accounts payable 15 Other accrued liabilities 25 Deferred income taxes 352 Lease liability 1 Total liabilities assumed 393 Total consideration transferred $ 1,954 will beare reported in future periods on a one-month lag to facilitate consolidated reporting. Accordingly, operating income forFor the three and sixnine months ended DecemberMarch 31, 2019 does not include2020, the resultsCompany's consolidated statements of operationsearnings (loss) included approximately $67 million of net sales and $11 million net of tax, of net loss, inclusive of acquisition-related costs, related to Have & Be since the date of acquisition, which were not material.Be. Acquisition-related costs, which primarily include financial advisory, accounting and legal fees, in the amount of $6$1 million and $7 million are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings (loss) for the three and sixnine months ended DecemberMarch 31, 2019.2020, respectively. Pro forma results of operations reflecting the acquisition of Have & Be are not presented, as the impact on the Company’s consolidated financial results would not have been material.$556$573 million, amortizable intangible assets (customer lists) of $842 million with amortization periods of 7.5 years to 17.5 years, and non-amortizable intangible assets (trademarks) of $585 million. Goodwill associated with the acquisition is primarily attributable to the future revenue growth opportunities associated with additional share in the skin care category, as well as the value associated with assembled workforce. As such, the goodwill has been allocated to the Company’s skin care product category. The goodwill recorded in connection with this acquisition is not expected to be deductible for tax purposes. These amounts are provisional pending finalizationAs of March 31, 2020, the accounting for the Have & Be calendar 2019 audited financial statements, workingbusiness combination is provisional pending the calculation of the final purchase price, finalization of the opening balance sheet (working capital adjustments,adjustments), the final valuation report, and allocation of the total consideration transferred.sixnine months ended DecemberMarch 31, 2019,2020, the Company recognized $7$10 million of goodwill associated with the continuing earn-out obligations related to the acquisition of the Bobbi Brown brand.10(In millions) Skin Care Makeup Fragrance Hair Care Total Balance as of June 30, 2019 Goodwill $ 185 $ 1,199 $ 254 $ 390 $ 2,028 Accumulated impairments (36) (68) (22) (34) (160) 149 1,131 232 356 1,868 Goodwill acquired during the period 573 10 — — 583 Impairment charges (52) (734) — — (786) Translation adjustments, goodwill (30) — (2) (2) (34) Translation adjustments, accumulated impairments 1 — — 1 2 492 (724) (2) (1) (235) Balance as of March 31, 2020 Goodwill 728 1,209 252 388 2,577 Accumulated impairments (87) (802) (22) (33) (944) $ 641 $ 407 $ 230 $ 355 $ 1,633 March 31, 2020 June 30, 2019 (In millions) Amortizable intangible assets: Customer lists and other $ 1,482 $ 411 $ 1,071 $ 684 $ 369 $ 315 License agreements 43 43 — 43 43 — $ 1,525 $ 454 $ 1,071 $ 727 $ 412 $ 315 Non-amortizable intangible assets: Trademarks 1,119 888 Total intangible assets $ 2,190 $ 1,203 $11$23 million and $12$13 million for the three months ended DecemberMarch 31, 20192020 and 2018,2019, respectively, and was $22$45 million and $25$38 million for the sixnine months ended DecemberMarch 31, 20192020 and 2018,2019, respectively. The estimated aggregate amortization expense for the remainder of fiscal 2020 and for each of the next four fiscal years is as follows:11Fiscal (In millions) 2020 2021 2022 2023 2024 Estimated aggregate amortization expense $ 30 $ 104 $ 103 $ 103 $ 101 Company'sCompany’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.sixnine months ended DecemberMarch 31, 20192020 and the remaining trademark and goodwill carrying values as of DecemberMarch 31, 2019,2020, for each reporting unit, are as follows:Impairment Charge (In millions) Three Months Ended
March 31, 2020Nine Months Ended
March 31, 2020Carrying 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 — GLAMGLOW Skin care The Americas 1 52 1 52 62 62 Total $ 58 $ 275 $ 324 $ 786 $ 417 $ 103 The impairment charges were reflected in the makeup product category and in The Americas region.SixNine Months Ended DecemberMarch 31, 2018trademark.trademark during the three months ended December 31, 2018. After adjusting the carrying value of the trademark, the Company completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge related to the Smashbox reporting unit of $20 million. million during the three months ended December 31, 2018.valuevalues of the reporting unit wasas of December 31, 2018 and March 31, 2019 were based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. These impairment charges were reflected in the makeup product category and in The Americas region.12Company'sCompany’s consolidated balance sheet due to the recognition of right-of-use ("ROU"(“ROU”) assets and associated lease liabilities related to operating leases as compared to the previous accounting. The accounting for finance leases under ASC 842 is consistent with the prior accounting for capital leases. The impact of the adoption of this standard on the Company'sCompany’s consolidated statements of earnings (loss) and consolidated statement of cash flows was not material.Company'sCompany’s lease term at the commencement date may reflect options to extend or terminate the lease when it is reasonably certain that such options will be exercised. To determine the present value of the lease liability, the Company uses an incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow (on a collateralized basis over a similar term) an amount equal to the lease payments in similar economic environments. The ROU asset is based on the corresponding lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Both operating and finance lease ROU assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After an ROU asset is impaired, any remaining balance of the ROU asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.Company'sCompany’s control are assessed to determine whether a change in the accounting for leases is required.Company'sCompany’s leases provide for variable lease payments for the right to use an underlying asset that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., Consumer Price Index) are included in the initial measurement of the lease liability, the initial measurement of the ROU asset, and the lease classification test based on the index or rate as of the commencement date. Any changes from the commencement date estimation of the index- and rate-based variable payments are expensed as incurred in the period of the change. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset, are not included in the initial measurement of the lease liability or the ROU asset, but instead are expensed as incurred. The Company'sCompany’s variable lease payments primarily include rents based on a percentage of sales in excess of stipulated levels, common area maintenance based on the percentage of the total square footage leased by the Company, as well as costs relating to embedded leases, such as third-party manufacturing agreements.●Certain of the Company’s contracts contain lease components as well as non-lease components, such as an agreement to purchase services. Unless an accounting policy is elected to the contrary, the contract consideration must be allocated to the separate lease and non-lease components in accordance with ASC 842. For purposes of allocating contract consideration, the Company elected not to separate the lease components from non-lease components for all asset classes. This was applied to all existing leases as of July 1, 2019 and will be applied to new leases on an ongoing basis.●The Company elected not to apply the measurement and recognition requirements of ASC 842 to short-term leases (i.e. leases with a term of 12 months or less). Accordingly, short-term leases will not be recorded as ROU assets or lease liabilities on the Company’s consolidated balance sheets, and the related lease payments will be recognized in net earnings on a straight-line basis over the lease term.●For certain leases relating to automobiles, information technology equipment and office equipment, the Company elected to apply the guidance of ASC 842 utilizing a portfolio approach. Under this approach, the Company combined and accounted for leases (as a portfolio) with similar characteristics (e.g., lease term, discount rates, etc.) as a single lease, provided its application is not materially different when compared to the application at the individual lease level.13THE ESTÉE LAUDER COMPANIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCompany'sCompany’s manufacturing, assembly, research and development and distribution operations and retail stores, as well as information technology equipment, automobiles and office equipment, with remaining terms of approximately 1 year to 5159 years. Some of the Company'sCompany’s lease contracts include options to extend the leases for up to 30 years, while others include options to terminate the leases within 25 years.Company'sCompany’s finance and operating leases is as follows:(In millions) Three Months Ended
March 31, 2020Nine Months Ended
March 31, 2020Total lease cost Finance lease cost: Amortization of right-of-use assets $ 3 $ 9 Interest on lease liabilities — — Operating lease cost 150 383 Short-term lease cost 5 20 Variable lease cost 41 133 Total $ 199 $ 545 Other information Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 350 Financing cash flows from finance leases $ 10 Right-of-use assets obtained in exchange for new operating lease liabilities $ 216 Weighted-average remaining lease term – finance leases 2 years Weighted-average remaining lease term – operating leases 11 years Weighted-average discount rate – finance leases 2.7 % Weighted-average discount rate – operating leases 2.5 % 14(In millions) Operating Leases Finance Leases Remainder of fiscal 2020 $ 113 $ 4 Fiscal 2021 397 7 Fiscal 2022 364 3 Fiscal 2023 324 1 Fiscal 2024 291 — Thereafter 1,586 — Total future minimum lease payments 3,075 15 Less imputed interest (416) — Total $ 2,659 $ 15 March 31, 2020 (In millions) Operating Leases Finance Leases Total current liabilities $ 371 $ 9 Total noncurrent liabilities 2,288 6 Total $ 2,659 $ 15 DecemberMarch 31, 2019.2020.(In millions) Fiscal 2020 Minimum operating lease commitments only include base rent. Certain leases provide for contingent rents that are not measurable at inception and primarily include rents based on a percentage of sales in excess of stipulated levels, as well as common area maintenance. These amounts are excluded from minimum operating lease commitments and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably measurable. Such amounts have not been material to total rent expense.$421 Fiscal 2021 383 Fiscal 2022 348 Fiscal 2023 316 Fiscal 2024 289 Thereafter 1,625 Total contractual obligations $ 3,382
Sales Returns Operating Expenses (included in Restructuring Other (In millions) Net Sales) Cost of Sales Charges Charges Total Total Charges Approved Cumulative through December 31, 2019 $ 14 $ 88 $ 507 $ 358 $ 967 Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Restructuring Charges Approved Cumulative through December 31, 2019 $ 461 $ 7 $ 25 $ 14 $ 507 Sales Returns Operating Expenses (included in Restructuring Other (In millions) Net Sales) Cost of Sales Charges Charges Total Total Charges Cumulative through June 30, 2019 $ 14 $ 55 $ 457 $ 265 $ 791 Six months ended December 31, 2019 — 8 1 29 38 Cumulative through December 31, 2019 $ 14 $ 63 $ 458 $ 294 $ 829 Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Restructuring Charges Cumulative through June 30, 2019 $ 445 $ 4 $ 3 $ 5 $ 457 Six months ended December 31, 2019 — — — 1 1 Cumulative through December 31, 2019 $ 445 $ 4 $ 3 $ 6 $ 458 Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Balance at June 30, 2019 $ 202 $ — $ — $ 1 $ 203 Charges — — — 1 1 Cash payments (52) — — (2) (54) Balance at December 31, 2019 $ 150 $ — $ — $ — $ 150 Unamortized Debt Semi-annual Debt Issuance interest Notes Issue Date Price Yield Discount Costs payments ($ in millions) 2024 Senior Notes November 2019 99.421 % 2.122 % $ 3 $ 3 June 1/December 1 2029 Senior Notes (1) November 2019 99.046 2.483 6 4 June 1/December 1 2049 Senior Notes November 2019 98.769 3.189 8 7 June 1/December 115Sales
Returns
(included in
Net Sales)Cost of Sales Operating Expenses Total (In millions) Restructuring
ChargesOther
ChargesTotal Charges Approved Cumulative through March 31, 2020 $ 14 $ 88 $ 507 $ 358 $ 967 (In millions) Employee-
Related
CostsAsset-
Related
CostsContract
TerminationsOther Exit
CostsTotal Restructuring Charges Approved Cumulative through March 31, 2020 $ 461 $ 7 $ 25 $ 14 $ 507 (In millions) Sales
Returns
(included in
Net Sales)Cost of Sales Operating Expenses Total Restructuring
ChargesOther
ChargesTotal Charges Cumulative through June 30, 2019 $ 14 $ 55 $ 457 $ 265 $ 791 Nine months ended March 31, 2020 — 9 20 34 63 Cumulative through March 31, 2020 $ 14 $ 64 $ 477 $ 299 $ 854 (In millions) Employee-
Related
CostsAsset-
Related
CostsContract
TerminationsOther Exit
CostsTotal Restructuring Charges (Adjustments) Cumulative through June 30, 2019 $ 445 $ 4 $ 3 $ 5 $ 457 Nine months ended March 31, 2020 (5) 19 5 1 20 Cumulative through March 31, 2020 $ 440 $ 23 $ 8 $ 6 $ 477 sixnine months ended DecemberMarch 31, 20192020 were:(In millions) Total Balance at June 30, 2019 $ 202 $ — $ — $ 1 $ 203 Charges (adjustments) (5) 19 5 1 20 Cash payments (74) — (5) (2) (81) Translation adjustments (2) — — — (2) Non-cash asset write-offs — (19) — — (19) Balance at March 31, 2020 $ 121 $ — $ — $ — $ 121 DecemberMarch 31, 20192020 are expected to result in cash expenditures funded from cash provided by operations of approximately $63$35 million, $62$63 million, $20 million and $5$3 million for the remainder of fiscal 2020 and for fiscal 2021, 2022 and 2023, respectively.intends to use a portion of the proceeds to refinance its $500 million aggregate principal amount of 1.80% Senior Notes that became due February 7, 2020 when they become due.16Notes Issue Date Price Yield Unamortized
Debt
DiscountDebt
Issuance
CostsSemi-annual
interest
payments($ in millions) 2024 Senior Notes November 2019 99.421 % 2.122 % $ 3 $ 3 June 1/December 1 November 2019 99.046 2.483 6 4 June 1/December 1 2049 Senior Notes November 2019 98.769 3.189 8 7 June 1/December 1 In April and May 2019, in anticipation of the issuance of the 2029 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $500 million at a weighted-average all-in rate of 2.50%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a loss in OCI of $33 million that is being amortized to interest expense over the life of the 2029 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 2029 Senior Notes will be 3.15% over the life of the debt.(1)In April and May 2019, in anticipation of the issuance of the 2029 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $500 million at a weighted-average all-in rate of 2.50%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a loss in OCI of $33 million that is being amortized to interest expense over the life of the 2029 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 2029 Senior Notes will be 3.15% over the life of the debt.
The fair values of the Company’s derivative financial instruments included in the consolidated balance sheets are as follows: Asset Derivatives Liability Derivatives Fair Value (1) Fair Value (1) Balance Sheet December 31 June 30 Balance Sheet December 31 June 30 (In millions) Location 2019 2019 Location 2019 2019 Derivatives Designated as Hedging Instruments Foreign currency cash flow hedges Prepaid expenses and other current assets $ 16 $ 23 Other accrued liabilities $ 9 $ 4 Net investment hedges Prepaid expenses and other current assets — — Other accrued liabilities 19 — Interest rate-related derivatives Prepaid expenses and other current assets 3 3 Other accrued liabilities 1 26 Total Derivatives Designated as Hedging Instruments 19 26 29 30 Derivatives Not Designated as Hedging Instruments Foreign currency forward contracts Prepaid expenses and other current assets 31 4 Other accrued liabilities 3 2 Total Derivatives $ 50 $ 30 $ 32 $ 32 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:Company'sCompany’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'sCompany’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 balance sheet. At March 31, 2020, the notional amount of derivatives not designated as hedging instruments was $3,399 million. The Company does not utilize derivative financial instruments for trading or speculative purposes. Costs associated with entering into derivative financial instruments are not material to the Company’s consolidated financial results.17(1)See Note 8 – Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined.Asset Derivatives Liability Derivatives (In millions) March 31
2020June 30
2019March 31
2020June 30
2019Derivatives Designated as Hedging Instruments Foreign currency cash flow hedges Prepaid expenses and other current assets $ 48 $ 23 Other accrued liabilities $ 3 $ 4 Net investment hedges Prepaid expenses and other current assets — — Other accrued liabilities 17 — Interest rate-related derivatives Prepaid expenses and other current assets 14 3 Other accrued liabilities 1 26 Total Derivatives Designated as Hedging Instruments 62 26 21 30 Derivatives Not Designated as Hedging Instruments Foreign currency forward contracts Prepaid expenses and other current assets 24 4 Other accrued liabilities 24 2 Total derivatives $ 86 $ 30 $ 45 $ 32 18Amount of Gain or (Loss)
Recognized in OCI on
DerivativesLocation of Gain or
(Loss) Reclassified
from AOCI into
EarningsThree Months Ended
March 31Three Months Ended
March 31(In millions) 2020 2019 2020 2019 Derivatives in Cash Flow Hedging Relationships: Foreign currency forward contracts $ 46 $ 2 Net sales $ 10 $ 8 Interest rate-related derivatives (2) — Interest expense — 1 44 2 Total derivatives $ 10 $ 9 (20) — Total derivatives $ 24 $ 2
| 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) | ||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended March 31 | Nine Months Ended March 31 | |||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships: | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | $ | 50 | $ | 18 | Net sales | $ | 29 | $ | 15 | |||||||||||||||||||||||||||||||||||
| Interest rate-related derivatives | (11) | — | Interest expense | — | 1 | |||||||||||||||||||||||||||||||||||||||
| 39 | 18 | Total derivatives | $ | 29 | $ | 16 | ||||||||||||||||||||||||||||||||||||||
Derivatives in Net Investment Hedging Relationships(2): | ||||||||||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts(3) | (54) | — | ||||||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | (15) | $ | 18 | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | |
| | Amount of Gain or (Loss) | | | | Amount of Gain or (Loss) | ||||||||
| | Recognized in OCI on | | | | Reclassified from AOCI into | ||||||||
| | Derivatives | | Location of Gain or | | Earnings(1) | ||||||||
| | Three Months Ended | | (Loss) Reclassified | | Three Months Ended | ||||||||
| | December 31 | | from AOCI into | | December 31 | ||||||||
(In millions) |
| 2019 |
| 2018 |
| Earnings |
| 2019 |
| 2018 | ||||
Derivatives in Cash Flow Hedging Relationships: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Foreign currency forward contracts |
| $ | (21) |
| $ | 13 |
| Net sales |
| $ | 6 |
| $ | 4 |
Interest rate-related derivatives | | | 5 | | | — | | Interest expense | | | — | | | — |
| | | (16) | | | 13 | | Total derivatives | | $ | 6 | | $ | 4 |
Derivatives in Net Investment Hedging Relationships(2): | | | | | | | | | | | | | | |
Foreign currency forward contracts(3) | | | (37) | | | — | | | | | | | | |
Total derivatives |
| $ | (53) |
| $ | 13 | | |
| | | | | |
| (3)Included within translation adjustments as a component of AOCI on the Company’s consolidated balance sheets. |
| | | | | | | | | | | | | | |
|
| Amount of Gain or (Loss) | | | | Amount of Gain or (Loss) | ||||||||
| | Recognized in OCI on | | | | Reclassified from AOCI into | ||||||||
| | Derivatives | | Location of Gain or | | Earnings(1) | ||||||||
|
| Six Months Ended | | (Loss) Reclassified | | Six Months Ended | ||||||||
|
| December 31 | | from AOCI into | | December 31 | ||||||||
(In millions) |
| 2019 |
| 2018 |
| Earnings |
| 2019 |
| 2018 | ||||
Derivatives in Cash Flow Hedging Relationships: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Foreign currency forward contracts | | $ | 4 | | $ | 16 | | Net sales | | $ | 19 | | $ | 7 |
Interest rate-related derivatives | | | (9) | | | — | | Interest expense | |
| — | |
| — |
| | | (5) | | | 16 | | Total derivatives | | $ | 19 | | $ | 7 |
Derivatives in Net Investment Hedging Relationships(2): | | | | | | | | | | | | | | |
Foreign currency forward contracts(3) | |
| (34) | |
| — | | | | | | | | |
Total derivatives | | $ | (39) | | $ | 16 | | | | | | | | |
19
Amount of Gain or (Loss) Recognized in Earnings on Derivatives (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Location of Gain or (Loss) Recognized in Earnings on Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31 | Nine Months Ended March 31 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives in Fair Value Hedging Relationships: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swap contracts | Interest expense | $ | 12 | $ | 8 | $ | 13 | $ | 17 | |||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | |
| | | | Amount of Gain or (Loss) Recognized in Earnings on | ||||||||||
|
| |
| Derivatives (1) | ||||||||||
| | Location of Gain or (Loss) | | Three Months Ended | | Six Months Ended | ||||||||
| | Recognized in Earnings on | | December 31 | | December 31 | ||||||||
(In millions) | | Derivatives | | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Derivatives in Fair Value Hedging Relationships: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Interest rate swap contracts |
| Interest expense |
| $ | (1) |
| $ | 11 |
| $ | 1 |
| $ | 9 |
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) | | | ||||
| | | | | Cumulative Amount of Fair | |
| | | | | Value Hedging Gain/(Loss) | |
Line Item in the Consolidated Balance Sheets in | | Carrying Amount of the | | Included in the Carrying Amount | ||
Which the Hedged Item is Included | | Hedged Liabilities | | of the Hedged Liability | ||
|
| December 31, 2019 |
| December 31, 2019 | ||
Current debt | | $ | 250 | | $ | — |
Long-term debt | | | 701 | | | 2 |
Total debt | | $ | 951 | | $ | 2 |
| (In millions) | ||||||||||||||
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 | ||||||||||||
| March 31, 2020 | March 31, 2020 | |||||||||||||
| Current debt | $ | — | $ | — | ||||||||||
| Long-term debt | 713 | 14 | ||||||||||||
| Total debt | $ | 713 | $ | 14 | ||||||||||
| | | | | | | | | | | | |
| | Three Months Ended December 31 | ||||||||||
| | 2019 |
| 2018 | ||||||||
|
| |
| Interest |
| |
| Interest | ||||
(In millions) | | Net Sales | | expense | | Net Sales | | 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 | | $ | 4,624 | | $ | 38 | | $ | 4,005 | | $ | 35 |
| | | | | | | | | | | | |
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) | |
| Not applicable | |
| 11 |
Derivatives designated as hedging instruments | |
| Not applicable | |
| 1 | |
| Not applicable | |
| (11) |
| | | | | | | | | | | | |
Gain (loss) on cash flow hedge relationships – foreign currency forward contracts: | | | | | | | | | | | | |
Amount of gain reclassified from AOCI into earnings | | | 6 | | | Not applicable | | | 4 | | | Not applicable |
20
| Three Months Ended March 31 | ||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||
| (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 (loss) in which the effects of fair value and cash flow hedges are recorded | $ | 3,345 | $ | 42 | $ | 3,744 | $ | 32 | ||||||||||||||||||||||||||||||||||||
| The effects of fair value and cash flow hedging relationships: | ||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on fair value hedge relationships – interest rate contracts: | ||||||||||||||||||||||||||||||||||||||||||||
| Hedged item | Not applicable | (12) | Not applicable | (8) | ||||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | Not applicable | 12 | Not applicable | 8 | ||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on cash flow hedge relationships – interest rate contracts: | ||||||||||||||||||||||||||||||||||||||||||||
| Amount of gain reclassified from AOCI into earnings | Not applicable | — | Not applicable | 1 | ||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on cash flow hedge relationships – foreign currency forward contracts: | ||||||||||||||||||||||||||||||||||||||||||||
| Amount of gain reclassified from AOCI into earnings | 10 | Not applicable | 8 | Not applicable | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | |
| | Six Months Ended December 31 | ||||||||||
| | 2019 | | 2018 | ||||||||
(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 | | $ | 8,519 | | $ | 70 | | $ | 7,529 | | $ | 69 |
| | | | | | | | | | | | |
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 |
| | Not applicable |
| | 9 |
Derivatives designated as hedging instruments |
| | Not applicable |
| | (1) |
| | Not applicable |
| | (9) |
| | | | | | | | | | | | |
Gain (loss) on cash flow hedge relationships – foreign currency forward contracts: |
| |
|
| |
|
| |
|
| |
|
Amount of gain reclassified from AOCI into earnings |
| | 19 |
| | Not applicable |
| | 7 |
| | Not applicable |
Nine Months Ended March 31 2020 2019 (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 (loss) in which the effects of fair value and cash flow hedges are recorded $ 11,864 $ 112 $ 11,273 $ 101 The effects of fair value and cash flow hedging relationships: Gain (loss) on fair value hedge relationships – interest rate contracts: Hedged item Not applicable (13) Not applicable (17) Derivatives designated as hedging instruments Not applicable 13 Not applicable 17 Gain (loss) on cash flow hedge relationships – interest rate contracts: Amount of gain reclassified from AOCI into earnings Not applicable — Not applicable 1 Gain (loss) on cash flow hedge relationships – foreign currency forward contracts: Amount of gain reclassified from AOCI into earnings 29 Not applicable 15 Not applicable
| | | | | | | | | | | | | | | |
| | | | Amount of Gain or (Loss) | | ||||||||||
| | | | Recognized in Earnings on | | ||||||||||
| | | | Derivatives | | ||||||||||
| | Location of Gain or (Loss) | | Three Months Ended | | Six Months Ended | | ||||||||
| | Recognized in Earnings on | | December 31 | | December 31 | | ||||||||
(In millions) |
| Derivatives |
| 2019 |
| 2018 |
| 2019 |
| 2018 | | ||||
Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Foreign currency forward contracts |
| Selling, general and administrative |
| $ | 30 |
| $ | (12) |
| $ | 3 |
| $ | 10 | |
| Amount of Gain or (Loss) Recognized in Earnings on Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
Location of Gain or (Loss) Recognized in Earnings on Derivatives | Three Months Ended March 31 | Nine Months Ended March 31 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | Selling, general and administrative | $ | 49 | $ | (12) | $ | 52 | $ | (2) | |||||||||||||||||||||||||||||||||||||||||
21
The estimated net gain on the Company’s derivative instruments designated as cash flow hedges as of DecemberMarch 31, 20192020 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $6$22 million. The accumulated net gain on derivative instruments in AOCI was $5$39 million and $29 million as of DecemberMarch 31, 20192020 and June 30, 2019, respectively.
22
The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of DecemberMarch 31, 2019:
| | | | | | | | | | | | | |
(In millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | | ||||
Assets: | | | | | | | | | | | | | |
Foreign currency forward contracts |
| $ | — |
| $ | 47 |
| $ | — |
| $ | 47 | |
Interest rate-related derivatives | | | — | | | 3 | | | — | | | 3 | |
Total |
| $ | — |
| $ | 50 |
| $ | — |
| $ | 50 | |
| | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | |
Foreign currency forward contracts | | $ | — | | $ | 31 | | $ | — | | $ | 31 | |
Interest rate-related derivatives | | | — | | | 1 | | | — | | | 1 | |
Contingent consideration | | | — | | | — | | | 29 | | | 29 | |
Total |
| $ | — | | $ | 32 | | $ | 29 |
| $ | 61 | |
2020:
| (In millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Foreign currency forward contracts | $ | — | $ | 72 | $ | — | $ | 72 | ||||||||||||||||||
| Interest rate-related derivatives | — | 14 | — | 14 | ||||||||||||||||||||||
| Total | $ | — | $ | 86 | $ | — | $ | 86 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Foreign currency forward contracts | $ | — | $ | 44 | $ | — | $ | 44 | ||||||||||||||||||
| Interest rate-related derivatives | — | 1 | — | 1 | ||||||||||||||||||||||
| Contingent consideration | — | — | 27 | 27 | ||||||||||||||||||||||
| Total | $ | — | $ | 45 | $ | 27 | $ | 72 | ||||||||||||||||||
| | | | | | | | | | | | | |
(In millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | | ||||
Assets: | | | | | | | | | | | | | |
Foreign currency forward contracts |
| $ | — |
| $ | 27 |
| $ | — |
| $ | 27 | |
Interest rate-related derivatives | | | — | | | 3 | | | — | | | 3 | |
Total |
| $ | — |
| $ | 30 |
| $ | — |
| $ | 30 | |
| | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | |
Foreign currency forward contracts |
| $ | — |
| $ | 6 |
| $ | — |
| $ | 6 | |
Interest rate-related derivatives | | | — | | | 26 | | | — | | | 26 | |
Contingent consideration | | | — | | | — | | | 36 | | | 36 | |
Total | | $ | — | | $ | 32 | | $ | 36 | | $ | 68 | |
| (In millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Foreign currency forward contracts | $ | — | $ | 27 | $ | — | $ | 27 | ||||||||||||||||||
| Interest rate-related derivatives | — | 3 | — | 3 | ||||||||||||||||||||||
| Total | $ | — | $ | 30 | $ | — | $ | 30 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Foreign currency forward contracts | $ | — | $ | 6 | $ | — | $ | 6 | ||||||||||||||||||
| Interest rate-related derivatives | — | 26 | — | 26 | ||||||||||||||||||||||
| Contingent consideration | — | — | 36 | 36 | ||||||||||||||||||||||
| Total | $ | — | $ | 32 | $ | 36 | $ | 68 | ||||||||||||||||||
| | | | | | | | | | | | |
| | December 31 | | June 30 | ||||||||
| | 2019 | | 2019 | ||||||||
| | Carrying | | Fair | | Carrying | | Fair | ||||
(In millions) |
| Amount |
| Value |
| Amount |
| Value | ||||
Nonderivatives | | | | | | | | | | | | |
Cash and cash equivalents |
| $ | 3,596 | | $ | 3,596 |
| $ | 2,987 |
| $ | 2,987 |
Current and long-term debt | |
| 5,184 | | | 5,696 | |
| 3,412 | | | 3,706 |
Additional purchase price payable | | | — | | | — | | | 3 | | | 3 |
Contingent consideration | | | 29 | | | 29 | | | 36 | | | 36 |
| | | | | | | | | | | | |
Derivatives | | | | | | | | | | | | |
Foreign currency forward contracts – asset (liability), net | |
| 16 | | | 16 | |
| 21 | | | 21 |
Interest rate-related derivatives – asset (liability), net | | | 2 | | | 2 | | | (23) | | | (23) |
23
| March 31 2020 | June 30 2019 | |||||||||||||||||||||||||||||||||||||
| (In millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||||||||||||||
| Nonderivatives | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,876 | $ | 4,876 | $ | 2,987 | $ | 2,987 | ||||||||||||||||||||||||||||||
| Current and long-term debt | 6,201 | 6,454 | 3,412 | 3,706 | ||||||||||||||||||||||||||||||||||
| Additional purchase price payable | — | — | 3 | 3 | ||||||||||||||||||||||||||||||||||
| Contingent consideration | 27 | 27 | 36 | 36 | ||||||||||||||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts – asset (liability), net | 28 | 28 | 21 | 21 | ||||||||||||||||||||||||||||||||||
| Interest rate-related derivatives – asset (liability), net | 13 | 13 | (23) | (23) | ||||||||||||||||||||||||||||||||||
The following table presents the Company’s impairment charges for the three and sixnine months ended DecemberMarch 31, 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) | Impairment charges | Date of Fair Value Measurement | Fair Value(1) | |||||||||||||||||
| Goodwill | $ | 786 | March 31, 2020 | $ | 103 | |||||||||||||||
| Other intangible assets, net (trademark) | 324 | March 31, 2020 | 417 | |||||||||||||||||
| Long-lived assets | 13 | March 31, 2020 | 11 | |||||||||||||||||
| Total | $ | 1,123 | $ | 531 | ||||||||||||||||
| (In millions) | Impairment charges | Date of Fair Value Measurement | Fair Value(1) | |||||||||||||||||
| Goodwill | $ | 68 | March 31, 2019 | $ | 72 | |||||||||||||||
| Other intangible assets, net (trademark) | 22 | March 31, 2019 | 55 | |||||||||||||||||
| Total | $ | 90 | $ | 127 | ||||||||||||||||
| | | | | | | | |
|
| | |
| Date of Fair Value |
| | |
(In millions) |
| Impairment charges |
| Measurement |
| Fair Value(1) | ||
Goodwill | | $ | 511 | | December 31, 2019 | | $ | 264 |
Other intangible assets, net (trademark) | |
| 266 | | December 31, 2019 | |
| 412 |
Total | | $ | 777 | | | | $ | 676 |
The following table presents the Company’s impairment charges for the three and six months ended December 31, 2018 for certain of its nonfinancial assets measured at fair value, on a nonrecurring basis, classified as Level 3, duethe description of the inputs and information used to a change in circumstances that triggered an interim impairment test:
develop those inputs.
| | | | | | | | |
|
| | |
| Date of Fair Value |
| | |
(In millions) | | Impairment charges | | Measurement | | Fair Value(1) | ||
Goodwill | | $ | 20 | | December 31, 2018 | | $ | 120 |
Other intangible assets, net (trademark) | |
| 18 | | December 31, 2018 | |
| 59 |
Total | | $ | 38 | | | | $ | 179 |
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:
24
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 DecemberMarch 31, 2019,2020, 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.
| (In millions) | Fair Value | |||||||
| Contingent consideration at June 30, 2019 | $ | 36 | ||||||
| Changes in fair value | (9) | |||||||
| Contingent consideration at March 31, 2020 | $ | 27 | ||||||
| | | |
(In millions) |
| Fair Value | |
Contingent consideration at June 30, 2019 | | $ | 36 |
Changes in fair value | |
| (7) |
Contingent consideration at December 31, 2019 | | $ | 29 |
(In millions) December 31, 2019 Balance at June 30, 2019 $ 361 Revenue recognized that was included in the deferred revenue balance at the beginning of the period (243) Revenue deferred during the period 307 Balance at December 31, 2019 $ 425Company'sCompany’s revenue recognition accounting policies are described in the notes to consolidated financial statements in the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.$35$39 million and $32 million as of DecemberMarch 31, 20192020 and June 30, 2019, respectively. The allowance for doubtful accounts is based upon the evaluation of accounts receivable aging, specific exposures and historical trends. Payment terms are short-term in nature and are generally less than one year.(In millions) March 31, 2020 Balance at June 30, 2019 $ 361 Revenue recognized that was included in the deferred revenue balance at the beginning of the period (268) Revenue deferred during the period 269 Balance at March 31, 2020 $ 362 DecemberMarch 31, 2019,2020, 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 $378$306 million.
The components of net periodic benefit cost for the three months ended Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2019 2018 2019 2018 2019 2018 Service cost $ 10 $ 9 $ 9 $ 7 $ 1 $ — Interest cost 9 9 2 3 1 2 Expected return on plan assets (13) (13) (4) (4) — — Amortization of: Actuarial loss 3 2 2 2 — — Net periodic benefit cost $ 9 $ 7 $ 9 $ 8 $ 2 $ 2 Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2019 2018 2019 2018 2019 2018 Service cost $ 20 $ 18 $ 18 $ 15 $ 2 $ 1 Interest cost 17 18 5 6 3 4 Expected return on plan assets (26) (26) (7) (7) (1) (1) Amortization of: Actuarial loss 7 5 3 2 — — Net periodic benefit cost $ 18 $ 15 $ 19 $ 16 $ 4 $ 4 December 31 June 30 (In millions) 2019 2019 Other assets $ 123 $ 105 Other accrued liabilities (27) (27) Other noncurrent liabilities (434) (418) Funded status (338) (340) Accumulated other comprehensive loss 325 334 Net amount recognized $ (13) $ (6) NOTE 11 – CONTINGENCIES Three Months Ended Six Months Ended December 31 December 31 (In millions) 2019 2018 2019 2018 Compensation expense $ 83 $ 73 $ 139 $ 131 Income tax benefit $ 15 $ 13 $ 26 $ 25 Performance Share Units Three Months Ended Six Months Ended December 31 December 31 (In millions, except per share data) 2019 2018 2019 2018 Numerator: Net earnings attributable to The Estée Lauder Companies Inc. $ 557 $ 573 $ 1,152 $ 1,073 Denominator: Weighted-average common shares outstanding – Basic 360.2 363.3 360.8 365.1 Effect of dilutive stock options 4.7 4.6 4.8 4.8 Effect of PSUs 0.3 0.3 0.2 0.3 Effect of RSUs 1.5 1.7 1.9 1.9 Weighted-average common shares outstanding – Diluted 366.7 369.9 367.7 372.1 Net earnings attributable to The Estée Lauder Companies Inc. per common share: Basic $ 1.55 $ 1.58 $ 3.19 $ 2.94 Diluted $ 1.52 $ 1.55 $ 3.13 $ 2.88 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 Three Months Ended Six Months Ended December 31 December 31 (In millions) 2019 2018 2019 2018 Common stock, beginning of the period $ 6 $ 6 $ 6 $ 6 Stock-based compensation — — — — Common stock, end of the period 6 6 6 6 Paid-in capital, beginning of the period 4,514 4,065 4,403 3,972 Common stock dividends 1 — 2 — Stock-based compensation 100 97 210 190 Paid-in capital, end of the period 4,615 4,162 4,615 4,162 Retained earnings, beginning of the period 10,393 9,170 9,984 9,040 Common stock dividends (175) (157) (332) (298) Net earnings attributable to The Estée Lauder Companies Inc. 557 573 1,152 1,073 Cumulative effect of adoption of new accounting standards — — (29) (229) Retained earnings, end of the period 10,775 9,586 10,775 9,586 Accumulated other comprehensive loss, beginning of the period (627) (409) (563) (434) Other comprehensive income (loss) 58 (21) (6) 4 Accumulated other comprehensive loss, end of the period (569) (430) (569) (430) Treasury stock, beginning of the period (9,756) (8,426) (9,444) (7,896) Acquisition of treasury stock (426) (531) (703) (1,033) Stock-based compensation (71) (61) (106) (89) Treasury stock, end of the period (10,253) (9,018) (10,253) (9,018) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,574 4,306 4,574 4,306 Noncontrolling interests, beginning of the period 28 24 25 22 Net earnings attributable to noncontrolling interests 4 4 7 6 Distribution to noncontrolling interest holders (4) — (4) — Other comprehensive income (1) (1) (1) (1) Noncontrolling interests, end of the period 27 27 27 27 Total equity $ 4,601 $ 4,333 $ 4,601 $ 4,333 Cash dividends declared per common share $ .48 $ .43 $ .91 $ .81 2020: Date Declared Record Date Payable Date Amount per Share August 16, 2019 August 30, 2019 September 16, 2019 $ .43 October 30, 2019 November 29, 2019 December 16, 2019 $ .48 Beginning in early February 2020, the Company temporarily suspended its repurchase of shares of the Company's Class A Common Stock, and may resume repurchases in the future. Amounts Net Cash Included in Net Flow Hedge Periodic Benefit Translation (In millions) Gain (Loss) Cost Adjustments Total Balance at June 30, 2019 $ 21 $ (253) $ (331) $ (563) OCI before reclassifications (4) (1) (1) 3 (2) (2) Amounts reclassified to Net earnings (14) 8 2 (4) Net current-period OCI (18) 7 5 (6) Balance at December 31, 2019 $ 3 $ (246) $ (326) $ (569) Amount Reclassified from AOCI Three Months Ended Six Months Ended Affected Line Item in December 31 December 31 Consolidated (In millions) 2019 2018 2019 2018 Statements of Earnings Gain (Loss) on Cash Flow Hedges Foreign currency forward contracts $ 6 $ 4 $ 19 $ 7 Net sales Benefit (provision) for deferred taxes (2) (1) (5) (2) Provision for income taxes $ 4 $ 3 $ 14 $ 5 Net earnings Amounts Included in Net Periodic Benefit Cost Amortization of actuarial loss $ (5) $ (4) $ (10) $ (7) Earnings before income taxes (1) Benefit for deferred taxes 1 1 2 2 Provision for income taxes $ (4) $ (3) $ (8) $ (5) Net earnings Cumulative Translation Adjustments Gain on previously held equity method investment $ 4 $ — $ 4 $ — Other income Loss on liquidation of an investment in a foreign subsidiary — — (6) — Restructuring and other charges $ 4 $ — $ (2) $ — Net earnings Total reclassification adjustments, net $ 4 $ — $ 4 $ — Net earnings (In millions) 2019 2018 Cash: Cash paid during the period for interest $ 63 $ 66 Cash paid during the period for income taxes $ 314 $ 217 Non-cash investing and financing activities: Capital lease, capitalized interest and asset retirement obligations incurred $ — $ 8 Property, plant and equipment accrued but unpaid $ 53 $ 35 Three Months Ended Six Months Ended December 31 December 31 (In millions) 2019 2018 2019 2018 PRODUCT CATEGORY DATA Net sales: Skin Care $ 2,205 $ 1,732 $ 4,047 $ 3,218 Makeup 1,660 1,560 3,103 2,966 Fragrance 581 537 1,043 1,009 Hair Care 162 154 298 297 Other 16 22 28 39 Net sales $ 4,624 $ 4,005 $ 8,519 $ 7,529 Operating income (loss) before charges associated with restructuring and other activities: Skin Care $ 772 $ 565 $ 1,404 $ 1,031 Makeup (611) 138 (507) 299 Fragrance 97 84 163 139 Hair Care 12 15 12 29 Other 4 4 6 7 274 806 1,078 1,505 Reconciliation: Charges associated with restructuring and other activities (13) (35) (38) (82) Interest expense (38) (35) (70) (69) Interest income and investment income, net 13 12 27 27 Other components of net periodic benefit cost (1) — (2) — Other income 576 — 576 — Earnings before income taxes $ 811 $ 748 $ 1,571 $ 1,381 GEOGRAPHIC DATA(1) Net sales: The Americas $ 1,226 $ 1,218 $ 2,386 $ 2,454 Europe, the Middle East & Africa 2,079 1,767 3,756 3,200 Asia/Pacific 1,319 1,020 2,377 1,875 Net sales $ 4,624 $ 4,005 $ 8,519 $ 7,529 Operating income (loss): The Americas $ (529) $ 149 $ (354) $ 383 Europe, the Middle East & Africa 505 418 882 675 Asia/Pacific 298 239 550 447 274 806 1,078 1,505 Charges associated with restructuring and other activities (13) (35) (38) (82) Operating income $ 261 $ 771 $ 1,040 $ 1,42325DecemberMarch 31, 20192020 and 20182019 consisted of the following:Pension Plans Other than
Pension PlansU.S. International Post-retirement (In millions) 2020 2019 2020 2019 2020 2019 Service cost $ 9 $ 10 $ 9 $ 8 $ — $ 1 Interest cost 9 10 3 3 2 2 Expected return on plan assets (14) (15) (4) (3) — (1) Amortization of: Actuarial loss 5 3 1 — — — Special termination benefits — — 1 — — — Net periodic benefit cost $ 9 $ 8 $ 10 $ 8 $ 2 $ 2 sixnine months ended DecemberMarch 31, 20192020 and 20182019 consisted of the following:Pension Plans Other than
Pension PlansU.S. International Post-retirement (In millions) 2020 2019 2020 2019 2020 2019 Service cost $ 29 $ 28 $ 27 $ 23 $ 2 $ 2 Interest cost 26 28 8 9 5 6 Expected return on plan assets (40) (41) (11) (10) (1) (2) Amortization of: Actuarial loss 12 8 4 2 — — Special termination benefits — — 1 — — — Net periodic benefit cost $ 27 $ 23 $ 29 $ 24 $ 6 $ 6 sixnine months ended DecemberMarch 31, 2019,2020, the Company made contributions to its U.S. qualified defined benefit pension plan and international pension plans totaling $20$30 million and $6$11 million, respectively.26(In millions) March 31
2020June 30
2019Other assets $ 125 $ 105 Other accrued liabilities (27) (27) Other noncurrent liabilities (430) (418) Funded status (332) (340) Accumulated other comprehensive loss 319 334 Net amount recognized $ (13) $ (6) business.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'smanagement’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.Three Months Ended
March 31Nine Months Ended
March 31(In millions) 2020 2019 2020 2019 Compensation expense $ 71 $ 70 $ 210 $ 201 Income tax benefit $ 13 $ 13 $ 39 $ 38 sixnine months ended DecemberMarch 31, 2019,2020, the Company granted stock options in respect of approximately 1.3 million shares of Class A Common Stock with an exercise price per share of $199.24 and a weighted-average grant date fair value per share of $51.44. 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 sixnine months ended DecemberMarch 31, 20192020 was $144$252 million.sixnine months ended DecemberMarch 31, 20192020 with a weighted-average grant date fair value per share of $199.26$199.25 that, at the time of grant, were scheduled to vest as follows: 0.3 million in fiscal 2021, 0.3 million in fiscal 2022 and 0.2 million in fiscal 2023. 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.27sixnine months ended DecemberMarch 31, 2019,2020, the Company granted PSUs with a target payout of approximately 0.1 million shares of Class A Common Stock with a grant date fair value per share of $199.18,, which will be settled in stock subject to the achievement of the Company’s net sales, diluted net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, 2022, all subject to continued employment or the retirement of the grantees. In January 2020 and March 2020, the Company granted PSUs with a target payout of approximately 0.1 million shares with a weighted-average grant date fair value per share of $162.15, which will be settled in stock subject to the achievement of certain net sales and net operating profit goals of certain subsidiaries of the Company for the calendar year ending 2022. 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.Three Months Ended
March 31Nine Months Ended
March 31(In millions, except per share data) 2020 2019 2020 2019 Numerator: Net earnings (loss) attributable to The Estée Lauder Companies Inc. $ (6) $ 555 $ 1,146 $ 1,628 Denominator: Weighted-average common shares outstanding – Basic 360.2 361.9 360.6 364.0 Effect of dilutive stock options — 4.6 4.6 4.8 Effect of PSUs — 0.3 0.3 0.3 Effect of RSUs — 1.5 1.6 1.8 Weighted-average common shares outstanding – Diluted 360.2 368.3 367.1 370.9 Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share: Basic $ (0.02) $ 1.53 $ 3.18 $ 4.47 Diluted $ (0.02) $ 1.51 $ 3.12 $ 4.39 DecemberMarch 31, 20192020 and 2018,2019, the number of shares of Class A Common Stock underlying options that were excluded in the computation of diluted EPS because their inclusion would be anti-dilutive was 1.3 million shares and 1.6 million shares, respectively. As of DecemberMarch 31, 2020 and 2019, 1.2 million and 2018, 1.11.3 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 12 – Stock Programs.28Three Months Ended
March 31Nine Months Ended
March 31(In millions) 2020 2019 2020 2019 Common stock, beginning of the period $ 6 $ 6 $ 6 $ 6 Stock-based compensation — — — — Common stock, end of the period 6 6 6 6 Paid-in capital, beginning of the period 4,615 4,162 4,403 3,972 Common stock dividends 1 — 3 — Stock-based compensation 144 169 354 359 Paid-in capital, end of the period 4,760 4,331 4,760 4,331 Retained earnings, beginning of the period 10,775 9,586 9,984 9,040 Common stock dividends (174) (157) (506) (455) Net earnings (loss) attributable to The Estée Lauder Companies Inc. (6) 555 1,146 1,628 Cumulative effect of adoption of new accounting standards — — (29) (229) Retained earnings, end of the period 10,595 9,984 10,595 9,984 Accumulated other comprehensive loss, beginning of the period (569) (430) (563) (434) Other comprehensive loss (143) (68) (149) (64) Accumulated other comprehensive loss, end of the period (712) (498) (712) (498) Treasury stock, beginning of the period (10,253) (9,018) (9,444) (7,896) Acquisition of treasury stock (65) (215) (768) (1,248) Stock-based compensation (2) (2) (108) (91) Treasury stock, end of the period (10,320) (9,235) (10,320) (9,235) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,329 4,588 4,329 4,588 Noncontrolling interests, beginning of the period 27 27 25 22 Net earnings attributable to noncontrolling interests 2 2 9 8 Distribution to noncontrolling interest holders — — (4) — Other comprehensive loss — — (1) (1) Noncontrolling interests, end of the period 29 29 29 29 Total equity $ 4,358 $ 4,617 $ 4,358 $ 4,617 Cash dividends declared per common share $ .48 $ .43 $ 1.39 $ 1.24 sixnine months ended DecemberMarch 31, 2019:February 5, 2020 February 28, 2020 March 16, 2020 $ .48 On February 5, 2020, a dividend was declared in the amount of $.48 per share on the Company’s Class A and Class B Common Stock. The dividend is payable in cash on March 16, 2020 to stockholders of record at the close of business on February 28, 2020.29sixnine months ended DecemberMarch 31, 2019,2020, the Company purchased approximately 4.34.6 million shares of its Class A Common Stock for $813$883 million.sixnine months ended DecemberMarch 31, 2019,2020, approximately 2.34.3 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.sixnine months ended DecemberMarch 31, 2019:2020:(In millions) Total Balance at June 30, 2019 $ 21 $ (253) $ (331) $ (563) OCI before reclassifications 29 (1) (170) (142) Amounts reclassified to Net earnings (loss) (22) 13 2 (7) Net current-period OCI 7 12 (168) (149) Balance at March 31, 2020 $ 28 $ (241) $ (499) $ (712) Consists of foreign currency translation losses.(1)Consists of foreign currency translation losses.(2)See Note 7 - Derivative Financial Instruments for gains (losses) relating to net investment hedges.sixnine months ended DecemberMarch 31, 20192020 and 2018:2019:Amount Reclassified from AOCI Affected Line Item in
Consolidated
Statements of Earnings (Loss)Three Months Ended
March 31Nine Months Ended
March 31(In millions) 2020 2019 2020 2019 Gain (Loss) on Investments Gain (loss) on investments $ — $ (6) $ — $ (6) Other income, net Benefit (provision) for deferred taxes — — — — Provision for income taxes $ — $ (6) $ — $ (6) Net earnings (loss) Gain (Loss) on Cash Flow Hedges Foreign currency forward contracts $ 10 $ 8 $ 29 $ 15 Net sales Interest rate-related derivatives — 1 — 1 Interest expense 10 9 29 16 Benefit (provision) for deferred taxes (2) (2) (7) (4) Provision for income taxes $ 8 $ 7 $ 22 $ 12 Net earnings (loss) Amounts Included in Net Periodic Benefit Cost Amortization of actuarial loss $ (6) $ (3) $ (16) $ (10) Benefit for deferred taxes 1 1 3 3 Provision for income taxes $ (5) $ (2) $ (13) $ (7) Net earnings (loss) Cumulative Translation Adjustments Gain on previously held equity method investment $ — $ — $ 4 $ — Other income, net Loss on liquidation of an investment in a foreign subsidiary — — (6) — Restructuring and other charges Gain on liquidation of an investment in a foreign subsidiary — 77 — 77 Other income, net $ — $ 77 $ (2) $ 77 Net earnings (loss) Total reclassification adjustments, net $ 3 $ 76 $ 7 $ 76 Net earnings (loss) See (1)SeeNote 10 – Pension and Post-Retirement Benefit Plans Note 10 – Pension and Post-Retirement Benefit Plans for additional information.30sixnine months ended DecemberMarch 31, 20192020 and 20182019 is as follows:(In millions) 2020 2019 Cash: Cash paid during the period for interest $ 94 $ 99 Cash paid during the period for income taxes $ 472 $ 400 Non-cash investing and financing activities: Capital lease, capitalized interest and asset retirement obligations incurred $ — $ 8 Property, plant and equipment accrued but unpaid $ 47 $ 39 $210$229 million and $411$640 million for the three and sixnine months ended DecemberMarch 31, 2018,2019, respectively, to conform with the current year methodology and presentation.31Three Months Ended
March 31Nine Months Ended
March 31(In millions) 2020 2019 2020 2019 PRODUCT CATEGORY DATA Net sales: Skin Care $ 1,723 $ 1,744 $ 5,770 $ 4,962 Makeup 1,146 1,461 4,249 4,427 Fragrance 349 392 1,392 1,401 Hair Care 119 136 417 433�� Other 8 13 36 52 3,345 3,746 11,864 11,275 Returns associated with restructuring and other activities — (2) — (2) Net sales $ 3,345 $ 3,744 $ 11,864 $ 11,273 Operating income (loss) before charges associated with restructuring and other activities: Skin Care $ 418 $ 593 $ 1,822 $ 1,624 Makeup (283) 99 (790) 398 Fragrance — 17 163 156 Hair Care (2) (2) 10 27 Other 1 2 7 9 134 709 1,212 2,214 Reconciliation: Charges associated with restructuring and other activities (25) (35) (63) (117) Interest expense (42) (32) (112) (101) Interest income and investment income, net 14 15 41 42 Other components of net periodic benefit cost (1) (1) (3) (1) Other income, net — 71 576 71 Earnings before income taxes $ 80 $ 727 $ 1,651 $ 2,108 Net sales: The Americas $ 892 $ 1,155 $ 3,278 $ 3,609 Europe, the Middle East & Africa 1,525 1,625 5,281 4,825 Asia/Pacific 928 966 3,305 2,841 3,345 3,746 11,864 11,275 Returns associated with restructuring and other activities — (2) — (2) Net sales $ 3,345 $ 3,744 $ 11,864 $ 11,273 Operating income (loss): The Americas $ (217) $ 200 $ (571) $ 583 Europe, the Middle East & Africa 202 265 1,084 940 Asia/Pacific 149 244 699 691 134 709 1,212 2,214 Charges associated with restructuring and other activities (25) (35) (63) (117) Operating income $ 109 $ 674 $ 1,149 $ 2,097 The net sales and operating income from the Company’s travel retail business are included in the Europe, the Middle East & Africa region.(1)The net sales and operating income from the Company’s travel retail business are included in the Europe, the Middle East & Africa region.32
Three Months Ended Six Months Ended December 31 December 31 (In millions) 2019 2018 2019 2018 NET SALES By Product Category: Skin Care $ 2,205 $ 1,732 $ 4,047 $ 3,218 Makeup 1,660 1,560 3,103 2,966 Fragrance 581 537 1,043 1,009 Hair Care 162 154 298 297 Other 16 22 28 39 Net sales $ 4,624 $ 4,005 $ 8,519 $ 7,529 By Region: The Americas $ 1,226 $ 1,218 $ 2,386 $ 2,454 Europe, the Middle East & Africa 2,079 1,767 3,756 3,200 Asia/Pacific 1,319 1,020 2,377 1,875 Net sales $ 4,624 $ 4,005 $ 8,519 $ 7,529 OPERATING INCOME (LOSS) By Product Category: Skin Care $ 772 $ 565 $ 1,404 $ 1,031 Makeup (611) 138 (507) 299 Fragrance 97 84 163 139 Hair Care 12 15 12 29 Other 4 4 6 7 274 806 1,078 1,505 Charges associated with restructuring and other activities (13) (35) (38) (82) Operating income $ 261 $ 771 $ 1,040 $ 1,423 By Region: The Americas $ (529) $ 149 $ (354) $ 383 Europe, the Middle East & Africa 505 418 882 675 Asia/Pacific 298 239 550 447 274 806 1,078 1,505 Charges associated with restructuring and other activities (13) (35) (38) (82) Operating income $ 261 $ 771 $ 1,040 $ 1,423 During the fiscal 2020 first quarter, changes were made to reflect certain Leading Beauty Forward enhancements made to the capabilities and cost structure of our travel retail business, which are primarily centralized in The Americas region, and resulted in a change to the royalty structure of the travel retail business to reflect the value created in The Americas region. Accordingly, the fiscal 2019 operating income of The Americas was increased, with a corresponding decrease in Europe, the Middle East & Africa by Three Months Ended Six Months Ended December 31 December 31 2019 2018 2019 2018 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 22.5 22.7 22.9 23.0 Gross profit 77.5 77.3 77.1 77.0 Operating expenses: Selling, general and administrative 54.9 56.4 55.4 56.6 Restructuring and other charges 0.1 0.7 0.4 0.9 Goodwill impairment 11.0 0.5 6.0 0.3 Impairment of other intangible assets 5.8 0.4 3.1 0.2 Total operating expenses 71.8 58.0 64.9 58.1 Operating income 5.6 19.3 12.2 18.9 Interest expense 0.8 0.9 0.8 0.9 Interest income and investment income, net 0.3 0.3 0.3 0.4 Other components of net periodic benefit cost — — — — Other income 12.5 — 6.8 — Earnings before income taxes 17.5 18.7 18.4 18.3 Provision for income taxes 5.4 4.3 4.8 4.0 Net earnings 12.1 14.4 13.6 14.3 Net earnings attributable to noncontrolling interests (0.1) (0.1) (0.1) (0.1) Net earnings attributable to The Estée Lauder Companies Inc. 12.0 % 14.3 % 13.5 % 14.3 %sixnine months ended DecemberMarch 31, 20192020 and 2018,2019, 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.33Three Months Ended
March 31Nine Months Ended
March 31(In millions) 2020 2019 2020 2019 NET SALES By Product Category: Skin Care $ 1,723 $ 1,744 $ 5,770 $ 4,962 Makeup 1,146 1,461 4,249 4,427 Fragrance 349 392 1,392 1,401 Hair Care 119 136 417 433 Other 8 13 36 52 3,345 3,746 11,864 11,275 Returns associated with restructuring and other activities — (2) — (2) Net sales $ 3,345 $ 3,744 $ 11,864 $ 11,273 By Region: The Americas $ 892 $ 1,155 $ 3,278 $ 3,609 Europe, the Middle East & Africa 1,525 1,625 5,281 4,825 Asia/Pacific 928 966 3,305 2,841 3,345 3,746 11,864 11,275 Returns associated with restructuring and other activities — (2) — (2) Net sales $ 3,345 $ 3,744 $ 11,864 $ 11,273 OPERATING INCOME (LOSS) By Product Category: Skin Care $ 418 $ 593 $ 1,822 $ 1,624 Makeup (283) 99 (790) 398 Fragrance 0 17 163 156 Hair Care (2) (2) 10 27 Other 1 2 7 9 134 709 1,212 2,214 Charges associated with restructuring and other activities (25) (35) (63) (117) Operating income $ 109 $ 674 $ 1,149 $ 2,097 By Region: The Americas $ (217) $ 200 $ (571) $ 583 Europe, the Middle East & Africa 202 265 1,084 940 Asia/Pacific 149 244 699 691 134 709 1,212 2,214 Charges associated with restructuring and other activities (25) (35) (63) (117) Operating income $ 109 $ 674 $ 1,149 $ 2,097 $210$229 million and $411$640 million for the three and sixnine months ended DecemberMarch 31, 2018,2019, respectively, to conform with the current year methodology and presentation.Three Months Ended
March 31Nine Months Ended
March 312020 2019 2020 2019 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 25.0 21.9 23.5 22.6 Gross profit 75.0 78.1 76.5 77.4 Operating expenses: Selling, general and administrative 60.7 58.0 56.9 57.1 Restructuring and other charges 0.7 0.8 0.5 0.9 Goodwill impairment 8.2 1.3 6.6 0.6 Impairments of other intangible and long-lived assets 2.1 0.1 2.8 0.2 Total operating expenses 71.7 60.1 66.8 58.8 Operating income 3.3 18.0 9.7 18.6 Interest expense 1.3 0.9 1.0 0.9 Interest income and investment income, net 0.4 0.4 0.3 0.4 Other components of net periodic benefit cost — — — — Other income, net — 1.9 4.9 0.6 Earnings before income taxes 2.4 19.4 13.9 18.7 Provision for income taxes (2.5) (4.5) (4.2) (4.2) Net earnings (loss) (0.1) 14.9 9.7 14.5 Net earnings attributable to noncontrolling interests (0.1) (0.1) — (0.1) Net earnings (loss) attributable to The Estée Lauder Companies Inc. (0.2) % 14.8 % 9.7 % 14.4 %
34
THE ESTÉE LAUDER COMPANIES INC.
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.
Internationally, net sales grew in nearly every market, led by China and our travel retail business. The net sales growth for the period also reflected higher net sales from most developed markets across Europe, the Middle East & Africa as well as double-digit increases in Korea. In aggregate, emerging markets outside of China rose high single-digits. We believe that our success has been due, in part, to our sharp focus on key shopping events in the quarter (such as Singles’ Day and Christmas) as well as to our continued focus on strengthening consumer engagement by leveraging digital marketing and enhancing our social media strategies and execution, as we continue to pivot towards areas of prestige beauty where we see the greatest opportunities.
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. We originally acquired a minority interest in Have & Be in December 2015. This acquisition is expected to further strengthen our leadership position in skin care and expand our consumer reach in Asia/Pacific, North America, the United Kingdom and travel retail. The results of operations of Have & Be will be reported in future periods on a one-month lag to facilitate consolidated reporting. Accordingly, operating income for the three and six months ended December 31, 2019 does not include the results of operations of Have & Be since the date of acquisition, which were not material.
35
THE ESTÉE LAUDER COMPANIES INC.
We believethe recovery from the adverse impacts will continue to affect our ability to grow sales profitably. While, historically, we can,believed we could, to some extent, offset the impact of thesemore ordinary challenges by continually developing and pursuing a diversified strategy with multiple engines of growth and accelerating areas of strength among our geographic regions, product categories, brands and channels of distribution. However,distribution, COVID-19 will require even greater discipline and agility. 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 couldwill be a negative effect on consumer confidence, demand, spending and willingness or ability to travel and, as a result, on our business. We will continue to monitor these and other risks that may affect our business.
| 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 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GLAMGLOW | Skin care | The Americas | 1 | 52 | 1 | 52 | 62 | 62 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 58 | $ | 275 | $ | 324 | $ | 786 | $ | 417 | $ | 103 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | |
(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 reflected in the makeup product category and in The Americas region.
36
In addition, during December 2019, our GLAMGLOW reporting unit updated its projected operating results to reflect lower demand for its products, impacted by shifts in market trends and key customer performance in the core markets in which its products are sold and concurrent with our brand strategy review process. We concluded that these changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill. Based on the review, we concluded the fair value of the GLAMGLOW trademark exceeded its carrying value by approximately 12%. We completed an interim quantitative impairment test for goodwill and concluded the fair value of the GLAMGLOW goodwill exceeded its carrying value by approximately 5%. The fair value of the 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. As of December 31, 2019, the carrying value of the GLAMGLOW trademark and goodwill was $63 million and $114 million, respectively. If this reporting unit is adversely affected by a softness in the retail environment for its products in the future, or if other business disruptions arise that cause a change to its long-term financial projections, there could be a negative effect on the fair value of the related trademark and goodwill, and it is possible we could recognize impairment charges in the future.
NET SALES
| Three Months Ended March 31 | Nine Months Ended March 31 | |||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| As Reported: | ||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,345 | $ | 3,744 | $ | 11,864 | $ | 11,273 | ||||||||||||||||||||||||||||||
| $ Change from prior-year period | (399) | 591 | ||||||||||||||||||||||||||||||||||||
| % Change from prior-year period | (11) | % | 5 | % | ||||||||||||||||||||||||||||||||||
Non-GAAP Financial Measure(1): | ||||||||||||||||||||||||||||||||||||||
| % Change from prior-year period in constant currency | (10) | % | 6 | % | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31 | | December 31 | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
As Reported: |
| |
|
| |
|
| |
|
| |
|
Net sales | | $ | 4,624 | | $ | 4,005 | | $ | 8,519 | | $ | 7,529 |
$ Change from prior-year period | |
| 619 | |
|
| |
| 990 | |
|
|
% Change from prior-year period | |
| 15 | % |
|
| |
| 13 | % |
|
|
| | | | | | | | | | | | |
Non-GAAP Financial Measure(1): | |
| | |
|
| |
| | |
|
|
% Change from prior-year period in constant currency | |
| 16 | % |
|
| |
| 14 | % |
|
|
For the three Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Net sales $ 2,205 $ 1,732 $ 4,047 $ 3,218 $ Change from prior-year period 473 829 % Change from prior-year period 27 % 26 % Non-GAAP Financial Measure(1): % Change from prior-year period in constant currency 28 % 27 % Reported skin care net sales decreased for the three months ended March 31, 2020, reflecting lower net sales from most brands, led by Clinique, our makeup artist brands, La Mer, Origins and Aveda, primarily reflecting the challenging environment, especially in brick and mortar retail, as a result of the COVID-19 pandemic as discussed above. In addition, we recognized lower net sales from gift with purchase and purchase with purchase promotional products compared to the prior year. Collectively, these resulted in a decrease of approximately $154 million in the category. The lower net sales from Clinique and La Mer also reflected an unfavorable comparison to the prior-year period due to higher launch activity in the prior year. Despite these challenges, online net sales grew for Clinique, La Mer and Origins. Partially offsetting the decline in those brands were higher net sales from Estée Lauder and incremental net sales from our fiscal 2020 second quarter acquisition of Have & Be, combined, of approximately $141 million. Net sales increased from Estée Lauder, reflecting the continued success of existing product franchises, such as Advanced Night Repair and Perfectionist. the United States. The lower net sales from M·A·C reflected declines in all geographic regions, led by the United States and the United Kingdom, due to the challenging retail environment that negatively impacted department stores and freestanding stores. These challenges are being exacerbated by the COVID-19 impacts described above, and are also impacting other brands. Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Net sales $ 1,660 $ 1,560 $ 3,103 $ 2,966 $ Change from prior-year period 100 137 % Change from prior-year period 6 % 5 % Non-GAAP Financial Measure(1): % Change from prior-year period in constant currency 7 % 5 % Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Net sales $ 581 $ 537 $ 1,043 $ 1,009 $ Change from prior-year period 44 34 % Change from prior-year period 8 % 3 % Non-GAAP Financial Measure(1): % Change from prior-year period in constant currency 9 % 4 % targeted expanded consumer reach. Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Net sales $ 162 $ 154 $ 298 $ 297 $ Change from prior-year period 8 1 % Change from prior-year period 5 % — Non-GAAP Financial Measure(1): % Change from prior-year period in constant currency 5 % 1 % Geographic Regions Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Net sales $ 1,226 $ 1,218 $ 2,386 $ 2,454 $ Change from prior-year period 8 (68) % Change from prior-year period 1 % (3) % Non-GAAP Financial Measure(1): % Change from prior-year period in constant currency 1 % (3) % The Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Net sales $ 2,079 $ 1,767 $ 3,756 $ 3,200 $ Change from prior-year period 312 556 % Change from prior-year period 18 % 17 % Non-GAAP Financial Measure(1): % Change from prior-year period in constant currency 18 % 19 % Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Net sales $ 1,319 $ 1,020 $ 2,377 $ 1,875 $ Change from prior-year period 299 502 % Change from prior-year period 29 % 27 % Non-GAAP Financial Measure(1): % Change from prior-year period in constant currency 30 % 28 % Have & Be. These increases were partially offset by lower net sales in Hong Kong of approximately Favorable (Unfavorable) Basis Points December 31, 2019 Three Months Ended Six Months Ended Mix of business 50 65 Obsolescence charges (25) (40) Manufacturing costs and other (5) (15) Total 20 10 OPERATING EXPENSES Favorable (Unfavorable) Basis Points December 31, 2019 Three Months Ended Six Months Ended General and administrative expenses (90) (70) Advertising, merchandising, sampling and product development 10 (30) Selling 150 150 Stock-based compensation — 10 Store operating costs 30 30 Shipping 10 10 Foreign exchange transactions 20 30 Subtotal 130 130 Charges associated with restructuring and other activities 60 50 Goodwill and other intangible asset impairments (1,590) (860) Changes in fair value of contingent consideration 20 — Total (1,380) (680) Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income $ 261 $ 771 $ 1,040 $ 1,423 $ Change from prior-year period (510) (383) % Change from prior-year period (66) % (27) % Operating margin 5.6 % 19.3 % 12.2 % 18.9 % 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 23 % 20 % Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income $ 772 $ 565 $ 1,404 $ 1,031 $ Change from prior-year period 207 373 % Change from prior-year period 37 % 36 % Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income (loss) $ (611 ) $ 138 $ (507 ) $ 299 $ Change from prior-year period (749 ) (806 ) % Change from prior-year period (100 +)% (100 +)% 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 (6 )% (20 )% Reported makeup operating results decreased for the three COVID-19. Partially offsetting Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income $ 97 $ 84 $ 163 $ 139 $ Change from prior-year period 13 24 % Change from prior-year period 15 % 17 % Reported fragrance operating income increased for the Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income $ 12 $ 15 $ 12 $ 29 $ Change from prior-year period (3) (17) % Change from prior-year period (20) % (59) % Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income (loss) $ (529 ) $ 149 $ (354 ) $ 383 $ Change from prior-year period (678 ) (737 ) % Change from prior-year period (100 +)% (100 +)% 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 28 % 1 % Partially offsetting these decreases accrued employee incentive compensation, as discussed above. Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income $ 505 $ 418 $ 882 $ 675 $ Change from prior-year period 87 207 % Change from prior-year period 21 % 31 % Three Months Ended Six Months Ended December 31 December 31 ($ in millions) 2019 2018 2019 2018 As Reported: Operating income $ 298 $ 239 $ 550 $ 447 $ Change from prior-year period 59 103 % Change from prior-year period 25 % 23 % The lower results from Japan reflected an increase in operating expenses, primarily advertising and promotional activities and selling expenses. Three Months Ended Six Months Ended December 31 December 31 (In millions) 2019 2018 2019 2018 Interest expense $ 38 $ 35 $ 70 $ 69 Interest income and investment income, net $ 13 $ 12 $ 27 $ 27 OTHER INCOME, NET 2020. Three Months Ended Six Months Ended December 31 December 31 2019 2018 2019 2018 Effective rate for income taxes 30.8 % 22.9 % 26.2 % 21.9 % Basis-point change from the prior-year period 790 430 NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. Three Months Ended Six Months Ended December 31 December 31 ($ in millions, except per share data) 2019 2018 2019 2018 As Reported: Net earnings attributable to The Estée Lauder Companies Inc. $ 557 $ 573 $ 1,152 $ 1,073 $ Change from prior-year period (16) 79 % Change from prior-year period (3) % 7 % Diluted net earnings per common share $ 1.52 $ 1.55 $ 3.13 $ 2.88 % Change from prior-year period (2) % 9 % 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, changes in fair value of contingent consideration, the Transition Tax, the remeasurement of U.S. net deferred tax assets as of the TCJA enactment date and the establishment of a net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA 21 % 20 % The following tables provide reconciliations between these non-GAAP financial measures and the most directly comparable U.S. GAAP measures. Three Months Ended % Change December 31 % in Constant ($ in millions, except per share data) 2019 2018 Variance Change Currency Net sales, as reported $ 4,624 $ 4,005 $ 619 15 % 16 % Returns associated with restructuring and other activities — — — Net sales, as adjusted $ 4,624 $ 4,005 $ 619 15 % 16 % Operating income, as reported $ 261 $ 771 $ (510) (66) % (66) % Charges associated with restructuring and other activities 13 35 (22) Goodwill and other intangible asset impairments 777 38 739 Changes in fair value of contingent consideration (7) 2 (9) Operating income, as adjusted $ 1,044 $ 846 $ 198 23 % 24 % Diluted net earnings per common share, as reported $ 1.52 $ 1.55 $ (.03) (2) % — % Charges associated with restructuring and other activities .03 .08 (.05) Goodwill and other intangible asset impairments 1.81 .09 1.72 Other income (1.23) — (1.23) Changes in fair value of contingent consideration (.02) — (.02) Remeasurement of U.S. net deferred tax assets as of the TCJA enactment date — .02 (.02) Diluted net earnings per common share, as adjusted $ 2.11 $ 1.74 $ .37 21 % 21 % Six Months Ended % Change December 31 % in Constant ($ in millions, except per share data) 2019 2018 Variance Change Currency Net sales, as reported $ 8,519 $ 7,529 $ 990 13 % 14 % Returns associated with restructuring and other activities — — — Net sales, as adjusted $ 8,519 $ 7,529 $ 990 13 % 14 % Operating income, as reported $ 1,040 $ 1,423 $ (383) (27) % (26) % Charges associated with restructuring and other activities 38 82 (44) Goodwill and other intangible asset impairments 777 38 739 Changes in fair value of contingent consideration (7) (9) 2 Operating income, as adjusted $ 1,848 $ 1,534 $ 314 20 % 21 % Diluted net earnings per common share, as reported $ 3.13 $ 2.88 $ .25 9 % 10 % Charges associated with restructuring and other activities .09 .18 (.09) Goodwill and other intangible asset impairments 1.80 .09 1.71 Other income (1.22) — (1.22) Changes in fair value of contingent consideration (.02) (.02) — Transition Tax resulting from the TCJA — (.03) .03 Remeasurement of U.S. net deferred tax assets as of the TCJA enactment date — .02 (.02) Net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA — .03 (.03) Diluted net earnings per common share, as adjusted $ 3.78 $ 3.15 $ .63 20 % 21 % 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 % Three months Three months Impact of % Change, ended ended foreign Variance, Change, in December 31, December 31, currency in constant as constant ($ in millions) 2019 2018 Variance translation currency reported currency By Product Category: Skin Care $ 2,205 $ 1,732 $ 473 $ 10 $ 483 27 % 28 % Makeup 1,660 1,560 100 10 110 6 7 Fragrance 581 537 44 2 46 8 9 Hair Care 162 154 8 — 8 5 5 Other 16 22 (6) — (6) (27) (27) 4,624 4,005 619 22 641 15 16 Returns associated with restructuring and other activities — — — — — Total $ 4,624 $ 4,005 $ 619 $ 22 $ 641 15 % 16 % By Region: The Americas $ 1,226 $ 1,218 $ 8 $ (1) $ 7 1 % 1 % Europe, the Middle East & Africa 2,079 1,767 312 12 324 18 18 Asia/Pacific 1,319 1,020 299 11 310 29 30 4,624 4,005 619 22 641 15 16 Returns associated with restructuring and other activities — — — — — Total $ 4,624 $ 4,005 $ 619 $ 22 $ 641 15 % 16 % As Reported % Six months Six months Impact of % Change, ended ended foreign Variance, Change, in December 31, December 31, currency in constant as constant ($ in millions) 2019 2018 Variance translation currency reported currency By Product Category: Skin Care $ 4,047 $ 3,218 $ 829 $ 26 $ 855 26 % 27 % Makeup 3,103 2,966 137 26 163 5 5 Fragrance 1,043 1,009 34 9 43 3 4 Hair Care 298 297 1 1 2 — 1 Other 28 39 (11) — (11) (28) (28) 8,519 7,529 990 62 1,052 13 14 Returns associated with restructuring and other activities — — — — — Total $ 8,519 $ 7,529 $ 990 $ 62 $ 1,052 13 % 14 % By Region: The Americas $ 2,386 $ 2,454 $ (68) $ (5) $ (73) (3) % (3) % Europe, the Middle East & Africa 3,756 3,200 556 36 592 17 19 Asia/Pacific 2,377 1,875 502 31 533 27 28 8,519 7,529 990 62 1,052 13 14 Returns associated with restructuring and other activities — — — — — Total $ 8,519 $ 7,529 $ 990 $ 62 $ 1,052 13 % 14 % As Reported Add: Changes in Goodwill Add: Three months Three months and other Changes in % % ended ended intangible fair value of Variance, Change, Change, December 31, December 31, asset contingent as as as ($ in millions) 2019 2018 Variance impairments consideration adjusted reported adjusted By Product Category: Skin Care $ 772 $ 565 $ 207 $ — $ (3) $ 204 37 % 36 % Makeup (611) 138 (749) 739 — (10) (100 +) (6) Fragrance 97 84 13 — (6) 7 15 8 Hair Care 12 15 (3) — — (3) (20 ) (20) Other 4 4 — — — — — — 274 806 (532) $ 739 $ (9) $ 198 (66 )% 23 % Charges associated with restructuring and other activities (13) (35) 22 Total $ 261 $ 771 $ (510) By Region: The Americas $ (529) $ 149 $ (678) $ 739 $ (8) $ 53 (100 +)% 28 % Europe, the Middle East & Africa 505 418 87 — (1) 86 21 21 Asia/Pacific 298 239 59 — — 59 25 25 274 806 (532) $ 739 $ (9) $ 198 (66 )% 23 % Charges associated with restructuring and other activities (13) (35) 22 Total $ 261 $ 771 $ (510) As Reported Add: Changes in Goodwill Add: Six months Six months and other Changes in % % ended ended intangible fair value of Variance, Change, Change, December 31, December 31, asset contingent as as as ($ in millions) 2019 2018 Variance impairments consideration adjusted reported adjusted By Product Category: Skin Care $ 1,404 $ 1,031 $ 373 $ — $ 3 $ 376 36 % 37 % Makeup (507) 299 (806) 739 — (67) (100 +) (20) Fragrance 163 139 24 — (1) 23 17 17 Hair Care 12 29 (17) — — (17) (59 ) (59) Other 6 7 (1) — — (1) (14 ) (14) 1,078 1,505 (427) $ 739 $ 2 $ 314 (28 )% 20 % Charges associated with restructuring and other activities (38) (82) 44 Total $ 1,040 $ 1,423 $ (383) By Region: The Americas $ (354) $ 383 $ (737) $ 739 $ 4 $ 6 (100 +)% 1 % Europe, the Middle East & Africa 882 675 207 — (2) 205 31 30 Asia/Pacific 550 447 103 — — 103 23 23 1,078 1,505 (427) $ 739 $ 2 $ 314 (28 )% 20 % Charges associated with restructuring and other activities (38) (82) 44 Total $ 1,040 $ 1,423 $ (383) Based on past performance and current expectations, we believe that cash on hand, cash generated from operations, available-for-sale securities, 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 for actions taken by us, in response to the impact of COVID-19 on our business, to help mitigate the expected loss of sales and to conserve cash. Debt Long-term Current ($ in millions) Debt 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) 455 — 455 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 2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (7), (13) 640 — 640 3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (8), (13) 498 — 498 2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (9), (13) 494 — 494 2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (10), (13) 253 — 253 1.70% Senior Notes, due May 10, 2021 (“2021 Senior Notes”) (11), (13) 448 — 448 1.80% Senior Notes, due February 7, 2020 (“2020 Senior Notes”) (12), (13) — 500 500 Other borrowings 7 22 29 $ 4,662 $ 522 $ 5,184 Six Months Ended December 31 (In millions) 2019 2018 Net cash provided by operating activities $ 1,255 $ 1,273 Net cash used for investing activities $ (1,350) $ (35) Net cash provided by (used for) financing activities $ 687 $ (1,536) accounts payable. Also partially offsetting the improvement in cash flows from operations was lower accrued employee incentive compensation as a result of the anticipated impacts of COVID-19 on the fiscal 2020 business performance. For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the As noted in the , we have suspended the quarterly cash dividend that would have been paid in June 2020. CRITICAL ACCOUNTING POLICIES 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. As part of the Company’s 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 For a discussion of legal proceedings, see Notes to Consolidated Financial Statements, Note 11 Total Number of Maximum Shares Purchased Number of Shares Total Number Average Price as Part of Publicly that May Yet Be of Shares Paid Per Announced Purchased Under Period Purchased(1) Share Program the Program(2) October 2019 1,578,918 $ 189.34 1,173,751 36,114,378 November 2019 710,271 188.23 710,271 35,404,107 December 2019 343,880 199.38 343,880 35,060,227 2,633,069 190.35 2,227,902 THE ESTÉE LAUDER COMPANIES INC. /s/TRACEY T. TRAVIS Tracey T. Travis Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)and six months ended DecemberMarch 31, 2019,2020, reported net sales increaseddecreased in all major product categories and grew predominantlyacross all geographic regions driven by the negative impacts of the COVID-19 pandemic, including our response and the responses of others to COVID-19 Directives. These directives include the temporary closing of businesses deemed “non-essential,” travel bans and restrictions, social distancing and quarantines. Despite these global declines, net sales for the period benefited from higher sales of Estée Lauder products, net sales increases from our travel retail business, an acceleration of sales of certain of our products online, and incremental net sales from our fiscal 2020 second quarter acquisition of Have & Be.benefited fromreflected higher sales offrom Estée Lauder, La Mer and Origins, and Clinique products. Theas well as incremental net sales increases from Estée Lauder and Tom Ford drove the increase in the makeup product category. Fragrance net sales primarily reflected higher net sales from Jo Malone London and Tom Ford. Each of our product categories benefited from targeted expanded consumer reach, new product offerings, and the continued successfiscal 2020 second quarter acquisition of certain hero franchises.Have & Be. Net sales increases in mainland China and our travel retail business continueddrove growth internationally. As noted above, the impacts of COVID-19 are causing a significant disruption to drive growth internationally.our business, and we expect the results of operations of our product categories and regions to continue to be adversely impacted for the remainder of fiscal 2020 and in subsequent periods.increases werein each period was impacted by approximately $22$44 million and $62$106 million of unfavorable foreign currency translation for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively.(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Net sales $ 1,723 $ 1,744 $ 5,770 $ 4,962 $ Change from prior-year period (21) 808 % Change from prior-year period (1) % 16 % % Change from prior-year period in constant currency — % 17 % 37in every regionfor the nine months ended March 31, 2020, primarily due to growth internationally and reflected higher net sales from Estée Lauder and La Mer, Origins and Clinique, combined, of approximately $447$796 million, and $805 million for the three and six months ended December 31, 2019, respectively.as well as incremental net sales from our fiscal 2020 second quarter acquisition of Have & Be of $67 million. Net sales increased from Estée Lauder, in both periods, led by our travel retail business and China, reflecting the continued success of existing product franchises, such as Advanced Night Repair, Perfectionist, Re-Nutriv, Revitalizing SupremeSupreme+ and Micro Essence, and new product launches, such as Advanced Night Repair Intense Reset Concentrate. The increase in net sales from La Mer in both periods reflected international growth, across all geographic regions, and benefited from existing products, such as The Treatment Lotion, and product relaunches, such as The Regenerating Serum, as well as targeted expanded consumer reach and stronger demand for holiday sets. Net sales from Origins in both periods reflected higher net sales of treatment lotions and moisturizers and, for the three months ended December 31, 2019, also reflected growth in all regions. The continued success of certain hero franchises, as well as strength from moisturizers and anti-aging products, contributed to the increase inreach. Partially offsetting these increases were lower net sales from Clinique and M·A·C, combined, of approximately $68 million. Net sales declined from Clinique primarily due to the continued challenging retail environment that negatively impacted department stores in both periods.$10$19 million and $26$45 million of unfavorable foreign currency translation for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively.MakeupThree Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Net sales $ 1,146 $ 1,461 $ 4,249 $ 4,427 $ Change from prior-year period (315) (178) % Change from prior-year period (22) % (4) % % Change from prior-year period in constant currency (20) % (3) % (1)See “Reconciliations of Non-GAAP Financial Measures”beginning on page 4757 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.increaseddecreased for the three months ended DecemberMarch 31, 2019,2020, reflecting higher net sales from Estée Lauder, Tom Ford, Bobbi Brown and La Mer of approximately $101 million, combined. For the six months ended December 31, 2019, reported makeup net sales increased from these brands as well as from M·A·C by $166 million, combined. The higher net sales from Estée Lauder in both periods were primarily due to the success of our Double Wear franchise and Futurist line of products, which drove higher net sales in China and our travel retail business. The net sales increase from Tom Ford in both periods was primarily due to continued growth in Asia/Pacific, led by China and Japan, which resulted in higher net sales from third-party online malls, driven by Tmall, as well as the strength in lip and eye products, including the Lip Color and Eye Quad line of products, respectively, and targeted expanded consumer reach. Net sales from Bobbi Brown in both periods reflected higher net sales in Asia/Pacific, as well as our travel retail business, which benefited from existing products such as Intensive Skin Serum Foundation. The higher net sales in both periods from La Mer were primarily due to growth internationally, which benefited from successful holiday events and campaigns on Tmall, existing products, such as The Luminous Lifting Cushion Foundation, and targeted expanded consumer reach. Net sales increased from M·A·C for the six months ended December 31, 2019 reflecting higher net sales in Asia/Pacific primarily due to the growth from Tmall in China, targeted expanded consumer reach and the strength in lip and foundation products.These increases were partially offset by lower net sales from BECCAour makeup artist brands, Clinique and Smashbox,Tom Ford, combined, of approximately $16 million$260 million. Net sales decreased from these brands reflecting the challenging environment, especially in brick-and-mortar retail and travel retail locations, as a result of the COVID-19 pandemic as discussed above. Despite the challenging environment, net sales from Tom Ford, Clinique and Bobbi Brown grew in the online channel.threenine months ended DecemberMarch 31, 2019. For the six months ended December 31, 2019, the increases were partially offset by lower2020 from M·A·C, Clinique, Too Faced and BECCA, combined, of approximately $268 million. The decrease in net sales from these brands as well as from Too Faced and Clinique, of approximately $54 million, combined. The decreases in both periods reflected declines in North America, due to the general decline in prestige makeup and ongoing competitive activity.activity, as well as the challenging environment as a result of COVID-19. International net sales from M·A·C and Clinique also reflected decreases as a result of the challenging retail environment as a result of COVID-19. The lower net sales from BECCA also reflected a difficult comparison to certain prior-year launches.The makeup Partially offsetting these decreases were higher net sales increasesfrom Estée Lauder and La Mer, combined, of approximately $113 million. The higher net sales from Estée Lauder were primarily due to the success of our Double Wear franchise and Futurist line of products. The higher net sales from La Mer were primarily due to growth internationally, higher sales of existing products, such as The Luminous Lifting Cushion Foundation, and targeted expanded consumer reach.$10$19 million and $26$45 million of unfavorable foreign currency translation for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively.38THE ESTÉE LAUDER COMPANIES INC.FragranceThree Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Net sales $ 349 $ 392 $ 1,392 $ 1,401 $ Change from prior-year period (43) (9) % Change from prior-year period (11) % (1) % % Change from prior-year period in constant currency (10) % — % 4757 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.increased,decreased for the three months ended March 31, 2020, reflecting higherlower net sales from Jo Malone London and Tom Ford,certain of our designer fragrances, combined, of approximately $40 million$39 million. The decrease in net sales from these brands primarily reflected the challenges as a result of the COVID-19 pandemic.The decline in net sales from certain of our designer fragrances also reflected a decrease in North America, primarily due to an unfavorable comparison to the prior-year period as a result of the December 2019 expiration of our license agreement with Tory Burch and $73 millionhigher launch activity in the prior year.three and sixnine months ended DecemberMarch 31, 2019, respectively. In both periods, the2020, reflecting lower net sales increase from certain of our designer fragrances and Estée Lauder of approximately $64 million, combined. The lower net sales from certain designer fragrances reflected a decline in North America, primarily due to an unfavorable comparison to the prior-year period as a result of the December 2019 expiration of our license agreement with Tory Burch and higher launch activity in the prior year, which primarily drove the declines for our products in the department store and specialty-multi channels. The net sales decline from Estée Lauder was primarily due to an unfavorable comparison to the prior-year launch of Beautiful Belle in North America. Partially offsetting these decreases were higher net sales from Tom Ford and Jo Malone London, reflected growth across all geographic regions primarily due to the continued successcombined, of certain hero franchises, new product launches, such as Poppy & Barley, the stronger demand of holiday sets, and targeted expanded consumer reach.approximately $53 million. Net sales increased from Tom Ford in both periods across all geographic regions, which benefited from higher net sales from certain Private Blend franchises, new product launches, such as Métallique and Soleil Neige, and the stronger demand for holiday sets.Partially offsetting these increases for the six months ended December 31, 2019 were lower net sales from certain of our designer fragrances and Estée Lauder of approximately $41 million, combined. Net sales declined from certain designer fragrances reflecting the decline in North America due, in part, to an unfavorable comparison to certain prior-year launches and declines for our products in the specialty-multi and department store channels. The net sales declineincrease from Estée Lauder wasJo Malone London reflected growth in Asia/Pacific, led by mainland China, Japan and Korea, primarily due to an unfavorable comparison to the prior-year launchcontinued success of Beautiful Belle in North Americacertain hero franchises, new product launches, such as Poppy & Barley, and the United Kingdom.$2$5 million and $9$14 million of unfavorable foreign currency translation for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Net sales $ 119 $ 136 $ 417 $ 433 $ Change from prior-year period (17) (16) % Change from prior-year period (13) % (4) % % Change from prior-year period in constant currency (12) % (3) % (1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 4757 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.increaseddecreased for the three and sixnine months ended DecemberMarch 31, 2019, primarily2020, reflecting growthlower net sales from Aveda.Aveda and Bumble and bumble. In both periods, the higherlower net sales from Aveda were primarily driven by new product launches, sucha decline in retail traffic and salon and store closures as Nutriplenish and Full Spectrum Demi Plus, anda result of the relaunch of Sap Moss,COVID-19 pandemic, as well as the continued success of hero franchises such as the Damage Remedy line of products.The growthdiscussed above. Net sales declined in hair care net sales for the six months ended December 31, 2019 was mostly offset by lower net salesboth periods from Bumble and bumble due to the softness in North America which impactedin the salon and specialty-multi channels.39THE ESTÉE LAUDER COMPANIES INC.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Net sales $ 892 $ 1,155 $ 3,278 $ 3,609 $ Change from prior-year period (263) (331) % Change from prior-year period (23) % (9) % % Change from prior-year period in constant currency (23) % (9) % (1)See “Reconciliations of Non-GAAP Financial Measures”beginning on page 4757 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.DecemberMarch 31, 2019 increased due to higher net sales in the United States of approximately $10 million, reflecting higher net sales from Estée Lauder, Jo Malone London and Tom Ford, which drove the growth in the fragrance and skin care product categories. These increases more than offset the softness in North America for certain of our makeup products as previously discussed.Reported net sales in The Americas for the six months ended December 31, 20192020 decreased due to lower net sales in the United States of approximately $73$232 million primarilyand $305 million, respectively. Net sales decreased in the United States for the three months ended March 31, 2020, reflecting declines from M·A·C,most brands and channels of distribution due to the challenging environment as a result of the COVID-19 pandemic, including the temporary closing of brick-and-mortar retail stores, travel bans and restrictions, social distancing and quarantines. The decline in net sales for the nine months ended March 31, 2020 also reflected lower net sales from our makeup artist brands, Clinique, Too Faced and BECCA due to the decline in prestige makeup generally in North America. Also contributing to the decline was an unfavorable comparison to prior-year launch activity from certain of our designer fragrances, Estée Lauder and BECCA.changes indecline from certain of our designer fragrances also reflected lower net sales as a result of the December 2019 expiration of our license agreement with Tory Burch. In addition, for both periods, we recognized lower net sales from gift with purchase and purchase with purchase promotional products compared to the prior year.$1$2 million of unfavorable and $5$3 million of favorable foreign currency translation for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Net sales $ 1,525 $ 1,625 $ 5,281 $ 4,825 $ Change from prior-year period (100) 456 % Change from prior-year period (6) % 9 % % Change from prior-year period in constant currency (5) % 11 % (1)See “Reconciliations of Non-GAAP Financial Measures”beginning on page 4757 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.and, to a lesser extent, Russia of approximately $297 million and $533 million, combined, for the three and six months ended December 31, 2019, respectively. In both periods, net sales increased in our travel retail business across most brands,$536 million. These increases were led by Estée Lauder, La Mer and Origins, driven, in part, by increased passenger traffic,the continued success of certain hero franchises, such as well asthe Advanced Night Repair line of products from Estée Lauder, La Mer Treatment Lotion and Dr. Andrew Weil For Origins Mega-Mushroom Relief & Resilience Soothing Treatment Lotion. Also contributing to the net sales increase were new product launches, including Estée Lauder’s Advanced Night Repair Intense Reset Concentrate and The Regenerating Serum from La Mer. Also contributing to this increase wasMer, as well as strategic investment spending to support both new and existing products. The higherPartially offsetting these increases were lower net sales in Russia in both periods werefrom the United Kingdom and France, combined, of approximately $64 million, primarily driven by Estée Lauder, Jo Malone London and Tom Ford, reflecting the success of hero franchises, such as Advance Night Repair from Estée Lauder, and new product launches, such as Poppy & Barley from Jo Malone London and Métallique and Soleil Neige from Tom Ford.The netcontinued adverse macroeconomic conditions. increases in Europe, the Middle East & Africa were impacted by approximately $12$17 million and $36$53 million of unfavorable foreign currency translation for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively.40Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Net sales $ 928 $ 966 $ 3,305 $ 2,841 $ Change from prior-year period (38) 464 % Change from prior-year period (4) % 16 % % Change from prior-year period in constant currency (1) % 18 % THE ESTÉE LAUDER COMPANIES INC.Asia/Pacific(1)See “Reconciliations of Non-GAAP Financial Measures”beginning on page 4757 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.Japan,Korea, combined, of approximately $308 million and $511 million for the three and six months ended December 31, 2019, respectively. In both periods, the$554 million. The higher net sales in mainland China reflected double-digit growth from virtually every brand, led by Estée Lauder, La Mer, M·A·M·A·C and Tom Ford, continued growth in skin care and makeup, targeted expanded consumer reach, and new product launches, such as Estée Lauder’s Advanced Night Repair Intense Reset Concentrate and a new larger size of The Treatment Lotion from La Mer. The net sales increase in mainland China benefited every channel, led by online (due to the continued growth and successful holiday events and campaigns on Tmall), department stores, specialty-multi and freestanding stores and specialty-multi. In both periods, thestores. The net sales growth in JapanKorea reflected growth in virtually every brand, led by M·A·C and Jo Malone London, reflecting the successincremental net sales from our fiscal 2020 second quarter acquisition of certain hero franchises, new product launches and targeted expanded consumer reach, which contributed to growth in all major product categories and growth in virtually every channel.$33$124 million, and $51 million for the three and six months ended December 31, 2019, respectively, due to the ongoing situationpre-COVID-19 protests there that has continued towere negatively impactimpacting traffic in downtown shops and the airport and has also led to intermittent store closures.The netSince January 2020, our business in Hong Kong, and elsewhere in Asia/Pacific has been adversely impacted by challenges attributable to the COVID-19 pandemic discussed above. increases in Asia/Pacific were impacted by approximately $11$25 million and $31$56 million of unfavorable foreign currency translation for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively.increaseddecreased to 77.5%75.0% and 77.1%76.5% for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively, as compared with 77.3%78.1% and 77.0%77.4% in the prior-year periods.Favorable (Unfavorable) Basis Points March 31, 2020 Three Months Ended Nine Months Ended Mix of business (160) — Obsolescence charges (30) (40) Manufacturing costs and other (150) (50) Foreign exchange transactions 20 — Subtotal (320) (90) Charges associated with restructuring and other activities 10 — Total (310) (90) increasedecrease in gross margin for the three and six months ended DecemberMarch 31, 20192020 reflected the favorableunfavorable impact from our mix of business primarily due to favorableunfavorable changes in strategic pricing and product categorychannel mix, as well asdue, in part, to the impacts of COVID-19; higher cost of promotional items as a percentagesales related to our fiscal 2020 acquisition of net sales. Also reflected in the favorable impact from our mixHave & Be, which includes an inventory step-up adjustment of business for the three months ended December 31, 2019 was a favorable$11 million, or approximately 35 basis points; unfavorable change from new product introductionsintroductions; and relaunches. Partially offsetting these favorable changes in both periods werethe higher costscost from product sets included in mix of business, as well assets. Also reflected were unfavorable changes in manufacturing costs and other, including the impacts of incremental tariffs.4171.8%71.7% and 64.9%66.8% for the three and sixnine months ended DecemberMarch 31, 2019,2020, respectively, as compared with 58.0%60.1% and 58.1%58.8% in the prior-year periods.Favorable (Unfavorable) Basis Points March 31, 2020 Three Months Ended Nine Months Ended General and administrative expenses 230 20 Advertising, merchandising, sampling and product development (260) (100) Selling (180) 50 Stock-based compensation (20) 10 Store operating costs (30) 10 Shipping (40) (10) Foreign exchange transactions 50 40 Subtotal (250) 20 Charges associated with restructuring and other activities 10 40 Goodwill, other intangible and long-lived asset impairments (890) (860) Changes in fair value of contingent consideration (30) — Total (1,160) (800) and six months ended DecemberMarch 31, 2019,2020, the increasesincrease in operating expense margin werewas primarily driven by the impact of goodwill, and other intangible and long-lived asset impairments. In addition, general and administrative expenses increased primarily due to professional service fees (including acquisition-related costs), enhanced capabilities in select corporate functions to support ourimpairments; lower net sales driven by the impact of COVID-19; continued strategic initiatives, and investments in information systems.advertising and promotional activities, such as digital advertising and social media spending in mainland China; and an increase in selling expenses, such as continued employee payroll costs. These increases were partially offset by improvements from sellingthe decrease in general and administrative expenses, primarily due to increased efficiencieslower accrued employee incentive compensation as a result of the anticipated impacts of COVID-19 on the fiscal 2020 business performance.our sales operations and lower demonstration costsoperating expense margin was driven by changesthe impact of goodwill, other intangible and long-lived asset impairments. In addition, advertising and promotional activities increased to support new product launches, digital spending, social media and targeted expanded consumer reach, primarily in distribution channel mix.mainland China.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income $ 109 $ 674 $ 1,149 $ 2,097 $ Change from prior-year period (565) (948) % Change from prior-year period (84) % (45) % Operating margin 3.3 % 18.0 % 9.7 % 18.6 % % 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 (36) % 2 % (1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 4757 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.sixnine months ended DecemberMarch 31, 20192020 decreased from the prior-year periods driven by the year-over-year impact of goodwill, and other intangible and long-lived asset impairments of $739$294 million partially offset by improvementsand $1,033 million for the three and nine months ended March 31, 2020, respectively, the decrease in gross margin and otherthe increase in operating expenses as a percentage of net sales, as previously noted.42Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income $ 418 $ 593 $ 1,822 $ 1,624 $ Change from prior-year period (175) 198 % Change from prior-year period (30) % 12 % % 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. (19) % 16 % Product CategoriesSkin Carethree and sixnine months ended DecemberMarch 31, 2019,2020, driven by higher results from Estée Lauder and La Mer, combined, of approximately $221 million and $438 million, respectively.$378 million. The increases in operating income reflected higher net sales, partially offset by strategic investments in advertising and promotional activities and targeted expanded consumer reach.These increases The increase in skin care operating income also reflected the category were partially offset by higher operating expenses relating primarily to professional service fees (including acquisition-related costs), enhanced capabilitiesdecrease in select corporate functions to support our strategic initiatives, and investments in information systems. Also partiallyaccrued employee incentive compensation as a result of the anticipated impacts of COVID-19 on the fiscal 2020 business performance. Partially offsetting these increases were the impact of the goodwill and other intangible asset impairments relating to GLAMGLOW discussed above, lower results from Clinique reflecting the decline in net sales, and strategic investments in advertisinginformation systems.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income (loss) $ (283) $ 99 $ (790) $ 398 $ Change from prior-year period (382) (1,188) % Change from prior-year period (100+)% (100+)% % Change in operating income from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments (96) % (43) % promotional activities due, in part, to support new product launches and continued net sales growth.the most directly comparable U.S. GAAP measures.Makeup(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.and six months ended DecemberMarch 31, 20192020, driven by lower results from Too Faced, M·A·C, Clinique, and BECCA, M·A·combined, of approximately $445 million. The lower results from Too Faced and BECCA reflected the current year goodwill and other intangible asset impairments of approximately $204 million and $49 million, respectively. The lower results from M·A·C reflected the decrease in net sales, partially offset by disciplined expense management, while the decrease in operating income from Clinique was driven primarily by the decline in net sales. Also reflected in the decrease in reported makeup operating results is the impact of long-lived asset impairments relating to COVID-19. Partially offsetting these decreases were higher results from Estée Lauder and Smashbox, combined, of approximately $803$64 million. The increase in operating income from Estée Lauder was due to disciplined expense management, primarily advertising and promotional activities. The fiscal 2020 third quarter results from Smashbox included $27 million of goodwill and $838other intangible asset impairments, and the fiscal 2019 operating results included $52 million respectively.relating to the fiscal 2019 goodwill and other intangible asset impairments. The makeup operating results also reflected the decrease in accrued employee incentive compensation as a result of the anticipated impacts of COVID-19 on the fiscal 2020 business performance.and Smashbox include $641 million, $68$845 million and $68$117 million of goodwill and other intangible asset impairments, respectively, and the fiscal 2019 operating results from Smashbox included $38 million of goodwill and other intangible asset impairments.respectively. The lower results from M·A·C were driven by the decrease in net sales. Also reflected in the category also reflecteddecrease in reported makeup operating results is the net sales declines in North America as previously discussed and higher operating expensesimpact of long-lived asset impairments relating primarily to professional service fees, enhanced capabilities in select corporate functions to support our strategic initiatives, and investments in information systems.the declines in both periodsthese decreases were higher results from Estée Lauder and Clinique,La Mer, combined, of approximately $71 million. The higher results from Estée Lauder were primarily due to higher$96 million driven by the increase in net sales, while the increases insales.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income $ — $ 17 $ 163 $ 156 $ Change from prior-year period (17) 7 % Change from prior-year period (100) % 4 % from Clinique reflected disciplined expense management. The operating income from both brands also benefited from selling efficiencies.43THE ESTÉE LAUDER COMPANIES INC.Fragrancethreenine months ended DecemberMarch 31, 2019, driven by2020, primarily due to higher results from Tom Ford and Estée Lauder, combined, of approximately $19 million,Le Labo, reflecting higher net sales disciplined expense management, and selling efficiencies. Reported fragrance operating income increased for the six months ended December 31, 2019, driven by higher results from Jo Malone London and Tom Ford, combined, of approximately $37 million, reflecting higher net sales, partially offset by strategic investments in advertising and promotional activities due, in part, to support new product launches and continued net sales growth.Partially offsetting the lower results for the three and six months ended December 31, 2019 weretargeted expanded consumer reach, partially offset by lower results from Clinique, reflecting lower net sales.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income (loss) $ (2) $ (2) $ 10 $ 27 $ Change from prior-year period — (17) % Change from prior-year period — % (63) % incomeresults for both periods decreased primarily due tothree and nine months ended March 31, 2020 reflected lower results from Aveda reflecting strategic investmentsand Bumble and bumble driven primarily by the decrease in advertising and promotional activities to support new product launches and net sales, growth. The lower resultsoffset by the decrease in accrued employee incentive compensation as a result of the category also reflected higher operating expenses relating primarily to professional service fees, enhanced capabilities in select corporate functions to support our strategic initiatives, and investments in information systems.Geographic RegionsThe Americas(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.44Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income (loss) $ (217) $ 200 $ (571) $ 583 $ Change from prior-year period (417) (1,154) % Change from prior-year period (100+)% (100+)% % 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 (47) % (17) % decreased for the three and six months ended DecemberMarch 31, 2019,2020, primarily due to the year-over-year impact of goodwill, and other intangible and long-lived asset impairments of $739$294 million, as previously discussed, and the decrease in net sales, partially offset by a decrease in accrued employee incentive compensation as a result of the anticipated impacts of COVID-19 on the fiscal 2020 business performance and disciplined expense management.in both periods werewas higher intercompany royalty income, reflecting the value created in The Americas, given the growth of our travel retail business, and to a lesser extent, higher results from Estée Lauder due to an increasedecrease in net sales, disciplined expense management and selling efficiencies.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income $ 202 $ 265 $ 1,084 $ 940 $ Change from prior-year period (63) 144 % Change from prior-year period (24) % 15 % reflectedfor the three months ended March 31, 2020, reflecting lower results from the United Kingdom and Russia, combined, of approximately $45 million, primarily due to the decrease in net sales. Partially offsetting the decrease in net sales from the United Kingdom were lower operating expenses due to disciplined expense management, most notably, strategic selling efficiencies.and Russia,offset by lower results from the United Kingdom, combined, of approximately $92 million and $202 million for the three and six months ended December 31, 2019, respectively,$171 million. The higher results from our travel retail business were primarily due to higher net sales. The increases in net sales, were partially offset by strategic investment spending in advertising and promotional activities to supportactivities. The lower results from the continuedUnited Kingdom were driven by the decrease in net sales, growth and targeted expanded consumer reach.partially offset by lower operating expenses due to disciplined expense management, most notably, selling efficiencies.Three Months Ended
March 31Nine Months Ended
March 31($ in millions) 2020 2019 2020 2019 As Reported: Operating income $ 149 $ 244 $ 699 $ 691 $ Change from prior-year period (95) 8 % Change from prior-year period (39) % 1 % increaseddecreased in most markets in Asia/Pacific for the three months ended March 31, 2020, led by Hong Kong, mainland China, Japan, Korea and Singapore, combined, of approximately $91 million. The operating income decreased in Hong Kong, driven by lower net sales, partially offset by disciplined expense management. The lower results from mainland China were primarily driven by an increase in operating expenses, most notably, advertising and promotional activities to support digital advertising, social media and targeted expanded consumer reach, selling expenses relating to continued employee costs, and shipping costs in line with the net sales growth in the online channel. The lower results from Japan reflected an increase in operating expenses, primarily advertising and promotional activities and selling expenses, and a decrease in net sales. The decrease in operating income from Korea was driven by an increase in operating expenses relating to the fiscal 2020 second quarter acquisition of Have & Be, which included incremental amortization expense related to acquired intangible assets. The lower results from Singapore were primarily driven by a decrease in net sales.$68$96 million, and $117 million for the three and six months ended December 31, 2019, respectively, driven by net sales growth. The net sales increases in mainland China were partially offset by an increase in advertising and promotional activities to support digital advertising, social media and targeted expanded consumer reach. The growth in operating income was offset by lower results in Hong Kong and Japan, combined, of approximately $21 million and $38 million for the three and six months ended December 31, 2019, respectively, caused$78 million. The operating income decreased in Hong Kong driven by lower net sales, as previously noted, partially offset by disciplined expense management.Three Months Ended
March 31Nine Months Ended
March 31(In millions) 2020 2019 2020 2019 Interest expense $ 42 $ 32 $ 112 $ 101 Interest income and investment income, net $ 14 $ 15 $ 41 $ 42 2019, partially offset by lower commercial paper. Interest income and investment income, net increased during the three months ended December 31, 2019, primarily due to overall higher cash balances.45THE ESTÉE LAUDER COMPANIES INC.three and sixnine months ended DecemberMarch 31, 2019.three and sixnine months ended DecemberMarch 31, 2019.2020. See Notes to Consolidated Financial Statements, Note 2 –Acquisition of Business for additional information.Three Months Ended
March 31Nine Months Ended
March 312020 2019 2020 2019 Effective rate for income taxes 105.0 % 23.4 % 30.0 % 22.4 % Basis-point change from the prior-year period 8,160 760 and a higher effective tax rate on our foreign operations.46Three Months Ended
March 31Nine Months Ended
March 31($ in millions, except per share data) 2020 2019 2020 2019 As Reported: Net earnings (loss) attributable to The Estée Lauder Companies Inc. $ (6) $ 555 $ 1,146 $ 1,628 $ Change from prior-year period (561) (482) % Change from prior-year period (100+)% (30) % Diluted net earnings (loss) per common share $ (0.02) $ 1.51 $ 3.12 $ 4.39 % Change from prior-year period (100+%) (29) % % 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, net, changes in fair value of contingent consideration, the Transition Tax, the remeasurement of U.S. net deferred tax assets as of the TCJA enactment date and the establishment of a net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA (45) % (1) % (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.income;income, net; the changes in the fair value of contingent consideration; the Transition Tax; the remeasurement of U.S. net deferred tax assets as of the TCJA enactment date; the establishment of a net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA; and the effects of foreign currency translation.47THE ESTÉE LAUDER COMPANIES INC.Table of ContentsThree Months Ended
March 31Variance ($ in millions, except per share data) 2020 2019 Net sales, as reported $ 3,345 $ 3,744 $ (399) (11) % (9) % Returns associated with restructuring and other activities — 2 (2) Net sales, as adjusted $ 3,345 $ 3,746 $ (401) (11) % (10) % Operating income, as reported $ 109 $ 674 $ (565) (84) % (83) % Charges associated with restructuring and other activities 25 35 (10) Goodwill, other intangible and long-lived asset impairments 346 52 294 Changes in fair value of contingent consideration (2) (9) 7 Operating income, as adjusted $ 478 $ 752 $ (274) (36) % (36) % Diluted net earnings (loss) per common share, as reported $ (.02) $ 1.51 $ (1.53) (100+)% (100) % Charges associated with restructuring and other activities .05 .07 (.02) Goodwill, other intangible and long-lived asset impairments .83 .14 .69 Other income, net — (.15) .15 Changes in fair value of contingent consideration (.01) (.02) .01 Diluted net earnings (loss) per common share, as adjusted $ .85 $ 1.55 $ (.70) (45) % (45) % ($ in millions, except per share data) Nine Months Ended
March 31Variance 2020 2019 Net sales, as reported $ 11,864 $ 11,273 $ 591 5 % 6 % Returns associated with restructuring and other activities — 2 (2) Net sales, as adjusted $ 11,864 $ 11,275 $ 589 5 % 6 % Operating income, as reported $ 1,149 $ 2,097 $ (948) (45) % (44) % Charges associated with restructuring and other activities 63 117 (54) Goodwill, other intangible and long-lived asset impairments 1,123 90 1,033 Changes in fair value of contingent consideration (9) (18) 9 Operating income, as adjusted $ 2,326 $ 2,286 $ 40 2 % 2 % Diluted net earnings (loss) per common share, as reported $ 3.12 $ 4.39 $ (1.27) (29) % (28) % Charges associated with restructuring and other activities .14 .26 (.12) Goodwill, other intangible and long-lived asset impairments 2.62 .23 2.39 Other income, net (1.23) (.15) (1.08) Changes in fair value of contingent consideration (.02) (.04) .02 Transition Tax resulting from the TCJA — (.03) .03 Remeasurement of U.S. net deferred tax assets as of the TCJA enactment date — .02 (.02) Net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA — .02 (.02) Diluted net earnings (loss) per common share, as adjusted $ 4.63 $ 4.70 $ (.07) (1) % (1) % 4849As Reported Impact of foreign currency translation Variance,
in constant currency%
Change,
as reported%
Change,
in
constant currency($ in millions) Three Months Ended
March 31, 2020Three Months Ended
March 31, 2019Variance By Product Category: Skin Care $ 1,723 $ 1,744 $ (21) $ 19 $ (2) (1) % — % Makeup 1,146 1,461 (315) 19 (296) (22) (20) Fragrance 349 392 (43) 5 (38) (11) (10) Hair Care 119 136 (17) 1 (16) (13) (12) Other 8 13 (5) — (5) (38) (38) 3,345 3,746 (401) 44 (357) (11) (10) Returns associated with restructuring and other activities — (2) 2 — 2 Total $ 3,345 $ 3,744 $ (399) $ 44 $ (355) (11) % (9) % By Region: The Americas $ 892 $ 1,155 $ (263) $ 2 $ (261) (23) % (23) % Europe, the Middle East & Africa 1,525 1,625 (100) 17 (83) (6) (5) Asia/Pacific 928 966 (38) 25 (13) (4) (1) 3,345 3,746 (401) 44 (357) (11) (10) Returns associated with restructuring and other activities — (2) 2 — 2 Total $ 3,345 $ 3,744 $ (399) $ 44 $ (355) (11) % (9) % As Reported Impact of foreign currency translation Variance,
in constant currency%
Change,
as reported%
Change,
in
constant currency($ in millions) Nine Months Ended
March 31, 2020Nine Months Ended
March 31, 2019Variance By Product Category: Skin Care $ 5,770 $ 4,962 $ 808 $ 45 $ 853 16 % 17 % Makeup 4,249 4,427 (178) 45 (133) (4) (3) Fragrance 1,392 1,401 (9) 14 5 (1) — Hair Care 417 433 (16) 2 (14) (4) (3) Other 36 52 (16) — (16) (31) (31) 11,864 11,275 589 106 695 5 6 Returns associated with restructuring and other activities — (2) 2 — 2 Total $ 11,864 $ 11,273 $ 591 $ 106 $ 697 5 % 6 % By Region: The Americas $ 3,278 $ 3,609 $ (331) $ (3) $ (334) (9) % (9) % Europe, the Middle East & Africa 5,281 4,825 456 53 509 9 11 Asia/Pacific 3,305 2,841 464 56 520 16 18 11,864 11,275 589 106 695 5 6 Returns associated with restructuring and other activities — (2) 2 — 2 Total $ 11,864 $ 11,273 $ 591 $ 106 $ 697 5 % 6 % and other intangible and long-lived asset impairments and changes in fair value of contingent consideration:50As Reported ($ in millions) Three Months Ended
March 31, 2020Three Months Ended
March 31, 2019Variance Add:
Changes in
Goodwill, other intangible and long-lived asset impairmentsAdd:
Changes in fair value of contingent considerationVariance, as adjusted % Change, as reported % Change, as adjusted By Product Category: Skin Care $ 418 $ 593 $ (175) $ 54 $ 7 $ (114) (30) % (19) % Makeup (283) 99 (382) 237 — (145) (100+) (96) Fragrance — 17 (17) 2 — (15) (100) (100) Hair Care (2) (2) — 1 — 1 — 50 Other 1 2 (1) — — (1) (50) (50) 134 709 (575) $ 294 $ 7 $ (274) (81) % (36) % Charges associated with restructuring and other activities (25) (35) 10 Total $ 109 $ 674 $ (565) By Region: The Americas $ (217) $ 200 $ (417) $ 294 $ 7 $ (116) (100+)% (47) % Europe, the Middle East & Africa 202 265 (63) — — (63) (24) (24) Asia/Pacific 149 244 (95) — — (95) (39) (39) 134 709 (575) $ 294 $ 7 $ (274) (81) % (36) % Charges associated with restructuring and other activities (25) (35) 10 Total $ 109 $ 674 $ (565) As Reported Add:
Changes in
Goodwill,
other intangible and long-lived asset impairmentsAdd:
Changes in fair value of contingent considerationVariance, as adjusted % Change, as reported % Change, as adjusted ($ in millions) Nine Months Ended
March 31, 2020Nine Months Ended
March 31, 2019Variance By Product Category: Skin Care $ 1,822 $ 1,624 $ 198 $ 54 $ 10 $ 262 12 % 16 % Makeup (790) 398 (1,188) 976 — (212) (100+) (43) Fragrance 163 156 7 2 (1) 8 4 5 Hair Care 10 27 (17) 1 — (16) (63) (59) Other 7 9 (2) — — (2) (22) (22) 1,212 2,214 (1,002) $ 1,033 $ 9 $ 40 (45) % 2 % Charges associated with restructuring and other activities (63) (117) 54 Total $ 1,149 $ 2,097 $ (948) By Region: The Americas $ (571) $ 583 $ (1,154) $ 1,033 $ 11 $ (110) (100+)% (17) % Europe, the Middle East & Africa 1,084 940 144 — (2) 142 15 15 Asia/Pacific 699 691 8 — — 8 1 1 1,212 2,214 (1,002) $ 1,033 $ 9 $ 40 (45) % 2 % Charges associated with restructuring and other activities (63) (117) 54 Total $ 1,149 $ 2,097 $ (948) DecemberMarch 31, 2019,2020, we had cash and cash equivalents of $3,596$4,876 million compared with $2,987 million at June 30, 2019. In light of continued global uncertainty due to the spread of COVID-19, we issued $700 million of Senior Notes in April 2020 and borrowed the full amount under our $1,500 million revolving credit facility. These actions further enhance our flexibility and liquidity at this time. Our cash and cash equivalents are maintained at a number of financial institutions. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure.Our business is seasonal in nature and, accordingly, our working capital needs vary. From time to time, we may enter into investing and financing transactions that require additional funding. To the extent that these needs exceed cash from operations, we could, subject to market conditions, issue commercial paper, issue long-term debt securities or borrow under our revolving credit facilities.Overview – COVID-19 Business UpdateDecemberMarch 31, 20192020 includes cash in offshore jurisdictions associated with our permanent reinvestment strategy. We do not believe that continuing to reinvest our foreign earnings impairs our ability to meet our domestic debt or working capital obligations. If these reinvested earnings were repatriated into the United States as dividends, we would be subject to state income taxes and applicable foreign taxes in certain jurisdictions.January 30,April 24, 2020, our long-term debt is rated A+ with a stablenegative outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.51DecemberMarch 31, 2019,2020, our outstanding borrowings were as follows:($ in millions) Long-term
DebtCurrent
DebtTotal Debt $ 635 $ — $ 635 494 — 494 456 — 456 247 — 247 294 — 294 197 — 197 640 — 640 498 — 498 494 — 494 259 — 259 454 — 454 Commercial paper that matures through April 2020 (1.53% average interest rate) — 200 200 Revolving credit facility — 1,300 1,300 Other borrowings 6 27 33 $ 4,674 $ 1,527 $ 6,201 Consists of $650 million principal, unamortized debt discount of $8 million and debt issuance costs of $7 million.(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 million and debt issuance costs of $5 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 $650 million principal, unamortized debt discount of $6 million and debt issuance costs of $4 million.(8)Consists of $500 million principal and debt issuance costs of $2 million.(9)Consists of $500 million principal, unamortized debt discount of $3 million and debt issuance costs of $3 million.(10)Consists of $250 million principal and a $3 million adjustment to reflect the fair value of interest rate swaps.(11)Consists of $450 million principal, a $1 million adjustment to reflect the fair value of interest rate swaps and debt issuance costs of $1 million.(12)Consists of $500 million principal(13)The Senior Notes contain certain customary incurrence–based covenants, including limitations on indebtedness secured by liens.Consists of $300 million principal, unamortized debt discount of $3 million and debt issuance costs of $3 million.53%59% and 44% at DecemberMarch 31, 20192020 and June 30, 2019, respectively.Nine Months Ended
March 31(In millions) 2020 2019 Net cash provided by operating activities $ 1,945 $ 1,756 Net cash provided by (used for) investing activities $ (1,557) $ 774 Net cash provided by (used for) financing activities $ 1,525 $ (1,814) unfavorablefavorable net change in working capital, in particular accounts payable due to the timingreceivable and level of payments, and higher cash paid for taxes primarily due to the increase in earnings before taxes, as well as the timing and level of payments,inventory partially offset by higher earnings before taxes.lower treasury stock purchases and changes in short-term debt, reflecting current borrowings under our existing revolving credit facility and the prior-yearissuance of commercial paper, and lower treasury stock purchases, partially offset by the repayment of remaining commercial paper borrowings.52THE ESTÉE LAUDER COMPANIES INC.Dividendssixnine months ended DecemberMarch 31, 2019,2020, see Notes to Consolidated Financial Statements, Note 14 —– Equity.Overview – COVID-19 Business Update—– Contingencies.—– Derivative Financial Instruments.—– Derivative Financial Instruments (Cash Flow Hedges, Net Investment Hedges).—– Derivative Financial Instruments (Credit Risk).strengtheningweakening of the U.S. dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net increase (decrease) in the fair value of our portfolio of approximately $(238)$(230) million and $48 million as of DecemberMarch 31, 20192020 and June 30, 2019, respectively. This potential change does not consider our underlying foreign currency exposures.decreaseincrease (decrease) by approximately $12$10 million and $16$(16) million as of DecemberMarch 31, 20192020 and June 30, 2019, respectively.53THE ESTÉE LAUDER COMPANIES INC.(1)(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;54(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;(12)(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;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;(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;(13)(11)impacts attributable to the coronavirus outbreak, including disruptions to our global business;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;(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;(14)(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;changes in product mix to products which are less profitable;(14)changes in product mix to products which are less profitable;(15)(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;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;(16)(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;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;(18)the timing and impact of acquisitions, investments and divestitures; and(17)(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, 2019.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;DecemberMarch 31, 20192020 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.55THE ESTÉE LAUDER COMPANIES INC.secondthird quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.—– Contingencies.Period Average Price
Paid Per
ShareTotal Number of
Shares Purchased as
Part of Publicly
Announced
ProgramJanuary 2020 202,349 $ 204.55 183,303 34,876,924 February 2020 135,300 201.35 135,300 34,741,624 March 2020 763 188.01 — 34,741,624 338,412 203.23 318,603 (1)(1)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 last authorized an increase to the share repurchase program by 40.0 million shares on October 31, 2018. Our repurchase program does not have an expiration date.Subsequent to Decembersatisfy tax withholding obligations upon the payout of certain stock-based compensation arrangements.2019 and as2018. Our repurchase program does not have an expiration date. January 30, 2020, we purchased approximately 0.2 million additional shares of ourthe Company's Class A Common Stock, for $42 million pursuant to our share repurchase program.5657By:Date: February 6, 2020By:Date: May 1, 202058