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EL Estee Lauder Cos.

Filed: 3 May 21, 12:52pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to
Commission file number 1-14064
The Estée Lauder Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware11-2408943
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
767 Fifth Avenue, New York, New York
10153
(Address of principal executive offices)(Zip Code)
212-572-4200
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $.01 par valueELNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 
At April 26, 2021, 231,894,845 shares of the registrant’s Class A Common Stock, $.01 par value, and 130,617,029 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.



THE ESTÉE LAUDER COMPANIES INC.
INDEX



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions, except per share data)2021202020212020
Net sales$3,864 $3,345 $12,279 $11,864 
Cost of sales939 836 2,848 2,785 
Gross profit2,925 2,509 9,431 9,079 
Operating expenses
Selling, general and administrative2,145 2,030 6,761 6,753 
Restructuring and other charges131 24 172 54 
Goodwill impairment275 54 786 
Impairment of other intangible and long-lived assets33 71 60 337 
Total operating expenses2,309 2,400 7,047 7,930 
Operating income616 109 2,384 1,149 
Interest expense43 42 131 112 
Interest income and investment income, net14 40 41 
Other components of net periodic benefit cost12 
Other income576 
Earnings before income taxes580 80 2,281 1,651 
Provision for income taxes122 84 421 496 
Net earnings (loss)458 (4)1,860 1,155 
Net earnings attributable to noncontrolling interests(2)(2)(8)(9)
Net earnings (loss) attributable to The Estée Lauder Companies Inc.$456 $(6)$1,852 $1,146 
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share
Basic$1.25 $(.02)$5.10 $3.18 
Diluted$1.24 $(.02)$5.03 $3.12 
Weighted-average common shares outstanding
Basic363.6 360.2 362.9 360.6 
Diluted369.0 360.2 368.1 367.1 
See notes to consolidated financial statements.
2

THE ESTÉE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Net earnings (loss)$458 $(4)$1,860 $1,155 
Other comprehensive income (loss):
Net cash flow hedge gain (loss)41 34 (16)10 
Retirement plan and other retiree benefit adjustments19 16 
Translation adjustments(121)(185)170 (191)
Benefit (provision) for income taxes on components of other comprehensive income(32)15 
Total other comprehensive income (loss), net of tax(105)(143)179 (150)
Comprehensive income (loss)353 (147)2,039 1,005 
Comprehensive income attributable to noncontrolling interests:
Net earnings(2)(2)(8)(9)
Translation adjustments(1)
(1)(2)(9)(8)
Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.$352 $(149)$2,030 $997 
See notes to consolidated financial statements.
3

THE ESTÉE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)March 31
2021
June 30
2020
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents$6,399 $5,022 
Accounts receivable, net1,735 1,194 
Inventory and promotional merchandise2,134 2,062 
Prepaid expenses and other current assets729 614 
Total current assets10,997 8,892 
Property, plant and equipment, net2,106 2,055 
Other assets
Operating lease right-of-use assets2,212 2,282 
Goodwill1,369 1,401 
Other intangible assets, net2,294 2,338 
Other assets922 813 
Total other assets6,797 6,834 
Total assets$19,900 $17,781 
LIABILITIES AND EQUITY
Current liabilities
Current debt$471 $1,222 
Accounts payable1,277 1,177 
Operating lease liabilities372 375 
Other accrued liabilities3,077 2,405 
Total current liabilities5,197 5,179 
Noncurrent liabilities
Long-term debt5,487 4,914 
Long-term operating lease liabilities2,198 2,278 
Other noncurrent liabilities1,460 1,448 
Total noncurrent liabilities9,145 8,640 
Contingencies


0
0
Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2021 and June 30, 2020; shares issued: 459,687,905 at March 31, 2021 and 451,927,441 at June 30, 2020; Class B shares authorized: 304,000,000 at March 31, 2021 and June 30, 2020; shares issued and outstanding: 130,617,029 at March 31, 2021 and 135,235,429 at June 30, 2020
Paid-in capital5,231 4,790 
Retained earnings11,420 10,134 
Accumulated other comprehensive loss(487)(665)
16,170 14,265 
Less: Treasury stock, at cost; 227,738,087 Class A shares at March 31, 2021 and 226,637,238 Class A shares at June 30, 2020(10,642)(10,330)
Total stockholders’ equity – The Estée Lauder Companies Inc.5,528 3,935 
Noncontrolling interests30 27 
Total equity5,558 3,962 
Total liabilities and equity$19,900 $17,781 
See notes to consolidated financial statements.
4

THE ESTÉE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31
(In millions)20212020
Cash flows from operating activities
Net earnings$1,860 $1,155 
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization475 447 
Deferred income taxes(103)(65)
Non-cash stock-based compensation255 210 
Net loss on disposal of property, plant and equipment19 
Non-cash restructuring and other charges97 19 
Pension and post-retirement benefit expense75 62 
Pension and post-retirement benefit contributions(35)(54)
Goodwill, other intangible and long-lived asset impairments114 1,123 
Changes in fair value of contingent consideration(2)(9)
Gain on previously held equity method investment(553)
Other non-cash items(17)(11)
Changes in operating assets and liabilities:
Increase in accounts receivable, net(506)(48)
Decrease (increase) in inventory and promotional merchandise13 (41)
Increase in other assets, net(122)(63)
Increase (decrease) in accounts payable55 (317)
Increase in other accrued and noncurrent liabilities629 62 
Increase (decrease) in operating lease assets and liabilities, net(30)22 
Net cash flows provided by operating activities2,777 1,945 
Cash flows from investing activities
Capital expenditures(386)(468)
Proceeds from purchase price refund32 
Payments for acquired businesses, net of cash acquired(8)(1,047)
Purchases of investments(40)(5)
Settlement of net investment hedges(175)(37)
Net cash flows used for investing activities(577)(1,557)
Cash flows from financing activities
Proceeds (repayments) of current debt, net(746)1,514 
Proceeds from issuance of long-term debt, net596 1,783 
Debt issuance costs(4)(14)
Repayments and redemptions of long-term debt(6)(511)
Proceeds from stock-based compensation transactions180 148 
Payments to acquire treasury stock(316)(883)
Payments of contingent consideration(3)
Dividends paid to stockholders(561)(502)
Payments to noncontrolling interest holders for dividends(5)(7)
Net cash flows provided by (used for) financing activities(862)1,525 
Effect of exchange rate changes on Cash and cash equivalents39 (24)
Net increase in Cash and cash equivalents1,377 1,889 
Cash and cash equivalents at beginning of period5,022 2,987 
Cash and cash equivalents at end of period$6,399 $4,876 
See notes to consolidated financial statements.
5

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of The Estée Lauder Companies Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.

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

Management Estimates

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

Currency Translation and Transactions

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at monthly average rates of exchange for the period. Unrealized translation gains (losses), net of tax, reported as translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were $(143) million and $(173) million, net of tax, during the three months ended March 31, 2021 and 2020, respectively, and $175 million and $(170) million, net of tax, during the nine months ended March 31, 2021 and 2020, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings (loss). These subsidiaries are not material to the Company’s consolidated financial statements or liquidity.
The Company enters into foreign currency forward contracts and may enter into option contracts to hedge foreign currency transactions for periods consistent with its identified exposures. The Company also enters into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. See Note 6 – Derivative Financial Instruments for further discussion. The Company categorizes these instruments as entered into for purposes other than trading.
The accompanying consolidated statements of earnings (loss) include net exchange gains (losses) on foreign currency transactions of $(3) million and $15 million during the three months ended March 31, 2021 and 2020, respectively, and $(5) million and $40 million during the nine months ended March 31, 2021 and 2020, respectively.

6

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration of Credit Risk

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

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

Another major customer of the Company during the quarter sells products primarily within the United States and accounted for $179 million, or 10%, and $87 million, or 7%, of the Company’s accounts receivable at March 31, 2021 and June 30, 2020, respectively. This customer accounted for $167 million, or 4%, and $149 million, or 4%, for the three months ended March 31, 2021 and 2020, respectively, and $510 million or 4% and $589 million or 5% for the nine months ended March 31, 2021 and 2020, respectively, of the Company’s consolidated net sales.
Inventory and Promotional Merchandise
Inventory and promotional merchandise consists of the following:
(In millions)March 31
2021
June 30
2020
Raw materials$551 $542 
Work in process282 305 
Finished goods1,078 995 
Promotional merchandise223 220 
$2,134 $2,062 

Property, Plant and Equipment

Property, plant and equipment consists of the following:
(In millions)March 31
2021
June 30
2020
Assets (Useful Life)
Land$56 $33 
Buildings and improvements (10 to 40 years)467 400 
Machinery and equipment (3 to 10 years)946 865 
Computer hardware and software (4 to 10 years)1,374 1,335 
Furniture and fixtures (5 to 10 years)121 120 
Leasehold improvements2,397 2,381 
5,361 5,134 
Less accumulated depreciation and amortization(3,255)(3,079)
$2,106 $2,055 


7

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of assets related to projects in progress of $581 million and $501 million as of March 31, 2021 and June 30, 2020, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $129 million and $131 million during the three months ended March 31, 2021 and 2020, respectively, and $380 million and $383 million during the nine months ended March 31, 2021 and 2020, respectively. Depreciation and amortization related to the Company’s manufacturing process is included in Cost of sales, and all other depreciation and amortization is included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings (loss).

Leases

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

Income Taxes

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

Three Months Ended
March 31
Nine Months Ended
March 31
2021202020212020
Effective rate for income taxes21.0 %105.0 %18.5 %30.0 %
Basis-point change from the prior-year period(8,400)(1,150)

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

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

As of March 31, 2021 and June 30, 2020, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $72 million and $70 million, respectively. The total amount of unrecognized tax benefits at March 31, 2021 that, if recognized, would affect the effective tax rate was $57 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and nine months ended March 31, 2021 in the accompanying consolidated statements of earnings (loss) was $2 million and $3 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at March 31, 2021 and June 30, 2020, was $16 million and $13 million, respectively. On the basis of the information available as of March 31, 2021, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.
8

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Accrued Liabilities
Other accrued liabilities consist of the following:
(In millions)March 31
2021
June 30
2020
Advertising, merchandising and sampling$299 $256 
Employee compensation534 424 
Deferred revenue310 222 
Payroll and other taxes287 250 
Accrued income taxes327 208 
Sales return accrual270 212 
Other1,050 833 
$3,077 $2,405 

Recently Adopted Accounting Standards

Measurement of Credit Losses on Financial Instruments (ASC Topic 326 – Financial Instruments – Credit Losses) (“ASC 326”)
In June 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires companies to utilize an impairment model for most financial assets measured at amortized cost and certain other financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses. In addition, this guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, and requires additional disclosures. In general, modified retrospective adoption will be required for all outstanding instruments that fall under this guidance.

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

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

Effective for the Company – Fiscal 2021 first quarter.

Impact on consolidated financial statements – On July 1, 2020, the Company adopted ASC 326. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. See Note 8 – Revenue Recognition for further discussion.
Goodwill and Other – Internal-Use Software (ASU 2018-15 – Intangibles Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract)
In August 2018, the FASB issued authoritative guidance that permits companies to capitalize the costs incurred for setting up business systems that operate on cloud technology. The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance does not affect the accounting for the service element of a hosting arrangement that is a service contract. Capitalized costs associated with a hosting arrangement that is a service contract must be amortized over the term of the hosting arrangement to the same line item in the income statement as the expense for fees for the hosting arrangement.
Effective for the Company  Fiscal 2021 first quarter, with early adoption permitted in any interim period. This guidance can be adopted either retrospectively, or prospectively to all implementation costs incurred after the date of adoption.
9

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impact on consolidated financial statements – On July 1, 2020, the Company adopted this guidance prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Standards

Reference Rate Reform (ASC Topic 848)
In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

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

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

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

Income Taxes (ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes)
In December 2019, the FASB issued authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas.
Effective for the Company – Fiscal 2022 first quarter, with early adoption permitted in any interim period. If adopted early, the Company must adopt all the amendments in the same period. The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, depending on the specific change.
Impact on consolidated financial statements – The Company is in the process of finalizing its evaluation and currently expects to record a cumulative adjustment of approximately $120 million as an increase to its fiscal 2022 opening retained earnings balance for deferred taxes related to a previously held equity method investment that became a foreign subsidiary.
No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.
10

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – ACQUISITION OF BUSINESS

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

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

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

11

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents goodwill by product category and the related change in the carrying amount:

(In millions)Skin CareMakeupFragranceHair CareTotal
Balance as of June 30, 2020
Goodwill$519 $1,210 $254 $389 $2,372 
Accumulated impairments(95)(817)(26)(33)(971)
424 393 228 356 1,401 
Goodwill acquired during the period10 
Impairment charges(1)
(54)(13)(67)
Translation adjustments, goodwill21 28 
Translation adjustments, accumulated impairments(1)(2)(3)
(34)(7)(32)
Balance as of March 31, 2021
Goodwill540 1,216 258 396 2,410 
Accumulated impairments(150)(830)(26)(35)(1,041)
$390 $386 $232 $361 $1,369 
(1)A goodwill impairment charge of $13 million was recorded in connection with the exit of the global distribution of BECCA products and is included in Restructuring and other charges in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021. See Note 4 – Charges Associated with Restructuring and Other Activities for further information relating to the Post-COVID Business Acceleration Program. See Impairment Testing During the Nine Months Ended March 31, 2021 below for further information relating to fiscal 2021 impairment charges related to GLAMGLOW.

Other intangible assets consist of the following:

March 31, 2021June 30, 2020
(In millions)Gross
Carrying
Value
Accumulated
Amortization
Total Net
Book
Value
Gross
Carrying
Value
Accumulated
Amortization
Total Net
Book
Value
Amortizable intangible assets:
Customer lists and other$1,641 $564 $1,077 $1,590 $475 $1,115 
License agreements43 43 43 43 
$1,684 $607 1,077 $1,633 $518 1,115 
Non-amortizable intangible assets:
Trademarks and other1,217 1,223 
Total intangible assets$2,294 $2,338 

The aggregate amortization expense related to amortizable intangible assets was $25 million and $23 million for the three months ended March 31, 2021 and 2020, respectively, and $77 million and $45 million for the nine months ended March 31, 2021 and 2020, respectively.

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

Fiscal
(In millions)20212022202320242025
Estimated aggregate amortization expense$24 $101 $100 $100 $100 

12

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment Testing During the Nine Months Ended March 31, 2021

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

Impairment Testing During the Nine Months Ended March 31, 2020

During December 2019, given the continuing declines in prestige makeup, generally in North America, and the ongoing competitive activity, the Company’s Too Faced, BECCA and Smashbox reporting units made revisions to their internal forecasts concurrent with the Company's brand strategy review process. The Company concluded that the changes in circumstances in these reporting units triggered the need for an interim impairment review of their respective trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of their respective long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and recoverability tests for the long-lived assets as of December 31, 2019. The Company concluded that the carrying amounts of the long-lived assets were recoverable. The Company also concluded that the carrying values of the trademarks exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded impairment charges 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, 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.


13

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

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

Impairment Charge
(In millions)Three Months Ended
March 31, 2020
Nine Months Ended
March 31, 2020
Carrying Value
Reporting Unit:Product CategoryRegionTrademarkGoodwillTrademarkGoodwillTrademarkGoodwill
Too FacedMakeupThe Americas$42 $162 $253 $592 $272 $13 
BECCAMakeupThe Americas14 35 47 70 51 28 
SmashboxMakeupThe Americas26 23 72 32 
GLAMGLOWSkin careThe Americas52 52 62 62 
Total$58 $275 $324 $786 $417 $103 

NOTE 4 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

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

Sales
Returns
(included in
Net Sales)
Cost of SalesOperating ExpensesTotal
(In millions)Restructuring
Charges
Other
Charges
Leading Beauty Forward Program$$(1)$$$
Post-COVID Business Acceleration Program10 121 139 
Total$10 $$124 $$145 

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

Sales
Returns
(included in
Net Sales)
Cost of SalesOperating ExpensesTotal
(In millions)Restructuring
Charges
Other
Charges
Leading Beauty Forward Program$$$(7)$$
Post-COVID Business Acceleration Program10 167 185 
Total$10 $$160 $12 $191 

14

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

Leading Beauty Forward Program

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

LBF Program Approvals

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

Sales
Returns
(included in
Net Sales)
Cost of SalesOperating ExpensesTotal
(In millions)Restructuring
Charges
Other
Charges
Total Charges (Adjustments) Approved
Cumulative through June 30, 2020$13 $85 $511 $358 $967 
Nine months ended March 31, 2021(11)10 
Cumulative through March 31, 2021$14 $85 $500 $368 $967 

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

(In millions)Employee-
Related
Costs
Asset-
Related
Costs
Contract
Terminations
Other Exit
Costs
Total
Restructuring Charges (Adjustments) Approved
Cumulative through June 30, 2020$460 $28 $$16 $511 
Nine months ended March 31, 2021(13)(11)
Cumulative through March 31, 2021$447 $28 $$16 $500 

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


15

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LBF Program Restructuring and Other Charges

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

(In millions)Sales
Returns
(included in
Net Sales)
Cost of SalesOperating ExpensesTotal
Restructuring
Charges
Other
Charges
Total Charges (Adjustments)
Cumulative through June 30, 2020$14 $65 $491 $304 $874 
Nine months ended March 31, 2021(7)
Cumulative through March 31, 2021$14 $69 $484 $313 $880 

(In millions)Employee-
Related
Costs
Asset-
Related
Costs
Contract
Terminations
Other Exit
Costs
Total
Restructuring Charges (Adjustments)
Cumulative through June 30, 2020$451 $27 $$$491 
Nine months ended March 31, 2021(10)(7)
Cumulative through March 31, 2021$441 $27 $$$484 

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

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

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

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

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

Post-COVID Business Acceleration Program

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


16

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

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

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

PCBA Program Approvals

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

Sales
Returns
(included in
Net Sales)
Cost of SalesOperating ExpensesTotal
(In millions)Restructuring
Charges
Other
Charges
Total Charges (Adjustments) Approved
Nine months ended March 31, 2021$39 $(6)$180 $17 $230 

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

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

Specific actions taken since the PCBA Program inception include:

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

Optimize Digital Organization and Other Go-To-Market Organizations – The Company approved initiatives to enhance its go-to-market capabilities and shift more resources to support online growth. These actions will result in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities.

17

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

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

PCBA Program Restructuring and Other Charges

Restructuring charges are comprised of the following:

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

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

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

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

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

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

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

Consulting and other professional services for organizational design of the future structures and processes as well as the implementation thereof,
Temporary labor backfill,
Costs to establish and maintain a Project Management Office (“PMO”) for the duration of the PCBA Program, including internal costs for employees dedicated solely to project management activities, and other PMO-related expenses incremental to the Company’s ongoing operations (e.g., rent and utilities), and
Recruitment and training costs for new and reskilled employees to acquire and apply the capabilities needed to perform responsibilities as a direct result of an approved restructuring initiative.


18

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company records approved charges associated with restructuring and other activities once the relevant accounting criteria have been met. Total cumulative charges recorded associated with restructuring and other activities for the PCBA Program were:

Sales
Returns
(included in
Net Sales)
Cost of SalesOperating ExpensesTotal
(In millions)Restructuring
Charges
Other
Charges
Total Charges
Nine months ended March 31, 2021$10 $$167 $$185 

(In millions)Employee-
Related
Costs
Asset-
Related
Costs(1)
Contract
Terminations
Other Exit
Costs
Total
Restructuring Charges
Nine months ended March 31, 2021$70 $93 $$$167 
(1)Asset-related costs include goodwill and other intangible asset impairment charges of $13 million and $34 million, respectively, relating to the exit of the global distribution of BECCA products.

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

(In millions)Employee-
Related
Costs
Asset-
Related
Costs
Contract
Terminations
Other Exit
Costs
Total
Charges$70 $93 $$$167 
Cash payments(8)(4)(12)
Noncash asset write-offs(93)(93)
Balance at March 31, 2021$62 $$$$62 

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

NOTE 5 – DEBT

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

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

19

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These recently issued notes are summarized as follows:
($ in millions)Issue DatePriceYieldUnamortized
Debt
Discount
Debt
Issuance
Costs
Semi-annual
interest
payments
2031 Senior Notes (1)
March 202199.340 %2.023 %$(4)$(4)March 15/September 15
(1)In March 2020, in anticipation of the issuance of the 2031 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $200 million at a weighted-average all-in rate of 0.84%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $11 million that is being amortized to interest expense over the life of the 2031 Senior Notes. As a result of the treasury lock agreements, as well as the debt discount and debt issuance costs, the effective interest rate on the 2031 Senior Notes will be 1.89% over the life of the debt.

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

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS
The Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. The Company enters into foreign currency forward contracts, and may enter into option contracts, to reduce the effects of fluctuating foreign currency exchange rates. In addition, the Company enters into interest rate derivatives to manage the effects of interest rate movements on the Company’s aggregate liability portfolio, including potential future debt issuances. The Company enters into the net investment hedges to offset the risk of changes in the U.S. dollar value of the Company’s investment in these foreign operations due to fluctuating foreign exchange rates. Time value is excluded from the effectiveness assessment and is recognized under a systematic and rational method over the life of the hedging instrument in Selling, general and administrative expenses. The net gain or loss on net investment hedges is recorded within translation adjustments, as a component of accumulated OCI (“AOCI”) on the Company’s consolidated balance sheets, until the sale or substantially complete liquidation of the underlying assets of the Company’s investment. The Company also enters into foreign currency forward contracts, and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the consolidated balance sheets. At March 31, 2021, the notional amount of derivatives not designated as hedging instruments was $4,404 million. The Company does not utilize derivative financial instruments for trading or speculative purposes. Costs associated with entering into derivative financial instruments have not been material to the Company’s consolidated financial results.
For each derivative contract entered into, where the Company looks to obtain hedge accounting treatment, the Company formally and contemporaneously documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, and how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. At inception, the Company evaluates the effectiveness of hedge relationships quantitatively, and has elected to perform, after initial evaluation, qualitative effectiveness assessments of certain hedge relationships to support an ongoing expectation of high effectiveness, if effectiveness testing is required. If based on the qualitative assessment, it is determined that a derivative has ceased to be a highly effective hedge, the Company will perform a quantitative assessment to determine whether to discontinue hedge accounting with respect to that derivative prospectively.
20

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of the Company’s derivative financial instruments included in the consolidated balance sheets are presented as follows:
Asset DerivativesLiability Derivatives
Fair Value (1)
Fair Value (1)
(In millions)Balance Sheet
Location
March 31
2021
June 30
2020
Balance Sheet
Location
March 31
2021
June 30
2020
Derivatives Designated as Hedging Instruments
Foreign currency cash flow hedgesPrepaid expenses and other current assets$16 $26 Other accrued liabilities$21 $
Net investment hedgesPrepaid expenses and other current assets115 21 Other accrued liabilities62 
Interest rate-related derivativesPrepaid expenses and other current assets15 Other accrued liabilities15 
Total Derivatives Designated as Hedging Instruments138 62 36 68 
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contractsPrepaid expenses and other current assets40 Other accrued liabilities108 15 
Total derivatives$143 $102 $144 $83 
(1)See Note 7 – Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined.
21

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments that are included in the assessment of effectiveness are as follows:

Amount of Gain (Loss)
Recognized in OCI on
Derivatives
Location of Gain (Loss)
Reclassified from AOCI
 into Earnings (Loss)
Amount of Gain (Loss)
Reclassified from AOCI into Earnings (Loss)(1)
Three Months Ended
March 31
Three Months Ended
March 31
(In millions)2021202020212020
Derivatives in Cash Flow Hedging Relationships:
Foreign currency forward contracts$22 $46 Net sales$(7)$10 
Interest rate-related derivatives11 (2)Interest expense(1)
33 44 (8)10 
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)
125 (20)
Total derivatives$158 $24 $(8)$10 
(1)The amount reclassified into earnings (loss) as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material.
(2)During the three months ended March 31, 2021 and 2020, the gain recognized in earnings (loss) from net investment hedges related to the amount excluded from effectiveness testing was $5 million and $12 million, respectively.
(3)Included within translation adjustments as a component of AOCI on the Company’s consolidated balance sheets.

Amount of Gain (Loss)
Recognized in OCI on
Derivatives
Location of Gain (Loss)
Reclassified from AOCI
 into Earnings
Amount of Gain (Loss)
Reclassified from AOCI into Earnings(1)
Nine Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Derivatives in Cash Flow Hedging Relationships:
Foreign currency forward contracts$(43)$50 Net sales$(11)$29 
Interest rate-related derivatives14 (11)Interest expense(2)
(29)39 (13)29 
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)
(17)(54)
Total derivatives$(46)$(15)$(13)$29 
(1)The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material.
(2)During the nine months ended March 31, 2021 and 2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $15 million and $37 million, respectively.
(3)Included within translation adjustments as a component of AOCI on the Company’s consolidated balance sheets.

22

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amount of Gain (Loss)
Recognized in Earnings (Loss) on Derivatives (1)
Location of Gain (Loss) Recognized in Earnings (Loss) on Derivatives
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Derivatives in Fair Value Hedging Relationships:
Interest rate swap contractsInterest expense$(18)$12 $(23)$13 
(1)Changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.

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

(In millions)
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, 2021March 31, 2021
Current debt$451 $
Long-term debt936 (9)
Total debt$1,387 $(8)
23

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additional information regarding the effects of fair value and cash flow hedging relationships for derivatives designated and qualifying as hedging instruments is as follows:

Three Months Ended March 31
20212020
(In millions)Net SalesInterest
Expense
Net SalesInterest
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$3,864 $43 $3,345 $42 
The effects of fair value and cash flow hedging relationships:
Gain (loss) on fair value hedge relationships – interest rate contracts:
Hedged itemNot applicable18 Not applicable(12)
Derivatives designated as hedging instrumentsNot applicable(18)Not applicable12 
Gain (loss) on cash flow hedge relationships – interest rate contracts:
Amount of loss reclassified from AOCI into earnings (loss)Not applicable(1)Not applicable
Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings (loss)(7)Not applicable10 Not applicable
24

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended March 31
20212020
(In millions)Net SalesInterest
Expense
Net SalesInterest
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$12,279 $131 $11,864 $112 
The effects of fair value and cash flow hedging relationships:
Gain (loss) on fair value hedge relationships – interest rate contracts:
Hedged itemNot applicable23 Not applicable(13)
Derivatives designated as hedging instrumentsNot applicable(23)Not applicable13 
Gain (loss) on cash flow hedge relationships – interest rate contracts:
Amount of loss reclassified from AOCI into earningsNot applicable(2)Not applicable
Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings(11)Not applicable29 Not applicable

The amount of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are presented as follows:
Amount of Gain (Loss)
Recognized in Earnings (Loss) on Derivatives
Location of Gain (Loss) Recognized in Earnings (Loss) on DerivativesThree Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Derivatives Not Designated as Hedging Instruments:
Foreign currency forward contractsSelling, general and administrative$(97)$49 $(34)$52 

25

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedges
The Company enters into foreign currency forward contracts, and may enter into foreign currency option contracts, to hedge anticipated transactions and receivables and payables denominated in foreign currencies, for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the cash flows that the Company receives from foreign subsidiaries. The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of December 2022. Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment. At March 31, 2021, the Company had cash flow hedges outstanding with a notional amount totaling $1,390 million.
The Company may enter into interest rate forward contracts to hedge anticipated issuance of debt for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of interest rate movements on the cost of debt issuance.
For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued, and gains and losses in AOCI are reclassified to sales when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses in AOCI are reclassified to current-period sales. As of March 31, 2021, the Company’s foreign currency cash flow hedges were highly effective.
The estimated net loss on the Company’s derivative instruments designated as cash flow hedges as of March 31, 2021 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $8 million. The accumulated net gain on derivative instruments in AOCI was $4 million and $20 million as of March 31, 2021 and June 30, 2020, respectively.
Fair Value Hedges
The Company enters into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness. The Company has interest rate swap agreements, with notional amounts totaling $450 million, $250 million and $700 million to effectively convert the fixed rate interest on its 2021 Senior Notes, 2022 Senior Notes and 2030 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin. These interest rate swap agreements are designated as fair value hedges of the related long-term debt, and the changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.
See Note 16 – Subsequent Events for further information relating to the interest rate swap transactions that occurred subsequent to March 31, 2021.
Net Investment Hedges
The Company enters into foreign currency forward contracts, designated as net investment hedges, to hedge a portion of its net investment in certain foreign operations. The net gain or loss on these contracts is recorded within translation adjustments, as a component of AOCI on the Company’s consolidated balance sheets. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the Company’s net investment in these foreign operations. The net investment hedge contracts have varying maturities through the end of April 2021. Hedge effectiveness of the net investment hedge contracts is based on the spot method. At March 31, 2021, the Company had net investment hedges outstanding with a notional amount totaling $1,920 million.
Credit Risk
As a matter of policy, the Company enters into derivative contracts only with counterparties that have a long-term credit rating of at least A- or higher by at least 2 nationally recognized rating agencies. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $143 million at March 31, 2021. To manage this risk, the Company has strict counterparty credit guidelines that are continually monitored. Accordingly, management believes risk of loss under these hedging contracts is remote.

26

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – FAIR VALUE MEASUREMENTS
The Company records certain of its financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The accounting for fair value measurements must be applied to nonfinancial assets and nonfinancial liabilities that require initial measurement or remeasurement at fair value, which principally consist of assets and liabilities acquired through business combinations and goodwill, indefinite-lived intangible assets and long-lived assets for the purposes of calculating potential impairment. The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:
Level 1:    Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.
Level 2:    Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3:    Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

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

(In millions)Level 1Level 2Level 3Total
Assets:
Money market funds$3,518 $$— $3,518 
Foreign currency forward contracts136 136 
Interest rate-related derivatives
Total$3,518 $143 $$3,661 
Liabilities:
Foreign currency forward contracts$$129 $$129 
Interest rate-related derivatives15 15 
Contingent consideration
Total$$144 $$146 
27

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020:

(In millions)Level 1Level 2Level 3Total
Assets:
Money market funds$2,810 $$$2,810 
Foreign currency forward contracts87 87 
Interest rate-related derivatives15 15 
Total$2,810 $102 $$2,912 
Liabilities:
Foreign currency forward contracts$$80 $$80 
Interest rate-related derivatives
Contingent consideration
Total$$83 $$87 

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

March 31
2021
June 30
2020
(In millions)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Nonderivatives
Cash and cash equivalents$6,399 $6,399 $5,022 $5,022 
Current and long-term debt5,958 6,465 6,136 6,902 
Contingent consideration
Derivatives
Foreign currency forward contracts – asset (liability), net
Interest rate-related derivatives – asset (liability), net(8)(8)12 12 


28

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s impairment charges for the nine months ended March 31, 2021 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test:

(In millions)Impairment chargesDate of Fair Value Measurement
Fair Value(1)
Goodwill
GLAMGLOW$54 November 30, 2020$
BECCA(2)
13 February 28, 2021
Total67 
Other intangible assets, net (trademark and customer lists)
GLAMGLOW27 November 30, 202036 
BECCA(2)
34 February 28, 2021
Total61 36 
Long-lived assets33 March 31, 202135 
Total$161 $71 
(1)See Note 3 - Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.
(2)See Note 4 – Charges Associated with Restructuring and Other Activities for further information relating to goodwill and other intangible asset impairment charges recorded in connection with the exit of the global distribution of BECCA products.

The following table presents the Company’s impairment charges for the nine months ended March 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 chargesDate of Fair Value Measurement
Fair Value(1)
Goodwill$786 March 31, 2020$103 
Other intangible assets, net (trademark)324 March 31, 2020417 
Long-lived assets13 March 31, 202011 
Total$1,123 $531 
(1)See Note 3 - Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.

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

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


29

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

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

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

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

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

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

NOTE 8 – REVENUE RECOGNITION
The Company’s revenue recognition accounting policies are described in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
Accounts Receivable
Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $50 million and $63 million as of March 31, 2021 and June 30, 2020, respectively. During the first quarter of fiscal 2021, the Company adopted ASC 326 using the modified retrospective transition approach and, accordingly, the prior comparative period was not restated. Under this new standard, the Company is required to measure credit losses based on the Company’s estimate of expected losses rather than incurred losses, which generally results in earlier recognition of allowances for credit losses. In accordance with ASC 326, the Company evaluated certain criteria, including aging and historical write-offs, current economic condition of specific customers and future economic conditions of countries utilizing a consumption index to determine the appropriate allowance for credit losses. The Company writes-off receivables once it is determined that the receivables are no longer collectible and as allowed by local laws. Payment terms are short-term in nature and are generally less than one year.


30

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for credit losses are as follows:

(In millions)
Balance at June 30, 2020$36 
ASC 326 cumulative effect adjustment (pre-tax)
Adjustment for expected credit losses(5)
Write-offs, net & other(10)
Balance at March 31, 2021$25 

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

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

Deferred Revenue
Changes in deferred revenue during the period are as follows:

Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Deferred revenue, beginning of period$420 $425 $279 $361 
Revenue recognized that was included in the deferred revenue balance at the beginning of the period(25)(26)(198)(268)
Revenue deferred (released) during the period(30)(37)278 269 
Other(4)
Deferred revenue, end of period$361 $362 $361 $362 
Transaction Price Allocated to the Remaining Performance Obligations
At March 31, 2021, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions and gift card liabilities that are unsatisfied (or partially unsatisfied) is $310 million, and the remaining balance will be recognized beyond the next twelve months.

31

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – PENSION AND POST-RETIREMENT BENEFIT PLANS

The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. The Company also maintains post-retirement benefit plans that provide certain medical and dental benefits to eligible employees. Descriptions of these plans are included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
The components of net periodic benefit cost for the three months ended March 31, 2021 and 2020 consisted of the following:

Pension PlansOther than
Pension Plans
U.S.InternationalPost-retirement
(In millions)202120202021202020212020
Service cost$12 $$$$$
Interest cost
Expected return on plan assets(14)(14)(4)(4)(1)
Amortization of:
Actuarial loss
Settlements
Special termination benefits
Net periodic benefit cost$11 $$10 $10 $$

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

Pension PlansOther than
Pension Plans
U.S.InternationalPost-retirement
(In millions)202120202021202020212020
Service cost$34 $29 $27 $27 $$
Interest cost23 26 
Expected return on plan assets(40)(40)(10)(11)(1)(1)
Amortization of:
Actuarial loss15 12 
Settlements
Special termination benefits10 
Net periodic benefit cost$32 $27 $38 $29 $$

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


32

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts recognized in the consolidated balance sheets related to the Company’s pension and post-retirement benefit plans consist of the following:

(In millions)March 31
2021
June 30
2020
Other assets$137 $127 
Other accrued liabilities(27)(27)
Other noncurrent liabilities(470)(440)
Funded status(360)(340)
Accumulated other comprehensive loss304 324 
Net amount recognized$(56)$(16)

NOTE 10 – COMMITMENTS AND CONTINGENCIES
Commitments
In February 2021, the Company agreed to acquire additional shares in DECIEM Beauty Group Inc. (“DECIEM”) that will increase its existing equity interest from approximately 29% to approximately 76%. Upon closing, which is expected to occur in May 2021, the Company will pay approximately $1,000 million and will have the right to purchase, and will grant the remaining investors a right to sell to the Company, the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM.

Legal Proceedings

The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business, including employment, intellectual property, real estate, environmental, regulatory, advertising, trade relations, tax, privacy, and product liability matters (including asbestos-related claims). Management believes that the outcome of current litigation and legal proceedings will not have a material adverse effect upon the Company’s business, results of operations, financial condition or cash flows. However, management’s assessment of the Company’s current litigation and other legal proceedings could change in light of the discovery of facts with respect to legal actions or other proceedings pending against the Company not presently known to the Company or determinations by judges, juries or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or proceedings. Reasonably possible losses in addition to the amounts accrued for such litigation and legal proceedings are not material to the Company’s consolidated financial statements.

NOTE 11 – STOCK PROGRAMS
Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), long-term PSUs, long-term price-vested units (“PVUs”) and share units. Compensation expense attributable to net stock-based compensation was $86 million and $71 million for the three months ended March 31, 2021 and 2020, respectively, and was $255 million and $210 million for the nine months ended March 31, 2021 and 2020, respectively.
Stock Options
During the nine months ended March 31, 2021, the Company granted stock options in respect of approximately 1.5 million shares of Class A Common Stock with an exercise price per share of $218.40 and a weighted-average grant date fair value per share of $54.61. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The aggregate intrinsic value of stock options exercised during the nine months ended March 31, 2021 was $317 million.



33

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
The Company granted RSUs in respect of approximately 1.0 million shares of Class A Common Stock during the nine months ended March 31, 2021 with a weighted-average grant date fair value per share of $219.01 that, at the time of grant, are scheduled to vest as follows: 0.3 million in fiscal 2022, 0.4 million in fiscal 2023 and 0.3 million in fiscal 2024. Vesting of RSUs is generally subject to the continued employment or the retirement of the grantees. The RSUs are accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were valued at the closing market price of the Company’s Class A Common Stock on the date of grant.
Performance Share Units
During the nine months ended March 31, 2021, the Company granted PSUs with a target payout of approximately 0.1 million shares of Class A Common Stock with a weighted-average grant date fair value per share of $218.11, which will be settled in stock subject to the achievement of the Company’s net sales and diluted net earnings per common share for the three fiscal years ending June 30, 2023, all subject to continued employment or the retirement of the grantees. For PSUs granted, no settlement will occur for results below the applicable minimum threshold. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSUs and, as such, were valued at the closing market value of the Company’s Class A Common Stock on the date of grant.
In September 2020, approximately 0.2 million shares of the Company’s Class A Common Stock were issued, and related accrued dividends were paid, relative to the target goals set at the time of the issuance, in settlement of 0.5 million PSUs which vested as of June 30, 2020.
Long-term Performance Share Units
In March 2021, the Company granted to the Company’s Chief Executive Officer (“CEO”) PSUs with an aggregate payout of 68,578 shares of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024. Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income, as defined in the performance share unit award agreement, during the relevant performance period, and delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025. The PSUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant date fair value of the PSUs of approximately $20 million was estimated using the closing stock price of the Company's Class A Common Stock on the date of grant. As of March 31, 2021, the total unrecognized compensation cost related to unvested PSU awards was $20 million and the related period over which it is expected to be recognized is approximately 3.3 years, subject to the performance condition being met.

34

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

Number
of
Shares
per
Tranche
Stock Price Goal
(per Share)
Service PeriodPerformance Period for Stock Price GoalPerformance Period for Cumulative Operating Income GoalShare Delivery Date
First tranche27,457 $323.03 March 11, 2021 - June 30, 2024March 11, 2021 - June 30, 2024July 1, 2021 - June 30, 2025September 2, 2025
Second tranche28,598 $333.21 March 11, 2021 - June 30, 2024March 11, 2021 - June 30, 2024July 1, 2021 - June 30, 2025September 2, 2025
Third tranche29,872 $343.61 March 11, 2021 - June 30, 2024March 11, 2021 - June 30, 2024July 1, 2021 - June 30, 2025September 2, 2025
Total shares85,927 

Generally, delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025. The PVUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant date fair value of the PVUs of approximately $20 million was estimated using the Monte Carlo Method, which requires certain assumptions. The assumptions used for this award were as follows:
Expected volatility31.8 %
Dividend yield0.8 %
Risk-free interest rate0.4 %
Expected term3.3 years
As of March 31, 2021, the total unrecognized compensation cost related to unvested PVU awards was $20 million and the related period over which it is expected to be recognized is approximately 3.3 years, subject to the performance conditions and stock price goals being met.

NOTE 12 – NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. PER COMMON SHARE
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share (“basic EPS”) is computed by dividing net earnings (loss) attributable to The Estée Lauder Companies Inc. by the weighted-average number of common shares outstanding and shares underlying PSUs and RSUs where the vesting conditions have been met. Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share assuming dilution (“diluted EPS”) is computed by reflecting potential dilution from stock-based awards.
35

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the numerator and denominator of the basic and diluted EPS computations is as follows:

Three Months Ended
March 31
Nine Months Ended
March 31
(In millions, except per share data)2021202020212020
Numerator:
Net earnings (loss) attributable to The Estée Lauder Companies Inc.$456 $(6)$1,852 $1,146 
Denominator:
Weighted-average common shares outstanding – Basic363.6 360.2 362.9 360.6 
Effect of dilutive stock options(1)
4.1 3.94.6
Effect of PSUs(1)
0.2 0.20.3
Effect of RSUs(1)
1.1 1.11.6
Weighted-average common shares outstanding – Diluted369.0 360.2 368.1 367.1 
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share:
Basic$1.25 $(.02)$5.10 $3.18 
Diluted$1.24 $(.02)$5.03 $3.12 
(1)For the three months ended March 31, 2020, the effects of potentially dilutive stock options, PSUs and RSUs were excluded from the computation of diluted EPS as they were anti-dilutive due to the net loss incurred during the period.

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

Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Stock options(1)
0.9 1.3 
RSUs and PSUs(1)
0.1 
(1)Not applicable for the three months ended March 31, 2020, since the effects of potentially dilutive stock options, PSUs and RSUs were excluded from the computation of diluted EPS as they were anti-dilutive due to the net loss incurred during the period.

As of March 31, 2021 and 2020, 0.9 million and 1.2 million shares, respectively, of Class A Common Stock underlying PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 11 – Stock Programs.

36

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – EQUITY
Total Stockholders’ Equity – The Estée Lauder Companies Inc.
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Common stock, beginning of the period$$$$
Stock-based compensation
Common stock, end of the period
Paid-in capital, beginning of the period5,068 4,615 4,790 4,403 
Common stock dividends
Stock-based compensation162 144 439 354 
Paid-in capital, end of the period5,231 4,760 5,231 4,760 
Retained earnings, beginning of the period11,159 10,775 10,134 9,984 
Common stock dividends(195)(174)(563)(506)
Net earnings (loss) attributable to The Estée Lauder Companies Inc.456 (6)1,852 1,146 
Cumulative effect of adoption of new accounting standards(3)(29)
Retained earnings, end of the period11,420 10,595 11,420 10,595 
Accumulated other comprehensive loss, beginning of the period(383)(569)(665)(563)
Other comprehensive income (loss)(104)(143)178 (149)
Accumulated other comprehensive loss, end of the period(487)(712)(487)(712)
Treasury stock, beginning of the period(10,429)(10,253)(10,330)(9,444)
Acquisition of treasury stock(212)(65)(212)(768)
Stock-based compensation(1)(2)(100)(108)
Treasury stock, end of the period(10,642)(10,320)(10,642)(10,320)
Total stockholders’ equity – The Estée Lauder Companies Inc.5,528 4,329 5,528 4,329 
Noncontrolling interests, beginning of the period35 27 27 25 
Net earnings attributable to noncontrolling interests
Distribution to noncontrolling interest holders(6)(6)(4)
Other comprehensive (income) loss(1)(1)
Noncontrolling interests, end of the period30 29 30 29 
Total equity$5,558 $4,358 $5,558 $4,358 
Cash dividends declared per common share$.53 $.48 $1.54 $1.39 
37

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the nine months ended March 31, 2021:

Date DeclaredRecord DatePayable DateAmount per Share
August 19, 2020August 31, 2020September 15, 2020$.48 
October 30, 2020November 30, 2020December 15, 2020$.53 
February 4, 2021February 26, 2021March 15, 2021$.53 

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

Common Stock
During the nine months ended March 31, 2021, the Company purchased approximately 1.2 million shares of its Class A Common Stock for $316 million. In March 2021, the Company resumed its repurchase of shares of the Company's Class A Common Stock.
During the nine months ended March 31, 2021, approximately 4.6 million shares of the Company’s Class B Common Stock were converted into the same amount of shares of the Company’s Class A Common Stock.
Accumulated Other Comprehensive Income
The following table represents changes in AOCI, net of tax, by component for the nine months ended March 31, 2021:

(In millions)Net Cash
Flow Hedge
Gain (Loss)
Retirement Plan and Other Retiree Benefit AdjustmentsTranslation
Adjustments
Total
Balance at June 30, 2020$14 $(244)$(435)$(665)
OCI before reclassifications(22)(1)175 (2)154 
Amounts reclassified to Net earnings10 14 24 
Net current-period OCI(12)15 175 178 
Balance at March 31, 2021$$(229)$(260)$(487)
(1)Consists of foreign currency translation gains.
(2)See Note 6 – Derivative Financial Instruments for gains (losses) relating to net investment hedges.
38

THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the effects of reclassification adjustments from AOCI into net earnings (loss) for the three and nine months ended March 31, 2021 and 2020:

Amount Reclassified from AOCIAffected Line Item in
Consolidated
Statements of Earnings (Loss)
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Gain (Loss) on Cash Flow Hedges
Foreign currency forward contracts$(7)$10 $(11)$29 Net sales
Interest rate-related derivatives(1)(2)Interest expense
(8)10 (13)29 
Benefit (provision) for deferred taxes(2)(7)Provision for income taxes
$(6)$(10)$22 Net earnings (loss)
Retirement Plan and Other Retiree Benefit Adjustments
Amortization of actuarial loss$(6)$(6)$(18)$(16)
Other components of net periodic benefit cost (1)
Settlements(1)(1)
Other components of net periodic benefit cost (1)
(7)(6)(19)(16)
Earnings before income taxes (1)
Benefit for deferred taxesProvision for income taxes
$(4)$(5)$(14)$(13)Net earnings (loss)
Cumulative Translation Adjustments
Gain on previously held equity method investment$$$$Other income
Loss on liquidation of an investment in a foreign subsidiary(6)Restructuring and other charges
$$$(2)Net earnings (loss)
Total reclassification adjustments, net$(10)$$(24)$Net earnings (loss)
(1)See Note 9 – Pension and Post-Retirement Benefit Plans for additional information.












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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – STATEMENT OF CASH FLOWS
Supplemental cash flow information for the nine months ended March 31, 2021 and 2020 is as follows:

(In millions)20212020
Cash:
Cash paid during the period for interest$108 $94 
Cash paid during the period for income taxes$435 $472 
Non-cash investing and financing activities:
Property, plant and equipment accrued but unpaid$68 $47 
Right-of-use assets obtained in exchange for new operating lease liabilities$167 $216 

NOTE 15 – SEGMENT DATA AND RELATED INFORMATION

Reportable operating segments include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the “Chief Executive”) in deciding how to allocate resources and in assessing performance. Although the Company operates in 1 business segment, beauty products, management also evaluates performance on a product category basis. Product category performance is measured based upon net sales before returns associated with restructuring and other activities, and earnings before income taxes, other components of net periodic benefit cost, interest expense, interest income and investment income, net, other income, net, and charges associated with restructuring and other activities. Returns and charges associated with restructuring and other activities are not allocated to our product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business.

The accounting policies for the Company’s reportable segments are substantially the same as those for the consolidated financial statements, as described in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information is produced for the Chief Executive or included herein. There has been no significant variance in the total or long-lived asset values associated with the Company’s segment data since June 30, 2020.
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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
PRODUCT CATEGORY DATA
Net sales:
Skin Care$2,259 $1,723 $7,113 $5,770 
Makeup1,018 1,146 3,243 4,249 
Fragrance454 349 1,478 1,392 
Hair Care128 119 418 417 
Other15 37 36 
3,874 3,345 12,289 11,864 
Returns associated with restructuring and other activities(10)(10)
Net sales$3,864 $3,345 $12,279 $11,864 
Operating income (loss) before charges associated with restructuring and other activities:
Skin Care$804 $418 $2,453 $1,822 
Makeup(72)(283)(115)(790)
Fragrance47 248 163 
Hair Care(17)(2)(10)10 
Other(1)(1)
761 134 2,575 1,212 
Reconciliation:
Charges associated with restructuring and other activities(145)(25)(191)(63)
Interest expense(43)(42)(131)(112)
Interest income and investment income, net14 40 41 
Other components of net periodic benefit cost(2)(1)(12)(3)
Other income576 
Earnings before income taxes$580 $80 $2,281 $1,651 
GEOGRAPHIC DATA(1)
Net sales:
The Americas$916 $892 $2,837 $3,278 
Europe, the Middle East & Africa1,706 1,525 5,276 5,281 
Asia/Pacific1,252 928 4,176 3,305 
3,874 3,345 12,289 11,864 
Returns associated with restructuring and other activities(10)(10)
Net sales$3,864 $3,345 $12,279 $11,864 
Operating income (loss):
The Americas$155 $(217)$256 $(571)
Europe, the Middle East & Africa361 202 1,429 1,084 
Asia/Pacific245 149 890 699 
761 134 2,575 1,212 
Charges associated with restructuring and other activities(145)(25)(191)(63)
Operating income$616 $109 $2,384 $1,149 
(1) The net sales from the Company’s travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr. Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region. Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.

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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – SUBSEQUENT EVENTS

Debt

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

Derivative Financial Instruments

In April 2021, the Company entered into an interest rate swap agreement with a notional amount of $300 million to partially convert the fixed rate interest on its outstanding 2031 Senior Notes, to variable interest rates based on three-month LIBOR plus a margin. This interest rate swap agreement was designated as a fair value hedge.
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THE ESTÉE LAUDER COMPANIES INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS

We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories, which are distributed in approximately 150 countries and territories. The following table is a comparative summary of operating results for the three and nine months ended March 31, 2021 and 2020, and reflects the basis of presentation described in Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies for all periods presented. Products and services that do not meet our definition of skin care, makeup, fragrance and hair care have been included in the “other” category.
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
NET SALES
By Product Category:
Skin Care$2,259 $1,723 $7,113 $5,770 
Makeup1,018 1,146 3,243 4,249 
Fragrance454 349 1,478 1,392 
Hair Care128 119 418 417 
Other15 37 36 
3,874 3,345 12,289 11,864 
Returns associated with restructuring and other activities(10)— (10)— 
Net sales$3,864 $3,345 $12,279 $11,864 
By Region(1):
The Americas$916 $892 $2,837 $3,278 
Europe, the Middle East & Africa1,706 1,525 5,276 5,281 
Asia/Pacific1,252 928 4,176 3,305 
3,874 3,345 12,289 11,864 
Returns associated with restructuring and other activities(10)— (10)— 
Net sales$3,864 $3,345 $12,279 $11,864 
OPERATING INCOME (LOSS)
By Product Category:
Skin Care$804 $418 $2,453 $1,822 
Makeup(72)(283)(115)(790)
Fragrance47 — 248 163 
Hair Care(17)(2)(10)10 
Other(1)(1)
761 134 2,575 1,212 
Charges associated with restructuring and other activities(145)(25)(191)(63)
Operating income$616 $109 $2,384 $1,149 
By Region(1):
The Americas$155 $(217)$256 $(571)
Europe, the Middle East & Africa361 202 1,429 1,084 
Asia/Pacific245 149 890 699 
761 134 2,575 1,212 
Charges associated with restructuring and other activities(145)(25)(191)(63)
Operating income$616 $109 $2,384 $1,149 
(1) The net sales from our travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr. Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region. Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.
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THE ESTÉE LAUDER COMPANIES INC.
The following table presents certain consolidated earnings data as a percentage of net sales:

Three Months Ended
March 31
Nine Months Ended
March 31
2021202020212020
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales24.3 25.0 23.2 23.5 
Gross profit75.7 75.0 76.8 76.5 
Operating expenses:
Selling, general and administrative55.5 60.7 55.1 56.9 
Restructuring and other charges3.4 0.7 1.4 0.5 
Goodwill impairment— 8.2 0.4 6.6 
Impairment of other intangible and long-lived assets0.9 2.1 0.5 2.8 
Total operating expenses59.8 71.7 57.4 66.8 
Operating income15.9 3.3 19.4 9.7 
Interest expense1.1 1.3 1.1 1.0 
Interest income and investment income, net0.2 0.4 0.3 0.3 
Other components of net periodic benefit cost0.1 — 0.1 — 
Other income— — — 4.9 
Earnings before income taxes15.0 2.4 18.6 13.9 
Provision for income taxes(3.2)(2.5)(3.4)(4.2)
Net earnings (loss)11.9 (0.1)15.1 9.7 
Net earnings attributable to noncontrolling interests(0.1)(0.1)(0.1)— 
Net earnings (loss) attributable to The Estée Lauder Companies Inc.11.8 %(0.2)%15.1 %9.7 %
Not adjusted for differences caused by rounding
We continually introduce new products, support new and established products through advertising, merchandising and sampling and phase out existing products that no longer meet the needs of our consumers or our objectives. The economics of developing, producing, launching, supporting and discontinuing products impact our sales and operating performance each period. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.
Non-GAAP Financial Measures

We use certain non-GAAP financial measures, among other financial measures, to evaluate our operating performance, which represent the manner in which we conduct and view our business. Management believes that excluding certain items that are not comparable from period to period helps investors and others compare operating performance between periods. While we consider the non-GAAP measures useful in analyzing our results, they are not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with U.S. GAAP. See Reconciliations of Non-GAAP Financial Measures beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.


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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.

Overview

COVID-19 Business Update

The COVID-19 pandemic continues to disrupt our operating environment, temporarily impacting retail traffic and certain consumer preferences. During the three months ended March 31, 2021, the resurgence of COVID-19 cases in several countries, particularly in Western Europe and Latin America, led to government restrictions to prevent further spread of the virus. These restrictions included temporary business closures, curtailment of travel, social distancing and quarantines.

Retail impact

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

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

Consumer Preferences

The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have influenced consumer preferences and practices. Specifically, the demand for makeup continues to be weak given fewer makeup usage occasions while other categories have been more resilient.

Cost Controls

In response to the ongoing impacts from the COVID-19 pandemic, we continue to implement cost control actions in certain areas of the business to effectively manage the changing business environment.

Business Update

We are a leader in prestige beauty, which combines the repeat purchase and relative affordability of consumer goods with the high quality products and services of luxury goods. Within prestige beauty, we are well diversified by brand, product category, product sub-category, geography, channel, consumer segment and price point. This diversity allows us to leverage consumer analytics and insights with agility by deploying our brands to fast growing and profitable opportunities. These analytics and insights, combined with our creativity, inform our innovation to provide a broad, locally-relevant and inclusive range of prestige products allowing us to compete effectively for a greater share of a consumer's beauty routine. Elements of our strategy are described in the Overview on pages 28-31 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, as well as below.


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THE ESTÉE LAUDER COMPANIES INC.
During the third quarter of fiscal 2021, net sales increased approximately 16% from the prior-year period, reflecting an easier comparison against the outbreak of COVID-19 in early calendar 2020. We saw increases across most product categories and all regions, as well as strong growth online.

Our skin care net sales benefited from the launch of the new Estée Lauder Advanced Night Repair Synchronized Multi-Recovery Complex, the launch of the new The Concentrate from La Mer and strength in basic skin care from Clinique. Dr. Jart+ and Origins also contributed to skin care growth. These new products support high-loyalty hero franchises.
The COVID-19 pandemic limited social and business activities and consumers wore less makeup. Demand for lipstick and foundation were most acutely impacted, contributing to lower makeup net sales across the portfolio. Our brands continued to generate interest in makeup through virtual marketing efforts such as classes, virtual try on technology and greater emphasis on social media platforms, as well as a focus on sub-categories that continue to resonate with consumers.
Our fragrance net sales increased in the third quarter of fiscal 2021, reflecting strength in luxury and artisanal scents. Fragrance net sales growth was led by Jo Malone London, Tom Ford Beauty, Kilian Paris and Le Labo. The category also benefited from the launch of Beautiful Magnolia from Estée Lauder.
Our hair care net sales increased, reflecting Aveda's launch of Botanical Repair in the first quarter of fiscal 2021.

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

Net sales increased in The Americas, reflecting some recovery in North America compared to the prior year where brick-and-mortar retail locations were shut down toward the end of the fiscal 2020 third quarter as COVID-19 spread globally. This was partially offset by declines in Latin America where many retail locations closed as the resurgence of COVID-19 led to increased government restrictions and store closures during the third quarter of fiscal 2021.
The Europe, the Middle East & Africa region net sales returned to growth, led by our travel retail business, direct-to-consumer online and retailer restocking in advance of further recovery.
The Asia/Pacific region grew, reflecting increases in mainland China, Australia, Korea, and several smaller markets.

Outlook

The COVID-19 pandemic has disrupted business both for our Company and for the retailers who sell our products. There have been restructurings and bankruptcies in the retail industry, including among our customers and an acceleration in the shifts in preferences as to where and how consumers shop, as well as changes in their preferences for certain products. We are mindful that these trends may continue to impact the pace of recovery. The continued curtailment in international travel is also affecting our travel retail business in most of the world, which had been historically one of our fastest growth areas. In addition to impacting net sales and profitability, these and other challenges may impact our ability to collect receivables and our operating cash flows generally, and may adversely impact the goodwill and other intangible assets associated with our brands and the long-lived assets in certain of our freestanding stores (i.e. resulting in impairments).

We continue to monitor the effects of the global macroeconomic environment; social and political issues; regulatory matters, including the imposition of tariffs; geopolitical tensions; and global security issues. For example, we continue to monitor the geopolitical tensions between the United States and China and the uncertainties caused by the evolving trade policy dispute, which could increase our cost of sales and negatively impact our overall net sales, or otherwise have a material adverse effect on our business. We also note that the United Kingdom reached a trade agreement and completed its transition out of the European Union (“EU”) in December 2020 (i.e. “Brexit”), and we continue to monitor the potential political and economic uncertainties from Brexit.


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THE ESTÉE LAUDER COMPANIES INC.
The uncertainty around the timing, speed and duration of the recovery from the adverse impacts of the COVID-19 pandemic will continue to affect our ability to grow sales profitably. We believe we can, to some extent, offset the impact of more ordinary challenges by continually developing and pursuing a diversified strategy with multiple engines of growth and by accelerating initiatives focused on areas of strength, discipline and agility, and by implementing our Post-COVID Business Acceleration Program. As the current situation progresses, if economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions previously described are further prolonged, there could be a further negative effect on consumer confidence, demand, spending and willingness or ability to travel and, as a result, on our business. We are continuing to monitor these and other risks that may affect our business.

Leading Beauty Forward Program and Post-COVID Business Acceleration Program

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

Goodwill and Other Intangible Asset Impairments

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

NET SALES
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$3,864 $3,345 $12,279 $11,864 
$ Change from prior-year period519 415 
% Change from prior-year period16 %%
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency13 %%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

Reported net sales increased for the nine months ended March 31, 2021, primarily reflecting higher net sales in our skin care and fragrance product categories and in our Asia/Pacific region. The net sales increase in our skin care product category was primarily driven by higher net sales from Estée Lauder, La Mer, Dr. Jart+ and Clinique. Fragrance net sales increased, primarily benefiting from higher net sales from Jo Malone London and Tom Ford Beauty. Net sales in Asia/Pacific increased, primarily due to higher net sales in mainland China and Korea. Despite the net sales growth in our travel retail business (primarily in Hainan), net sales in our Europe, the Middle East & Africa region declined due to the continued challenges of the COVID-19 pandemic, including temporary retail store closures and reduced consumer foot traffic in brick-and-mortar retail locations, the continued curtailment of international travel, and continued social distancing and quarantines. Direct-to-consumer online net sales continued to have strong growth, representing approximately 18% of net sales for the nine months ended March 31, 2021 compared to approximately 12% in the prior-year period.

The total net sales changes were impacted by approximately $95 million and $212 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.
Returns associated with restructuring and other activities are not allocated to our product categories or geographic regions because they result from activities that are deemed a Company-wide initiative to redesign, resize and reorganize select corporate functions and go-to-market structures. Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the fiscal 2021 third quarter impact of returns associated with restructuring and other activities of approximately $10 million.
Product Categories
Skin Care
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$2,259 $1,723 $7,113 $5,770 
$ Change from prior-year period536 1,343 
% Change from prior-year period31 %23 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency28 %21 %
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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THE ESTÉE LAUDER COMPANIES INC.
Reported skin care net sales increased for the three months ended March 31, 2021, reflecting higher net sales from Estée Lauder, La Mer and Clinique of approximately $502 million, combined. Net sales increased from Estée Lauder and La Mer, led by our travel retail business (primarily in Hainan) and mainland China, reflecting strong growth from direct-to-consumer online net sales of products from these brands primarily due to the successful holiday and promotional events. Net sales increased from Estée Lauder, reflecting the continued success of hero product franchises, such as Advanced Night Repair, Revitalizing Supreme+ and Daywear, as well as fiscal 2021 product launches, such as Advanced Night Repair Synchronized Multi-Recovery Complex, Revitalizing Supreme+ Bright, and the relaunch of Perfectionist Pro. The increase in net sales from La Mer also benefited from the continued success of hero products, such as Crème de la Mer, The Concentrate, The Treatment Lotion and The Eye Concentrate, as well as the fiscal 2021 launch of the Genaissance de la Mer The Concentrated Night Balm and targeted expanded consumer reach. Net sales increased from Clinique for the three months ended March 31, 2021, primarily due to higher net sales in our travel retail business (primarily in Hainan) and in North America, reflecting the continued success of existing products, such as Dramatically Different products and Even Better Clinical Radical Dark Spot Corrector + Interrupter, and new product launches, such as Moisture Surge 100H Auto-Replenishing Hydrator.
Reported skin care net sales increased for the nine months ended March 31, 2021, reflecting higher net sales from Estée Lauder, La Mer, and Clinique, as well as incremental net sales attributable to our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter, of approximately $1,452 million, combined. Net sales increased from Estée Lauder, La Mer and Clinique, as noted above.
The skin care net sales increases were impacted by approximately $58 million and $139 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

Makeup
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$1,018 $1,146 $3,243 $4,249 
$ Change from prior-year period(128)(1,006)
% Change from prior-year period(11)%(24)%
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency(13)%(25)%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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


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THE ESTÉE LAUDER COMPANIES INC.
Fragrance
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$454 $349 $1,478 $1,392 
$ Change from prior-year period105 86 
% Change from prior-year period30 %%
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency27 %%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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

Partially offsetting these increases in net sales for the nine months ended March 31, 2021, were lower net sales from certain of our designer fragrances, led by our travel retail business, primarily due to the continued challenging environment as a result of the COVID-19 pandemic.

The fragrance net sales increases were impacted by approximately $10 million and $21 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.
Hair Care
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$128 $119 $418 $417 
$ Change from prior-year period
% Change from prior-year period%— %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency%(1)%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.
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THE ESTÉE LAUDER COMPANIES INC.
Reported hair care net sales increased for the three months ended March 31, 2021, primarily due to higher net sales from Aveda driven by the success of existing product franchises, such as Nutriplenish, and the continued success of the fiscal 2021 first quarter launch of Botanical Repair, which led to growth in all geographic regions.

Reported hair care net sales for the nine months ended March 31, 2021 were virtually flat, reflecting higher net sales primarily from Aveda, as noted above, partially offset by lower net sales from Bumble and bumble, reflecting the net sales decline in North America primarily due to temporary salon and freestanding store closures as a result of the COVID-19 pandemic.
The increases in net sales for the three and nine months ended March 31, 2021 from Aveda also reflected strong growth from direct-to-consumer online net sales.

Geographic Regions
The Americas
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$916 $892 $2,837 $3,278 
$ Change from prior-year period24 (441)
% Change from prior-year period%(13)%
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency%(12)%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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

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

Direct-to-consumer online net sales in The Americas grew double digits for the three and nine months ended March 31, 2021, and represented approximately 19% and 22% of total net sales in the region compared to approximately 15% and 14% in the prior-year periods, respectively.

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

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THE ESTÉE LAUDER COMPANIES INC.
Europe, the Middle East & Africa
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$1,706 $1,525 $5,276 $5,281 
$ Change from prior-year period181 (5)
% Change from prior-year period12 %— %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency10 %(1)%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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

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

Partially offsetting these decreases for the nine months ended March 31, 2021, were higher net sales from our travel retail business, led by the continued success of hero product franchises from Estée Lauder and La Mer, primarily driven by the increases in net sales in China travel retail (primarily Hainan), as noted above.

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

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


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THE ESTÉE LAUDER COMPANIES INC.
Asia/Pacific
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Net sales$1,252 $928 $4,176 $3,305 
$ Change from prior-year period324 871 
% Change from prior-year period35 %26 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency26 %20 %
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported net sales in Asia/Pacific increased for the three months ended March 31, 2021, reflecting higher net sales primarily in mainland China, Australia, Korea and Hong Kong of approximately $334 million, combined, and in all product categories. The increase in net sales in mainland China reflected higher net sales in all product categories, led by skin care. The success of holiday and promotional events in mainland China contributed to growth in virtually all brands and all channels, led by Estée Lauder and La Mer and department stores and third-party platforms, respectively. Net sales in Australia increased in all product categories and from all brands, led by Estée Lauder and Clinique, driven by a recovery compared to the prior-year challenges stemming from the outbreak of COVID-19. Net sales increased in Korea, reflecting growth in all product categories, except makeup, and benefited from the increase in net sales from Dr. Jart+ and Jo Malone London. Net sales in Hong Kong increased for the three months ended March 31, 2021, in all product categories, except makeup, and from most brands, led by La Mer and Estée Lauder, reflecting an easy comparison to the prior-year period as a result of the outbreak of COVID-19. Direct-to-consumer online net sales in Asia/Pacific for the three months ended March 31, 2021 grew double digits.

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

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

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

Net sales in Asia/Pacific were impacted by approximately $80 million and $196 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.
We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.
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THE ESTÉE LAUDER COMPANIES INC.
GROSS MARGIN
Gross margin increased to 75.7% and 76.8% for the three and nine months ended March 31, 2021, respectively, as compared with 75.0% and 76.5% in the prior-year periods.

Favorable (Unfavorable) Basis Points
March 31, 2021
Three Months EndedNine Months Ended
Mix of business235 100 
Obsolescence charges(65)(30)
Manufacturing costs and other(30)— 
Foreign exchange transactions(50)(40)
Subtotal90 30 
Charges associated with restructuring and other activities(20)— 
Total70 30 

The favorable impact from our mix of business for the three and nine months ended March 31, 2021 was primarily due to the favorable change in product category mix (i.e. a decline in net sales of our lower margin makeup category, led by North America and Europe, the Middle East & Africa (primarily our travel retail business)), favorable changes in strategic pricing, lower costs from product sets, and lower costs of promotional items as a result of reduced consumer traffic in brick-and-mortar retail locations. For the three months ended March 31, 2021, the favorable impact from our mix of business was also driven by an increase in net sales of our higher margin luxury and artisanal fragrance brands.
OPERATING EXPENSES

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

Favorable (Unfavorable) Basis Points
March 31, 2021
Three Months EndedNine Months Ended
General and administrative expenses(230)(180)
Advertising, merchandising, sampling and product development200 60 
Selling520 320 
Stock-based compensation(20)(40)
Store operating costs70 30 
Shipping— (10)
Foreign exchange transactions(10)20 
Subtotal530 200 
Charges associated with restructuring and other activities(270)(90)
Goodwill, other intangible and long-lived asset impairments940 850 
Changes in fair value of contingent consideration(10)(20)
Total1,190 940 

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

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

Partially offsetting these favorable impacts for the three and nine months ended March 31, 2021 were increases in general and administrative expenses, primarily due to an increase in employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.
OPERATING RESULTS
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating income$616 $109 $2,384 $1,149 
$ Change from prior-year period507 1,235 
% Change from prior-year period100+%100+%
Operating margin15.9 %3.3 %19.4 %9.7 %
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, other intangible and long-lived asset impairments and changes in fair value of contingent consideration66 %16 %
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.
The reported operating margin for the three and nine months ended March 31, 2021 increased from the prior-year periods driven by the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $313 million and $1,009 million for the three and nine months end March 31, 2021, respectively, the decrease in operating expenses as a percentage of net sales and the increase in gross margin, as previously noted.
Charges associated with restructuring and other activities are not allocated to our product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business. Accordingly, the following discussions of Operating income by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other activities of $145 million, or 4% of net sales and $25 million, or 1% of net sales for the three months ended March 31, 2021 and 2020, respectively, and $191 million, or 2% of net sales and $63 million, or 1% of net sales for the nine months ended March 31, 2021 and 2020, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

Product Categories
Skin Care
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating income$804 $418 $2,453 $1,822 
$ Change from prior-year period386 631 
% Change from prior-year period92 %35 %
Non-GAAP Financial Measure(1):
% 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 consideration70 %35 %
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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

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

Partially offsetting the increase in operating income for the nine months ended March 31, 2021, were higher general and administrative expenses, primarily due to increased employee incentive compensation and lower results from GLAMGLOW driven by the unfavorable year-over-year impact of goodwill and other intangible asset impairments of $28 million.





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Makeup
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating loss$(72)$(283)$(115)$(790)
$ Change from prior-year period211 675 
% Change from prior-year period75 %85 %
Non-GAAP Financial Measure(1):
% Change in operating loss from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments(100+)%(100+)%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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

Fragrance
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating income$47 $— $248 $163 
$ Change from prior-year period47 85 
% Change from prior-year period— %52 %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration— %60 %
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.
Reported fragrance operating income increased for the three and nine months ended March 31, 2021, primarily reflecting higher results from Tom Ford Beauty and Jo Malone London, combined, of approximately $62 million and $110 million, respectively. In both periods, the increases in operating income from these brands reflected higher net sales and lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online.
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Partially offsetting the increases in operating income for the three and nine months ended March 31, 2021, were increases from Jo Malone London in advertising and promotional activities primarily driven by increased spend for digital advertising and to support new product launches and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.
Also offsetting the increases in fragrance operating income for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic, as well as the unfavorable year-over-year impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $8 million.
Hair Care
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating income (loss)$(17)$(2)$(10)$10 
$ Change from prior-year period(15)(20)
% Change from prior-year period(100+)%(100+)%
Reported hair care operating results decreased for the three and nine months ended March 31, 2021, primarily driven by higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.
Partially offsetting the decrease in operating results for the nine months ended March 31, 2021, were higher results from Aveda driven by the successes of existing product franchises, a new launch and holiday events, as discussed above.
Geographic Regions
The Americas
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating income (loss)$155 $(217)$256 $(571)
$ Change from prior-year period372 827 
% Change from prior-year period100+%100+%
Non-GAAP Financial Measure(1):
% Change in operating income (loss) from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration20 %(39)%
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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Partially offsetting the increases in operating results for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.
Europe, the Middle East & Africa
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating income$361 $202 $1,429 $1,084 
$ Change from prior-year period159 345 
% Change from prior-year period79 %32 %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration97 %35 %
(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.
Reported operating income increased in Europe, the Middle East & Africa for the three and nine months ended March 31, 2021, primarily driven by higher results from our travel retail business and Russia, combined, of approximately $194 million and $458 million, respectively, reflecting the increase in net sales and disciplined expense management.
Partially offsetting the increases in operating income for the three and nine months ended March 31, 2021 is the impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $33 million. Also offsetting the increase in operating results for the nine months ended March 31, 2021 were lower results from most markets across the region, primarily driven by the declines in net sales.
Asia/Pacific
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions)2021202020212020
As Reported:
Operating income$245 $149 $890 $699 
$ Change from prior-year period96 191 
% Change from prior-year period64 %27 %
Reported operating income increased in Asia/Pacific for the three and nine months ended March 31, 2021, primarily reflecting higher results from mainland China. In both periods, the increase in operating income from mainland China was driven by the increase in net sales, partially offset by the increase in advertising and promotional expense, primarily due to investments to support holiday events and campaigns and new product launches and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.
Partially offsetting the increases in operating income for the three and nine months ended March 31, 2021 were lower results from Japan, reflecting the decrease in net sales.

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THE ESTÉE LAUDER COMPANIES INC.

INTEREST AND INVESTMENT INCOME
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)2021202020212020
Interest expense$43 $42 $131 $112 
Interest income and investment income, net$$14 $40 $41 
Interest expense increased for the nine months ended March 31, 2021, primarily due to the issuance of additional long-term debt in November 2019 and April 2020.
Interest income and investment income, net decreased for the three and nine months ended March 31, 2021, reflecting decreases in investment income due to lower interest rates, partially offset by higher equity method investment income from our minority investments.
OTHER INCOME
On December 18, 2019, we acquired the remaining equity interest in Have&Be Co. Ltd. (“Have & Be”), the global skin care company behind Dr. Jart+ and men’s grooming brand Do The Right Thing, for $1,268 million in cash. Based on the final purchase price and working capital adjustments, we estimated a refund receivable of $32 million that was outstanding as of June 30, 2020 and was received in the first quarter of fiscal 2021. We originally acquired a minority interest in Have & Be in December 2015, which included a formula-based call option for the remaining equity interest. The original minority interest was accounted for as an equity method investment, which had a carrying value of $133 million at the acquisition date. The acquisition of the remaining equity interest in Have & Be was considered a step acquisition, whereby we remeasured the previously held equity method investment to its fair value of $682 million, resulting in the recognition of a gain of $549 million. The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated other comprehensive income. The total gain on our previously held equity method investment of $553 million is included in Other income in the accompanying consolidated statements of earnings for the nine months ended March 31, 2020.
The amount paid at closing was funded by cash on hand including the proceeds from the issuance of debt. In anticipation of the closing, we transferred cash to a foreign subsidiary for purposes of making the closing payment. As a result, we recognized a foreign currency gain of $23 million, which is also included in Other income in the accompanying consolidated statements of earnings for the nine months ended March 31, 2020. See Notes to Consolidated Financial Statements, Note 2 – Acquisition of Business for additional information.

PROVISION FOR INCOME TAXES
The provision for income taxes represents U.S. federal, foreign, state and local income taxes. The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the tax impact of share-based compensation, the taxation of foreign income and income tax reserve adjustments, which represent changes in our net liability for unrecognized tax benefits including tax settlements and lapses of the applicable statutes of limitations. Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the tax impact of share-based compensation and the interaction of various global tax strategies. In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of change.

Three Months Ended
March 31
Nine Months Ended
March 31
2021202020212020
Effective rate for income taxes21.0 %105.0 %18.5 %30.0 %
Basis-point change from the prior-year period(8,400)(1,150)


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THE ESTÉE LAUDER COMPANIES INC.
For the three and nine months ended March 31, 2021, the decrease in the effective tax rate was primarily attributable to the impact of nondeductible goodwill charges recognized in the three and nine months ended March 31, 2020 and a lower effective tax rate on our foreign operations. The lower amount of earnings before income taxes for the three and nine months ended March 31, 2020 increased the impact of the nondeductible charges.

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

NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.
Three Months Ended
March 31
Nine Months Ended
March 31
($ in millions, except per share data)2021202020212020
As Reported:
Net earnings (loss) attributable to The Estée Lauder Companies Inc.$456 $(6)$1,852 $1,146 
$ Change from prior-year period462 706 
% Change from prior-year period100+%62 %
Diluted net earnings (loss) per common share$1.24 $(.02)$5.03 $3.12 
% Change from prior-year period100+%61 %
Non-GAAP Financial Measure(1):
% Change in diluted net earnings (loss) per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments, other income and changes in fair value of contingent consideration92 %23 %
(1)See “Reconciliations of Non-GAAP Financial Measures” below for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

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The following tables provide reconciliations between these non-GAAP financial measures and the most directly comparable U.S. GAAP measures.
Three Months Ended
March 31
Variance%
Change
% Change
in Constant
Currency
($ in millions, except per share data)20212020
Net sales, as reported$3,864 $3,345 $519 16 %13 %
Returns associated with restructuring and other activities10 — 10 
Net sales, as adjusted$3,874 $3,345 $529 16 %13 %
Operating income, as reported$616 $109 $507 100+%100+%
Charges associated with restructuring and other activities145 25 120 
Goodwill, other intangible and long-lived asset impairments33 346 (313)
Changes in fair value of contingent consideration— (2)
Operating income, as adjusted$794 $478 $316 66 %64 %
Diluted net earnings (loss) per common share, as reported$1.24 $(.02)$1.26 100+%100+%
Charges associated with restructuring and other activities.31 .05 .26 
Goodwill and other intangible asset impairments.07 .83 (.76)
Changes in fair value of contingent consideration— (.01).01 
Diluted net earnings (loss) per common share, as adjusted$1.62 $0.85 $.77 92 %88 %


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THE ESTÉE LAUDER COMPANIES INC.
($ in millions, except per share data)Nine Months Ended
March 31
Variance% Change
% Change
in 
constant currency
20212020
Net sales, as reported$12,279 $11,864 $415 %%
Returns associated with restructuring and other activities10 — 10 
Net sales, as adjusted$12,289 $11,864 $425 %%
Operating income, as reported$2,384 $1,149 $1,235 100+%100+%
Charges associated with restructuring and other activities191 63 128 
Goodwill, other intangible and long-lived asset impairments114 1,123 (1,009)
Changes in fair value of contingent consideration(2)(9)
Operating income, as adjusted$2,687 $2,326 $361 16 %14 %
Diluted net earnings (loss) per common share, as reported$5.03 $3.12 $1.91 61 %59 %
Charges associated with restructuring and other activities.41 .14 .27 
Goodwill, other intangible and long-lived asset impairments.25 2.62 (2.37)
Other income— (1.23)1.23 
Changes in fair value of contingent consideration(.01)(.02).01 
Diluted net earnings (loss) per common share, as adjusted$5.68 $4.63 $1.05 23 %20 %

As diluted net earnings (loss) per common share, as adjusted, is used as a measure of the Company’s performance, we consider the impact of current and deferred income taxes when calculating the per-share impact of each of the reconciling items.
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The following tables reconcile the change in net sales by product category and geographic region, as reported, to the change in net sales excluding the effects of foreign currency translation:

As ReportedImpact of foreign
currency translation
Variance,
in constant currency
% Change,
as reported
% Change,
in
constant currency
($ in millions)Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
Variance
By Product Category:
Skin Care$2,259 $1,723 $536 $(58)$478 31 %28 %
Makeup1,018 1,146 (128)(24)(152)(11)(13)
Fragrance454 349 105 (10)95 30 27 
Hair Care128 119 (2)
Other15 — 88 88 
3,874 3,345 529 (94)435 16 13 
Returns associated with restructuring and other activities(10)— (10)(1)(11)
Total$3,864 $3,345 $519 $(95)$424 16 %13 %
By Region:
The Americas$916 $892 $24 $10 $34 %%
Europe, the Middle East & Africa1,706 1,525 181 (24)157 12 10 
Asia/Pacific1,252 928 324 (80)244 35 26 
3,874 3,345 529 (94)435 16 13 
Returns associated with restructuring and other activities(10)— (10)(1)(11)
Total$3,864 $3,345 $519 $(95)$424 16 %13 %


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THE ESTÉE LAUDER COMPANIES INC.
As ReportedImpact of foreign currency translationVariance,
in constant currency
%
Change,
as reported
%
Change,
in
constant currency
($ in millions)Nine Months Ended
March 31, 2021
Nine Months Ended
March 31, 2020
Variance
By Product Category:
Skin Care$7,113 $5,770 $1,343 $(139)$1,204 23 %21 %
Makeup3,243 4,249 (1,006)(46)(1,052)(24)(25)
Fragrance1,478 1,392 86 (21)65 
Hair Care418 417 (4)(3)— (1)
Other37 36 (1)— — 
12,289 11,864 425 (211)214 
Returns associated with restructuring and other activities(10)— (10)(1)(11)
Total$12,279 $11,864 $415 $(212)$203 %%
By Region:
The Americas$2,837 $3,278 $(441)$39 $(402)(13)%(12)%
Europe, the Middle East & Africa5,276 5,281 (5)(54)(59)— (1)
Asia/Pacific4,176 3,305 871 (196)675 26 20 
12,289 11,864 425 (211)214 
Returns associated with restructuring and other activities(10)— (10)(1)(11)
Total$12,279 $11,864 $415 $(212)$203 %%

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The following table reconciles the change in operating results by product category and geographic region, as reported, to the change in operating income excluding the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration:
As Reported
($ in millions)Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
VarianceAdd:
Changes in
Goodwill, other intangible and long-lived asset impairments
Add:
Changes in fair value of contingent consideration
Variance, as adjusted% Change, as reported% Change, as adjusted
By Product Category:
Skin Care$804 $418 $386 $(54)$— $332 92 %70 %
Makeup(72)(283)211 (265)— (54)75 (100+)
Fragrance47 — 47 56 — — 
Hair Care(17)(2)(15)(1)— (16)(100+)(100+)
Other(1)(2)— — (2)(100+)(100+)
761 134 627 $(313)$$316 100+%66 %
Charges associated with restructuring and other activities(145)(25)(120)
Total$616 $109 $507 
By Region:
The Americas$155 $(217)$372 $(346)$— $26 100+%20 %
Europe, the Middle East & Africa361 202 159 33 194 79 97 
Asia/Pacific245 149 96 — — 96 64 64 
761 134 627 $(313)$$316 100+%66 %
Charges associated with restructuring and other activities(145)(25)(120)
Total$616 $109 $507 

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As ReportedAdd:
Changes in
Goodwill,
other intangible and long-lived asset impairments
Add:
Changes in fair value of contingent consideration
Variance, as adjusted% Change, as reported% Change, as adjusted
($ in millions)Nine Months Ended
March 31, 2021
Nine Months Ended
March 31, 2020
Variance
By Product Category:
Skin Care$2,453 $1,822 $631 $27 $$661 35 %35 %
Makeup(115)(790)675 (1,042)— (367)85 (100+)
Fragrance248 163 85 96 52 60 
Hair Care(10)10 (20)(1)— (21)(100+)(100+)
Other(1)(8)— — (8)(100+)(100+)
2,575 1,212 1,363 $(1,009)$$361 100+%16 %
Charges associated with restructuring and other activities(191)(63)(128)
Total$2,384 $1,149 $1,235 
By Region:
The Americas$256 $(571)$827 $(1,042)$$(212)100+%(39)%
Europe, the Middle East & Africa1,429 1,084 345 33 382 32 35 
Asia/Pacific890 699 191 — — 191 27 27 
2,575 1,212 1,363 $(1,009)$$361 100+%16 %
Charges associated with restructuring and other activities(191)(63)(128)
Total$2,384 $1,149 $1,235 

FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad. At March 31, 2021, we had cash and cash equivalents of $6,399 million compared with $5,022 million at June 30, 2020. Our cash and cash equivalents are maintained at a number of financial institutions. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure.
Based on past performance and current expectations, we believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support seasonal working capital needs, currently planned business operations, information technology enhancements, capital expenditures, acquisitions, dividends, stock repurchases, restructuring initiatives, commitments and other contractual obligations on both a near-term and long-term basis.
The TCJA resulted in the Transition Tax on unrepatriated earnings of our foreign subsidiaries and changed the tax law in ways that present opportunities to repatriate cash without additional U.S. federal income tax. As a result, we changed our indefinite reinvestment assertion related to certain foreign earnings, and we continue to analyze the indefinite reinvestment assertion on our remaining applicable foreign earnings. The issuance of guidance subsequent to the enactment of the TCJA has enabled us to access a substantial portion of the cash in offshore jurisdictions associated with our permanently reinvested earnings without significant cost. We do not believe that continuing to reinvest our foreign earnings impairs our ability to meet our domestic debt or working capital obligations. If these reinvested earnings were repatriated into the United States as dividends, we would be subject to state income taxes and applicable foreign taxes in certain jurisdictions.
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The effects of inflation have not been significant to our overall operating results in recent years. Generally, we have been able to introduce new products at higher prices, increase prices and implement other operating efficiencies to sufficiently offset cost increases, which have been moderate.
Credit Ratings
Changes in our credit ratings will likely result in changes in our borrowing costs. Our credit ratings also impact the cost of our revolving credit facility. Downgrades in our credit ratings may reduce our ability to issue commercial paper and/or long-term debt and would likely increase the relative costs of borrowing. A credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time by the assigning rating organization, and should be evaluated independently of any other rating. As of April 26, 2021, our long-term debt is rated A+ with a stable outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.

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Debt

At March 31, 2021, our outstanding borrowings were as follows:
($ in millions)Long-term
Debt
Current
Debt
Total Debt
3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (1), (14)
$635 $— $635 
4.15% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (2), (14)
494 — 494 
4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (3), (14)
455 — 455 
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (14)
247 — 247 
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (14)
294 — 294 
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6)
197 — 197 
1.950% Senior Notes, due March 15, 2031 (“2031 Senior Notes”) (7), (14),(15)
592 — 592 
2.600% Senior Notes, due April 15, 2030 (“2030 Senior Notes”) (8), (14)
680 — 680 
2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (9), (14)
641 — 641 
3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (10), (14)
498 — 498 
2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (11), (14)
496 — 496 
2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (12), (14)
256 — 256 
1.70% Senior Notes, due May 10, 2021 (“2021 Senior Notes”) (13), (14), (15)
— 451 451 
Other long-term borrowings— 
Other current borrowings— 20 20 
$5,487 $471 $5,958 
(1)Consists of $650 million principal, unamortized debt discount of $8 million and debt issuance costs of $7 million.
(2)Consists of $500 million principal, unamortized debt discount of $1 million and debt issuance costs of $5 million.
(3)Consists of $450 million principal, net unamortized debt premium of $9 million and debt issuance costs of $4 million.
(4)Consists of $250 million principal, unamortized debt discount of $1 million and debt issuance costs of $2 million.
(5)Consists of $300 million principal, unamortized debt discount of $3 million and debt issuance costs of $3 million.
(6)Consists of $200 million principal, unamortized debt discount of $2 million and debt issuance costs of $1 million.
(7)Consists of $600 million principal, unamortized debt discount of $4 million and debt issuance costs of $4 million.
(8)Consists of $700 million principal, unamortized debt discount of $1 million, debt issuance costs of $4 million and a $15 million adjustment to reflect the fair value of interest rate swaps.
(9)Consists of $650 million principal, unamortized debt discount of $5 million and debt issuance costs of $4 million.
(10)Consists of $500 million principal and debt issuance costs of $2 million.
(11)Consists of $500 million principal, unamortized debt discount of $2 million and debt issuance costs of $2 million.
(12)Consists of $250 million principal and a $6 million adjustment to reflect the fair value of interest rate swaps.
(13)Consists of $450 million principal and a $1 million adjustment to reflect the fair value of interest rate swaps.
(14)The Senior Notes contain certain customary covenants, including limitations on indebtedness secured by liens.
(15)See Note 16 – Subsequent Events for further information relating to the repayment of the $450 million principal amount made and the interest rate swap agreement relating to the 2031 Senior Notes entered into subsequent to March 31, 2021.
In August 2020, we repaid the remaining $750 million borrowed under our $1,500 million revolving credit facility that was outstanding as of June 30, 2020.
Total debt as a percent of total capitalization (excluding noncontrolling interests) was 52% and 61% at March 31, 2021 and June 30, 2020, respectively.

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Cash Flows
Nine Months Ended
March 31
(In millions)20212020
Net cash provided by operating activities$2,777 $1,945 
Net cash used for investing activities$(577)$(1,557)
Net cash provided by (used for) financing activities$(862)$1,525 

The change in net cash flows from operations reflected the improvement in working capital, primarily due to other accrued liabilities, driven by an increase in accrued employee incentive compensation, as previously discussed, and accounts payable, partially offset by the unfavorable change in accounts receivable due to the increase in net sales. The change in net cash flows from operations also reflects higher earnings before taxes, excluding non-cash items.
The change in net cash flows used for investing activities primarily reflected cash paid in fiscal 2020 relating to the second quarter acquisition of Have&Be Co. Ltd., partially offset by the settlement of net investment hedges.
The change in net cash flows from financing activities primarily reflected lower proceeds relating to the issuance of long-term debt (the November 2019 and April 2020 issuances in fiscal 2020, compared to the March 2021 issuance in fiscal 2021), the fiscal 2021 repayment of borrowings under our revolving credit facility, partially offset by lower treasury stock repurchases.
Dividends
For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the nine months ended March 31, 2021, see Notes to Consolidated Financial Statements, Note 13 – Equity.
Pension and Post-retirement Plan Funding
There have been no significant changes to our pension and post-retirement funding as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
Commitments, Contractual Obligations and Contingencies
In February 2021, we agreed to acquire additional shares in DECIEM Beauty Group Inc. (“DECIEM”) that will increase our existing equity interest from approximately 29% to approximately 76%. Upon closing, which is expected to occur in May 2021, we will pay approximately $1,000 million and will also have the right to purchase, and will grant the remaining investors a right to sell to us, the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM. There have been no other significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 10 – Contingencies.
Derivative Financial Instruments and Hedging Activities
For a discussion of our derivative financial instruments and hedging activities, see Notes to Consolidated Financial Statements, Note 6 – Derivative Financial Instruments.
Foreign Exchange Risk Management
For a discussion of foreign exchange risk management, see Notes to Consolidated Financial Statements, Note 6 – Derivative Financial Instruments (Cash Flow Hedges, Net Investment Hedges).
Credit Risk
For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 6 – Derivative Financial Instruments (Credit Risk).

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Market Risk
We address certain financial exposures through a controlled program of market risk management that includes the use of foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates and to mitigate the change in fair value of specific assets and liabilities on the balance sheet. To perform a sensitivity analysis of our foreign currency forward contracts, we assess the change in fair values from the impact of hypothetical changes in foreign currency exchange rates. A hypothetical 10% weakening of the U.S. dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $198 million and $222 million as of March 31, 2021 and June 30, 2020, respectively. This potential change does not consider our underlying foreign currency exposures.
In addition, we enter into interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio, including future debt issuances. Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would increase (decrease) by approximately $(58) million and $9 million as of March 31, 2021 and June 30, 2020, respectively.
Our sensitivity analysis represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results, which may or may not occur. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year. We believe, however, that any such loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the derivative financial instrument was intended.
OFF-BALANCE SHEET ARRANGEMENTS
We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
CRITICAL ACCOUNTING POLICIES
As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These estimates and assumptions can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies relate to goodwill, other intangible assets and long-lived assets, income taxes and business combinations. Since June 30, 2020, there have been no significant changes to the assumptions and estimates related to our critical accounting policies.

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






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CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
We and our representatives from time to time make written or oral forward-looking statements, including in this and other filings with the Securities and Exchange Commission, in our press releases and in our reports to stockholders, which may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like “expect,” “will,” “will likely result,” “would,” “believe,” “estimate,” “planned,” “plans,” “intends,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “projected,” “forecast,” and “forecasted” or similar expressions. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation:
(1)increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses;
(2)our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our business;
(3)consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry, ownership of retailers by our competitors or ownership of competitors by our customers that are retailers and our inability to collect receivables;
(4)destocking and tighter working capital management by retailers;
(5)the success, or changes in timing or scope, of new product launches and the success, or changes in timing or scope, of advertising, sampling and merchandising programs;
(6)shifts in the preferences of consumers as to where and how they shop;
(7)social, political and economic risks to our foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;
(8)changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, our business, including those relating to our products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result;
(9)foreign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell products in the same markets and our operating and manufacturing costs outside of the United States;
(10)changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase our products while traveling, the financial strength of our customers, suppliers or other contract counterparties, our operations, the cost and availability of capital which we may need for new equipment, facilities or acquisitions, the returns that we are able to generate on our pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying our critical accounting estimates;
(11)impacts attributable to the COVID-19 pandemic, including disruptions to our global business;
(12)shipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture our products or at our distribution or inventory centers, including disruptions that may be caused by the implementation of information technology initiatives, or by restructurings;
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(13)real estate rates and availability, which may affect our ability to increase or maintain the number of retail locations at which we sell our products and the costs associated with our other facilities;
(14)changes in product mix to products which are less profitable;
(15)our ability to acquire, develop or implement new information and distribution technologies and initiatives on a timely basis and within our cost estimates and our ability to maintain continuous operations of such systems and the security of data and other information that may be stored in such systems or other systems or media;
(16)our ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom;
(17)consequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation;
(18)the timing and impact of acquisitions, investments and divestitures; and
(19)additional factors as described in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
We assume no responsibility to update forward-looking statements made herein or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is set forth in Item 2 of this Quarterly Report on Form 10-Q under the caption Liquidity and Capital Resources - Market Risk and is incorporated herein by reference.

Item 4. Controls and Procedures.
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures, including impacts of COVID-19, as of March 31, 2021 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.
As part of our review of internal control over financial reporting, we make changes to systems and processes to improve such controls and increase efficiencies, while ensuring that we maintain an effective internal control environment. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the third quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.







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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For a discussion of legal proceedings, see Notes to Consolidated Financial Statements, Note 10 – Contingencies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Share Repurchase Program
We are authorized by the Board of Directors to repurchase shares of our Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. The following table provides information relating to our repurchase of Class A Common Stock during the referenced periods:
Period
Total Number
of Shares
Purchased(1)
Average Price
Paid Per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced
Program
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Program(2)
January 20218,164$239.71 34,741,624
February 2021— 34,741,624
March 2021738,279287.71 737,78334,003,841
746,443287.19 737,783
(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 has authorized the current repurchase program for up to 80.0 million shares. The total amount was last increased by the Board on October 31, 2018. Our repurchase program does not have an expiration date.
In March 2021, we resumed the repurchase of shares of our Class A Common Stock pursuant to our share repurchase program. Subsequent to March 31, 2021 and as of April 26, 2021, we purchased approximately 0.2 million additional shares for $66 million.
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Item 6. Exhibits.
Exhibit
Number
Description
4.1
4.2
10.1
10.2
31.1
31.2
32.1
32.2
101.1
The following materials from The Estée Lauder Companies Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings (Loss), (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements
104The cover page from The Estée Lauder Companies Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 is formatted in iXBRL
* Incorporated herein by reference.
†  Exhibit is a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE ESTÉE LAUDER COMPANIES INC.
By:/s/TRACEY T. TRAVIS
Date: May 3, 2021Tracey T. Travis
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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